Schwartz Financial Weekly Commentary
September 22, 2014
The
Markets
About 25 years
ago, Peter Jennings interrupted General Hospital to tell the nation Coca-Cola
had decided to bring back its original recipe. The nation was thrilled and
sales soared.
The Federal
Reserve’s impending rate hike is about as popular as the New Coke; however, no soap
operas were interrupted last week when the Open Market Committee statement indicated
rates would remain in “the current target range” for a “considerable” period of
time after quantitative easing ends.
Investors embraced the news
pushing both the Dow Jones Industrial Average and the Standard & Poor’s 500
Index up more than 1 percent for the week.
On the surface, it appears everything
is in perfect order. However, experts cited by Barron’s warned investors to pay attention to the subtleties of the
Fed’s statement which seems to indicate monetary policy may be tightened faster
than markets expect:
“Investors
should keep an eye on the nuances of the Fed statement... The Fed's estimates
for the funds rate moved up again to a median of 1.38 percent, instead of 1.13
percent at year-end 2015, and rose also for 2016 and 2017. Such rises suggest
that Fed Chair Janet Yellen might face increasing dissent from both rate hawks
and centrists on the Fed's Open Market Committee.”
Also of note last week, the
Organization for Economic Cooperation and Development (OECD) reduced its
economic growth forecasts for the United States and other advanced economies
and recommended various economic policy changes suited to the needs of each country.
Reuters
reported the organization has also recommended the implementation of measures designed
to prevent multinational firms from shifting profits to low-cost tax countries.
The topic was a point of discussion at the G20 summit last weekend. The
measures could help countries recoup billions of tax dollars and potentially
affect the balance sheets of companies targeted.
Data as of 9/19/14
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's
500 (Domestic Stocks)
|
1.3%
|
8.8%
|
16.7%
|
18.6%
|
13.6%
|
6.0%
|
10-year Treasury
Note (Yield Only)
|
2.6
|
NA
|
2.8
|
1.9
|
3.5
|
4.1
|
Gold (per ounce)
|
-1.0
|
1.5
|
-10.7
|
-12.1
|
4.1
|
11.7
|
Bloomberg Commodity Index
|
-1.5
|
-5.0
|
-8.1
|
-8.3
|
-0.9
|
-2.0
|
DJ Equity All REIT Total Return Index
|
-0.2
|
15.1
|
11.0
|
14.3
|
15.7
|
8.8
|
S&P 500, Gold, Bloomberg Commodity Index returns
exclude reinvested dividends (gold does not pay a dividend) and the three-,
five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return
Index does include reinvested dividends and the three-, five-, and 10-year
returns are annualized; and the 10-year Treasury Note is simply the yield at
the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
A Pharmacist has a headache. Does she choose the name brand aspirin or the store brand? That’s
the subject of a working paper (Do
Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium, August 2014) written by a pair of
economics professors at the University of Chicago Booth School of Business and their
co-authors. The team found:(Page 24)
“More
informed shoppers buy more store brands and fewer national brands. Consumer
information plays a quantitative role in health categories where our estimates
imply that expenditures and market shares would change significantly if all
households behaved like expert shoppers. By contrast, the role of consumer
information is smaller in food and drink categories where our estimates suggest
much smaller gaps between expert and non-expert shopping behavior.”
How much less would Americans
spend if everyone were an expert shopper? Currently, we pay about $196 billion for
packaged consumer goods (medications, juice, frozen foods, etc.) each year. If we
bought store brands rather than name brands, we’d save about $44 billion
dollars annually.(Page 2) That’s quite a chunk of change.
So, why do we buy premium
brands? It may be because we believe they’re better. Freakonomics Radio recently held a peanut butter and jelly (PB&J)
sandwich taste test. Tasters were told one sandwich was made with premium
brands of PB&J and the other with store brands. The tasters universally preferred
the premium-brand sandwich. As it turns out, both sandwiches were made with
identical store-brand ingredients.
Consumers’ inclination toward
national brands may reflect advertising-induced misinformation, according to some
economists; other economists suggest premium products may
indeed offer greater value to consumers. The working paper concluded, “…A more
informed population of consumers might change whether and how much firms choose
to advertise their products as well as which products are introduced to the
market.”(Pages 2 and 24)
Now, getting back to the
original question, it turns out 92 percent of pharmacists buy store- brand
headache remedies. Just 74 percent of the rest of us do (although that
statistic is somewhat skewed since doctors, nurses, and other healthcare
professionals tend to buy store brands more often than other people). Either way,
it’s a big difference.
Weekly Focus –
Think About It
“Oh yeah, I’ll always buy the most expensive golf
ball, because if there’s even the tiniest chance that there’s a little magic in
there, then I want that magic.”
--Steve Levitt, Co-author of
“Freakonomics”
Value
vs. Growth Investing (9/19/14)
0.96
|
9.65
|
1.31
|
2.56
|
18.26
|
21.16
|
16.13
|
|
1.35
|
10.41
|
1.70
|
3.28
|
19.24
|
21.11
|
15.61
|
|
1.47
|
10.73
|
2.56
|
3.16
|
17.39
|
23.19
|
16.40
|
|
0.82
|
11.08
|
0.55
|
4.53
|
22.82
|
20.53
|
16.89
|
|
1.79
|
9.46
|
2.07
|
2.15
|
17.48
|
19.86
|
13.68
|
|
0.11
|
9.24
|
0.56
|
1.52
|
17.08
|
21.54
|
17.77
|
|
0.08
|
11.18
|
0.53
|
2.20
|
19.42
|
22.67
|
18.70
|
|
0.04
|
7.18
|
0.65
|
2.02
|
13.06
|
17.70
|
17.21
|
|
0.21
|
9.66
|
0.49
|
0.34
|
19.18
|
24.41
|
17.40
|
|
-0.85
|
2.69
|
-0.72
|
-2.06
|
11.33
|
20.31
|
16.23
|
|
-0.78
|
4.57
|
-0.53
|
-1.87
|
13.64
|
20.10
|
15.81
|
|
-1.09
|
-1.54
|
-0.74
|
-2.47
|
4.95
|
18.37
|
16.17
|
|
-0.68
|
5.01
|
-0.89
|
-1.85
|
15.67
|
22.49
|
16.64
|
|
1.03
|
10.37
|
1.93
|
2.61
|
17.53
|
22.87
|
16.88
|
|
0.54
|
9.45
|
0.49
|
3.57
|
19.53
|
19.81
|
16.95
|
|
1.31
|
9.20
|
1.56
|
1.52
|
17.73
|
20.98
|
14.65
|
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Regards,
,
Michael L. Schwartz, RFC®, CWS®, CFS
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An Index is a composite of securities that provides a performance
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any specific investment. Indexes are
unmanaged, do not incur management fees, costs and expenses and cannot be
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Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* The DJ Global ex US
is an unmanaged group of non-U.S. securities designed to reflect the
performance of the global equity securities that have readily available prices.
* The 10-year Treasury
Note represents debt owed by the United States Treasury to the public. Since
the U.S. Government is seen as a risk-free borrower, investors use the 10-year
Treasury Note as a benchmark for the long-term bond market.
* Gold represents the
London afternoon gold price fix as reported by the London Bullion Market
Association.
* The DJ Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
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REIT TR Index measures the total return performance of the equity subcategory
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source for any reference to the performance of an index between two specific
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* Opinions expressed
are subject to change without notice and are not intended as investment advice
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