Schwartz Financial Weekly Commentary 11/24/14

Schwartz Financial Weekly Commentary

November 24, 2014

The Markets

Pioneer. Trendsetter. Trailblazer. Whatever term you decide to use, there’s no debate about the fact central banks around the world are taking a page or two from the U.S. Federal Reserve’s playbook. The Fed may have ended quantitative easing (QE) – its program of buying government bonds to keep interest rates low and increase money supply – in October, but that doesn’t mean QE hasn’t become popular elsewhere. Barron’s reported:

“…virtually every other major central bank is maintaining or stepping up its pace of money printing – even where the success in spurring growth is questionable. On October 31, Japanese authorities doubled down on asset purchases by the Bank of Japan, and the nation’s pension fund, to spur flagging growth… In a surprise move on Friday, China cut interest rates for the first time in two years in an effort to spur slowing growth… That was followed by European Central Bank President Mario Draghi’s signal the ECB would expand its stimulus plan, leading observers to expect large-scale, Fed-style purchases of government debt.”

Although some Americans remain skeptical about the health of the U.S. economy, growth in the United States stands in sharp contrast to growth elsewhere. The U.S. Department of Commerce reported real gross domestic product (GDP) – the value of goods and services produced in the United States – increased by 3.5 percent during the third quarter of 2014 after growing by 4.6 percent in the second quarter. For the same period, the Eurozone’s GDP grew by 0.6 percent, which is well below its 2 percent pre-crisis growth rate, and Japan’s GDP declined by 1.6 percent during the third quarter after a 7.3 percent drop in the second quarter.

While Japan has been mired in economic stagnation for some time, it’s a relatively new experience for the Eurozone where unemployment hovers around 11.3 percent – a record high. Aggression in Ukraine is complicating matters in Europe. An expert cited by The New York Times explained, “We are at most one or two rounds of sanctions and countersanctions away from pushing Russia into a deep recession, and Europe into a recession.”

While concerns remain about the health of the global economy, markets generally were pleased about central banks’ easy money policies and most global stock markets finished the week higher.

Data as of 11/21/14	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	1.2%	11.6%	14.9%	20.0%	13.3%	5.8%
10-year Treasury Note (Yield Only)	2.3	NA	2.8	2.0	3.4	4.2
Gold (per ounce)	3.0	0.2	-2.9	-10.9	0.6	10.4
Bloomberg Commodity Index	1.1	-6.1	-4.2	-6.2	-2.7	-2.5
DJ Equity All REIT Total Return Index	1.1	24.2	23.5	18.3	17.5	8.7

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.

looking for some money for college? Then you may want to stop limiting the time your children spend playing video games, or you may want to focus their efforts. Robert Morris University (RMU) in Chicago, Illinois, has a new scholarship program – $500,000 for 30 scholarships that will go to League of Legends (LOL) players. The chosen few receive up to 50 percent of tuition and 50 percent of room and board.

Where do the Robert Morris Eagles find candidates? As it turns out, more than 750 schools in the United States and Canada participate in the League of Legends High School Starleague. At the collegiate level, the LOL league boasts more than 100 colleges and universities, including Carleton, Texas A&M, George Washington, University of Minnesota, Northwestern, University of Michigan, and Harvard. E-athletes participating in the college Starleague vie for $100,000 in scholarship money offered by the company that publishes League of Legends.

According to WNYC’s New Tech City, LOL is a complex and difficult-to-master game. Players choose one of more than 120 characters, each with various magical powers that must be memorized. “Teams of five take on other teams of five and basically try to destroy each other. It’s called a ‘multiplayer online battle arena game’ or MOBA for short.”

So, what’s in it for the school? E-sports are not covered by the NCAA, “so the school's team can compete for cash prizes and, if it wins, the school keeps the take.” You may recall, from a late-July commentary, the League of Legends (LOL) championship is an international video game competition with $1 million in prize money.

If you’re amazed there are scholarships for video game play, you’re not alone. One of the Robert Morris Eagles’ players told NPR, “I told my mom about [the RMU scholarship]. She didn't believe me. She's like, you're crazy and there's no way… She thought I was like, making it up 'cause she personally doesn't even like me playing the game, but when she realized I was going to get a scholarship for it, she accepted it, you know? She tells all of her friends.”

Parental support is probably pretty important. E-athletes at RMU practice five hours a day in their ‘arena,’ which is a room decked out with sponsored gear. They play tournaments on weekends. Critics worry that encouraging intensive play is a poor idea when countries, like Korea (where the game is exceptionally popular), have begun screening children for gaming and Internet addiction.

In mid-November, the RMU Eagles were undefeated in LOL collegiate play.

Weekly Focus – Think About It

“Empathy is really the opposite of spiritual meanness. It's the capacity to understand that every war is both won and lost. And that someone else's pain is as meaningful as your own.”

--Barbara Kingsolver, American novelist

Value vs. Growth Investing (11/21/14)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	1.15	12.73	6.35	3.64	16.47	22.56	16.36
Large Cap	1.13	13.62	6.47	4.08	17.23	22.50	15.54
Large Core	1.27	16.14	7.65	6.94	18.34	24.91	16.91
Large Growth	0.90	14.85	5.92	3.65	20.58	22.95	16.43
Large Value	1.24	9.89	5.82	1.68	12.71	19.93	13.35
Mid Cap	1.48	12.11	6.19	2.71	16.28	23.14	18.65
Mid Core	1.54	14.90	6.48	3.38	18.98	23.88	19.84
Mid Growth	1.20	10.80	6.67	3.70	15.61	20.38	18.04
Mid Value	1.71	10.85	5.38	1.00	14.43	25.25	18.04
Small Cap	0.40	5.16	5.58	1.60	8.93	21.28	17.70
Small Core	0.50	6.82	5.64	1.15	10.63	21.59	17.10
Small Growth	0.08	0.67	5.14	2.09	3.73	19.56	17.89
Small Value	0.60	7.94	5.95	1.59	12.47	22.62	18.05
US Core	1.27	15.22	7.28	5.81	17.92	24.47	17.57
US Growth	0.91	13.08	6.02	3.56	18.41	22.20	16.93
US Value	1.28	9.95	5.75	1.54	13.06	21.20	14.63

 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Every year, I attend a number of continuing education classes and subscribe to a variety of tax-related publications to gather information to enrich my clients.  In the fall, I pour through these resources and combine them with my best tax strategies to prepare my “Year-End Tax Moves Report”.  I have now published this report and am happy to make it available to those who would find it useful.  Please contact my office either by phone or email and we would be happy to forward a copy.  I hope you find it valuable and informative!

Office Happenings

Keep Your Fork . . .

There was a woman who had been diagnosed with a terminal illness and had been given three months to live.  So as she was getting her things “in order,” she contacted her pastor and had him come to her house to discuss certain aspects of her final wishes.

She told him which songs she wanted sung at the service, what scriptures she would like read, and what outfit she wanted to be buried in.  The woman also requested to be buried with her favorite Bible.  Everything was in order and the pastor was preparing to leave when the woman suddenly remembered something very important to her. 

“There’s one more thing,” she said excitedly.

“What’s that?” came the pastor’s reply.

“This is very important,” the woman continued, “I want to be buried with a fork in my right hand.”

The pastor stood looking at the woman, not knowing quite what to say.

“That surprises you, doesn’t it?” the woman asked.

“Well to be honest, I’m puzzled by the request,” said the pastor.

The woman explained.  “In all my years of attending church socials and potluck dinners, I always remember that when the dishes of the main course were being cleared, someone would inevitably lean over and say, “Keep your fork.”  It was my favorite part because I knew that something better was coming . . .like velvety chocolate cake or deep-dish apple pie.  Something wonderful, and with substance!  So, I just want people to see me there in that casket with a fork in my hand and I want them to wonder, ‘What’s with the fork?’  Then I want you to tell them:  ‘Keep your fork.  The best is yet to come.’”

The pastor’s eyes welled up with tears of joy as he hugged the woman good-bye.  He knew this would be one of the last times he would see her before her death.  But he also knew that the woman had a better grasp of heaven than he did.  She knew that something better was coming.

At the funeral, people were walking by the woman’s casket and they saw the pretty dress she was wearing and her favorite Bible and the fork placed in her right hand.  Over and over the pastor heard the question:  “What’s with the fork?”  and over and over he smiled.

During his message, the pastor told the people of the conversation he had with the woman shortly before she died.  He also told them about the fork and about what it symbolized to her.  The pastor told the people how he could not stop thinking about the fork and told them that they probably would not be able to stop thinking about it either.  He was right.

So the next time you reach down for your fork, let it remind you, oh so gently, that the best is yet to come.

FOR ALL THOSE THAT HAVE ALLOWED MY OFFICE TO TAKE TIME ON THEIR MONDAY’S WITH MY WEEKLY COMMENTARY, HAVE A VERY HAPPY THANKSGIVING!

 

  

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & 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.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

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