Schwartz Financial Weekly Commentary 1/20/15

 

Schwartz Financial Weekly Commentary

January 19, 2015

 

The Markets

Central banks have been full of surprises lately, but not too many people saw this one coming. For aficionados of the board game Clue, here’s the gist of it: Thomas Jordan did it in Switzerland with monetary policy.

 

Last week, Swiss National Bank (SNB) Chairman Thomas Jordan told the world the SNB would no longer cap the value of the Swiss franc at 1.2 per euro because the policy was no longer needed. The decision triggered an exceptional response. The Economist reported:

 

“Currencies don't normally move that far on a daily basis – 2-3 percent is a big shift. The exception is when a country on a fixed exchange rate suffers devaluation; then a 20-30 percent fall is a possibility. But a 20-30 percent plus upward move is almost unprecedented. That, however, is what happened to the Swiss franc on January 15^th…”

 

The SNB’s decision roiled global financial markets. The Swiss market lost about 10 percent of its value on the news and U.S. markets slumped, too. Anxiety was particularly acute in central Europe where many people hold loans and mortgages denominated in Swiss francs.

 

The SNB currency peg was introduced just three years ago, when things were grim in the euro region, and money was pouring into safe-haven Switzerland. The value of the Swiss franc increased significantly, making Swiss exporters – watchmakers, chocolatiers, luxury goods manufacturers – far less competitive. The SNB’s solution was a currency peg.

 

So, how does a central bank maintain the value of its currency? Well, among other things, it prints money (in this case, Swiss francs) to buy more of the peg currency (euros). Today, with the European Central Bank expected to begin a round of quantitative easing that may reduce the value of the euro, the BBC speculated the Swiss could no longer afford to maintain the peg.

 

Motives aside, the move may have produced results the SNB didn’t anticipate. An expert cited by the International Business Times said, “The Swiss bank thought that by removing the cap and activating a negative interest rate, the currency would weaken. In this case, the surprise is going to bite them back.” Did it ever.

 

Data as of 1/16/15	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.2%	-1.9%	9.4%	16.0%	11.9%	5.4%
10-year Treasury Note (Yield Only)	1.8	NA	2.8	1.9	3.7	4.2
Gold (per ounce)	4.9	6.5	2.9	-8.0	2.4	11.7
Bloomberg Commodity Index	-0.3	-1.0	-17.5	-10.0	-5.7	-3.4
DJ Equity All REIT Total Return Index	2.3	7.0	33.1	18.2	17.7	9.6

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.

 

good news for anyone in retirement or retiring soon: The amount of savings needed to cover health insurance premiums and out-of-pocket care expenses fell for a second straight year, according to the Employee Benefits Research Institute (EBRI).

 

Okay, get ready for the governmental alphabet soup! The savings needed to pay Medigap premiums, Medicare Part B premiums, Medicare Part D premiums, and out-of-pocket drug expenses (if you retired at age 65 in 2014) was estimated to be:

 

For men:

·         $64,000 (50% chance of savings covering all expenses)

·         $93,000 (75% chance of savings covering all expenses)

·         $116,000 (90% chance of savings covering all expenses)

For women:

·         $83,000 (50% chance of savings covering all expenses)

·         $106,000 (75% chance of savings covering all expenses)

·         $131,000 (90% chance of savings covering all expenses)

For married couples:

·         $147,000 (50% chance of savings covering all expenses)

·         $199,000 (75% chance of savings covering all expenses)

·         $241,000 (90% chance of savings covering all expenses)

 

That’s 2-10 percent less than the savings needed in 2013. How is it possible these estimates are moving lower? Retiree spending on healthcare has dropped, according to U.S. News & World Report:

 

“A flood of 77 million people from the baby boomer generation have been turning 65, the age of Medicare eligibility, since 2011. These younger enrollees have been a leading factor driving down the rate at which health care spending is increasing, because the younger boomers tend to be healthier than older enrollees and therefore use fewer medical services… Also contributing to the slowdown are changes in the way medicine is being practiced, the lingering effects of the Great Recession, and the shift in usage from high-priced prescription drugs to less costly generic alternatives.”

 

EBRI’s estimates use Congressional Budget Office and Centers for Medicare & Medicaid Services projections regarding future premium and health care cost increases. These projections for spending growth have slowed in recent years.

 

Weekly Focus – Think About It

 

“As a player, it says everything about you if you made the Hall of Fame. But, then again, boy... there's something about winning a Super Bowl.”

--Terry Bradshaw, American football player and NFL analyst

 

Value vs. Growth Investing (1/9/15)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-1.16	-1.81	2.68	8.94	10.69	18.64	14.81
Large Cap	-1.25	-1.78	2.57	8.91	11.57	18.49	14.26
Large Core	-1.10	-1.34	2.29	11.37	15.69	21.17	16.00
Large Growth	-1.23	-1.67	2.74	9.03	12.38	19.66	14.83
Large Value	-1.43	-2.41	2.66	6.23	6.69	14.90	11.98
Mid Cap	-0.95	-1.72	3.04	9.31	9.74	19.46	16.41
Mid Core	-0.92	-1.77	2.68	10.59	12.76	19.99	17.63
Mid Growth	-1.07	-1.46	3.18	9.10	7.05	17.55	15.66
Mid Value	-0.87	-1.93	3.27	8.16	9.69	20.96	15.92
Small Cap	-0.78	-2.35	2.83	8.19	4.03	17.65	15.46
Small Core	-0.98	-2.24	2.61	8.05	6.10	17.76	14.81
Small Growth	-0.68	-1.62	4.00	8.69	-0.27	16.75	16.08
Small Value	-0.69	-3.17	1.92	7.84	6.22	18.39	15.46
US Core	-1.06	-1.48	2.39	10.99	14.41	20.69	16.30
US Growth	-1.17	-1.62	2.91	9.02	10.45	19.02	15.15
US Value	-1.26	-2.37	2.74	6.73	7.26	16.37	13.02

 

 ©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.

 

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Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

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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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