Tuesday, May 26, 2015

Schwartz Financial Weekly Commentary 5/25/15


 
 

The Markets

 

You could have set the events of last week to music.

 

Should they stay or should they go?

Last week, the Bank of England (BOE), Britain’s central bank, inadvertently sent a memo describing how staffers should handle press inquiries about its confidential research into the possibility of a British exit (Brexit) from the European Union, to the media. Oops.

 

The possibility of a Brexit is top-of-mind after the re-election of British Prime Minister David Cameron who promised voters a referendum on the issue by the end of 2017. Reuters reported, “Many British business leaders are worried about the possibility of losing access to their main export markets and there are also concerns about the impact on Britain's financial services industry.”

 

There is no job too immense when you’ve got confidence.

Just before the long holiday weekend, while confirming the Federal Reserve still expects to begin raising its benchmark interest rate during 2015, Chairwoman Janet Yellen’s comments took a philosophical turn:

 

“Of course, the outlook for the economy, as always, is highly uncertain. I am describing the outlook that I see as most likely, but based on many years of making economic projections, I can assure you that any specific projection I write down will turn out to be wrong, perhaps markedly so. For many reasons, output and job growth over the next few years could prove to be stronger, and inflation higher, than I expect; correspondingly, employment could grow more slowly, and inflation could remain undesirably low.”

 

Money, it’s a gas.

When oil prices fell, many people assumed consumers would spend the windfall. For the most part, they didn’t. Barron’s reported earnings for several retailers were lower than expected last week.

 

All in all, it wasn’t a very exciting week for U.S. stock markets.

 


Data as of 5/22/15
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
0.2%
3.3%
12.3%
17.3%
14.6%
5.9%
Dow Jones Global ex-U.S.
-0.7
8.6
0.4
10.1
6.7
3.9
10-year Treasury Note (Yield Only)
2.2
NA
2.6
1.8
3.2
4.1
Gold (per ounce)
-1.3
0.4
-7.3
-8.7
0.3
11.2
Bloomberg Commodity Index
-2.7
-1.8
-24.4
-8.7
-3.8
-3.6
DJ Equity All REIT Total Return Index
-1.2
-0.6
12.5
12.9
15.1
7.9

S&P 500, Dow Jones Global ex-US, 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.

 

changing wages. The federal minimum wage remains at $7.25. However, last week, the Los Angeles city council voted to raise the city’s minimum wage from $9 to $15 an hour. The increase will be implemented gradually between 2015 and 2020. It is hoped higher wages for minimum wage workers will help address cost-of-living issues that affect LA’s poorer residents, according to The Economist.

 

Did the minimum wage really need to increase by two-thirds? According to the Massachusetts Institute of Technology (MIT) Living Wage Calculator, an individual living in the Los Angeles-Long Beach-Santa Ana area, who was the sole provider for his or her family (1 adult, 2 children) and worked 2,080 hours a year, would need to earn about $29.84 an hour to earn a living wage and $9.00 an hour to live at poverty level. The living wage is different in various parts of the country. For example, the living wage for the same family if they lived in:

 

·         New York-Northern New Jersey-Long Island area     $35.84

·         Milwaukee-Waukesha-West Allis, WI       $29.39

·         Portland-Vancouver-Hillsboro, OR           $27.86

·         Dallas-Fort Worth-Arlington, TX              $25.02

·         Little Rock-North Little Rock-Conway, AR $25.58

·         St. Louis, MO                                      $24.50

·         Fargo, ND                                          $24.33

·         Charleston-North Charleston-Summerville, NC  $24.28

 

Is a higher minimum wage good for business? It depends on the business model employed. One Harvard Business Review blogger opined:

 

“The smart way to deal with an increase in the minimum wage is to design work in a way that improves employees’ productivity and increases their contribution to profits. All this is possible even in low-wage settings. In fact, some companies are already doing it… When I examined these companies, I saw that they made four choices in how they designed their work. They: (1) offer less, (2) combine standardization with empowerment, (3) cross-train, and (4) operate with slack. These choices transform their heavy investment in employees into great performance by reducing costs, improving employee productivity, and leveraging a fully capable and committed workforce.”

 

There is some food for thought.

 

Weekly Focus – Think About It

 

“Everyone thinks of changing the world, but no one thinks of changing himself.

--Leo Tolstoy, Russian novelist

 

Value vs. Growth Investing (5/22/15)

0.27
4.57
0.88
1.35
14.74
20.02
17.00
0.15
4.07
1.02
1.24
14.50
19.49
16.70
-0.31
1.71
1.10
0.77
14.78
21.17
17.33
0.61
7.94
0.65
1.48
20.31
20.46
18.60
0.11
2.41
1.36
1.48
8.34
16.89
14.21
0.62
6.36
0.76
1.73
16.05
21.89
18.12
0.71
6.43
1.58
1.72
17.84
22.11
19.53
0.42
8.70
-0.28
2.36
19.20
20.22
17.76
0.75
3.91
0.98
1.09
11.00
23.39
17.01
0.59
4.63
-0.25
1.47
13.30
20.03
16.52
0.65
5.38
1.10
2.52
13.54
20.31
15.90
0.82
7.24
-0.82
1.83
16.44
19.73
17.76
0.30
1.43
-1.06
0.08
10.11
20.02
15.91
-0.03
2.91
1.20
1.09
15.33
21.30
17.71
0.59
8.05
0.38
1.67
19.83
20.36
18.43
0.26
2.65
1.10
1.29
9.01
18.42
14.90

 

 ©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.

 

Office Happenings

 

A Quirk In The Social Security Rules

 

Q: A short time ago I taught Social Security for women event. One of the women in the class gave me the following scenario: She is 64. Her ex-husband is 66. Both plan to take the spousal benefit off the other, and then their own at age 70. Her financial advisor said it was okay. So a little over a year ago, her ex-husband began taking his spousal benefit (without her filing). Her plan is to take her spousal benefit when she turns 66. In doing so, they both will be taking Spousal Benefits at the same time, until her ex-husband turns 70. Then he will take his own benefit. When she turns 70, she plans to take her own benefit. As I mentioned, they began this strategy, based upon her advisor’s advice. However the slides state in the presentation state both spouses can’t receive spousal benefits on each other’s record at the same time.’ Can she wait until she’s 68, and he’s 70, and then begin taking a spousal benefit for 2 years? I was under the impression that only one spouse can take the spousal benefit. Where does this leave her? Is she stuck with taking her own benefit at 66? Or getting nothing until she turns 70? She’s now worried that maybe they received some bad advice.

 

A:  It turns out they got good advice. The difference is that they are divorced. Two divorced spouses can each take spousal benefits off the other’s record at the same time. Just a quirk in the rules, understanding that two divorced spouses don’t combine finances or have control over each other’s actions.

 

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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