Commentary – 8/7/17

The Markets

Who’s been buying shares of company stock?

Since the start of the bull market in 2009, U.S. companies have been buying their own stock. Stock buybacks peaked during the first three quarters of 2016 and have dropped off sharply since then, reports Financial Times citing a report from Goldman Sachs.

Companies participate in stock buyback (a.k.a. share repurchase) programs to improve shareholder value. For example, if company management believes a company’s shares are undervalued, it can buy shares on the stock market or offer shareholders a fixed price to purchase their shares. This reduces the number of shares in the marketplace and increases earnings per share, which has the potential to boost the company’s stock price.

The slowdown in stock buybacks hasn’t hurt stock markets. Financial Times reported:

“The slowing pace of companies buying back their own shares has certainly not halted Wall Street’s stellar run so far this year. While there is a reduced tail wind of buybacks helping boost earnings per share via a lower share count, U.S. companies have reported robust year-on-year sales and earnings growth for the recent quarter. That has helped offset the decline in buyback activity, but some warn that the clock is ticking for Wall Street bulls.”

There was no sign of a slowdown in the bull market last week, though. The Department of Labor reported the United States added more new jobs than anyone had expected during July, and the unemployment rate fell to 4.3 percent – the same level as May 2017, which was the lowest in 16 years, according to Barron’s.

Jobs growth was music to many investors’ ears.

Financial Times reported, “U.S. equity indices hovered near record highs – with the Dow Jones Industrial Average touching an all-time peak of 22,089.05 in early trade – with financials bolstered by the rise in yields. European [markets] ended the week on a strong note, helped by a sharp retreat for the euro against the dollar.”

SAVING IS AS EASY AS RIDING A BIKE! If you would like to save more money – for retirement, college tuition, healthcare costs, or some other financial priority – hop on your bike and ride.

As it turns out, riding your bike may help boost your savings. Whether you commute to work on two wheels or cycle around town doing errands, opting for manpower instead of horsepower can help generate some additional savings, according to a source cited by Bankrate.com:

“The average American household spends over $9,000 a year on transportation, making it the second-largest expense after housing…Many families simply take for granted the two-car, driving-to-work arrangement that’s the norm for American households and often don’t consider alternatives like public transportation, carpooling, or biking…That’s a shame, because its status as a major household cost means cutting transportation can radically cut your overall costs and, potentially, increase your ability to save…”

If you are serious about saving, imagine what your finances would look like if you:

Drove less. AAA reported owning a small car costs about $6,600 a year, while rumbling around in an SUV costs more than $10,000 annually. (The estimate includes fuel, insurance, depreciation, maintenance, fees and licensing, finance charges, and tires.) Eliminating a car could significantly improve your ability to save.
• Cycled more. Not everyone can get by without a car; however, if you bike shorter distances or when the weather is good, then you could qualify for a low mileage discount on your auto insurance.
• Didn’t go to the gym. If you’re riding a bike to work or to run errands, then you probably don’t need spin class. The average gym membership runs $54 a month or almost $650 a year.
• Bought less stuff. Impulse purchases are less tempting when you’re cycling because bike baskets and saddlebags have limited storage space. Who knows how much that could help you save?

In addition to saving money, two-wheeled travel options are likely to improve your fitness and reduce the stress of rush hour driving. Cycling may even eliminate the need for dieting and some medications. Here’s an added bonus: If biking improves your longevity, you may have more time to spend the money you save!

Weekly Focus – Think About It

“Life is like a 10-speed bicycle. Most of us have gears we never use.”
                                                                                  –Charles M. Schultz, Cartoonist

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Commentary – 7/31/17

The Markets

There was some good news and some bad news last week.

First, the good news: Thanks to consumer spending and an upturn in federal government spending, the U.S. economy grew faster from April through June this year. Gross domestic product (GDP) grew by 2.6 percent during the period, according to the advance estimate for economic growth. This was an improvement over growth from January through March, when GDP increased by 1.2 percent.

Now, the bad news: Personal income did not grow as fast from April through June as it did from January through March. Wages and salaries grew at a slower pace, as did government social benefits and other sources of income. The New York Times wrote:

“Wage growth, however, decelerated despite an unemployment rate that averaged 4.4 percent in the second quarter. Inflation also retreated, appearing to weaken the case for the Federal Reserve to raise interest rates again this year.

‘Although growth is solid, the lack of wage pressure buys the Fed plenty of time, and works with a very ‘gradual’ tightening cycle,’ said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York. ‘There is more here for the Fed doves than the hawks.’”

The Federal Reserve Open Market Committee left rates unchanged at its meeting last week, commenting, “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.”

The Standard & Poor’s 500 Index finished the week flat. Yields on 10-year Treasury bonds moved slightly higher.

COOKING ILLITERACY COULD IMPROVE HAPPINESS…What does heavy cream become when you whip it? If you answered ‘whipped cream,’ try this one: What does whipped cream become when you whip it a little longer? If you said, ‘butter,’ congratulations! You may possess above average knowledge of cooking.

You may have heard about the death of the culinary arts. According to various surveys and news reports, few people today possess the skills required to boil an egg. In 2014, The Seattle Times reported:

“As cooking has been rendered optional – the victim of rising restaurant culture, myriad takeout options, and supermarket sections packed with pre-cut vegetables, shredded cheese, and prepared foods – [cooking instructors] say cooks are increasingly losing touch with skills considered basic, or even essential, just a generation or two ago. And that is changing the way…recipes are developed and written.”

It’s also changing the restaurant industry. An April 2017 survey from Morgan Stanley found demand for online order and delivery from restaurants is growing rapidly. By 2020, digital food delivery may comprise “…40 percent of total restaurant sales – or $220 billion…compared with current sales of around $30 billion.”

Before you lament the ignorance of today’s youth, consider the results of seven surveys, completed by Harvard University and the University of British Columbia, encompassing more than 6,000 respondents in four countries. The Washington Post reported:

“Across all surveys, life satisfaction was typically higher for people who regularly spend money to save time. This was true regardless of household income, hours worked per week, marital status, and number of children living at home…working adults in the United States reported higher life satisfaction if they regularly paid to outsource household tasks such as cooking, shopping, and general maintenance.”

This may be the new math. Spending money to increase ‘free’ time equals improved happiness.

Weekly Focus – Think About It

“Cooking with kids is not just about ingredients, recipes, and cooking…it’s about harnessing imagination, empowerment, and creativity.”
                                                 –Guy Fieri, Founder of Cooking with Kids Foundation

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Commentary – 7/24/17

The Markets

Do we have central banks to thank?

Low interest rates, accommodative monetary policy, and improving economic growth have helped stock markets around the world reach record highs, reports Barron’s:

“…a look around the globe shows the surge of the U.S. market to new peaks to be anything but unique. Major [markets] in Europe and Asia also have been setting records. Even in South Korea, the Kospi closed at a new peak and is up 25 percent from its 52-week low last year, as the global technology rally has proved to be more powerful than the threat of a nuclear-missile launch from North Korea. Last week also saw a record close in the S&P BSE Sensex in India. Japan’s Nikkei is up 25 percent from last August and near a 52-week high (albeit still down 48 percent from its 1989 bubble peak). The Shanghai Composite is a relative laggard, with a 9.6 percent gain from its August lows, bolstered by a 3.7 percent jump over the past five weeks.”

Eventually, central banks are expected to tighten monetary policy by raising interest rates and reducing the size of their balance sheets and that could affect markets. The U.S. Federal Reserve released its Policy Normalization Principles and Plans back in 2014. Last month, Chair Janet Yellen indicated the Fed currently intends to begin normalizing policy during 2017.

U.S. monetary policy isn’t the only phenomenon investors may want to keep an eye on.

Fiscal policy (the steps a government takes to influence its country’s economy) deserves some attention, too. The United States will, once again, hit its legal spending limit (the debt ceiling) this fall. U.S. News reported, “Were the United States to hit its borrowing limit – and thus have to start missing payments and stiffing creditors – there’s no telling the exact consequences, but they wouldn’t be good.”

The bond market does not appear to be confident fiscal policy will proceed smoothly. Barron’s reported, “Yields on T-bills that mature in mid-to-late October jumped relative to surrounding maturities, a sign that the money market saw a risk – however slight – of not getting paid on time.”

SO, HERE’S ANOTHER COLLEGE CONUNDRUM: COLLEGE IS A HOT TOPIC. In recent years, pundits have debated whether students should attend college or skip it and start their own companies. The Thiel Fellowship, founded by tech entrepreneur Peter Thiel, offers students $100,000 to do just that.

For students who choose college, much has been made about which degrees will pay off. Some argue liberal arts degrees lack value, and technical instruction is the real ticket to success. Meanwhile, technology company leaders have reported liberal arts are essential because “they train students to thrive in subjectivity and ambiguity, a necessary skill in the tech world where few things are black and white.”

College is also known for changing the way students think. A new survey indicates it may alter their culinary perspectives. The Economist commissioned a poll to see if residence, income, education, or political affiliation has an effect on food preferences and, guess what? College and post graduate work may expand students’ gustatory preferences and change their eating habits! No, they don’t develop an unhealthy obsession with ramen noodles, boxed mac and cheese, or free food (usually). The survey found:

• People with post graduate degrees dine out more frequently – often weekly – than people with high school diplomas.

• Post grads also tend to eat Indian foods, like curries, more often than people with high school diplomas.

• College grads are more likely than non-college grads to have eaten sushi within the past year.

• College grads are also more likely than non-college grads to know what prosciutto is and to have eaten it recently.

As it turns out, the great equalizer was Mexican food. A majority of Americans have eaten Mexican food during the past year, regardless of educational attainment.

Weekly Focus – Think About It

“Peanut butter and jelly in the same jar. I don’t understand that. I mean, I’m lazy but I’d like to meet the guy that needs that. This guy must be thinking, “I could go for a sandwich, but I’m not gonna open TWO jars. I can’t be opening and closing all kinds of jars and cleaning WHO KNOWS how many knives.”
                                                                                              –Brian Regan, American comedian

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Commentary – 7/17/17

The Markets

It was a good week for a lot of stocks but not bank stocks.

The Standard & Poor’s 500 (S&P 500) Index and the Dow Jones Industrial Average (DJIA) both finished at record highs last week. Barron’s indicated investors owe Federal Reserve Chair Janet Yellen a debt of gratitude:

“The main force behind the rally was the dovish performance by Federal Reserve Chair Janet Yellen in Congress on Wednesday and Thursday when she reiterated that rate hikes would most likely be gradual. On balance, her remarks were interpreted as evidence of continued accommodative monetary policy and, from there, stocks were off to the races. The ignition of the rally can almost be time-stamped to her appearance. Before her speech, the market was down for the week.”

Of course, some sectors of the stock market did better than others last week. In the S&P 500, Real Estate, Information Technology, and Consumer Staples stocks had the highest percentage gains at the close on Friday, while Financials, Telecommunications, and Consumer Discretionary stocks lagged, according to Fidelity.

In the Financials sector, banks were the weakest performers, finishing Friday almost a full percent lower. It was a bit of a mystery, wrote Financial Times (FT), since several banks beat earnings expectations. FT reported:

“Perhaps the most important factor that weighed on bank stock prices, however, had nothing to do with the comments from executives nor the quarterly financial results. Macroeconomic data published on Friday showed U.S. inflation at the consumer level cooled last month while retail sales fell short of estimates, pushing Treasury bond yields lower. Lower interest rates are bad news for banks, which make more money if they can charge borrowers more.”

Investors appear to believe there is smooth sailing ahead. The CBOE Volatility Index remained below 10.

MERRIAM WEBSTER DEFINES ‘DISRUPT’ AS ‘TO BREAK APART,’ AND ‘TO THROW INTO DISORDER.’ While disruption doesn’t sound like something anyone would enjoy much, it has the potential to create investment opportunities for those who share a vision and are willing to take risks.

Morgan Stanley recently wrote, “It’s hard to think of an industry that won’t be touched in some way by technological disruption over the next decade.” Here are a few of the trends that may really stir things up during the next few decades:

• Machine learning. “The transportation and medical industries are likely to be first in line for disruption,” Morgan Stanley suggested. A disruptive change researcher wrote, “If we think about what machine learning really is, it’s pattern recognition. We might see radiology and scans detecting cancers earlier than they’re detected today. And it’s possible that in the future we can also use machine learning to scan for genes that might predispose us to certain kinds of diseases.”

• Autonomous vehicles. The auto industry, as we know it, is likely to change in some significant ways when self-driving vehicles become more prevalent. Other industries will be affected, too. For instance, insurance could change dramatically. After all, who do you insure when software is driving?

In addition, cities may lose a source of revenue if there is less need for parking. CNBC wrote, “Reports estimate self-driving vehicles have the potential to reduce parking space by about 61 billion square feet, which is about the size of Connecticut and Vermont combined.” This may be a boon for the real estate market.

The responsibilities of law enforcement may change, too, and crash test dummies may be out of work.

• Augmented reality. Imagine a surgeon being able to practice a surgery, a rigger learning their craft without scaling heights to lift heavy objects, or a teacher making students’ textbooks come alive. Augmented reality has the potential to help professionals refine their skills, make dangerous training safer, and fascinate students at all levels of learning.

Morgan Stanley also pointed out that Blockchain, which enables electronic contracts and custody, may change the financial industry, and Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) may help cure disease at the genetic level.

We live in interesting times!

Weekly Focus – Think About It

“Companies don’t have ideas. Only people do. And what motivates people are the bonds of loyalty and trust they develop around each other.”
                                 –Margaret Heffernan, International businesswoman and author

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Commentary – 7/10/17

The Markets

Things you may want to know…

Last Friday, Financial Times (FT) published, ‘Five markets charts that matter for investors.’ Among the issues addressed in the charts were:

• The bond market bear watch. The yield on 10-year German Bunds (Germany’s government bonds) reached an 18-month high of 0.58 percent recently. Yields rose after the European Central Bank’s Mario Draghi indicated its stimulus efforts would end at some point.

When bond yields rise, bond values fall, and that makes rising interest rates quite a significant event for anyone who holds lower yielding bonds. In the United States, 10-year U.S. Treasuries moved to a seven-week high last week and then dipped lower following the release of the Federal Open Market Committee meeting minutes, reported CNBC.com.

• Financial companies gaining favor. During the past month, U.S. stock markets have seen a sector rotation. FT reported:

“…S&P financials have gained some 6 percent, with tech sliding almost 4 percent. That still leaves financials lagging behind the S&P 500 for the year and well behind the roughly 17 percent gain for tech. A similar story has unfolded in Europe between banks and tech.”

Investors’ appetite for financial companies may reflect the belief higher interest rates are ahead. Banks and other financial firms generally benefit when interest rates rise. Investor’s Business Daily reported:

“Several Wall Street giants have warned of weak trading revenue in Q2, continuing the lackluster trend in 2017…Still, bank stocks large and small have been leading in recent weeks, helped by higher bond yields and massive buyback and dividend plans.”

Last week, the unemployment rate in the United States rose from 4.3 to 4.4 percent. It was good news according to an expert cited by Barron’s, “…the rise in labor force participation indicates slack remains in the labor market.” That may be the reason wages showed little improvement.

IT DOESN’T APPEAR TO BE COMMON KNOWLEDGE BUT there may be an affordable car crisis in the United States. The latest Bankrate.com Car Affordability Study found:

“…typical households in most of America’s larger cities don’t earn enough to afford the average new vehicle, under a common budgeting rule for buyers… The ‘20/4/10’ rule says you should aim to put down at least 20 percent of a vehicle’s purchase price, take out a car loan for no longer than four years, and devote no more than 10 percent of your annual income to car payments, interest, and insurance. If you can’t stay within those lines, you can’t afford the car.”

The only major city where a new car remains affordable is Washington, D.C.!

For some, the obvious solution is choosing a less expensive model. For others, the answer is buying a used vehicle. For the latter group, here’s some bad news: even an average-priced used car – nationally, the average price is about $19,200 – is unaffordable for households in eight of the 25 largest cities.

Leasing is also an option; one that may have helped create an oversupply of used cars. In July, Automotive News reported:

“…millions [of] cars that were leased two or three years ago, many of them used compact and midsized cars with low mileage, are heading toward auction lots and used car dealerships. That surge in supply threatens to depress prices for new and used vehicles, raising the risk of losses for automakers and finance companies on lease deals. It also undercuts the value of cars customers want to trade in for a new vehicle.”

The rising popularity of ride-sharing and car-sharing, and the introduction of self-driving vehicles, may also depress prices. In fact, some automakers have introduced their own ride-sharing services.

Weekly Focus – Think About It

“A man is rich in proportion to the number of things he can afford to let alone.”
                                           –Henry David Thoreau, American philosopher and naturalist

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Commentary – 7/3/17

The Markets

This is the way the quarter ends – with a central bank scare.

Central bankers are stodgy. They speak carefully. For many, reading the words ‘Federal Reserve’ is enough to cause boredom to set in and web surfing to ensue.

Last week, though, the European Central Bank and Bank of England cracked the ‘open secret’ (i.e., central banks will provide less stimulus and increase rates at some point), and investors did not like what they heard.

Central bankers were quick to say they didn’t necessarily mean what people had heard, but the rumor of less accommodative monetary policy was already moving markets. Barron’s wrote:

“But make no mistake: Last week was a game changer. Federal Reserve Chair Janet Yellen fretted about the high level of asset prices, the Bank of England’s Mark Carney hinted at a rate hike, and Mario Draghi suggested the European Central Bank could be nearing the end of its bond buying…The market didn’t take it sitting down. Long-term Treasury yields surged, resulting in a wider spread off of short-term bond yields.”

A wider spread between short- and long-term Treasuries could be good news. The Federal Reserve Bank of Cleveland explained:

“The slope of the yield curve – the difference between the yields on short- and long-term maturity bonds – has achieved some notoriety as a simple forecaster of economic growth. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year, and yield curve inversions have preceded each of the last seven recessions…”

Central bankers comments affected U.S. stock markets, too. The technology sector lost its allure, while the possibility of rising interest rates made the financials sector more attractive. It didn’t hurt that all major institutions passed the Fed’s stress tests for the first time. That could translate into share buybacks and higher dividends, reported Financial Times.

There were some notable statistics during the second quarter of 2017. For instance:

Investors were preternaturally calm
Throughout second quarter, investors have been confident the Standard & Poor’s 500 Index would offer a smooth ride. The CBOE Volatility Index (VIX), a.k.a. the fear gauge, has only closed below 10 sixteen times; seven occurred during the second quarter of 2017.

Consumer sentiment was quite positive
Consumers were feeling highly optimistic throughout the quarter. In June, the University of Michigan Consumer Sentiment Survey reported, “Although consumer confidence slipped to its lowest level since Trump was elected, the overall level still remains quite favorable. The average level of the Sentiment Index during the first half of 2017 was 96.8, the best half-year average since the second half of 2000…”

Investor sentiment shifted into neutral
Last week, the number of investors who were neutral (rather than bullish or bearish) about markets hit its highest level in a year. The AAII Blog reported:

“This year’s record highs for the S&P 500 and the NASDAQ have encouraged some individual investors, but the Trump administration’s ability (or lack thereof) to move forward on economic and tax policy remains on the forefront of many others’ minds. Also playing a role in influencing sentiment are earnings, valuations, concerns about the possibility of a pullback in stock prices, and interest rates/monetary policy.”

The U.S. economy appears to be growing, albeit slowly. Last week, the Federal Reserve Bank of Atlanta forecast real GDP (Gross Domestic Product) growth during the second quarter of 2017 at 2.7 percent.

YOU SAY POTATO, I SAY POTATO. A persistent debate among the geek set is how to pronounce the abbreviation for Graphics Interchange Format (GIF). You know, GIFs, the animated images you see online. Graphics starts with a hard ‘g’ sound, but pronunciation conventions suggest that ‘g’ makes a soft sound before the vowel ‘i.’ The Economist wrote:

“Some questions will be pondered for all eternity. What is the meaning of life? Where do you go when you die? And, even more puzzlingly, what is the right way to pronounce “GIF?”…Debates over whether it begins with a hard “g,” as in “gift,” or a soft one, as in “giraffe,” can make discussions about religion or politics look civil by comparison. Well aware of the risk that taking a side could lead to protests, boycotts, or worse, the Oxford English Dictionary and Merriam-Webster have maintained strict neutrality. They proclaim that both pronunciations are acceptable, betraying nary a hint of favoritism.”

It’s interesting that dictionaries, those arbiters of correct spelling and pronunciation, would stake out neutral ground. After all, in the early days of the United States correct spelling was open to interpretation. In the American Constitution, the word ‘choose’ is spelled ‘chuse’ and ‘Pennsylvania’ was spelled ‘Pensylvania’ (the Liberty Bell inscription has one ‘n,’ as well). Also, ‘defense’ was spelled ‘defence.’

The first American dictionary wasn’t published until 1806. Its author, Noah Webster, decided many spelling conventions were artificial, so he imposed the standards he preferred, changing ‘musick’ to ‘music,’ ‘centre’ to ‘center,’ and ‘women to wimmen.’ Not all of his changes were accepted.

This year, in an effort to resolve the GIF issue once and for all, a forum for computer programmers surveyed 50,000 users in 200 countries. Sixty-five percent believed a hard ‘g’ pronunciation was correct, while 26 percent believed the soft ‘g’ was right.

The survey results inflamed soft ‘g’ users, who claim it was rigged.

Weekly Focus – Think About It

“My seven-year-old grandson sleeps just down the hall from me, and he wakes up a lot of mornings and he says, ‘You know, this could be the best day ever.’ And other times, in the middle of the night, he calls out in a tremulous voice, ‘Nana, will you ever get sick and die?’ I think this pretty much says it for me and most of the people I know, that we’re a mixed grill of happy anticipation and dread.”
                                                      –Anne Lamott, American novelist and non-fiction writer

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Commentary – 6/26/17

The Markets

It has been a very good year, so far.

Through the end of last week, the Standard & Poor’s 500 Index posted 24 record highs and delivered returns in the high single digits. The MSCI World ex USA Index was up more than 11 percent, and the MSCI Emerging Markets Index gained more than 17 percent.

After reading those numbers, many people would assume bond markets are down for the year. After all, stock and bond markets tend to move in different directions. Zacks explained,

“Stock and bond prices usually move in opposite directions. When the stock market is not doing well and becomes risky for investors, investors withdraw their money and put it into bonds, which they consider safer. This increased demand raises bond prices. When stocks rally and the risk seems justified, investors may move out of bonds and into stocks, driving stock prices up further.”

That hasn’t been the case recently. Bonds have been delivering attractive returns, too. The Bloomberg Barclay’s U.S. Aggregate Bond Index is up 2.9 percent year-to-date, while its Global Aggregate Bond Index is up 4.7 percent, and its Emerging Markets Aggregate Bond Index is up 5.5 percent.

So, why are stock and bond markets both showing attractive gains for the year?

There are a number of possibilities. Zacks described one of the most straightforward. “When stocks are doing well but investors remain skeptical about how long they will do well, stock and bond prices can rise together. This is because investors continue to put money in stocks but also put money into bonds just in case the stock market drops.”

There is nothing wrong with a little skepticism.

IF YOU LIVE IN NORWAY, DENMARK, ICELAND, SWITZERLAND, OR FINLAND, THEN you’re among the happiest people in the world. On the other hand, if you reside in Sierra Leone, Bulgaria, Egypt, Palestinian Territories, or Tunisia, you’re among the least happy, according to the United Nation’s World Happiness Report 2017.

The report relies on six measurements to “explain happiness differences among countries and through time.” These include:

• Income (GDP per capita)
• Healthy life expectancy (Relative to other nations)
• Social support (Having someone to count on in times of trouble)
• Generosity (Charitable donations)
• Freedom (To make life choices)
• Trust (Defined as the absence of corruption in business and government)

While measuring ‘happiness’ or ‘satisfaction with life’ may seem frivolous to some, others believe it should be a cornerstone of governance. The report’s authors explained, “Happiness is increasingly considered to be the proper measure of social progress and the goal of public policy.”

For instance, Norway, which is an oil-rich nation, is the happiest country in the world even though oil prices are relatively low. The World Happiness Report 2017 suggests the country “achieves and maintains its high happiness not because of its oil wealth, but in spite of it. By choosing to produce its oil slowly, and investing the proceeds for the future rather than spending them in the present, Norway has insulated itself from the boom and bust cycle of many other resource-rich economies.”

The United States ranks 14th in the world. While our country’s income and healthy life expectancy remain high, keeping us at the top of the list, other factors have caused Americans’ happiness to deteriorate. The study found “less social support, less sense of personal freedom, lower donations, and more perceived corruption of government and business.” America’s issues, the report opines, are social, rather than economic.

Weekly Focus – Think About It

“Brigadier General Wilma Vaught spearheaded…the Women in Military Service for America Memorial, a museum-style memorial on the outskirts of Arlington National Cemetery…There are the thigh-high black leather boots worn by enlisted women to protect their legs from mosquitos before they were allowed to wear pants. The cape of a nurse working at a frontline casualty cleaning station in World War I. Army-issue glasses painted with red nail polish worn by the only African-American WAC unit dispatched overseas in World War II—sent to sort letters under the motto ‘No Mail, Low Morale.’”
                                                                  — National Geographic, May 2017

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Commentary – 6/19/17

The Markets

All eyes on inflation!

Inflation is the way economists measure changes in the prices of goods and services. The United States has enjoyed relatively low inflation for a significant period of time. Last week, the consumer price index indicated inflation had moved lower in May.

Inflation is our focus because it is at the core of two very different opinions that currently are influencing markets and investors. A commentary on the Kitco Blog explained:

“One of the most important economic debates today is whether the economy will experience reflation or deflation (or low inflation) in the upcoming months. Has the recent reflation been only a temporary jump? Or has it marked the beginning of a new trend? Is the global economy accelerating or are we heading into the next recession?”

Another key factor is employment. Traditional economic theory holds when unemployment falls (i.e., when more people are employed) inflation will rise because demand for workers will push wages higher. That hasn’t happened yet in the United States even though unemployment has fallen significantly.

In fact, inflation remains stubbornly below the Federal Reserve’s 2 percent target, reported The Economist. Regardless, the Federal Reserve believes higher inflation is ahead, so it raised the Fed funds rate last week and indicated it was preparing to shrink its balance sheet if the economy continues to grow as expected.

There is a group that disagrees with the Fed. They believe inflation will remain low regardless of employment levels. Barron’s wrote:

“In the theoretical world, low unemployment threatens to unleash a torrent of inflation, which needs to be staved off by tighter monetary policies. Back in the real world, disruption, innovation, and competition relentlessly drive down prices while wage growth is hard to come by.”

The difference of opinion was apparent in stock and bond markets last week. In the bond market, yields on 10-year Treasuries moved lower after the Federal Reserve raised rates. In the U.S. stock market, the top-performing sectors were Industrials, which tend to do well when investors are optimistic about growth, and Utilities, which tend to do well when investors are worried about the future.

A CENTURY-OLD MEDICINE MAY HELP WITH AUTISM. Estimates from the Centers for Disease Control suggest one in every 68 American children has been identified with autism spectrum disorder. Few effective treatments have been found, but a medicine that has been around for more than a century may prove helpful.

The Economist reported a very small human trial – only 10 boys were involved – showed a drug used since 1916 to treat the sleeping sickness spread by tsetse flies, may help children with autism. The trial paired the participating boys by age, IQ, and their level of autism. In each pair, one boy received the drug and the other received a placebo:

“Every participant given suramin showed statistically significant improvements in their performance on the tests at seven days. Those on the placebo showed no significant improvement. At 45 days, the boys who were given the drug were performing better on the tests than they had before the infusion, but it was clear that as suramin was leaving their system, their autistic traits were returning.”

The study’s results were published in the Annals of Clinical and Translational Neurology in late May; however, the research summary did not include parent’s personal statements. The study’s first author Dr. Robert Naviaux published those statements on his website.

One parent wrote, “Immediately after the infusion, a kind of inner cheerfulness started to come out. When we were walking back to the car, he was holding me hand. He started giggling and looked up at me and said, ‘I just don’t know why I’m so happy.’”

Another wrote, “In fact, his teachers at school were unaware of the trial and one day we got a note from the teacher asking about what we had changed. We were naturally concerned and when we asked they told us that, ‘He has completed 3 weeks of schooling in 3 days!’”

Let’s hope larger trials prove the drug to be safe and its positive effects enduring.

Weekly Focus – Think About It

“If you’ve met one person with autism, you’ve met one person with autism.”
               –Dr. Stephen Shore, Autistic professor of special education at Adelphi University

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Commentary – 6/12/17

The Markets

Stock market historians may dub 2017 the Xanax year. Traditional historians will probably choose a different moniker.

Stock markets in many advanced economies have been unusually calm during 2017, reported Schwab’s Jeffrey Kleintop in a May 15, 2017 commentary. The CBOE Volatility Index, a.k.a. the Fear Gauge, which measures how volatile investors believe the S&P 500 Index will be over the next few months, has fallen below 10 on just 15 days since the index was introduced in 1990. Six of the 15 occurred during 2017. The average daily closing value for the VIX was 19.7 from 1990 through 2016. For 2017, the average has been 11.8.

Investors’ calm is remarkable because 2017 has not been a particularly calm year. We’ve experienced significant geopolitical events. For example, the U.S. launched a military strike on Syria, and dropped its biggest non-nuclear bomb on Afghanistan. There have been terrorist attacks in Europe, along with discord in the Middle East. The European Union has been unraveling. The U.S. government has shown unusual levels of disarray, and the U.S. President’s passion for Tweets has stirred the pot.

Just last week, the future of Brexit was thrown into question when Britain’s snap elections produced a hung Parliament (no political party has a majority). How did investors react? Barron’s reported the European markets shrugged off Thursday’s election results and moved higher on Friday, offsetting some losses from earlier in the week.

In the United States, Former FBI Director James Comey’s testimony didn’t have much effect on stock markets last week, according to Barron’s. However, comments from Goldman Sachs cautioned the trade in big technology stocks, which have accounted for about 40 percent of the Standard & Poor’s 500 Index’s gains this year, was too crowded. The ensuing clamor resulted in the NASDAQ losing 1.6 percent for the week and the S&P 500 finishing slightly lower.

Geopolitical events do not appear to have the impact they may once have had. The Fear Gauge finished Friday at 10.7.

GUESS WHAT? THE FOUNTAIN OF YOUTH ISN’T REALLY A FOUNTAIN. For millennia, humankind has been looking for a means of slowing aging, maintaining health, and restoring youth and beauty. Greek mythology tells us that Hebe, the daughter of Zeus and Hera, could restore youth. In the 1600s, Juan Ponce de Leon was rumored to have searched Florida for the Fountain of Youth. In modern times, many people have turned to their surgeons and dermatologists with varied results.

The latest news in the search for youth and vitality involves metabolites. In 2013, a paper published by Harvard’s David Sinclair, along with other researchers, suggested it might be possible to reverse mitochondrial decay, which is thought to be a key driver of aging, by consuming nicotinamide riboside (NR) supplements, reported Scientific American. A 2015 guest blog post opined:

“If I were a middle-aged mouse, I’d be ready to spend some of the nickels and dimes I’d dragged off the sidewalk to try NR supplements. Even before Sinclair’s paper, researchers had shown in 2012 that when given doses of NR, mice on high-fat diets gained 60 percent less weight than they did on the same diets without NR. Further, none of the mice on NR showed signs of diabetes, and their energy levels improved.”

In March of this year, Science published a paper that expands on prior findings. The research suggests it may be possible to help cells repair damaged DNA by restoring levels of an oxidized form of nicotinamide adenine dinucleotide (NAD).

NASA is supporting the work, according to ScienceDaily. If supplements prove effective with humans, it might help keep astronauts – who “experience accelerated ageing from cosmic radiation, suffering from muscle weakness, memory loss and other symptoms when they return” – healthy during a four-year mission to Mars.

Weekly Focus – Think About It

“On street corners everywhere, people are looking at their cell phones, and it’s easy to dismiss this as some sort of bad trend in human culture. But the truth is, life is being lived there.”                                                                                                                                                                                                                                                                          –Ze Frank, American online performance artist

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Commentary – 6/5/17

The Markets

The bull market in U.S. stocks is getting really old!

In fact, this bull has been charging, standing, or sitting for more than eight years. In April, it became the second longest bull market in American history, according to CNN Money.

There are some good reasons the stock market in the United States has continued to trend higher. For one, companies have become more profitable. During the first quarter of 2017, companies in the Standard & Poor’s 500 Index reported earnings increased by 14 percent, year-over-year. That was the highest earnings growth rate since 2011, according to FactSet.

In addition, the economy in the United States has been chugging along at a steady pace. CIO Charles Lieberman wrote in Bloomberg View:

“…U.S. economic growth is continuing at a moderate pace, an economic recovery is finally underway in Europe, inflation is under control, corporate profits are rising, and there is some prospect for tax reform and deregulation, even if whatever gets implemented is less than what is really needed. These conditions imply continued growth in corporate profits.”

Last week’s employment report boosted both stock and bond markets. Financial Times opined the report was weak enough to ease pressure on bond rates and strong enough to boost share prices higher.

No one can say with certainty how long a bull market will last. Typically, bull markets are interrupted by corrections – declines in value of 10 percent or more. Historically, bulls have turned into bears, eventually. That’s why it’s important to employ investment strategies that manage risk and preserve capital even when markets are moving higher.

FRESH FROM THE ANNALS OF IMPROBABLE RESEARCH. Anyone who enjoys the Ig Nobel Prizes – which spur people’s interest in science, medicine, and technology by making them laugh and then making them think – may like The Annals of Improbable Research (AIR). An enthusiastically nerdy science humor magazine, the publication offers readers the opportunity to read about new and improbable things every other month.

During its 21-year history, AIR has covered a variety of topics, including:

• The Taxonomy of Barney. “In February 1994, we observed on television an animal which was there identified as a dinosaur, Barney. Its behavioral characteristics suggested that it was dissimilar to the diverse dinosaurian faunas that are so well documented…To test the hypothesis that Barney is a reptile descended from the true dinosaurs, we went into the field in order to capture and study a living specimen. This we accomplished with remarkable ease, as Barney was advertised to be appearing at a local shopping mall.”

• Horse Calculus. “The idea is that a heart is like a little battery, pushing weak electric currents in a three-dimensional pattern round the body…During each heartbeat, the vector (tip of the arrow) draws a loop – the heart loop – whose shape is a powerful diagnostic of health. Therefore it is useful to measure this loop…His specific question was: does the theory apply to a real horse or only to an ideal cylindrical horse…The moral of this is that applications of mathematical knowledge can be unexpected; you may find yourself taking a surface integral over a horse.”

• Which Feels Heavier – A Pound of Lead or a Pound of Feathers? “Which weighs more – a pound of lead or a pound of feathers?” The seemingly naive answer to the familiar riddle is the pound of lead. The correct answer, of course, is that they weigh the same amount. We investigated whether the naive answer to the riddle might have a basis in perception. When blindfolded participants hefted a pound of lead and a pound of feathers each contained in boxes of identical size, shape, and mass, they reported that the box containing the pound of lead felt heavier at a level above chance.”

Lurking beneath the unusual is some potentially useful scientific research.

Weekly Focus – Think About It

“Being a scientist is like being an explorer. You have this immense curiosity, this stubbornness, this resolute will that you will go forward no matter what other people say.”
                                     –Sara Seager, Professor of Planetary Science and Physics
                                                                at Massachusetts Institute of Technology (MIT)

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