Solis Wealth Management Report – August 12, 2013

The Markets
Like the kid who sings loudly and enthusiastically at a grade school concert while wary peers dodge his O Sole Mio arm sweeps, the Federal Reserve has been getting a lot of attention lately. That didn’t change last week.
Markets pulled back from record highs after Chicago Fed President, Charles Evans, who has been a supporter of the Fed’s quantitative easing program, indicated the Fed could begin to reduce bond purchases at its policy meeting in mid-September. He reiterated the fact that moderating quantitative easing did not mean the Fed would begin to raise rates.
The Fed also garnered some attention for the contentious tone of discussions about who should replace current Fed Chairman, Ben Bernanke, when his term ends next January. Some of the rancor stems from contender Larry Summers stint as President of Harvard University which ended badly, in part, because of comments he made on “the issue of women’s representation in tenured positions in science and engineering at top universities and research institutions,” and the fact his primary competition for the job is female.
Paddy Power, which bills itself as “Ireland’s biggest, most successful, security conscious and innovative bookmaker,” is taking bets on who will be appointed as the next Fed Chairman. On August 11, 2013, it gave the odds as: Larry Summers, former Treasury Secretary, 1-to-2; Janet Yellen, current Fed Vice-Chairman, 2-to-1; Roger Ferguson, President and CEO of TIAA-CREF and previous Fed Vice-Chairman, 12-to-1; and Don Kohn, current member of the Bank of England (BOE) Financial Policy Committee and previous Fed Vice-Chairman, 18-to-1.
Speaking of the BOE… the United Kingdom’s central bank did a fair imitation of the Federal Reserve last week when it offered forward guidance tying tighter monetary policy to unemployment levels. The U.K. bond market’s response to the BOE’s assurances that rates would remain low for some time was quite similar to the U.S. bond market’s response to similar declarations from the Fed: yields on Gilts – bonds issued by the British government – moved higher.

Notes: S&P 500, Gold, DJ-UBS 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 TR 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 new twist on a controversial issue… It hasn’t been that long since eminent domain was a topic of conversation in households across the United States. Just after the turn of the century, homeowners in New London, Connecticut tried to stop the city from invoking its powers of eminent domain to acquire their homes and use the land for new development that was intended to boost the local economy. In 2005, in a five to four decision, the Supreme Court determined that the distressed city could acquire the properties.
According to a 2009 Federal Reserve article, the response to the ruling was immediate and intense. The U.S. House of Representatives passed a resolution denouncing the court, as well as a bill requiring federal development funds be withheld from states and political subdivisions that used eminent domain in specific ways. In addition, a majority of states took action to limit the reach of eminent domain.
Today, eminent domain is making headlines again. In a strange twist, some cities are considering invoking eminent domain to acquire and reduce mortgage debt, keeping people in their homes as a means of boosting the local economy. According to economists at the New York Federal Reserve:
“With more than 11 million homes still “underwater,” the mortgage debt overhang caused by the housing bubble remains an impediment to economic growth and a burden on communities across the country. One possible solution to this problem is for state and municipal governments to use their eminent domain authority to purchase and restructure underwater mortgages.”
This time, banks and investors (including Freddie Mac, a government-backed company that is one of the biggest buyers of private home loan bonds) are protesting. They argue invoking eminent domain in this way could create losses for bond holders, as well as make lending institutions more reluctant to lend if the loans could be seized.
Will this thorny issue continue to ripen or will it die on the vine? It may depend on how fast home prices increase and how quickly the housing market recovers.
 
Weekly Focus – Think About It
“Rarely do we find men who willingly engage in hard, solid thinking. There is an almost universal quest for easy answers and half-baked solutions. Nothing pains some people more than having to think.”

—Martin Luther King, Jr., clergyman and leader of the Civil Rights Movement

 
What’s happening at Solis Wealth Management?
Please enjoy this week’s commentary from ~ Greg Solis
It has been a busy yet great summer.  It’s hard to believe that school is starting in another week and a half.  Our kids go back to school on August 21^st.  I can’t believe that Jack’s going into high school, Nicole is going into middle school, and Emily will be in the third grade!
We have made a lot of great memories this summer.  We started our summer by going to BigBearLake in July.  The weather was nice and cool in the mountains, and it was great to have a lake we could launch the boat in.  The kids loved being on the water and enjoyed the scenery.  It’s a lot cooler than what we are used to at LakeHavasu, and that was a big plus.
We continue to take our weekend Havasu trips as much as we can.  The kids still think that’s the happiest place on earth; even above Disneyland.  We also took a family trip to Cabo San Lucas; it’s always a highlight of the year for the whole family.  The kids love being there and it’s a great time for the family to spend together.  Jack and I surfed just about every morning, and we all enjoyed snorkeling, quad riding and horseback riding.  This year we took our goddaughter with us, Stephanie.  She’s a precious 17 year old girl that is the daughter of our very close friends Jon and Laurie Stack.  She made our trip that much more enjoyable.  My daughters think she is the greatest and look up to her like a big sister.
For many years now I’ve supported an organization called Fellowship of Christian Athletes (FCA), and I love the positive impact that FCA has on children all across the country.  They have a camp once a year and it happens to be at my Alma Mater, UCLA.  One of my personal highlights of the summer was dropping Jack off at this camp for the first time.  I can’t tell you how amazing it was to meet all the people there, take Jack up to his dorm room, meet his roommate, check him into his room, leave him there, and follow his experience on some of the social media sites.  He had a blast!  He went there with a great attitude, but when he came back I could definitely see there was a change in his life.  The experience gave me a glimpse of what it might be like dropping your son or daughter off at college.  I know that will be here before you know it.
This summer has been great, but we are all excited to kick off another school year.  I hope you and your family are having a great summer as well.  Thanks for your trust and confidence and again never hesitate to contact me if you have questions or concerns.  We are here for you. ~Greg
Best regards,
Greg R. Solis, AIF®
President

P.S.  You have my permission to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* 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.
* To unsubscribe from the Solis Wealth Management Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.
 
Sources:
http://www.reuters.com/article/2013/08/09/us-markets-global-idUSBRE96S00E20130809
http://blogs.wsj.com/economics/2013/08/06/feds-evans-wont-rule-out-september-pullback-in-bond-buying/
http://www.economist.com/news/finance-and-economics/21583276-what-does-it-take-run-americas-central-bank-summers-v-yellen
http://www.harvard.edu/president/speeches/summers_2005/nber.php
http://www.paddypower.com/bet/about-us
http://www.paddypower.com/bet/current-affairs/us-federal-reserve?ev_oc_grp_ids=1256948
http://www.bloomberg.com/news/2013-08-07/carney-boe-rates-guidance-meets-investor-skepticism-u-k-credit.html
http://www.mortgagenewsdaily.com/reports/mortgage_rates/2012/12/12/183
http://www.investopedia.com/terms/g/gilts.asp
http://www.nytimes.com/2009/11/13/nyregion/13pfizer.html?_r=0
http://www.stlouisfed.org/publications/re/2007/a/pages/eminent_domain.cfm
http://blogs.wsj.com/developments/2013/02/13/fed-economists-weigh-good-news-in-eminent-domain-debate/
http://www.newyorkfed.org/newsevents/news/research/2013/rp130610.html
http://www.reuters.com/article/2013/08/07/us-usa-freddiemac-richmond-idUSBRE9760WT20130807
http://www.brainyquote.com/quotes/keywords/thinking.html