The Markets
About 25 years ago, Peter Jennings interrupted General Hospital to tell the nation Coca-Cola had decided to bring back its original recipe. The nation was thrilled and sales soared.
The Federal Reserve’s impending rate hike is about as popular as the New Coke; however, no soap operas were interrupted last week when the Open Market Committee statement indicated rates would remain in “the current target range” for a “considerable” period of time after quantitative easing ends.
Investors embraced the news pushing both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index up more than 1 percent for the week.
On the surface, it appears everything is in perfect order. However, experts cited by Barron’swarned investors to pay attention to the subtleties of the Fed’s statement which seems to indicate monetary policy may be tightened faster than markets expect:
“Investors should keep an eye on the nuances of the Fed statement… The Fed’s estimates for the funds rate moved up again to a median of 1.38 percent, instead of 1.13 percent at year-end 2015, and rose also for 2016 and 2017. Such rises suggest that Fed Chair Janet Yellen might face increasing dissent from both rate hawks and centrists on the Fed’s Open Market Committee.”
Also of note last week, the Organization for Economic Cooperation and Development (OECD) reduced its economic growth forecasts for the United States and other advanced economies and recommended various economic policy changes suited to the needs of each country.
Reuters reported the organization has also recommended the implementation of measures designed to prevent multinational firms from shifting profits to low-cost tax countries. The topic was a point of discussion at the G20 summit last weekend. The measures could help countries recoup billions of tax dollars and potentially affect the balance sheets of companies targeted.
| Data as of 9/19/14 | 1-Week | Y-T-D | 1-Year | 3-Year | 5-Year | 10-Year |
| Standard & Poor’s 500 (Domestic Stocks) | 1.3% | 8.8% | 16.7% | 18.6% | 13.6% | 6.0% |
| 10-year Treasury Note (Yield Only) | 2.6 | NA | 2.8 | 1.9 | 3.5 | 4.1 |
| Gold (per ounce) | -1.0 | 1.5 | -10.7 | -12.1 | 4.1 | 11.7 |
| Bloomberg Commodity Index | -1.5 | -5.0 | -8.1 | -8.3 | -0.9 | -2.0 |
| DJ Equity All REIT Total Return Index | -0.2 | 15.1 | 11.0 | 14.3 | 15.7 | 8.8 |
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.
A PHARMACIST HAS A HEADACHE. Does she choose the name brand aspirin or the store brand? That’s the subject of a working paper (Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium, August 2014) written by a pair of economics professors at the University of Chicago Booth School of Business and their co-authors. The team found:(Page 24)
“More informed shoppers buy more store brands and fewer national brands. Consumer information plays a quantitative role in health categories where our estimates imply that expenditures and market shares would change significantly if all households behaved like expert shoppers. By contrast, the role of consumer information is smaller in food and drink categories where our estimates suggest much smaller gaps between expert and non-expert shopping behavior.”
How much less would Americans spend if everyone were an expert shopper? Currently, we pay about $196 billion for packaged consumer goods (medications, juice, frozen foods, etc.) each year. If we bought store brands rather than name brands, we’d save about $44 billion dollars annually.(Page 2) That’s quite a chunk of change.
So, why do we buy premium brands? It may be because we believe they’re better. Freakonomics Radio recently held a peanut butter and jelly (PB&J) sandwich taste test. Tasters were told one sandwich was made with premium brands of PB&J and the other with store brands. The tasters universally preferred the premium-brand sandwich. As it turns out, both sandwiches were made with identical store-brand ingredients.
Consumers’ inclination toward national brands may reflect advertising-induced misinformation, according to some economists; other economists suggest premium products may indeed offer greater value to consumers. The working paper concluded, “…A more informed population of consumers might change whether and how much firms choose to advertise their products as well as which products are introduced to the market.”(Pages 2 and 24)
Now, getting back to the original question, it turns out 92 percent of pharmacists buy store- brand headache remedies. Just 74 percent of the rest of us do (although that statistic is somewhat skewed since doctors, nurses, and other healthcare professionals tend to buy store brands more often than other people). Either way, it’s a big difference.
Weekly Focus – Think About It
“Oh yeah, I’ll always buy the most expensive golf ball, because if there’s even the tiniest chance that there’s a little magic in there, then I want that magic.”
–Steve Levitt, Co-author of “Freakonomics”
What’s happening at Solis Wealth Management?
Please enjoy this week’s commentary from ~ Bob Medler, LPL Wealth Advisor
I have my annual October fishing trip set for October 4th. Hopefully there will be no hurricanes along the coast of Mexico like a few years ago. While I’m fishing Viki plans on meeting Summer and our granddaughter Lily in Sedona for a week.
Viki and Lily will go on to Tucson to visit Robert and Bonnie in their new home. They moved-in over the Labor Day weekend and just finished unpacking their last boxes.
We were lucky last week with no rain damage to our home. Several years ago I bought a pool pump to drain the pool and it came in handy to lower the pool water level and to help a few neighbors with their over flowing pools. When we built our home I insisted on the drain system have a line that emptied into the street versus the yard so I didn’t have a drain flowing issue similar to one of my neighbors.
Baseball playoffs are just about to start. Hopefully the Angels can make it to the World Series. I think it will depend on how well the pitching staff can hold up after so many injuries. As always, please give us a call if we can do anything for you and your family. ~Bob
Greg R. Solis, AIF®
President
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Suite 204
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Office: (760) 771-3339
Fax: (760) 771-3181
www.soliswealth.com
E-Mail: greg.solis@lpl.com
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The Wealth Advisors of Solis Wealth Management are also Registered Representatives with and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC
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* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* 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.
*The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* 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. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Stock investing involves risk including loss of principal.
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Sources:
http://content.time.com/time/specials/packages/article/0,28804,1913612_1913610_1913608,00.html
http://www.federalreserve.gov/newsevents/press/monetary/20140917a.htm
http://online.barrons.com/news/articles/SB52133021052493823286804580156051895490276?mod=BOL_hp_we_columns (or go tohttp://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-22-14_Barrons-Fervor_for_Large-Caps_Drives_Dow_to_New_High-Foonote_3.pdf)
http://www.oecd.org/newsroom/global-growth-continuing-at-a-moderate-pace-oecd-says.htm
http://www.reuters.com/article/2014/09/20/us-g20-australia-idUSKBN0HE0PD20140920
http://faculty.chicagobooth.edu/matthew.gentzkow/research/generics.pdf (Pages 2 and 24)
http://freakonomics.com/2014/09/11/how-to-save-1-billion-without-even-trying-full-transcript/