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WOMACK WEEKLY COMMENTARY Renew. Regenerate. Refocus.
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January 22, 2018
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THE MARKETS
Last week, the United States government might as well have hung a sign on the front door of the Capitol that read, “Gone negotiating. We’ll be back in…however long it takes.”
In
2013, the U.S. government closed for 16 days. About 850,000 federal workers
were furloughed and 6.6 million workdays lost. The shutdown affected private
companies that worked with the government, too, and the U.S. economy took a
hit.
The
prospect of kicking off 2018 with a government shutdown didn’t appear to
concern investors too much. Barron’s reported the Dow Jones
Industrial, Standard & Poor’s 500, and NASDAQ indices all finished the
week higher.
The
lack of response from investors isn’t all that surprising. Geopolitical
events – from the Brexit vote to the U.S. bombing Syria to the North Korean
nuclear escalation – have had little lasting effect on markets. The president
of a financial research firm told The New York Times, “geopolitical
events may be widely feared, and there will often be a knee-jerk market
reaction when they’re unexpected, but seldom do they have a lasting impact.
Underlying economic trends and monetary policy are far more important.”
That
has been the case with previous U.S. government shutdowns. However, Investor’s
Business Daily (IBD) wrote this time might be different:
“Government
shutdowns always have been primarily over government spending, but this one
will be mostly over an ideological divide on immigration, with budget issues
playing a secondary role. That raises the risk that the partial government
shutdown could be a long one and have more serious economic consequences than
investors expect.”
IBD suggested it wouldn’t be long before
the negative economic effects of dysfunctional government consume any
economic gains delivered by tax reform. That may provide an incentive for our
elected officials.
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.
I'LL HAVE AN ORDER OF PURCHASING POWER PARITY, PLEASE!
Purchasing power parity, or PPP, is a simple idea
with a tongue twister of a name. When two countries have PPP, a basket of
goods costs the same amount in both countries after the exchange rate has
been factored in.
The Economist developed an
entertaining measure of PPP. It’s called ‘The Big Mac Index.’ The index
doesn’t measure a basket of goods. It simply considers the cost of a
hamburger in 120 countries around the world. The index was updated for
January 2018 and showed burger costs varied when translated into U.S.
dollars. For example:
The
Economist reported:
“If the local
cost of a [hamburger] converted into dollars is above $5.28, the price in
America, a currency is dear; if it is below the benchmark, it is cheap. The
average cost of a [hamburger] in the Euro area is €3.95, or $4.84 at the
current exchange rate. That implies the euro is undervalued by 8.4 percent
against the dollar.”
Overall, PPP
is better aligned across the globe. One reason is the improving health of
world economies. China remains the most undervalued currency among wealthier
nations. In emerging markets, like Russia, currencies remain undervalued
relative to the United States.
PPP provides economists with an
apples-to-apples measure for comparing the wellbeing of countries and
consumers.Weekly Focus - Think About It --John Burroughs, American naturalist and essayist Best regards, Womack Investment Advisers, Inc.
WOMACK
INVESTMENT ADVISERS, INC.
Oklahoma / Main Office: 1366 E. 15th Street - Edmond, OK 73013 California Office: 4660 La Jolla Village Dr., Ste. 500 - San Diego, CA 92122 Phone (405) 340-1717 - Toll Free (877) 340-1717 Website: www.womackadvisers.com Are you prepared for the eventual market volatility?
Be prepared and have a plan. Watch our new video
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be added.Womack Investment Advisers, Inc. (WIA) is a registered investment adviser whose principal office is located in Oklahoma. Womack Investment Advisers, Inc. is also registered in the State of California, the State of Illinois, the State of Indiana, and the State of Texas. WIA only transacts business in states where it is properly registered, or excluded, or exempted from registration requirements.
* These views
are those of Carson Group Coaching, and not the presenting Representative or
the Representative’s Broker/Dealer, and should not be construed as investment
advice.
* This newsletter was prepared by Carson Group Coaching. Carson Group Coaching 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. * All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. * The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index. * 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 afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce. * The Bloomberg 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 Total Return 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. * Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. * Past performance does not guarantee future results. Investing involves risk, including loss of principal. * You cannot invest directly in an index. * Stock investing involves risk including loss of principal. * Consult your financial professional before making any investment decision. * To unsubscribe from the Womack Weekly Commentary please reply to this email with “Unsubscribe” in the subject line, or write us at raegan@womackadvisers.com. |
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