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Monthly Archives: January 2015

NO DEFLATING THE U.S. DOLLAR

Unlike the footballs that the New England Patriots used in the AFC Championship game against the Indianapolis Colts, the U.S. dollar has remained well inflated. The dollar, which has been trending higher for nearly four years now, rose 13% in 2014 and is up another 5% so far in 2015. The latest leg up has been driven by anticipation and arrival of quantitative easing (QE) by the European Central Bank (ECB). Bold stimulus from the ECB, and other central banks around the world including the Bank of Japan, has put substantial downward pressure on the euro, the yen, and other currencies, while boosting the dollar. In general, more supply of a currency drives down its value. In this week’s commentary, we discuss some of the causes of the strong U.S. dollar and some of the most important implications for investors.  The dollar, which has been trending higher for nearly four years now, rose 13% in 2014 and is up another 5% so far in 2015….

NO DEFLATING THE U.S. DOLLAR

 

EUROPEAN HEAD FAKE?

The European Central Bank (ECB) is likely to announce a quantitative easing (QE) program involving European sovereign bond purchases at its upcoming policy meeting on January 22, 2015. Recall back in September of 2014, in our two-part Weekly Market Commentary “Don’t Fight the ECB?” we highlighted several reasons for favoring U.S. equities and largely avoiding European equities,despite the ECB’s prior stimulus efforts and potential for outright QE. With QE likely forthcoming, we revisit the opportunity in Europe, which we believe may be setting the stage for a head fake. WHAT WE ARE WATCHING As we evaluate the opportunity in European equities, here is what we are watching:. Economic growth, Inflation. Earnings, Valuations, Loan growth, Relative strength. Economic growth gap between the U.S. and Europe is widening. The U.S. economy has been growing faster than Europe in….

European Head Fake?

Want to be happy and successful?

To save you decades of life or hours of research paper reading, what is the best way to think about your life and time if you want to be happy and successful? Have a very positive and nostalgic view of your past, be balanced in your enjoyment of today and planning for tomorrow, and absolutely avoid a negative view of your past and a fatalistic view of the present. Some of this is common sense to successful people, bad attitudes and a lack of planning result in bad outcomes, but what about this past stuff? I have discovered that it’s not so much our past as our view of our own past that has a huge impact on the present and future. Family members with nearly identical life experiences can have very different views of their past and as a result, very different life satisfaction. Of course, there is no doubt that some aspect of our past-view is colored by our outcomes, so that people with unhappy lives connect the causal dots to unhappy past events. But I firmly believe that in order to be happy and broadly successful in all areas of our lives, we need to view our past as a series of events that lead to a positive and happy life. Said another way, as we write the unfolding story of our lives we have the power to choose the chapter titles, to select the turning points and the shaping factors that best explain a happy and successful present and future, and in so doing, make our lives a story worth living. – Michael W. Boone, CFP, CFA

 

*Albright, Robert and John McDermott. 2015. “Time Perspective and the Practice of Financial Planning.” Journal of Financial Planning 28 (1): 46–52.

THE BRIGHT SIDE OF CHEAP OIL

Earnings season is here and, as we wrote in our earnings preview last week (“A Tale of Two Earnings Seasons”), low oil prices and the energy sector will be the market’s main focus. Energy companies begin to report earnings this week, as energy services provider Schlumberger releases results on Thursday, January 15, 2015, although most of the sector’s results will come the last weekof January and first week of February. While we try to gauge the energy sector outlook, we will also pay close attention to sectors and industries that potentially benefit the most from cheap oil, particularly in the consumer discretionary sector and the transportation industry, or the transports. The obvious place to start when analyzing beneficiaries of cheap oil is the consumer discretionary sector. The “tax cut” from lower prices at the pump is significant. U.S. consumers purchase about 140 billion gallons of gas annually, so a $1.00 drop in gasoline is a net savings of $140 billion (or about 1% of gross domestic product [GDP]). Each household that has been spending about $2,500 per year on gasoline (roughly the national average) will see a drop of perhaps $600 annually, based on U.S. Energy Information Administration (EIA) forecasts. For someone making the median income in the United States (about $52,000), that’s almost an extra week’s paycheck. And the total does not include home heating costs, where additional savings are captured, as the decline came just ahead of the coldest winter months (the sharp drop in natural gas prices is also helping). Depending on your assumptions, savings for the average American from lower energy prices could reasonably be estimated at over $1,000 per year, which for many, is like getting a raise. Keep in mind the consumer represents two-thirds of the U.S. economy. Depending on your assumptions, savings for the average American from lower energy prices could reasonably be estimated at over $1,000 per year….

The Bright Side of Cheap Oil

Back to the Future in 2015

The Hollywood blockbuster Back to the Future was released 30 years ago, in 1985, and is garnering some headlines lately as its sequel, Back to the Future II, was mainly set in 2015. The original film, set in 1985, sees the main characters use a time traveling DeLorean — that’s a car for those of you born after 1975 — to travel back to 1955, and at the end of the film, briefly, to this year, 2015. The quick visit to 2015 at the end of the first film set the stage for the sequel, Back to the Future II, which was released in 1989. Although some of what was depicted as 2015 in Back to the Future II—hoverboards, flying cars, sneakers with automatic shoelaces, fax machines everywhere, time travel, and the Cubs winning the World Series — has yet to happen (sorry Cubs fans), some things about life in 2015 did come true. Flat-panel TVs, hands-free gaming, cameras everywhere, video chatting, and yes, even drones, all appear as staples of everyday life in 2015.

Back to the Future II

doesn’t tell us much about the economy in 2015, however, although most of the economic activity in the film seems to revolve around selling 1980s nostalgia and casino gambling. But how might 2015’s economy compare with 1985’s, which is often thought of as part of the roaring 1980s and, in some respects, a golden age for the U.S. economy?

Back to the Future 2015