Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Quarterly Market Commentary | July 2015 Quicksilver Markets Top Economic Headlines The Greek Tragedy Wile E. Coyote’s Gravity Lessons Q2 Top Economic Headlines T. Doug Dale, Jr. Mr. Dale serves as a shareholder and investment advisor of Security Ballew Wealth Management. Security Ballew and its advisors guide over $600 million dollars in assets under advisement for corporations, foundations, qualified retirement plans and high net worth individuals. Mr. Dale graduated from the University of Mississippi in 1994 with a Bachelor of Business Administration degree in managerial Purchases of new homes in the U.S. rose in May to the highest level in seven years, signaling this key sector in the U.S. economy is finally normalizing. The loosening of lending standards along with low interest rates suggests residential real estate will continue to be additive to the US economy in 2015. Federal Reserve Chairwoman, Janet Yellen, announced she is not yet prepared to raise interest rates off the current zero Fed Funds policy level. Market expectations suggest a September or December time frame for the Fed’s first move to raise interest rates for the first time in nearly ten years. U.S. Treasury notes and bonds despite their historically low yields finance. He earned his Master’s degree from the Millsaps College Else School of Management. With over 20 years of investment management experience, he holds Series 7, 63, and 65 securities licenses. remain among the highest yielding government debt securities in the developed world. Emerging markets and commodity suppliers have grappled with reduced demand from China as China’s property downturn continues to weigh on the world’s second largest economy. After rising over 100% in the last 12 months, China’s equity market is showing signs of deflating. 4800 I-55 North, Suite 21 Jackson, MS 39211 Post Office Box 14888 Jackson, MS 39236-4888 Phone: 601-368-3500 www.sbcorp.com The IMF (International Monetary Fund) has remained unsatisfied with key aspects of Greece’s economic proposals. IMF Managing Director Christine Lagarde noted that Greece has already missed four payments making Greece ineligible for additional funds as long as they are in arrears. June 30th marked a technical default on payments due to the IMF. Now the Euro currency member faces a possible system wide bank restructuring similar to the Cypress episode whereby the larger Greek bank depositors lose a substantial portion of their account balances in order to recapitalize the Greek banking system. Greece and Potential Implications for the Euro Currency For such a relatively small economy, Greece has been getting more than its fair share of the financial media’s headlines. The European Union member has been stuck in a Catch-22 as a result of being unable to maintain its excessive debt burden estimated at $362 billion (U.S.) with an economy tied to the Euro currency. Because Greece’s government remains an excessively large part of the Greek economy, their ability to outgrow their debt burden which now stands at 178% of GDP has finally caused the ECB and the IMF to stop financing the country until more pro-business and pro-growth oriented reforms are enacted along with changing entitlements which are more generous than those of other European countries in the Eurozone. So, what is the big deal if Greece defaults and/or leaves the Euro currency? After all, Greece’s economy and debts are not that big in the scope of Europe’s overall economy. Some have argued that allowing Greece to restructure a meaningful portion of their debts in 2011 was a wise decision as it allowed Portugal, Italy, and Spain to better resist any Greek contagion should Greece have gone into default. The European economy and financial markets were in a tail spin at the time and something needed to be done in order to prevent the 2008 financial crisis from returning to Europe. Others (including me) beg to differ because these “PIGS” countries each have a higher amount of debt relative to GDP (annual economic output) in comparison to 2011. This group also suggests that a Greece free Euro currency would be a good warning to Euro currency members to mind their finances or risk the same outcome. Interestingly, history suggests that a Greek default and return to the drachma will in time help make Greece more competitive thereby speeding up a post default healing process. It will be important to watch how this plays out for Greece because the implications may also apply to other significantly larger European Union members at some point. Either way, I look forward to a resolution to this game of chess that European Union members are presently playing with one another in an attempt to solve an insolvency dilemma. Remember, the Eurozone collectively has a larger economy than the U.S. Therefore, investors should be watchful as to whether or not a Greek default and/or Euro currency exit scenario creates an unexpected level of contagion in global financial markets in coming months. Wile E. Coyote’s Gravity Lessons U.S. equity markets have been moving higher on lower and lower trading volumes in concert with lower and lower volatility over the last few years. At first glance this may sound like a meaningless observation as U.S. equities enter a seventh year of a cyclical bull market that started in March of 2009. However, low volumes and low equity market volatility for long stretches have a way of making up for themselves by returning in sudden jolts to remind investors that equity prices can go down as well as up periodically. Equity markets on average experience intra year corrections of 14.5% each year. The last correction greater than 10% occurred in 2012 shortly after the Federal Reserve ended its QE 2 program. As of the end of 2014, the Fed ended QE 3 and now is attempting to finally raise short term rates later this year. 49 other central banks around the world have actually had to lower interest rates this year in an attempt to ease credit conditions in response to falling inflation and growth levels. U.S. monetary policy is presently diverging from the herd of other central banks as the Janet Yellen-led Federal Reserve publically assumes the decline in U.S. GDP in Q1 will not only strengthen in Q2 but also continue to strengthen the balance of the year. As equity market participants enter the seasonally weak months of May to October, investors should not be surprised if indices such as the Dow Jones Industrials and the S&P 500 experience an average or perhaps even greater than average correction. An average correction would erase (perhaps temporarily) all of the gains from 2014 to date. A greater than average correction similar to those experienced after QE 1 and QE 2 could erase gains as far back as to the beginning of 2013. Therefore, equity investors would be wise to reassess their risk tolerances and objectives in order to ensure not becoming complacent due to the lack of volatility in recent years. T. Doug Dale, Jr. The Quarterly Market Commentary is a quarterly publication for the benefit of the clients of Ballew/Russell, Inc. Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. The contents of this letter have been compiled from original and published sources believed to be reliable but are not guaranteed as to accuracy or completeness. M. L. Ballew, III and T. Doug Dale, Jr. serve as portfolio managers at Ballew/Russell, Inc., a registered investment advisor, Ballew/Russell, Inc. is affiliated with Ballew Investments, Inc., a fully-disclosed introducing broker/dealer and FINRA/SIPC Member utilizing the clearing services of Pershing, LLC. Ballew/Russell, Inc. and Ballew Investments, Inc. are both subsidiaries of Security Ballew, Inc. Clients of Ballew/Russell, Inc. may have positions in and may from time to time make purchases and sales of securities mentioned herein. Copyright © 2015 Security Ballew, All rights reserved. SB Advisors M. L. Ballew, III, CPA, JD, LLM, Chairman of the Board C. Brooks Mosley, CPA, President Karl E. Byrd, CFP, Shareholder T. Doug Dale, Jr, CRPS, MBA, Shareholder James A. Hurt, CLU, ChFC, CSA, Shareholder Alan McCormick, MBA, CFP, Shareholder Robert Scott Rives, CRPS, Shareholder Security Ballew Wealth Management is a comprehensive wealth management firm serving high net worth individuals, foundations, corporations and institutional pension funds. Among the firm's subsidiaries, IPS, serves as a TPA consultant to hundreds of corporate sponsored qualified 401(k) retirement programs.