Solis Wealth Management Report – June 24, 2013

The Markets

It was like watching a game of telephone where one child speaks into another child’s ear and that child speaks into another child’s ear and, by the time the last child repeats the original statement, it has transformed into something completely different.

Chairman Ben Bernanke stepped up to the microphone at the press conference after the Federal Open Market Committee’s policy meeting and said:

“As I mentioned, the current level of the federal funds rate target is likely to remain appropriate for a considerable period after asset purchases are concluded. To return to the driving analogy, if the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of (bond) purchases. However, any need to consider applying the brakes by raising short-term rates is still far in the future. In any case, no matter how conditions may evolve, the Federal Reserve remains committed to fostering substantial improvement in the outlook for the labor market in a context of price stability.”

His statements filtered through analysts and managers, through blogs and media outlets and, by the time it reached investors, they heard this: sell. The message rippled through stock, bond, and other markets around the world. As markets fell, interest rates rose, particularly in countries like Indonesia, Brazil, Mexico, Turkey, Russia, and Poland . A Bloomberg report cited in the Washington Post stated the People’s Bank of China injected about $8.2 billion into China’s financial system in an effort to keep interest rates low.

Investors’ fears were reflected in the CBOE Volatility Index (VIX), which is also known as the investor fear gauge. It measures the market’s expectations for volatility during the next 30-day period. It started the week at 10.2 percent and finished the week at 19. According to a Citigroup equity strategist who was quoted in The Wall Street Journal, “…there are much higher probabilities for market gains when the VIX is sitting between 10 and 15 than when it is in the 20-25 range…” Will markets settle? Or, will volatility continue? Time will tell.

Data as of 6/21/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-2.1%

11.7%

20.1%

12.7%

3.9%

5.0%

10-year Treasury Note (Yield Only)

2.5

N/A

1.6

3.2

4.2

3.4

Gold (per ounce)

-6.9

-23.5

-18.1

1.1

8.0

13.8

DJ-UBS Commodity Index

-2.4

-8.5

-0.4

-0.3

-11.2

0.9

DJ Equity All REIT TR Index

-5.1

1.5

10.0

13.4

6.2

10.8

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.

there’s Another housing bubble? really? The housing market in the United States isn’t just recovering – it’s RECOVERING. Tight inventories, fewer foreclosures, low mortgage rates, and rising demand have helped push home prices significantly higher. Year-over-year sales data shows home prices increased by about 15 percent through the end of May, according to the National Association of Realtors (NAR). That’s the strongest year-over-year improvement since October 2005, and it marks the 15th month of gains in a row. In many cases, cities that had experienced the biggest declines in prices during the housing crisis realized some of the biggest gains.

Double digit price gains have some believing the housing market is getting frothy and a new housing bubble may be forming. Fitch, a ratings service, recently said home price gains in some markets are outpacing improvements in underlying fundamentals, which could cause prices to stagnate or fall again.

So, is it a bubble? It depends on who you ask, but credible sources suggest otherwise. According to an article in an early June issue of The Economist:

“To qualify as a bubble, an asset must not simply appreciate; it must decouple from its intrinsic value. For houses, The Economist each quarter compares the ratio of prices to household income and rents against their long-run average in 20 countries. We have now done the same for the 20 metropolitan areas in the Case-Shiller index. The verdict: in most markets, houses are at or near their long-run values, but none looks bubbly.”

One thing that’s keeping home prices high is limited supply. The Chief Economist for the NAR recently said one way to moderate future price growth is to create additional supply by building more new homes.

It seems clear from the markets’ response to the Fed Chairman’s comments during last week’s press conference and speculation about bubbles – investors are feeling a lot of fear and uncertainty.

Weekly Focus – Think About It

“It is evident that skepticism, while it makes no actual change in man, always makes him feel better.”

Ambrose Bierce, American Journalist

What’s happening at Solis Wealth Management?

Please enjoy this week’s commentary from ~ Kris Placencia, Director of Client Relations

It’s hard to believe that June is almost over, but the heat is definitely a reminder that summer has arrived!  Before you know it, Christmas will be here! (Did I just say that??? Yes, in fact I picked up two Christmas presents the other day…not because I was on a Christmas shopping mission but because they jumped out as “must-gets” for special people in my life.)

Although it heats up around here in the summer, I have to say it is my favorite time of the year.  The quieter pace in the Desert is a welcomed relief, BBQ’s with family and friends are always enjoyed and trips away make to rest and relax make it the highlight of my year.  So far this summer, I have been enjoying a couple of day trips out of the Desert to Big Bear and Idyllwild on the back of my boyfriend’s Harley Davidson.  There is nothing like the sun on your back and the wind in your face to experience more fully God’s amazing creation!

I have also been enjoying having Hannah home for the summer.  Although we’ve always had a great relationship, the growth she has experienced this past year at college has really caused our relationship to go to another level.  The parent-child relationship is becoming more of an adult-adult and I am so enjoying her maturity and sweet spirit.  She is working on a part-time basis as a hostess at a local restaurant so that gets her off the couch and out of the house a few days a week.  We are planning on going to San Diego in a couple of weeks to spend the weekend there. We will be picking up her best friend (since pre-school!) at the airport.  She now lives in Minnesota but will be visiting us for a week.  It will be wonderful to see them together again!

Other summer activities include getting away to Mammoth and Lake Tahoe and I am sure several more rides to the mountains.   I trust you are enjoying your summer as well wherever you may be.  Although there are vacations and getaways planned, please remember that there is always someone here to serve you with whatever it is you may need this summer. ~Kris

Best regards,

Greg R. Solis, AIF®

President

Solis Wealth Management
78-075 Main Street
Suite 204
La Quinta, CA 92253
Office: (760) 771-3339
Fax: (760) 771-3181www.soliswealth.com
E-Mail: greg.solis@lpl.com

CA Insurance License #0795867

Greg R Solis is a Registered Representative with and
Securities offered through LPL Financial, 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.

* 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.

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Sources:

http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20130619.pdf (Page 6)

http://www.reuters.com/article/2013/06/22/us-usa-fed-volatility-idUSBRE95L06720130622

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/20/this-is-why-global-markets-are-freaking-out/

http://www.investopedia.com/terms/v/vix.asp

http://finance.yahoo.com/news/wall-st-week-ahead-stocks-000902889.html

http://blogs.wsj.com/moneybeat/2013/06/21/time-to-start-fearing-the-vix/

http://www.reuters.com/article/2013/05/28/us-usa-economy-homes-index-idUSBRE94R0HA20130528

http://money.cnn.com/2013/06/20/news/economy/home-prices-sales-bubble/

http://www.cnbc.com/id/100834061

http://www.economist.com/news/united-states/21579030-recovering-prices-have-yet-inflate-any-big-cities-bubble-hunting%20

http://www.peakadvisoralliance.com/app/webroot/custom/editor/06-24-13_US_House_Prices_Surge_as_Recovery_Gains_Momentum.pdf

http://www.brainyquote.com/quotes/keywords/skepticism.html