Solis Wealth Management Report – March 10, 2014

The Markets

Okay, so Russia sending troops into Ukraine’s CrimeanPeninsula did unsettle world markets. At least it did on Monday.

Like a diver plummeting off a cliff, markets in various parts of the world lost value last Monday as investors responded to the possibility of war between Ukraine and Russia. The New York Times said it like this:

“The escalating crisis in Ukraine created turmoil in global markets on Monday, hitting stocks from Wall Street to Ukraine and causing a spike in oil and natural gas prices that could reach into consumers’ wallets. But despite fears that the conflict between Russia and the West over Ukraine could shift into a military confrontation, analysts said there was little risk of global financial contagion or of major blowback to Western economies.

Perhaps that was the reason markets generally did so well during the rest of the week. That and the fact Russian President Vladimir Putin seemed to pause for a breath and, possibly, a reconsideration of strategy after the Russian stock market lost about $58 billion on Monday. (That’s more than the cost of the Sochi winter games.) There were other economic consequences, too. A rapid decline in the value of the ruble led to a sharp rise in short-term Russian interest rates, and the Russian central bank was compelled to spend about $12 billion defending the country’s currency.

Meanwhile, back in the United States, the bull market celebrated its fifth birthday. During the last five years, the value of investors’ holdings in U.S. stocks has increased by about $16 trillion, according to Wilshire Associates as reported in Barron’s. As if that weren’t remarkable enough, last week the Federal Reserve reported the net worth of U.S. households rose by nearly $3 trillion during the last quarter of 2013. It’s enough to make you wonder whether the cost of quantitative easing, which expanded the Federal Reserve’s by more than $3 trillion, was worth it.

Data as of 3/7/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.0%

1.6%

21.1%

12.8%

22.7%

5.1%

10-year Treasury Note (Yield Only)

2.8

NA

2.0

3.5

2.9

3.8

Gold (per ounce)

0.7

11.1

-15.5

-2.4

7.7

12.8

DJ-UBS Commodity Index

1.6

8.3

-0.5

-6.9

5.4

-0.6

DJ Equity All REIT TR Index

-0.4

7.9

4.2

11.0

31.6

8.4

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.

WHERE ARE THEY NOW? Remember that island in the Mediterranean that was in turmoil about a year ago and turned to the European Union (EU) for a bailout?  The situation in Cyprus was a bit confounding because the country was growing relatively robustly and had a small budget deficit. The issue was the country’s banks which were bigger than its domestic economy. Cyprus had about 8 trillion euros in deposits and only 4.5 trillion euros of annual government revenues, according to BCA Research cited inThe Economist. Since bank deposit guarantees are only as good as the country providing them, Cyprus needed some help.

Eurozone leaders responded to the Cypriot bailout request with demands for austerity and reforms – pretty much the same thing they’d been requesting from other bailout recipients – but a ‘bail-in’ also was part of the package. What is a bail-in?  The EU required debt holders and uninsured depositors help absorb bank losses and fork up new capital. Although the idea was initially rejected by the Cypriot parliament, the government capitulated relatively quickly. The Economist described it like this:

“At first, a raid on insured [bank] deposits was envisaged, though ultimately they were spared and the main victims were uninsured depositors – a decision made easier by the fact that many of them were Russians. But getting creditors both to absorb losses and to recapitalize the country’s biggest bank (which also had to absorb the second-biggest and even more comprehensively bust bank) is not proving to be a great success.”

How unsuccessful has it been? The Cypriot economy contracted by about 5 percent in 2013 and is expected to continue to wither this year. Unemployment in the country is at 17 percent.

There are several lessons that can be learned from events in Cyprus, according to The Economist: 1) It’s important to have a state-backed ‘bad’ bank where bad loans can be held and dealt with over the long term; 2) Forcing uninsured depositors to take a hit helped protect taxpayers, but it also damaged public confidence in banks; and 3) Fiscal policy makers need pragmatic and flexible solutions because every banking crisis is different.

Weekly Focus – Think About It

“If your actions inspire others to dream more, learn more, do more, and become more, you are a leader.

–John Quincy Adams, Sixth President of the United States

What’s happening at Solis Wealth Management?

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

In February we celebrated Valentine’s Day and I have to say, it was the best so far!  I’ve had a lot of those “bests” in the past year and am feeling very grateful.   I walked into work that morning and was truly blessed with a special surprise of flowers, balloons and a very sweet card that my honey delivered himself early that morning.  Later that night we shared the evening with some friends at a Valentine’s dinner and dance event. I am truly blessed to know him and am so thankful that after many years of being single, God brought this very special man into my life.  He has definitely been worth the wait and each day I thank God for him.

The weekend of Valentine’s Day was a 3-day weekend, so the following morning I headed to Santa Barbara with my mom to visit Hannah.   Originally from Minnesota, I moved to the Desert in 1986.  My parents followed me and bought a home in YuccaValley about 15 years ago.  My mom has not had much of an opportunity to explore California and this was her first time to the Santa Barbara Area.  Hannah was very proud to show Grandma (“Baby G”, as she calls her) around the WestmontCollege campus and introduce her to her friends.   After a cruise around the Santa Barbara area, we headed out to Ojai for the weekend with the intention of giving Hannah a much-needed break and rest from the hustle and bustle of school life.  We had a great time of relaxing, enjoying the beautiful scenery, shopping at a local farmer’s market and of course, a trip to Marshall’s and TJMaxx.  The three of us always have so much fun together and as I get older I am appreciating my mom more and more and love to watch her relationship with Hannah grow.

Thought for the week….

“Nothing great happens when you hold back.”   Have a great one! ~ Kris

Best regards,

Greg R. Solis, AIF®
President

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

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.

* To unsubscribe from the Solis Wealth Management Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:

http://www.nytimes.com/2014/03/04/business/international/global-stock-market-activity.html?_r=0

http://online.barrons.com/article/SB50001424053111904628504579417220757475770.html?mod=BOL_hp_we_columns#articleTabs_article%3D1 (or go tohttp://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-10-14_Barrons-Happy_Birthday_Bull-Footnote_2.pdf)

http://www.economist.com/blogs/schumpeter/2013/03/bail-out-cyprus-0?zid=307&ah=5e80419d1bc9821ebe173f4f0f060a07

http://www.economist.com/blogs/buttonwood/2013/03/euro-zone-crisis-2?zid=307&ah=5e80419d1bc9821ebe173f4f0f060a07

http://www.economist.com/news/finance-and-economics/21574041-there-more-one-way-savers-lose-out-financial-repression-levy?zid=307&ah=5e80419d1bc9821ebe173f4f0f060a07

http://www.economist.com/news/finance-and-economics/21598649-bail-out-working-bail-isnt-injured-island

 

 

http://www.economist.com/news/leaders/21598645-getting-creditors-not-taxpayers-rescue-banks-seemed-good-idea-it-has-not-worked