Solis Wealth Management Report – March 24, 2014

The Markets

After a series of moves that proved far more effective, but were almost as complicated as the Acme Corporation strategies Wile E. Coyote employed in pursuit of the roadrunner, Russia dropped an anvil on Ukraine and annexed Crimea. In response, Ukraine’s acting Prime Minister Arseniy Yatsenyuk signed a political association agreement with the European Union (EU), and the United States slapped sanctions on some of Russia ’s President Vladimir Putin’s wealthy allies and Bank Rossiya.

The EU also took action although the BBC reported Russia’s foreign ministry called the European Council’s decision to impose sanctions “regrettable” and “detached from reality.” European and Russian economies are interdependent. Twenty-five percent of the EU’s gas comes from Russia, and more than one-half of Russia’s budget is derived from oil and gas sold to the EU. In addition, experts cited by the BBC indicated sanctions on Bank Rossiya could tie up monetary transactions in EU banks and potentially affect individual European countries’ business dealings with Russia if economic sanctions are implemented.

Economists cited by The New York Times said, “The uncertainty that now hangs over nearly every profitable enterprise in Russia is what poses the gravest threat to the country’s long-term prosperity, rather than any immediate consequence of the specific sanctions.” While many of Putin’s allies seemed relatively unaffected by the sanctions, at least one has experienced consequences. Reuters reported Russian billionaire Gennady Timchenko was forced to sell his ownership stake of almost 50 percent in a global commodities trading firm after sanctions against him disrupted the company’s operations.

Russian markets have been unsettled by recent events. Consumers and businesses already have been stung by interest rates which are very high by western standards and may move even higher. Rating agencies, like Fitch and Standard & Poor’s, have warned they will downgrade Russia’s credit rating. Russian consumers have been thwarted as both Visa and Mastercard have stopped doing business with Russian people or companies that have been targeted by sanctions.

U.S. stock markets remained relatively blasé about events overseas but were alarmed by Federal Reserve Chairman Janet Yellen’s comments during her first quarterly press conference. She suggested the Fed might begin tightening interest rates in 2015, just a few months after tapering ends.

Data as of 3/21/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.4%

1.0%

20.8%

12.9%

17.8%

5.5%

10-year Treasury Note (Yield Only)

2.8

NA

1.9

3.3

2.7

3.7

Gold (per ounce)

-3.5

11.2

-17.2

-2.3

7.1

12.3

DJ-UBS Commodity Index

-1.5

5.7

-3.7

-7.1

3.1

-1.3

DJ Equity All REIT TR Index

-0.2

7.6

4.3

10.6

25.8

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.

SOME WORRY THE U.S. STOCK MARKET, LIKE A FIRST TIME MARATHONER a few miles from the finish, may be getting a little wobbly. There is no denying the Standard & Poor’s 500 Index has had a good run. It has gained about 172 percent since its low following the financial crisis, and its earnings have grown by 121 percent since 2008, according to Barron’s . Of course, that growth has been supported by extraordinary measures including very low interest rates and multiple rounds of quantitative easing.

Low interest rates have meant businesses could borrow money relatively cheaply. Barron’s pointed out lower borrowing costs were reflected in bond spreads – the difference between the current yield on one type of bonds (for example, high-yield bonds, investment-grade bonds, or government bonds) and that of other types of bonds with similar maturities. The differences in yield between higher risk and lower risk bonds are a lot smaller than they once were. According to Barron’s, from late 2008 through early 2014, the yield on high-yield bonds and comparable Treasury bonds has narrowed from about 22 percent to about 4 percent.

As private borrowing costs have dropped, companies have been able to borrow billions of dollars and pay relatively little in interest. Some have returned the money to shareholders as dividends; some have used the cash to make acquisitions; and others have repurchased shares on the market or directly from investors. Typically, when companies repurchase stock, their earnings per share rises and so does the value of any outstanding stock. Regardless, low interest rates and cheap borrowing costs have helped fuel share price appreciation and the bull market in stocks.

Three rounds of quantitative easing (the Fed’s bond buying programs) also helped push stocks higher. An expert cited in Barron’s noted “there has been a more than 90 percent correlation between the growth of the central bank’s assets and the S&P 500 since the bull market began five years ago.”

Now, the Fed is tapering quantitative easing and has indicated tighter monetary policy may begin as soon as early next year. Should investors worry the bull market will go away as these exceptional support measures are taken away?

If an investor has long-term financial goals, the answer is no. The portfolio allocation may have been chosen to help pursue those goals through all kinds of market conditions. If the stock market is slowing down, an investor may experience slower growth but that doesn’t mean the goals have changed or the holdings are unsound. We may want to stay focused on the finish line.

Weekly Focus – Think About It

“Humility is not thinking less of yourself, it’s thinking of yourself less.”

–C. S. Lewis, novelist, scholar, broadcaster

What’s happening at Solis Wealth Management?

Please enjoy this week’s commentary from ~ Greg Solis

Spring is among us here in the desert.  It seems as though we never even had a winter with the mild, warm temperatures.  Although, it’s hard to believe we are already in the fourth quarter we’re excited about closing out the school year.

Jack just celebrated his 15th birthday.  I can’t believe he’s going to have his driver’s license next year.  What a scary thought!  For his birthday, he wanted to go on a surfing excursion with just me and him; no friends or girls.  We went surfing in San Diego Friday afternoon.  Saturday morning, we made our way up north towards NorthCounty and Carlsbad , and ended up staying the night in Santa Monica.  We woke up Sunday morning and went surfing in Malibu.  We had a great time together; Jack is such a great young man.  It’s hard to believe that in three short years he will be transitioning to college.  He did well in basketball this year, but he is really excelling in golf.  He’s on the high school varsity team and is doing well.

Nicole had a break out year in soccer and did extraordinarily well.  Her team did well in the regional finals and she was one of the star players.  After the regular season she made the all-star team and the team went very far.  She was very successful, scored a lot of goals, and demonstrated great leadership qualities. I’m very proud of Nicole.  She shows a lot of maturity and is fun to be with.

Emily has had a break out year as well in dance.  Although she loves sports like soccer and volleyball, dance continues to be her passion.  She tried out for an open call at the McCallum and did get a call back. Even though she didn’t end up qualifying we were very proud of her for getting a call back and it was a big deal for her.  At the talent show at her school, she surprised everybody with her great dance skills.  She has a dance recital coming up at the McCallum Theater in June and we are very excited to see her perform in five different dances.   We know she’ll do great because she has been working hard all year.

Monica continues to do well.  She works hard getting the kids to where they need to be and keeping the household in order.  She also finally got her braces off and her smile looks as beautiful as ever.

We’re looking forward to the summer.  We have a couple of family vacations planned and the kids are already starting to count the days until school is out.  It’s hard to imagine that next school year I will have a sophomore, a 7th grader, and a 4thgrader.  All is well at Solis Wealth Management.  I love working with our team – they’re the best!  I’ll look forward to talking with you soon.  God bless ~ Greg

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://finance.yahoo.com/news/stock-futures-edge-higher-wall-113701535.html

http://www.nytimes.com/2014/03/22/world/europe/russia-starts-to-feel-effect-of-sanctions.html?hpw&rref=world&_r=1

http://finance.yahoo.com/news/u-sanctions-hit-gunvor-co-founder-prompting-stake-012630577–sector.html

http://www.bbc.com/news/world-europe-26696189

http://www.bbc.com/news/business-26679452

http://blogs.marketwatch.com/capitolreport/2014/03/20/many-economists-see-yellens-six-month-comment-as-rookie-mistake/

http://online.barrons.com/article/SB50001424053111904628504579431230885220564.html (or go tohttp://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-24-14_Barrons-Stocks_Perform_a_Balancing_Act-Footnote_7.pdf)

http://online.barrons.com/article/SB50001424053111904628504579417220757475770.html#articleTabs_article%3D1(or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-24-14_Barrons-Happy_Birthday_Bull-Footnote_8.pdf)

http://www.investopedia.com/terms/h/high-yield-bond-spread.asp

http://www.investopedia.com/terms/s/sharerepurchase.asp

http://www.brainyquote.com/quotes/quotes/c/cslewis395865.html