Weekly Commentary 07-16-12 PAA by 7LiH18j


									                                   The Monarch Report
                                      July 16, 2012
The Markets
Should the Federal Reserve raise interest rates to fire up the economy?

For the past few years, the Fed has been on a mission to lower rates as much as possible. The
thinking is lower rates will spur economic growth by making it less costly for businesses and
consumers to borrow money.

Unfortunately, it hasn’t quite worked as planned.

Short-term interest rates are near zero and 30-year mortgages are at a record low, yet the economy
is still just muddling along, according to Barron’s. Now, some investment managers are saying the
Fed should reverse course and raise interest rates.

Last week, prominent money manager David Einhorn went on CNBC and said, “I think having
very low zero rates is depressing to people. I think it deprives savers of reasonable incomes, the
ability to forecast a reasonable income, and it cuts down on consumption.” He went on to say low
rates drive up food and oil prices and lower standards of living.

Folks relying on a stream of income from their fixed investments can probably relate very well to
what Einhorn is talking about. As recently as July 2007, $100,000 worth of 1-year Treasuries
would have generated about $5,000 of annual income (a 5 percent yield), according to data from
the Federal Reserve. Now, it would generate only about $200 (a 0.2 percent yield).

The Fed may be in a classic Catch-22, according to CNBC. With sluggish economic growth, it’s
certainly hard to justify a rate hike, yet, low rates are increasingly ineffective. CNBC says a
growing number of analysts suggest the best course of action is to allow “the cash-rich private
sector to sort out its own problems without the government's interference.” However, they
acknowledge it “likely would be painful, but could be the only sustainable path to recovery.”

With the Fed on the record as saying they plan “to keep interest rates at their historically low range
of 0 to 0.25 percent through late 2014,” investors shouldn’t expect the Fed to raise rates any time
soon, according to Fox Business. Only time will tell if this low rate strategy is the right medicine
for the economy.
              Data as of 7/13/12                             1-Week          Y-T-D         1-Year       3-Year       5-Year         10-Year
  Standard & Poor's 500 (Domestic Stocks)                     0.2%           7.9%           3.1%        14.6%         -2.7%          4.0%
  DJ Global ex US (Foreign Stocks)                             -1.1           -0.2          -17.4         5.7          -7.9            5.2
  10-year Treasury Note (Yield Only)                            1.5           N/A            2.9          3.4           5.1            4.6
  Gold (per ounce)                                              0.5            1.3           1.1         20.7          19.1           17.5
  DJ-UBS Commodity Index                                        2.5           -0.2          -14.8         7.2          -4.3            3.5
  DJ Equity All REIT TR Index                                   0.9           17.3           12.7        34.8           2.3           11.6
  Notes: S&P 500, DJ Global ex US, 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

trick, right? Well, there’s really no magic other than the law of large numbers.

Here’s how it works and how it may benefit our economy.

A report from the Federal Highway Administration shows Americans traveled approximately 2.94
trillion miles in motor vehicles for the 12 months ending April 2012. Now, when you figure how
many gallons of gas that burns up, you get a really big number! Moody’s Economy.com chief
economist Mark Zandi has done the math and, by his reckoning, each penny change in the price of
a gallon of gas equates to, you guessed it, about $1.25 billion over the course of a year, as reported
by CNBC.

With the wild swings we’ve seen in the price of gas, the savings – or cost – can add up quickly. A
recent check with AAA showed the average price for a gallon of regular gas dropped by about
$.25 over the past year. So, multiply $1.25 billion by 25 and you get, to quote Carl Sagan,
“billions upon billions” of additional coin in consumer’s pockets. And, that coin could fuel further
growth in consumer spending.

You’ve heard the old saying, “A penny saved is a penny earned.” Today, a few pennies saved on
gas can add up to billions!

Weekly Focus – Did You Know…
There’s about $1.1 trillion of US dollars in circulation today – an all-time record high. However,
most of it is not “floating” around in everyday transactions. About 75 percent of the $1.1 trillion is
in $100 bills which don’t circulate much. On top of that, about 50 to 66 percent of U.S. cash is
held abroad. Despite the proliferation of credit cards and debit cards, we still seem a long way
away from a cashless society.
Source: CNNMoney

Best regards,

Your Monarch Team
P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would
like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask
for their permission to be added.

Securities offered through LPL Financial, Member FINRA/SIPC.

* 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

* 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

* 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.

* To unsubscribe from The Monarch Report please reply to this e-mail with “Unsubscribe” in the subject
line, or write us at karen.rogers@lpl.com.

http://www.federalreserve.gov/releases/h15/data.htm (Treasuries constant maturities/1-year/Monthly)

To top