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Weekly Market Commentary (October 16, 2017)

The Markets

 

There's a new kid in town: narrative economics.

 

Last week, Richard Thaler was awarded the Nobel Prize in economics. His work in behavioral economics and finance recognizes not all economic and financial decisions are made after rational reflection. In Nudge, he wrote:

 

"The workings of the human brain are more than a bit befuddling. How can we be so ingenious at some tasks and so clueless at others?...Many psychologists and neuroscientists have been converging on a description of the brain's functioning that helps us make sense of these seeming contradictions. The approach involves a distinction between two kinds of thinking, one that is intuitive and automatic, and another that is reflective and rational."

 

Yale professor Robert Shiller, another Nobel laureate in economics, is exploring a field of study related to Thaler's. It's called narrative economics. Narratives are the stories we share with each other. They are fuel for conversation and popular narratives often become viral. During a presentation at the University of Chicago, Schiller explained narrative economics is "the study of the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations."

 

Today, a popular narrative in financial circles focuses on Professor Shiller's cyclically-adjusted price-earnings (CAPE) ratio, which suggests the market may be overvalued. Barron's reported, "The CAPE, which is based on average inflation-adjusted earnings over the trailing 10 years, stands at 31, versus 32.5 in 1929 and 44 in late 1999."

 

If stocks are overvalued, why do investors keep buying shares? It's a question narrative economics hopes to help answer in the future.

 

 

Data as of 10/13/17

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

0.2%

14.0%

19.7%

10.8%

12.1%

5.1%

Dow Jones Global ex-U.S.

1.7

21.3

21.8

5.0

5.4

-0.9

10-year Treasury Note (Yield Only)

2.3

NA

1.7

2.3

1.7

4.7

Gold (per ounce)

3.0

12.1

3.1

1.9

-5.6

5.5

Bloomberg Commodity Index

2.4

-1.8

-0.4

-10.3

-10.0

-7.1

DJ Equity All REIT Total Return Index

1.6

8.4

8.8

10.4

10.3

6.1

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg 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 Total Return 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.

 

self-driving cars, life-like robots, artificial intelligence, and video phones. Millennials and members of Gen Z may find the original Blade Runner movie a bit dated. After all, many of the tech innovations imagined have become a part of our daily lives and others, like mood organs, are in the works.

 

Mood organs were among the human enhancements imagined by Philip Dick in Do Androids Dream of Electric Sheep? (The book upon which Blade Runner was based.) A recent c|net.com article explained:

 

"Dick doesn't describe the design of the mood organ or how it works, only specifying that it can stimulate or sedate the user's cerebral cortex. Users simply dial up the emotion they want, such as 481 (awareness of the manifold possibilities open in the future) or 594 (pleased acknowledgement of a spouse's superior wisdom)."

 

Neural implants are a reality already, although they're not used to control human emotion. Thousands of people with Parkinson's have implants to manage tremors and applications to help with epilepsy and depression are being explored, according to IEEE Spectrum.

 

Medical treatments are not the only applications for neural implants. Elon Musk is developing 'neural lace,' a brain-computer interface (BCI) that may be injected into the human body, travel through the bloodstream, and settle over the cerebral cortex. While neural lace someday may be used to treat or diagnose neurological issues, The Economist reports Mr. Musk has argued, "human beings need to embrace brain implants to stay relevant in a world which, he believes, will soon be dominated by artificial intelligence."

 

Musk is not the only entrepreneur pursuing brain interfaces. IEEE Spectrum reported Mary Lou Jepsen, an MIT alumnus and tech executive, has founded a company which is working on non-invasive BCIs "for imaging and telepathy (the latter could conceivably be done by reading out thought patterns in the brain)."

 

It's possible the idea of humans with superpowers may seem quaint to future generations.

 

Weekly Focus - Think About It

 

"The real question is, when will we draft an artificial intelligence bill of rights? What will that consist of? And who will get to decide that?"

--Gray Scott, Futurist philosopher

 

Best regards,

 

Lee Barczak

President

 

* 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 Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index. * 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 afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce. * The Bloomberg 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 Total Return 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. * Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. * 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.

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Weekly Market Commentary (October 9, 2017)

Weekly Market Commentary (October 9, 2017)

 

The Markets

 

 

Slow and steady...

 

It has been 332 days since the Standard & Poor's 500 (S&P 500) Index experienced a 5 percent drop, reported Barron's. If there isn't a selloff on Monday or Tuesday, this will become the longest rally without such a drop.

 

During this period, the Index has gained 33 percent. Think about that for a moment: 33 percent over 332 days. By Barron's calculations, the market has gained less than 0.1 percent per day. That's a very slow rate of increase, relatively speaking. The longest-ever rally without a 5 percent drop, which began in November 1994, was accompanied by a gain of 56 percent or 0.17 percent per day.

 

The most recent issue of The Economist pondered the phenomenon of the slow-as-molasses bull market that has pushed asset prices higher:

 

"No one would mistake the bloodless run-up in global stock markets, credit, and property over the past eight years for a reprise of the 'roaring 20s,' or even an echo of the dotcom mania of the late 1990s. Yet only at the peak of those two bubbles has America's S&P 500 been higher as a multiple of earnings measured over a ten-year cycle. Rarely have creditors demanded so little insurance against default, even on the riskiest 'junk' bonds. And rarely have property prices around the world towered so high...the world is in the throes of a bull market in everything."

 

It would be a mistake to assume asset prices will continue to move higher indefinitely. One characteristic that may signal the onset of a bear market is investor euphoria, and we haven't seen that. The most recent American Association of Individual Investors' Sentiment Survey showed 2.3 percent more investors were bullish last week, pushing the total to 35.6 percent. That's still well below the historic average of 38.5 percent.

 

Last week was punctuated by a senseless shooting. Our hearts and prayers are with the people of Las Vegas.

 



Data as of 10/6/17

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

1.2%

13.9%

18.0%

9.1%

11.9%

5.1%

Dow Jones Global ex-U.S.

0.5

19.3

17.5

3.3

4.8

-1.0

10-year Treasury Note (Yield Only)

2.4

NA

1.7

2.4

1.8

4.6

Gold (per ounce)

-1.7

8.9

0.6

1.8

-6.6

5.6

Bloomberg Commodity Index

-0.6

-4.1

-1.9

-11.1

-10.6

-6.9

DJ Equity All REIT Total Return Index

0.5

6.6

8.6

10.2

10.1

5.6

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg 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 Total Return 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.

 

Zombie tourism and zombie companies. Zombies have a special place in the heart of pop culture. The undead are pivotal characters in books, movies, games, and television shows. The practical can read The Zombie Survival Guide. Thrill seekers can binge on The Walking Dead. Romantics have Pride and Prejudice and Zombies. Anyone looking for a laugh can watch Shaun of the Dead or Zombieland.

 

If you're one of those people who just can't get enough of roamers, rotters, biters, and crawlers, you're in for a treat: zombie tourism. National Geographic has identified several travel destinations that are steeped in zombie legend:

 

1.      Haiti. American zombie culture appears to have origins in Haiti, where slaves believed death would reunite them with their gods and homelands. The exception was suicide. If slaves took their own lives, they "would be forced to remain in their bodies, soulless, and continue to work the plantations."

 

2.      Greece. In Greece and elsewhere, folklore historians have found anyone who died of plague or was cursed, murdered, or born on an inauspicious day, could potentially rise from the dead. Some archeology digs have found graves with skeletons weighted by rocks or millstones.

 

3.      Georgia (in Europe). You won't find any zombies here - and that's the point. Apparently, Georgia boasts some of the world's most promising zombie-proof dwellings. The village of Chazhashi, at the confluence of the lnguri and Black Rivers, has more than 200 nearly impenetrable medieval tower houses.

 

Zombies aren't always undead humans. There are zombie companies, too. A zombie company is debt-laden and on the edge of bankruptcy. In fact, the Organization for Economic Co-operation and Development (OECD) thinks zombie firms may be one reason economic growth has been so slow. The Economist reported:

 

"We know that a few companies are still producing substantial productivity gains but it may be that monetary policy, by keeping rates low, has stymied the forces of creative destruction; 'zombie' companies have been kept alive, dragging down the productivity numbers. Whatever the reason, economic growth won't rebound until productivity perks up."

 

Perhaps National Geographic should add some quarterly earnings calls to its zombie tourism list.

 

Weekly Focus - Think About It

 

"Fear is the main source of superstition, and one of the main sources of cruelty. To conquer fear is the beginning of wisdom."

--Bertrand Russell, British philosopher

 

Best regards,

 

Lee Barczak

President

 

* 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.* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* 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 afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg 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 Total Return 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.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Stock investing involves risk including loss of principal.

 

 

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Weekly Market Commentary (October 2, 2017)

 

 

 

Weekly Market Commentary (October 2, 2017)

 

The Markets

 

A lot happened during the third quarter of 2017, but not much changed.

 

The bull market in U.S. stocks continued to charge ahead. Traditional measures of valuation continued to suggest the market is overvalued, but some analysts argued it's different this time. The Economist explained:

 

"The current [cyclically-adjusted price-to-earnings] ratio of 31 suggests that stocks are about 50% over-valued - a figure that has only been exceeded in the past 60 years during the dot-com bubble. Bulls argue that the S&P 500's constituents can justify this heady valuation. Big American companies are wielding increased market power, enabling them to earn outsized profits at the expense of America's customers."

 

The bull market in U.S. bonds continued. Interest rates on 10-year Treasury bonds were lower at the end of September than they were at the start of the year, despite the Federal Reserve increasing rates in March and June. The Fed also has indicated it will soon begin to unwind its balance sheet, which includes about $4.5 trillion in Treasury bonds, mortgage-backed securities, and government agency debt.

 

Geopolitical tensions remained high, but investors were impervious to the potential effect of various conflicts on stock and bond markets. In August, Barron's wrote:

 

"The biggest surprise of 2017 remains that geopolitical risk continues to not matter. Until Monday, North Korea's nuclear missile program had again faded into the background as just another high impact/low probability risk with no discernible effect on market sentiment. Brexit, the changes in leadership roles in China after the 19th National People's Congress, the possibility of a United States-China trade war, and the unpredictable nature of the Trump presidency are not weighing on stocks."

 

The CBOE Volatility Index (VIX) keeps plumbing historic lows. The VIX reflects investors' expectations for market volatility in coming months. The lower the Index reading, the lower volatility expectations are. The historic average for the VIX is about 19.

 

During 2017, the number of days on which the VIX finished below 10 - suggesting investors are exceptionally calm - increased significantly. In early June, the VIX had closed below 10 just 14 times since 1990. Six of those closes had occurred in 2017. By the end of September, the VIX had closed below 10 on 32 days since 1990 and 24 times in 2017.

 

We're still waiting for inflation to move higher. At the end of the quarter, inflation appeared to be heading the wrong way. The core Personal Consumption Expenditures (PCE) index, which is the Federal Reserve's favorite measure of inflation, came in at 1.3 percent, year-over-year. That's its lowest level since October 2015, reported Barron's. The Fed's goal is to have inflation at 2 percent. It has raised rates during 2017 in anticipation of higher inflation rates, but those higher rates have yet to materialize.

 

 

Data as of 9/29/17

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

0.7%

12.5%

17.1%

8.4%

11.8%

5.0%

Dow Jones Global ex-U.S.

-0.6

18.7

16.5

2.7

4.9

-0.9

10-year Treasury Note (Yield Only)

2.3

NA

1.6

2.5

1.6

4.6

Gold (per ounce)

-0.9

10.7

-2.7

1.7

-6.4

5.6

Bloomberg Commodity Index

-0.5

-3.5

-0.9

-11.2

-10.8

-7.2

DJ Equity All REIT Total Return Index

0.7

6.1

2.1

10.1

10.2

5.8

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg 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 Total Return 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.

 

the case of the swirling Euros. In mid-September, local authorities in Geneva, Switzerland were investigating an unexpected deposit. Reuters reported:

 

"...the first blockage occurred in the toilet serving the vault at [a] bank...in Geneva's financial district, and three nearby bistros found their facilities bunged up with 500-euro notes a few days later...The cash was confiscated during the investigation and it was unclear who would get it if it was found to be lawful. There was no immediate reason to think it was dirty money..."

 

Whoever was responsible for flushing about $100,000 worth of 500-euro bills may have jumped the gun. The €500 note will be discontinued by the European Central Bank because authorities suspect it has been used to facilitate illegal activities, but production continues until the end of 2018.

 

The perpetrator hasn't committed a crime, reported Bloomberg. While it's illegal to mutilate or deface bills in the United States, that's not the case in Switzerland. The European Commission isn't concerned when small amounts of euro are damaged. Its rules for legal tender state:

 

"The destruction of small quantities of euro banknotes or coins by an individual should neither be prohibited nor penalized. The justification for the non-prohibition is the fact that the lawful owner of a banknote should be able to do what he/she wants with his/her own good as long as there is no impact on third parties."

 

Why investigate if there is no crime? There's nothing like a good mystery to occupy the mind!

 

Weekly Focus - Think About It

 

"The problem with putting two and two together is that sometimes you get four, and sometimes you get twenty-two."

--Dashiell Hammett, American author

 

Best regards,

 

 

 

Lee Barczak

President

 

* 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.* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* 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 afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg 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 Total Return 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.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

 

 

Morgan Kenwood Advisors

5130 West Loomis Road, Greendale, Wisconsin 53129

Phone: (414) 423-4020

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Weekly Market Commentary September 25, 2017

Weekly Market Commentary (September 25, 2017)

 

 The Markets

 

Geopolitics, what is it good for? Absolutely nothin'!

 

In January, Robert Kahn of the Council on Foreign Relations wrote in Global Economics Monthly:

 

"Markets showed impressive resilience in the face of a range of geopolitical shocks in 2016, but recent market moves suggest this year could be different...It should be the year that global geopolitical risks provide the volatility in markets that I, and many other economists, have been predicting for some time."

 

Kahn may share the bemusement of bond market prognosticators who have anticipated the end of the bull market in bonds for years and have yet to see their predictions prove out.

 

So far in 2017, investor confidence has remained impervious to geopolitical threats. Bloomberg reported, while diplomats at the United Nations stress over North Korea's threat to drop a hydrogen bomb, Russia's provocations along the borders of Eastern Europe, rising Middle East tensions, and conflict between the United States and China in the South China Sea, investors remain relatively sanguine.

 

The CBOE Volatility Index, or VIX, which measures market expectations for near-term volatility in the Standard & Poor's 500 Index (S&P 500), finished below 10 on Friday. Historically, the VIX has finished below 10 on just a few days in its history. While the very low level of the VIX doesn't tell us much about the future, Barron's reports it indicates investors are not too concerned about "what's happening now and what has happened."

 

That contention appears to be supported by U.S. stock market performance. Despite hostile rhetoric between the United States and North Korea last week, the S&P 500 and Dow Jones Industrial Average both finished slightly higher.

 

 

Data as of 9/22/17

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

0.1%

11.8%

14.9%

87.9%

11.4%

5.1%

Dow Jones Global ex-U.S.

0.4

19.4

15.7

2.0

4.7

-0.6

10-year Treasury Note (Yield Only)

2.3

NA

1.6

2.6

1.7

4.6

Gold (per ounce)

-2.1

11.7

-3.3

2.2

-6.0

5.9

Bloomberg Commodity Index

-0.4

-3.0

-0.8

-10.6

-10.3

-7.1

DJ Equity All REIT Total Return Index

-2.5

5.4

0.5

9.8

9.6

5.9

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg 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 Total Return 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.

 

it's the ig nobel awards!On September 14, the 27th First Annual Ig Nobel Prize Ceremony kicked off with a flight of paper airplanes.

 

The winners were chosen by the publishers of the Annals of Improbable Research, which reviews, "Real research, about anything and everything, from everywhere. Research that's maybe good or bad, important or trivial, valuable or worthless." The most important characteristic of the works published is they make people laugh and think.

 

The evening's entertainment included ceremonial bows from returning Ig winners John Culvenor, who received the 2003 Physics Prize for analyzing the forces required to drag sheep across various surfaces, and Deborah Anderson, who received the 2008 Chemistry Prize for testing whether a dark cola is an effective spermicide.

 

This year's winning research explored diverse and improbable ideas, including studies entitled:

 

  • Didgeridoo Playing as Alternative Treatment for Obstructive Sleep Apnoea Syndrome: Randomised Controlled Trial, which discovered that, "Regular didgeridoo playing is an effective treatment alternative well accepted by patients with moderate obstructive sleep apnoea syndrome."
  • Never Smile at a Crocodile: Betting on Electronic Gaming Machines is Intensified by Reptile-Induced Arousal, which showed that, "At-risk gamblers with few self-reported negative emotions placed higher average bets at the EGM after having held the crocodile when compared to the control."
  • Is That Me or My Twin? Lack of Self-Face Recognition Advantage in Identical Twins concluded that, "identical twins cannot tell themselves apart, visually."
  • On the Rheology of Cats, which explored whether a cat can be both a solid and a liquid and determined, "much more work remains ahead, but cats are proving to be a rich model system for rheological research."

 

Each of the 10 Ig Nobel winners was given 60 seconds to explain themselves before being awarded a bust replica of a human head with a question mark on top of it, a certificate signed by a Nobel Laureate, and one trillion Zimbabweans.

 

Russian-born physicist Andre Geim was the first scientist to win both awards. He received a 2000 Ig Nobel Prize for his work using magnets to levitate frogs, and a 2010 Nobel Prize for discovering graphene (a new form of carbon).

 

Weekly Focus - Think About It

 

"Like a welcome summer rain, humor may suddenly cleanse and cool the earth, the air, and you."

--Langston Hughes, American poet

 

 

Best regards,

 

Lee Barczak

President

 

* 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.* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* 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 afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg 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 Total Return 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.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

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Weekly Market Commentary (September 18, 2017)

 

 

Weekly Market Commentary (September 18, 2017)

 

The Markets

 

We all have our pet peeves, and if there is one thing markets do NOT like, it is uncertainty. Unfortunately, we entered 2016 with a lot of unanswered questions:

  • How much has China's growth slowed? How will the country's slower growth affect companies and investments around the globe?
  • How will the Federal Reserve's changing monetary policy affect the U.S. economy? How many times will it raise rates during 2016? Will the Fed change course?
  • Will oil prices continue to move lower? Will they move higher? How could changing oil prices affect economic growth?
  • How is the sharing economy (renting rooms in a home, offering rides for a price, sharing goods like automobiles and bikes) affecting economic growth in the United States?  
  • How will demographics - particularly the changing ratio of working people to retired people - affect economic growth?
  • How will geopolitical risks affect markets during 2016?

Amidst all of this uncertainty, the words 'market correction' (a drop of at least 10 percent in the value of the market) and 'bear market' (a drop of 20 percent or more in the value of the market) are being bandied about frequently. According to Barron's, the Standard & Poor's 500 Index finished last week in correction territory. So, are we headed for a bear market? That remains to be seen.

 

Bear markets often are accompanied by recessions, and few experts believe a recession is likely in the United States during 2016. Historically, there have been bear markets which have occurred without a recession. These have lasted, on average, for about five months. That's far shorter than the 20-month average length of bear markets that come in tandem with recessions.

 

One expert cited by Barron's commented on the market downturn, "If there's a silver lining, it's that the market is a lot cheaper than it was a few months ago. The S&P 500 trades at 15.9 times 12-month forward earnings forecasts...back where valuations were at the beginning of 2014. That means there are values to be had."

 

 

Data as of 1/15/16

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

-2.2%

-8.0%

-5.6%

8.5%

7.7%

3.9%

Dow Jones Global ex-U.S.

-3.4

-9.3

-14.1

-4.1

-3.3

-0.7

10-year Treasury Note (Yield Only)

2.0

NA

1.8

1.8

3.4

4.3

Gold (per ounce)

-0.7

3.0

-13.1

-13.3

-4.3

7.1

Bloomberg Commodity Index

-4.2

-6.5

-27.8

-19.3

-14.6

-8.0

DJ Equity All REIT Total Return Index

-2.7

-5.6

-8.5

7.4

10.0

6.3

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg 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 Total Return 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.

 

Investing during the past couple years has been likedriving down a rutted dirt road in a car with worn shock absorbers: fraught with jarring ups and downs. At times like these, it can be helpful to look back and realize we have weathered difficult markets in the past.

 

A good starting point may be August 1979 when the headline on the cover of BusinessWeek declared equities (stocks) were dead. The accompanying article explained, "The Dow Jones industrial average set its all-time high of 1051 in 1973, but since then it has sunk nearly 20 percent to its current 830." More recently, Bloomberg discussed the circumstances that led to the article:

 

"At the time the story was written, the stock market had sustained serious losses and the long-term health of the U.S. economy was a significant concern. The story has aroused some controversy over the years, as the stock market staged a strong comeback in the decades that followed its publication. But few, if any, market forecasters were willing to call such a recovery at the time, and the story provides a telling look at how inflation had ravaged the market landscape - and investor psychology - at the close of the 1970s."

 

Since the 1970s, we've weathered a few other crises of note:

  • On Black Monday, October 19, 1987, the Dow lost 22.6 percent of its value in a single day. Major U.S. indices finished the day at about:
    • o   Dow:1,739
    • o   Standard & Poor's 500 Index (S&P 500): 225
    • o   NASDAQ: 360
  • When the Dotcom bubble burst, the value of the NASDAQ Composite Index (which is sometimes considered a proxy for technology companies) bottomed on October 9, 2002. The major indices finished the day at:
    • o   Dow: 7,286
    • o   S&P 500: 777
    • o   NASDAQ: 1,114
  • On June 30, 2009, the month the Great Recession ended, the major indices closed at about:
    • o   Dow: 8,447
    • o   S&P 500: 919
    • o   NASDAQ: 1,835
  • Last week, after the worst start to a year on record, the major indices finished the week at about:
    • o   Dow: 15,988
    • o   S&P 500: 1,880
    • o   NASDAQ: 4,488

It's an uncomfortable fact, but stock markets can be volatile. They move up and down, although historically, market values have tended to increase over time. That's one reason it's important to build and maintain a well-allocated, diversified portfolio grounded in your risk tolerance and financial goals. Diversification does not assure a profit or protect against losses, but it may help reduce the impact of market fluctuations on the value of your portfolio over time.

 

Weekly Focus - Think About It

 

"The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward."

--Amelia Earhart, Aviation pioneer

 

Best regards,

 

Lee Barczak

President

 

* 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 Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index. * 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 afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce. * The Bloomberg 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 Total Return 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. * Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. * 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.

 

 

Morgan Kenwood Advisors

5130 West Loomis Road, Greendale, Wisconsin 53129

Phone: (414) 423-4020

 

 

 
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Morgan Kenwood Advisors, LLC
5130 West Loomis Road
Greendale, WI 53129-1424
Phone: (414) 423-4020
Fax: (414) 423-4023
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