Surprise! Britain is leaving the European Union (EU) after 40 years of membership.

Last Thursday, almost three-fourths of voters in Britain – about 30 million people, according to the BBC – cast ballots to determine whether the United Kingdom would remain in the EU. By a slim margin, the British people opted out.

Early Friday, Reuters reported on the immediate and potential repercussions of the decision:

“Britain has voted to leave the European Union, forcing the resignation of Prime Minister David Cameron and dealing the biggest blow since World War II to the European project of forging greater unity. Global financial markets plunged on Friday...The British pound fell as much as 10 percent against the dollar to levels last seen in 1985…The euro slid 3 percent…World stocks saw more than $2 trillion wiped off their value, with indices across Europe heading for their sharpest one-day drops ever…The United Kingdom itself could now break apart, with the leader of Scotland – where nearly two-thirds of voters wanted to stay in the EU – saying a new referendum on independence from the rest of Britain was ‘highly likely.’ ”

U.S. stock markets dropped sharply, too. Barron’s reported markets’ response to the British exit (Brexit) didn’t indicate the bull market in America was over. Citing a report from Morgan Stanley, the publication noted American companies generate 70 percent of revenues domestically, which means U.S. stocks are less susceptible to the vagaries of international events than those of many other countries. That may make U.S. stock markets attractive to investors.

During the next few weeks, as the immediate and extreme response to the news settles and investors realize little will change immediately, the world should gain a better understanding of the ways in which Brexit will affect Britain and everyone else.

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.

what happens now? It seems likely the British government will spend the next few weeks or months developing a strategy for its departure from the EU.

Right off the bat, the British need to put a new leader in place. Prime Minister David Cameron resigned after his side lost Thursday’s vote. Cameron’s comments suggest he does not plan to invoke Article 50. He indicated the new Prime Minister should be responsible for initiating the process.

Article 50 is a clause in the Lisbon Treaty describing the legal process a country must follow to notify the European Union it intends to withdraw. Once notification is delivered, there is a two-year window to complete negotiations. Any extension of negotiations requires the agreement of all EU members, according to The Guardian.

Once they’ve given notice, the U.K. will have to negotiate the terms of its exit from the EU and establish the terms of its future relationship with the group. According to the International Monetary Fund (IMF), the nation also will need to renegotiate trade relationships with 60 or so non-EU countries where its trade is currently guided by EU agreements.

No one can be certain how Britain’s economy will be affected as the nation determines its new position in the world’s pecking order. However, The Economist reported on two possible futures, as set forth by the IMF:

“In the first scenario, Britain quickly agrees on a new trade deal with the EU; in the second, the negotiations are more protracted and Britain eventually settles for basic World Trade Organization rules. In the first scenario, sterling depreciates by 5 percent. GDP growth slips to 1.4 percent in 2017 and unemployment rises slightly…In the second scenario, Britain falls into recession next year. Unemployment hits about 7 percent by 2018, up from around 5 percent now (during the financial crisis it peaked at 8.5 percent). Real wages will stagnate, mainly because of high inflation. Surprisingly, Britain’s trade balance will move into a small surplus, thanks not to the dynamism of exporters but ‘because demand for imported goods plunges due to exchange-rate depreciation and reduced consumption.’ ”

In a victory speech, Boris Johnson, former Mayor of London, Brexit supporter, and a favorite to become the next Prime Minister, said:

“In voting to leave the EU, it is vital to stress there is no need for haste…There is no need to invoke Article 50…We have a glorious opportunity to pass our laws and set our taxes entirely according to the needs of the U.K.; we can control our borders in a way that is not discriminatory but fair and balanced and take the wind out of the sails of the extremists and those who would play politics with immigration.”

EU leaders appear to have a different timetable in mind than recommended by Cameron and Johnson. In a joint statement, Martin Schulz, President of the European Parliament, Donald Tusk, President of the European Council, Mark Rutte, Holder of the Presidency of the Council of the EU, Jean-Claude Juncker, President of the European Commission, said:

“We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be…we hope to have [the U.K.] as a close partner of the European Union in the future. We expect the United Kingdom to formulate its proposals in this respect. Any agreement, which will be concluded with the United Kingdom as a third country, will have to reflect the interests of both sides and be balanced in terms of rights and obligations.”

Will this be the glorious opportunity promised by the leaders of the ‘leave’ side or a tragic split as predicted by the ‘remain’ leaders? Much depends on when and what Britain negotiates with the EU. In the meantime, there is likely to be considerable economic uncertainty and some market volatility.

Weekly Focus – Think About It

Since the outcome of the referendum was announced, the top questions asked of Google in the U.K. have been:

1.      What does it mean to leave the EU?

2.      What is the EU?

3.      Which countries are in the EU?

4.      What will happen now that we’ve left the E.U?

5.      How many countries are in the EU?

NPR opined that British voters seem to have given serious thought to the implications of their choices after the polls had closed.

* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. * 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. * Stock investing involves risk including loss of principal.

The world’s stock markets took it on the chin last week.

A one-two punch was delivered with the Federal Open Market Committee (FOMC) meeting leading and concerns Britain will leave the European Union following.

On Wednesday, the Federal Reserve confirmed what many had suspected. There would be no June rate hike. There was unexpected news, too. The Fed lowered its projections for U.S. growth to 2 percent through 2018. Barron’s reported the stance of various committee members had shifted from the previous meeting:

“At this week’s confab, there were seven projections for two increases, to 0.875 percent, and six for a single hike, to 0.625 percent. There also were two outliers expecting more hikes to above 1 percent. Excluding the highest and lowest guesses, the “central tendency” was in a range of 0.6-0.9 percent, according to the Fed’s projections…In March, however, there was a solid consensus of nine members expecting two hikes to 0.875 percent, and seven looking for more hikes to over 1 percent. Back then, the single outlier was calling for just one increase to 0.625 percent.”

In the past, dovish Fed actions have pushed U.S. stock markets higher; however, stocks were lower by the end of the day on Wednesday, according to MarketWatch.

Investor reticence may owe much to concerns about the possibility of a British exit. Experts cited by Barron’s suggested an EU exit may already be priced into markets since European bank stocks “have been crushed…with some down 40 percent and others at lows not seen in years.”

Treasuries and high-quality government bonds rallied through the end of the week as investors opted for ‘safe haven’ investments^*. On Friday, investors took profits after eight days of gains and rates pushed slightly higher, reported The Wall Street Journal.

^{*US treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit and market risk.  They are guaranteed by the US government as to the timely payment of principal and interest and, if help to maturity, offer a fixed rate of return and fixed principal value.}

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.

are you worth your weight in platinum or, maybe, saffron? Gold is not the only substance that commands a hefty price per pound. The Telegraph recently reported on the most valuable materials in the world by weight and some were quite surprising!

·         Saffron is the most valuable spice in the world. Most of the world’s saffron comes from Iran and it can cost as much as $65 a gram, according to The Guardian. There are almost 454 grams in a pound, putting the value of saffron at $29,510 a pound.

·         Beluga caviar is mighty expensive. Guinness World Records puts the price at about $34,500 a kilogram. A kilogram is a little more than two pounds.

·         Platinum is expected to cost about $1,005 an ounce during 2016, according to Kitco. There are 16 ounces in a pound, putting its per pound value at $16,080.

·         Gold may run about $1,250 an ounce, or $20,000 a pound, by the end of 2016, according to CNN Money.

·         White truffles are “the fanciest tubers in the fungi kingdom,” according to Vox.com. A four-plus pounder sold for $60,000 at auction in 2014, but more common varieties sell for about $300 a pound.

·         Venom is pretty tough to harvest, and it commands a premium price. Snake venom runs about $370 per gram, scorpion venom about $596 per gram, and spider venom comes in at about $1,342 per gram. Multiply these amounts by 454 and you get (per pound for each) $167,980 for snake venom, $270,584 for scorpion venom, and $609,268 for spider venom!

Gram for gram, there are some things in the world more valuable than gold!

Weekly Focus – Think About It

“My father gave me the greatest gift anyone could give another person, he believed in me.”

--Jim Valvano, College basketball player, coach, and broadcaster

* The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings. * 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. * Stock investing involves risk including loss of principal.

The British may be leaving. The British may be leaving.

Last week, the interest rate on 10-year U.S. Treasuries dropped to levels last seen in 2013. Why, you may ask, would bond yields move lower when Federal Reserve policy is to push interest rates higher? The answer can be found across the pond.

On June 23, the United Kingdom, a.k.a. Britain, will vote on whether the country should remain in the European Union (EU) or leave. The New York Times reported:

“The economic effect of an exit would depend on what settlement is negotiated, especially on whether Britain would retain access to the single market for duty-free trade and financial services...Most economists favor remaining in the bloc and say that an exit would cut growth, weaken the pound, and hurt the City of London, Britain’s financial center. Even economists who favor an exit say that growth would be affected in the short and medium term, though they also say that Britain would be better off by 2030.”

When polling indicated voters were leaning toward leaving the EU, and bookmakers indicated a neck-and-neck race, investors got worried and sought the safety of U.S. Treasuries. That helped push Treasury yields lower.

Rates on government bonds in Europe, and elsewhere, moved lower, as well. In some cases, those rates dropped into negative territory. Barron’s reported more than $10 trillion of government bonds had negative yields last week. Investing in 10-year Swiss government bonds cost investors about 50 basis points, while investing in Japanese 10-year government bonds cost 17 basis points.

That makes earning about 1.6 percent on a 10-year U.S. Treasury look pretty good.

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.

who cooked adam smith’s dinner? It’s the title of a new book and an interesting question. The New York Times offered two answers:

“The first is ‘self-motivated economic actors.’ As Adam Smith himself famously wrote, ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.’ The second is his mother. Margaret Douglas was just 28 when her husband died and Adam Smith still in utero. At the age of 2, Smith inherited his father’s estate, and his mother saw that he got his dinner for the rest of her days.”

Presumably, Smith’s mother received no wages, so how much was her labor worth? How much is the unpaid work of parents and family caregivers worth? A couple studies have explored the issue.

First, let’s consider parents.

The Bureau of Economic Analysis reported unpaid work at home would have boosted U.S. gross domestic product (GDP) – the value of all goods and services produced in a country – by 26 percent in 2010.

The U.S. GDP was $14,660 billion in 2010. So, the answer is about $3,812 billion or $3.81 trillion. That’s slightly less than Japan’s 2015 GDP ($4,123 billion) and slightly more than Germany’s ($3,358 billion).

Let’s turn our attention to caregivers.

The AARP Public Policy Institute found about 40 million family caregivers spent 37 billion hours providing care to adult family members during 2013. The value of that care was estimated to be about $470 billion. That’s “as big as the world’s largest company and bigger than Medicaid and out-of-pocket spending on health care.”

We’ve mentioned before some experts don’t believe GDP is an accurate measure of economic well being because it doesn’t really reflect the value of all goods and services in a country. Clearly, it doesn’t account for parenting and caregiving although both are important to society’s well being.

How much do you suppose volunteering is worth?

Weekly Focus – Think About It

“You are not here merely to make a living. You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget the errand.”

--Woodrow Wilson, 28^th United States 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. * International debt securities involves special additional risks.  These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.  These risks are often heightened for investments in emerging markets. * 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. * Stock investing involves risk including loss of principal.

Statistics means never having to say your certain, and that was certainly true last week.

The employment report, which was released on Friday, was a bit short on jobs. Analysts had predicted employers would add about 162,000 new jobs during May, according to CNBC. Instead, a paltry 38,000 jobs added to payrolls.

The United States Department of Labor focused on the fact the United States has experienced 75 consecutive months of private-sector jobs growth, as well as the significant decline in unemployment. The unemployment rate fell from 5.0 percent to 4.7 percent – but it was largely attributed to Americans leaving the labor force.

United States Secretary of Labor Thomas E. Perez commented, “At this point in a recovery, we expect to see trade-offs between job growth and strong wage growth. Earnings growth in May was encouraging. So far this year, average hourly earnings for private employees have increased 3.2 percent at an annual rate.”

The anemic employment report triggered concern that U.S. economic recovery may be slowing. That, in turn, means the Federal Reserve may not implement measures designed to push interest rates higher during its June meeting. CNBC reported the probability of a Fed rate hike dropped from 21 percent to 4 percent after the employment report.

U.S. markets were nonplussed. Barron’s reported the Standard & Poor’s 500 Index finished the week flat. The Dow Jones Industrial Index moved slightly lower, and the NASDAQ showed a slight gain.

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.

what are your wages worth? We’ve written about The Economist’s Big Mac Index, which is a lighthearted way to gauge whether countries’ currencies are at the correct levels – just compare the price of a hamburger in each country. At the start of the year, you could buy a Big Mac pretty cheaply in Russia ($1.53), Hong Kong ($2.48), or Taiwan ($2.08).

There are differences in how much things cost from state-to-state, too. Pew Research Center used federal wage data to determine which regions of the United States had the lowest and highest wages after adjusting for differences in cost-of-living:

“As we’ve noted before, prices for everything from housing to groceries vary widely from place to place, with the result being that a given income can mean very different things in New York, New Orleans, or New Bern, North Carolina. To get a handle on those variations, one can use the “regional price parities,” or RPPs, developed by the federal Bureau of Economic Analysis. The RPPs measure local price levels in each of the nation’s 381 metropolitan statistical areas, as well as the nonmetropolitan portions of states, relative to the overall national price level.”

The highest weekly wages for 3^rd Quarter 2015, after adjusting for cost-of-living, were found in: 1) San Jose-Sunnyvale-Santa Clara, California, 2) California-Lexington Park, Maryland, 3) San Francisco-Oakland-Hayward, California, and 4) Seattle-Tacoma-Bellevue, Washington.

The lowest wages, after adjustment, were paid in: 1) Yakima, Washington, 2) Wenatchee, Washington, 3) Logan, Utah-Idaho, and 4) Grants Pass, Oregon.

Weekly Focus – Think About It

“The best fishermen I know try not to make the same mistakes over and over again; instead they strive to make new and interesting mistakes and to remember what they learned from them.”

--John Gierach, American author (and fisherman)

* 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. * Stock investing involves risk including loss of principal.

Everyone makes mistakes. Some people learn from them.

In GMO’s March 2016 white paper, James Montier and Philip Pilkington continued to explore the Federal Reserve’s influence on the stock market. It was a process they’d begun in 2015 as they sought “…to understand why our forecast for the S&P 500 had been too pessimistic over the last two decades or so.” Inspired by research done at the New York Federal Reserve, they found:

“…sometime around 1985 the market really started to react to FOMC [Federal Open Market Committee] days. Like the Fed economists, we found that for the past 30 or so years these announcement days have had a major, and increasing, impact on the stock market…In fact, FOMC days account for 25 percent of the total real returns we have witnessed since 1984!”

Upon further examination, they realized the Fed’s influence on the Standard & Poor’s 500 Index (S&P 500) wasn’t caused by monetary policy decisions. Markets moved just because the committee was meeting. Investor sentiment was driving market action.

Last week, Federal Reserve Chair Janet Yellen commented, “It's appropriate, and I've said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate.” Her comments did not inspire ‘animal spirits,’ which is how economist John Maynard Keynes described the emotions that motivate people to act.

At the end of the week, the Dow Jones Industrial Average and the S&P 500 were higher on solid economic data that included an upward revision of first quarter’s gross domestic product (GDP) growth rate. GDP is the value of all goods and services produced in the United States during a given period.

The next FOMC meeting is June 14-15.

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.

chief executive officer compensation is down. no, it’s up. You better judge for yourself. The New York Times reported the 200 most-highly-paid CEOs in the United States collectively experienced a pay cut last year! CEOs’ average compensation – all CEOs compensation added together and then divided by 200 – fell by 15 percent from 2014 to 2015.

Of course, you know what they say about lies and statistics.

Equilar, the company responsible for the study, reported CEO pay grew modestly in 2015. They looked at median CEO pay – the number in the middle. It was $16.6 million for fiscal 2015. That’s up 5 percent from the previous year.

No matter how you interpret the results, not one CEO earned more than $100 million. CEOs in the technology industry had the highest median pay while those in basic materials (which includes oil and gas companies) had the lowest, according to Equilar.

Many people have argued company performance should inform CEO pay, but there wasn’t much evidence this was the case. Although there may have been a basis for CEO pay changes, there was no clear correlation to shareholder returns or company revenues. For instance:

·         A 702 percent increase in pay was awarded when total shareholder return was down 5 percent, and company revenues were down 1 percent.

·         A 286 percent increase in pay was awarded when total shareholder return was up 16 percent, and company revenues were up 9 percent.

·         A 48 percent reduction in pay occurred when total shareholder return was up 25 percent, and company revenues were up 4 percent.

The portion of 2015 corporate budgets allotted to pay hikes for employees increased by 2.8 percent, on average, according to Mercer. The report said, “…the highest-performing employees received average base pay increases of 4.8 percent in 2015 compared to 2.7 percent for average performers and 0.2 percent for the lowest performers…”

Weekly Focus – Think About It

“Mistakes are a part of being human. Appreciate your mistakes for what they are: precious life lessons that can only be learned the hard way. Unless it's a fatal mistake, which, at least, others can learn from.”

--Al Franken, U.S. Senator and comedian

* 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.  nvesting involves risk, including loss of principal. * You cannot invest directly in an index. * Consult your financial professional before making any investment decision. * Stock investing involves risk including loss of principal.