The Markets

Like the kid who sings loudly and enthusiastically at a grade school concert while wary peers dodge his O Sole Mio arm sweeps, the Federal Reserve has been getting a lot of attention lately. That didn’t change last week.

Markets pulled back from record highs after Chicago Fed President, Charles Evans, who has been a supporter of the Fed’s quantitative easing program, indicated the Fed could begin to reduce bond purchases at its policy meeting in mid-September. He reiterated the fact that moderating quantitative easing did not mean the Fed would begin to raise rates.

The Fed also garnered some attention for the contentious tone of discussions about who should replace current Fed Chairman, Ben Bernanke, when his term ends next January. Some of the rancor stems from contender Larry Summers stint as President of Harvard University which ended badly, in part, because of comments he made on “the issue of women’s representation in tenured positions in science and engineering at top universities and research institutions,” and the fact his primary competition for the job is female.

Paddy Power, which bills itself as “Ireland’s biggest, most successful, security conscious and innovative bookmaker,” is taking bets on who will be appointed as the next Fed Chairman. On August 11, 2013, it gave the odds as: Larry Summers, former Treasury Secretary, 1-to-2; Janet Yellen, current Fed Vice-Chairman, 2-to-1; Roger Ferguson, President and CEO of TIAA-CREF and previous Fed Vice-Chairman, 12-to-1; and Don Kohn, current member of the Bank of England (BOE) Financial Policy Committee and previous Fed Vice-Chairman, 18-to-1.

Speaking of the BOE… the United Kingdom’s central bank did a fair imitation of the Federal Reserve last week when it offered forward guidance tying tighter monetary policy to unemployment levels. The U.K. bond market’s response to the BOE’s assurances that rates would remain low for some time was quite similar to the U.S. bond market’s response to similar declarations from the Fed: yields on Gilts – bonds issued by the British government – moved higher.

Data as of 8/9/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-1.1%

18.6%

20.6%

14.5%

5.5%

5.6%

10-year Treasury Note (Yield Only)

2.6

NA

1.7

2.8

4.0

4.4

Gold (per ounce)

0.0

-22.7

-18.9

2.9

9.0

13.8

DJ-UBS Commodity Index

-0.1

-9.7

-13.2

-2.4

-7.8

0.6

DJ Equity All REIT TR Index

0.1

5.6

9.6

13.5

5.6

10.5

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.

Best regards,

Jonathan K. DeYoe

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. 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 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. 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.

Sources:

http://www.reuters.com/article/2013/08/09/us-markets-global-idUSBRE96S00E20130809

http://blogs.wsj.com/economics/2013/08/06/feds-evans-wont-rule-out-september-pullback-in-bond-buying/

http://www.economist.com/news/finance-and-economics/21583276-what-does-it-take-run-americas-central-bank-summers-v-yellen

http://www.harvard.edu/president/speeches/summers_2005/nber.php

http://www.paddypower.com/bet/about-us

http://www.paddypower.com/bet/current-affairs/us-federal-reserve?ev_oc_grp_ids=1256948

http://www.bloomberg.com/news/2013-08-07/carney-boe-rates-guidance-meets-investor-skepticism-u-k-credit.html

http://www.mortgagenewsdaily.com/reports/mortgage_rates/2012/12/12/183

http://www.investopedia.com/terms/g/gilts.asp

http://www.nytimes.com/2009/11/13/nyregion/13pfizer.html?_r=0

http://www.stlouisfed.org/publications/re/2007/a/pages/eminent_domain.cfm

http://blogs.wsj.com/developments/2013/02/13/fed-economists-weigh-good-news-in-eminent-domain-debate/

http://www.newyorkfed.org/newsevents/news/research/2013/rp130610.html

http://www.reuters.com/article/2013/08/07/us-usa-freddiemac-richmond-idUSBRE9760WT20130807

http://www.brainyquote.com/quotes/keywords/thinking.html