Weekly Market Commentary January 22, 2019

Fast Facts

In Sickness and In Health– Mary Ziegler, 62, has been there for Bill Henrichs in sickness and in health, even though they divorced 23 years ago. Once high school sweethearts, the Minnesota couple separated amicably in 1995. Then last year, Henrichs, also 62, discovered that his kidneys were failing. Some 40 family members and friends were tested as possible donors, and only Ziegler was a match. She instantly agreed to donate a kidney to the father of her two children, and the transplant surgery was a success. Ziegler hopes her story will show others why it’s worth trying to get along after a divorce. “Someday,” she says, “you just might need a kidney.”

Knit-Wit– Jonah Larson is only 11 years old but he’s already an international celebrity—in the world of crocheting. The Wisconsin sixth-grader often arrives home from school to find balls of yarn and fan letters sent by the thousands of people who follow the crochet prodigy on social media. Jonah began crocheting at age 5 and is now a speed knitter who can finish an ornate, beautiful blanket in a mere eight hours. Admirers from as far afield as England, Malta, and Lebanon now ask the youngster to post tutorials online and have ordered hundreds of his creations, including crocheted octopuses, dog sweaters, and shawls. “I’m an old soul,” Jonah says, “in a young person.”

 Penny For Your Thoughts– Don Lutes Jr. kept the 1943 copper penny he stumbled upon in his high school cafeteria seven decades ago in a safe behind a wall in his Massachusetts home. All US pennies were supposed to be made of zinc-coated steel that year to conserve the copper needed for wartime essentials like shell casings and telephone wire, according to Heritage Auctions, a Dallas-based auction house. But a small number of copper pennies were created by mistake. Only a few of them exist today, making them special to coin collectors. Lutes knew his coin was rare and held on to it. But as his health declined last year, Lutes decided to sell the coin because,” he wanted to make sure it went to a good home,” said Peter Karpenski, a friend and fellow coin collector.


Weekly Focus – Think About It

“Wealth begins in a tight roof that keeps the rain and wind out; in a good pump that yields you plenty of sweet water; in two suits of clothes, so to change your dress when you are wet; in dry sticks to burn; in a good double-wick lamp; and three meals; in a horse, or a locomotive, to cross the land; in a boat to cross the sea; in tools to work with; in books to read; and so, in giving, on all sides, by tools and auxiliaries, the greatest possible extension to our powers, as if it added feet, and hands, and eyes, and blood, length to the day, and knowledge, and good-will.”

–Ralph Waldo Emerson, American writer


The Markets

We’re off to a good start.

Investors who remained steady during December’s wild ride are probably pleased with their decision as stocks have gotten off to a strong start in 2019. Unfortunately, those who reduced their exposure to the asset class may be feeling the sting of missed opportunity.

Last week, the Dow Jones Industrial Average gained about 3 percent. The Index is up 5.9 percent year-to-date, which is its best start in more than a decade, according to Ben Levisohn of Barron’s. The Standard & Poor’s 500 Index (S&P 500) and NASDAQ Composite also moved higher last week.

Barron’s reported investors were encouraged by positive news about trade talks between the United States and China, as well as stronger-than-expected fourth quarter earnings. Eleven percent of S&P 500 companies have reported so far and, altogether, their earnings have beaten expectations by 3.2 percent, according to FactSet. (Quarterly earnings indicate how profitable a company was during the period being reported.)

The FTSE All-World Index also moved higher last week. It is up almost 8.5 percent for the year.

Richard Henderson, Emma Dunkley, and Robin Wigglesworth of Financial Times offered the opinion investors could have been overly pessimistic during December, and their change in attitude might be attributed to a more dovish tone at the U.S. Federal Reserve, as well as evidence the U.S. economy remains strong.

While investor confidence appears to be strengthening, consumer confidence wavered. The University of Michigan Survey of Consumers showed consumer confidence was lower in January 2019 than it was in January 2018. The Survey’s Chief Economist Richard Curtin wrote, “The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.”

How much would those burgers cost in Britain? Purchasing power parity, or PPP, is a straightforward idea with a tongue twister of a name. When two countries have PPP, people pay the same amount for the same goods, after adjusting for the exchange rate. For example, if one British pound is worth 50 U.S. cents, then an item that costs one British pound in the United Kingdom should cost 50 cents in the United States.

The Economist developed ‘The Big Mac Index’ to measure burger parity. It’s an engaging way to look at local prices and exchange rates. The index measures the price of the seven-ingredient, double-decker burger in different countries and offers a rough estimate of whether a country’s currency is overvalued or undervalued relative to the U.S. dollar.

In January 2019, the index served up the news that almost every currency, in developed and emerging economies, is undervalued relative to the U.S. dollar. The only countries with currencies that appear to be overvalued are Switzerland, Norway, and Sweden.

So, how undervalued are other countries’ currencies?

  • The Canadian dollar is 8.9 percent undervalued
  • The European Union’s euro is 16.8 percent undervalued
  • The British pound is 27 percent undervalued
  • The Chinese yuan is 45.3 percent undervalued
  • The Russian ruble is 70.4 percent undervalued

The Economist explained, “It is not unusual for emerging-market currencies to look weak in our index. But, today the dollar towers over rich and poor alike. The pound, for example, looked reasonably priced five years ago. Today, Americans visiting Britain will find that [burgers] are 27 percent cheaper than at home.”

The U.S. dollar is stronger than usual because higher interest rates and tax cuts made American assets more attractive to investors than other assets in 2018, reported The Economist.

A strong dollar is a boon to travelers, who get more for their money in other countries. It also can make imports from other countries more attractive price-wise. There are disadvantages to a strong dollar, too. For example, it makes the United States a more expensive destination for travelers from other countries, which could discourage tourism. In addition, a strong dollar makes exports more expensive and that could make U.S. goods less competitive in overseas markets.


Best regards,

John Klevens, CFP


Sources: The Week Magazine, CBS news, CNN.com
Portions of this newsletter has been prepared by Peak Advisor