Weekly Market Commentary (February 26, 2018)

The Markets

U.S. Treasuries are offering a lesson in supply and demand.

Last week, the U.S. Treasury auctioned $258 billion in bonds. Treasury auctions are the way the United States government finances its debt. The Treasury sells short-, intermediate-, and long-term IOUs, known as bills, notes, and bonds. When investors and governments purchase bonds, they agree to lend money to the United States. In return, the United States agrees to pay an amount of interest over a certain period of time. At the end of that time, the government is expected to repay the money borrowed.

The price and interest paid on U.S. government debt is determined by supply and demand. When there are few bonds and a lot of demand, prices rise and interest rates fall. When there are a lot of bonds and little demand, prices fall and interest rates rise.

Last week, Barron's reported, "The law of supply and demand meant that the glut of new Treasuries temporarily drove down prices and pushed up yields. The 10-year Treasury climbed during the week - brushing 2.95 percent - but ultimately lost half a basis point, ending at 2.87 percent. (A basis point is a hundredth of a percentage point.)"

The Treasury increased its debt issuance to fund tax reform and the two-year federal budget. Reuters reported, "...tax reform is expected to add as much as $1.5 trillion to the federal debt load, while the budget agreement would increase government spending by almost $300 billion over the next two years."

A surplus of Treasury bonds, in tandem with decreased demand as the Federal Reserve reduces the holdings it accumulated during quantitative easing (an unconventional monetary policy in which a central bank purchases government securities in order to lower interest rates, increase the money supply, and stimulate the economy), could push Treasury rates higher. In addition, MarketWatch reported the Federal Reserve appears to be committed to gradually increasing the Fed funds rate to avoid an overheating economy and keep inflation down.

Higher interest rates may be coming.

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.

olympic athletes have to pay the bills, too. Not every American Olympian and Paralympian is a household name. Money.com reported, "These athletes don't have the same kind of lucrative sponsorship deals as Olympic standouts like snowboarder Shaun White or alpine skiing star Lindsey Vonn - so they have to make ends meet, which can often mean squeezing in extra shifts during the off season, heading to the gym early in the morning before work and moving from a full-time position to a part-time one with no replacement for those lost wages."

So, how do lesser-known athletes pay the bills while training?

• Sled hockey player Josh Pauls is a sales account executive. His teammate Steve Cash is a personal banker.
• Pairs figure skater Chris Knierim works as an auto mechanic and wants to have his own auto shop someday.
• Biathlon competitor Lowell Bailey is a singer and songwriter who plays in bluegrass bands.
• Curling team member Nina Roth is a registered nurse. Her teammate Tabitha Peterson is a pharmacist.
• Snowboarder Jonathan Cheever is a licensed plumber.
• Luger Emily Sweeney is a member of the National Guard, and so is bobsledder Nick Cunningham.
• Short track speed skater Jessica Kooreman has a real estate license.
• Luger Justin Krewson is a firefighter.
• Snowboarder Mike Schultz designs and engineers prosthetics.
• Nordic skier Kendall Gretsch works in tech support.

There is a lot to admire about Olympic and Paralympic athletes.

Weekly Focus - Think About It

"There are only three ways to meet the unpaid bills of a nation. The first is taxation. The second is repudiation. The third is inflation."

--Herbert Hoover, 31^st President of the United States

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.

Weekly Market Commentary (February 12, 2018)

The Markets

Back to reality...

After months of eerie calm, stock market volatility has returned. The CBOE Volatility Index (VIX) - a measure of how turbulent investors expect stock markets to be during the next 30 days - appeared to fall asleep in November 2016. For more than a year, a level of serenity that is rarely associated with stock markets prevailed and U.S. share prices moved steadily higher.

It appears that time is behind us. Barron's wrote:

"With February's swift stock market correction, volatility has arrived and will probably stay awhile. The downturn last week ended a streak of 404 trading days without a 5 percent drop in stock prices from the previous high - the longest such streak in market history.

The last correction came in February 2016, when stocks dropped 15 percent. Investors then fretted that Chinese economic growth might be slowing, which turned out to be a false alarm. Long term, the latest nose dive might yet become just a bull speed bump, but there's already been plenty of pain."

So, is this a speed bump or is it the beginning of a bear market? A bear market, generally, is a decline of 20 percent or more, and it is normally accompanied by a recession, which is a significant decline in economic activity.

In general, financial firms and publications do not anticipate a recession in 2018, but forecasting recessions can be challenging.

No matter what happens, the key is keeping your head. At times like these, emotion grabs investors by the throat, and it can be difficult to recall markets and economies tend to move in cycles. Historically, bull markets lead to bear markets, which lead to bull markets. Likewise, economic expansions are followed by contractions (recessions), which are followed by expansions.

U.S. stock markets rallied on Friday, but the Standard & Poor's 500 Index, Dow Jones Industrial Index, and NASDAQ all finished the week more than 5 percent lower.

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.

market downturns are not a destination. Markets and economies are cyclical. For instance, from 1945 through 2009 (the start of the current expansion), the United States experienced 11 economic cycles. The average recession lasted for about 11 months and the average expansion persisted for about 58 months, reported the National Bureau for Economic Research.

After the recent market decline, many people are concerned the bull market may have run its course, and a bear market may be ahead. Since bear markets usually mark the beginning of recessions, let's take a look at what some leading financial companies and publications have to say about their expectations for 2018:

"The U.S. expansion is on course to become the longest on record, stirring concerns it is about to run out of steam. But is it? The recently enacted tax overhaul and higher federal spending could add 0.8 percentage point to U.S. GDP [gross domestic product] growth in 2018, we estimate. This could tip the balance toward accelerating growth. Such a boost could shorten the cycle's expiration date to two or three years."

--BlackRock Investment Institute, February 7, 2018

"Most analysts think that while profits are growing and the economy is healthy, the stock market will be supported. But there is scope for a lot more choppiness as investors await the Federal Reserve's rate decisions and look for data to indicate whether inflationary pressures are rising."

--The Economist, February 8, 2018

"Perhaps the over-arching risk is complacency. While the current conjuncture might appear to be a sweet spot for the global economy, prudent policymakers must look beyond the near term...The next recession may be closer than we think, and the ammunition with which to combat it is much more limited than a decade ago, notably because public debts are so much higher."

--IMF Blog, January 22, 2018

"While we expect volatility will be higher this year than in 2017, with company fundamentals looking solid and synchronized global economic growth set to continue, it seems reasonable to expect that stocks will move higher over the coming year."

--J.P. Morgan Asset Management, February 5, 2018

"An overheating global economy could mean a more rapid shift by central banks to rein in stimulus, often a precursor to recession. Yet, we still believe a recession is not on the near-term horizon."

--Schwab market commentary, February 9, 2018

Forecasting is a difficult task. Time will tell.

Weekly Focus - Think About It

"Stock market goes up or down, and you can't adjust your portfolio based on the whims of the market, so you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment."

--John Paulson, Investment manager

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.

Weekly Market Commentary (January 29, 2018)

The Markets

The numbers are coming in.

Publicly-traded companies report their earnings and sales numbers for the previous quarter in the current quarter. For example, fourth quarter's sales and earnings are reported during the first quarter of the year, and first quarter's sales and earnings will be reported during the second quarter, and so on.

Through last week, about one-fourth of the companies in the Standard & Poor (S&P)'s 500 Index had reported actual sales and earnings for the fourth quarter of 2017. As far as sales go, a record number - 81 percent - of companies sold more than expected during the fourth quarter. That was quite an improvement. FactSet reported:

"During the past year (four quarters), 64 percent of the companies in the S&P 500 have reported sales above the mean estimate on average. During the past five years (20 quarters), 56 percent of companies in the S&P 500 have reported sales above the mean estimate on average."

The mean is the average of a group of numbers.

The money a company makes through sales is called revenue. For instance, if a lemonade stand sells 100 glasses of lemonade for $1 each, then the proprietors have earned $100. That is the stand's 'revenue.' Of course, as every parent who has financed a lemonade stand knows, revenue doesn't include the cost of the product. 'Earnings' are what the company has left after expenses - the bottom line. If every glass of lemonade cost 50 cents, then the stand's earnings are $50.

Companies in the S&P 500 are doing pretty well on earnings, too. About three out of four companies have reported earnings higher than expected. Overall, earnings are 4.5 percent above estimates.

Through Friday, annual earnings growth for S&P 500 companies was 10.1 percent. It's still early in the fourth quarter earnings season, but the data so far seem likely to confirm that 2017 was a bright, sun-shiny year for U.S. companies.

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.

certain parts of the circular economy probablyadapttocities andtowns better than they do to rural areas.

What is the circular economy?

It is "a system that reduces waste through the efficient use of resources. Businesses that are part of the circular economy seek to redesign the current take/make/dispose economy, a model which relies on access to cheap raw materials and mass production. For example, car sharing addresses the inefficiency of privately owned cars - which are typically used for less than one hour a day," explains Morgan Stanley.

Imagine not owning a car.

Clearly, it's not something that would work everywhere. However, if you live in a city or town that has public transportation, ride sharing, car rentals, and bicycles, it's possible. If you're retired and you can organize your days in the way you like, it may even be sensible because owning a car is expensive. Transportation costs are the second highest budget item for most households, reports U.S. News. Housing costs top the list.

Giving up a car could help households save a lot of money.

According to AAA, owning and operating a new car in 2017 cost about $8,469 annually, on average, or $706 a month. Small sedans are the least costly ($6,354 per year), on average, and pickup trucks are the most expensive ($10,054 per year), on average, of the vehicles in the study. The calculations include sales price, depreciation, maintenance, repair, and fuel costs.

AAA's estimate does not include insurance. In 2017, the national average premium for a full-coverage policy was $1,318 annually, according to Insure.com. Auto insurance premiums are highest in Michigan ($2,394) and lowest in Maine ($864).

Combining the averages, the cost of auto ownership is almost $10,000 a year. It's food for thought.

Weekly Focus - Think About It

"Conservation is a state of harmony between men and land."

--Aldo Leopold, American author and conservationist

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.