Weekly Perspective, October 7, 2013

The Markets

For Sturm und Drang enthusiasts, the third quarter of 2013 held plenty of mayhem and emotion. It began with an overthrow of Egypt’s democratically-elected government and ended with the United States government at risk of defaulting on Treasury and government obligations. In between:

Fed officials had a lot to say. Like background music that manipulates your emotions, the U.S. Federal Reserve’s ongoing commentary about potential changes to U.S. monetary policy affected global stock and bond markets throughout much of the year, and third quarter was no exception. When the Fed didn’t adjust quantitative easing in September, markets celebrated. Apparently, they’d lost sight of the fact that the Fed could decide to taper at its next meeting in October. When reminded of that fact, markets retreated a bit.

Emerging market currencies bounced. Changing expectations for U.S. monetary policy had a profound effect on emerging markets. Many saw their currencies lose value relative to the U.S. dollar early in the quarter; some regained it as the quarter progressed. The most spectacular performance may have been delivered by the Indian rupee which went from being Asia’s worst performing currency to one of the world’s best in just five days.

Shibor Shock startled investors. During the second quarter, China’s GDP grew at the slowest pace in more than two decades. As curtains opened on the third quarter, the world saw Chinese banks staggering as the Shanghai Interbank Offered Rate (Shibor), China’s benchmark interest rate for an overnight bank lending, exceeded 25 percent. Shibor was about 2.5 percent early in 2013. The ensuing cash crunch created concern China’s economy might be in trouble. Apprehension increased when the country’s finance minister, Lou Jiwei, confounded analysts and investors by suggesting China’s Gross Domestic Product (GDP) growth rate for 2013 might be 6.5 or 7 percent rather than the official target of 7.5 percent.

Europe may have turned the corner. In mid-August, the Eurozone’s GDP grew by 1.1 percent annualized. Markets breathed a sigh of relief on the tentative hope positive growth signaled a turning point for the region’s lagging economy which had been in recession for 18-months up to that point.

As the quarter ended, the world’s attention turned to U.S. fiscal policy as Congress battled over budgets and debt ceilings. Last week, Congress reached an impasse and the government shutdown partially. If they are unable to resolve differences, the U.S. government is at risk of defaulting on its debt; an occurrence experts say could send shockwaves through the global economy. Needless to say, the new quarter holds endless potential for storm and stress.

Data as of 10/4/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	-0.1%	18.5%	15.7%	14.1%	9.9%	5.0%
10-year Treasury Note (Yield Only)	2.7	NA	1.7	2.5	3.4	4.2
Gold (per ounce)	-2.3	-22.7	-27.0	-0.1	8.4	13.4
DJ-UBS Commodity Index	-0.6	-8.5	-14.5	-2.8	-3.4	0.4
DJ Equity All REIT TR Index	-1.8	2.5	5.5	11.8	9.5	9.2

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.economist.com/news/leaders/21580462-muhammad-morsi-was-incompetent-his-ouster-should-be-cause-regret-not-celebration-egypts

http://online.barrons.com/article/SB50001424053111903320604579107383630972324.html?mod=BOL_hpp_dc

http://www.bloomberg.com/news/2013-06-28/fed-s-lacker-says-he-doubts-more-monetary-stimulus-effective.html

http://www.theguardian.com/business/2013/sep/19/world-markets-federal-reserve-stimulus-feelgood-factor

http://www.bloomberg.com/news/2013-09-20/bullard-says-weaker-data-prompted-borderline-fomc-taper-delay.html

http://www.indianexpress.com/news/us-easing-hits-many-emerging-market-currencies-but-rupee-the-worst/1157884/

http://articles.economictimes.indiatimes.com/2013-09-11/news/41971517_1_mecklai-financial-rupee-harihar-krishnamoorthy

http://www.reuters.com/article/2013/07/15/us-china-economy-gdp-idUSBRE96E01M20130715

http://www.economist.com/news/finance-and-economics/21580501-how-will-chinas-lenders-respond-shibor-shock-ten-days-june

http://www.economist.com/blogs/economist-explains/2013/07/economist-explains-2

http://www.economist.com/news/china/21582048-are-chinas-economic-goals-odds-its-growth-targets-missing-mat