12 Federal Reserve Banks
But For The Fed… Part 3 (Or is it 4)
Geopolitics and monetary policy and deflation! Oh my!
It was a wild, wild week. First, the Russian central bank announced a massive rate hike and the country’s main deposit rate rose from 10.5 percent to 17 percent. The move was the largest single increase in Russian rates “since 1998, when Russian rates soared past 100 percent and the government defaulted on debt,” according to Bloomberg.com.
The central bank was desperately trying to shore up the ruble which was suffering from lower oil prices and Western sanctions imposed after Russian annexed Crimea. The rate hike wasn’t immediately effective and the ruble sank to a record low. The currency has lost 52 percent of its value during 2014 to date, and the outlook for the future of the country’s economy isn’t bright. If oil averages $60 a barrel, Russia’s gross domestic product – the value of all goods and services produced in the country – might fall by 4.5 percent to 4.7 percent in 2015.
Events in Russia put investors in a selling mood, and stock markets around the world moved lower early in the week. Barron’s commented, “From all appearances, investors were selling stocks while they were doing their holiday shopping.”
The investor stampede was headed off by a bit of whooping and hollering from the Federal Reserve. After the Federal Open Market Committee meeting, the Fed announced its policies remained unchanged:
“…Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
The Fed’s decision was enough to calm markets, many of which showed attractive gains by week’s end.
Data as of 12/19/14 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 (Domestic Stocks) |
3.4% |
12.0% |
14.4% |
19.8% |
13.2% |
5.7% |
| 10-year Treasury Note (Yield Only) |
2.2 |
NA |
2.9 |
1.8 |
3.7 |
4.2 |
| Gold (per ounce) |
-1.8 |
-0.5 |
0.0 |
-9.2 |
1.6 |
10.5 |
| Bloomberg Commodity Index |
-2.0 |
-13.7 |
-14.4 |
-7.5 |
-4.3 |
-3.1 |
| DJ Equity All REIT Total Return Index |
1.5 |
28.0 |
29.2 |
18.2 |
16.8 |
8.4 |
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.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in this 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 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.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Sources:
http://online.barrons.com/articles/barrons-up-down-wall-street-the-oily-slope-1419046381?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/12-22-14_Barrons-The_Oily_Slope-Footnote_4.pdf)
http://www.federalreserve.gov/newsevents/press/monetary/20141217a.htm
The post Weekly Perspective – But For The Fed – December 22, 2014 appeared first on Happiness Dividend Blog – Personal Finance, Education and Investment Guidance.