Weekly Market Commentary
July 13, 2015
Many Chinese investors were so optimistic about the
prospects for Chinese stock markets they bought on margin, meaning they
borrowed money to buy stocks. Borrowing to invest has been so popular that the
amount of margin loans doubled in just six months to about $320 billion, according
to Barron’s. Experts cited in the
article said, “…margin financing in China is equal in size to Indonesia’s
entire stock market valuation and as high a portion as it has been in any
market at any time…”
The problem with buying on margin is repaying the loan
if stocks move in the wrong direction. Since the middle of June, Chinese stock
markets have lost more than $3 trillion, reported CNN.com. Barron’s
explained how margin works:
“In China, a typical investor can borrow $1.25 for
every dollar of cash she has, giving her what China calls a “guarantee ratio”
of 180 percent, or $2.25 (cash and stock bought on margin) divided by $1.25
(loan value). But, as her stock loses value, the guarantee ratio also falls. At
150 percent, the broker will start to issue margin calls. When the ratio hits
130 percent, the brokerage will force the liquidation of the position to meet
About 80 percent of the investors in China’s markets
live in China. Many have suffered significant losses as markets have moved
reported China’s market regulator responded to the market downturn by making it
even easier for people to borrow money to invest. Apparently, the hope is small
investors will put more money in stocks. Regulators also banned investors who
hold 5 percent or more of a company’s stock from selling their shares for six
By the middle of last week, Chinese markets had
stopped losing value. Only time will tell whether they have truly stabilized.
Closer to home, the New York Stock Exchange (NYSE)
suffered a computer glitch that halted trading for several hours last week. The
NYSE tweeted, “The issue we are experiencing is an internal technical issue and
is not the result of a cyber breach.”
S&P 500, 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
BIG DATA IS MAKING THE NEWS
A well-known search engine company has introduced a
cloud-based big data service and a news laboratory which provides data about
trends to journalists. During 2014 and 2015, it provided:
with information about the employers and industry sectors that were most popular
with American job seekers.
TIME with five
of the top trending people and topics for 2014: Ebola, the Ice Bucket
Challenge, Ferguson [Missouri], Vladimir Putin, and Dilma Rousseff.
The New York Times with a state-by-state assessment of popular Thanksgiving foods. In
California they like persimmon bread; in Texas it was sopapilla cheesecake; in
Minnesota they were searching for wild rice casserole; and in New York the
favorite was stuffed artichokes.
The Washington Post with data on depression, pain, anxiety, stress, and fatigue, so it
could create a daily misery index for the year.
Vocativ with British and American
political data, including the most searched candidate names and questions most frequently
asked of candidates.
The search engine also tracks what we don’t know or
can’t remember. For instance, it has created a cocktail tool to provide
instructions for making the drinks most frequently sought in online searches and
a nutrition comparison tool to facilitate food smack downs (mashed potatoes
beat sweet potatoes for sugar, but sweet potatoes win when it comes to Vitamin
A, potassium, and calcium).
Always remember: When you go online and use certain
search engines, your data is being stored and sorted. It’s important to know.
WEEKLY FOCUS - THINK ABOUT IT
“We think too small, like the frog at the
bottom of the well. He thinks the sky is only as big as the top of the well. If
he surfaced, he would have an entirely different view.”
--Mao Zedong, Former Chairman of the Communist
Party of China
Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC,a Registered Investment Adviser.
* This newsletter was
prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with
the named broker/dealer.
* 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
* 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
* 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 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
* 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.
* Stock investing involves
risk including loss of principal.
http://online.barrons.com/articles/margin-calls-threaten-shanghais-tottering-market-1435898134 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/07-13-15_Barrons-Margin_Calls_Threaten_Shanghais_Tottering_Market-Footnote_1.pdf)
http://www.economist.com/blogs/graphicdetail/2015/07/daily-chart-6 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/07-13-15_TheEconomist-Search_and_Employ-Footnote_8.pdf)