Wright Financial, LLC

395 Taylor Blvd., Suite 107

Pleasant Hill, CA  94523

925.246.7982

www.mwrightfinancial.com

May 2016

Macro Overview – May 2016

The prospect of a delayed tightening by the Fed, a weaker dollar, and a rebound in commodities helped stabilize equities in April. A falling U.S. dollar along with central banks in Europe and Asia trying to stem the rise of the euro and yen, is indicative of a currency war looming in the shadows. A weaker dollar makes U.S. products cheaper and the U.S. more competitive internationally, a concern to both European and Asian exporters.

Commodity related currencies from countries as Australia, Russia, Canada, and Brazil saw rebounds against the dollar in April, elevating assurances that a demand for commodities is still intact. Economists view this as a measure of a global economic revival.

Following years of debate and assistance, the IMF is considering letting its support for Greece go and cease participating in any further Greek bailouts. Such a possible move would force countries with dire fiscal constraints to reassess their financial policies.

The Labor Department reported that jobless claims for unemployment benefits fell to their lowest level since 1973, historically representative of a strong labor market. Employment data also revealed that there is a growing number of part-time workers rather than full-time workers encompassing the labor force. Various research reports have suggested that the implementation of the Affordable Care Act, whose major provisions were phased in by January 2014, encouraged employers to shift workers to more part-time positions in order to avoid having to cover them under the newly mandated health insurance requirements.Yen-1000

Records maintained and released by the IRS have identified a sharp rise in 1099 income filings as of 2014. 1099s are issued for any income generated over $600 during the tax year. Many economists believe that such dynamics is a validation of full-time employee positions being replaced by part-time independent contractors.

A strengthening Japanese yen over the past few weeks has led some analysts to believe that risk aversion may be a cause. A stronger yen and a weaker dollar has historically signaled less confidence in U.S. growth and a heightened attentiveness to global dynamics.

Sources: Labor Dept., IMF, IRS

Equity Update

Major domestic stock indices were essentially flat for the month of April after U.S. equities reached record levels not hit since July 2015, sending the Dow Jones Industrial Average to the 18,000 level. Defensive stocks pulled back in April, a signal that buyers are less risk averse and leaning towards more aggressive growth company stocks. Other optimistic sector trends evolved in April as small caps, cyclicals, and multi-nationals outperformed more conservative large cap and defensive equities. Some investors celebrated the seventh year of the bull market that began in March 2009. Even with the volatility and pullbacks over the 7-year period, it is still considered the second longest bull market in the market’s history.

Sources: Dow Jones, S&P, Bloomberg

 
The Federal Government Took In Over $3.2 trillion In Tax Payments In 2015

Where Our Tax Dollars Go To – Fiscal Overview

For fiscal 2015, the federal government took in over $3.2 trillion in tax payments, a record year compared to previous fiscal years. The federal budget for fiscal year 2015 ran from October 1, 2014, to September 30, 2015. The total figure amounts to approximately $21,833 for every person in the United States.

Taxpayers often wonder, where does all their tax money go. The Office of Management & Budget breaks down where tax payments go each year, allowing Americans to see what they’re getting.Federal Spending 2015

Source: Office of Management & Budget

 

Fixed Income Update – Global Bond Markets

The ECB disclosed additional details in April about its bond buying program, stating that it will purchase government and corporate debt with maturities of 6 months to 30 years. Effectively, this strategy will provide cheap loans to global corporations operating in Europe, leading to a possible surge in debt issuance as companies take advantage of the ECB’s plan.

So far this year, corporate bonds have outperformed most government bond sectors, including Treasuries and mortgage-backed debt. High-yield corporate debt has seen the most appreciation of all corporate debt. Historically, high-yield bonds tend to correlate with equity markets due to factors as improving earnings and credit ratings.

Some analysts believe that the Fed’s stance on keeping rates stable for now and the ECB’s stimulus program in Europe of buying corporate debt has prompted domestic bond values to rise.

Sources: ECB, Bloomberg, Federal Reserve

 
The Yen Has Appreciated Over 10 Percent Versus The U.S. Dollar So Far This Year

International Review

China released economic data that showed exports were growing and that its GDP was heading higher. International analysts and economists tend to play down economic data released by the Chinese government due to perceived inaccuracies of what it releases.

Economic growth in the eurozone surpassed growth in the Unites States for the first quarter, a sign that central bank stimulus in Europe may be making some progress. The dollar’s recent slide against the euro was also an indicator that U.S. growth was stagnating relative to international markets.

Many economists believe that the central banks in Europe and Japan have held back on further stimulus efforts until financial conditions stabilize and their currencies regain some strength.

Sources: Eurostat, Bloomberg, Reuters

Japanese Yen Surges – Currency Update

The yen has risen over 10 percent against the dollar so far this year, with any additional gains intensifying speculation that the Bank of Japan would intervene sooner rather than later, as Japanese politicians have raised concerns about the yen’s run-up. Japan’s rising currency is making Japanese exports form cars to pens more expensive worldwide, stifling any stimulus efforts that had originally been enacted.

Japanese Prime Minister Shinzo Abe is scheduled to visit Italy and Germany in May where it is believed he will try to set the stage for a possible intervention in currency markets as Japan prepares to host a G7 meeting later in the month.Yen vs Dollar

Some currency analysts expect a possible resurgence in a currency war should the yen and other major currencies continue to rally versus the U.S. dollar.

Competitive devaluation of a nation’s currency, also known as a currency war, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency.

The benefits of a devaluing currency for a nation’s economy include an increase in exports, which may result in additional manufacturing and employment. A significant hindrance of a devaluing currency would be imports becoming more expensive, thus indirectly causing inflationary pressures within an economy.

Source: Federal Reserve Bank of New York

 

 

 
Wealthy Folks Tend To Have Better Health

Rich Are Healthier – Health

Researchers at the Urban Institute and Virginia Commonwealth University released a report in April examining the links between health, wealth, and income.

For years poverty has often been associated with poor health, while the wealthiest have been thought of having fewer illnesses..

To confirm these perceptions, the report analyzed various health problems for which the Centers for Disease Control (CDC) has recorded prevalence by family income. In every case, the wealthy are better off.

Speeding running shoe icons in four color variations with a trainer, sneaker or sports shoe with speed and motion trails, vector silhouette on white

How health and money are related is complex. For both rich and poor, the two attributes likely reinforce one another. “Health and income affect each other in both directions: not only does higher income facilitate better health, but poor health and disabilities can make it harder for someone to succeed in school or to secure and retain a high-paying job,” the Urban authors write.

Living in poverty often means less access to nutritious food or neighborhoods safe for outdoor exercise. Low-income people are more likely to smoke or be obese. White-collar jobs are less physically demanding, and people who have them can afford to take a day off for a doctor’s visit or to get a gym membership. They’re also probably not working the night shift, which is linked to cancer and other health problems.

Sources: Centers for Disease Control, Urban Institute & Virginia Commonwealth University