• Skip to primary navigation
  • Skip to main content
  • Skip to footer

Castle Rock Investment Company

Independent Guide, Trusted Partner.

  • Home
  • About Us
    • Our Team
    • Community Involvement
    • Our Commitment to You
  • Services
    • Individual Financial Planning
    • Qualified Plan Services
  • Education
    • Employee Education
    • Fiduciary Training
  • Blog
  • Contact Us

US Treasury

Water Cooler Wisdom: Fourth Quarter 2014

January 7, 2015 by admin

Water Cooler WisdomMajor events at the close of 2014, specifically the fourth quarter of 2014, included: the abnormally low prices of oil; the unique position of the Federal Reserve and the US dollar; US Treasury Rates poised (still) to rise; and American manufacturing ramped up to march on ahead of other world leaders, while an embroiled Europe awaits the coming year.

“Returns and Valuations by Style”

Significantly improved from the previous quarter, overall market growth was strong in the final quarter of 2014; though the annual return was less than half of the growth from 2013’s phenomenal success.

“Energy Price Impacts”

By a landslide, the most compelling story of the closing chapter of 2014 was the low oil prices brought upon by OPEC with ferocious Saudi leadership striving to re-establish control of global oil markets. Oil production outpaced consumption, therefore supply outpaced demand, and led to a build in inventories. The supply is not uniformly distributed, though, and the United States is responsible for the fastest supply growth since 2013; however, consumption in the US did not grow nearly as much, and China continues to contribute to the most global demand growth. Notably, Europe and Japan’s consumption declined.

The population most effected by gasoline prices, of course, is the lowest quintile of the population. If oil production declines, and global demand growth picks up, then oil prices could move higher, but if the demand trends persist, and supply growth remains robust with neither the US nor OPEC yielding any production, then oil prices could move further down. Economists overall are split either way, but most agree that the current low prices are abnormal. The Federal Reserve expects that any resulting deflationary pressure from current low oil market prices will be transitory, rather than permanent, and that the economy will achieve the 2% target inflation over time.

[Read more…] about Water Cooler Wisdom: Fourth Quarter 2014

Filed Under: Blog, Castle Rock Investment Company, Currency, Europe, Federal Reserve, Fixed Income Markets, Industry News, International Markets, Katherine Brown, Oil and Natural Gas, Reserve Currency, Russia, Uncategorized, US Dollar, US Treasury, Water Cooler Wisdom Tagged With: 10-year Treasury, Castle Rock, Castle Rock Investment Company, China, Economic Stability, Euro, Eurozone, Federal Reserve, Fixed Income, Floating Rate bond, Germany, Global Finance, Global Trade, Greece, Grexit, High-Yield, Janet Yellen, JPMorgan, Katherine Brown, Michele Suriano, monetary policy, Mortgage-Backed Securities, US Dollar

When Is a Buck Not a Buck?

August 27, 2014 by admin

Note:  This is a follow up piece to our August 15th interview with an industry expert regarding the recently adopted SEC reforms.

In the wake of the Lehman Brothers failure in September of 2008, the Reserve Primary Fund, the oldest money fund in the nation, “broke the buck” and fell to 97 cents per share. On September 17, 2008, investors redeemed a record $140 billion from money market funds and the commercial paper market, which banks rely on to fund their day-to-day business, essentially froze. The Treasury stepped in to establish the voluntary Money Market Funds Guarantee Program in order to stop the run on money market funds, but vowed never to do so again.

The Securities and Exchange Commission was obliged to do something. On July 23, 2014, the SEC adopted amendments to the rules that govern prime money market mutual funds. The SEC aims to re-tool institutional money markets behavior by using a combination of floating Net Asset Value (NAV), fees and gates to protect investors and the financial system.

[Read more…] about When Is a Buck Not a Buck?

Filed Under: Blog, Castle Rock Investment Company, Federal Reserve, Katherine Brown, SEC, SEC Reforms, Uncategorized, US Treasury Tagged With: Castle Rock Investment Company, Katherine Brown, Money Market Funds Guarantee Program, Reserve Primary Fund, Securities and Exchange Commission

Water Cooler Wisdom

July 26, 2014 by admin

By: Katherine Brown, Research Associate, Castle Rock Investment Company

Water Cooler WisdomThe end of the 2nd quarter of 2014 left the global banking sector bracing from the fallout of a weak quarter. In moments of weak growth, we are reminded of the need to diversify our portfolios. Just as it is important to eat a balanced meal, it is important to balance your investment plate.

The US economy grew only 2.9% during the second quarter, which was a result of costly weather conditions, negative global trade relationships, and state and local government spending habits (often due to the extreme weather conditions). An investment portfolio is challenged – but not inherently devastated – by this kind of quarterly strife. For our purposes, more reliable data come from cyclical indicators because they provide more dependable data on economic behavior and trajectory. Capital spending, consumer confidence, orders vs. inventory and PMI indices all indicate good conditions for the economy to pick up. In other words, our markets are doing well, despite the special difficulty in the second quarter.

The Federal Reserve reoriented its goals to respond to the significant gain in jobs this past quarter. Unemployment, which reached 6.1%, is ever-nearing the long-run full employment waterline of 5.4%. While we should expect that economic growth is consistent with unemployment, if we push past full employment at 5.4%, we could face inflation. Instead, the government will work to improve total factor productivity in addition to the labor market’s full employment. This means more capital equipment and greater output per worker.

Since we have already attained 6.1% unemployment, the unemployment goal for 2014, the Fed downgraded the growth forecast for the next year to 2.2% from 3%. The comparison between Inflation and Core Inflation indicates pressures for wage growth and an increase in rental cost that creates a condition where a shift in policy will be necessary. Core inflation is at 1.95%, while bond yields are 0.6%. The economy is tightening and inflation is rising, so long-term rates should go up.

Concerns in the bond market are that Owners of US Treasury Bonds are not as concerned with the pricing of bonds as natural actors would be in an unimpeded market. The Federal Reserve adjusts investments in the bond market monthly through Quantitative Easing (QE2), which is anticipated to end in October 2014. The tapering out of Fed bond purchases means that bond rates will go up. Other distortions in the market will be due to major investors such as the Bank of Japan, which maintains excessive bond holdings that can destabilize the market should it sell off a significant amount. However, these behaviors are unlikely because of the impact it would have on their own economies, not to mention on diplomatic relations.

The bond market is a good place to invest as a defensive structure since a sharp rise in bond yields is unlikely in the future. Quantitative Easing is designed by the Fed to keep bond rates low for the long term, approximately 2% interest rate goals for this coming year. The bond market should be a reliable part of your portfolio this year, but as the economy grows, the equities market will likely exceed bond market growth.

The equities market has the best potential for year-to-year growth, despite holding the greatest risk to investors. The returns and valuations by style indicate the year-to-year earnings remain strong. The fourth quarter has the greatest potential to be the strongest of all this year. Overall recovery from 2009 market lows indicate continued recovery as the expanding data available to research stable market activity show greater returns, but do not indicate bubbles similar to the boom and bust of the last recession.

The rise in interest rates and confidence show that both should rise even further over the next 12 – 18 months, although cyclical sectors are best offset by investment in 10-year treasury bonds as a stabilizing measure to varying performance in equity markets.

Other economies spent the last quarter dealing with their own problems. In a unique twist, the EU’s growth was softened by France’s macroeconomic strife, while the European periphery provided the hopeful signs for growth. China picked up market growth after a rough first quarter, as Japan similarly indicated recovery from the sales tax increase, though neither will likely overcome the first quarter’s poor growth unscathed.

As we approach full employment, traditional investment strategies generally begin to hedge against inflation by including investments in commodities and real estate where GDP growth is perceived to be less influential than in other sectors. Quantitative Easing provides some “carbohydrates” to the US economy, thus allowing bond and equity markets to both grow in the short run. However, this promise is impermanent and may lead to trouble ahead. For a balanced meal, we turn to the foreign bond and equity markets. Thus, we foresee that the most robust investment palette will diversify not only across markets, between American equities and bonds, but across borders to take advantage of equities and bonds abroad.

Katherine Brown completed a Master’s degree in Global Finance, Trade, and Economic Integration from the University of Denver. Her research and writing focus on international monetary economics and central banking. She can be reached at Katherine@castlerockinvesting.com.

Filed Under: Blog, Castle Rock Investment Company, Federal Reserve, Industry News, Katherine Brown, Legislation, Uncategorized, US Treasury, Water Cooler Wisdom Tagged With: Castle Rock Investment Company, Federal Reserve, Katherine Brown, monetary policy

Footer

About Us

Castle Rock Investment Company, formed in 2006, is an independent woman-owned SEC-registered investment adviser located in Castle Rock, Colorado. We specialize in individual financial plans and qualified service plans.

Sign up to hear about events:

From the Blog

State Farm and Edward Jones React to the Fiduciary Rule

By Mack Bekeza With April 10th, 2017 quickly approaching, a large number of investment firms and insurance agencies are scrambling to comply with the DOL fiduciary regulation. However, some firms believe they have found a solution to the upcoming rule. Knowing that their representatives cannot put their clients’ interest first, State Farm and Edward Jones […]

  • Twitter
  • LinkedIn
  • Facebook
  • YouTube

© Copyright 2006-2017 · Castle Rock Investment Company · All Rights Reserved