Charter Trust - Global Market Update

Do prices matter? That’s the question investors have to ask all the time. Is gold a good investment? Depends on the price: if you bought it at $1000, you’re still happy with the metal trading at $1250. If you paid $1800, you’re just waiting for it to go back up so you can get “your” money back. But an investment doesn’t know that you own it, and the universe doesn’t owe you a living. If a stock goes down after you buy it and nothing has changed—same management, same business strategy—why should it go back up? But people do this all the time. “Please get me back to even so I can get out!” is one of the most common prayers to the market. It’s a little rosary of fear and greed. But it does seem—in retrospect—that some prices are more significant than others. Traders and investors recall what they paid and that affects subsequent market action. Technical analysis centers around how people behave at specific prices. Support and resistance lines aren’t magic, they reflect emotions around market movements. Try this out: mention an investment, and see what people say. If you hear “Ugh!” take note: you may have discovered a hated—and profitable--asset. But if the response is peals of joy, be very, very careful. Because what goes around comes around: nothing is so good that the price doesn’t matter. Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all! Follow me on Twitter @GlobalMarketUpd direct: 603-252-6509 reception: 603-224-1350 www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Broadcast Date - January 18th 2014 Hosts: Steve Albrecht & Cynthia WentworthClick the play button to listen to this show:

Broadcast Date - January 9th 2014 Hosts: Steve Albrecht & Cynthia Wentworth Click the play button to listen to this show:

Why do we have pennies? The US Mint loses money on every penny they stamp. It now costs about two cents to make one. The Mint has changed the penny’s composition five times since the coin was introduced in 1793, most in 1982. But because of inflation, a nickel is now worth what a penny was worth1972. In fact, we’ve never had a coin that was worth so little. The last time we eliminated a coin—the half-cent, in 1857—it was worth 11 cents in today’s terms. And pennies aren’t good for much. You can’t use them in vending machines or parking meters, and you generally can’t deliver them in bulk. Often, they just end up sitting in jars or get thrown away—where they end up as toxic waste. Nickel is a heavy metal. Indeed, all these factors led the Canadian Government to discontinue the Canadian cent last year. Up there, charge-card customers pay the exact price, while folks using cash pay a rounded amount. They decided that nostalgia is not a good reason for the government to lose millions of dollars making pennies. But don’t underestimate the power of the zinc lobby and other industry groups. They’ll cite the benefits to charities of penny-drives or the difficulty of rounding for consumers (really?!). And folks fear the slippery-slope: nickels cost ten cents to make, are we going to eliminate them, too? It won’t happen soon, but I think eventually the penny will go the way of the US half-cent and half-dime. In spite of special interests, Congress will eventually get around to doing the rational thing. After all, losing money by minting coins just doesn’t make sense. Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all! Follow me on Twitter @GlobalMarketUpd direct: 603-252-6509 reception: 603-224-1350 www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

What is the Fed?The Federal Reserve System was conceived 100 years ago on a small island off the coast of Georgia to bring order to a fractious and crisis-prone banking system. A century later we have the most powerful and influential financial institution in the world. We also have one heck of a business.Technically, the Fed is owned by the various national banks around the country. Each one owns Federal Reserve Bank stock. And because the Fed owns almost $4 trillion in bonds, it makes a boat-load of money: $88 billion in 2012, $77 billion last year. To put this in perspective, that’s twice the earnings of Exxon Mobil. And it sends these earnings back to the US Treasury Department, easing the Federal Government’s deficit.This isn’t anything new. The Fed has been remitting its excess interest income to the Treasury since 1947. They do this by setting an interest rate on currency that banks hold with them—and paying that interest to Treasury. But that interest rate is artificial. There’s no law that requires the Fed to pay anything to anyone.The last public/private financial corporation with such a huge balance sheet was Fannie Mae. That didn’t work out so well. Let’s hope Janet Yellen’s leadership can keep the Fed on sounder footing.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Will robots manage our money? They’re trying to do lots of other things: set the thermostat, tell us we’re low on milk, drive the car. It’s all part of the “internet of things,” the connection of everything to everything, to make our lives easier. Hey, if I can adjust my home’s temperature from my smart-phone, why not rebalance my portfolio? Even if potential NSA surveillance makes it all a little creepy.And online brokers are putting the squeeze on traditional brokers. So why not automated investment advice? Sites like Wealthfront or Betterment or Personal Capital have you take a survey, open an account, and generate an investment plan for about a fourth of the cost of a traditional flesh-and-blood advisor. And the robo-advisor is always available to answer your questions, never goes on vacation, and is willing to handle very small accounts.But investment services are sold, not bought. Most people don’t plan to fail financially, but they do fail to plan. Personal inertia and natural caution make it hard for people to write a large check to some entity they’ve never met—and can’t meet. People depend on personal interaction to determine who to trust. An app can’t look you in the eye.Still, it’s likely that robo-advisors will stick around, if only as a niche product. If the model works I’d expect big money management firms (like Fidelity of Schwab) to incorporate it into their product line, especially for smaller accounts. Because the last place people want to be adventurous is with their wallets.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Are corporate credos worthless?At its best, a corporate credo can provide inspiration and direction to help management focus when times are hard. Johnson and Johnson’s credo is a great example. It was written 70 years ago by Chairman Robert W. Johnson himself just before the company went public, and is chiseled in granite in the entrance to the corporate headquarters. It embodies Johnson’s commitment to the firm’s customers, employees, communities, and shareholders.But sometimes a credo is just a clever marketing ploy. Enron had a highly developed corporate code of ethics espousing high-minded beliefs. They put together a compelling video that touted their good deeds in the community and the character of their leaders. But many of those leaders are still in jail, and the company’s name is now a byword for corporate corruption.Credos matter when leaders and managers take them seriously. If a credo is mainly a clever way to use business ethics as a marketing strategy, it’s worse than useless. But if a firm’s core beliefs really make a difference—the way J&J’s did during the Tylenol crisis of 1982—then those values become valuable.A credo can be priceless, but only if changes our actions. When it comes to ethics—business or personal—actions speak louder than words.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

What’s the informal economy?The informal economy is the cash economy. It’s the economy of under-the-table transactions. It’s the economy of currency and favors. Sometimes it’s unsavory, sometimes not.If you get a book you like for Christmas and loan it to a friend, that’s informal activity. No money changes hands. This is perfectly legitimate. But sometimes informal activity is sleazy: cash payments for goods or services so sellers can avoid reporting what they do—to avoid taxes, or because the activities are criminal.The more advanced an economy is, the smaller its informal sector. In the US the informal economy is less than 9% of total GDP; in Zimbabwe it’s over 60%. This is a problem for developing economies, because jobs in the black market can trap people in cycles of poverty and exploitation. There’s little capital available for successful enterprises to expand.The simplest way to move people from the economic shadows into the light is to ease regulatory and tax burdens and make it simpler for small businesses to compete. People work for cash because the formal alternative costs too much. If governments make formal work more attractive, they’ll get more of it.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Is it time to rebalance?Most of us believe in balance. In sports, a balanced stance keeps you ready for the next point. In conversation, a balance between listening and speaking keeps both you and your friend engaged. And a balanced diet means that a mix of protein, fats, and carbs can give you the energy and nutrients you need.So it makes sense that a balanced portfolio will help financially. A mix of domestic and international stocks, bonds, and cash—tailored to your specific situation—should give you the return need consistent with the risk you can handle. But portfolios don’t manage themselves. Over time, they get out of balance. This can happen if one part grows and another area languishes.That might be the case, now. US stocks have been on a tear—up 30% this year, 15% the year before, hitting new records. For many international markets, though, it’s another story: apart from Japan, Asia was down last year, as was much of Latin America. Taking a little from your winners and adding to areas that haven’t done so well isn’t just prudent; it also gives you a disciplined way to buy low and sell high.Rebalancing financially may only involve incremental adjustments. But it’s a good way to be ready for the next challenge. Because in finance, like life, there’s always something new coming.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

How would you like free money? That’s what the US Government will get on Thursday. Earlier this week the Treasury Department held an auction for one-month Treasury Bills—debt instruments that trade at a discount to maturity, and then pay off at par when they mature. Only on Monday there was no discount--they auctioned $18 billion in 4-week bills, for which they received $100 billion in bids. And the average bid was—zero percent. That’s right. Investors with $100 billion in cash are able and willing to give the US Government their money to hold for them—for nothing.It’s a binge-borrower’s dream come true. Free money could eliminate $250 billion in interest expense from our $3.8 trillion budget. Of course, it would be imprudent to fund the Government month-to-month, and this was only an $18 billion auction. Over the course of last year Treasury needed about $60 billion per month. But all those bids indicate that there’s a bond shortage out there—at least a shortage of highly secure, highly liquid short-term bonds.And this is no surprise, given the changes in market structure and expectations since the financial crisis. Institutional investors want collateral for their deals, and sometimes only T-bills will do. Money-market funds—which pay nothing—are mandated to hold a certain percentage of their funds in T-bills. And everyone is worried about what the Fed will do with interest rates—policy rates, tapering QE, interest on reserves—with a new Chair and several new Committee members. Holding short bills is safe.So for now, the Government is getting its money for nothing. Now if only they could get the rest of their services for free.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

What’s wrong with Mexico?Both Canada and Mexico border the US. But while Canada’s economy is very similar to the US in terms of income and structure, per-capita income in Mexico is 30% that of the US. Mexico is hampered by poor education and a system of state monopolies that dominate domestic production, especially of oil.In 1938 Mexico nationalized its oil industry with great fanfare. Since then, the national oil company—Pemex—has been a model of inefficiency and cronyism. The problems with a state monopoly are easily visible with Pemex: there is little incentive to innovate, economize, or improve their processes. As Adam Smith predicted over 200 years ago, administrators of a monopoly tend to “repose themselves upon their benefices” and avoid rocking the boat. So productivity and income lag behind.But this may change soon. Mexico recently announced that foreign companies can develop Mexican oilfields; that competitors can come into the largely monopolized telephone industry; that greater competition in financial services may be forthcoming. Opening up the Mexican economy should increase productivity and incomes, with significant impacts on immigration.Growth in Mexico will be good for them and good for the US. With over 100 million consumers, their fortunes will have a big impact.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Does cold weather hurt the economy?On the face of it, it sure seems that way. Frigid temperatures keeps people home and depress retail sales. They hurt agricultural output and can lead to injuries or even death from accidents and physical stress. There’s even some thought that the “little ice age” of the 16th century may have led to crop failures and increased witch trials.Certainly extreme weather interrupts us. It’s hard to go shopping or plant crops when your home is flooded. And storms, droughts, and cold-snaps impact short-term commodity prices. But the effect is local. Three inches of snow in Minneapolis is no problem; in Washington, DC it’s enough to shut down the government.But our economy has adapted to deal with disruptions. Telecommuting makes it possible for people to still work when they can’t drive to the office; insurance helps people put their lives back together after a big storm. There are even some surprising health benefits from cold weather, like fewer parasite-carrying mosquitoes.Some retailers—like Kohl’s or TJ Maxx—seem especially vulnerable to a big freeze. But sales of snow-shovels and sweaters go up when the temperature goes down. They just don’t make up for the lost spring-wear sales.It’s disruption—not cold—that’s the real challenge. But the more advanced an economy is, the better it can adapt.

Whatever happened to emerging markets? Amid the shining stars of investments in 2013, emerging markets stand out. Not as bright points, but as black holes. China was flat. Russia was down 10%. Brazil was down 25%. An emerging market composite declined 6%. After a decade of being the investing world’s darlings, these markets are struggling. The catalyst appeared to be the “taper talk” last May. Of course, that discussion was no real surprise. We’ve known that ultra-low interest rates couldn’t last forever, and that when the economy moved back towards normal, so would bond yields. But rising rates remove a big rationale for emerging markets: growth. When it seemed developed economies had entered a “new normal” of slower growth, investments migrated to the developing world, where population growth and technological advances provide stronger potential. When growth returned to the US and Europe, the money came back. Economies in Asia, Africa, and Latin America that had become dependent upon massive capital inflows found that they couldn’t fund their current account deficits. The adjustment has been severe. So now instead of the BRICS we now have the Fragile Five, which appear on the brink of a crisis. But today’s emergency is tomorrow’s opportunity; low prices lead to higher returns. The best time to buy equities recently in the US was in March of 2009, when our own crisis seemed darkest. Capital seeks return. It may take time, but global trade and domestic commerce will lift these economies. China may not rule the world any time soon, but it still provides tremendous opportunities. Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all! Follow me on Twitter @GlobalMarketUpd direct: 603-252-6509 reception: 603-224-1350 www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

So what’s the economy doing? As we look to 2014, several trends are in place. Profit margins for domestic companies are running over 12%--an historic high. World trade seems to be picking up, led by increases in the United States and China. Employment growth in the US has settled in at slightly less than 2 ½ million jobs per year—enough to pull unemployment down gradually. And inflation remains modest, running at around 1 ½%. All this means that economic growth in the US has picked up. The core trend is for steady—not manic—growth. With stocks up 30% last year, investors are wise to be cautious. The market isn’t cheap, although there are pockets of value. Buzz around new offerings like Twitter—a 2300 person company that trades at 55 times sales, 20 times more expensive than Amazon (!)—do raise concerns about bubbles. We’ve seen that movie before. Still, it’s hard to see where the economy might come unglued. The fiscal follies in Washington seem to have settled down, and global growth is strengthening. But we don’t know what we don’t know. The only constant in the market is change. Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all! Follow me on Twitter @GlobalMarketUpd direct: 603-252-6509 reception: 603-224-1350 www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

As 2013 ends, how is the economy doing?There are many ways to answer that question, but one the clearest is to compare employment, economic activity, and the market.  Since the Financial Crisis, both the market and the economy have recovered and hit record levels, while employment is still below its 2007 peak.  This gap—sometimes call the output gap—is a big source of  concern for economists and analysts.The economy is now producing $850 billion more in inflation-adjusted output with 2 million fewer workers than it had in 2007, so corporate profits are at record levels and over 40% higher than their pre-recession peak.  This is a principal reason why the stock market has advanced so significantly, now 17% above its October 2007 record.Why this is happening isn’t so complex, either. Capital is cheap; labor is expensive.  The Fed has kept short-term rates below inflation since late 2008. Only now are they beginning to take baby-steps to normalize this situation, although many expect rates to remain low for a long, long time.If the economy strengthens and unemployment falls, can profits stay this high or will they revert?  That’s the 20 trillion dollar question—the size of the US stock market.Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all!Follow me on Twitter @GlobalMarketUpddirect: 603-252-6509 reception: 603-224-1350www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net