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Volatility: the new reality
JoeSRJuly2012Video
 (To view the video, click here, or on the image above.)

In this month's video, I discuss the idea that
what may appear as a buy-and-hold strategy by portfolio managers today, is really a policy based on sound investing principles that have stood the test of time and are still in play.

Although we're in volatile times and we have concerns about preserving our capital, we need to think of the long term.


Joe


Americans see biggest home equity jump In 60 years: mortgages

HomeEquity

Kathleen M. Howley in Bloomberg news reports that home-loan debt in our country is starting to ease.

Americans are digging themselves out of mortgage debt.

Home equity in the first quarter rose to $6.7 trillion, the highest level since 2008, as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The 7.3 percent gain was the biggest jump in more than 60 years, according to an analysis by Bloomberg of Federal Reserve data.

It's the strongest sign yet that Americans' home-loan debt burden is beginning to ease after the record borrowing that created, and ultimately popped, the housing bubble, leaving almost a quarter of homeowners with mortgages owing more than their properties were worth, said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. Half the mortgages refinanced in the fourth quarter reduced loan size, a record, according to Freddie Mac, the government-owned mortgage buyer.

"The willingness of homeowners to carry housing debt has been radically altered," said DeKaser, former chairman of the American Bankers Association's Economic Advisory Committee. "When the market was booming, a mortgage was used as a leveraging tool, and now it's seen as a risk."

Measured as a share, rather than in dollars, homeowner equity was 41 percent of U.S. residential property value in the first quarter, including homeowners who don't have mortgages, according to the Fed study released last week. The last time the share was that high was in the third quarter of 2008 when it was 43 percent.

"Bubble burst"

"People got too overleveraged in the boom years, and that left them with too much debt when the bubble burst," said Paul Miller, a managing director with FBR Capital Markets in Arlington, Virginia. "Now, they're trying to put themselves back on solid ground."

Residential mortgage debt peaked in 2007 at $10.6 trillion, doubling in six years, according to Fed data. Since then, it has fallen 7 percent as the value of all residential property has dropped 23 percent.

Americans aren't just bringing money to the table when they refinance their mortgages. Many also are choosing to shorten the term of their loans, which increases monthly payments. The average mortgage term fell to 27 years in March and April from 29 years February. Almost all U.S. mortgages have either 30-year or 15-year terms. When the average falls, it shows more people are choosing the shorter period.

The average U.S. rate for a 30-year fixed mortgage has tumbled since early 2011 to 3.71 percent this week, rising from last week's record-low 3.67 percent. Refinancing applications, meanwhile, are at a three-year high.

Wisdom of thriftiness

DeKaser of Parthenon attributes the reduction in mortgage debt to a "fear factor." A lackluster recovery that still has one of every 15 people unemployed has persuaded some borrowers of the wisdom of thriftiness, he said.

"People are worried about falling home prices and they're worried about the economy," said DeKaser. "If they can afford it, they're paying down their mortgages instead of buying things because it makes them feel like they'll sleep better at night."

Home prices tumbled for six straight months through March to the lowest level in a decade, 35 percent below the peak prices of the housing boom, according to the S&P/Case-Shiller price index of 20 U.S. metropolitan areas. A 3.4 percent increase in home sales last month may signal prices are beginning to stabilize, according to Eric Belsky, managing director of Harvard University's Joint Center for Housing Studies, in its "State of the Nation's Housing" report issued today.

Click here to continue reading the article.

 

JoeJrforENL
Joe Chornyak, Jr., CFP   

"I find people fascinating," says Joe Chornyak, Jr. "I love following my clients through their various life phases, as they advance toward retirement. Here at Chornyak & Associates we believe it's important to get both spouses involved in financial decision making, so I get to know both husband and wife and work with them as a team."

 

Joe has just passed the CERTIFIED FINANCIAL PLANNER™ exam and now holds the certification CFP, in addition to the FINRA Series 7 and 63 registrations as an investment advisor representative of Commonwealth Financial Network. Having been with Chornyak & Associates for 19 years now, in addition to being a financial advisor, he holds a variety of responsibilities including being head of internal operations, marketing, and procurement.  

 

Team environment 

 

"Some of my classmates at the University of Dayton were lured into jobs that offered big salaries and perks, but I chose to join Chornyak & Associates where I was given the opportunity to be exposed to many areas of management from the very beginning. Many of them didn't stay in these positions long." Joe says.

 

The team environment and working together toward a common goal provide a satisfaction that makes him eager to get to work every day and contribute to improving life for his clients.

 

Active lifestyle 

 

Outside of Chornyak & Associates, Joe loves the physical exertion of sports, as witnessed in his annual participation in the Peletonia bike marathon for charity, but in the office he feels at home in a suit and tie. He finds the interaction with both clients and staff rewarding and an important addition to his enjoyment of life.

 

Joe's face lights up when he talks about his dog, a German shorthair pointer, his third of this breed since he left college. The two do mountain biking, swimming, and pheasant hunting in South Dakota together.

 

Joe's engaging manner makes you want to join him in his lifestyle, even if you're not the active type.

 

Professional development - Commonwealth Leaders Conference 2012

LeadersConf12Logo
                                                           
Joe Chornyak, Sr. attended the Leaders Conference, an invitation-only educational event hosted by Commonwealth Financial Network�, in Enniskerry, Ireland, on May 15-20. The Leaders Conference is open only to the firm's most successful financial advisors.  Only 2% of Commonwealth's network of 1,400 financial advisors was awarded Leaders status in 2012.

Industry updates and networking 

Attendees gathered to network with peers and colleagues, engage in exclusive conversations with Commonwealth staff, learn key insights, and obtain recommendations from industry leaders.
 
Presentations included a market update, perspectives on the international economy, and thoughts on the budget debate. Attendees also engaged in Power Hour networking groups, designed expressly to share perspectives and best practices on client service with peer attendees.

Professional evolution

"We commend Joe Chornyak for his pledge to constantly evolve within his profession," said Wayne Bloom, CEO of Commonwealth.  Joe is among the most respected financial advisors in our industry and is a trusted partner to the clients he serves. Attending this event is just one of the many ways in which Joe displays a long-term commitment to educate himself on the best tools and practices to meet the demands of investors."

Joe Chornyak commented, "It was a privilege to have the opportunity to interact with peers and outside investment professionals to discuss the evolving investment strategies being deployed today."

Giving back

While in Ireland, Joe participated in a day of giving back at Barretstown, a nonprofit organization that helps to rebuild the lives of children affected by childhood cancer. Ranging in age from seven to 17, the children come from Ireland and across Europe to take part in activities such as canoeing, high ropes, drama, and arts and crafts. that surrounds the property. 

 

  

Important new requirements to ensure you're protected

FINRA

The Financial Industry Regulatory Authority (FINRA), the independent regulator for our firm, is commissioned with protecting you by making sure that the securities industry operates fairly and honestly. Recent new rules put in place by FINRA require that we obtain additional information regarding your financial position and investment profile, collectively known as "suitability."

 

FINRA Rule 2090: KNOW YOUR CUSTOMER 

The new know-your-customer rule is brief to say the least; it's literally a sentence long:

Every member shall use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.

 

At face value, there's not much to the rule. But, in stating that, we need to know and retain "the essential facts" about our clients. It intertwines with FINRA Rule 2111 on suitability, which lists the specific characteristics that we must consider when making a suitability determination.

 

FINRA Rule 2111: SUITABILITY 

The updated suitability rule says:  

Every member shall have reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile."                                                                                 

Rule 2111 significantly expands upon the specific "customer investment profile" information that we are required to obtain. At a minimum, we must take into account your:

  •  investment objective
  •  investment experience
  •  age
  •  other investments
  •  financial situation and needs
  •  tax status
  •  investment time horizon
  •  liquidity needs
  •  risk tolerance

In order to comply with these new rules, our office may need to contact you about updating your suitability information. We appreciate your help in completing these important updates so that we may continue serving you and offering you the investment guidance you've come to expect from our firm.

 

Please don't hesitate to call or e-mail us at [email protected], 614-888-2121, or 877-389-2121 if you have any questions or concerns.

 

  

What's happening now

GoogleNexus

Google's new tablet, Nexus 7, is designed to chip away at the Apple iPad's market share and fight for the runner-up position. However, tech experts say the target markets may be different. 

19-year-old venture capitalist, talks about his upcoming book that will feature interviews with 25 of the world's most successful people.  Click here to watch the video.

How corporate America is reaching out to the unemployed: free dry cleaning, health care, clothing, and more.

According to a new study, when it comes to extreme success, we may do better to learn from the second-in-command rather than the CEO.

Surgeon confesses: "I've fallen asleep while operating on patients. And I'm sure I'm not the only one."  Click here.

  



This communication is strictly intended for individuals residing in the States of:  AL, AR, AZ, CA, CO, CT, FL, GA, IA, IL, IN, KY, LA, MA, ME, MI, MT, NC, NY, OH, PA, SC, TX, VA WI, WV.  No offers may be made or accepted from any resident outside these States due to various state requirements and registration requirements regarding investment products and services.
 
Securities and Advisory Services Offered Through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed-insurance products and services offered by Chornyak & Associates, LTD are separate and unrelated to Commonwealth.

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Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor's. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000� Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury's daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS.
July 2012
JoeSrNewJune12
In my recent travels I've spoken with portfolio managers, analysts, and researchers from a wide variety of disciplines.  The consensus of opinion is that we will continue to face market volatility as we move forward. Active portfolio management emphasizes diversification, focus, and a long-term perspective.  I hope you'll view the video by clicking here or on the link on the left.

Home equity is on the rise; in fact, the 7.3 percent increase in the first quarter of 2012 was the highest jump in 60 years. Borrowers are now exhibiting a thriftiness that may indicate that if they can afford it, they're paying down their mortgages instead of buying things.

Congratulations are in order for Joe, Jr. who recently passed the Certified Financial Planner exam and now holds the designation  CFP.  Joe, Jr. has been with us since after his graduation from the University of Dayton in 1992, and as you will learn in our feature article, is a dedicated member of our team with some pretty diversified personal interests.

In May, I was fortunate enough to be invited to Commonwealth Financial Network's Leaders Conference.  This was truly an honor because only two percent of Commonwealth's network of 1,400 financial advisors were included.  My time was well spent in networking and gaining insights from peers, colleagues and industry experts.

Finally, don't miss our "What's happening now" section for some interesting updates on technology and people.  Keep an eye on Google's  Nexus 7, which is positioned to unseat the iPad as the nation's most successful electronic tablet.

Please feel free to call me at 614-888-2121 (or toll- free 877-389-2121), or send an e-mail to:
[email protected]
if you have any comments or questions.  I'm ready to talk any time.

Sincerely,

 

Joe 

Market Update
Market Update for the Quarter Ending June 30, 2012 - Posted July 6, 2012

A strong month at the end but losses for the quarter


For equities, June was a strong month to end a weak quarter. For the month, the S&P 500 Index (S&P 500) showed a gain of 4.12 percent, while the Nasdaq showed a smaller gain of 3.81 percent. The apparent stability demonstrated by the gains was belied by the volatility during the month, with both indices starting the month with a drop, then appreciating more than 6 percent, dropping back again, and then recovering with a particularly strong day at the end of the month. For the quarter, the S&P 500 was down 2.75 percent, while the Nasdaq was down even more, at 5.06 percent. The extremely weak May results dominated the quarter as a whole, despite a strong June.

Technically, the indices recovered from their brief dips below the 200-day moving averages-a good sign. The S&P 500 jumped above its 50-day moving average and the Nasdaq recovered to just below its 50-day moving average. These are also good signs, but the fact that much of the gain came on one day is a cautionary signal. On a technical basis, the signs are somewhat encouraging, but continued weakness remains possible.

Fundamental factors showed deterioration. Seventy-three of the S&P 500 companies (up from 67 in the first quarter of 2012) issued negative earnings guidance for the second quarter, while only 29 (down from 44) lifted guidance. The net result is that analysts now expect a 0.6-percent decline in earnings, down from a 6.2-percent gain in the first quarter. This is the worst growth rate since the third quarter of 2009 and shows that the corporate sector is slowing down.

International markets did somewhat better for the month but worse for the quarter. The MSCI EAFE Index gained 7.01 percent for the month but lost 7.13 percent for the quarter. Similarly, the MSCI Emerging Markets Index gained 3.43 percent for the month but lost 10 percent for the quarter. Again, a weak May was the primary culprit, with market expectations for growth eroding and for political instability increasing. Technicals remain weak, with both indices edging close to or slightly above the 50-day moving average but well below the 200-day moving average. For both indices, the 50-day crossed below the 200-day, a sign of potential weakness, in early June.

Fixed income had a relatively weaker month compared with equities, with the Barclays Capital U.S. Aggregate Bond Index up 0.04-percent for the month. Despite the weak June, the index was up 2.06 percent for the quarter. U.S. Treasury rates rose across the board in June, albeit by a relatively small amount, but remain well below rates at the start of the quarter. Mortgage rates continued their long decline throughout the quarter. Corporate spreads were relatively unchanged in June and up a bit over the quarter, while municipal spreads widened over both periods.

Overall, the results for the quarter showed the resurgence of uncertainty in the markets. As corporate results and the general economy continue to exhibit slowing growth or outright decline, expectations are taking a similar hit and investors are seeking more safety and less risk. An excellent reflection of this is the fact that, for only the second time since the 1950s, the dividend return on the S&P 500 is above the 10-year U.S. Treasury bond yield.

Small gains for workers and housing

In the general economy, growth continued but at a slower and slowing pace. In terms of gauging the strength of the American consumer, the data released in June was mixed. At the beginning of the month, investors learned that employment growth had slowed substantially. In May, payrolls grew much less quickly than had been expected, and the previous relatively strong results reported for April were revised downward. The unemployment rate rose slightly, from 8.1 percent to 8.2 percent.

Meanwhile, other factors suggested a better outlook for consumers. Home prices rose 0.67 percent in April, according to the Case-Shiller 20-City Home Price Index. This was the third month in a row that prices rose. Prices had improved temporarily a few years ago during the First-Time Homebuyer Credit program; however, this time, home values are increasing without the aid of artificial government intervention. Another potential catalyst for the consumer comes from reduced inflation, with a stronger U.S. dollar and lower oil prices.

Manufacturing appears to be on track, at least according to the national ISM Manufacturing Index. That said, there has been unusual weakness in some areas of the country, particularly in the Philadelphia region. Inventory build-up has also remained reasonably robust, implying support for gross domestic product growth in the second quarter.

Overall, the U.S. economy appears to be on track for continued growth, although at a slower rate than in the first quarter. The slowing rate has introduced additional uncertainty about future gains, and this may have contributed to the loss of investor risk appetite.

Small or no gains for Europe and the world

Europe continues to attempt to resolve its problems. Greece moved back to the forefront of concern, with elections for a new government raising the risk of repudiating the bailout deal so recently and painfully done. Although the rejectionists were marginally defeated, the clear fact that Greece remained in play unsettled markets.

The Greek drama was closely followed by the Spanish government's request for a bailout of its banking system. The good news is that the bailout was done quickly and with apparently adequate funding, but the bad news was that the markets were still unimpressed, with Spanish interest rates spiking to dangerous levels in the aftermath. Although markets have since settled down, uncertainty remains high. In the excitement of Spain and Greece, the fact that Cyprus became the fifth eurozone country to request a bailout went almost unnoticed.

As of quarter-end, Europe remained unsettled, with the major heads of state scheduled to meet to discuss the means to resolve the crisis once and for all. Unexpectedly, a deal was announced that included significant provisions aimed at not only addressing the symptoms but also the causes of the crisis. Equity markets rose sharply on the news, and bond yields in peripheral economies fell. While these measures do not solve the problem, they are good steps along the way.

Other areas of the world showed decelerating growth as well, but in these cases there is more room for governmental stimulus that could help. The central banks of China and Brazil both cut rates, by 0.25 percent and 0.5 percent, respectively. Economic growth has slowed considerably in Brazil and moderated in China, which has led to concerns about the ability of emerging markets to be the growth engine of the global economy. Still, the central banks of both countries have lots of room to maneuver in their efforts to keep growth on track.

Small help from the Federal Reserve

Unlike elsewhere in the world, the response of the Federal Reserve (the Fed) in this quarter was modest. Given the weaker employment and consumer spending reports, the Fed announced a plan to extend its Operation Twist purchasing program and moderated the language in its monthly Federal Open Market Committee statement in June. This response was less than many market participants had hoped for-and much less than the full quantitative easing that had been posited in the media. The Fed did downgrade its expectations for the economy in its statement, supporting the market's lowered expectations. The combination of less-than-expected stimulus and lowered expectations further depressed market sentiment.

A slow end to a difficult quarter

While the first quarter of 2012 was strong, the second quarter has been a struggle. Expectations have been scaled back across the board, and many very difficult issues-Europe, the U.S. budget problems, and a slowing recovery in the U.S.-received extensive coverage. Nevertheless, it is important to remember that, even though growth in the U.S. has slowed, we do continue to grow. Europe, although generating screaming headlines, is finally facing its problems, and the uncertainty there will, it is hoped, decrease when it does. Finally, as expectations decline, it becomes easier to meet them, suggesting that current expectations may be more in line with reality. Although the quarter was slow, and May particularly disappointing, we continue to work through our problems and expect that the current slow improvement will continue.

Authored by Brad McMillan, vice president, chief investment officer, at Commonwealth Financial Network.

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