Intelligent Investor Dec 18, 2015

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The Intelligent Investor

A bi-weekly publication from Consultiva Internacional, Inc. (Registered Investment Adviser)                                                       December 18, 2015


From the Executive Desk

Historically, global economic growth has been heavily dependent on energy production, which in turn has spurred an ever increasing demand for fossil fuels. The combustion of fossil fuels has led to dangerous increases in the levels of greenhouse gases in the atmosphere, and this is what in turn has raised the average temperature around the globe. Two-thirds of greenhouse gas emissions are directly related to energy production. So, as the representatives of the twenty-first Conference of Parties (COP21) wind down their meetings in Paris, we ask ourselves; would bringing down greenhouse gas emissions also mean bringing down economic growth? Not necessarily. According to a study from the European Commission (see the chart below), C02 emissions in developed economies have been declining, while their economies have showed modest growth. In contrast China has seen greater economic growth, but it has been accompanied by a dramatic increase in emissions. In a recent article on the role of energy in economic growth, Dr. David Stern of the Centre for Climate Economics and Policy at the Australian National University, showed that the use of energy per unit of economic output has declined in developed countries, due to both technological improvements and the use of higher quality fuels. While low fossil fuel prices could discourage further innovation and adoption of cleaner energy technologies, policymakers should not allow low energy prices to derail this transition. This is why the nations participating at COP21 want to put a price on carbon emissions. With global coordination on carbon emission prices, the cost to the world economy of whatever aggregate emissions reduction is achieved can be as low and fair to all as possible. Setting the right carbon price will align the cost paid by carbon users with the true social opportunity cost of using carbon. By raising relative demand for clean energy sources, a carbon price would also help to align the market return to clean-energy innovation with its social return, spurring the refinement of existing technologies and the development of new ones. Socially responsible investors should evaluate investment in clean-tech and look closely at their holdings in emerging economies.

Myrna Rivera, CIMA®

Founder & Chief Executive Officer





Source: Netherlands Environmental Assessment Agency / European Commission Joint Research Centre

Economic Perspectives


Through a statement released on December 16, the Federal Reserve announced the long-expected hike in interest rates. The Fed raised the target range for the federal funds rate to 1/4 to 1/2 percent, and insisted that future increases will reflect “gradual adjustments in the stance of monetary policy”, as economic activity is expected to continue to expand at a moderate pace. After a roller coaster five-month stretch, the U.S. economy showed positive signs in November. The monthly labor report showed the U.S. economy added 271,000 jobs in October, well above analysts’ expectations. Bullish opinions were also bolstered by a positive revision of third-quarter GDP from an initial estimated increase of 1.5%, to a well improved 2.1%. The Federal Reserve’s decision comes as no surprise amid these developments, and they argue that their stance remains accommodative, seeking to support further improvements in the labor market, and furthering a return to 2 percent inflation. In contrast, central banks in the Eurozone and Japan pledged additional monetary stimulus. European Central Bank President Mario Draghi repeatedly suggested in November increased support in the Eurozone, where economic indicators have been less encouraging than in the U.S. This divergence was most evident in the bond market.


Evangeline Dávila, CIMA®

Chief Research & Investment Officer 



(As of December 17, 2015)


United States:

CPI: 0.4% Chg. from yr. ago

Unemployment Rate: 5.0%

GDP: 2.1% Comp. Annual rate of Chg. on 2015:Q3

Ind.Prod.Index: -0.6% Chg.

Source: St. Louis Fed. Res.


CPI: 0.2% Chg. from yr. ago

Unemployment Rate: 10.7%

GDP: 0.3%, Comp. Annual rate of Chg. on 2015:Q3

Ind.Prod.Index: 0.6% Chg.

Source: Moody’s Analytics






CPI: -0.1% Chg. from yr. ago

Unemployment Rate: 3.1%

GDP: 0.3%, Comp. Annual rate of Chg. on 2015:Q3

Ind.Prod.Index: 1.4% Chg.

Source: Moody’s Analytics

Puerto Rico:

CPI: -0.5% Chg. from yr. ago

Unemployment Rate: 12.4%

Payroll Employment: 0.7% Chg. from yr. ago

GDB Econ. Act. Index: 0.0% Chg. from yr. ago

Source: P.R. GDB



Markets in Brief

STOCKS For the month, the S&P 500 eked out a 0.1% advance. The Dow fared slightly better, adding 0.3%, while the NASDAQ outperformed to the tune of a 1.1% increase. The November standout was the Russell 2000 index, with the gauge of small-caps climbing 3.1%. Financials paced the gains while utilities and telecom stocks lagged, as their high dividends are perceived to be less attractive in a rising-rate environment.

FIXED The expectations of an end to easy money policy in the U.S. were contrasted by further pledges of monetary stimulus in Europe and Japan. This divergence was most evident in the bond market. The yield on two-year U.S. Treasury notes, which are more sensitive to changes in interest rates than their counterparts of longer maturities, experienced the sharpest monthly increase since 2006. Sovereign bonds abroad did not follow suit, with the gap between yields on two-year German bunds and U.S. notes also climbing to a nine-year high. The yield on the benchmark U.S. ten-year note experienced a more modest climb to 2.21% from 2.15% at the end of October.

ALTS Amid the fluctuating market conditions of 2015, one constant has been the route in the commodity complex. The Thomson/CRB index retreated 6.7% in November to a 13-year low. West Texas Intermediate crude prices fell 10.6%, as a pledge from the Saudi government to help stabilize prices was not enough to overcome a continued growth in U.S. inventories. Gold also underperformed, with interest rate expectations contributing to a 6.6% loss for the yellow metal, the steepest monthly decline since 2013. In FOREX, the diverging environment in monetary policy helped the greenback to a 4% gain against the euro and a 2% advance on the yen.

Evangeline Dávila, CIMA®

Chief Research & Investment Officer



Source: Callan Associates Inc., Wells Fargo Advisors.

What to Do?

Capital markets in November ended with minimal returns in U.S. equity and low to negative returns in fixed income and alternatives. Uncertainty about interest rates in the US continued to be influential, as well as concerns over China's slowing growth. With expectations of muted returns and considerable volatility until the end of the year, we continue to recommend prudent asset allocation and risk assessment, based on future capital needs, for plan sponsors, institutions and individual investors. We believe that due diligence reviews and an adherence to a well-developed investment policy remains the most prudent course for long-term investors. Continued fiduciary education is paramount. 


Consultiva Internacional Inc. (“Consultiva”) has compiled the information for this report from sources Consultiva believes to be reliable. Sources include: investment manager(s); mutual fund(s); exchange traded fund(s); third party data vendors and other outside sources. Consultiva assumes no responsibility for the accuracy, reliability, completeness or timeliness of the information provided, or methodologies employed, by any information providers external to Consultiva. Conclusions reflect the judgement of Consultiva Investment Strategy Committee at this time and is subject to change without prior notice. There also can be no guarantee that using this information will lead to any particular result. Past performance results are not necessarily indicative of future performance. Diversification does not guarantee a profit or protection against loss. This document is for informational purposes only and is not intended to be an offer, solicitation, recommendation with respect to the purchase or sale of any financial investment/ security or a recommendation of the services supplied by any money management organization neitheran investment advice or legal opinion. Investment advice can be provided only after the delivery of Consultiva’s Brochure and Brochure Supplement (ADV Part 2A and 2B) once a properly executed investment advisory agreement has been entered into by a client and Consultiva. This is not a solicitation to become a client of Consultiva. There are risks involved with investing including the possible loss of principal. All investments are subject to risk.



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