Advisor Perspectives Vol.6:iss1

January 3, 2012 - Vol 6 Issue 1

Dear Reader,

Happy New Year from all of us at Advisor Perspectives! We'd like to thank you for your continued support throughout 2011 and into 2012.

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New Measures of Risk (and why markets are now very fragile)
By Adam Jared Apt

Understanding risk is essential to successful investment management, yet most common measures, like beta, capture only risk within markets - disregarding systemic risk of the markets themselves. Fortunately, new research is now shining light on "fragility" or systemic risk - how fast and how severely an unanticipated event will propagate through the markets.

The Best of Carl Richards
By Carl Richards

Carl Richards' new book, The Behavior Gap, goes on sale today. He shared with us his ten favorite drawings.

How Top Execs Game Retirement Plans
By Michael Edesess

Corporate executives and employee-benefits consultants have engineered a cascade of arcane methods to deprive ordinary retirees of benefits they thought they were promised, in order to fatten corporate profits and the benefit packages of top executives. That is the harsh message of Wall Street Journal reporter Ellen E. Schultz's meticulously-researched book, Retirement Heist.

Motivating Older Clients
By Dan Richards

Two advisors recently reminded me of the subtle differences it takes to successfully work with older clients. Both provide the highest quality of advice and have regular client events to stay in front of their best clients. Two years ago, however, they were frustrated by the difficulty of getting older clients to attend those events - until each came up with a solution.

Ghosts of Christmas Past
By Michael Lewitt

While Europe desperately needs the liquidity that the latest bailout scheme provides, nobody should mistake liquidity for solvency and think for a moment that the crisis is over. Much more work is needed to heal the wounds that European policy makers and business leaders have inflicted on their societies since the European Union was formed.

US Recession - An Opposing View
By Dwaine van Vuuren

A large number of reputable analysts and companies are forecasting a new U.S recession on the immediate horizon. Attracting the most attention is ECRI, which made a public recession call on September 30th and several television reaffirmations since. But an examination of a broader range of other composite economic indicators shows that sole reliance on ECRI's forecast would be misplaced.

Letter to the Editor

A reader responds to our article, Understanding Variable Annuities with GMWBs (and the flaws in Ibbotson's analysis), which appeared on March 1.

Highlights from Market Commentaries

Bear Trap

StockCharts.com defines a Bear Trap as, A situation that occurs when stock prices break below a significant level and generate a sell signal, but then reverse course and negate the sell signal. While thats the formal definition, I have often referred to Bear Traps as Undercut Lows. The biggest one in recent history occurred on October 4, 2011. I revisit the Undercut Low thesis today because it appears that is precisely what happened last Monday afternoon when the S&P 500 (SPX/1265.35) knifed through its previous reaction low of 1209.47.

Tags: Equities US

Bear Trap by Jeffrey Saut of Raymond James

This Is How I Feel About Buying Apps

I came across a funny cartoon the other day that captures an interesting aspect of our purchasing behavior. We are perfectly willing to spend $4 on coffee (for some of us this is a daily purchase), or $500 on devices that you can argue we dont really need. However, when it comes to buying digital items, such as apps, most of which are priced at $1, we suddenly get really cheap.

This Is How I Feel About Buying Apps by Dan Ariely of Predictably Irrational

Collateral Damage

The economic travails of much of the West are reaching a decisive stage as the year ends. In 2008, we predicted sluggish recovery and a long period of low growth for the West in a two-speed world. This picture does not now properly reflect the downside risks. The policy of "kicking the can down the road" is failing, as the intensifying crisis in the euro zone and the failure of the G20 summit in late October clearly demonstrate. As to December's European summit, we describe its impact later in this paper.

Tags: Equities Bearish US Europe Monetary Policy Fiscal Policy Sovereign Debt

Collateral Damage by John Mauldin of Millennium Wave