August 2, 2011 - Vol 5 Issue 31
The wrangling continues over deficit and debt issues, with the news from Washington, D.C. changing on a minute-to-minute basis. What does all of this mean for the economy and for the financial markets? Read more to find out BlackRock's views.
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Improving on the Ultimate Income Portfolio
By Geoff Considine
The Ultimate Income Portfolio, which was published in this newsletter July 6 of last year, has delivered the risk-adjusted returns that I projected. Here's a detailed look at how last year's portfolio performed and several ways it can be improved in today's environment.
A Winning Endgame
By Robert Huebscher
Reducing our nation's debt burden is no longer only the rallying cry of Tea Partiers and fiscal conservatives. As the debate over the debt ceiling proved, it is now the goal of the president and many fellow Democrats. John Mauldin and Jonathan Tepper's book, Endgame, published earlier this year, makes a compelling argument as to why reducing the deficit is so critical and why we face a long, slow and ultimately painful period of deleveraging. I will explain their thesis and then provide the counterargument.
Outsourcing Survey Results
Sponsored Content by ByAllAccounts
Do you outsource any of your back office functions? Check out the executive summary of our outsourcing survey to see which functions other advisors are outsourcing, who they are outsourcing them to, and why.
Seven Implications for the Coming Retirement Revolution
By Dan Richards
Most advisors look to seniors as a core part of their client base. That's why it's essential to understand how boomers are going to transform retirement, just as they have redefined every other stage of their lives. Let's look at three new pieces of research and the seven implications they carry for retirement planning.
Solving the REAL Debt Crisis
By Michael S. Falk, CFA, CRC
Now that the debt ceiling impasse (circus) has been resolved, it's time to address this country's real debt crises. Our leaders need to conquer the far more daunting entitlement issues we face. Our choice is simple - either reduce costs and face austerity, or raise taxes. Those alternatives need not be as painful as you or they might think, as I will demonstrate.
Does Citigroup's Panic/Euphoria Model Work?
By Georg Vrba, P.E.
Citigroup's Panic/Euphoria model fell into panic territory at the end of June 2011. According to the model's originator, strategist Tobias Levkovitch, this indicates a roughly 90% probability that equity prices will be higher in six months and a 97% chance of gains in 12 months. How reliable is this model?
Hitting a Moving Target: Matching Portfolio Risk to Client Expectations
By Scott Smith
Much of the angst faced by investors and advisors over the last several years was caused by mismatched perceptions regarding investors' appetite for portfolio risk. Advisors overestimated the amount of risk investors were comfortable being exposed to within portfolios.
Survey Results: Advisor Use of 529 Plans
By Paul Curley, CFA
With investor sales volume returning to the 529 industry, financial advisors have an opportunity to grow their business. However, they are missing out: Asset growth within the advisor-sold channel has not kept pace with the growth experienced by the direct-sold channel.
Our Most Read Article from Last Week
Conventional investment strategies, while affording the investor at least a temporary degree of comfort, are destined to produce mediocre results. Only by distancing themselves from the ordinary approach - as Jeremy Grantham and Seth Klarman have - can asset managers achieve superior performance and truly fulfill their fiduciary duties by acting as proper stewards of their clients' capital.
Highlights from Market Commentaries
Below are the three most widely read commentaries during the last week:
Down to the Wire
The problem isnt the ceiling, its our behavior. The debt ceiling merely imposes a discipline that our national leaders should provide but generally havent. On this note, in his press conference on July 15, when asked about conservatives insistence on a balanced-budget amendment to the Constitution, President Obama replied, We dont need a constitutional amendment to do that [balance the budget]; what we need to do is to do our jobs. But clearly we do need some enforced discipline, because the years in which we havent run a deficit have been by far the exception of late, not the rule.
Tags: US Monetary Policy Sovereign Debt
Down to the Wire by Howard Marks of Oaktree Capital
Quarterly Commentary: 2nd Quarter
We pay attention to the macro environment because it sometimes allows us to identify significant opportunities and, at other times, to avoid or limit catastrophic risk. We still find ourselves worrying today, particularly about unreasonable government budgets that have helped foster unmanageable burdens. Over the past three years we have witnessed a shift in financial obligations from the personal to the public (governments) that has done nothing to enhance the solvency of the overall system, although the optics appear favorable to some.
Tags: Equities US Employment Housing
Quarterly Commentary: 2nd Quarter by Steven Romick of First Pacific Advisors
For most countries in Europe, government revenues typically run between near 40% of GDP, while government spending presently runs several percent ahead of that. In Greece, government debt now represents about 150% of GDP at interest rates between about 10% for very short and very long-maturity debt, to about 25% annually on 2-year debt. The overall average yield on Greek debt is close to 15%. The problem is that 15% interest on 150% of GDP works out to 22.5% of GDP in interest costs if the debt actually has to be rolled-over without restructuring it.
Tags: US Europe Sovereign Debt
Simple Arithmetic by John P. Hussman of Hussman Funds
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