2012 Outlook

Ponzi Land

Source: http://video.cnbc.com/gallery/?video=3000063322

Sometimes We Lose Perspective (from Advisor Perspectives)

Below is a copy of a recent article from Advisor Perspectives. It highlights that one's perspective can dramatically effect their feelings. In summary, managing perspective is critical for a successful investment experience.

It’s been a rough ride lately for investors. Looking back over the course of my lifetime, however, what has been particularly exceptional is not recent market swings – these come and go – but rather the return one would have earned if they had been continuously invested in the stock market over the past 60-plus years.

The focus du jour is on the European debt crisis and our own struggling economy. At home, we see high unemployment, slow growth and a continuing deficit problem. The Occupy Wall Street movement reminds us that we spent billions of taxpayer money bailing out financial institutions that don’t look a whole lot more responsible today than they did five years ago. Overseas we watch as country after country struggles on the brink of insolvency. We have become numb reading about war and unrest in the Middle East and Africa. Confidence in our politicians has evaporated.

We ask ourselves if things could get much worse.

At times like these, it is easy to lose perspective. The truth is we have been here before, many times, although the details are always different. This is really quite familiar territory.

Over the course of my lifetime, US large-cap equities have returned over 11% compounded annually. A dollar invested when I was born in 1950 would be worth well over $600 today. Some might consider that remarkable, considering what markets have endured over that time period:

Tough markets and bad economies

Ten bear markets
Ten recessions (averaging about 10 months apiece)
The tech bubble collapse
The housing bubble collapse


Government bailouts

Penn Central Railroad ($3.2 billion in 1970)
Lockheed ($1.4 billion in 1971)
Franklin National Bank ($7.8 billion in 1974)
New York City ($9.4 billion in 1975)
Chrysler ($4 billion in 1980)
Continental Illinois National Bank & Trust ($9.5 billion in 1984)
The S&L industry ($293 billion in 1989)
The TARP program ($19 billion in 2008)
The automobile industry bailout ($130 billion in 2008)


Unemployment

In 18 calendar years it has exceeded 7%
In seven calendar years it exceeded 8%
In five calendar years it exceeded 9% (not counting 2011)
In three calendar years it exceeded 10%
It was almost 11% in 1982 (10.8%)


World economic crises

Latin American debt crisis (early 1980s)
Japanese asset bubble burst (early 1990s)
Asian debt crisis (1997)
Russian debt crisis (1998)
Original Article Link

Higher Profits - But No Jobs

"If companies can produce more output now than in 2007 with fewer workers and record profits, where's the incentive to hire more workers?" Corporations have learned to do more with less, a self imposed austerity. Innovation and increased demand (worldwide)are the key factors needed to push employment.

Source: Article Link

NFL Player Loses $50 Million

Mark Brunell Loses $50 million and will be forced to get a 8 to 5 job after retirement. It is reported that 78% of all NFL players are bankrupt or in financial distress 2 years after their last game.

Crew Capital is working with Omniology LLC to stop this from happening. Check out our 2 min. video clip on our website.

Worst Decisions Made at Market Extremes

The 5 minute video below provides interesting insight for managing one's portfolio as they enter retirement. I call it the "bucket portfolio", since people compartmentalize it's a way for them to manage behavior. It calms their fears by having three years of spending safe and secure. Then, the next five years spending is invested in a relatively mild portfolio. One that exposes them to additional mild risk for an enhanced return. The remainder of the portfolio is focused on the long-term.

In case the video doesn't start click the following:
Video Link

Comments on Greece Debt Deal

Scroll Down

Bob Rodriguez Blasts - Bernanke, Congress and Consumer

A must read interview. Here is a quote from the article - "The country is headed for recession next year, Rodriguez forecasts. His outlook for the markets? Unequivocally cautious. Congress and the Obama administration have created high levels of uncertainty that continue to create volatility and a negative bias in the markets, the money manager says."

Below is a link to the article, well worth your time to read.

Bob Rodriguez Interview Link

Inflation At 3-Year High of 3.9%

Source Article Link

New Research Challenges 4% Withdrawal Rule

"New, award-winning research shows some people might be able to spend more in retirement, says a professor who recently published his own controversial paper that says retirement planning should focus on savings rates rather than withdrawal rates.

This is illustrated in the new research article, “Determining Optimal Withdrawal Rates: An Economic Approach,” by Duncan Williams and Michael Finke of Texas Tech University. The article appears in the Fall 2011 issue of the Retirement Management Journal, and it won the journal’s Academic Thought Leadership Award. Williams and Finke find that an aggressive retiree with a $1 million nest egg and a guaranteed Social Security income base of $20,000, could actually maximize their utility with a 7 percent withdrawal rate. So much for the 4 percent rule!"

Article Link

Source: www.fa-mag.com/online-extras/8890-new-research-challenges-4-withdrawal-rule.html

Feds Effect on Lowering Interest Rates

Bespoke said:

"The chart above shows the yield on the ten-year U.S. treasury going back to September 2008. The red dots in the chart represent each time where the Fed formally announced intentions to buy Treasuries in the open market (QE1, QE2, and Operation Twist). As shown, following each of the prior two announcements, the yield on the 10-year rose by more than 100 basis points (bps) in just a matter of months. Following its most recent announcement in September, the yield on the 10-year is already up 36 bps.

While one could argue that yield declined ahead of each of the prior announcements due to the fact that each move was widely telegraphed, at face value it appears that the Fed’s attempts to lower long-term interest rates have been futile."

Source: SeekingAlpha - http://seekingalpha.com/article/299771-fed-efforts-to-reduce-long-term-interest-rates-strike-3

The Lost Decade

The past decade has not meet financial planning expectations. If you had retired at the beginning of 2000 and had used historical returns for your financial projections your portfolio is approximately 50% of its original value. This all depends on your withdrawal rate.

One most be vigilant in managing one's portfolio.

Source: SeekingAlpha - Doug Short 10-11-2011

Is the US like Rome or Bysantium?

Classicist Victor Davis Hanson explains causes of Rome’shttp://www.blogger.com/img/blank.gif fall and how the U.S. might follow Byzantium’s more hopeful path.

The article highlights three negative challenges the US faces:

1) Societal shift toward redistribtuion of capital from creatio of capital.
2) Declining demographics
3) Outsourcing of morality form the individual to the state.


Great read!

Article Link

When Greece Defaults - Two Possible Outcomes

Below is a very interesting article addressing the two possible outcomes when Greece defaults. Each outcome has meaningful impact on one's portfolio. It is prudent to prepare for either outcome.

When Greece Defaults Article Link

Rare Move - Berkshire Buys Back Shares

In a rare move Berkshire Hathaway is purchasing its own shares. The have approximately $38 Billion in cash and will purchased shares up to a reduced cash balance of $20 Billion. Berkshire has trailed the S&P 500 for the year, down approximately -17.2% vs. -9.6% for the S&P 500.

CNBC Article Link

4 Ways to Spot a Retirement Scam

They are:

1)Everyone can retire early. The fact is that few workers can actually do so.

2)It’s possible to earn as much in retirement as it is if you continue working. These promises are based on unrealistically high returns and withdrawal amounts that would deplete savings too quickly.

3)Returns of 12% or more are possible. The fact sheet notes that returns over 9.6% exceed the historical long-term returns for the stock market and far exceed the long-term returns for the bond market.

4)It’s possible to withdraw 7% or more and not run out of money. The fact sheet acknowledges that there is no consensus on a universally appropriate withdrawal rate, but encourages investors to be conservative, especially in the first years of retirement.

Source: Article Link

FINRA Checklist Link

Fed Invokes "Operation Twist"

Below is a link to a LA Times article discussing the latest fed action. It is an interesting move used to lower longer term interest rates. Last time is was used was in the 60's; it had minimum impact to improving the economy then. The fear is that the same outcome will happen this time, as well. The US and the world are not in a normal recessionary time period. This is a balance sheet recession meaning simply that we have too much debt outstanding. Consumers are hesitant to extend their debt further with out confidence in their income, assets and job situation. For the Twist to work it needs to allow for meaningful refinancing to give the consumer air to breath.

LA Times Article Link

Great American Economic Lie

The linked article below highlights the primary issue we "economically" are facing. Simply speaking, the past 30 years growth is a fallacy, we used debt to maintain our standard of living. Now debt is no longer in excess and/or unavailable; we are faced with paying the bill for the last 30 years. We can no longer push it down the road. Paying the bill will slow economic growth. "Real Growth" will occur after meeting our obligations and a return in savings.

Great American Lie Article Link

Roubini and El-Erian: Kick Out Greece to Save Euro

El-Erian, CEO and co-CIO of PIMCO, says an exit from the joint currency bloc for Greece and possibly one or two other countries (likely Portugal and Ireland, though he does not specify) will make for a stronger eurozone with a currency better able to resist "policy mistakes and market accidents." Roubini is in the same camp.

I believe the two experts are very concerned that increased problems in Europe will have a dramatic negative impact on the US.

Source: Article Link

Inflation Since 2000

Source: http://seekingalpha.com/article/293977-inflation-a-five-month-x-ray-view

Meredith Whitney's Comments on Investing

CNBC Article Link

The Alphabet Soup of Financial Initial - What They Mean

As a holder of two of these I can tell you there is a difference. The linked article discusses the difference and what each means.

CPA,CFA or CFP??? Article Link

U.S. Jobs Crisis - Yahoo Finance Video

Latest Update From George Soros

Below is a link to a CNBC news article in which George is very concerned that the Euro Zone Debt Crisis might be worst than Lehman Brothers in 2008.

CNBC Article Link

Income Withdraw in Retirement

Below is a great article highlighting what can go wrong with the "4% Withdrawal Rule" and an alternative for consideration. It's a starting point for conversation one should have with their investment advisor.

"4% Withdrawal Rule" Article Link

Are Stocks Overvalued?

According to this chart, as measured by the S&P 500, stocks are 29% overvalued. The metric used is Robert Shiller's methodology. The current interest rate and investment alternatives are pushing this overvaluation. Future earnings growth will dictate the validity of this valuation.

Link to Robert Shiller's Methodology

Source: SeekingAlpha

PIMCO Executives Call For Short-term U.S. Spending Boost

The U.S. government should increase spending and raise taxes to stop the economy's accelerating decline, said Republican Bill Gross and Democrat Mohamed El-Erian, chief investment officers for PIMCO. "Capitalism in its raw form can't pull us out of this hole," Gross said. (Financial NewsBrief CFA Institute 8-23-2011)

Source:NY Times Article

Double Dip???

CNBC Video Interview

The Treasury Yield 2-10 Spread: Still a Recession Predictor?

"In the era of the Fed's extended zero interest rate policy (ZIRP — see the FFR in the first chart), the reliability of the 2-10 spread as a leadhttp://www.blogger.com/img/blank.gifing indicator of either recessions or market behavior is questionable. In the current environment of Fed interest-rate policy, a recession without a preceding inversion is not just a possibility, but perhaps what we should expect."

Source Article

It's a Spending and Income Issue

Source: Bloomberg.com

Based on this historical graph, the US has both a spending and income issue. We need both lines to come together to solve the problem.

The dotted line shows federal spending as a percentage of GDP since World War II. The solid line shows income taxes as a percentage of GDP are at 14.9%, the lowest since 1950. The average in the last 60 years has been closer to 18%, based on data compiled by Bloomberg.

Roubini - " 1 in 3 chance of Global Recession"

Roubini makes 2013 economic call - "1 in 3 chance of global recession". Roubini is the famed economist who called the 2008 melt down. Generally speech, economist get it correct 30% of the time.

http://finance.yahoo.com/blogs/daily-ticker/roubini-says-perfect-storm-may-clobber-global-economy-143152963.html

Small Co. = Innovation

It's the small companies that deliver innovation. Huge corporations have the money and expertise to drive innovation, but usually their bureaucracies stop them from pursuing ideas and markets, according to The Economist. Smaller companies do the heavy lifting. "Start-ups might not have the cash to run big research operations, but they do have the ability and the incentive to seize underappreciated technologies and use them to disrupt fat, static industries," the magazine noted. "Entrepreneurs are an important check on the big corporate interests that often stand in the way of innovation." The Economist/Free Exchange blog (10 Jun.)

Article Link

Roubini Not a Fan of High Inflation to Reduce Debt

Nouriel Roubini doesn't believe that an active policy of using high inflation is worth the cost to reduce public and private debts and avoid debt deflation. This was the course used in the late 70's and early 80's.

Is The 30 Year Mortgage Going Away?

"Jared Bernstein, chief economist and economic adviser to Vice President Joe Biden, began the discussion by acknowledging proposals that call for reforming Fannie Mae and Freddie Mac and that would end the 30-year fixed-rate mortgage. Bernstein made it clear that he is not necessarily for or against such proposals but that he sees potential hurdles. “Absent the government guarantee, it’http://www.blogger.com/img/blank.gifs not easy to have a 30-year fixed-rate mortgage. … Can the private sector deliver that kind of tool with no government guarantee?” Bernstein said."

Source Article

1 In 7 Americans Utilizing Social Welfare (Food Stamps)

That is over 14% of the US population or 44+million people receiving benefits. With $4/gallon gas slowing our recovery will more people need help?

WSJ Article Link

10 Year Old Policy Created Deficit

U.S. politicians chose path to deficit 10 years ago. A decade ago, the U.S. had a budget surplus and the Congressional Budget Office projected a growing surplus indefinitely. Today, instead of a $2 trillion surplus, the nation is on track to finish the year more than $10 trillion in debt. The change came because leaders decided to cut taxes, increase spending and fight two wars with borrowed money, according to The Washington Post.

The Washington Post Article

Education Improves 401(k) Participation

As in all things "Education" is the key to success. As the linked article points out with each educational interaction deferral percentages increase.

Article Link

No Wonder We Have a Multi-Trillion $ Deficit Problem

Below is a link to the source article discussing how the US as already experienced a "lost decade"+ (13 years) at the expense of 3X increase in debt over the same period. It highlights a potential risk to our recovery, in that a debt based recovery is "phony".

"Real per-capita tax receipts are at 1994 levels", Arnott says. No wonder we have a trillion-dollar deficit problem.

CCN/Money Article Link

Interesting Quote on US Debt

"S&P’s warning is the culmination of more than 10 years of US fiscal laxity from a combination of tax cuts and spending increases, aggravated by the impact of deep recession which further cut revenues and increased spending. According to the OECD, in gross terms US general government debt has increased by 70 percent since 2000," Poole said.

Article Link

Gross Increases Cash Position to 31%

PIMCO's Total Return Fund increases its cash or cash equivalent position to 31%. This is the highest cash position in four years. It reduced its US Gov't exposure to -3%.

Source Article Link

Free Market Confidence Falling

Confidence in free market is falling fast in U.S., poll finds. When asked in 2002 by polling firm GlobeScan whether a free market was the best economic system, 80% of Americans said it was. More recent polling showed a big change, as illustrated by The Economist's Daily Chart. When asked the same question last year, only 59% of Americans embraced the free market. The newest data show much stronger support for free markets in Germany, Brazil, China and Italy than in the U.S. The Economist/Daily Chart blog (06 Apr.), The Des Moines Register (Iowa)/Across the Spectrum blog (06 Apr.), GlobalPost.com/Macro blog (06 Apr.)

Source:CFA Institute Financial NewsBrief

Article Link

Housing Double-Dip Likely

Double-dip housing recession is likely in U.S., experts say. Falling house prices in almost all U.S. markets could mean the housing market is slipping into a double-dip recession, analysts said. Standard & Poor's/Case-Shiller Home Price Indices show a year-on-year decline in 18 of 20 markets surveyed. "At worst, the feared double-dip recession may be materializing." said David Blitzer, chairman of the S&P Index Committee. The Washington Post (29 Mar.), SeattlePI.com (29 Mar.), The Arizona Republic (Phoenix) (29 Mar.)

Source:CFA Institute Financial NewsBrief 3-30-2011

Washington Post Article Link

GDP Growth with No Employment Growth

Experts confounded by GDP growth that doesn't cut unemployment. Economists are getting worried that long-standing assumptions about how economic growth reduces unemployment don't apply to the U.S. recovery. Federal policy is based on the belief that 3% gross domestic product growth cuts unemployment by 1%, but that isn't happening. If how the economy works has changed, government policymakers, employers and workers are going to have to make big changes of their own, experts said. TheFiscalTimes.com (24 Mar.), 24/7 Wall St. (24 Mar.), CNNMoney.com (23 Mar.)

Article Link

Global Recovery

By Christian Menegatti and RGE’s Macroeconomics Team: The global multispeed recovery remains on a steady path, with most economies set to experience at- or near-potential growth in 2011, though measurable risk and immeasurable uncertainty continue to be present and contribute to new spikes in volatility.

Seven Immutalble Laws of Investing

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand

By:James Montier

These are the tenants of Crew's investment philosophy. Two great books on the subject are Seth Klarman's "Margin of Safety" and Mary Buffett's "Buffetology..."

Mancession ???

What Does it Mean?

When the unemployment rate is substantially higher among men than women. The term mancession was coined during the financail crisis of 2008-2009, during which men bore the brunt of the job losses in the United States, at times at rates close to 50% higher than women.

Source Link

Wealth Grows - Debt Reduction Slows

Per the Fed: Household wealth grows, but debt reduction slows. The wealth of U.S. families increased 3.8% in the fourth quarter, according to the Federal Reserve. Rising stock prices accounted for most of the gain. Households paid down debt for the 11th quarter in a row but at a much slower rate. Corporations kept accumulating cash, holding $1.89 trillion, the most since 1952. USA TODAY/The Associated Press (10 Mar.), MarketWatch (10 Mar.), Bloomberg (10 Mar.)

Source Link

The Spending "White Elephant "

Entitlements are the key U.S. budget challenge. While Democrats and Republicans spar over discretionary spending in the U.S. budget, the real "elephant in the room" is entitlements, according to The Economist. As illustrated by the Daily Chart, the combined cost of entitlements and interest is on track to account for 100% of government spending by 2025. When the Congressional Budget Office made the same calculation 10 years ago, the critical point was predicted to arrive in 2060. "In short, the fiscal position is deteriorating rapidly," the magazine noted. The Economist/Daily Chart blog (07 Mar.)

Source Article

Spending Cuts Impact on Jobs

Moody's: GOP spending cuts would eliminate 700,000 U.S. jobs. Moody's Analytics said in a report that spending cuts proposed by Republicans would destroy 700,000 jobs in the U.S. through 2012. The GOP package would reduce the nation's gross domestic product by 0.5 percentage point this year and 0.2 percentage point next year, according to the report. The Washington Post (28 Feb.), The Atlanta Journal-Constitution/Jay Bookman blog (28 Feb.), Bloomberg (28 Feb.)

It looks like the 2012 election machine is starting.

Washington Post Link

Bloombert Link

Shocking Analysis

Well a picture is worth a 1,000 words. In summary the US must reduce its debt.

Foreclosures Rise

Residential foreclosures in U.S. rose 12% in January. U.S. lenders foreclosed on 78,133 properties in January, 12% more than in December, according to RealtyTrac. The sharp disparity in the foreclosure rates in different parts of the country suggests that the pace of foreclosures reflects the impact of government investigations more than the condition of the underlying housing market, experts said. Foreclosures in states that don't require judicial procedures rose 23%, while seizures fell 7% in states where the law requires court approval for foreclosure.

Source Link Reuters

Harvard Says Two Year Degree OK

The Pathways to Prosperity Project at Harvard University published research proposing that many college-age kids would be better served by a two-year college degree coupled with apprenticeships. The study estimates that between now and 2018, roughly half of the jobs requiring post-secondary education will go to graduates with two-year associates degrees or occupation certificates. — Investment News, February 2

It would be inaccurate to imply that either this article or the cited research goes so far to say that Harvard is recommending not to send your kids to Harvard or any other four-year college. Yet a small but growing number of voices have arisen over the past few years questioning whether the time and expense required for a four-year degree is the best goal for everyone. For many, a two-year degree would be just as effective in achieving gainful employment at a total cost of roughly 50% of a four-year degree.

For asset managers that provide both college savings and retirement plans, each type of plan has its value and place. To pay for college, families may apply for financial aid programs that for many households can dramatically reduce the cost of education. Without careful planning, placing too much money in college savings programs can reduce or eliminate the amount of financial aid available and increase out-of-pocket costs. Roughly 5%-6% of assets in a 529 plan are considered part of the family contribution in each school year’s calculation of financial aid.

To pay for retirement, there are no such financial aid programs. Further, assets in qualified retirement plans will not reduce the amount of financial aid available for college since those assets are not included in the financial aid calculation. These are among a number of planning considerations that should have asset managers emphasizing that planning for retirement takes precedence over college planning. It is beneficial to the client and beneficial to the asset manager since assets in retirement plans should stay invested longer.

Source FRCviews.com, Article Link

Watch Out For The Unknown Unknown

"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know."

-Donald Rumsfeld

This is were all experts fall short. The assume they have all of the information. And as empirical studies find the experts go step further and narrow their focus on specific data and discount to zero other information. Thus making a decision on limited information.

Independent Calculation of Inflation = 2.25%

Article Link

Fed Reserve - No Change

U.S. Monetary Policy: No Change From the FOMC at the January 2011 Meeting. The January statement of the Federal Open Market Committee (FOMC) offered few signs of a change in the Fed's policy outlook from its previous meeting in December, as the new rotation of committee members unanimously voted to maintain the US$600 billion asset purchase program "QE2" and maintain the pledge of a low fed funds rate for an "extended period."

Financial Crisis Could Have Been Avoided

Financial crisis could have been avoided, panel finds. The crisis that nearly took down the U.S. financial system in 2008 could have been anticipated and prevented, the Financial Crisis Inquiry Commission said. "The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done," the panel said. "If we accept this notion, it will happen again." The New York Times (free registration) (25 Jan.) , The Kansas City Star (Mo.)/McClatchy Newspapers (25 Jan.)

NY Times Link

Three Ways to Improve Your FICO Score

Source Link

Possible Trade War Mounting

The world is headed toward a trade war, Brazil's Mantega says. Currency manipulation by the U.S. and China is driving the world toward a trade war, Brazilian Finance Minister Guido Mantega told Financial Times. "This is a currency war that is turning into a trade war," he said. Brazil is prepared to impose controls to restrict capital inflow and slow down a strengthening real, Mantega said. He said the government will ask the World Trade Organization to designate currency manipulation as an illegal export subsidy. iMarketNews.com (09 Jan.) , BBC (09 Jan.)

BBC Article