This quarterly investment advisory newsletter provides a summary of the volatile market conditions in Q3 2011. Key points include:
- Global stock markets experienced steep declines, with the Dow losing 12.09% and Russell 2000 falling 22.15% for the quarter.
- Concerns about European sovereign debt crisis and potential global economic slowdown drove the volatility.
- The US economy grew slightly faster than expected in Q2 but unemployment remained high at 9.1%.
- The Fed announced a plan to sell short-term bonds and buy longer-term bonds to boost the economy.
The economic data calendar was thin. The Institute for Supply Management’s (ISM) Non-Manufacturing Index rose to 50.9 in September, compared to 48.4 in August – 50 represents the breakeven level; anything greater than 50 indicates expansion. The trade deficit narrowed slightly in August – adjusted for inflation, so it appears that net exports will be a slight drag on gross domestic product (GDP) growth in the third quarter of 2009. Jobless claims fell somewhat, but there’s a fair amount of volatility in the numbers at this time of year.
Viewpoint Newsletter from Clear View Wealth Advisors with a focus on the role of dividend-paying stocks and the inflation-deflation debate. Also includes links to the free financial roadmap tool.
This seminar\'s original version became part of the template for Prudential Securities coordinated marketing programs. Participating brokers saw an increase in business that was three times the firm average.
The presentation investigates whether the Federal Reserve can possibly manage asset bubbles (real estate, stocks) in addition to managing its primary goals (inflation, sustainable growth).
The economic data calendar was thin. The Institute for Supply Management’s (ISM) Non-Manufacturing Index rose to 50.9 in September, compared to 48.4 in August – 50 represents the breakeven level; anything greater than 50 indicates expansion. The trade deficit narrowed slightly in August – adjusted for inflation, so it appears that net exports will be a slight drag on gross domestic product (GDP) growth in the third quarter of 2009. Jobless claims fell somewhat, but there’s a fair amount of volatility in the numbers at this time of year.
Viewpoint Newsletter from Clear View Wealth Advisors with a focus on the role of dividend-paying stocks and the inflation-deflation debate. Also includes links to the free financial roadmap tool.
This seminar\'s original version became part of the template for Prudential Securities coordinated marketing programs. Participating brokers saw an increase in business that was three times the firm average.
The presentation investigates whether the Federal Reserve can possibly manage asset bubbles (real estate, stocks) in addition to managing its primary goals (inflation, sustainable growth).
YMFYP International Portfolio PowerpointRaphael_Comte
International Portfolio management through Stocktrak (US and foreign stocks, US and foreign bonds, futures, options, foreign-exchange-exposure hedging strategies)
The economic calendar was thin this week. The Fed’s Beige Book noted that “economic activity continued to stabilize in July and August.” Not exactly a booming assessment of the economy, but better than the previous report. The July trade deficit showed improvement in both imports and exports – further evidence suggesting that the U.S. and global economies have bottomed. Consumer sentiment rose in early September.
Economies worldwide have rebounded since the 2008
Financial Crisis, along with rising global equity and
tightening credit markets. Even the rebound in earnings
growth and profit margins has been remarkable. Yet, the
U.S. economic growth hasn’t broken out as hoped, after
significant global fiscal and monetary stimulus, including
slashing interest rates. Unemployment remains high and
volatility has been unnerving for investors. Learn more at: www.nafcu.org/nifcus
YMFYP International Portfolio PowerpointRaphael_Comte
International Portfolio management through Stocktrak (US and foreign stocks, US and foreign bonds, futures, options, foreign-exchange-exposure hedging strategies)
The economic calendar was thin this week. The Fed’s Beige Book noted that “economic activity continued to stabilize in July and August.” Not exactly a booming assessment of the economy, but better than the previous report. The July trade deficit showed improvement in both imports and exports – further evidence suggesting that the U.S. and global economies have bottomed. Consumer sentiment rose in early September.
Economies worldwide have rebounded since the 2008
Financial Crisis, along with rising global equity and
tightening credit markets. Even the rebound in earnings
growth and profit margins has been remarkable. Yet, the
U.S. economic growth hasn’t broken out as hoped, after
significant global fiscal and monetary stimulus, including
slashing interest rates. Unemployment remains high and
volatility has been unnerving for investors. Learn more at: www.nafcu.org/nifcus
The allocator shows in detail our view on the financial markets and give insight on our asset, sector and geographical allocation. It can go from 0 - 100% in equity and is actively rebalanced on a monthly basis.
The classic balanced portfolio for more than 7 decades has been the blend of equities and bonds in the ratio of 60% to 40% respectively. But declining interest rates have forced investors to divert from this investing strategy and look over other alternatives. This has affected bond returns. And once again due to pandemic interest rates were
cut down to near zero resulting in very little returns in bonds. To overcome this, alternative investment opportunities should be looked for and several factors which are important in deciding the future investments are to be considered. Some of them are interest rates, valuations, volatility, etc. Based upon the factors and other parameters, the best alternatives will be Equities (cyclical industry, stocks providing dividends, etc), Corporate bonds (with higher
investment grades), and government bonds of emerging markets (like China and Peru). These alternatives will act as better investment alternatives to traditional 60/40 asset allocation in the current scenario.
The Curious Case of Savings-Investment Gap and its Implications for IndiaAshutosh Bhargava
Their has been a remarkable shift in the savings-investment gap at the global level as well as in India. While this has had a tangible impact on global potential growth, the recovery is likely to differ from one country to another. In the Indian context, the recovery in trend growth is likely to be much higher than what is generally peceived and thus requires a more proactive response from policy makers, especially the monetary authorities.
Indian Economy: The Curious Case of Household Savings-Investment GapAshutosh Bhargava
The debate between former Federal Reserve Chairman Ben Bernanke and former US Treasury Secretary Lawrence Summers has rekindled interest on the topic of "Global Savings Glut". This article gives some interesting insights about the evolution of household savings in India and the way forward.
No bubble trouble; stocks are still reasonably priced. This credit cycle has unique characteristics that continue to make high-yield bonds attractive. Interest-rate volatility poses greater risk than higher rates themselves.
If U.S. politics do not derail the recovery, pent-up demand can drive faster economic growth. Fixed-income outflows appear likely to continue, pushing rates higher.
1. Q uarterl y B E A C O N H I L L I N V E S T M E N T A D V I S O RY
Fall 2011
A Review of the Markets
It was a roller-coaster quarter for to slump under the weight of $1,700 in September as the dollar
equities, as weeks and even days concerns about the global impact strengthened against the euro. After
when the Dow swung several of Eurozone debt problems. surpassing $100 a barrel, oil prices
hundred points in both directions dropped back to around $80 on fears
seemed to become commonplace. The deficit/debt ceiling debacle of the potential for renewed global
By the end, the volatility had cost was eventually overshadowed recession. Other commodities also
the Dow almost 15% since its April by debt issues abroad. Despite were hit at quarter’s end.
high. The small caps of the Russell Standard and Poor’s downgrade of
2000 suffered the most; by the end the U.S. credit rating, demand from
of the quarter the index had lost nervous investors sent Treasuries
roughly a quarter of its value since soaring, pushing yields on the 10-
April, putting it in bear-market year note below 2% to levels not
territory. The S&P 500 lost 17% seen in decades. Gold benefitted
in the same time, while the Nasdaq from the anxiety for a while, hitting
has declined almost 16% since a new record just under $1,900 an
April. The Global Dow continued ounce before plummeting below
Market/Index 2010 Close As of 3/31 End of Quarter Quarterly Change YTD Change
DJIA 11577.51 12414.34 10913.38 -12.09% -5.74%
NASDAQ 2652.87 2773.52 2415.40 -12.91% -8.95%
S&P 500 1257.64 1320.64 1131.42 -14.33% -10.04%
Russell 2000 783.65 827.43 644.16 -22.15% -17.880%
Global Dow 2087.44 2134.29 1725.68 -19.15% -17.33%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.30% 3.18% 1.92% -126 bps -138 bps
84 South Fourth Street, Columbus, OH 43215 • (614) 469-4685 • info@BHadvisory.com • www.beaconhilladvisory.com
2. Quarterly Economic Perspective
• The world continued to worry • The final estimate of U.S. • The last-minute resolution of
about the possibility of global economic growth during the the debt ceiling debate couldn’t
contagion from European debt second quarter was 1.3%. That’s prevent Standard & Poor’s
problems. European leaders slightly higher than the Bureau of downgrade of the U.S. credit rating
agreed to a second bailout Economic Analysis’s previous 1% (and ratings of various agencies
for Greece, though individual estimate, and an improvement linked to the federal government)
member nations must agree to from Q1’s 0.4%. from an impeccable AAA to
participate. However, problems AA+. Two other ratings agencies
began spreading to the larger • Unemployment remained stalled are watching to see what further
economies of Spain and Italy, at 9.1%, according to the Bureau measures are taken to tackle the
which saw their borrowing costs of Labor Statistics. deficit, including proposals from
rise as investors feared that the a “supercommittee” charged with
European Financial Stability • Citing concerns about “significant finding at least $1.2 trillion in
Facility wouldn’t be able to bail downside risks to the economic additional deficit reduction.
them out. Despite Greece’s outlook,” the Federal Reserve
attempts to balance its budget, at announced it will sell $400 billion
the end of the quarter it was still worth of short-term bonds in
unclear whether the new measures its portfolio and buy an equal
would enable the country to amount of longer maturities.
qualify for its October round of The plan, which echoes a 1960s
assistance. maneuver called Operation
Twist, also will involve reinvesting
principal payments on the Fed’s
agency debt holdings in agency
mortgage-backed securities.
Source: Forefield Inc.
Fall 2011
3. Year-End Investment Planning: The Clock is Ticking
Investment planning at the end of 2010 was complicated by uncertainty over whether existing tax rates would be
extended. This year, it’s the congressional “supercommittee” charged with tackling the country’s deficit financing
problem that’s the source of uncertainty. Even though you may not be sure how the committee’s work might
ultimately affect you, here are some factors to keep in mind as you plot your year-end strategy.
Harvest tax losses if appropriate To claim the 100% exclusion, you must have acquired
If you plan to harvest losses to offset capital gains, you the stock at original issue (with some exceptions for stock
may want to think about the cost basis of those shares. acquired as an inheritance or gift). Also, the business
To maximize your losses for tax purposes, you would sell must satisfy certain requirements, and you must hold
shares that have lost the most, which would enable you the stock for at least five years. There are limits on the
to offset more gains. Unless you specify which shares of total amount of gain that is eligible for the exclusion.
stock are to be sold, your broker will typically treat them There also may be special considerations if you roll over
as sold based on the FIFO (first in, first out) method, the gain from the sale of your stock to another qualified
meaning that the first shares bought are considered small business stock, or if you receive qualified stock as
to be the first shares sold. However, you can designate part of your deferred compensation plan. Don’t hesitate
specific shares as the ones sold or direct the broker to to get expert help with your specific situation.
use a different method, such as LIFO (last in, first out)
or highest in, first out. You can also use a standing order Consider the
or instruction to specify that a particular method is to potential impact of higher interest rates
be used. Interest rates have been at historic lows in recent years,
but as the economy continues to heal, that won’t always
As of this year, brokers must report to the Internal
be the case. The Federal Reserve Board has said that
Revenue Service your cost basis for the sale of any shares
raising interest rates won’t be its first step in reducing the
of stock bought after January 1, 2011. That will make
support it has given the monetary system. However, at
it even more important to make sure when preparing
some point, interest rates are likely to begin moving up
your tax returns that your cost basis records for such
again. When that happens--and there’s no way to know
sales are accurate and agree with those of your broker. If
for sure when that might be--bond prices will begin to
you decide to specify stock shares in order to determine
feel the impact. As bond yields begin to rise, bond prices
your cost basis, you must do so by the settlement date
will begin to tumble, since prices move in the opposite
(typically, three days after execution of the trade) in order
direction from bond yields.
for your broker’s records for the stock sale to be accurate.
Mutual funds, dividend reinvestment plans, bonds, and Don’t let
other securities eventually also will be subject to the payroll tax increase derail long-term plans
same mandatory cost basis reporting requirement. If you’ve benefitted from the 2% reduction in workers’
Social Security taxes in 2011, congratulations! However,
Don’t procrastinate on be aware that the provision is scheduled to expire at the
tax break for small business stock end of this year. If you’ve been saving or investing that
If you plan to invest in a qualifying small business, you money, your long-term plans will benefit if you can
may want to do so by December 31. That’s because figure out how to replace that source of funding for your
100% of any capital gains on the sale of qualified small investment efforts.
business stock issued after September 27, 2010, and
before January 1, 2012, can be excluded from your
taxable income. (The exclusion is scheduled to revert to
50% next year.)
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4. Wealth Management Process TM
This Quarter: Tax Efficiency
Tax Efficiency This quarter’s topic, planning for tax efficiency, is both important and
timely given a December 31st deadline to take action. In addition to the
Tax Loss Harvesting items listed, we are analyzing Roth conversions initiated last year to see if
recharacterizing (undoing) would be beneficial to our clients. Of course,
Muni vs. Corporate Bonds we always take this time of year to optimize portfolio gains and losses to
Strategic Tax decrease tax liabilities. We work best alongside your CPA.
Asset Location Next Quarter: Cash Flow Planning
Tax Deferred options
84 South Fourth Street
Columbus, OH 43215
Mark Fissel, CFP Clint Edgington, CFA
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