FEATURED
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Summer 2009 Quarterly Newsletter
(view as pdf)
UPCOMING EVENTS
August 4, 2009
Symposium in partnership with Victor Ferguson, Partner with Vorys,
Seymour, Sater, and Pease LLP,
Location & Time TBA.
November 11, 18, and December 2
In partnership with Upper Arlington Library
A
“How To” guide to “Investment Management”, “Asset Allocation”, and
“Uncertainty and Retirement Analysis”,
Upper Arlington Main Library, Time TBA
August 18
“Investing for Retirement” Webinar, Back to the Basics: Structuring a Retirement Portfolio
6
p.m.
See an Event you’d like to attend? Please email
info@BHAdvisory.com for instructions!
QUARTERLY ECONOMIC REVIEW The market upturn that began in March continued through this
quarter. The major impetus for this movement was a realization
that the economic environment was not catastrophic, it was
merely bad. Risk was generally rewarded. Many companies took
advantage of the stabilizing markets to issue equity to deleverage
their balance sheets. May equity issuance was at a record level.
While the torrid pace of equity issuance in May is unlikely to be
sustained, the motivation to deleverage will continue, creating a
headwind for the equity markets. In addition, a few large bankruptcies
will continue to reverberate throughout our economy. On
the other hand, only a fraction of the fiscal stimulus is yet to ‘hit
the streets’.
Consistent with risk being rewarded generally, small cap stocks outperformed
large cap stocks:
In the fixed income market, risk was again rewarded, with junk bonds trouncing
higher quality issues.
BarCap U.S. Aggregate Bond: 1.8%
BarCap U.S. Corporate High Yield: 23%
Interest rates along most maturities (i.e.
the “yield curve”) have in general shifted
up, with the longer term maturities shifting
up slightly more. That being said, interest
rates across all maturities are still
fairly low, with room to move up significantly.
Readers will recall that when rates
go up, bond prices go down (generally),
with the longer maturity bonds generally
showing more volatility. This risk
(“interest rate risk”) hurt the longer term
bonds this quarter, and is a continued risk
for the future.
BarCap U.S. Treasury 1-4 Year: -.4%
BarCap U.S. Treasury 10-20 Year: -6%
FTSE NAREIT Equity REITS: 28.9%
Consistent with the realization that our economy is merely bad, rather than catastrophic,
the commercial real estate portion of the market enjoyed broad gains as well.
ECONOMISTS LOOK TO THE FUTURE
We are pleased to welcome guest commentary:
William Strauss
Senior Economist and Economic Advisor for the Federal Reserve
Bank of Chicago
Bill LaFayette, PhD
VP of Economic Analysis for the Columbus, OH Chamber of Commerce
It should be stressed that the general stock market is a
leading indicator of the general economy. By the time the
economy rebounds, the market typically has already moved
up. While we, at Beacon Hill, temper ours and others’ predictions
of the future in implementing investment actions,
we were impressed while hearing William Strauss present
at a recent investment conference. In addition, we welcome
the views of Bill LaFayette PhD, Vice-President of Economic
Analysis for the Columbus Chamber of Commerce for a
more localized analysis.
General Economic Review
In general this recession has been brutal, yet Mr. Strauss
points out that “the contraction appears to be slowing, had the
Fed and the fiscal side not reacted we would be looking at
something that is bad being quite catastrophic”. All leading
indicators but Real Estate are up, with decreased consumer
spending and real estate presumed to continue to be a headwind.
The Chicago Fed National Activity index (a compilation
of leading indicators) bottomed in January of 2009 and appears
to be rebounding.
“Most outlooks show a very slight positive (growth) in the 3rd
quarter moving to more robust growth in the 4th quarter, albeit
still muted growth” says Mr. Strauss. There was “quite a sharp
drop in inventories in the first quarter, the manufacturing sector
specifically has been extremely aggressive about cutting
back on production and have kept inventories relatively in balance.
Due to this, manufacturing might be able to rebound
more quickly than it historically has due to the need to increase
production when sales come back (due to the inability
to rely on inventory stockpiles).”
Our Local Economy
In the Midwest specifically, Mr. Strauss points out that the
“automotive industry problems and the expectation for closures
and layoffs will probably cause the Midwest to lag the
(general economic) turnaround.” Mr. LaFayette generally
agrees with the Midwest lagging the general economies turnaround,
but points out that “it is less applicable to the Columbus
economy. Since the beginning of the recession, the U.S.
overall has lost about 4.3% of total employment while Columbus
has lost 2%. The primary reason is that we’re not being as
affected by the bust as we were not as affected by the boom.”
Inflation
The current Beige Book release (6/10/09) points out that
“With few exceptions, the District Banks reported that prices
at all stages of production were generally flat or falling.” Mr.
Strauss points out that “there is still tremendous slack in the
economy.
utilization (a measure of how much production capacity
our economy is using) is still extremely low by historical
standards”.
While Mr. Strauss does not give personal views on inflation,
he does note that “if you look at the TIPS (see Spring 2009
newsletter) market or the surveys they seem to be pointing
to relatively contained inflation…however, there are a lot of
challenges regarding the fiscal deficits and the very significant
increase in the Fed’s balance sheet. We are very much
aware of the risks out there and it will be up to the Fed to be
nimble and aggressive to make sure inflation stays under
control”. We at Beacon Hill also take note that while the
Fed controls monetary stimulus, other parts of the government
will need to be nimble and aggressive at reining in
fiscal stimulus (historically that can be much more difficult).
Regarding unexpected
spikes in
inflation, Mr.
Strauss did not
explicitly comment
on predictions
but conf
i r m e d o u r
thoughts that
“bad things happen
with probably
a higher probability
that we
would have
thought a year
ago”.
The views of William Strauss are his personal views and do not
reflect the views of the Chicago Federal Reserve Bank or the Federal
Reserve System.
INVESTOR
CONFUSION
 Investment Advisors
1. Revenue is generated directly through fees
from the client.
2. What they offer? Investment Advice
3. Do they have a duty to you? As a Fiduciary,
they legally must hold your interest above theirs and must
monitor your portfolio regularly.
Financial Advisors (Brokers)
1. Revenue generated by Sales Commissions,
Sales Incentives and Back-door fees.
2. What they offer? Transactions with advice "solely
incidental to a transaction."
3. Do they have a duty to you? As a Non-Fiduciary, no
legal duty to hold your interest above theirs and no legal duty
to monitor your portfolio.
Did you know 74% of respondents* were not aware that only
Investment Advisors have a fiduciary responsibility to act in
investors' best interests in all aspects of the financial
relationship?
*TD AMERITRADE survey of 1,000+ U.S. investors conducted by Penn, Schoen & Berland Associates, 2006
IN DEFENSE OF DIVERSIFICATION
There has recently been a popular uprising
against the idea of diversification in the press
and in public opinion. While the past year has
been difficult for most, diversification has been
a saving grace for many portfolios. Lower risk
assets have buoyed the performance of diversified
portfolios as can be seen by the comparison
of the equity markets (S&P 500) to fixed
income markets (BarCap Aggregate Bond Index)
and to a few Beacon Hill Asset Allocations.
SEEN IN THE PRESS
“Small Business Owners– Ways
you can embrace retirement in a
bear market!” by Mark Fissel
AffluentMagazine.com 6/15/09
“6 Ways to Profit from the Falling
Dollar” by Roger Fillion
Fidelity.com 6/11/09
(Clint Edgington)
“The New Retirement Realities:
What to do and How to
cope.” by Tom Gray,
Achieve Solutions 1/15/09
(Clint Edgington)
“Ohioans taken in by Ponzi
schemes,” by Steve Wartenberg
Columbus Dispatch 12/21/08
(Clint Edgington)
“Practice triage in your spending...”
by Gregory Karp,
Chicago
Tribune 11/30/08
(Clint Edgington)
“Market Fears, Stay the
Course,” by Clint Edgington,
Columbus Dispatch 10/5/08
|
 |
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Clint Edgington, CFA
Partner
Beacon Hill Investment Adivsory |
Mark Fissel, RFC
Partner
Beacon Hill Investment Adivsory |
(Return To
Featured Writings)
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