WCM-Blog

The disconnect. Stock markets don’t want a strong economy, since a resurgence in growth would mean the end of cheap money and heighten worries about inflation, said Bob Doll, chief equity strategist at Nuveen Asset Management. “So many people want a strong economy. Beware of what you ask for. I think a decent economy is required for the stock market, but not a strong one,” Doll said. “A strong one will bring the questions, ‘When is the Fed done? When is inflation coming back? When is the end of the cycle?’”

“If the objective is to find jobs for our kids, absolutely you want a strong economy,” he added. “But if you want a strong stock market, at least in the near term, you want a good but not great economy.” Doll expects companies to begin spending more vigorously by the end of the year, hiring more workers and increasing capital expenditures, and although it won’t result in a strong economy, we will be “heading in the right direction.” Stock markets will only go higher if companies show top-line revenue growth, he said: “That’s been kind of scarce of late. If we don’t get revenue growth, the stock market will stop going up.”

Pimco’s Gross Turns Bullish on US Treasuries

In stark contrast to most pundits, the world’s biggest bond fund manager Bill Gross has had a change of heart on Treasuries, raising allocations to U.S.government bonds, as the fund seeks to pre-empt an increase in buying from Japanese investors.

The PIMCO Total Return Fund, which has $289 billion in assets, increased its allocation to Treasuries to 33 percent in March from 28 percent the previous month, the firm’s website showed on Tuesday. The fund also decreased its exposure to mortgage bonds from 36 to 33 percent.

Gross said he had turned positive on Treasury bonds maturing in 10 years because the Bank of Japan’s aggressive monetary stimulus plan would drive Japanese investors to seek higher returns in overseas markets.

October 11, 2007 vs March 5, 2013

Dow Jones Industrial Average: Then 14164.5; Now 14253.77
Regular Gas Price: Then $2.75; Now $3.73
GDP Growth: Then +2.5%; Now +1.6%
Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
Americans On Food Stamps: Then 26.9 million; Now 47.69 million
Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
US Deficit (LTM): Then $97 billion; Now $975.6 billion
Total US Debt Outstanding: Then $9.008 trillion; Now $16.43 trillion
US Household Debt: Then $13.5 trillion; Now 12.87 trillion
Labor Force Participation Rate: Then 65.8%; Now 63.6%
Consumer Confidence: Then 99.5; Now 69.6
S&P Rating of the US: Then AAA; Now AA+
VIX: Then 17.5%; Now 14%
10 Year Treasury Yield: Then 4.64%; Now 1.89%
USDJPY: Then 117; Now 93
EURUSD: Then 1.4145; Now 1.3050
Gold: Then $748; Now $1583

Click on picture below to enlarge.

Lew Coffey, one of Windsor’s analysts, answers questions from a Bloomberg interview.

Western governments have jointly and separately introduced a series of banking sector reforms to rein in risk. Do you think these haven’t been sufficient enough to prevent the next blowup and taxpayers paying the bill again? You mentioned shrinking or breaking the banks up as a solution to improve overall trust. Do you see political willingness to do so? Should we bring back Glass-Steagall in the US?

First, the solutions suggested by various governments seem to me to be essentially a grab bag of minimalist bandaids to patch up the self-inflicted wounds of the current arrangements….micro managing the status quo if you will. What’s required to reestablish investor confidence is a series of basic measures to simplify the business, isolate different kinds of risks into different boxes and increase transparency to outsiders.

Second the issue of breaking up the large Mega-Banks, some form of Glass-Steagall that separates commercial banking from investment banking would be very positive because it would tend to isolate different kinds of risk into separate entities that would be far less likely to pose systemic risks. In addition, some form of regulatory framework to limit the degree of concentration in the business would also be very positive for the same reasons. If one looks at the percentage of world deposits held by the 12 largest banks, the problem becomes self evident.

Third, the question of political will is the real stumbling block in all this. Quite honestly, there isn’t any! The function of intermediation that the finance business has evolved to perform, is so fundamental and so vital to economic stability and growth, that it can’t just be abandoned to a culture that seems peculiarly driven to arrogant excess. History is replete with example after example of financial crises brought about by the hubris of financiers who assume that to master finance is to master all else, and politicians who are dependent upon them in an increasingly cash intensive election and reelection process.

Everything in the financial world evolves around artificial time. Earnings releases, performance, economic data, opening bell, closing bell and on and on. Timeframes rule our lives; when you get paid, when a dividend or interest payment comes in, when to take social security, when you begin your required minimum distribution. It would be interesting if we all had to finish this sentence, “if I didn’t look at a calendar or clock I would feel ________.” What would your word be? Scared…..Free….Anxious…..Alive.

So, is there point to this? Yes…three points actually.

First, enjoy your days. Managing mostly retirement portfolios, we’ve seen people who are good at retirement, and some who are not so good at retirement. We all have a window to enjoy our hard earned retirement years, so enjoy them.

Secondly, try not to feel stressed about money. This is difficult and much of our job at Windsor is to relieve some of that stress. We want clients to enjoy their cash flow, see low volatility, and know their assets will be there for them as long as they need them. Stress isn’t good for the body or mind….a good, stable, and well-diversified portfolio is.

Lastly, don’t short-date your retirement goals and objectives. Meaning, don’t let the daily, quarterly, or even yearly stock market moves dictate your retirement. Your retirement objectives and needs should dictate your investment allocation and diversification, but, don’t let the ups and downs of the stock market affect your daily life. Windsor was founded on the principal of wanting clients to focus on enjoying friends, family, and time, (artificial or not) without the worry of running out of money.

Tax rates will permanently rise to 39.6% for families with income above $450,000 and individuals above $400,000. All income below the threshold will permanently be taxed at 2012 rates.

The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else.

The estate tax will be set at 40 percent, with the first $5 million exempt for individual estates and up to $10 million for family estates. That threshold will be indexed to inflation.

The bulk of the spending cuts (sequester) will be delayed for two months.

The 2009 expansion of tax breaks for low-income Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit will be extended for five years.

The Alternative Minimum Tax will be permanently patched.

The temporary payroll tax cut expires. (Moving back up to 6.2% from 4.2%)

Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout will be set at $250,000 and the itemized deduction limitation kicks in at $300,000.

The full package of temporary business tax breaks — benefiting everything from R&D and wind energy to race-car track owners — will be extended for another year.

Scheduled cuts to doctors under Medicare would be avoided for a year through spending cuts that haven’t been specified.

Federal unemployment insurance will be extended for another year, benefiting those unemployed for longer than 26 weeks. This $30 billion provision won’t be offset.