02.24.10
Posted in FYI at 8:30 pm by Administrator
National Underwriter recently picked up on a few choice ideas in the new report “Forecast 2010: Navigating Retirement Unknowns (and Charting a Course Anyway).” However, the scope of the report is much broader than how Boomers may impact asset pricing in the future.
We have also added a companion set of 47 slides into the mix, to help with identifying and tracking ideas and the flow of the report. I’m sure people will find ways to put them to use as well. It sort of offers an alternative view of the material, that might spark some stroke of genius. (At least that’s what I find when faced with the same material presented in different ways –but maybe not the genius part.) A sample of the seven follows.
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02.15.10
Posted in FYI at 4:53 pm by Administrator
In the early part of the report, an economic climate discussion and a summation of where we have been and where we are, takes place. There are occasional “outtakes” about the crisis for informational purposes, in addition to a section focused on crisis commentary. It’s important to view the crisis from different vantage points to make sense out of it for retirees and for helping them plan, if you are an advisor.
Some key points about demographics are presented, and how they relate to retirement security. In the section on longevity risk, a variety of forces which impact it are presented along with some common solutions. At present one of the few products that can guarantee against longevity risk is a fixed annuity, or a variable annuity with particular guarantees.
Following that discussion, the topic of heath care is covered, with a focus on Medicare’s challenges as it relates to retirement planning. We illustrate some of the growth trends which may help in anticipating future out of pocket expenses or areas for which one would want to insure against. Finally, some pressure points on the horizon are outlined such as: DB-DC tradeoffs, retirement ages’ issues and economic growth, asset prices and demographics.
One takeaway from this report would be that we are living in an era of uncertainty, even though some good news is occurring in spots. Be aware of the risks, and plan in a sensible way for their emergence. Be more vocal with those who represent your interests; ask questions of those who manage your resources. Understand the ways in which your retirement assets work, together and separately.
The link to the report page.
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01.27.10
Posted in Econ, Politics at 7:52 pm by Administrator
Yesterday, an industry trade group, the Insured Retirement Institute, said that Obama may mention annuities in his State of the Union address tonight. Whether he does or not, the insurance industry finally got some deserved recognition for one of the few products that did not unravel during the financial crisis –fixed annuities, which do not decline when markets falter, and their variable annuity counterparts that had added guarantees to curtail losses. You can read the IRI’s press release.
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01.05.10
Posted in Econ at 12:44 am by Administrator
In a speech of Jan 3 to fellow economists, Bernanke pulls out all of his analytical tools to show that loose monetary policy, a common scapegoat, was not to blame for the housing bubble. He points to regulatory and supervisory laxness as a key source of housing market woes. Through a series of related slides and calculations, he illustrates that the availability of alternative mortgage products, the ARMs standard and exotic, which were inappropriate for many borrowers, contributed to the housing bubble and its subsequent demise when price appreciation finally halted. My analysis: Of course, there’s also the many financial institutions that invested in these mortgages too, causing financial market meltdown.
He also comments on the foreign capital inflows issue –the global savings glut hypothesis. Countries with more capital inflows had greater house price appreciation over the period 2001-2006. And one-third of house price appreciation is explained by this relationship of greater inflows. Further, 11 of the 20 advanced economies analyzed had tighter monetary policy alongside greater house price appreciation. So the fed’s accommodative policy did not necessarily contribute to house price appreciation.
More people entering the housing market, which shouldn’t have, and lax underwriting standards, indicate a regulatory response. Regulators, supervisors, and the private sector could have (should have) managed their risks better– regardless of continued dreams of house price appreciation. Bottomline: Monetary policy is a blunt tool for bubbles but can be a policy prescription sidekick when needed.
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11.04.09
Posted in Econ, FYI at 6:57 pm by Administrator
John Geanakoplos of Yale was asked by the Fed to present his views on the crisis at its peak in October 2008. His theories moved away from the efficient markets and rational expectations camps to a “leverage cycle” point of view. He shows how a group of certain types of investors that demand, say more “asset-backed” securities, encouraged banks to ’stretch’ their available supply of collateral like mortgage loans. “Using large amounts of borrowed money, or leverage, these buyers push up prices to extreme levels, ” writes the Wall Street Journal (Nov. 3, “Crisis Compels Economists…” by Mark Whitehouse). Under usual circumstances, the less leveraged buyer would not venture into these securities at higher prices; therefore this phenomenon violates the idea of efficient markets, that all available information is contained in prices of securities.
Basically, Geanakoplos says the banks created myriad debt securities to meet demand. Central bank models missed this leverage cycle because their models focus mainly on interest rates. If new thinking proves out, the way in which we have viewed the financial world will change. Whatever new ideas become accepted as the norm may be a welcome change: “Our policy seems geared toward rescuing banks and bankers.” per Geanakolpos. He hopes a paradigm shift will occur so that people are protected against the excesses of the financial markets. He suggests central banks should collect and publish data on the amount of leverage in the system. Sounds like a good start.
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10.28.09
Posted in Uncategorized at 6:07 pm by Administrator
I am relieved to find an analysis of the financial crisis from a veteran which points to real causes underlying the crisis we’re recovering from. Wharton’s Jeremy Siegel, professor of finance, just makes sense. Here’s his take:
Rating agencies that rated subprime mortgages as investment grade made faulty assumptions about continuously rising home prices. The yields on these mortgages were high in spite of their investment grade rating (and markets were right to be suspicious of them, thus adding a higher risk premium). Wall Street, reaping fat rewards, and Congress, happy of the American Dream being realized by more, ignored red flags along the way. Government-sponsored Fannie Mae and Freddie Mac helped fuel the subprime boom.
This misreading of economic trends did not reside within the private sector. Large financial firms put their shareholders at risk and their leverage threatened the entire financial system. The Fed failed to see these problems. His summation: financial firms drove too fast, the Fed failed to stop them, and housing deflation crashed the banks and the economy. The Great Moderation — a period of less fluctuation in GDP, industrial production, and employment since WWII — is still alive though temporarily dazed.
See WSJ Opinion page Oct. 27, 2009, “Efiicient Market Theory and the Crisis.”
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10.20.09
Posted in Uncategorized at 2:43 pm by Administrator
This research I recently summarized is more in the psychology and marketing realms. It has some interesting insights for those working with retirees though, and could prove helpful in how you communicate with them. Enjoy.
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10.06.09
Posted in Econ, FYI at 10:44 pm by Administrator
This summer I began to scan the horizon for answers and insight about where we had been, and more importantly , where we are going. I approached a few sponsors but found this economic climate too harsh for new “knowledge” ventures. I was calling this report “Forecast 2010.” And it was meant to be a compilation of the best research, commentary, and experts surrounding the financing of retirement, and the many facets which impact it.
Since at this time, the report outlined below will not be immediately forthcoming, I thought it best to post my outline for the project. Any individuals, businesses or institutions that are interested in working with the RSI, please feel free to contact me. (Excuse the second slide; it is my pitch to sponsors, otherwise, the outline which follows serves as a trail of thought and intended content.)
See Project Forecast 2010.
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09.18.09
Posted in Econ, Politics at 5:13 pm by Administrator
The latest central bank report showed that household net worth grew 3.9% from the first quarter, but still down about 19% since the 3rd Q peak of 2007. Households cut debt by 1.7% annualized in this quarter. All that sounds good on an individual level, but government borrowing surged at a 28% rate owing to aid and rescues packages. State and local governments also incurred more debt, an 8.3% increase annualized. Relative to government debt, what goes up must come down, eventually. This is the part which is most worrisome.
While households become more prudent with their money, so too must the government become a better custodian. Global financial players have pressed the U.S. on this issue, as have American taxpayers. With the federal debt hangover for many years to come, and baby boomers entering the rolls of Medicare, Medicaid, and Social Security (SS), some serious work needs to begin toward putting our house back onto a fiscally sustainable path. Health care reform needs to address misaligned incentives in Medicare, and waste. Pension reform should be considered that creates better generational equity and moves away from clever SS trust fund accounting; Canada’s federal pension fund weathered the financial crisis better than most. It is separated out from politicians’ hands, requires mandatory adjustments for sustainability when things go wrong, and is run with a long-term view. See Boston College’s Retirement Center studies if one wants to dig deeper.
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08.31.09
Posted in Econ, Health care at 5:17 pm by Administrator
Good story from Bloomberg about the state of financial and economic affairs. Basically they report that stock market investors are more sanguine about recovery than bond investors, and why. The WSJ reports a couple of days ago that stock market investors need to slow down — investors are piling back into the market, pushing up PE ratios above historic averages, and may be repeating some past mistakes. See August 29th’s “Why Investors Need to Slow Down and See the Light.”
In other interesting bits relating to health care, our health care reform-seeking government put out a report about/for “seniors” and Medicare. First of all, I dislike the word seniors, it’s so last century, slightly insulting, and actually about three decades out-of-date. While they give many pertinent statistics about Medicare’s looming insolvency and why, it’s really not the whole story on Medicare. Benefit growth in Medicare is more about perverse economic incentives and abuse of the system than anything they describe. They do make reference to the fraud they have identified and dealt with, and hurray for them. There’s just a lot more to go, and overall health care reform will only go a small step toward fixing what ails Medicare — escalating costs from ever-expanding benefits (many of which are abused and worked around) and increasing numbers of beneficiaries. In 2010, when the baby boomers enter Medicare’s rolls, watch the spending explode. Some real solutions have been posed but politics is trumping real reform of a program that is an entitlement, and one that all taxpayers and beneficiaries need to watch more carefully.
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