Retirement Security presentation
The presentation in Denver this late May for a global pension funds conference crystallized some views. Whether a large institution, independent advisor, or an upcoming retiree – one thing is common to all – the need to re-think and re-tool plans going forward. The other issue which became clear was the need for a better game plan that includes transparency about funds available relative to promises made owing to demographics and budget realities — plus better education about financial and economic basics. Those planning for or approaching retirement need to do their own scenario planning to imagine a variety of economic outlooks. See a few sample slides.
04.28.09
Financial regulation, e.g., short sellers
As promised, the write up about Professor Hemang Desai’s research. It’s about how mutual fund managers that use short selling get better returns. Skip down to “Short sellers, the forensic accountants.” That’s the part most relevant to the previous post’s discussion about my concerns that regulation will target the wrong culprits. Read here.
03.11.09
Greenspan View of Crisis
In an earlier post, John Taylor laid out the case for the looseness of the Federal Reserve Bank’s monetary policies of 2003-05 being part of the problem of the excess risk-taking phenomenon and housing bubble. In today’s WSJ, Greenspan disagrees.
He points to the reduction in long-term rates globally leading to the global housing bubbles which finally burst. He illustrates that China and other emerging market countries’ growth surges, beginning in the 90s, led to excess global savings, pushing long-term interest rates lower between early 2000-05. And then at the height of their euphoria, market practitioners pushed risk-management techniques and products beyond the capacity of even sophisticated market players to handle properly and prudently.
And he continues, within the context of global competition, the growth path of highly competitive markets are cyclical, and can break down on rare occasions, such a this one. So he concludes that structural changes in the global (and therefore US) economy were at play. And they were beyond the control of domestic monetary policymakers.
He proposes higher capital requirements and a wider prosecution of fraud rather than micromanagement through over-regulation of the financial system. We could setback the very dynamism of US strengths in financial markets with all types of spillover effects in business’ growth and competitiveness.
01.07.09
White paper on retirement security updated
As I promised, I have updated the original white paper of Sept 07 to reflect events since the imploding of the market, recession, and new administration coming on board. Ironically, much of what I wrote then very much applies today. The fundamental forces of demographics, globalization and its impact on asset prices, market volatility, longevity risk and so on, are still are the forefront in terms of retirement security. But we are at an important crossroads with the direction the new Obama administration takes, which will inform retirement security in the future.
The current stimulus plan, with virtually something in it for everyone, will drive future choices. We’ll have to wait and see how things shake out.
For those who purchased the first edition, I promised “upgrade” pricing. Inquire if this applies.
01.14.08
Market Sobriety
I read an analysis of the risk taking environment of the first part of the 21st century by the Dallas Federal Reserve Bank. One of the observations about the 2007 credit crunch is that investors underestimated key aspects of risk: default risk, interest rate risk, and risk appetite (that sometimes higher premiums are demanded for taking on risk and at other times, lower premiums are accepted, for which we’ve been in the latter). One lesson: that the ‘slicing and dicing’ of risk through structured products and derivatives was more attractive in theory than in practice. This transition phase, however, of the return to more sustainable risk taking (which implies risk-reward tradeoffs), ‘poses challenges to macroeconomic growth and price stability over the short and medium terms.’
This analysis ties in perfectly with the new report just launched, “Breathing New Life into Retirement Portfolios: The Battleground of the Life Annuity.” While the Fed’s brief rightly points out the causes and resultant macro environment, the new report takes these fundamental ideas about risk taking to the individual level, and why the life annuity balances out other risks beyond market risk that a retiree faces — longevity risk or simply ordinary, sustainable, income planning.
If the market just took to newfound sobriety, there could be some occassional slips off-the-wagon while players re-adjust to the meaning of their new life, in terms of risk-return tradeoffs.
