20/20 Global Vision is Right on Target

One of the critical differentiating factors at Corestates Capital Advisors is our strategic view of investing. Our mission is to sustain acceptable portfolio growth with limited risk. To accomplish this we believe portfolios can no longer be guided by predominantly domestic strategies because they tend to be overly-influenced by US Monetary Policy and US Foreign-Policy. Our 20/20 Global Vision encompasses the 20 critical global issues that will influence portfolio performance over the next 20 years. Listed below are the current 20 issues that we think will have enormous influence.

With recent developments regarding the Swine Flu Virus #19 best describes the value we bring with the 20/20 Outlook.

Economic Issues

1. Accelerating globalization
The process of globalization will accelerate as expanding communications, development of transportation infrastructure, and more favorable trade policies encourage individuals worldwide to pursue a better economic life. The world will move closer to being one economic community.

2. Leveling of living standards
Differences in standards of living among most of the world’s economies will shrink as developing areas see rapid increases in the wealth of their citizens. At the same time, the populace of developed nations will suffer the impact of increasing global competition.

3. Moderation of economic cycles
Normal economic cycles will moderate as the major central banks become more adept at tempering inflation and managing their economies. But, this tampering with otherwise free markets could also contribute to infrequent but severe economic super-cycles.
4. Growth of the “BRICs”
Developing countries — led by Brazil, Russia, India, and China — will play larger and broader roles in the world economy and geopolitics. And, will occasionally suffer serious growing pains.

5. End of disinflation
After declining for most of the last 25 years, the global rate of inflation will begin to rise, but continuing productivity increases and global competition will moderate price increases for many goods and services.

6. Increasing petro-power
Oil and gas reserves will become an even more formidable source of power – with economic, political, and cultural impacts. Those with control of these reserves will be flexing their strengths in more and different ways, to the general detriment of the more developed economies.

Political Issues

7. Spread of capitalism
Capitalism and free markets will continue to spread. Economies that for generations relied on central planning will loosen economic constraints, allowing their citizens to profit from their ideas, initiative, and industry.

8. Creeping socialism
As capitalism displaces socialism and communism in developing economies, socialistic programs will become more pervasive in traditionally capitalistic economies as they adopt policies and programs that reward their less productive citizens at the expense of the most productive.

9. Some nationalization
The route to national prosperity through expanded personal freedoms and free markets will be readily apparent, but not all nations will choose to participate. Some natural resource-exporting countries will even move in the opposite direction, implementing broad nationalizations of resources and industries within their borders, to the detriment of world trade, as well as to their own economies.

10. National fiscal (un)fitness
Some of the world’s major representative democracies will suffer continued financial decline from the inherent lack of incentives for politicians to limit spending or raise taxes. This will raise their borrowing costs, furthering their fiscal decline.

Demographic/Social Issues

11. Diverging demographics
With the pace of natural deaths exceeding that of births, populations of the developed economies will stabilize and become older on average while populations of developing economies increase and grow younger. This will further strain the national balance sheets of developed countries, aid those in developing regions, and foster increased immigration in both directions.

12. Widening wage gaps
For low-skill jobs, wage differentials among countries will decrease, but productivity-related wage gaps will grow. This will create increasing friction between perceived “haves” and “have-nots,” which history has shown can be damaging to even well-established civilizations.

13. Rise of virtual communities
Heredity and geography no longer define an individual’s community or even family. The Internet, cell phones and other technologies give people worldwide the capability and anonymity to redefine themselves and their worlds. As the behavior-moderating effects of the family and community dissipate, the resulting individual freedoms will allow both the best and the worst of each of us to be displayed.

14. Intercultural friction
Peoples of different ethnic backgrounds, religions, and economic values will increasingly find the need to interact, often resulting in some form of cultural conflict. The ideal of melting-pot-merging of cultures will continue to be elusive.

Natural/Scientific Issues

15. Alternative energy sources
Heavy dependence on oil will continue as long as oil is readily available. When new energy sources are developed, however, the changes are likely to be significant and abrupt, to the betterment of high energy consumption nations and to the detriment of today’s energy producers

16. Mobility of production
Information technologies will continue to become faster, cheaper and more accessible. This will accelerate the movement of both industrial and knowledge-based business to the lowest-cost global providers, regardless of their locations.

17. Demand for natural resources
Just as demand for energy will outpace supply, so will demand for other natural resources like metals, timber and even water and food. This will create additional scientific challenges and global tensions, including finding ways to shelter poorer nations from the resulting price inflation.

18. Climate change
The growing worldwide demand for energy will collide with increasing pressure to address the risks of climate change. The need for energy will prevail in developing nations, accelerating their growth, while efforts to limit harmful emissions dominate in industrialized nations, restraining their economic growth and global competitiveness.

19. Global interdependence
Greater interconnectivity of the world’s peoples and economies will mean greater interdependence. This can amplify the impact of acts of terrorism such as dirty bombs or electronic jamming, and of natural disasters like viral pandemics, asteroids, or tidal waves.

20. Accelerating space exploration
As the earth becomes more vulnerable and less capable of supporting its burgeoning population, the push to accelerate space exploration will intensify, ultimately leading to discoveries that have the potential to radically change life on earth and beyond.

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Why Currencies Make Sense!

"It is interesting to note that while it is theoretically possible for stocks, bonds and commodities to all fall in price at the same time, it is not theoretically possible for all currencies to fall at the same time, because the value of currencies are expressed in terms of other currencies. If one goes down, another must go up."
-Richard Shaw

If you had the opportunity to visit our website www.corestates.us, you may have seen a short video explaining the concept of negative correlation. Simply stated, several asset classes have opposite reactions to the same set of market conditions. Much like an eight cylinder engine that works most efficiently when one piston provides specific power in correlation to the other pistons. When one piston is up the others are in various stages of the engine cycle.

At CoreStates we allocate our eight cylinders across various asset classes that have tendencies to move just like the pistons. The four traditional asset classes that we use are comprised of stocks, bonds, cash and real estate. The nontraditional asset classes that make up the eight cylinder engine include energy, precious metals, commodities and currencies. The reasons that currencies make a lot of sense in a diversified portfolio are as follows:

1. The currency market is the largest in the world
The massive volume of currency transactions,
nearly $2 trillion daily, allows extremely low transaction costs and provides a level of liquidity unmatched by any other asset class.

2. It is a market that never closes
Even the most liquid market is totally illiquid . . . when closed. And remember, the stock and bond markets closed for several days following the 9/11 terrorist attacks. The currency market did not. Investors in this market were able to transact while others could only wonder what their investments might be worth.

3. Most stock and bond investors are already exposed to currencies
Any company or government that does business overseas brings currency risk to its lenders and investors. Changes in the value of local currencies relative to the home currency (the dollar in our case) can turn a profitable business or investment transaction into a loss.

4. Major market participants aren't all in it for profit
Whether it is a Central Bank attempting to influence the value of its currency or a corporation hedging its international business transactions, their goal is stability, not maximum profits. In few other markets are major participants not seeking and fostering large price moves in either direction.

5. Returns from currency trading rarely coincide with other investment returns
Adding currency strategies to a diversified investment portfolio stabilizes overall portfolio values and helps assure that favorable returns are always available from at least one asset class.

6. The currency market is crash resilient
Each individual currency trades relative to another currency (for instance, the number of yen per dollar, or dollars per euro). So, every gain in one currency is matched by a loss in another. Individual trading strategies, if applied properly, will see varying degrees of success or failure, but the overall currency market will remain resilient because of these offsetting currency value changes.

7. Currencies are no more exotic than languages
Doing business in a foreign country usually requires the translation from one language to another, and the conversion from one currency to another. Both are simple, straightforward and necessary aspects of our global marketplace.

These unique aspects of the currency market make professionally managed currency-trading portfolios a valuable and readily accessible investment alternative for institutional and individual investors alike. CoreStates Capital Advisors has extensive experience with these strategies and makes available to its clients some of the nation's best currency managers - just one more way in which CoreStates seeks to fulfill its commitment to protect your lifestyle and preserve your legacy.

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Take Off Your Blindfolds! It's NOT Pin the tail on the Donkey!

Never before in the post-war era have U. S. investors had to deal with a crippled financial system, such monumental depth and breadth of change, and a pervasive uncertainty about the future. And, never in any modern era have we had to do so while also experiencing the waning of our nation’s global economic power, international prestige, and internal potential for future growth.

Even more importantly, never before have U. S. investors had to deal with the kind of investment markets produced by this new economic environment – investment markets that lack the underpinnings of a consistently growing and increasingly productive economic base. In this previously unknown environment, most investors will be essentially investing blind.


The reasons behind the gradual dissipation of the foundational substance of our nation and economy are many, varied, and controversial. So, I will leave the explanations and evaluations of the causes (e. g., the opinions) to the political pundits and economic editorialists.

The more important issue is this: What can investors do to protect their lifestyles and preserve their economic legacies in this extremely hostile financial environment?

At CoreStates Capital Advisors, we have been pondering this question since well before the severe market erosion began. Our approaches will continue to develop and evolve, of course, but the following are some of the key concepts, strategies and tactics we have been implementing for our clients in our pursuit of investment success in this new environment.

21st Century Diversification
The four-cylinder portfolios (stocks, bonds real estate and cash) of the 1980s gave way to the eight cylinders (adding energy, precious metals, commodities and currencies) of the 1990s, but success in the 21st century will require all of this, plus the ability to be long or short in each category, and with manager discretion within each of the categories to move among style boxes, or even to abandon the style box concept for a more opportunistic approach.

Emphasis on Liquidity
An investment’s returns become “real” only when the investment is sold. Until then, they are only on paper. But, when sold, the return is locked in. So, it is critically important never to be forced to sell an investment, especially a highly priced volatile investment, at an inopportune time. The only way to achieve this is by maintaining enough liquidity in price-stable form or in truly uncorrelated assets to meet any scheduled or unscheduled cash needs.

Dynamic Allocations
The days of fixed allocations . . . never really existed. Going forward, dynamic allocations will become even more important as most markets see their historically upward bias diminish or even reverse, making all markets into trading markets and generously rewarding those investors able to capitalize on their inherently higher volatility.

End of Indexing
The days of buy-and-hold investing are also over. Active security selection will be more important than ever as increasing global competition as well as the mounting geopolitical challenges make the generation of corporate earnings increasingly difficult. In a flat-to-declining overall economy, “par” corporate performance will be insufficient to provide attractive returns to shareholders or even to maintain long-term credit quality. We must invest accordingly.

Focus on quality and valuation
The easy investment approach for the coming years will be to focus on quality . . . and settle for near-zero nominal returns in a potentially high-inflation environment. True growth of purchasing power will be achieved only by correctly evaluating investment quality and being willing to trade among quality levels based on their current relative valuations.

Polar Portfolio Positioning
Implement all of the above points and you are likely to find yourself with a “polar” portfolio – one consisting primarily of some very high quality, liquid assets and some very cheap, but rather speculative, exposures. Middling opportunities are likely to provide piddling returns as most investors seek to improve on low risk, low return investments by edging up the risk spectrum, thereby bidding up prices and diminishing their returns.

Importance of Judgment
Investing driven by historically based, “black box” models becomes less and less effective as the future becomes less and less like the past. The sea change in our worldwide investment landscape is rendering not only past models ineffective, but weakens the very concept of historically based investment models. The next generation of quantitative market analysis will require a higher level of investor behavior-based sophistication, as well as a very influential overlay of superior investment judgment.

Commitment to Patience
A more volatile, changeable market demands a more resolute, patient investor. Returns are certain to be erratic. Extreme market moves will be more common. Directionless markets will become the norm. Periods of steady, positive returns will be extremely rare.

We at CoreStates have no legacy investment styles that we must maintain. Our product is building client portfolios in whatever way we believe will be most effective in the years ahead. This gives us the freedom to truly serve our clients’ needs as those needs, and the market’s nature, change over time.

To us, this is the only way to do business.

What Does $1 TRILLION Dollars Look Like?

All this talk about "stimulus packages" and "bailouts"...
A billion dollars...
A hundred billion dollars...
Eight hundred billion dollars...
One TRILLION dollars...

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I'd take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

We'll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slighty fewer have owned them. Guaranteed to make friends wherever they go.





A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.





Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.











While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...





And $1 BILLION dollars... now we're really getting somewhere...




Next we'll look at ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

You ready for this?
Ladies and gentlemen... I give you $1 trillion dollars...

Notice those pallets are double stacked.
...and remember those are $100 bills.

So the next time you hear someone toss around the phrase "trillion dollars"... that's what they're talking about.



Images Courtesy of PageTutor.com

Are you Underinsured?

Check your automobile insurance coverage! Look at the declarations page. Make sure you have enough coverage to protect yourself and loved ones.

All of us who drive know that Pennsylvania Law requires that we carry automobile insurance. However, Pennsylvania Law requires that we carry only minimal coverage: $15,000 for liability and $5,000 in medical coverage. But that is not nearly enough to protect yourself or your loved ones. Please allow me to tell you some horror stories that will help emphasize my point. The names have been changed to protect their anonymity.

John Houseman was driving his fiancé home after having seen a movie. It was a little after midnight. He was traveling through a steady green light at the intersection of Grant Avenue and Academy Road when suddenly he was struck in the driver’s side by a Ford F-150 driven by a drunk driver. The force of the collision propelled John from the car into the intersection. He suffered massive internal injuries and a brain injury leaving him in a coma for several months. Now, several years after the accident, John remains totally disabled from being able to perform any work. The driver carried automobile coverage of only $50,000.00. John carried no underinsured motorist coverage. The bar that served the drunk driver alcohol prior to the accident was uninsured. At trial, John was awarded $3,600,000 in damages. However, this was a pyrrhic victory as only $50,000.00 was able to be recovered, the drunk drivers automobile insurance coverage. My Attorney, Anthony Barratta, represented John for free and continued to represent him at no charge attempting to collect against whatever assets they could locate against the bar. However, things might have been easier for John had he carried Underinsured Motorist Coverage.

Another young man, Igor Cominsky, a college student at the University of Pennsylvania, was riding his motorcycle through the intersection of Bustleton Avenue and Hellerman Street. He had a steady green signal. A motor vehicle driven by another young man, turned left in front of the motorcycle. This driver was on his way to Church and did not see the motorcyclist. Igor had no time to slow down and slammed into the passenger side of the Church-going SUV, striking his chest hard across the frame of the left-turning vehicle. The young man died instantly. The driver of the other vehicle carried insurance coverage of only $25,000.00. Igor had no Underinsured Motorcyclist Coverage. When Igor died, he owed $50,000.00 in college loans for which is family is now responsible.

The message is clear: Please buy Underinsured Motorist protection. Many motorists buy only minimal coverage because their only concern is driving legally. The only way to protect yourself from injury caused by an underinsured driver is to purchase Underinsured Motorist Coverage. If you have more than one vehicle, you should also stack your coverages. This will permit you to multiply the amount of your Underinsured Motorist Coverage by the number of vehicles insured.

Should you have any questions about any aspect of your automobile insurance policy and how to protect yourself in the event of an accident, please call your attorney, or insurance company. No matter how safely you drive, you cannot control the actions of some other driver. Please protect yourself and your family by being prepared.

The White House vs. Business

I'm always trying to find interesting information that will allow you to make intelligent decisions. Last weekend I spent several hours reading various publications and thought I would share some interesting information coming from Business Week magazine.

As you read the comments, you can see how various aspects of the economic recovery plan are being challenged by businesses.

What the White House wants: Emissions

To cut emissions that cause global warming, the Administration proposes a "tap and trade" system. This would require companies to pay $646 billion over eight years to buy the tradable rights to emit such pollutants. Much of the money would be returned to consumers.

What business thinks:

Many companies do not oppose a price tag on carbon emissions, since it provides more certainty and boosts investments in efficiency and renewable energy. But they worry that selling all of the permits from the start can impose a huge burden on the companies involved.

What the White House wants: Healthcare

The President has provided $634 billion in the proposed budget to help pay for health care reforms over the next 10 years. Half that some will come from tax hikes and half from cuts in Medicare payments to insurers, drug companies and hospitals.

What business thinks:

On the surface, business broadly backs health care reform. But the cracks are starting to show: insurers fear competition from government-backed rivals, hospitals worry costs will be squeezed, and drugmakers face far lower prices.

What the White House wants: Foreign Tax

Multinationals currently can defer US taxes on profits earned abroad until they bring the funds back home. The Administration says that encourages companies to ship jobs overseas. It plans to raise $210 billion by limiting the tax deferral and other overseas breaks.

What business thinks:

Companies fear they will be at a competitive disadvantage if they have to pay US rates on foreign operations while their rivals pay lower local rates. Any loss of revenues overseas, they add, will result in US jobs lost, not gained.

What the White House wants: Income Tax

The President would boost the top rates for families making more than $250,000 from 33% to 36%; those earning over $370,000 would go to 39.6%. Capital gains and dividends rate would rise from 15% to 20%. Deductions for mortgage interest and charitable giving drops to 28%.

What business thinks:

Fears that tax hikes will discourage the well-off from investing are shared by a host of businesses, from homebuilders and mortgage brokers desperate for a housing rebound to mutual fund companies and other investment managers struggling to keep investors in the market.

What the White House wants: Drilling

Converting the economy to cleaner energy has emerged as one of the Administration's top goals. If it has its way, that means an end to a host of tax breaks for oil and gas producers, including tax credits aimed at spurring domestic offshore drilling.

What business thinks:

The oil industry plans to mount a fierce fight to keep its tax perks, arguing that the President's plan puts jobs and energy security at risk. Plus, making drilling more expensive in the US could encourage oil giants to shift even more investment in exploration abroad.

What the White House wants: Agriculture

The President wants to end what he considers wasteful agricultural subsidies. He is counting on saving $9.8 billion over 10 years by capping payments at $250,000 annually to farmers whose gross sales do not exceed $500,000 a year.

What business thinks:

The agricultural lobby, which spent $131 million in lobbying in 2008, is among the fiercest defenders of turf in Washington. It will argue that farmers can't stay in business, especially in a tough economy, without support for cotton,
rice, and other crops.

It seems to me that the battle lines are being drawn. I believe the recovery of this economy is going to require give-and-take on both sides. As we learn more about the details I will share some more thoughts with you.

Bill Spiropoulos
President & CEO
CoreStates Capital Advisors