Tuesday, January 4, 2011
Friday, December 17, 2010
CoreStates News Channel
We are going to bet on a return to normalcy and re-flation. Click the image below to watch!
Thursday, December 2, 2010
What Difference Does an Election Make?
I have been repeatedly asked in recent months "What Difference Does an Election Make"? I strongly believe that this significant watershed mid-term election could provide the ignition the market needs to get back to the 12,000 level. Here are a few bullet points which help to illustrate my thoughts:
· Over the last 60 plus years the market has never declined in the 2 quarters following mid-term elections, with the average market gain being over 18% - that makes Dow 12,500 possible next year.
· A generational event has taken place! Deficits and debt have outraged the public and they demand CHANGE! This deeply concerned public has roared. Washington will see new faces and new ideas. We will find our way back to fiscal responsibility. We need a new tax structure which is fair, easy & predictable. Maybe it is time for a flat tax and VAT. Spending must be brought down. The private sector is able to pick up the slack as the federal monster is shrunk.
· The American people will not tolerate economic failure: They want free enterprise, lower taxes and less government involvement. When new leaders convince the public that a new course is being set that will be the basis for a new mindset. We will return to normalcy. That brings reflation, then inflation.
· Money will start to flow to risk categories and the unemployment rate will start to fall. Many will be stunned at the speed at which the US Economy can turn on a dime. During this process expect volatility to increase in all asset categories. The hiding places people used will become dangerous spaces; the trillion dollars invested at rates under 3% will come running out.
Side effects:
-Equities will be one of the best performing asset categories for the next two or three quarters.
-Managed foreign exchange strategies have the potential to offer equity like returns with little correlation to equities.
-Managed commodity trading strategies also can provide attractive returns as we reflate.
-Water, oil, grains and hogs all look much higher next year.
I hope you will not hesitate to call me to discuss your portfolio or the strategies in which you are enrolled. While I recognize that there will be many challenges ahead, I firmly believe that there are an even greater number of opportunities as well.
· Over the last 60 plus years the market has never declined in the 2 quarters following mid-term elections, with the average market gain being over 18% - that makes Dow 12,500 possible next year.
· A generational event has taken place! Deficits and debt have outraged the public and they demand CHANGE! This deeply concerned public has roared. Washington will see new faces and new ideas. We will find our way back to fiscal responsibility. We need a new tax structure which is fair, easy & predictable. Maybe it is time for a flat tax and VAT. Spending must be brought down. The private sector is able to pick up the slack as the federal monster is shrunk.
· The American people will not tolerate economic failure: They want free enterprise, lower taxes and less government involvement. When new leaders convince the public that a new course is being set that will be the basis for a new mindset. We will return to normalcy. That brings reflation, then inflation.
· Money will start to flow to risk categories and the unemployment rate will start to fall. Many will be stunned at the speed at which the US Economy can turn on a dime. During this process expect volatility to increase in all asset categories. The hiding places people used will become dangerous spaces; the trillion dollars invested at rates under 3% will come running out.
Side effects:
-Equities will be one of the best performing asset categories for the next two or three quarters.
-Managed foreign exchange strategies have the potential to offer equity like returns with little correlation to equities.
-Managed commodity trading strategies also can provide attractive returns as we reflate.
-Water, oil, grains and hogs all look much higher next year.
I hope you will not hesitate to call me to discuss your portfolio or the strategies in which you are enrolled. While I recognize that there will be many challenges ahead, I firmly believe that there are an even greater number of opportunities as well.
Friday, October 1, 2010
Thursday, September 23, 2010
How Would You Spend Your Trillion?
Confronting the federal deficit starts with grasping just how colossal that number actually is. So, what would $1 trillion get you?
The figure is almost incomprehensible: $1,000,000,000,000. One trillion dollars. That's a dozen zeros.
The Congressional Budget Office reports that during the first nine months of fiscal 2010 -- which ends September 30 -- the federal government spent $1 trillion more than it took in. That's another $1 trillion added to a total national debt that stood at just over $13 trillion as of the Fourth of July. (On the bright side, the trillion-dollar nine-month deficit was about $80 billion less red ink than flowed during the same period last year.)
Not so long ago, the idea of a "trillion" anything was so farfetched that it evoked a comic response similar to what the use of the word "gazillion" does today. The 1960s comment attributed to then Senate minority leader (and ever-vigilant deficit hawk) Everett Dirksen -- "A billion here, a billion there, and pretty soon you're talking about real money" -- seems downright quaint today. (In 1965, the national debt was a paltry $317 billion.)
But, seriously, how much is $1 trillion? To help you wrap your head around that mind-boggling number, and to try to put deficit spending into perspective, consider what $1 trillion will buy, expressed in terms we can all understand:
$1 Trillion Would Buy ...
40,816,326 New Cars
The 2010 Volkswagen Jetta TDI wins Kiplinger's Best in Class honors for cars in the $20,000-to-$25,000 price range. At a sticker price of $24,500 each, $1 trillion would let you drive away with a fleet of Jettas equivalent to 30% of all the cars already on U.S. highways. (The total U.S. car fleet is more than 135 million, according to the U.S. Department of Transportation, excluding trucks and SUVs.)
5,574,136 Typical American Homes
According to the National Association of Realtors, the national median price for existing single-family homes in May was $179,400. There are about 80 million detached, single-family homes in the U.S., according to the NAR and the Census Bureau.
140 Billion Hours of Labor
That's calculated at the federal minimum wage of $7.25 an hour. Still hard to get your mind around? How about this: One trillion dollars is enough to hire all 2.8 million residents of the state of Kansas -- men, women and children -- in full-time, minimum-wage jobs for the next 23 years.
A Year's Salary for 14.7 Million Teachers
According to the National Education Association, the average teacher salary in the state of California is about $68,000. The total number of teachers working in the U.S. was estimated at 6.2 million ten years ago, according to the 2000 U.S. Census (the last official estimate). So $1 trillion would pay Golden State salaries to more than twice that number of teachers.
The Annual Salaries of All 535 Members of Congress for the Next 10,742 Years
The current salary for rank-and-file members of the House of Representatives and the U.S. Senate is $174,000. We're not even counting the extras paid to congressional leaders.
The Star Power of LeBron James for the Next 50,000 Years
A lot of numbers are being thrown around about just how much the basketball superstar will be paid for playing for the Miami Heat. But let's say it's just $20 million a year. At that rate, $1 trillion would cover the tab for King James for the next 50 millennia. Heck, King Tut was born less than four millennia ago.
1.33 Trillion Chocolate Bars
Got a hankering for something sweet? A sweet $1 trillion will buy you that many 1.55-ounce Hershey's Milk Chocolate bars at 75 cents apiece. That's 64 million tons of chocolate, equivalent to the weight of more than 150,000 Boeing 747-400s.
1,333 Celebrity Divorce Settlements
It's been widely reported that Tiger Woods may pay $750 million to settle the divorce with his wife, Elin Nordegren. Some commentators say that's a wild exaggeration, and that a mere $100 million will facilitate the split. But let's assume the worst (for Tiger). If it costs $750,000,000 to end his marriage, a trillion dollars would cover plenty more tabloid breakups.
A Guaranteed $6.3 Billion Payout for a 65-Year-Old Man Each Year for the Rest of His Life
or
A Guaranteed $5.8 Billion for a 65-Year-Old Woman Each Year for the Rest of Her Life.
With the demise of the company pension plan -- and its wonderful promise of regular checks in retirement -- immediate-payout annuities are garnering more and more attention. These investments let you trade a lump sum for a guaranteed stream of income for the rest of your life. Even at today's record-low interest rates (the lower the interest rate, the more expensive it is to buy future income), $1 trillion earns its way -- and then some. Because women live longer than men, on average, $1 trillion would buy a 65-year-old woman a little less. But having $5.8 billion a year to fall back on is nothing to sneeze at.
A One-Year CD Yielding $15.5 Billion in Interest
Everyone knows that interest rates on bank accounts, money-market funds and certificates of deposit are ludicrously low. But even at just 1.55% -- the best rate we could find recently -- $1 trillion socked away in a one-year CD would still yield a handsome return.
Annual Base Pay for 59.5 Million U.S. Army Privates
Basic pay for an active-duty U.S. Army private with less than two years of experience is $16,794 a year. So $1 trillion goes a mighty long way, even by military spending standards. To put that in perspective, 59.5 million privates is more than 100 times the total number of active-duty soldiers in the Army today.
Replace Annual Incomes for 19.2 Million American Families
Median household income in the U.S. (half the families earn more, half earn less) was $52,029 in 2008, according to the Bureau of the Census. At that level, $1 trillion would be enough to cover the incomes of a sizable percentage of total U.S. family households. There are no recent official estimates, but the 2000 U.S. Census figured there were about 71.8 million family households.
Pay the Estate Taxes for 2,222 Billionaires
Let's assume that, as we expect, Congress reinstates the federal estate tax retroactively to January 1, 2010, with a $3.5 million exemption and a rate of 45%. And assume that the late George Steinbrenner's taxable estate is $1 billion. The tax bill would be almost $450 million. That $1 trillion would be enough to cover the estate taxes of a lot more billionaires who might die before Congress acts.
by Kevin McCormally, Provided by Kiplinger.com
The figure is almost incomprehensible: $1,000,000,000,000. One trillion dollars. That's a dozen zeros.
The Congressional Budget Office reports that during the first nine months of fiscal 2010 -- which ends September 30 -- the federal government spent $1 trillion more than it took in. That's another $1 trillion added to a total national debt that stood at just over $13 trillion as of the Fourth of July. (On the bright side, the trillion-dollar nine-month deficit was about $80 billion less red ink than flowed during the same period last year.)
Not so long ago, the idea of a "trillion" anything was so farfetched that it evoked a comic response similar to what the use of the word "gazillion" does today. The 1960s comment attributed to then Senate minority leader (and ever-vigilant deficit hawk) Everett Dirksen -- "A billion here, a billion there, and pretty soon you're talking about real money" -- seems downright quaint today. (In 1965, the national debt was a paltry $317 billion.)
But, seriously, how much is $1 trillion? To help you wrap your head around that mind-boggling number, and to try to put deficit spending into perspective, consider what $1 trillion will buy, expressed in terms we can all understand:
$1 Trillion Would Buy ...
40,816,326 New Cars
The 2010 Volkswagen Jetta TDI wins Kiplinger's Best in Class honors for cars in the $20,000-to-$25,000 price range. At a sticker price of $24,500 each, $1 trillion would let you drive away with a fleet of Jettas equivalent to 30% of all the cars already on U.S. highways. (The total U.S. car fleet is more than 135 million, according to the U.S. Department of Transportation, excluding trucks and SUVs.)
5,574,136 Typical American Homes
According to the National Association of Realtors, the national median price for existing single-family homes in May was $179,400. There are about 80 million detached, single-family homes in the U.S., according to the NAR and the Census Bureau.
140 Billion Hours of Labor
That's calculated at the federal minimum wage of $7.25 an hour. Still hard to get your mind around? How about this: One trillion dollars is enough to hire all 2.8 million residents of the state of Kansas -- men, women and children -- in full-time, minimum-wage jobs for the next 23 years.
A Year's Salary for 14.7 Million Teachers
According to the National Education Association, the average teacher salary in the state of California is about $68,000. The total number of teachers working in the U.S. was estimated at 6.2 million ten years ago, according to the 2000 U.S. Census (the last official estimate). So $1 trillion would pay Golden State salaries to more than twice that number of teachers.
The Annual Salaries of All 535 Members of Congress for the Next 10,742 Years
The current salary for rank-and-file members of the House of Representatives and the U.S. Senate is $174,000. We're not even counting the extras paid to congressional leaders.
The Star Power of LeBron James for the Next 50,000 Years
A lot of numbers are being thrown around about just how much the basketball superstar will be paid for playing for the Miami Heat. But let's say it's just $20 million a year. At that rate, $1 trillion would cover the tab for King James for the next 50 millennia. Heck, King Tut was born less than four millennia ago.
1.33 Trillion Chocolate Bars
Got a hankering for something sweet? A sweet $1 trillion will buy you that many 1.55-ounce Hershey's Milk Chocolate bars at 75 cents apiece. That's 64 million tons of chocolate, equivalent to the weight of more than 150,000 Boeing 747-400s.
1,333 Celebrity Divorce Settlements
It's been widely reported that Tiger Woods may pay $750 million to settle the divorce with his wife, Elin Nordegren. Some commentators say that's a wild exaggeration, and that a mere $100 million will facilitate the split. But let's assume the worst (for Tiger). If it costs $750,000,000 to end his marriage, a trillion dollars would cover plenty more tabloid breakups.
A Guaranteed $6.3 Billion Payout for a 65-Year-Old Man Each Year for the Rest of His Life
or
A Guaranteed $5.8 Billion for a 65-Year-Old Woman Each Year for the Rest of Her Life.
With the demise of the company pension plan -- and its wonderful promise of regular checks in retirement -- immediate-payout annuities are garnering more and more attention. These investments let you trade a lump sum for a guaranteed stream of income for the rest of your life. Even at today's record-low interest rates (the lower the interest rate, the more expensive it is to buy future income), $1 trillion earns its way -- and then some. Because women live longer than men, on average, $1 trillion would buy a 65-year-old woman a little less. But having $5.8 billion a year to fall back on is nothing to sneeze at.
A One-Year CD Yielding $15.5 Billion in Interest
Everyone knows that interest rates on bank accounts, money-market funds and certificates of deposit are ludicrously low. But even at just 1.55% -- the best rate we could find recently -- $1 trillion socked away in a one-year CD would still yield a handsome return.
Annual Base Pay for 59.5 Million U.S. Army Privates
Basic pay for an active-duty U.S. Army private with less than two years of experience is $16,794 a year. So $1 trillion goes a mighty long way, even by military spending standards. To put that in perspective, 59.5 million privates is more than 100 times the total number of active-duty soldiers in the Army today.
Replace Annual Incomes for 19.2 Million American Families
Median household income in the U.S. (half the families earn more, half earn less) was $52,029 in 2008, according to the Bureau of the Census. At that level, $1 trillion would be enough to cover the incomes of a sizable percentage of total U.S. family households. There are no recent official estimates, but the 2000 U.S. Census figured there were about 71.8 million family households.
Pay the Estate Taxes for 2,222 Billionaires
Let's assume that, as we expect, Congress reinstates the federal estate tax retroactively to January 1, 2010, with a $3.5 million exemption and a rate of 45%. And assume that the late George Steinbrenner's taxable estate is $1 billion. The tax bill would be almost $450 million. That $1 trillion would be enough to cover the estate taxes of a lot more billionaires who might die before Congress acts.
by Kevin McCormally, Provided by Kiplinger.com
Monday, August 2, 2010
Waiting for the Turn
Sitting on the fence, waiting for the turn in macro economic indicators will disappoint and leave opportunity on the table. Rising correlations show investors are ignoring relative values among industries and assets, rather reacting to day-to-day signals on the economy. It is more likely that deflation and low growth will be the environment into the second half of the year, underscoring the need to diversify assets from a traditional long equity and bond portfolio.
Opportunities exist in right sized industries and companies and across asset classes. For companies that downsized, the benefits of incremental sales falling to the bottom line EPS have been borne out in Q2:10 earnings results. Indeed, the S&P 500 has rebounded 7.8% since July 2 despite weak economic data as corporate earnings have been stronger than analysts estimated on marginally higher revenues. With 53.4% of the S&P 500 reported, operating margins are 9.7% and could set a record. The record margin was 9.6% set in Q3,’06.
With over two thirds of companies reported Q2, EPS beat forecast by 10.2% while sales grew only 1.4% over estimates. While bears will point to no growth, 73.4% of companies have nonetheless beaten their sales estimate. In analyzing the data, non-Financials increased sales 5.2% over Q1,'10 (looking for momentum in the recovery). The Technology sector lead by companies like Intel and Apple standout as leading in positive revenue and EPS upside. Only companies in Health Care, Consumer Discretionary, and Financials have lowered forecasts. Financials revenues were down 7.3% from Q1,'10 estimates.
The result for rationalized companies can be positive longer-term, as they achieve greater efficiencies and production capacities fall better in line with actual demand. Thus we continue to see resiliency for the right sized companies.
With S&P 500 companies at record cash rich levels with close to $1 trillion, equity selection will be key for quality companies that will grow dividends and repurchase stock. The 5-year T-bill yields 1.75% versus average yield on the S&P 500 of 2.14% is favorable with a call option on growth as witnessed in Q2. Dividend payers have outperformed YTD and expect the hunt for yield to drive further performance in H2:10.
| Dividend Performance: | S&P 500 Payers | S&P 500 Non-payers |
| June - average change | -5.91% | -7.30% |
| YTD | -2.90% | -4.41% |
| 12 Month | 25.58% | 26.98% |
| Issues | 368 | 132 |
Aside from equities, investment opportunities also lie in credits where the companies have already gone through a restructuring/business rationalization process and therefore seem better prepared for the growth, albeit slow, prospects which lie ahead.
Both investment grade and High Yield corporate debt seem particularly attractive given the wide spreads to T-Bills, the fact that credit markets are opening for new issuance and default rates are predicted to decline to 2% to 4% in 2010/2011.
While we cannot predict economic or market moves month-to-month or even year-to-year, we do seek to identify the key long-term forces that will be driving economies and markets worldwide. We expect that volatility will remain high with growth, inflation remaining low and the FED on hold for sometime.
As a result, equity valuations may not move back to pre-crisis levels and may stay below historic norms. Thus our investors must seek a diversity of investments – our 8-Cylinder Portfolios – that assures to the greatest extent possible exposure to whatever areas of the market “are working” at any time, and handle the volatility via both long and short exposures and are not dependent on market gains for gains in their portfolios.
Looking ahead, we believe that uncertainty may be appropriate, but the fear trade to be overdone. The outlook is rarely clear, exacerbated by governmental programs and redefinition of the economic landscape. But, we remain confident in the CoreStates 8-Cylinder approach to navigate that volatility with opportunities that will meet the long-term financial goals of our clients.
Wednesday, July 21, 2010
CNBC "Fighting Back the Bears"
Bill Spiropoulos, CEO of CoreStates Capital Advisors, appeared on CNBC's Worldwide Exchange on Wednesday, July 21st.
Tuesday, June 1, 2010
Monday, April 12, 2010
CNBC April 8th, 2010
Don't forget to watch Bill Spiropoulos, President & CEO of CoreStates Capital Advisors, on the following dates:
- Friday, April 16th at Noon
- Thursday, April 22nd at 10am
Wednesday, February 24, 2010
Watch CoreStates on CNBC!
Be sure to catch Bill Spiropoulos, President and CEO of CoreStates Capital Advisors, on CNBC:
Thursday, February 25th @ 10am
Thursday, March 5th @ Noon
Thursday, February 25th @ 10am
Thursday, March 5th @ Noon
Click HERE to watch Bill's recent appearance on CNBC
Thursday, February 18, 2010
Did You Know...
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.
This YouTube video provides excellent reinforcement for our 20/20 Global Vision philosophy.
Click Here to watch on YouTube
This YouTube video provides excellent reinforcement for our 20/20 Global Vision philosophy.
Click Here to watch on YouTube
Monday, February 1, 2010
CoreStates News Channel- Welcome!
Welcome to CoreStates! Click the image below to watch:
Click image to watch!
Click image to watch! Tuesday, January 5, 2010
Keynes: Return of the Master (or courting disaster?)
Among the many valuable resources used by the investment professionals at CoreStates, Capitol Reader is a service (www.capitolreader.com) that provides detailed summaries of recently published books on politics and related topics. The following are CoreStates' perspectives on a recently summarized book describing and endorsing the economic principles currently gaining favor in Washington.
The above title, absent our parenthetical addition, is also the title of a just published book (Public Affairs Books; ISBN 9781586488277) by Robert Skidelsky, the preeminent biographer of British economist John Maynard Keynes (1883 – 1946). As the title suggests, Skidelsky considers Keynes to be “the Master,” and the book is a veritable celebration of his return to popularity following the recent “failure of capitalism.” And, Skidelsky is not alone. Keynes’ fans include President Barak Obama and the Democratic majorities in both houses of Congress.
The master . . .
Without question, Keynes contributed greatly to economic thought. His recognition of the discipline as a social/behavioral science as opposed to a mathematical exercise is invaluable in understanding the workings of an economy. Even today, we see too little appreciation for Keynes’ admonition that economists (and their private and public sector clients) not put too much confidence in quantitative economic analysis. Most aspects of the future are simply immeasurable – they are what he describes as unknowable “uncertainty,” not calculable “risk.” To assign probabilities to future economic measures is foolhardy. To act on them is irresponsible.
Or courting disaster?
But, we are troubled by one of the core tenants of Keynesian thought – the belief in the propriety of heavy-handed intervention by governments in their economies. In fact, we believe the recent “failure of capitalism” was more a failure of governments in implementing exactly what Keynes promotes – aggressive fiscal and monetary intervention. Such actions provide little measurable near-term benefit while invariably sowing the seeds of the next economic disaster.
The most recent economic meltdown is a good example. Between the Federal Reserve’s speculation-inducing too-easy money and too-low interest rates in response to past economic slowdowns, and Congress’s steadily ballooning deficit spending, private sector excesses were not only widely encouraged, but were willingly financed. Add Congress’ irresponsible relaxation of mortgage lending standards, and housing became the epicenter of the second worst economic collapse in our nation’s history, and the worst in terms of worldwide losses.
Not only did governments (especially ours) do what they shouldn’t have done, they also failed to do what they should have done. They shirked their responsibility to properly oversee and regulate their public and private sector enterprises. Free-market capitalism excels at building national wealth, but without proper constraints, it can result in unhealthy concentrations of private sector wealth and power, and in alternating excesses of optimism and pessimism. This, too, was a factor in the recent economic maelstrom.
An even more severe criticism of Keynesian principles comes from the Austrian School of economic thought led by Nobel Laureate Friedrich von Hayek. It opines that application of Keynes' policies inevitably leads to excessive state control if not pure socialism, to the severe detriment of international competitiveness, living standards, and personal freedoms.
The core strength of a capitalistic economy accrues from the multitude of small, largely self-interest-motivated economic decisions made daily by its millions of citizens. If properly regulated, this constantly evolving economic organism will produce a more effective, efficient, and stable economy than any central authority could ever be expected to achieve. To us, it’s the economic equivalent of democracy versus oligarchy. The economic “votes” of the citizenry will serve the economy better than the decisions of an elite few, no matter how well intentioned they may be.
Conflicting conclusions
Skidelsky concludes his arguments with the contention that Keynesian principles have historically delivered better economic results. He cites the period between 1951 and 2009, and suggests that what he identifies as the Keynesian period (1951 – 1973) saw higher GDP growth, less disparity of family incomes, and less unemployment than the Neo-Classical period (1980 – 2009). The inflation rate was slightly lower in the Neo-Classical period, but most importantly to Skidelsky, it suffered five periods of economic contraction versus none during the Keynesian period.
Our views differ, but not just for the reasons cited above. Even if government intervention can, or is believed to, moderate business cycles, it brings unintended and very unfavorable consequences. Individuals and companies throughout the economy see the moderated cycles as license to undertake increasingly risky behaviors (more debt, speculative trading, etc.). Eventually, these create excesses, often in the form of price bubbles, which are unsustainable and lead to collapsing markets that are beyond the government’s ability to contain, at least not without creating even more severe problems in the future. The financial system meltdown, still deflating housing bubble, and fiscally irresponsible government response provide a resounding example.
Much like the levees of New Orleans, the government “protections” espoused by Keynes and pursued by our government the last several years may have “worked.” But, they also created over-confidence and unwitting exposure to unpredictable and immeasurable calamities. In the end, these well-meaning “protections” exposed the citizenry to losses far in excess of what would have been incurred simply letting the economy (or river) flow through its natural cycles. Not only would the economic damage have been less, the public and private sector participants would have gained a better understanding of the risks and their responsibilities in a market-based economy.
www.corestates.us
The above title, absent our parenthetical addition, is also the title of a just published book (Public Affairs Books; ISBN 9781586488277) by Robert Skidelsky, the preeminent biographer of British economist John Maynard Keynes (1883 – 1946). As the title suggests, Skidelsky considers Keynes to be “the Master,” and the book is a veritable celebration of his return to popularity following the recent “failure of capitalism.” And, Skidelsky is not alone. Keynes’ fans include President Barak Obama and the Democratic majorities in both houses of Congress.
The master . . .
Without question, Keynes contributed greatly to economic thought. His recognition of the discipline as a social/behavioral science as opposed to a mathematical exercise is invaluable in understanding the workings of an economy. Even today, we see too little appreciation for Keynes’ admonition that economists (and their private and public sector clients) not put too much confidence in quantitative economic analysis. Most aspects of the future are simply immeasurable – they are what he describes as unknowable “uncertainty,” not calculable “risk.” To assign probabilities to future economic measures is foolhardy. To act on them is irresponsible.
Or courting disaster?
But, we are troubled by one of the core tenants of Keynesian thought – the belief in the propriety of heavy-handed intervention by governments in their economies. In fact, we believe the recent “failure of capitalism” was more a failure of governments in implementing exactly what Keynes promotes – aggressive fiscal and monetary intervention. Such actions provide little measurable near-term benefit while invariably sowing the seeds of the next economic disaster.
The most recent economic meltdown is a good example. Between the Federal Reserve’s speculation-inducing too-easy money and too-low interest rates in response to past economic slowdowns, and Congress’s steadily ballooning deficit spending, private sector excesses were not only widely encouraged, but were willingly financed. Add Congress’ irresponsible relaxation of mortgage lending standards, and housing became the epicenter of the second worst economic collapse in our nation’s history, and the worst in terms of worldwide losses.
Not only did governments (especially ours) do what they shouldn’t have done, they also failed to do what they should have done. They shirked their responsibility to properly oversee and regulate their public and private sector enterprises. Free-market capitalism excels at building national wealth, but without proper constraints, it can result in unhealthy concentrations of private sector wealth and power, and in alternating excesses of optimism and pessimism. This, too, was a factor in the recent economic maelstrom.
An even more severe criticism of Keynesian principles comes from the Austrian School of economic thought led by Nobel Laureate Friedrich von Hayek. It opines that application of Keynes' policies inevitably leads to excessive state control if not pure socialism, to the severe detriment of international competitiveness, living standards, and personal freedoms.
The core strength of a capitalistic economy accrues from the multitude of small, largely self-interest-motivated economic decisions made daily by its millions of citizens. If properly regulated, this constantly evolving economic organism will produce a more effective, efficient, and stable economy than any central authority could ever be expected to achieve. To us, it’s the economic equivalent of democracy versus oligarchy. The economic “votes” of the citizenry will serve the economy better than the decisions of an elite few, no matter how well intentioned they may be.
Conflicting conclusions
Skidelsky concludes his arguments with the contention that Keynesian principles have historically delivered better economic results. He cites the period between 1951 and 2009, and suggests that what he identifies as the Keynesian period (1951 – 1973) saw higher GDP growth, less disparity of family incomes, and less unemployment than the Neo-Classical period (1980 – 2009). The inflation rate was slightly lower in the Neo-Classical period, but most importantly to Skidelsky, it suffered five periods of economic contraction versus none during the Keynesian period.
Our views differ, but not just for the reasons cited above. Even if government intervention can, or is believed to, moderate business cycles, it brings unintended and very unfavorable consequences. Individuals and companies throughout the economy see the moderated cycles as license to undertake increasingly risky behaviors (more debt, speculative trading, etc.). Eventually, these create excesses, often in the form of price bubbles, which are unsustainable and lead to collapsing markets that are beyond the government’s ability to contain, at least not without creating even more severe problems in the future. The financial system meltdown, still deflating housing bubble, and fiscally irresponsible government response provide a resounding example.
Much like the levees of New Orleans, the government “protections” espoused by Keynes and pursued by our government the last several years may have “worked.” But, they also created over-confidence and unwitting exposure to unpredictable and immeasurable calamities. In the end, these well-meaning “protections” exposed the citizenry to losses far in excess of what would have been incurred simply letting the economy (or river) flow through its natural cycles. Not only would the economic damage have been less, the public and private sector participants would have gained a better understanding of the risks and their responsibilities in a market-based economy.
www.corestates.us
Friday, December 11, 2009
The Big Bounce UP... From What Looked Like the Bottomless Pit!
US stock indexes are some 25% higher than on January 1, and more than 60% above their March lows. Some technology sectors are up nearly 60% year-to-date, having more than doubled from their March lows.
Similarly, industrial metals are advancing strongly, and precious metals are hitting all-time highs. Even good quality corporate bonds have gained some 20% year-to-date while high yield indexes are up more than 50%.
Obviously, these markets are reflecting burgeoning confidence in economic recovery. TARP, the stimulus package, buyer incentives for homes and autos, and the Federal Reserve’s persistence in keeping interest rates low are having an impact!
...the yellow flag is out!
In fact, they’re having a dual impact. First, they appear to be helping pull us out of recession. Home sales have turned around, industrial capacity utilization is improving, and the unemployment rate has ticked down for the first time in several months.
These are the hoped-for results, and are certainly part of what is being reflected in the investment markets. But, it’s the unintended consequences that may be having the greatest impact, pushing not just stocks, but also bonds, precious metals and other assets to what can only be called inflated levels. And, not just in our domestic markets. Investors worldwide are doing exactly what should be expected from such governmental largesse, whether or not it is what those governments intended.
How the game is played.
And, what, exactly, is it that investors are doing? It’s merely the latest version of the “carry trade.”
1. They borrow (dollars in this instance) at the near-zero interest rates set by the Federal Reserve,
2. They use those borrowed dollars to invest in assets that appear undervalued, or at least capable of being bid up in price, and
3. They ultimately sell the assets, hopefully at sizeable gains, and repay the loans with “cheaper” dollars that are almost certain to have resulted from the ballooning Federal deficits.
Where does this leave investors like us here at CoreStates? We choose not to play this game. We never subject our clients to the risks of this form of “borrowing short and investing long,” having seen far too often (most recently in housing) how asset prices can suddenly drop when interest rates begin to rise and the throngs of debt-burdened “carry-traders” all stampede for the exits. But, we do have to deal with the volatile markets these traders help create with their high-risk games.
Our strategies in today’s environment of increasingly inflated prices are intended to participate in a good portion of any continuing run-up in asset prices, but to gradually lighten exposures as prices inflate. This investment approach is almost certain to mean that, unlike the extremely favorable performance we have been able to deliver through the market recovery to date, our clients may not fully participate in the latter stages of such an extreme market advance, but nor will they be fully exposed to the risks of a market collapse.
The way we look at it, the possibility of realizing modestly lagging returns if asset prices continue to inflate is simply the price that must be paid to assure better preservation of values when the bubble eventually bursts. And, this is the best way we know to fulfill our commitment to clients – to protect their lifestyles and preserve their legacies for as long as their investment assets are under our care.
We wish everyone a wonderful Holiday Season, and a safe and secure New Year!
The information provided above reflects the viewpoint of Corestates Capital Advisors, LLC and is subject to change. This article was prepared for general informational purposes only, without respect to the investment objectives, financial profile, or risk tolerance of any specific person or entity who may receive it.
Similarly, industrial metals are advancing strongly, and precious metals are hitting all-time highs. Even good quality corporate bonds have gained some 20% year-to-date while high yield indexes are up more than 50%.
Obviously, these markets are reflecting burgeoning confidence in economic recovery. TARP, the stimulus package, buyer incentives for homes and autos, and the Federal Reserve’s persistence in keeping interest rates low are having an impact!
...the yellow flag is out!
In fact, they’re having a dual impact. First, they appear to be helping pull us out of recession. Home sales have turned around, industrial capacity utilization is improving, and the unemployment rate has ticked down for the first time in several months.
These are the hoped-for results, and are certainly part of what is being reflected in the investment markets. But, it’s the unintended consequences that may be having the greatest impact, pushing not just stocks, but also bonds, precious metals and other assets to what can only be called inflated levels. And, not just in our domestic markets. Investors worldwide are doing exactly what should be expected from such governmental largesse, whether or not it is what those governments intended.
How the game is played.
And, what, exactly, is it that investors are doing? It’s merely the latest version of the “carry trade.”
1. They borrow (dollars in this instance) at the near-zero interest rates set by the Federal Reserve,
2. They use those borrowed dollars to invest in assets that appear undervalued, or at least capable of being bid up in price, and
3. They ultimately sell the assets, hopefully at sizeable gains, and repay the loans with “cheaper” dollars that are almost certain to have resulted from the ballooning Federal deficits.
Where does this leave investors like us here at CoreStates? We choose not to play this game. We never subject our clients to the risks of this form of “borrowing short and investing long,” having seen far too often (most recently in housing) how asset prices can suddenly drop when interest rates begin to rise and the throngs of debt-burdened “carry-traders” all stampede for the exits. But, we do have to deal with the volatile markets these traders help create with their high-risk games.
Our strategies in today’s environment of increasingly inflated prices are intended to participate in a good portion of any continuing run-up in asset prices, but to gradually lighten exposures as prices inflate. This investment approach is almost certain to mean that, unlike the extremely favorable performance we have been able to deliver through the market recovery to date, our clients may not fully participate in the latter stages of such an extreme market advance, but nor will they be fully exposed to the risks of a market collapse.
The way we look at it, the possibility of realizing modestly lagging returns if asset prices continue to inflate is simply the price that must be paid to assure better preservation of values when the bubble eventually bursts. And, this is the best way we know to fulfill our commitment to clients – to protect their lifestyles and preserve their legacies for as long as their investment assets are under our care.
We wish everyone a wonderful Holiday Season, and a safe and secure New Year!
The information provided above reflects the viewpoint of Corestates Capital Advisors, LLC and is subject to change. This article was prepared for general informational purposes only, without respect to the investment objectives, financial profile, or risk tolerance of any specific person or entity who may receive it.
Monday, November 30, 2009
Catch CoreStates on CNBC in December!
Be sure to catch Bill Spiropoulos, President and CEO of CoreStates Capital Advisors, on CNBC on the following dates in December:
Thursday, December 3rd at 5:00 AM on World Wide Exchange
Wednesday, December 9th at Noon on Power Lunch
Tuesday, December 22nd at Noon on Power Lunch
Wednesday, December 30th at Noon on Power Lunch
Tuesday, November 24, 2009
15 Signs that it’s Time to Call CoreStates
Each question is worth 1 point (OR worth 2 points if you answer, "Heck yes!"):
- You’ve been waking up at night worrying about whether you’re worrying about the right things.
- You got scared out of the stock market earlier this year (near the bottom), and are now scared to go back in (near the top?).
- You’re convinced the dollar is going to tank, but have no idea what to do about it.
- Your children are actually turning into responsible young adults, and you hope there’s some money left for them when you die.
- So far, all your “precious metals” investments have been in the form of golf clubs and
jewelry, but you’re thinking this probably isn’t how the pros do it. - Your father keeps saying he hopes his last dollar will go to pay for his burial, but you’re thinking it might have to be your last dollar.
- Your daughter recently announced that she’s just not enjoying Law School, so she is dropping out and applying to Med School.
- After so many years of investing for the long term, you suddenly realize... it’s now here!
- You are noticing more and more how the things you’ve accumulated restrict your day-to-day freedom and peace of mind, and how liquid investments do just the opposite.
- After years of focusing on investment returns, you’re beginning to think you should have been paying more attention to investment risk.
- Charity may begin at home, but you’re concerned your legacy may end at home and your charitable aspirations go unfulfilled.
- You’re wondering if your 401(k) will be okay, or will it be KO’d by the next market decline . . . right when you plan to retire.
- It recently dawned on you that the medical profession has done a much better job of extending life expectancies than your investment professionals have done in extending the life of your nest egg.
- Your long-held vision of retirement seems to be taking on a decidedly rose-colored hue.
- You can’t stand another minute of Jim Cramer or Larry Kudlow (or your current advisor, for that matter), and need to find someone you can trust to help you do what is right for you.
SCORING
0 to 5 – Good for you! But, give us a call sometime so that you know us when you need us.
6 to 9 – Not bad, but you could benefit from our help. Call soon.
10 to 12 – This is serious! Make an appointment today.
13 to 15 – What have you been waiting for!? Call an ambulance and get straight over here!
CoreStates Capital Advisors, LLC
267-759-5000
http://www.corestates.us/
Thursday, November 19, 2009
Beyond California: States in Fiscal Peril
The Pew Center on the States recently released a report entitled “Beyond California: States in Fiscal Peril”. The report examined the impact of the recession on the finances of the states, highlighting nine other states facing similar stresses to California. This report received 
widespread press coverage, including both the Inquirer and the Wall St Journal. Below are brief comments regarding several states where we have client concentrations.
The full report can be found at http://www.pewcenteronthestates.org/
Pennsylvania: We have previously distributed positive comments regarding PA’s relative position among the states. It is gratifying to see the Pew Center list PA among the 10 states “least like California”. PA’s revenue decline of only 5.5% is well below the national average of 11.7%. The budget deficit of 18% of the general fund is close to the national average of 17.7%. The increase in unemployment has been 3%, compared to the average of 4.4%. PA was particularly cited for having established and funded its rainy day funds. Several states had set up such funds but never really deposited any money into them.
Maryland: MD’s revenue decline of only 1.2% was among the smallest drop of any state. Despite that, its budget gap is 18.7%, above both PA and the average. Similarly to PA, its real estate market had neither run up nor collapsed as much as the national averages. General financial management and employment levels are also above average. MD scored just outside the 10 best states.
Delaware: DE also had a modest drop in revenues of only 3%, well better than average. Its budget gap at 17.6% was close to the national average. The 3.6% increase in unemployment was better than the national average but worse than its regional peers. The financial management was scored very high. DE’s overall score was slightly behind MD.
New Jersey: NJ scored as one of the 10 worst states, most like California. Pressured by several factors, its revenue declined 15.8%, well above the average. The budget gap at 29.9% was among the worst. The 3.7% increase in unemployment was not as bad as the average. However, only 2 states scored worse than NJ regarding financial management and practices. We continue to believe that NJ residents should diversify some of their municipal holdings outside the state in order to lessen risk.
Virginia: VA scored very highly regarding its financial practices. Unemployment has only risen 3.2%, well better than average. The budget gap of only 10.9% also reflects well. A revenue decline of 19% is probably the only reason VA scores just outside the 10 best states and even with MD’s score.
Florida: FL’s ranking among the 10 states most affected by the recession should not be a surprise as its real estate difficulties have been well documented. The foreclosure rate of 2.72% is effectively twice the national average of 1.37%. The revenue drop of 11.5% is better than might have been expected. The unemployment increase of 4.4% is at the national average. The state has mixed scores on political and financial management issues. FL does not have a state income tax, so client portfolios are national portfolios, already diversified outside the state.
Ohio: Perhaps surprisingly, OH fares better than many of its Midwestern neighbors. Unemployment has increased at the national average of 4.4%. Despite that, revenues fell a less than average 9%. The budget gap is a better than average 12.3%. OH also scores well regarding financial practices. Its overall score is equal to DE.
widespread press coverage, including both the Inquirer and the Wall St Journal. Below are brief comments regarding several states where we have client concentrations.
The full report can be found at http://www.pewcenteronthestates.org/
Pennsylvania: We have previously distributed positive comments regarding PA’s relative position among the states. It is gratifying to see the Pew Center list PA among the 10 states “least like California”. PA’s revenue decline of only 5.5% is well below the national average of 11.7%. The budget deficit of 18% of the general fund is close to the national average of 17.7%. The increase in unemployment has been 3%, compared to the average of 4.4%. PA was particularly cited for having established and funded its rainy day funds. Several states had set up such funds but never really deposited any money into them.
Maryland: MD’s revenue decline of only 1.2% was among the smallest drop of any state. Despite that, its budget gap is 18.7%, above both PA and the average. Similarly to PA, its real estate market had neither run up nor collapsed as much as the national averages. General financial management and employment levels are also above average. MD scored just outside the 10 best states.
Delaware: DE also had a modest drop in revenues of only 3%, well better than average. Its budget gap at 17.6% was close to the national average. The 3.6% increase in unemployment was better than the national average but worse than its regional peers. The financial management was scored very high. DE’s overall score was slightly behind MD.
New Jersey: NJ scored as one of the 10 worst states, most like California. Pressured by several factors, its revenue declined 15.8%, well above the average. The budget gap at 29.9% was among the worst. The 3.7% increase in unemployment was not as bad as the average. However, only 2 states scored worse than NJ regarding financial management and practices. We continue to believe that NJ residents should diversify some of their municipal holdings outside the state in order to lessen risk.
Virginia: VA scored very highly regarding its financial practices. Unemployment has only risen 3.2%, well better than average. The budget gap of only 10.9% also reflects well. A revenue decline of 19% is probably the only reason VA scores just outside the 10 best states and even with MD’s score.
Florida: FL’s ranking among the 10 states most affected by the recession should not be a surprise as its real estate difficulties have been well documented. The foreclosure rate of 2.72% is effectively twice the national average of 1.37%. The revenue drop of 11.5% is better than might have been expected. The unemployment increase of 4.4% is at the national average. The state has mixed scores on political and financial management issues. FL does not have a state income tax, so client portfolios are national portfolios, already diversified outside the state.
Ohio: Perhaps surprisingly, OH fares better than many of its Midwestern neighbors. Unemployment has increased at the national average of 4.4%. Despite that, revenues fell a less than average 9%. The budget gap is a better than average 12.3%. OH also scores well regarding financial practices. Its overall score is equal to DE.
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