Today, I’m Blogging From The Global Indexing and ETF Conference

It’s hard to believe that this is the seventeenth annual gathering of The Global Indexing and ETF Conference. It is one of the preeminent annual investment management conferences.  Jan Hatzius, Chief Economist from Goldman Sachs, kicked off this morning’s agenda.  His main points were – sub 3% U.S. Gross Domestic Product (GDP) through 2016 coupled with low inflation and low wage growth.  He is specifically calling for low 4^th quarter 2012 GDP due to Hurricane Sandy, but says that the 1^st quarter of 2013 will over-compensate for the 4^th quarter.

I’ll be speaking to this group tomorrow on how Monument Wealth Management uses Exchange Traded Funds (ETFs) in portfolios.  It’s exciting as well as appropriate to be here, as we are celebrating our 10^th year of running an all ETF portfolio on behalf of our clients.  10 years ago, we identified that actively managing ETFs to over and under-weight sectors of the economy was a way to gain global diversification, fee effectiveness, and tax efficiency in a way that was unavailable in other strategies.

Since there are about 500 people here, I think we were right 10 years ago and remain right today. It is fun to see everyone here and lump them into two groups – those with suits and those without suits.  It’s safe to say that if someone approaches me in a suit and tie, they probably want something from me and if someone in casual attire approaches, they probably own their own firm like me.  It’s just interesting to observe.

Here’s how the markets did last week.

More Fiscal Cliff

We cannot escape it and the news continues on the subject.  This, as well as reality, had investors on edge early last week. Then, mid-week, hopeful statements from both sides of the political isle brightened the mood. Once Friday rolled around, the cameras appeared but stocks looked past the camera jockeying which seems to suggest the Street expects some type of deal…eventually.

But here’s the REAL DEAL. None of this should come as a surprise to anyone given some traders inclination to trade off every single fragment of information that is broadcast on a second’s notice.

The real action is happening away from the camera’s eye, and that action is much more important than the running of mouths on TV.

At this point in time, we see three different paths.

First – Congress and the President can’t agree to adjustments and we go over “The Cliff”. Queue the scary music now.  This is unlikely but we do acknowledge that the odds have slowly increased in recent weeks… mostly because we are getting closer to Dec 31^st.

Second – Congress and the President agree to adjustments in the current tax and spending statutes, but without major long-term solutions. This is probably the most likely scenario.  That’s unfortunate because the path of least resistance approach obviously does not address the real problems and won’t impress anyone on the global stage.

Third – Congress and the President agree to a long-term credible and balanced approach to the country’s fiscal woes. While this would impress Wall Street and everyone else on the global stage, I say FAT CHANCE.

This would require a framework for both tax and entitlement reform to be agreed upon, but most politicians want to stay clear of entitlement reform, fearing voter backlash at the polls.

Unfortunately, the current projections strongly suggest entitlement programs are on a collision course with bankruptcy and real solutions are going to need to be addressed at some point.

So Path 2 may keep us from driving over the cliff, but the solution may be turning just in time to make a big circle – only to head toward the cliff again down the road.

Please call or email with questions.

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⁽¹⁾      West Texas Intermediate crude spot price is as of end of week.

⁽²⁾      London Bullion Market Association; gold fixing pricing at 3 p.m. London time.