“Off The Wall” Blog
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Today, I’m Blogging From The Global Indexing and ETF Conference
By David B. Armstrong, CFA | Dec 03, 2012 | Weekly Market Commentary
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 4th quarter 2012 GDP due to Hurricane Sandy, but says that the 1st quarter of 2013 will over-compensate for the 4th 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 10th 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 31st.
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.
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Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values. The 2, 10 and 30 year Treasury is simply the yield at the close of the day.
(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.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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