Our timely perspectives on key global economic forces and the long-term investment strategies to consider, highlighted by the Monthly Market Monitor.
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Latest Insights
The President’s Fiscal Blueprint for a Second Term and The Timing of Tax Changes
Legislative Update, Andrew Friedman, Principal, The Washington Update; February 2012
Earlier this week President Obama released his annual budget plan for the federal government. In doing so, the President formally abandoned his promise, made in 2009, to cut the budget deficit in half by the end of his first term. This year’s plan calls for a federal deficit in 2012 of $1.33 trillion, higher than last year’s $1.3 trillion and close to the 2009 all-time high of $1.4 trillion.
Tactical Allocation as a Response to Uncertainty
White Paper, Thomas Shively, February 2012
One of the themes in our white paper of a year ago, “All Along the Watchtower,” was the difficulty of navigating financial markets in the current environment of heightened policy uncertainty. Both monetary and fiscal policies were pushed to extreme settings in the wake of the financial crisis—zero percent interest rates and massive quantitative easing, combined with trillion-dollar budget deficits. These policies and the uncertainty of how they will ultimately be resolved, along with landmark regulatory changes (e.g., health care and Dodd-Frank) and the uncertainty associated with their implementation or reversal, create an environment in which the economic fundamentals that normally drive financial asset values seem to hardly matter. This is not to say that issues of policy don’t normally qualify as fundamental factors—they do—but their importance today is much greater because of the extreme nature of the current policy settings.
One Year Later, Fundamentals – Not Speculation – Drive Muni Performance
Commentary, Eaton Vance Municipal Insight Committee, February 2012
Municipal bonds (munis) staged a dramatic comeback in 2011, outperforming nearly all other asset classes, including U.S. Treasuries, commodities and equities.
This performance is all the more stunning in light of the drubbing muni prices took toward the end of 2010. One of the chief causes was a research report written by banking sector equity analyst, Meredith Whitney, and published in the fall of 2010. In her report, and in a subsequent interview with CBS’ “60 Minutes,” she predicted 50-100 sizeable defaults in 2011 and that defaults would total “hundreds of billions of dollars” of municipal debt.
Dovish Tone Provides No Peace of Mind for Savers.
FOMC Meeting Implications, Thomas Luster and Bradford Godfrey, January 2012
In our last communication in December of 2011, we noted that the 2012 makeup of the Federal Open Market Committee (FOMC or the Committee), as a result of the customary annual rotation of four voting regional Federal Reserve (Fed) presidents, would likely leave it more open to further accommodative policy. In our opinion, the conclusion of the first meeting of the 2012 FOMC has, indeed, produced a decidedly dovish tone (in favor of further monetary stimulus).
Investing in a Rising Tax Environment 2012
Andrew Friedman, Principal, The Washington Update; January 2012
The Bush tax cuts–the lower tax rates in effect for the past decade–are scheduled to expire at the end of 2012. Republicans believe the tax cuts should be extended for all taxpayers. Democrats believe they should be extended only for the middle and lower classes.
The Reckoning
Bill Hackney, Managing Partner, Atlanta Capital Management; January 2012
Let’s face it. Investors have a lot to consider.
First and foremost is the sovereign debt crisis in Europe, a continent that represents about a quarter of the world’s gross domestic product (GDP) and a fifth of the earnings of many U.S. multinational companies. In our opinion, there’s no way that Germany and northern Europe have sufficient resources to bail out Greece, Italy and Spain. Their debt burdens are too massive, and their economies are too uncompetitive in world markets. The crisis in Europe could get worse before it gets better, and we believe that a default and more debt restructurings are likely within the next 12 months.
Combining Trusts, Life Insurance and Annuities: A unique opportunity to transfer wealth without tax
White Paper, Andrew Friedman , Principal, The Washington Update, December 2011
Near the end of 2010, President Obama reached a compromise with Republican Congressional leaders to extend through 2012 the lower income tax rates enacted during the Bush administration that were slated to expire at year-end 2010. The compromise similarly provides for a $5 million estate tax exemption and a 35% estate tax rate through 2012.
2012: Politics Versus Fundamentals
Richard Bernstein, CEO and CIO, Richard Bernstein Advisors LLC; December 2011
Assessing the prospects for a coming 12-month period is always a challenge. We rely on our broad arsenal of fundamental barometers for profits, sentiment and momentum, and our cyclical indicators to help us identify whether markets are correctly aligned relative to their economic and profit cycles.
Out Like a Lamb … In Like a Dove?
Thomas Luster and Bradford Godfrey, Eaton Vance; December 13, 2011
The 2011 version of the Federal Open Market Committee (FOMC or the Committee) concluded its final scheduled meeting of the year with a relatively quiet statement and no accompanying press conference with the chairman. As was largely expected, there were minor tweaks to the language in the statement given some more upbeat economic releases over the past few weeks, but no changes to policy.
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