Brighton Perspective

The Big Dig: Fed Data Shows Households Attack Mountain of Debt | Daniel Gross - Yahoo! Finance

The long slog continues. The feature of the post-crisis economy has been a two-speed recovery. As a group, companies have done extremely well. Corporate profits and cash holdings are at record highs. The stock market has bounced back smartly since the lows of March 2009. But consumers haven't done quite as well.

via finance.yahoo.com

GDP grew 2% according to the latest estimate. 80% of the growth came from consumers and 25% came from net exports. Government spending contributed nothing and business spending detracted 5%.

Consumers cutting debt is a rational and appropriate reaction to the excesses of the 2002-2008 real estate bubble. Keep in mind, however, that if consumers make up roughly 70% of GDP and they're cutting debt, growth will likely remain low until consumers are confident their personal debt is under control. With the latest GDP estimate coming in at 2% vs forecasts of 2.5%, it does not appear that is the case yet.

Euro zone crisis biggest threat to global economy: OECD - Yahoo! Finance

By Leigh Thomas

via finance.yahoo.com

Many clients ask how the EU crisis impacts the US. This article highlights some of the connections. While the retail sales news over the weekend was positive, don't discount the potentially negative impact this crisis could have on the US moving into 2012.

Third-quarter growth revised down to 2.0 percent - Yahoo! Finance

WASHINGTON (Reuters) - The U.S. economy grew at a slightly slower pace than previously estimated in the third quarter, but weak inventory accumulation amid sturdy consumer spending strengthened views output would pick up in the current quarter.

via finance.yahoo.com

This shouldn't be surprising given the only sector that appears to be improving is consumer spending, which appears to be driven by debt financing.

It shouldn't be surprising, moving forward, to see further downward revisions of actual growth and forecast growth. Europe is likely to weigh heavily on the US economy in the coming quarters. Better to be slightly skeptical than overly optimistic.

MF Global – Dodging Customer Protection Rules | Market Integrity Insights

There is some good news but mainly bad news in my MF Global saga. The good news: my missing MFG money is safe and I will be getting it back in “due course.” I was told that 60 percent of the funds were in the process of being transferred. I think that means to me, but apparently “due course” does not mean this week, or even the next. So the check is not exactly in the mail.  

via blogs.cfainstitute.org

Most investors don't have the opportunity to invest directly in funds such as the MF Global Fund discussed here. However, there is a broader point worth noting. Focus on working with funds and advisors with third party custodians rather than those who "self-custody". These organizations do not take physical possession of your assets and do not have authority to remove assets from your accounts. It is an additional layer of protection for you as an investor.

If you do use a firm which has "self-custody" of assets be especially diligent in monitoring your accounts.

Debt committee: On the verge of failure - Yahoo! Finance

It looks like Congress is about to forfeit yet another opportunity to address the country's long-term fiscal problems before they get out of hand.

via finance.yahoo.com

Financial markets discount forward expectations, thus, most current news is priced in already. This news - the "Super Committee" apparently has failed - has been priced in for quite awhile, possibly since day 1. Markets will likely decline early as individual investors take action but expect market activity will return to a focus on Europe very quickly.

The issues in Europe in the near term trump the "Super Committee" because these issues appear to be leading to a Euro slowdown and possible recession. That is likely to impact US growth moving into 2012 and could lead to a slowdown or recession here.

We write constantly about risk management. These events highlight why it is so important to portfolio management. Be prepared to hedge, if you haven't already done so, the risk of loss. There are times when managing against real loss is more important than managing for real gains.

Leaving A Legacy

You've worked hard over the years to accumulate wealth, and you probably find it comforting to know that after your death the assets you leave behind will continue to be a source of support for your family, friends, and the causes that are important to you. But to ensure that your legacy reaches your heirs as you intend, you must make the proper arrangements now. There are four basic ways to leave a legacy: (1) by will, (2) by trust, (3) by beneficiary designation, and (4) by joint ownership arrangements. A will is the cornerstone of any estate plan. You should have a will no matter how much your estate is worth, and even if you've implemented other estate planning strategies. You can leave property by will in two ways: making specific bequests and making general bequests. A specific bequest directs a particular piece of property to a particular person ("I leave Aunt Martha's diamond broach to my niece, Jen"). A general bequest is typically a percentage of property or property that is left over after all specific bequests have been made. Typically, principal heirs receive general bequests ("I leave all the rest of my property to my wife, Jane"). With a will, you can generally leave any type of property to whomever you wish, with some exceptions, including: Property will pass according to a beneficiary designation even if you name a different beneficiary for the same property in your will Property owned jointly with rights of survivorship passes directly to the joint owner Property in a trust passes according to the terms of the trust Your surviving spouse has a right to a statutory share (e.g., 50%) of your property, regardless of what you leave him or her in your will Children may have inheritance rights in certain states You can also leave property to your heirs using a trust. Trust property passes directly to the trust beneficiaries according to the trust terms. There are two basic types of trusts: (1) living or revocable, and (2) irrevocable. Living trusts are very flexible because you can change the terms of the trust (e.g., rename beneficiaries) and the property in the trust at any time. You can even change your mind by taking your property back and ending the trust. An irrevocable trust, on the other hand, can't be changed or ended except by its terms, but can be useful if you want to minimize estate taxes or protect your property from potential creditors. You create a trust by executing a document called a trust agreement (you should have an attorney draft any type of trust to be sure it accomplishes what you want). A trust can't distribute property it does not own, so you must also transfer ownership of your property to the name of the trust. Property without ownership documentation (e.g., jewelry, tools, furniture) are transferred to a trust by listing the items on a trust schedule. Property with ownership documents must be re-titled or re-registered. You must also name a trustee to administer the trust and manage the trust property. With a living trust, you can name yourself trustee, but you'll need to name a successor trustee who'll transfer the property to your heirs after your death. Property that is contractual in nature, such as life insurance, annuities, and retirement accounts, passes to heirs by beneficiary designation. Typically, all you have to do is fill out a form and sign it. Beneficiaries can be persons or entities, such as a charity or a trust, and you can name multiple beneficiaries to share the proceeds. You should name primary and contingent beneficiaries. You should consider the income and estate tax ramifications for your heirs and your estate when naming a beneficiary. For example, proceeds your beneficiaries receive from life insurance are generally not subject to income tax, while your beneficiaries will have to pay income tax on proceeds received from tax-deferred retirement plans (e.g., traditional IRAs). Check with your financial planning professional to determine whether your beneficiary designations will have the desired results. Be sure to re-evaluate your beneficiary designations when your circumstances change (e.g., marriage, divorce, death of beneficiary). You can't change the beneficiary with your will or a trust. You must fill out and sign a new beneficiary designation form. Two (or more) persons can own property equally, and at the death of one, the other becomes the sole owner. This type of ownership is called joint tenancy with rights of survivorship (JTWRS). A JTWRS arrangement between spouses is known as tenancy by the entirety in certain states, and a handful of states have a form of joint ownership known as community property. You may find joint ownership arrangements are useful and convenient with some types of property, but may not be desirable with all of your property. For example, having a joint checking account ensures that, upon your death, an heir will have immediate access to needed cash. And owning an out-of state residence jointly (e.g., a vacation home) can avoid an ancillary probate process in that state. But it may not be practical to own property jointly where frequent transactions are involved (e.g., your investment portfolio or business assets) because you may need the joint owner's approval and signature for each transaction. There are some other disadvantages to joint ownership arrangements, including: (1) your co-owner has immediate access to your property, (2) naming someone who is not your spouse as co-owner may trigger gift tax consequences, and (3) if the co-owner has debt problems, creditors may go after the co-owner's share. As always consider these suggestions in the context of your personal situation. The legal and tax issues involved in estate planning can be very complex so don’t go it alone, instead consult with an attorney and with an accountant with strong backgrounds in estate planning.

Morningstar Market Commentary

Courtesy of Morningstar.com:

Monthly Market Commentary

GDP: Overall U.S. GDP numbers for the third quarter were a lot better than most had expected in mid-September. The real GDP growth rate was neither as weak as the 0.4% and 1.3% of the first two quarters, nor as strong as the 2.5% of the third quarter. Morningstar economists estimate that the real inflation-adjusted growth in the economy appears to be around an anemic but steady 1.75%–2.25%. Employment: Net employment growth was 80,000 in October, at the low end of the estimate range of 70,000-110,000. While still positive, this growth remains too low to make a significant impact on the unemployment rate, which only fell to 9.0% from 9.1%. What is surprising, though, is where these new jobs are coming from. Two sectors that tend to contribute heavily to job growth, government and construction, have failed to do so recently; the manufacturing and service sectors have been the real drivers. Almost 500,000 government jobs have been lost since the recovery began, but the pace of such losses now appears to be slowing. The construction industry, which normally represents a meaningful portion of job creation, remains weak, threatened by cheap foreclosures and lack of consumer confidence. Net job growth for August was revised to 104,000 from 57,000, and to 158,000 from 103,000 for September. These significant revisions are a not-so-subtle reminder of the dangers of reading too much into any one monthly report. When looking at the larger picture, year-over-year private-sector employment growth (calculated using a three-month average) remained at a slow but steady 1.7%. Manufacturing: At this point in the recovery, manufacturing growth usually has a tendency to slow down, and the services sector begins to take the lead. Before slowing down, however, manufacturing has done impressively well, mostly because of a strong export market for capital goods and a rebounding auto industry (auto sales in October jumped to an annualized rate of 13.2 million units). However, floods in Thailand (where many electronic parts are sourced) may slow Japanese auto production going forward. On the service-sector side, education and health care have done well, while information services jobs have declined and the finance industry has been flat. Foreign exchange: Given the eurozone’s many escalating problems, it is perhaps surprising that the USD/EUR exchange rate has stayed relatively flat, with the exception of a short dollar rally at the beginning of October. Going forward, a eurozone banking crisis remains an alarming possibility, in which case firm central-bank intervention might become a necessity.

 

The only way to save the eurozone from collapse - FT.com

As of last week, the eurozone no longer had a functioning sovereign bond market. The crisis has spread to France, whose bond spreads have approached Italian levels of six months ago. The unfortunate accident of Standard & Poor’s mistaken publication of a French ratings downgrade tells us that the rating agency is clearly preparing a downgrade. It merely pressed the button too early. The European financial stability facility, the fragile and undercapitalised construction on which Europe’s rescue strategy rests, is therefore also likely to lose its triple A rating. The prospect of a temporary return of sanity in Italian politics eased the pressure a little at the end of last week. But this does not change the depressing reality that the eurozone may be only weeks away from a financial collapse.

via www.ft.com

There has been much talk about a "Eurobond" and the potential benefits such a bond would bring to the EU. This article is an excellent summary as to why it appears this is an important and necessary step to resolving the EU crisis. Very worthwhile reading!

How a Financial Pro Lost His House - Yahoo! Finance

ONE night a few years ago, when the value of our home had collapsed, our debt was out of control and my financial planning business was shaky, I went to take out the trash.

via finance.yahoo.com

Even the "pros" can make mistakes. a guiding principal in investment decisions should always be if it doesn't feel right it probably isn't. Too often investors believe they "missed out" by not stretching their tolerance. This story is a good example why "missing out" is often times better than "getting in". We write often about risk management and it's relative importance to return. This is a great example of ignoring prudent risk management and dealing with the consequences.

Italy at breaking point, Merkel calls for "new Europe" - Yahoo! Finance

By Philip Pullella and Andreas Rinke

via beta.finance.yahoo.com

This crisis is the center of the financial universe right now. Every movement in the markets appears to be driven by investor perception of the potential outcome of the crisis. As long as it persists, individual investors should be more focused on risk management than on return potential. Try to protect what you have first.

College Board Releases New College Cost Numbers

College cost trends Every October, the College Board releases its Trends in College Pricing report that highlights college cost increases for the current academic year and trends in the world of higher education. hile costs can vary significantly by region and individual college, the College Board publishes average cost figures, which are based on its survey of 3,500 colleges across the country. To read the Trends in College Pricing 2011 report, visit www.collegeboard.com/trends. Note that the "total average cost" figure includes tuition and fees, room and board, books and supplies, transportation, and a small amount for miscellaneous expenses. This figure is often referred to as the "cost of attendance." Public colleges (in-state students) Tuition and fees increased an average of 8.3% from last year to $8,244 Room-and-board costs increased an average of 4.0% to $8,887 Total average cost for 2011/2012 is $21,447 Public colleges (out-of-state students) Tuition and fees increased an average of 5.7% from last year to $20,770 Room-and-board costs increased an average 4.0% to $8,887 Total average cost for 2011/2012 is $33,973 Private colleges Tuition and fees increased an average of 4.5% from last year to $28,500 Room-and-board costs increased an average of 3.9% to $10,089 Total average cost for the 2011/2012 year is $42,224 Student aid trends The College Board also publishes an accompanying report every October called Trends in Student Aid that examines financial aid in more detail. To read the report, visit www.collegeboard.com/trends. The College Board noted that last year, approximately 46% of all grant aid came from the federal government, 36% came from colleges, 9% came from state governments, and about 9% came from employers and other private sources. Grant aid is the most desirable type of financial aid because it doesn't need to be paid back.

Greece shocks markets with referendum on austerity - Yahoo! Finance

NEW YORK (AP) -- Worries that a planned Greek referendum could scuttle a plan to resolve Europe's debt crisis rattled markets Tuesday morning. Stocks indexes plunged in the U.S. and Europe. The dollar and U.S. government bond prices rose as traders moved into assets considered safe.

via finance.yahoo.com

This really should not have been a surprise. Nothing has gone smoothly throughout this crisis (as nothing does during a crisis) and it appears the Greek citizenry are not on-board with their elected officials actions. The best way for a politician to avoid making a difficult decision to let someone else do it for him. Investors should consider taking the conservative view that the referendum will fail and hedge their downside risk. Foregoing a little upside may be worth the cost of hedging the downside.