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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
January 4, 2010- Vol
4, Issue 1
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Dan
Richards' interview with Paul Krugman, the 2008 Nobel prize winner in Economics, covers his views
on the size of the next stimulus package,
how high marginal tax rates should
go, and lessons from the Japanese
experience. Whether or not you agree with him, Krugman is
highly influential and his views may presage future policy decisions.
Nassim Taleb and Zvi Bodie are
among those who advocate a wealth management strategy that includes options. Despite their
evangelism, though, options are rarely a part of retirement
portfolios. The costless collar, a
straightforward options strategy, gives investors the upside of an asset
class (such as equities) while absolutely limiting the downside risk.
Over the past several months, it has
become increasingly fashionable to refer to the decline of the U.S. dollar as another financial
"crisis." Yet, given the current state of the global markets,
declaring that the dollar's recent losses amount to a "crisis" is
an overstatement, says Elisabeth Talbot in this guest contribution.
To the contrary, current conditions
surrounding the dollar are arguably supportive of - if not integral to -
economic recovery.
Everyone has a favorite movie scene, and Dan Richards' comes from his all-time
favorite movie, Lawrence of Arabia. Dan explains how the lessons from that classic movie apply to the
advisory profession.
We are again privileged to provide Ron
Surz' award-winning market commentary. Surz examines
global performance in Q4, 2009 and the prior decade.
In
this guest contribution, David Vincent and Ray Pinelli of Fred Alger
examine the correlation of traditional up-
and down-capture ratios to investment performance. They
show that combining these two measures
results in a metric with much higher correlation.
Bob Veres provides
another of his sample end-of-year letters as part of the new client service
he is introducing.
Lastly, we highlight submissions to Advisor
Market Commentaries.
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"There is a pretty good case, at very high incomes, to have something
like a tax rate in excess of 50%. We had a 70% tax rate for a good
part of the 1960s and 1970s at the top end and survived with that. We
had a 50% rate for a good part of the Reagan years, which people forget
about. I would be willing to go north of 50% but I don't know how
high."
Paul Krugman on Deficits, Taxes and
Recovery
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Risk Management through Costless Collars
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Costless
collars are created by selling call options against a security or an index,
and using the proceeds to purchase an equivalent amount of put
options. The costs of the option transactions offset one another, and
establish a maximum return and minimum loss for the asset.
Risk Management through Costless
Collars
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The Falling Dollar: Should We Worry?
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Even in these times of uncertainty, the decline of the dollar to date does
not necessarily amount to a "crisis." A gradual and orderly
decline actually could bolster the economic recovery, reduce the trade
deficit, and increase productivity.
The Falling Dollar: Should We Worry?
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A Lesson from Lawrence of Arabia
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When you run into adversity, remember the line from Lawrence of Arabia:
while all of us will suffer the occasional reverses and unkind markets, in
the long run you truly are in control of our future - just as long as you,
like Lawrence, believe that you are indeed the master of your
destiny and ultimate success.
A Lesson from Lawrence of Arabia
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Perspectives on 2009 and Beyond
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In this end-of-year commentary, Ron Surz examines the past year and the
past decade, placing them into perspective relative to the long-run history
of our stock markets. He discusses both domestic and foreign stock markets.
Perspectives on 2009 and Beyond
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Capture Ratio as a Tool to Measure Investment Performance
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These
findings make a very compelling case for the use of the Capture Ratio as
opposed to either up-capture or down-capture alone when analyzing
investments. This ratio is also very useful in comparing investments with
different absolute values for their up-capture and down-capture ratios,
since it normalizes those values putting all of the investments on a common
scale.
Capture Ratio as a Tool to Measure
Investment Performance
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Another Sample End-of-Year Letter
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Bob Veres provides another of his sample end-of-year letters as part of the
new client service he is introducing.
Another Sample End-of-Year Letter
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Highlights from Advisor Market Commentaries
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"Everyone is pre-occupied with the Fed's exit strategy this year. But
there is no such strategy because it is evident that the economy will never
be able to recover without sustained doses of government stimulus. Interest
rates are either going to be in a trading range or trend lower. We had
mentioned emphatically a month ago that the Treasury market was at
near-term risk, but looking ahead, bull flatteners in bonds are very likely
going to be the best strategy, if for any other reason that the consensus
is positioned the other way."
"Reviewing Some 2010 Macro and
Market Themes" by David Rosenberg of Gluskin Sheff
"What is likely, in my view, is that we will observe far greater
issuance of government liabilities, which will predictably create a near
doubling of the consumer price index in the coming decade (though probably
not for a few years due to credit concerns, which dampen monetary
velocity). It is notable that the massive expansion of government
liabilities beginning in the late-1960's eventually exploded into
uncontrollable inflation by the late 1970's. There are lags between the
creation of government liabilities and their inflationary effects. But to
expand these liabilities as recklessly as the Fed and Treasury are now doing
is to undermine the long-term foundations of the economy."
"Timothy Geithner Meets Vladimir
Lenin" by John Hussman of the Hussman Funds
At the start of 2000, millions of investors acted as if they believed that
the old rules of investing had been repealed, that making money had become
easy. Without knowing it, they were rushing toward a major bear market. In
this article from early that year, Paul Merriman gave investors some
unwanted advice that is just as valuable in 2010 as it was a decade
earlier.
"A New Paradigm for a New
Century" by Paul Merriman of Merriman
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