Investing
A Good Week For The Keynesians: A Day After Lawrence Summers Tells Congress To Boost Deficit Spending, IMF Report Says Greek Crisis Was Worsened By IMF’s Austerity Measures
Thursday, June 06, 2013 10:36

Tags: economy

 

A day Lawrence Summers, a top economic advisor to two presidents, warned Congress against economic austerity in the U.S., the IMF said in a report that it had underestimated the “multiplier effect” of cutting government spending on the Greek economy, exacerbating the Greek financial crisis.

This Website Is For Financial Professionals Only


 
“The (IMF) report said that the fund miscalculated the so-called multiplier, or the effect that adding or subtracting a dollar of government spending would have on the broader economy during the downturn,” according to The New York Times. “It underestimated the scale of what has proved to be a devastating Greek depression, fueled in part by sharp government spending cuts and tax increases.”
 
A day earlier, Summers, a former Secretary of the Treasury in the Clinton Administration and head of the National Economic Council for President Barack Obama until November 2010, offered testimony before Congress against cutting government deficit spending in the U.S.
 
Borrowing to support spending, either by the government or the private sector, raises demand and therefore increases output and employment above the level they otherwise would have reached. Unlike in normal times, these gains will not be offset by reduced private spending because there is substantial excess capacity in the economy, and cannot easily be achieved via monetary policies because base interest rates have already been reduced to zero. Multiplier effects operate far more strongly during financial crisis economic downturns than in other times.
 
It would not be desirable to undertake further measures to rapidly reduce deficits in the short run. Excessively rapid fiscal consolidation in an economy that is still constrained by lack of demand, and where space for monetary policy action is limited, risks slowing economic expansion at best and halting recovery at worst. Indeed, there is no compelling macroeconomic case for the deficit reduction now being achieved through sequestration, as the adverse impacts of spending cuts on GDP more or less offset their direct impacts in reducing debt.
 
Attention should be devoted to measures that reduce future deficits by pulling expenditures forward to the present when they have the additional benefit of increasing demand. It is important to recognize that just as increasing debt burdens future generations, so also does a failure to repair decaying infrastructure, or to invest adequately in funding pensions, or in educating the next generation burdens future generations. Wherever it is possible to reduce future public obligations by spending money today, we should take advantage of this opportunity especially given the very low level of interest rates. In particular, a major effort to upgrade the nation’s infrastructure has the potential to spur economic growth, raise future productive capacity and reduce future deficits. It should be a high priority.

 

 

Read more...
Could Japan's Long Struggling Economy Finally Be Pulling Out Of Its 25-Year Malaise?
Tuesday, May 21, 2013 08:28

Japan has been running a monetary experiment--shock therapy for its ailing economy. It's highly controversial. While it's similar to the liquidity injected into the Ameircan economy by the Federal Reserve since the financial crisis, the amount of liquidity being injected into Japan's economy is much, much greater. What's interesting is that it is working.

This Website Is For Financial Professionals Only


Japan’s $5 trillion economy grew at a robust annualized pace of 3.5% in the first quarter. "The stock market has soared more than 60%over the past year, and the yen has lost more than a quarter of its value, lifting corporate earnings in a country that is dependent on exports," says The New York Times.  

 

Read more...
Budget Office Cuts Estimate Of Nation’s 2013 Deficit By 24%
Tuesday, May 14, 2013 16:33

The nonpartisan Congressional Budget Office has slashed its projections of the current-year fiscal deficit because of bigger-than-expected tax receipts and payments from Fannie Mae and Freddie Mac.

 

This Website Is For Financial Professionals Only


 

According to The New York Times, in a periodic update to its projections, CBO on Tuesday estimated that the deficit for the current fiscal year, which ends on Sept. 30, would be about $642 billion, or 4% of economic output. Just three months ago, it projected that the current-year deficit would be $845 billion, or about 5.3% of economic output.

 

 

Read more...
ERISA Attorneys Confirm That Fiduciaries Must Vet Target Date Fund Selections
Friday, May 10, 2013 14:48

In a detailed new analysis, two ERISA attorneys make the case that fiduciaries are “responsible for the prudent selection and monitoring of” target date funds (TDFs) within defined contribution plans.

This Website Is For Financial Professionals Only


 
Safe harbor provisions for Qualified Default Investment Alternatives (QDIAs) do not relieve fiduciaries of their obligation to vet TDFs, according to this in-depth analysis by attorneys Bernard T. King and Michael R. Daum of Blitman & King, published by Bloomberg Law.
 
Fiduciaries generally believe they are protected from litigation by two safe harbors in their selection of TDFs: Properly structured TDFs are Qualified Default Investment Alternatives (QDIAs) under the Pension Protection Act of 2006, and as long as they choose among the most popular TDF providers they should be OK.
 
However, relying on these two factors can lead to breaches of fiduciary duty that will bring lawsuits after the next economic downturn, as I explained last year in this article about the Safe Harbor minefield.
 
The U.S. Department of Labor released a guide for fiduciaries concerning TDFs in February that agreed with my analysis, and now two prominent ERISA attorneys have done the same. Here is a summary passage from the Bloomberg Law article:
 
“Regardless of whether the plan fiduciaries responsible for setting the plan’s investment lineup comply with Section 404(c)(5), or whether the mutual fund platform provider would qualify as a fiduciary, the responsible fiduciaries must understand the underlying details about the TDFs they are selecting as the plan’s QDIA. Although the fiduciaries can receive some protection from the QDIA safe harbor, they remain responsible for the prudent selection and monitoring of the TDF. Thus, at a minimum, the responsible fiduciaries should understand the TDF’s glide path, fees, and underlying assumptions. Then, having a general idea about the projected actions and attributes of the plan’s participants and beneficiaries, the fiduciaries should confirm that these characteristics are appropriate for the plan participants.”
 

For more guidance on selecting TDFs, see my Fiduciary Guide.

 

Read more...
Looking For Love In All The Right Places: Using Heat Maps To Generate Alpha Signals
Wednesday, May 01, 2013 15:00

Tags: investing | investor behavior | stocks | style classification

Momentum investing works, and it works best in an opportunity-rich environment. You just need to know where to look.

This Website Is For Financial Professionals Only


 

A just-published report in Reuters Hedgeworld, which I happened to have authored, demonstrates the power of using heat maps that incorporate sector, style, and country to generate alpha. The report provides heat maps for investors that have proven effective.

 

The standard disclaimer, “past performance is not an indicator of future results” might not be true, if momentum investing works. Studies have shown that investing in yesterday’s winners can indeed generate alpha over time. Investor behavior is the probable cause of momentum, believing we can buy past performance.

 

Heat maps are good visuals for finding yesterday’s winners and losers. A heat map shows shades of green for “good,” which in this case is good performance, and shades of red for “bad,” indicating underperformance. Yellow is neutral. The idea is to focus on the dark greens and dark reds for clues on momentum and reversals. The opposite approach to momentum is “regression to the mean,” which seeks reversals – winners switch to losers and vice versa.

 

Presented below are charts showing back-tested performance results using a very simple rule. “High” takes the three winners in the previous 12 months and invests equally in them for the next quarter. “Low” takes the three worst performers. Results are for the 9.25 years ending March 31, 2013.

 

Foreign

 

 

 

United States

 

 

 

Read more...
<< Start < Prev 1 2 3 4 5 6 7 8 9 10 Next > End >>

Page 10 of 490

Login

Banner
Banner
Banner
Banner

Comments

Banner
Banner
Banner
Banner
Banner

Reviews

Banner