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Monthly Archives: August 2010
Tax Receipt Increases May Be Too Late
Harrisburg, Pa., will skip a $3.29 million payment on its general obligation refunding bonds, series D and F of 1997, according to a letter obtained by Dow Jones Newswires.
Clients and advisors have found themselves reaching for yield in this low return environment. After calculating the tax-equivalent yield, municipal bonds were some of the highest yielding investments. It is unfortunate that the trend of reaching for yield has ignored the risk associated with these investments. Municipalities do default. Governments do default.
Based upon this default, the risk premium for holding municipal debt obligations just went up. As with a previous post, it is imperative to be able to dynamically adapt your portfolio structure.
Preparing for the New Investment Paradigm
While both fundamental and technical analysis have their place at 85 Broad St, equity markets have structurally changed. No longer is the environment fit for the retail investor. Retail investors, and most asset allocators, are at distinct disadvantages.
Behavioral risk dominates most investment decisions. The investments that generate the largest returns over the next decade are likely to have some of the most volatile price swings. Do you have the tolerance for this volatility? I think not. Therefore, long term investments are not appropriate for you. But it is questionable if you have to capacity to make objective and accurate decisions on a shorter time frame. Whatever your goals are for your investments (e.g. college, retirement, etc), you must invest for both the journey and the destination.
Posted in Portfolio Strategy
Tagged behaviorial, dynamic, portfolio, risk, strategy, structuring, volatility
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The Prisoner’s Dilemma
Our economy currently has its own Prisoner’s Dilemma; one in which each individual will act rationally, but with little consideration of what is in his or her best interest.
The ends of recessions have very high correlations to increases in residential investment and personal consumption expenditures. More specifically, residential investment as it pertains to new manufacturing of homes. The amount of existing inventory—and shadow inventory—combined with the rate of increase in new home inventory between 2003 and 2007, will render the impact of new housing investment negligible in coming out of this recession. Therefore, it stands to reason, that personal consumption expenditures will need to pick up the slack. Herein lies the dilemma.
Posted in Executive Views, Portfolio Strategy
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