01.14.08
Posted in Uncategorized at 7:05 pm by Administrator
I read an analysis of the risk taking environment of the first part of the 21st century by the Dallas Federal Reserve Bank. One of the observations about the 2007 credit crunch is that investors underestimated key aspects of risk: default risk, interest rate risk, and risk appetite (that sometimes higher premiums are demanded for taking on risk and at other times, lower premiums are accepted, for which we’ve been in the latter). One lesson: that the ’slicing and dicing’ of risk through structured products and derivatives was more attractive in theory than in practice. This transition phase, however, of the return to more sustainable risk taking (which implies risk-reward tradeoffs), ‘poses challenges to macroeconomic growth and price stability over the short and medium terms.’
This analysis ties in perfectly with the new report just launched, “Breathing New Life into Retirement Portfolios: The Battleground of the Life Annuity.” While the Fed’s brief rightly points out the causes and resultant macro environment, the new report takes these fundamental ideas about risk taking to the individual level, and why the life annuity balances out other risks beyond market risk that a retiree faces — longevity risk or simply ordinary, sustainable, income planning.
If the market just took to newfound sobriety, there could be some occassional slips off-the-wagon while players re-adjust to the meaning of their new life, in terms of risk-return tradeoffs.
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10.29.07
Posted in Econ at 6:13 pm by Administrator
Retirement security is synonomous with risk management. In the October 20th Wall Street Journal article “SIVs Pose Risks for Money Market Funds”, another shoe dropped in the subprime mortgage/credit crunch saga. SIV securities or structured investment vehicles, which big banks were bailing out recently, were also found to be held in one of the ’safest’ of funds–the money market fund. Not all money market funds were invested in SIVs and the amount that was held would not bust a fund. But some reduction to yield could happen with some funds. A variable annuity product by one insurer held 20% of SIV debt in one of its MMFs. Other fixed income funds by a certain fund management company posted losses from betting on mortgage-backed securities, derivatives, and other “investment exotica.”
The point is, in placing bets with the money of those seeking conservative returns, those wishing to invest conservatively and not lose principal, the financial industry gets a black eye. This is the condition of markets–risk happens. It begs the question though: who do you trust? Who or what groups are the best at risk management? Take the time to become more knowledgable, seeking out reliable, transparent financial custodians. Ask questions.
Lately, there have been more roll outs of financial products that sound annuity-like offering income stream or that try to offer some guarantees similar to fixed income annuities. The product goal is to provide income throughout retirement. Look carefully at how these products are structured and whether there are downsides to their claims, and whether that downside is an acceptable risk. So, the principle would be: how do these products work, what are their investment components, and what is their downside?
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09.18.07
Posted in Econ, Politics at 5:15 pm by Administrator
Greenspan makes the circuit, being interviewed by all the top news outlets and venues. Today I listened to him speak about his book of memoirs on KERA 90.1 FM. He reiterated that Medicare is really one of the biggest problems we have in terms of public policy. His view is that more well-off beneficiaries will be paying more in the future. (He was asked what policy he would prescribe.)
The white paper has a few choice Greenspan quotes which relate to his ideas; my policy prescriptions mirror his. The program should be there for those who need it–those of middle income to lower income. Also he says the government needs to communicate its direction so that those who need to plan, may do so. So far, I’ve seen no presidential candidate make any health care proposal that includes the reality of Medicare’s prospects. Hillary goes universal again, but with a private sector twist. None of them want to tackle the Medicare problem before being elected, my guess.
As we’ve seen the forces of globalization (excess liquidity) create housing bubbles which later popped world-wide, so too less demand by foreign investors in holding Treasuries may force the hands of politicians to deal with reality (see white paper). Last week, Bernanke indicated that the current account deficit was not sustainable over the long term. I hope our goverment makes smarter moves for the whole population before events force our hands, giving more pain economy-wide than some smaller adjustments.
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09.10.07
Posted in FYI at 2:04 pm by Administrator
Context, analysis, choice data, big picture — this is really the crux of the white paper.
Uses of it: education for professionals, share in seminars or workshops, customize portions for client education, etc.
I will use this blog to post occasional commentary when the makings of a trend emerge, events or news of significance arise, or there is a proverbial ‘aha’ moment. This could be seen as my version of a software update patch for the white paper. If demand is sufficient, I’ll offer a formal update of the paper at update pricing.
The format for distributing this work is the pdf in an attractive layout with a 55-slide set (plain formatting by design) for quick reference or other uses. There are several preview pages of both WP and slides. Have a look!
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09.06.07
Posted in FYI at 2:34 pm by Administrator
“Retirement Security in the 21st Century: Considerations and Risks in Building the Infrastructure” will be available hopefully by the end of next week. It should shave considerable research time from busy professionals’ lives.
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