Monthly Archives: October 2011

Market Overview and Insights 3rd Quarter 2011

Third Quarter 2011 Market Overview Video:

Looking back at the third quarter of 2011, global equities saw significant declines as the pace of economic growth continued to slow. Fixed-income investments had mixed results, with investment-grade bonds outperforming more aggressive issues.

To keep you abreast of current market conditions, we invite you to view SEI’s “Third Quarter 2011 Market Overview and Insights” video. This brief video will provide you a synopsis around what’s happening in the markets, the impact to SEI’s strategies, and SEI’s outlook and positioning.

As the fourth quarter begins, investors continue to fear a return to recession while economic indicators suggest tepid growth as the more likely outcome. Compass and SEI maintains its outlook for a slow-growth economy marked by ongoing volatility. Compass and SEI will continue to monitor the markets and manage its investment strategies accordingly.

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What to do about Greece…

It’s another excellent  case of a “picture is worth a thousand words”.

The decision tree above prepared by Stratfor Global Intelligence depicts that whichever actions Germany takes, three things are all but inevitable: an Italian bailout, a European banking crisis, and a Greek default. Any one outcome will likely trigger the other two.

This may look like a “damned if I do, damned if I don’t” type of situation, but how Berlin handles the crisis could be the difference between a weakened euro and nonexistent euro.

Stay tuned.

Driving into Second Gear a video presentation
Click on This  link to bring you to a short 7 minute presentation (prepared courtesy of SEI Investments) to advise you on the economic recovery so far in 2011 and some of our reasons for optimism and reasons for caution.  
It is part of our series about the economic recovery of 2011 and will review some of our current thinking about employment, the housing market and bumps in the road prevent economy from reaching full speed. As the title suggests it may feel like we’re driving into second gear.

The golden rule in investing is to change your investment strategy when your circumstances or goals change – not when the market changes. So here’s what we advise.

Follow the Three “Rs.”

Review your financial goals – they may have changed given the extraordinary events of the last four years.

Re-examine your investment strategy – if your goals have changed, your investment strategy will likely need to change also. Further, many investors have discovered they aren’t as risk tolerant as they thought they were. We can help you with that.

And finally, remain invested. Many investors headed for the sidelines in 2008 and missed the run-up in 2009. The chart on the right shows the consequences of missing the market’s best months between 1980 and 2010. The markets can surprise us, rebounding one or two percent in a day or seven percent in a week. You don’t want to be sitting in cash when that happens.

A Closer Look at China

Emperor Napoleon Bonaparte, said “Un bon croquis vaut mieux qu’un long discours,” or “A good sketch is better than a long speech”. This is sometimes translated today as “A picture is worth a thousand words” . So True. I’ve been reading for years about the explosive growth in China but this picture of Shanghai from 1990 to 2010 (courtesy of American Funds) show’s me so much better. Click on the picture to enlarge

SEI’s Invetment Management Unit has prepared a commentary called a “Closer Look At China” the complete version of which can be viewed by clicking here.

The summary of their view is:
Over the longer-term, we believe that China will still be able to maintain an impressive rate of economic growth given its still-significant opportunities for economic, geographic and human capital development. The U.S. was similarly situated in the nineteenth century and experienced its share of excessive or misdirected investment. But an economy with significant upside potential, such as the U.S. then and China now, should be able to eventually grow into and overcome earlier periods of capital misallocation.

However, in the nearer term, the Chinese government‟s tightening measures look capable of inflicting further harm on China‟s economy, given the backdrop of debt-fueled speculation. This should have the intended effect of lowering inflation for Chinese households, but as today‟s investors know all too well, financial crises can have lasting effects on economic performance, including household incomes. Crafting effective policy responses to the fallout from a financial crisis can be very challenging. Whether a financial crisis is imminent in China remains to be seen, but it‟s a risk that investors should at least be aware of.

Emotional Decision Making Can Be Hazardous to Your Wealth

James Solloway, CFA, Managing Director, Senior Portfolio Manager at SEI has authored a Quarterly Economic Outlook titled: Blood in the Streets: Time to Buy” which can be read in full by clicking thru on the link. A summary of its conclusions is provided below:

 During the third quarter of 2011, equity markets tumbled sharply, daily market volatility spiked and economic news went from bad to worse. However, we think the stage has been set for an improvement in equities and other risk-oriented investments over the next 12 months, most likely starting before year-end.

 We believe a recession is unlikely, as the main drivers of economic downturns—housing, business investment and durables consumption—are still at depressed levels that could hardly go lower.

 In SEI’s view, the U.S. Federal Reserve has done its job by successfully preventing a slide into a Japanese-like deflation and taking the steps needed to prevent a collapse of the banking system.

 Trends in the U.S. financial system have been going in the right direction. The markets nevertheless remain in turmoil because no one knows if the U.S. is sufficiently protected against a European disaster.

 We believe the European debt crisis will continue to roil markets until necessary tools are in place to handle the systemic risk arising from a material deterioration in Italian and Spanish bond prices.

 Although the near term is admittedly fraught with uncertainty, we find ourselves becoming more optimistic about the longer-term outlook for riskier assets.

 SEI favors stocks over bonds, as equities are expected to benefit from continued earnings growth and exceptionally low valuations.

 We prefer U.S. large-cap equity over European and Japanese stocks. The U.S. enjoys stronger structural growth, better demographics and the privilege of having the world’s reserve currency.

 We favor high-yield bonds over Treasurys and investment-grade debt, as high-yield bonds appear priced for a recession that we do not think will materialize.

 SEI remains neutral to emerging-market debt and equity. Emerging-market debt would be negatively affected by an increase in bond yields, while emerging-market equity valuations relative to developed markets are somewhat expensive.

Click here for: A full-length paper is available if you wish to learn more about this timely topic.

Emotional Decision Making Can Be Hazardous to Your WealthTo be a successful investor, you have to keep your eye on an appropriate time horizon, craft an asset allocation strategy that is tailored to your personal needs and tolerance for risk, and stay committed to it through thick and thin. In normal market conditions, that’s not hard to do. But in both raging bull and snarling bear markets, remaining committed to a long-term plan takes significant skill, as our hard-wired emotional tendencies make us reluctant to sell or pare back on winning investments and buy or add to losing ones. In other words, it’s very unnatural to buy low and sell high; to do so takes plenty of courage and self-control, but it’s the key to successful long-term investing.
Follow this link for the full commentary by  SEI’s Investment Management Unit