Tag Archives: Markets

Bill Quinn Chairman of American Beacon, Lunch and Interesting Points

Posted on October 29, 2009 by | Comments Off

QuinnYesterday, I had the opportunity to share in a lunch event with Bill Quinn, who is Chairman of American Beacon advisors and manages approximately $38 Billion.

At the American Airlines Flight museum yesterday for lunch, I had the opportunity to visit with, and listen to Bill Quinn, an icon of investment management, especially in the Dallas Texas area.

Bill had a few interesting comments worth noting.

Concerning Defined Benefit Plans (Pensions), he had the following comments.

  • Pensions are a good thing for employees (We agree, as pensions provide a base foundation of income for retired employees)
  • Pensions have been the unfortunate whipping boy of FASB and the PBGC as both have tightened controls making pensions less attractive for companies.
  • Lower interest rates and flat capital markets have attributed to underfunding; Current average pensions are 79% funded, or underfunded by 21%
  • Most pensions allocate their funds approximately 60% Equity/40% Fixed Income and other
  • Companies are leaving pension plans due to the earnings effects pensions cause, sometimes helping and other times hurting
  • (A major theme of his discussion was that pensions are good, but individuals will be more likely to have to save and invest on their own in the future)

Concerning Defined Contribution Plans (401k’s and the likes):

  • About 1/3 contribute to a good or full level
  • About 1/3 contribute, but negligibly
  • About 1/3 do not contribute
  • Savings rates are way too low into Defined Contribution Plans
  • Investors make the wrong decisions, buying high and selling low, on average, (buying the best investment over the last 12 months)
  • Timing the markets does not work as investors, are often irrational at the incorrect time

In closing, I am very lucky to have the opportunity to interface with many long time investment professionals, most through my affiliation with the CFA organization, and even happier to share highlights of conversations with you.

Have a good day!

JK

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Markets taking a Breather-Finally

Posted on October 28, 2009 by | Comments Off

As we enter the half way point of earnings season, the markets have taken a more negative tone.

As the headlines will most likely read, the “Insert Favorite Index” is now down “X” days in a row. And certainly this is true, but given that earnings numbers are coming in, for the most part, pretty good, it is very possible we are finally taking a much-needed breather.

Looking ahead to the end of the week, we will hit an end of the month period lending some pressure from the usual end of month, Let the “Mark Ups” Begin and we still have folks who may have missed the entire move, see related post , I Missed It! I Missed It!.

Businesses are, again for the most part, saying things are getting better, and while anything can happen, a breather might be just what we need.

Have a good day!

JK

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U.S. Dollar, Down and Out, or Not to Worry? (Part One of A Series)

Posted on October 19, 2009 by | Comments Off

With many of the questions much of the headlines are posing along with questions we are receiving from investors, we felt it timely to post a multipart series on the US dollar.

In order to keep this simple, it can get complex very quickly, we are going to focus on the main reasons for currency movement, in our opinion.

Currency fluctuations, in our opinion, are the result of interest rates.  Interest rates are not the only determinate, but, in our opinion, interest rates drive the majority of the currency movement.

Interest rates, compared to other world interest rates, are one of the main drivers for currency fluctuation. (The carry trade, a topic for another discussion, creates much of the currency movement, again, in our opinion.)

Ok, so assuming you agree with the interest rate discussion, let’s compare the goals of two monetary governing bodies, EU and US.

From the Bank of England’s Website, it’s two core purposes: http://www.bankofengland.co.uk/about/corepurposes/index.htm 

“Core Purposes – Monetary Stability: Price stability and monetary policy

The first objective of any central bank is to safeguard the value of the currency in terms of what it will purchase at home and in terms of other currencies. Monetary policy is directed to achieving this objective and to providing a framework for non-inflationary economic growth. As in most other developed countries, monetary policy operates in the UK mainly through influencing the price of money, in other words the interest rate.

The Bank’s price stability objective is made explicit in the present monetary policy framework. It has two main elements: an annual inflation target set each year by the Government and a commitment to an open and accountable policy-making regime.  

Setting monetary policy – deciding on the level of short-term interest rates necessary to meet the Government’s inflation target – is the responsibility of the Bank. In May 1997 the Government gave the Bank operational independence to set monetary policy by deciding the short-term level of interest rates to meet the Government’s stated inflation target – currently 2%

Core Purposes – Financial Stability

The Bank of England has played a key role in maintaining the stability of the United Kingdom’s financial system for 300 years and it is now a core function of most central banks. A sound and stable financial system is important in its own right and vital to the efficient conduct of monetary policy.

Since 1997, the Bank of England has had responsibility for the stability of the financial system as a whole, while the Financial Services Authority (FSA) supervises individual banks and other financial organisations including recognised financial exchanges such as the London Stock Exchange.” 

 Now, from the U.S. FOMC website:  http://www.federalreserve.gov/pf/pf.htm

“The Federal Reserve sets the nation’s monetary policy to promote the objectives of maximum employment, stable prices, and moderate long-term interest rates.”
 

 As you can see there are a distinct difference in policy from the two governments, leading to dramatically different interest rate decisions.

Greater interest rate discussion in next part of the series.

JK

 

 

  

 

 

 

 

  

 

 

 

 

 

  

 

 

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Posted in Interest Rates, Investing/Financial Planning, Market Comments

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