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May 16

Bob Baur's Photo

Das Ist Gut, oder Eher, Das Ist Nicht Sehr Schlecht – Economic Improvement from Germany

Growth is good. So, even at a revised 0.1%, German GDP growth could still be considered good. Sure, it wasn’t as much as economists had forecasted, but growth still beats recession – especially, after several months where the economic malaise in the Eurozone threatened to turn into a Teutonic Plague as well. The actual German output data has been much better than the dreary business surveys. Manufacturing orders (up more than twice what was forecast), industrial production (up 1.2% versus expectations of -0.1%), trade (surplus of€18.8 billion), and consumption all looked strong as the first quarter ended. Read more

May 16

Ryan Schutty

Assume nothing, ask everything.

For a while now, I’ve helped advisors and financial professionals develop their “story,” or their value proposition, and then helped them incorporate it into a marketing plan and their everyday practice. It’s a privilege listening to someone’s story and I really enjoy doing it – absorbing a heap of information, understanding the challenges, and then creating a plan that addresses their challenges and takes their story to the next level. But as much as I enjoy the process, a couple of years ago I learned an important lesson about getting too comfortable.

I know what I’m doing – listen, learn, create, repeat.PQ11372A

I had gotten to the point that I felt like I’d done so many advisor and financial professional consultations, that I was in a groove – listen, learn, create, repeat. I assumed I could simply listen for a few key words, review some of their existing material and slap a plan together.

One day, I dialed into a call with an advisor and shared what I considered a great plan. His response? “This isn’t what I was looking for at all.”

But you know what they say about assuming… Read more

May 16

White, Derek_web

From the Desk of Risk: Demand for Downside Protection Falls off a Cliff

Equities are at an all-time high and the demand for protection of downside risk has collapsed.

The Credit Suisse Fear Barometer (CSFB) is a measure of the protection that can be purchased through 3-month put options by selling 10% out-of-the-money (OTM) 3-month call options.  For example, if put options and call options were equally priced for equivalent levels of money-ness, then the proceeds from selling a 10% OTM call could be used to purchase a 10% OTM put.  As the demand for hedging downside risk increases, the cost of the puts will increase relative to the calls.  When this happens, the proceeds from selling a 10% OTM call may only be able to purchase further OTM put options (e.g. 20% OTM).

What we have seen with the CSFB index for most of this year has been a relatively extreme demand for downside protection.  As a case-in-point, the CSFB hit an all-time high of 35.24on March 26, 2013.  What this meant is that – at that date – selling a 10% OTM would only be able to finance a put that was 35.24% below the current SPX level!  In fact, during 2013, this index has averaged 31.05 when its long-term historical average has been 17.47.

But we have witnessed a notable break during the past two weeks. Read more

May 14

Scott Ruba-1C (2)

Coming to Your Emotional Rescue

I know what you’re thinking. First Kenny Rogers and now the Rolling Stones? Why does this guy keep quoting 1980s songs and relating them to defined benefit (DB) plans?  HZ1370

Well, there were two things I did during my summer nights as a teenager growing up in the ’80s that left a lifelong impact on me – listening to music and dreaming about DB plans. Didn’t we all? More on this later….

Anyway, in my last post, I introduced the idea of dynamic asset allocation (DAA) as a DB plan risk management strategy. This strategy works particularly well with hard frozen DB plans.

Read more

May 13

jerry ripperger's picture

The Top 10 of ESOPs

Let’s face it, Americans love top 10 lists.  David Letterman includes one in every episode of the show, and if you Google top 10 lists you will find an array of results that range from the predictable to the just plain strange.

HZ1427A recent search result included:

  • 10 absurd trademark claims
  • 10 video game characters with real-life prototypes
  • 10 competitive eating achievements NOT to be tried at home

I recently put together a top 10 list (of sorts) for Employee Stock Ownership Plans (ESOPs). It outlines in ten steps the activities that need to be completed to put a plan in place.

The ten steps are:

(1)        Engage your ESOP consultant

(2)        Conduct an ESOP feasibility analysis

Read more

May 10

Mark Cernicky

Engineering the Volatility Out of the Market

What’s one of the most noticeable consequences of the Fed’s third round of quantitative easing (i.e. QE3)? It’s the stark drop in fixed income volatility. Look at the chart below, which demonstrates this point for the investment grade credit market. The blue line is the rolling 21-day realized total-return volatility for a Barclays Global Investment Grade Credit Index.  The red line is Thursday, September 13, 2012 – the day the Fed announced QE3. As the blue line crosses the red one, you can see marked drops in the level and range of volatility.

Vol Chart Read more

May 10

kevin hansen's photo

Chained CPI – We’re Talking Real Dollars

Social Security recipients on fixed budgets count on their monthly benefits. But a proposed change tossed around in Washington D.C. budget discussions could leave them counting on less to meet their future needs. At issue is the way the cost-of-living adjustment (COLA) is calculated when determining Social Security benefit increases. Read more

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