4/5/2012	Investment Perspective - The Global Debt Crisis Well, the Eurozone Crisis has calmed down – sort of. After almost two years in the making, Greece finally defaulted on its debt in February. Italy is back from the brink, and Ireland is living with new austerity limits. After the European Central Bank flooded the market with over €1 trillion in low interest loans, interest rates throughout the Eurozone have retreated sharply reflecting the improvement in investor sentiment. However, all we’ve really done is stabilize the patient on the operating table by infusing more debt (in the form of liquidity) into the financial system. The bleeding has stopped temporarily; but, the Eurozone still faces major challenges. Now, we need to see a coordinated plan to reduce the debt levels and instill sustained economic growth over time. This requires both austerity and prosperity and will only happen when there is fiscal unity in Europe.
3/1/2012	Investment Perspective - The Global Debt Crisis We still believe that the austerity measures of Europe, which are designed to curb spending, will help to shrink the debt burden over the next three to five years. However, it comes at a great price – slow economic growth. Furthermore, until the European banking system is recapitalized, which includes shrinking the balance sheets relative to the existing capital levels, Europe will not experience sustained economic growth. Ultimately, we expect Europe will be a drag on the global economy over the near term.
2/11/2012	The Case for Ultra-Short Fixed Income Strategies With the dramatic decline in interest rates, fixed income investors are faced with lower expected returns which may not keep pace with the rate of inflation. This article discusses the current investment environment for fixed income, and describes the benefits of using Winthrop Capital Management’s Ultra Short fixed income strategy, in conjunction with other broad market strategies, to reduce risk and maintain the weighted average yield of the fixed income portion of the portfolio.
11/16/2011	Investment Perspective - Understanding the Global Debt Crisis Europe is center stage in the current chapter of the global debt crisis and is facing its biggest challenge since World War II. With an agreement to write Greek debt down 50%, and the country taking its sixth installment of a bailout, Prime Minister Papandreou has stepped down. Shockingly, now we find that Italy has too much debt and, in order to fix their fiscal problems, their Leader Silvio Berlusconi should step down as well. Truly, there is nothing that we have learned today, that we didn’t already know yesterday and frankly we didn’t know at the beginning of this year related to the European debt crisis. Europe has too much debt. The United States has too much debt. We are living with the consequences of years of global excess consumption that will ultimately require austerity which will lower the standard of living in developed countries. This article attempts to provide a context to develop investment strategies and help navigate these volatile markets.
10/11/2011	Investment Perspective - Financial Regulatory Reform is Being Diluted As we move into earnings season, we believe the two key drivers to financial market direction today are the problems in Europe and their inability to deal with Greece’s debt burden and the outlook for the U.S. economy. Soon, investor attention will turn to next year’s election campaign and what that means for entitlement programs, debt reduction, spending, and tax policy. However, a quiet cancer creeping through the capital markets is the disconnected process of financial regulatory reform. The combined effects of inadequate regulation of the financial industry will likely perpetuate many of the inadequacies that lead to the Financial Crisis, and ultimately may lead to further severe capital market turmoil.
9/22/2011	Investment Perspective - The Fed Extends its Purchase Program Yesterday, the Federal Reserve announced its newest initiative to spur economic growth by investing a portion of its massive portfolio in US Treasury securities with maturities between six and thirty years. Up until this point the Federal Reserve has initiated two asset purchase programs since 2009 totaling $2.4 trillion. Each program was designed to lower short term interest rates in order to stimulate economic growth in an environment clouded by health care reform, financial regulatory reform and partisan infighting in Congress. On the heels of the downgrade of the credit rating of the US Treasury debt to AA+, interest rates are at the lowest levels in history. Now, the Fed is stepping in to further manipulate the capital markets in an effort to lower long term interest rates even further, and flatten the yield curve to further stimulate economic growth.
8/25/2011	Investment Perspective We expected the economy to decelerate in the second half of the year and it has. Remember, the goal after the devastation of the Financial Crisis in 2009 was to get the economy back to sustainable economic growth. As the stimulus from the Financial Crisis wore off in 2010, we pointed out that the structural problems imbedded in the economy and capital markets, including a huge debt burden, the lack of credit expansion, high unemployment and uncertainty in new healthcare laws were an impediment to sustained growth.
8/8/2011	The Downgrade of the United States Standard & Poor’s downgraded the credit rating of the United States from AAA to AA+ after Congress was unable to make substantial spending cuts when it passed a bill to raise the debt ceiling to $14 trillion. Since the first rating service was established in 1909, this is the first time that the United States was ever downgraded from its AAA rating. In this article we discuss the impact of the downgrade on the financial markets. However, this is not about the downgrade of the credit rating of the United States; this is about the ongoing systemic deterioration in the credit quality of this country.
8/2/2011	Investment Strategy and The Global Debt Crisis - Part 2 It took the United States government nearly 200 years for the total federal debt to reach $4 trillion. It only took 13 years (from to 1992 to 2005) for our total federal debt to double from $4 trillion to $8 trillion. And, it only took six more years for our total federal debt to reach $14 trillion. The developed world is in the throes of a global debt crisis which we expect will have severe ramifications for our country and its citizens.
7/6/2011	Principles of Investing - Security Selection Security Selection is the process by which an investor chooses the individual securities, mutual funds, exchange traded funds, derivatives, and other assets to include in a portfolio once the asset allocation is established. In making the decision of which securities to invest in a portfolio, an investor should consider the risk, the potential return, the liquidity, and other factors that affect the other securities and the portfolio as a whole.
5/31/2011	Principles of Investing - Asset Allocation Our goal in this series of articles is to put investment management in the context of today’s capital markets. A disciplined, well structured investment program includes five steps: identify the investment objectives, establish an asset allocation, build the portfolio through security selection, rebalance the portfolio and manage the overall risk. This article focuses on the role of asset allocation in the investment program and specifically the need to measure the underlying value of the markets considered for investment.
4/22/2011	Principles of Investing - Investment Objectives Every well managed investment program is built on the foundation of a thoughtful investment policy statement. An investment policy is intended to convey what the portfolio is attempting to achieve as well as the risks that are willing to be assumed in the portfolio. Yet, an investment policy statement is worthless if it is not followed. Often, too short term of a focus or unrealistic return and risk assumptions can lead to inconsistent investment strategies and an investment program that lacks the appropriate focus.
12/20/2010	The Price of Risk Today The capital markets are simply a means to price risk, and it is up to the investor to measure the price of risk and determine if it is being fairly priced. While expectations for a sustained economic recovery are becoming the consensus for 2011, we believe the key driver to the performance of financial assets over the near term is the continued extent of the Federal Reserve’s asset purchase programs.
12/15/2010	The Top Ten Capital Market Events of 2010 Much has happened over the past year in the capital markets, the economy and political scene; and, in many regards, they have become so intertwined that it is difficult to separate. To be clear, we are still healing from the Financial Crisis of 2008 and the resulting recession. The economy is growing slowly and job growth is dismal. In the absence of a clear direction from Congress and the White House, the Federal Reserve has implemented an aggressive approach toward monetary policy which now includes over $1.7 trillion in asset purchases. All in an effort to lower interest rates and stimulate economic growth. Yet, there remain structural problems that continue to impede economic growth and the capital markets.
10/26/2010	The Case for Ultra-Short Fixed Income As long as the economy is on the edge of slow growth, inflation is below 1.5% and the banking system is replenishing its capital, we believe the Federal Reserve will keep short-term interest rates low. In the language of the Fed, we expect that we will remain at these low levels of interest rates for “an extended period.” However, we believe the economy is showing real growth and that the risk to the bond market is actually a spike in interest rates, resulting in negative total returns for investors. One strategy to enhance investment returns in this environment is the Ultra-Short Fixed Income portfolio.
9/23/2010	Basel III Impact on US Banks As a result of the Financial Crisis of 2008, the global banking system is in the process of implementing a series of regulatory proposals for higher minimum regulatory capital standards under what is known as Basel III. Financial regulatory reform is a complex process which requires coordination between international bank regulators in order to maintain a consistent and stable financial system to support international finance activities. The recently passed Dodd-Frank Act addressed regulatory reform of US banks and included new rules and regulations for the financial services industry. The Basel III rules are in addition to the reforms required by Dodd-Frank and provide an international standard for capital requirements.
8/12/2010	The Challenge of Structural Unemployment In a dynamic economy where information is imperfect and people are free to choose among jobs some unemployment is inevitable. However, sustained high rates of unemployment generally reflect weak demand conditions for labor, ineffective public policy, and/or a lack of incentive on the part of employers to increase the number of jobs. We believe that all of these symptoms currently exist in today's economic environment.
6/28/2010	Financial Regulatory Reform The rules establishing the regulatory oversight for the U.S. financial system were put in place after the market crash of 1929 and were designed to protect investors and the financial system. Yet, over the past two decades, the growth in the complexity of securities, financial transactions and financial firms has far outpaced both domestic regulatory and supervisory capabilities.
6/14/2010	Roth IRA Conversion Should you be converting your current IRA into a Roth IRA? This article addresses the advantages and tax implications of a Roth conversion. Roth IRAs were previously restricted to those below a certain income level, but for 2010 those restrictions have been lifted. Is a Roth IRA right for your particular situation?
4/30/2010	Investment Strategy and the Global Debt Crisis While Dubai was in the headlines for its excessive debt levels and restructuring challenges late last year, Greece has dominated the headlines in 2010. The Eurozone’s inability to deal quickly and decisively with Greece’s growing excessive debt and lack of fiscal discipline underscores the problem of how the euro is structured as a currency.
2/2/2010	Financial Market Reform 2010 The Group of 30, which is chaired by Paul Volcker, recently published their recommendations for changes in regulation and supervision of the global financial markets. This article discusses our comments on the report in regards to the size of our capital markets, the structure of our financial system, and financial regulation.
10/5/2009	Implications of the Fed’s Exit Strategy This article discusses the current steps the Federal Reserve is taking to reduce its support of the capital markets. In the process, we summarize many of the more significant programs and discuss the potential for the Fed’s use of reverse repurchase agreements to drain liquidity from the financial system. Finally, we explore the risks of inflation and the consequences of the Fed leaving the huge stimulus initiative in the financial system too long.
9/14/2009	Portfolio Management and the History of Risk Investment managers, fiduciaries, and clients need to re-examine asset allocation and risk measurement in order to better execute a process of effective risk management of their portfolios. This article is the first in a series which are intended to place the concept of investment risk in its appropriate historical context and then to propose alternatives to current accepted risk measures which have recently been demonstrated to be insufficient.
9/11/2009	The Break Down of Modern Portfolio Theory Modern Portfolio Theory (MPT) was clearly an important step in the management of a portfolio of assets with readily available prices. Markowitz’s theory, which is predicated on several assumptions, posits that an investor will theoretically be able to maximize his expected return while minimizing the variability of returns by investing in a diversified portfolio of assets that have different price movements in a given market. Most importantly, for the first time, portfolio “risk” could be summarized into a number that could then be measured and tracked.
9/10/2009	Fixed Income Investment Strategy So far this quarter, we’ve experienced a moderate decline in interest rates and a contraction in spreads across all the risk sectors including investment grade corporate bonds, mortgage backed securities, asset backed securities and municipal bonds. As a result, overall yields in the fixed income market are within sight of their pre-2008 financial crisis levels. The performance across all fixed income sectors has been strong. As examples, the year-to-date returns of the Barclays MBS index and the Barclays U.S. Credit Index though August was 4.45% and 12.90% respectively.
8/12/2009	Valuation of the Equity Market This article discusses the current valuation of the U.S. equity market and what level of returns we think can be expected in the long term. As the S&P500 sits at 986 today, we think the valuation of the equity market is generous, and not supported by current corporate fundamentals. However, an immense amount of government sponsored liquidity is in the market as well as on the sidelines. Of the many factors affecting the valuation of equities, we believe that rising interest rates, GDP growth, and the increasing money supply will have the greatest impact on returns in the coming decade. With all three of these variables working against the investor, we think the increasing money supply will win out. This will be the catalyst to a rising stock market until the Federal Reserve has no choice but to increase interest rates.
8/10/2009	The Fed's Exit Strategy and Risk of Inflation Over the past 18 months, the Fed has taken a much larger role in our capital markets and moved well beyond manipulating short term interest rates in order to effect a change in the potential for economic growth and price stability. The list of initiatives by the Fed has been long and encompassing. Since early 2008, the Fed has helped to merge Bear Stearns with JP Morgan Chase, set up no less than 14 capital market assistance programs designed to pump liquidity into the capital markets, helped merge Merrill Lynch and Bank of America, and assisted in the conversion of Morgan Stanley, Goldman Sachs and American Express into bank holding companies.
5/28/2009	Implications for the Credit Rating of the US Government This past month Standard & Poor’s threatened to downgrade UK’s AAA rating, putting the country on negative outlook for the first time ever. While S&P’s action came as a surprise to the market, the fiscal and economic deterioration facing the country is obviously pretty bleak. Will the United States Lose its AAA Rating? The short answer is: Probably not, at least in the near term. The economy of the United States is much broader than that of the UK However, the circumstances that currently face the US are strikingly similar to the UK...
3/27/2009	US Treasury Announces Plans for Regulatory Reform The system and agencies that are responsible for the oversight and regulation of the U.S. financial system were largely put in place as part of the New Deal in the 1930s. It is a patchwork system that, over the years, has had little meaningful updating in light of the growth in complexity of different securities and our capital markets.
2/26/2009	The Role of the Federal Reserve in Today's Capital Markets - Part 2 In May of 2008, we published an article entitled The Role of the Federal Reserve in Today’s Capital Markets. The premise of the article was that, given the Fed’s role of contributing to the long‐run growth of the economy by maintaining price stability and full employment...
10/29/2008	Equity Returns in Range-Bound Markets There are two sources of total return from common stocks: income and capital appreciation. Dividend income is a simple concept: established companies determine that the best use of some of their cash flow is to return it to the shareholders...
10/5/2008	The Impact of the Financial Rescue Bill Congress Passes $700 Billion Emergency Economic Stabilization Act. This is not the magic wand that makes all the problems go away. The U.S. financial system is under significant stress as a result of large investments in illiquid mortgage related assets and deteriorating capital levels....
9/22/2008	Government Steps in to Stabilize Financial Markets The U.S. Treasury is seeking authority from Congress to purchase up to $700 billion in troubled mortgage assets...
5/1/2008	The Role of the Federal Reserve in Today's Capital Markets The Federal Reserve was established in 1913 as the U.S. government’s central bank. The Federal Reserve, known by its short name – the Fed, does basically three things...
3/31/2008	Foreign Currency Investing A Penny Sold [Short] is a Penny Earned? Professional investors are always on the lookout for new ways to either increase a portfolio’s returns without adding risk, or to maintain the level of risk while enhancing expected return...
2/25/2008	The Trouble in the Auction Rate Preferred Securities Market What is an Auction Rate Preferred Security? An Auction Rate Preferred (ARP) security is a hybrid security. Like a preferred stock, ARP securities pay a dividend....