After a year of unprecedented volatility, investors were surprised to learn that the S&P 500 finished up 2.1% (including dividends) and the Barclays Cap Aggregate Government Credit Bond Index finished up 8.75%. Though a 2.1% return seems modest, investors should be relieved as almost all the other world indexes finished the year in negative territory (the MSCI World Index was down -9.41%). In hindsight, it was a year where political strategists rather than economists might have had more success forecasting markets, and where returns were awarded to those taking the least amount of risk.
Much of the volatility in 2011 can be tied to economic uncertainty caused by the ongoing, and unmatched, global deleveraging. Since this “leverage bubble” was created over the last 30 years, the rapid global deleveraging process sadly makes economic hardship unavoidable. In addition, the impact of this deleveraging has been exacerbated by the lack of credibility in government leadership (and policies), the tragic tsunami in Japan, the Arab spring, and the slowing Chinese economy. It is this uncertainty and fear that has driven behavioral change, including muted consumer spending, underinvestment by corporations, and, most clearly, the lack of willingness by investors to take any risk.
Whether it is retirement planning, funding future education for children or grandchildren, or the possibility of helping a family member financially down the road, most people have at least one question mark in their minds in regard to their financial goals.
We believe there can be great benefits in developing a formal financial plan. In fact, just the exercise of identifying personal goals can lead to greater peace of mind. Creating a plan for the future and a framework for measuring success that will continue to be relevant as personal circumstances evolve can increase the probability of achieving those goals. After all, if you cannot name the ambition, how will you know if you have succeeded or, more importantly, if you have drifted from the intended path? Defining an individual’s objectives, along with the perceived challenges in getting there, will flesh out the issues and will help separate the ‘wants’ from the ‘must haves’.
Supporting worthy non-profit organizations has always been an important part of Crestwood Advisors’ culture and value system. One such organization, Family Service of Greater Boston (FSGB), focuses on improving the lives of Boston’s most vulnerable children, youth and families.
As the oldest social service agency in Boston, FSGB seeks to break the cycle of intergenerational family disadvantage. The agency promotes the self-sufficiency and well-being of at-risk children, youth and families by providing innovative, culturally competent and integrated social services to ensure academic, life and community success. Some of their programs include Strong StartTM, an early intervention/prevention program that promotes healthy early childhood development in disadvantaged children; YouthAim!TM, a leadership program the educates high school age youth about factors placing them at risk for harm; and the Family Independence Teen Living ProgramTM, which provides group home living for teen mothers and their children who are unable to live with their families due to abuse, neglect or other extenuating circumstances.
To learn more about these programs, and others offered at FSGB, please visit http://www.fsgb.org.
Given the ongoing global challenges, numerous impediments to economic growth, and a long-term deleveraging process, why do we continue to favor stocks for long term investors? The answer is that history has demonstrated (regardless of the economic backdrop) that well run businesses, with sustainable above average returns on capital, purchased at attractive valuations, deliver solid returns to shareholders over time. The next several months or quarters will likely continue to be volatile, but we are confident about the long term prospects of the stocks we own.
Over the past several weeks, stock markets around the world have been volatile and are generally trading lower. Here in the U.S., while the S&P 500 remains in positive territory year-to-date, this broad stock market benchmark is off 9% from its highs in March. Much of the current investment market volatility is being driven by events in Europe. Elections in Greece, France and Germany were the catalyst to the recent downturn. Greece can no longer achieve consensus, so they are going to have another public election in June. In France, Nicolas Sarkozy has been thrown out and Francois Hollande has been elected, a Socialist with anti-austerity views. In Germany, Prime Minister Angela Merkel has lost a considerable advantage in Parliament and pressure is rising to ease strains within the EU. All of these political shifts can be attributed to the social turmoil resulting from the slow growth and high unemployment that is a derivative of the ongoing deleveraging and the austerity policies. Continue reading →
Forty-two percent . This is the percentage of large cap fund managers that beat the S&P 500 return of 1% over the past five years. Assembling a portfolio of assets to succeed in a challenging environment has proven difficult. With many more challenges on the horizon – European debt, fiscal deficits, political gridlock, a potential housing bubble in China and the prospect for war in Iran, Korea, etc. – piecing together a portfolio that offers positive absolute returns, and limited downside, is tough. While there are several risks ahead, we have been busy putting together a roster of asset classes and securities that should offer a balance of solid long term returns and downside protection.
Twenty-one percent . If you are a general manager in the National Football League (NFL), this is the chance that a player you draft will be starting for your team five years from now. There are 214 players drafted into the NFL every year, and the majority of those players will not have a positive impact on their team. So how does an NFL general manager draft well, and succeed, in what is a low return (21% success rate) environment? Some answers can be found in the drafting of Tom Brady by the Patriots in 2000 NFL Draft.
Investors are no doubt weary of hearing about all of the geo-political and economic risks in the world. The last five years have been exhausting, filled with unprecedented volatility, global turmoil and uncertainty. Unfortunately, the world is unlikely to simplify anytime soon.
Israel and Iran continue to edge closer to conflict, the European debt crisis remains unresolved, China’s growth is slowing and near zero US interest rates are punishing savers as the Fed has pulled out all of the stops in an attempt to restart the economy. In the US, we are facing a transformative election ahead of a self-imposed fiscal cliff that could subtract, by some estimates, as much as 5% from U.S. GDP growth under the worst case scenario.
Regardless of what your personal political leanings are, most can probably agree that compromise will be the key to avoiding the negative drag that higher taxes and sequestration could cause. We can also agree that compromise might be a bridge too far for most politicians these days. While the scale of the economic drag these spending cuts and tax increases will cause is uncertain, investors should expect to see headwinds to economic growth in 2013.
World headlines continue to be mostly negative and rotate between the crisis in Europe, the economic slowdown in China, the ongoing unrest in the Middle East, and the upcoming U.S. election and “fiscal cliff”. In addition, the recent declines in retail sales and slowing in manufacturing and business spending has heightened fears of a double dip recession. As the U.S. experiences the slowest recovery from a recession in the last 70 years, it is not surprising that investors have little confidence in investment markets.
With all of the focus on what can go wrong, it is hard to see the pockets of strength. Importantly, we have now had six months of improving housing market data and declining gasoline prices which have been helpful to household budgets. Though this data is not enough to offset a slowing economy, we would not be surprised to see some short-term rallies as investor sentiment is very pessimistic (which is often a good contrarian indicator) and the Federal Reserve is hinting at another round of quantitative easing.
John W. Morris was featured on Fox Business News, where he provided our opinion about the potential impact on the markets if there is a third round of Quantitative Easing (QE3), and sectors that we find currently attractive.
Hurricane Sandy is bearing down on much of the east coast and is expected to make landfall along the coast of New Jersey and New York City within hours. Many major cities and local communities along the path of the storm have preemptively cancelled schools and transportation services, encouraging citizens to stay home and off the roads. For the first time in 27 years, the New York Stock Exchange was closed today as a result of weather and both stock and bond markets will remain closed through Tuesday.
Here in Massachusetts, yesterday, Governor Patrick requested that schools and businesses close today and, with the safety of our team in mind, we took the precautionary action to close our offices Monday. We do have the capability to work remotely and all of us are available to you as both emails and phones calls are forwarded directly to our smart phones. We will decide later this evening whether we’ll open our offices tomorrow depending on the impact of the storm this evening. Importantly, all of our systems and technology is backed up remotely and we do not have any concerns should the greater Boston area be impacted by any extended loss of power.
We hope that those of you in the direct line of the hurricane remain safe and are spared any meaningful impact from the storm. Please let us know if you have any questions and, despite the investment markets being closed today and tomorrow, please do not hesitate to reach out to us if we can be helpful to you over the next couple of days.