Market Update Call - US Bank...CHart #5 Surprising outcome: S&P Downgrades United States and...
Transcript of Market Update Call - US Bank...CHart #5 Surprising outcome: S&P Downgrades United States and...
Please refer to important disclosures on page 4. Page 1
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Debt (gross)Publicly held debt
Debt as % of GDP
100%
80%
60%
40%
20%
0%
BUSH TAX CUTS OBAMA STIMULUS PLAN FORECAST
RevenueSpending
35%
30%
25%
20%
15%
Reve
nue &
Spe
nding
as %
of G
DP
CHart #1 Federal Government Budget: Unsustainable
Source: The Economist (December 15, 2012); Office of Management and Budget, Congressional Budget
Michael MalakoFFManaging Director, Wealth Planning Ascent Private Capital Management of U.S. Bank
TiMoThy J. leach Chief Investment Officer U.S. Bank Wealth Management
• ConclusionsontheAct,signedintolawonJanuary3,2013:
− TheActreducedordelayedthemajorityoffiscalrisksthattheUnitedStatesfacedonDecember31,2012
− KeyaspectsoftheActincludeordinaryincometaxratesraisedforhighincomeearners,theretentionofthe$5millionEstateTaxexemption,fixingtheAlternativeMinimumTax(AMT)structure,andexpirationofthepayrolltaxholiday
• ThefiscalimpactsoftheAct:
− Comparedtolong-termaverageratiosofU.S.governmentrevenueandspending,theUnitedStateshasbeenreceivingapproximately2%lessrevenuethannormalandhasbeenspendingalmost5%morethannormal,whichhelpsexplainthelargebudgetdeficitsexperiencedinthepastfewyears
− TheActtakesastepinaddressingthissituationbyincreasinggovernmentrevenues;however,bynotaddressingspendingcuts,westillfacethemandatedsequestercuts,whichhavebeendelayeduntilMarch1bytheAct
• Economicimpactin2013:
− Whatwe’veanticipatedtobethepotentialimpactsfromtheActhavealreadybeenbuiltintoour2013forecasts
− Growthinthefirsthalfof2013willlikelyslow,butweshouldavoidrecession
− Growthinthesecondhalfof2013shouldpickuptobeover2%annually
• Marketimpact:
− Thestockmarketexperiencedashortreliefrally(afewdaysinlength)becauseoftheAct
− AsweenterthenextroundofnegotiationsinWashingtoninvolvingthedebtceilingandspendingcuts,thestockmarketislikelytopullbackandinvestorsmayseeklowerriskinvestments,likehigh-qualitybonds
our Views: The Fiscal cliff and american Taxpayer Relief act of 2012 (the act)
Market Update Call January 10, 2013
Please refer to important disclosures on page 4. Page 2
MarketUpdateCallJanuary 10, 2013
CHart #3 Bumping Up against the Debt ceiling
Oct 42012
Nov 42012
U.S. Debt Subject to Limit
Dec 42012
Jan 42013
Billio
ns
$16,450
$16,290
$16,130
$15,970
$15,810
$15,650
Limit
Source: Bureau of Public Debt
CHart #2 Government Spending: Where it Goes
OtherOther
Entitlements
Net InterestNet Interest
Defense
1972 1980 1985 1990 1995 2000 2005 2011
% o
f GDP
25%
20%
15%
10%
5%
0%
Source: The Economist (December 15, 2012); Office of Management and Budget
Please refer to important disclosures on page 4. Page 3
MarketUpdateCallJanuary 10, 2013
CHart #5 Surprising outcome: S&P Downgrades United States and interest Rates Fell
S&P Downgrades U.S. Debt Outlook
to Negative
S&P Downgrades U.S. Debt Rating
Jan2011
10-Y
ear U
.S. T
reas
ury Y
ield
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%Apr2011
Jul2011
Oct2011
Dec2011
Source: ISI Group
CHart #4 Stocks Fell From a close encounter With the ceiling last Time
S&P Downgrades U.S. Debt Outlook
to Negative
S&P Downgrades U.S. Debt Rating
Jan2011
1400
1350
1300
1250
1200
1150
1100
1050Apr2011
S&P
500 I
ndex
Lev
el
Jul2011
Oct2011
Dec2011
8%Gain
20%Decline
Source: ISI Group
MarketUpdateCallJanuary 10, 2013
Page 4
These views were presented on January 10, 2013 and are subject to change at any time based upon market or other conditions. This information represents the opinion of U.S. Bank Wealth Management and does not constitute investment advice and is issued without regard to specific investment objectives or the financial situation of any particular individual. Since economic and market conditions change frequently, there can be no assurance that the trends described will continue or that the forecasts will come to pass. The information presented is for discussion purposes only and is not intended to serve as a recommendation or solicitation for the purchase or sale of any type of security. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not responsible for and does not guarantee the products, services or performance of third party providers. U.S. Bank and its representatives do not provide tax or legal advice. Each individual’s tax and financial situation is unique. Individuals should consult their tax and/or legal advisor for advice and information concerning their particular situation.
Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for investment. The S&P 500 Index is an unmanaged, capitalization-weighted index of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible difference in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Investment in debt securities typically decrease in value when interest rates rise. The risk is usually greater for longer term debt securities. Investments in lower rated and non rated securities present a greater risk of loss to principal and interest than higher rated securities. Investments in high-yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. Treasury inflation-protected securities (TIPS) offer a lower return compared to other similar investments and the principal value may increase or decrease with the rate of inflation. Gains in principal are taxable in that year, even though not paid out until maturity. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors. Hedge funds are speculative and involve a substantially more complicated set of risk factors than traditional investments in stocks or bonds, including the risks of using derivatives, leverage and short sales, which can magnify potential losses or gains. Restrictions exist on the ability to redeem units in a hedge fund. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Potential investors should remember that investments in private equity are illiquid by nature and typically represent a long-term binding commitment. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties, such as rental defaults.
© 2013 U.S. Bancorp
EquitiesOverweight
Fixed IncomeUnderweight
CommoditiesNeutral
Real EstateNeutral
Current Investment Strategy – Balanced Portfolio
U.S. Equities: UnderweightDeveloped Foreign: UnderweightEmerging Foreign: OverweightPrivate Equity: NeutralHedged Equity: Overweight
Investment Grade/Corporates: NeutralMunicipal Bonds: UnderweightHigh Yield: NeutralInflation-Protected Securities: NeutralForeign Debt: NeutralHedged Fixed Income: Overweight
U.S. Listed: NeutralForeign Listed: NeutralDirect: Neutral
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes may be suitable for every portfolio. Hedged investment strategies are typically available via hedge funds which may not be appropriate for all clients due to the speculative nature and high degree of risk involved in these investments.
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If you have questions regarding this information, please contact your Wealth Management Advisor.