Perspectives on the Financial Storm
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Transcript of Perspectives on the Financial Storm
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P e r s p e c t iv e s o n t h e F in a n c ia l S t o rm
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HomeHomeLoansLoans
HomeHomeLoansLoans
HomeHomeLoansLoans
Securitized loans reduce investor risk
Mortgage Backed Security
It b e g a n w it h C h e a p C r e d it
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Bundled together
Sliced into Time Tranches
1 perceived as very safe
Extended loan packaging
ConsumConsumerer
LoansLoans
AutoAutoLoansLoans
HomeHomeLoansLoans
11
22
33
SubprimSubprimee
LoansLoans
Risk Grows
A Popular ProductA Great Profit Engine
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Market Excesses Emerge:
Risk UnderestimatedLax Oversight
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Companies, Banks face Capital Calls
Need for credit, liquidity, fast
Fire sale of liquid Assets – stocks,
bondsLower prices = Lower asset values pressure on levered institutions, Banks
A Vicious Selling Cycle
Investor panicMarkets crash
Economy slows , Credit bubble bursts
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Tid a l w a v e o f w o r r ie d m o n e y r u n s t o t h e s id e lin e s
Data source: Federal Reserve; Wedgewood Partners Inc.
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2 0 0 8M a r k e t P a n ic o f
5 0 0 1 0 . S & P C o m p o s it e y r a n n u a liz e d R e a l R e t u r n s
source : www. Dshort.com
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Lack of Confidence
Insolvency
No C
redit
Economic Activity
Spen
ding
Cre
dit
Gua
rant
ees
Mar
ket F
orce
s
Mar
ket F
orce
s
Federal Government Steps in to Halt the slide
Federal action seeks to restore balance and faith
12.8 Trillion Dollars
MARKET FORCES
GOVERNMENT
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F in a n c ia l C o lla p s eA v e r t e d
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The Uphill Battle to Recovery
• Banks need to de-leverage, raise more capital
• Credit markets remain frozen
• High debt defaults rates persist
• Commercial and residential real estate price declines continue
• Government debt burden 80% of GDP
• World economy weak
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M y F in a n c ia lF u t u r e
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The Anxiety Pyramid
Overwhelmed
Burdened
Paralysis
Fear
Catastrophe
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Are we at the bottom? How long will it take for my portfolio to recover
(wrong question - speculation)
How do I position my portfolio and generate the income I need for short and long term?
(right question)
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1 . R e g a in F in a n c ia l S e c u r it y
Ad d r e s s F e a r s F ir s t
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Historical Truths on Markets
Asset allocation accounts for over 90% of returns
Short term market swings are unknowable
Markets revert to the mean over the long term
Systematic disciplined investing builds wealth
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( H is t o r ic a l R e t u r n s In f la t io n)Ad ju s t e d
Source : 1802- 1998 Jeremy J. Siegel, “The shrinking equity premium”: Historical facts and future forecasts1999-2008 : Wilshire, Standard and Poors Zephyr, Federal Reserve past performance is no guarantee of future results.
: Lo n g Te rm F o c u s S t a b le S t r a t e g ic B le n d Ac r o s s A s s e t C la s s e s
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2 . A S t r a t e g ic P o r t f o lio
1 . R e g a in F in a n c ia l S e c u r it y
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Strategic Core
Bi-Annual Tactical
Dynamic Rebalanc
e
Passive &
Active
The Multi- faceted Asset Allocation Process
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Customized Diversified allocation across 14 asset classes
Strategic Core
GV Orientation-Value-International
Rigorous Back Tested Models
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Bi-Annual Tactical
12 Point Tactical Analysis
Macro Economic Factors
Market Conditions
Relative Valuation
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Active Periodic Rebalance
Dynamic Rebalance
StocksBonds
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Tax Loss Capture
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Money Manager Selection
Passive &
Active
Passive Management through ETF’s
Style Purity
Long Term Performance
Manager Investment in the Fund
Disciplined Process for Securities Selection
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Active and Continuous Due Diligence
Annual Review - 50 point Questionnaire
Quarterly Conference Calls
Personal Visits
Weekly News Search
Monthly Quantitative Reports
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2 . A S t r a t e g ic D iv e r s if ie d P o r t f o lio
1 . R e g a in F in a n c ia l S e c u r it y
3 . R is k s a n d O p p o r t u n it ie s
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Risks &
ImbalancesImbalancesImbalances
Inflation
Global
Recession
Credit Freeze
High Debt
DeflationConsumer
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Im b a la n c e s D r iv e O p p o r t u n it ie s
For illustration purposes only; it has not been determined whether any or all of these recommendations would be appropriate for client portfolios in light of clients needs and risk tolerance
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Real EstateLiquidityPremium
Low Prices,Bargains
ArtificiallyLow Interest
Rates E x p lo r e B r o a d e r O p t io n s
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QUESTIONS
DOFU 4/2009
GVFA 2009 0047