Skip to comments.Vanguard experts warn of economic dangers of US ‘fiscal cliff’
Posted on 05/18/2012 6:11:39 PM PDT by SteelToe
Global economic recovery will be slow and bumpy over the coming years, a senior economist from Vanguard told financial services professionals in Hamilton yesterday.
Speaking at the Vanguard 2012 Bermuda Investment Forum at the Fairmont Hamilton Princess, Roger Aligia-Diaz highlighted several headwinds facing the economy including the European sovereign debt crisis, high oil prices, a slowdown in China and the fiscal cliff facing the US at the end of this year.
Although Mr Aligia-Diaz warned his audience that his message might appear depressing, the presentation was cautiously optimistic, indicating that growth was happening and was likely to continue.
Vanguard, which manages more than $2 trillion of assets in its mutual funds, sees the most likely scenario for stocks over the next ten years as an annualised return of between six and 12 percent, the same applying to the US and emerging markets.
It sees prices remaining stable with annual inflation most likely to be in the two percent to three percent range over the next decade. This will likely be accompanied by a very low-yield bonds environment and Vanguard sees the most likely return average US bond yield as being between 1.5 percent and 2.5 percent.
In a question-and-answer session, Mr Aligia-Diaz described the seriousness of the situation facing the US at the end of this year, known as the fiscal cliff or taxmageddon, which he described as a political risk, rather than an economic one.
This refers to tax increases and spending cuts that will take place automatically at December 31, unless the US Congress acts before then, Mr Aligia-Diaz said. This would probably have to happen after the elections in November.
If nothing is done, then it will effectively mean $600 billion of austerity put into the fiscal budget. That would certainly put the US into negative territory for GDP growth in the first quarter of next year.
Most people think that the Congress will be able to extend the payroll tax breaks and the Bush tax cuts, and make fewer spending cuts. They will also have to work out a new debt ceiling deal at the same time.
Jack Brennan, chairman emeritus and senior adviser of Vanguard, then spoke of some of the lessons he had learned in his 30 years in the investment industry.
He remembered the widespread pessimism when he had first started in 1982 at the tail end of what was then the deepest recession since the Great Depression. yet it turned out to be the start of an 18-year bull market.
His experience had taught him that it was very difficult to answer the regular investors question: Is this a good time to invest?
What he had learned was that there were three basic building blocks necessary for successful investing. First, an appreciation that costs matter, that even a small difference in fund fees can make a huge difference to wealth accumulation in the long term.
Secondly, the value of diversification. The thing about diversification is that its guaranteed to disappoint, because some assets will not perform, Mr Brennan said. But there was solid evidence that over time, diversification paid off. This was easier to achieve in these days of exchange-traded funds (ETFs) that followed multiple indices, he added.
Thirdly, he said it was important to be able to define the intended duration of the investment. Defining long term was very challenging and could make a significant difference to returns. For example over the past ten years stocks have returned about 5.5 percent compounded, he said. But over the past 30 years, there was an 11 percent return.
Other key elements included avoiding bad ideas and investment fads, remembering that conservatism wins, understanding risk, paying attention only to your own personal benchmark and trust of the people you invest with.
Mr Brennan also had some encouraging words for Bermuda, when he touched on the importance of regulation.
You have a great business environment in Bermuda, because youve got the regulation right, he said. Bermuda could be a role model for getting regulation right. If you dont get regulation right, then people lose confidence in the market and they dont invest, and growth slows because markets drive growth.
Where have these guys been? They are warning us of something that is too late to fix, and is obvious to anyone with a brain.
What is the cost of living in Bermuda for retirement? I like some semblance of fiscal sanity.
We are facing a new round of rape, pillage and born for most people except the elites. Everybody else is "Addicted to Hopium"
. . . "It took more than a year to learn that GDP actually shrank by 1.3% during the first quarter of the 2001 recession. But back then it was initially reported as having grown at 2.0%. That's not very different from the latest reading for GDP growth in the first quarter of 2012 - 2.2%. In August 2008, just before the Lehman collapse, GDP was reported to have risen in the first and second quarters with the latter revised up sharply, triggering over a 200-point rally in the Dow that day. Today we know that GDP actually shrank in the first quarter while the second has been revised down by two full percentage points."
For investors, I should note that by the time people said "Huh, something happened" 6 months into recessions in 2001 and 2008, the market had already lost about 20-25% in both cases, was entering free fall, and the best opportunity to reduce risk was long gone.
While there's no doubt that Feldstein, Achuthan, and I all differ in the specifics of our approach to economic analysis, it should be clear that we all look at many of the same measures too. Why? Because they are the measures that effectively define recession. Also, notice Achuthan's phrase "in the context of a slowdown." This is important, because he recognizes that you don't infer recession risk just from one indicator, but rather from the overall syndrome of evidence (which is why words like "jointly" and "uniformity" appear so frequently in our analysis, and why we try to use multiple sensors whenever noise-reduction or signal-extraction is required).
Suffice it to say that our recession concerns remain intact, as do our separate concerns about extreme stock market risk. . . .
As noted above, our estimate of the prospective return/risk profile in stocks, based on a range of horizons from 2 weeks to 18 months, could hardly be more negative. In general, similar instances have been followed by market losses of 20-25% or more over a fairly short period. The outcome may not be as negative as we expect in this specific instance, and there is no universal law of physics that requires the market to adhere to these norms, but we have little basis to expect market risk to be appropriately rewarded here. Strategic Growth and Strategic International remain tightly hedged. Strategic Dividend Value is hedged at about 50% of the value of its holdings - its most hedged position. Strategic Total Return continues to carry a duration of about 2.8 years, with just under 14% of assets in precious metals shares, and a few percent of assets in utilities and non-euro foreign currencies.
Don’t know about Bermuda. I haven’t heard them mentioned as a good place to retire. I’ve heard New Zealand, Australia, Panama, Phillipines, Ireland...
Switzerland is expensive.
It's just too obvious to any body with half a brain. Just like the housing bubble was to predict back in 2004. Our alleged leaders are just very greedy profiteers dressed like the innocent sheep they plan to slaughter by the millions.
What’s his solution? It’s easy to criticize the current system. Not so easy to fix it.
Which is the reason the Central Committee has selected Mandate-Bomney from Massachusetts.
The GOP Phony is the Strong-man, the same DEM Phony, is the Carrot tactic. All part of the Federal-Fascist Central Committee.
Watch the baromenters: Real prices are fighting hard against the 15 trillion Federalites. Oil thus is quadruple what it should be, while stocks such as CAT price falls.
Preparing here for fascist PhonyCare-Labor Camp attempt, automatic Federal withdrawls from accounts such as 401Ks, VAT, and/or their go to war sable-rattling.
Which is the reason the Central Committee has selected Mandate-Bombney from Massachusetts.
The GOP Phony is the Strong-man, the same DEM Phony, is the Carrot tactic. All part of the Federal-Fascist Central Committee.
Watch the barometers: Real prices are fighting hard against the 15 trillion Federalites. Oil thus is quadruple what it should be, while stocks such as CAT price falls.
Preparing for fascist PhonyCare-Labor Camp attempt, automatic Federal withdrawals from accounts such as 401Ks, VAT, and/or their go to war sable-rattling.
There is no easy solution. Chaos and class warfare are coming. With open borders, whites will be a minority class very soon. Hispanics with bilingual language skills will rule the middle. I fear there is a very frightening future ahead for all of us who post on FR including savings and 401(k) confiscations to benefit our criminal political class. For the rest of us there may only lifetime work at dismal wages or perhaps retirement in camp fema if you speak out too loudly. Beginning perhaps as soon as 2013 or sooner if 0 gets his way . . . .
But all freepers must know this info -- but then I have known it myself for nearly six months now. People do not care anymore because this depressing stuff might cause them to lose sleep and to miss favorite t.v. programs and today people only want to get high at night and watch "Dancing With The Stars." Meanwhile, both our political parties are fake and only follow a secret agenda dictated by the CFR
It's all a joke, right ___ ? LOL !
My first thought: Someone is paying to be told this?
Saw some guesstimates today. Some are thinking it may be $31 billion. Whatever it is, it is not 2B.
bookmark for later read
Bookmark to read tomorrow.
European bank runs have started already — we are probably toast
Other news events below the radar
Smelly Brown stuff is about to hit the fan
He fails to mention that in 1982 we didn't have the enormous UNPAYABLE debt that we have now.
New World Order Agenda
Host: George Knapp
Guests: Jim Marrs
New World Order Agenda:
On Sunday night's program, George Knapp was joined by investigative journalist, Jim Marrs, who appeared for the full four hours and discussed his research into the elite's agenda for enslaving the human race. He dismissed concerns over being derisively labeled a "conspiracy theorist," because, in hindsight, "it turns out that everything, generally, that I have presented has always proved to be true." On a grand scale, Marrs contended that "off the shelf" technology exists to feed, house, and medically treat everyone on the planet, but it is not put to use because, "somewhere, somebody wants it that way." This purposeful neglect, he said, is "the biggest proof not only of conspiracy but the biggest conspiracy going on right now."
"We're talking about a very, very small handful of people connected to bloodline families that go all the way back through history," he said about the powerful global elite, lamenting that "these people think they have the right to run the world." In light of that belief, Marrs observed that their leadership has led to widespread debt, "unending warfare," an emerging police state, and a myriad of other problems facing the human race. He claimed that the increasing amount of polarization amongst the population is orchestrated to "divide and conquer" the human race and prevent people from uniting against the overarching agenda at work against them. "If we'd simply wise up and start banding together," he suggested, "then I really do believe that we can overcome this scourge that has been put upon us." Ultimately, Marrs warned that rampant pollution, the proliferation of pharmaceutical drugs, and tinkering with the food supply are all part of a larger agenda aimed at reducing the world's population. "They want us dead," he declared, "this isn't about which political system works best, this is about self defense and survival." On why the powerful elite would want to cull the human race, Marrs theorized that there may, in fact, be a connection to the UFO phenomenon, which appears to stretch as far back in human history as the bloodlines of these power brokers.
The Trillion-Dollar Conspiracy
The Terror Conspiracy: Deception, 9/11 and the Loss of Liberty
Rule by Secrecy