Market Perspectives

Postro Wealth Giving – Wealth Of Character Is About Giving Back

Everyday we instill in ourselves that we are privileged in our lives and profession to create opportunities for our clients which provide positive impact for them and their families. This core belief extends to our value that wealth of character is about giving back to communities and causes that improve lives and empower people that create positive impact in return.

As we do on a regular basis throughout the year, Postro Wealth Management Group was humbled and honored to support the VGH & UBC Hospital Foundation and B.C.’s most specialized health care professionals. It was a fabulous evening at the Night of a Thousand Stars Gala signature fundraising event which brought out the spirit of giving and generosity in earnest. Tonight’s event honoured the many dedicated men and women who’s dedication, passion and true self-spirit provide meaningful impact to the people they touch. A special focus was brought to the efforts that will be required of these individuals during the 2010 Olympic & Paralympic Winter Games. They will be on call for the world, for athletes and others from the Olympic family who will need life-saving care and treatment. As the Foundation says “They represent the gold standard that people from across B.C. rely on” and we are proud to give and support them.

This event has raised $1.7 million over the years for the “in it for life” Fund which helps fund the very best in medical equipment, research and patient care.

Postro Wealth is sincerely humbled and honored to do our part in supporting the VGH & UBC Hospital Foundation and we extend our sincere thanks to our clients for their support and we look forward to becoming further involved in our giving and support of the Foundation next year.

U.S. Recovery – Data Pointing to Weakness

The recovery is here, however U.S. economic data this week displayed further evidence and fanned concerns that despite the best efforts of the massive U.S. government stimulus programs, the consumer has not kicked the economic flu and is not coming back with a thunderous roar, but rather with a thump and a limp.

Housing starts and building permits
Housing starts were forecast at 600,000 units (annualized) in October, but instead they come in at 10.6% MoM to 529,000 units, these figures are in fact the worst decline since the height of the crisis last January; the October level is the lowest since April 2009.

Both single-family (-6.8% MoM) and multi-family (-34.6% MoM) starts were lower, however we should note this was before the announcement of the extension and expansion of the U.S. government tax credits for first-time and now trade-up buyers. However this data provides key insights into the true state of the house market without government support and should be noted.

Mortgage Applications
U.S. Mortgage applications came out for the November 13th week and were on the weaker side in-spite of the newly announced expansion of the U.S government stimulus, which was announced at the end of October. Applications were down 2.5%, applications for new purchases slid 4.7% in addition to the previous weeks 11.7% decline.

U.S Consumer Price Index (CPI)
The U.S. consumer price index came slightly above consensus at +0.28%; the core was very mild, at +0.18%. Even with the weaker U.S. dollar, the “core goods” segment of the CPI was up just 0.4% MoM and core services, which accounts for most of the index, was barely +0.1% MoM for the fourth time in the past four months.

U.S. GDP
Q3 real GDP number for the U.S. is expected to be revised downward to 2.5% from 3.5% annualized, which many analysts agree would translate to negative growth without government programs supporting.

Q4 GDP, with restocking in the automotive sector is likely to underpin growth. Forecasts are for a 3.5% on headline GDP.

Dallas Federal Reserve Bank President Fisher hinted this week that the Q3 real GDP print will be taken down from 3.5% at an annual rate to 2.5%. The Philadelphia Fed survey of professional forecasters shows that 41 economists revised down their 2010 Q1 GDP forecasts to 2.3% from 2.5% and for next year’s 2010 Q2 GDP to 2.4% from 2.8%.

2009 CFA Institute European Investment Conference – Day 3: The Global Crisis, a long road to real recovery

Many people ask “What happened and why didn’t we see it coming?” said a charismatic Martin Wolf as he delivered the opening remarks of his closing key note address at this year’s conference. Wolf is the Associate Editor and Chief Economics Commentary of one the world’s most respected financial publications, the Financial Times.

So what did happen? As we here at Postro Wealth have stated to our readers, it was many aspects that correlated together from the market, the economy and the financial sector which lead to overall complacency. Without revisiting the details a few key issues come about:

-Cheap, easy money
-Massive leverage, both personal and corporate, especially bank leverage
-Low real and nominal interest rates
-Declining credit spreads
-Declining volatility
-Global Imbalances
-Lack of proper due diligence and risk management – a key example before the downturn over 64,000 CDO products were rated AAA! How many corporate bonds get that honour?

So what did all of the points above lead to? Simply put, too much risk taking. And as times seemed to keep getting better and better, more risk taking and leverage occurred, when we look back now it boggles the mind.

The factors above began to seriously exacerbate imbalances within the economy. With rising interest rates consumers saw their mortgages payments rise and were faced with overall increased credit liabilities; thus as debt servicing took a great chunk of disposable income, consumption, a key driver of growth, started to slow and quickly. You can already see how the correlation of consumer demand, consumption and increasing debt come to a head in the global economy.

In Europe it was the emerging states such Hungry and Romania that borrowed from their more wealthy big brothers – Germany, France, United Kingdom etc.

This cheap liquidity come with a very high price for both as we now know. As asset bubbles popped, panic set-in, from households to the corporate sector, everyone saw the need to deleverage. It was the perfect storm. Consumer demand collapsed, industrial demand collapsed and the need for government intervention and deficits become the only viable solution.

As Dr. Wolf explained Europe will need to focus what he calls “the re-balancing of economies” to allow Europe’s post-bubble economies to recover in order to reduce fiscal deficits. Seems like we’re taking about fiscal deficits a lot doesn’t it? This re-balancing will be dealt a serious challenge as the Euro is now posing a serious challenge to the recovery as a whole in the Euro Zone.

But despite the challenges ahead for Europe and the global economy, Dr. Wolf believes that those European and OECD economies that steered clear from the leverage binge, unlike Spain, United Kingdom and the U.S., will emerge from this downturn quicker and will have fewer issues as they exit and wind down fiscal and monetary stimulus programs.

As he closed, Dr. Wolf made one interesting observation, the only time government fiscal debt as a percentage of GDP has been at current levels has been during wartime.

Many in the audience agreed that during the last 18 months we have experienced unprecedented events that lead world governments to fight a war of excessive leverage, risk-taking, consumer and corporate greed. The hope now is that victory is close at hand – in the form of a sustainable economic recovery and growth.

2009 CFA Institute European Investment Conference – Day 2: The Inflation Risks

There are bulls and there are bears, and then are those pitch a tent in both camps for very different reasons. Today in Frankfurt we heard from Dr. Marc Faber , a true contrarian of the current global economy.

Faber, who is was educated in Switzerland and currently lives in Asia, is the editor of the Gloom, Doom and Boom Report. Faber is convinced that inflation in the U.S and other OECD developed economies will materialize as a result of unprecedented measures taken by Western governments in the wake of the global crisis. Indeed the massive expansionary monetary policies of the U.S., UK and other various EU OECD governments, while preventing a deeper and more protracted downturn, has in its wake left large fiscal deficits which will need to be addressed next year.

It is also hard to argue that that the last global economic bull run was mainly a result of U.S and other developed economies spending beyond their means, where both the consumer and private sector increased leverage and debt soared, asset prices increased in value to unsustainable bubble levels while the U.S. dollar depreciated.

As consumers increased their debt liabilities, by borrowing against their home equity to fund their “Hollywood” lifestyles, without the private jet, they now face the reality of re-paying their debts and putting their fiscal house in order.

As Dr. Faber believes, the West will have to work very hard to fix its bad habit of spending beyond its means. The question is then how will inflation occur? As central banks provide cheap liquidity through artificially low interest rates and governments expand their balance sheets with stimulus spending, the U.S Fed for example will have a total credit market debt to GPD of 375% in 2010, this will cause the economy to bounce back in due course and reflation in asset prices and wealth appreciation. As the growth accelerates so too will inflation and the need for tightening monetary policy. Simply put, cheap liquidity has once come to the rescue and the a new credit cycle has been born, the question is how sustainable will it be this time around?

One might assume Dr. Farber is a pessimist at heart but he is a bull in his own right. So which part of the world is he bullish on? Asia. And to no ones surprise, China in particular. In fact today it is China and other emerging economies that are fueling global growth.

There is no question of the fundamental shifts occurring geo-politically , these are forever re-shaping the sphere of global economic influence and it will be both a challenge and an opportunity for investors in the coming years.

Over the next few articles Postro Wealth will provide our readers various insights and strategies on how to take advantage not only of the continued emergence of China and other emerging economies but how to best seize opportunity during an inflationary environment, continued weakness in the U.S dollar and the geo-political shits occurring today.