BeManaged November Newsletter – The European Debacle Continues
The European Debacle Continues
“It’s tough to make predictions, especially about the future” – Mark Twain
The European saga continues! In the final weeks of October, the European Union constructed a bailout package to save Greece from almost certain default. Markets around the world cheered the news as a sign of hope for the debt crisis in Europe.
Unfortunately, jubilation was short lived as Greece’s acceptance of the measure was in jeopardy the following week with Greek Prime Minister George Papandreou calling for a referendum. The markets, of course, reacted poorly to the news.
The important thing to understand is the uncertainty surrounding this situation. We cannot accurately predict the outcome of the debt crisis in Europe any more than we can predict the weather for next spring. Additional countries in the EU are poised to follow in the footsteps of Greece. Among those are the much larger economies of Italy and Spain.
Defense is the only offense moving forward. It’s likely the direction of these events will continue to change in the coming months. With new developments occurring daily, the best course of action is to sit and wait it out.
CEO Confidence 3rd Quarter 2011
A dismal confidence reading from top brass
The CEO Confidence indicator supplied by The Conference Board has fallen below 50 for the first time in two years. Confidence levels below 50 indicate a greater number of pessimistic views as opposed to those who are optimistic on future demand potential. The measure now stands at 42, down from 55 in the second quarter of 2011.
CEO optimism regarding short term economic conditions has fallen significantly in quarter three with respect to quarter two. In the previous reporting period, 43 percent of CEO’s polled felt economic conditions would improve in the following 6 months. In quarter three, that measure has fallen to just 19 percent. Additionally, expectations for their own industries were down sharply with only 22 percent expecting the business climate to improve in the coming months, down from 44 percent in the previous quarter.
The implications for these numbers speak highly to future economic conditions. Consumer and CEO confidence are often seen as leading indicators for economic growth prospects. Confidence levels influence both spending and capital investment behavior within corporations. With decreasing confidence we should not expect meaningful increases in payroll or capital investments moving forward.
Health Savings Account: A guide to liability investing – The Layer Strategy
A Healthcare Savings Account (HSA) acts very much like a hybrid between your normal everyday checking account and a long term retirement savings account. As such, your HSA account should be treated like both a retirement investment account (IRA, 401K) and a checking account from which you draw cash to pay for medical expenses. Because of this dual nature, money placed under the HSA umbrella must be allocated to the appropriate investment vehicles (bonds, stocks and cash) and in the appropriate allocation amounts.
Layer Strategy Explained: The “layer” strategy is intended to layer your account with differing levels of risk using vehicles representative of differing risk levels.
Layer one: Because you will be drawing upon this account to pay for medical expenditures, it is important to maintain a layer of easily accessible cash equal to your yearly deductible plus any additional expenses you may incur. In order to do this, you want to place money into a cash account or a cash equivalent account. Vehicles appropriate for this would be bond funds with limited duration* or money market funds.
Layer two: The funds invested in layer two under the HSA umbrella will be used for purposes different to those of layer one. Because these funds will not be drawn upon for medical expenses, the funds can be put to work earning you a small return on your investment. However, accurately predicting medical expenses for the coming years is nearly impossible. Due to these circumstances we must maintain an appropriate level of security when choosing these investment vehicles as this money may need to be accessed in the event of exorbitant medical expenses. Vehicles exhibiting the proper risk levels include bond funds with longer durations along with some equity investments.
Layer three: In layer three, we can make the assumption you have already appropriately cushioned yourself against excess medical expenses and have some left over funds available for a more aggressive investing strategy. This money can be put to work in longer term bond funds and domestic equity funds to capture the risk return rewards available in the market.
* Duration is a statistical measure which typically attempts to estimate the potential sensitivity of a fixed income portfolio to changes in interest rates.
