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Kevin M. Wilson, ChFC, PhD President/CEO/CIO

Monthly Market Review “What Happens When The Fed Changes Its Policy?” (An Evaluation of Risk and Reward) June 20, 2013. Kevin M. Wilson, ChFC, PhD President/CEO/CIO. Dheenu Sivalingam, MBA AVP/CCO/Senior Analyst. Ted A. Pavlovich, WMS VP Wealth Management. Office: 218-464-4399

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Kevin M. Wilson, ChFC, PhD President/CEO/CIO

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  1. Monthly Market Review • “What Happens When The Fed Changes Its Policy?” • (An Evaluation of Risk and Reward) June 20, 2013 Kevin M. Wilson, ChFC, PhD President/CEO/CIO Dheenu Sivalingam, MBA AVP/CCO/Senior Analyst Ted A. Pavlovich, WMS VP Wealth Management Office: 218-464-4399 Toll Free: 877-327-5062 Fax: 218-464-4397 Email: info@bluewater-cap.com www.bluewatercapitaladvisors.com 1405 Medical Arts Building 324 W. Superior Street Duluth, MN 55802 1

  2. IntroductionTed a. pavlovich 2

  3. The fed has driven historical asset bubbles and their collapsesTed a. pavlovich 3

  4. Bubbles All Look Like The Eiffel Tower 4

  5. Negative Real Rates (Imposed by Fed) Caused Bubbles

  6. Sequential Bubble-Blowing Punishes Investors

  7. Fed’s QE “Bubble” (Stocks/Bonds) May Be Deflating Now

  8. Two Possible Scenarios for global stocksDheenu v. sivalingam 8

  9. Two Possible Scenarios For Global Stocks • MSCI Emerging Markets Index has tumbled 9.3 percent in 2013 after delivering 11 percent annualized returns over the past 10 years. • BRIC nations-Brazil, Russia, India and China-has sagged 11.7 percent following a 10-year track record of 13 percent gains. 9

  10. Bear Market Indicator Flashing Red in U.S. 10

  11. Currency War May Change Many Things

  12. Muddle-Through (Japanese) Scenario Is Also Possible

  13. Who Will Be The Winners?

  14. Navigating the end-phases of asset bubbles KEVIN M. WILSON 14

  15. Bubbles Have Been Caused By Fed Setting Effective Rates Too Low For Too Long

  16. QE’s Effectiveness Was Waning Anyway

  17. Strategic Normalization of Interest Rates Will Happen

  18. Notice That Stocks Can Rally As Yields Rise

  19. Real Interest Rates-10 Yr. Solving the prudent investor’s dilemma KEVIN M. WILSON 19

  20. Interest Rates Have Been Very Low, Hurting Retired/Conservative Investors 20

  21. But If Rates Start To Normalize, Bonds Will Sell Off Likely Rate? 21

  22. Solution: Move To Higher Stock Allocations

  23. Fed has blown up, and then popped, a whole series of bubbles • Global equities could rally once the adjustment to new rates has occurred, • or we could enter a “muddle-through” period • Previous episodes of interest rate normalization has sometimes been associated • with strong stock rallies • Prudent investors will soon see yields rise substantially, but must weather the • drop in bond prices that goes with that • 5) The best solution is to significantly increase stock allocations over the long term Summary KEVIN M. WILSON 23

  24. q & a KEVIN M. WILSON TED A. PAVLOVICH DHEENU V. SIVALINGAM 24

  25. Disclaimer This report is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any security or commodity and is not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Any opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, for its accuracy and interpretation are not guaranteed. Investing in securities involves risk, including possible loss of principal. Past performance should not be taken as an indication of guarantee of future performance and no representation, express or implied, is made regarding future performance. The firm does not provide tax advice; clients should contact their attorney, accountant, or other tax adviser regarding tax matters. “BWCA is a state registered investment adviser in all states in which it is required to be registered. All Blue Water Capital Advisors’ customer assets are held in the customer name with Fidelity Institutional Services, clearing through National Financial Services (NFS), Member SIPC, a Fidelity Investments Company as Qualified Custodian.” 25

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