Archives For Todd Burkhalter

Weekly Update – July 30, 2012


Volatility was the name of the game last week as markets responded positively to better-than-expected earnings, flinched at ratings downgrades in Europe, and then rallied again on news that the EU is moving towards tighter integration. Overall, equities remained in positive territory, with the S&P 500 gaining 1.7%, the Dow picking up 2.0%, and the Nasdaq growing 1.1%.[i]


Last week’s earnings results continued the trend established at the outset of the season in which nearly two-thirds of S&P companies have beat earnings estimates, while 60% have missed revenue expectations. Despite the worst showing for corporate profits in three years, investors seem relieved that things aren’t worse. The fact that earnings are still relatively strong despite problems abroad is giving some traders confidence that equities might be a value play right now.[ii]  While revenue misses show that the slow economy is affecting business, strong earnings may leave firms poised for growth when things turn around.


After the week’s promising start, global stocks tumbled midweek as ratings agencies continued to issue warnings and downgrades on Europe. Moody’s cut its outlook on Germany and Holland, and issued a negative warning on Luxembourg on fears that bailout commitments will negatively impact the economies of core nations.[iii] Egan-Jones continued the previous week’s downgrade rampage by cutting Italy’s debt rating to CCC+ from B+, officially pushing the world’s 8th largest economy into junk bond territory.[iv] In spite of all this, stocks managed a rally on Thursday after remarks by European Central Bank president Mario Draghi indicate that the ECB is actively pursuing closer EU fiscal integration and stands ready “to do whatever it takes to preserve the euro.”[v]


Despite the market’s optimism, the growing realization of the eventual cost of multiple bailouts makes the ECB’s promises ring hollow. Is the European Union really worth saving at any cost? The previously unthinkable possibility of a Greek exit is starting to be actively discussed by analysts. Just last week, in fact, the prestigious Wolfson Economics Prize[vi] was awarded to the research group with the best plan for a euro breakup. With Greece unwilling (or unable) to abide by its bailout terms, a Greek exit is looking more likely, and it might not be such a bad thing. Allowing Greece to exit gracefully would enable it to return to its sovereign currency, devalue its currency (to make its exports cheaper and pay back its debt more easily), and develop an austerity plan on its own, all without threatening the rest of Europe.


It appears that domestic equity markets are being affected more by headlines from abroad than the underlying strength of American companies, so we will not be surprised if we see continued volatility in the months ahead as the European situation continues to develop.



Dallas Fed Mfg. Survey


Tuesday: Personal Income and Outlays, Employment Cost Index, S&P Case-Shiller HPI, Chicago PMI, Consumer Confidence


Wednesday: Motor Vehicle Sales, ADP Employment Report, ISM Mfg. Index, Construction Spending, EIA Petroleum Status Report, FOMC Meeting Announcement


Thursday: Jobless Claims, Bloomberg Consumer Comfort Index, Factory Orders


Friday:Employment Situation, ISM Non-Mfg. Index




Weekly Maket Update for July 23, 2012

Markets shook off a raft of disappointing economic data and feeble earnings reports to remain in positive
territory this week: The S&P gained 0.43%, the Dow edged up 0.36%, and the Nasdaq rose 0.58%. Persistent speculation that the Fed will step in to boost the economy seems to be bolstering markets.[i]

During his speeches before the House and Senate last week, Bernanke outlined some of the Fed’s options to help boost the economy if it is required. Easing tools could potentially include further purchases of Treasury and mortgage-backed securities, or even using the Fed’s discount window for direct lending to banks; although many critics question the ability of such actions to do lasting good.[ii]

Highlighting just how fickle stocks can be, equities initially fell as Fed Chairman Bernanke’s Wednesday testimony provided no specific plans for boosting growth, then recovered when he later signaled during Q&A that he’s concerned about the economic recovery.[iii] It’s hard not to be dumbfounded when markets move based on mere words and not on the underlying strength of companies.

Analysts believe that although the Fed has not settled on a course of intervention, either a further
decline in the job market or an increase in deflation risk will trigger action.[iv] Bernanke and his colleagues have two weeks until the next scheduled FOMC meeting in which to review economic data and make a policy decision.

Concerns about Europe dominated the second half of the week and pushed down stocks on
Friday. Ratings firm Egan Jones downgraded Spain’s sovereign debt rating from CCC+ to CC+ (closer to junk territory) following news that the Spanish region of Valencia would need government help to meet debt obligations. Egan Jones has been aggressive in its downgrading of Spanish debt, and now rates the
probability of default at 35%. Despite the recent bailout agreement, analysts worry that Spain may be hiding additional debt obligations owed by its regions.[v]

One bright spot closer to home: U.S. Housing starts increased 6.9% in June to beat consensus expectations,
and are up 23.6% versus a year ago – the highest level since October 2008. This marks the fifth straight quarter that home building is boosting the economy, and there’s still plenty of room to grow. Digging deeper into the data, both single-family and multi-family housing starts are on the rise, and the total
homes under construction (started but not yet completed) rose for the tenth straight month. Essentially, this shows that builders are breaking ground on more homes than they are completing. So while the housing market is still far from healthy, this is a sign that stabilizing prices and low interest rates are giving some Americans the confidence to trade up to new homes.[vi]

Audit, Embrace It!

July 18, 2012 — Leave a comment

An audit is typically a word that makes most cringe, maybe not so different than when a person hears about a root canal. refers to an audit as an official examination of an account, building etc. that evaluates or improves its appropriateness, safety or efficiency.  So why is it that most fear this process that can create good results? I would suggest that it is most often done to someone instead of being chosen by them, follow that logic? For example if the IRS contacts you and says, “Congratulations your tax returns are being audited”; not such a good  feeling right? I wanted to suggest that we shift the dynamic of the audit so that we choose it, instead of it choosing us.


Our firm routinely audits all different types of financial documents for our clients. In most cases we find numerous inefficiencies and errors. This process gives us alongside of our client an opportunity to address
the particular situation in a controlled environment where we can improve or fix the problems. One of the most common areas that we see results is when performing Life Insurance Audits. Face it, most feel similar to the root canal example above when it comes to discussing their life insurance. So that mentality often allows for years to pass without reviewing and updating these policies. In fact, 65% of Life Insurance Audits performed by Ash Brokerage reveal the potential for improvement. Catalyst Wealth Management advisor, Christopher D. Pullaro, CPA, CFP recognizes the following as the most common areas that can be improved:

  • * Underwriting Class or your health rating from when the policy was issued
  • * Overall performance of the policy
  • * Beneficiaries are not coordinated with Wills or Trusts
  • * No Disability provisions
  • * No Long Term Care Provisions


Most clients, and even advisors, unfortunately treat life insurance as a Buy and Hold strategy. I would suggest that it should be a Buy and Monitor part of a portfolio. With medical advances and greater longevity, new policy pricing is improving rapidly. Insurance carrier profit margins, however, are being squeezed because of historically low bond portfolio yields. This is creating different levels of pressure for insurance company’s ratings and performance. So with all of these ever changing variables when should this audit process take place? Here are some guidelines to follow:

Every Year

  • * Review coverage amounts to determine if the coverage amounts are at maximum levels as it relates  to the insured economic value.
  • * Review in-force illustrations (re-projections) under various interest rate assumptions.
  • * Review all carrier ratings and financials.


Every three to five years:

  • * Conduct a full portfolio audit.
  • * Collect in-force illustrations and compare them to the products and pricing currently being offered.
  • * Compare new products to those held in trust, evaluating performance and guarantees.
  • * Scrutinize the design, including the tax and legal structure, and the premium payment method.
  • * Estimate the value of contracts in the secondary market and factor those results into decisions.


So what’s stopping you from doing the right thing? Make financial and insurance audits are part of your process!