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Millbrook Advisors, LLC is a fee-only financial planning firm, dedicated to developing and implementing high quality plans for individuals and families seeking financial independence. Contact us for a free initial consultation.
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Financial planning tip for the day from Shakespeare!
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Complete a short self survey to determine your financial risk tolerance, a critical piece of a thorough financial plan. Or investigate the margin of safety for your favorite stocks.
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The chart below presents key trends in the US stock market for the last 40 years:
- The blue line is the S&P 500 index in log scale
- The violet line is the composite earnings of the S&P500 in log scale
- The shaded bars are the official recessions during the period
- The yellow X-factor line is the difference between the actual S&P earnings yield and the S&P earnings yield estimated by a regression on the yield on AAA corporates and the inflation rate.
While the random walk theory is a powerful one, we at Millbrook Advisors nevertheless find the X-factor helpful. When it goes strongly negative, the market seems headed for trouble. For the quarter ended March 31, 2012, the x-factor dropped to 2.25 as both price and inflation increased over the prior period. Earnings continued strong with the SP500 estimated to set new highs on a running 12 month basis.
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Recent financial news that we, with our contrarian bent, found worthy of note:
- Where are the customers' yachts? This old saw from 1929 came to mind in reading a new study of financial advisors by NBER. Commission-based advisors apparently find it hard to put their clients' welfare ahead of their own financial self interest.
- Earnings Bubble? Since 2008, the earnings recovery of corporate America has been spectacular. Are these earnings sustainable? Two separate takes on the underlying economic data suggest that caution may be in order.
- 25-70-5 This demographic profile seems to be a prerequisite for an economic growth spurt, as in the South Korea of 1990 - one of the Asian tigers.
The sweet spot is a population not too youthful (25% 14 and under) and definitely not too old (5% 65 and up). None of the developed economies have this profile at present (the US did at the beginning of Reagan's term); only one of the BRICs. However, many emerging market countries do have such a profile; click here for a half dozen take-off candidates.
- Long Term Care Insurance - a Crucial Product for the 21st Century. The flip side of the wonder of modern medicine is a significant chance of a prolonged illness. Long term care insurance is an essential tool for containing the financial risk of such an outcome. Click here for our take on this essential but confusing form of insurance.
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