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In This Issue
Disability Insurance 101
History Speaks
Chart of the Month
Asset Class Returns
Market Commentary
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IHA Monthly
September 2012
InnerHarbor Advisors, LLC is a private Financial Planning firm based in New York City founded by Michael J. Keating and John O'Meara. We are expert financial advocates your family can trust. 
Financial Planning Highlight
Disability Insurance 101
 
  
History Speaks
Thomas Alva Edison 
The world's most famous inventor holds 1093 patents in his name. He obtained everyone of them years after he lost nearly all his hearing.

 

Thomas Alva Edison was born February 11, 1847 in the port town of Milan, Ohio. Thomas was home taught by his mother, Nancy Edison after a short stint at school ended when his teacher thought him "addled". When Edison was 14, he contracted scarlet fever. The fever, as well as a shot to his ear by an angry train conductor,  caused Edison to become completely deaf in his left ear, and 80-percent deaf in the other. He learned Morse code and began working as a telegraph operator. At age 16, Edison produced his first invention, called an "automatic repeater." The device transmitted telegraph signals between unmanned stations, allowing almost anyone to easily and precisely translate code at his own speed and convenience. Edison eventually established a laboratory in Menlo Park, New Jersey. In 1877 he invented the first phonograph. The cylindrical device was the first machine that could record and reproduce sound, certainly ironic considering his physical handicap. It created a sensation and brought Edison international fame. He toured the country with his invention, and was even invited to the White House to demonstrate it to President Rutherford B. Hayes. Beyond his patents, Edison is also known as the founder of General Electric which was formed by bringing his various businesses together in 1890.
Chart of the Month
From the St. Louis Federal Reserve Bank we get a chart of the number of Americans with a disability. That number has increased by over 2,000,000 in the last two years.   
    
Asset Class Returns
Through August 31st, 2012

Returns assume dividend reinvestment and do not include any types of management fees, transaction costs or expenses. 

Asset Returns   

 
Market Commentary

 Waiting on China  

The last month has seen, on a global scale, massive monetary loosening as central banks have pledged vast new influxes of liquidity into financial markets. This "sugar push" has goosed most markets upward, with the S&P 500 hitting four year highs. Mario Draghi started the action on August 2nd by pledging the European Central Bank would buy Spanish and Italian sovereign bonds in a "size adequate to reach its objective" - which might be very large indeed. Mr. Draghi's case was strengthened by the German Supreme Court which authorized German participation in a Eurozone rescue fund. On September 13th, the Federal Reserve announced  a new round of quantitative easing, this time unconstrained by either a dollar amount - and we thought that was what the quantitative in QE meant - or calendar deadline. Apparently Japan felt left out of the money printing action and on September 19th they expanded their own asset purchasing program. Conspicuous by his its absence in the stimulus party, whether monetary or fiscal, is China.

 

China, in many ways, would be justified in loosening policy at the moment. There are many indications that the Chinese economy is slowing down, including a 15% drop in their stock market over the last four months.

 

 

 

Official government statistics do indicate deceleration, with GDP growth down to 7.5%-8.0% in 2012, well below their average growth rate of the last four years. Many experienced China watchers feel the government statistics actually underestimates the decline in growth and they put greater weight on harder economic data, such as the electricity consumption chart below. This indicates a more severe slowdown in China, particularly in energy intensive manufacturing.

 

This growth deceleration in China has had a negative effect on the return of emerging market equity investments. Over the last year, emerging markets have trailed the S&P 500 performance by nearly 25%. China itself has only a 17% weighting in the MSCI Emerging Market Index so while the decline in Chinese equities doesn't help -down 66% since 2007 - a slowing China has a bigger effect because so many of the other emerging nation rely on the demand generated by it. Emerging markets are generally added to portfolios with the idea they will provide a higher return over time, albeit with greater volatility. The chart below shows that over the last three years, they have delivered on the volatility but not quite on the return. A prolonged Chinese slump will make it more difficult to reverse that trend.

 


InnerHarbor Advisors, LLC
420 Lexington Ave, NYC 10170
212-949-0494
Managing Partners:
John O'Meara, CFP             j.omeara@inneradv.com 
Michael J. Keating, CFP    m.keating@inneradv.com

 
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