As the Wall Street Journal reports, universal policyholders are now facing premium increases of a couple hundred bucks per year to a couple hundred THOUSAND dollars per year — if they want to be able to collect their intended death benefit. This is no small matter for many consumers who relied on these life insurance policies as their primary estate planning tool. They now find themselves in the unenviable position of having to cough up a lot more money for protection that they already thought they had, or face the prospect of a drastically reduced payout upon their death.
All of this is of course the result of never ending QE policies that have driven more than 10 trillion dollars of sovereign debt to below zero yields. That’s starved investors of even the most miniscule return and turned all of the carefully researched actuarial calculations to mush.
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The Future Isn’t the Past
The debacle in universal policy space made me think about the smug prognostications of most investment advisors about pension planning. The basic recommendation is that all of us should put a 60/40 equity/bond portfolio into some Vanguard ETFs and essentially keep on doing that for the next 30 years to build a comfortable nest egg. The implied bet is that the future will be much like the past. Stocks will average 6% per annum and bonds will keep volatility down to a reasonable rate.
But what if the past is not a prologue? What if we are all turning into Japan where the Nikkei hasn’t seen fresh highs in more than 40 years and may not see them for another 40 more? What if stocks only average 3% per year over the next two decades? And bonds lose half their value on just a 100-basis-point rise in yields? The very smug assurance of Wall Street investment planners may be just as misplaced as the soothing promises of the insurance industry in the 1990s.
Something we should all be thinking about as we try to plan for the future in this Alice in Wonderland economic world.
When it comes to big phones, you don’t have to look much further that Samsung’s new Galaxy Note 7. This is a 5.7-inch behemoth of a handset and sports all the features big-phone people have come to expect: Elegant design, waterproof body, iris scanner and a new stylus (a writing gadget you use with the phone). The phone’s 2560 by1440 resolution screen uses Samsung’s Super AMOLED technology and HDR technology, which together produce an outstanding viewing experience. And even though at $849 the new Note 7 isn’t cheap, it’s worth a look — even if just to hold the beast in your hand.
Financial powerhouse Morgan Stanley just got a polite, but firm knock on the door: Activist investor ValueAct Capital Management LP has taken a whopping $1.1 billion stake in the bank. The $16 billion hedge fund is known for turn-around stories that focus on management and operations over a company’s financials. In fact, in a letter to investors, ValueAct CEO Jeffrey Ubben showed support for the bank’s plans to move away from risky operations like trading and move toward more reliable activities like wealth management. But don’t expect ValueAct’s move to go unnoticed: If the bank should fall short of targets, the fund will take a long look at bank management and push for changes if need be. Stay tuned.
As much as anyone, Darren Walker — head of the massive $12.6 billion Ford Foundation — loves the Olympics. But like most of us, he also sees the disparity: “As we have seen in our office in Rio, it’s a challenge. On the one hand, what’s happening there, we celebrate because there’s been significant new development … The challenge is that it has not shared the benefits of the Olympics broadly with Brazilian society.” The price tag for the Olympics will cost Brazil — a country with millions in poverty and a range of other social challenges — a staggering $4.6 billion. And the jury is still out as to how that investment will positively affect the Brazilian people that need it the most. But that doesn’t make Walker bearish on Brazil: “This is a country that, in many ways has overcome in the past challenges like politics and corruption. It’s a very resilient country with a resilient population of people who, I think are gonna be able to weather this storm.”
The Money and Markets team