Review the paper based on the suggestion
elaine5220
review1.pdf
1
Introduction
My name is Yinan Hong. I am your portfolio manager from Trailblazer
Investment Advisors. I am a CFA charter holder, equipped with sufficient financial
knowledge. I will help my customers manage their wealth and try my best to gain??
as much as possible. There are three objectives for my clients, Sam and Amy
Kratchman who have recently inherited … and have current savingswith
$1,100,000(on an after-tax basis) inheritance. The first one is having enough money
for their life after retirement at age 65. The second objective is raising college tuition
for their two children. The last one is to buy a beach house with newfound inheritance.
Ending summary
Economic Analysis
2014
GDP Growth
The economic recovery of United States in 2014 became a light brightspot in
global economy after the 2009 recession. The low price level do you mean low infl?
If so that isn’t really a great thing at the current time, decreasing unemployment rate,
better development of the what is the estate?estate and manufacturing industry made
the economy continuously recover although at a much lower rate than prev recoveries.
However, some important indexes like the investment of the real estate, income of
amy kratchman � 2016/10/16 12:32 PM 已设置格式: ⾏行行距: 1.5 倍⾏行行距
2
residents residents?, manufacturing have not reached to the same level as it performed
before the recession in 2014 – true – but RE was performing very well and is a strong
area of growth in 14. The percentage change in Real Gross Domestic Product in 2014
increased in the former three quarters and then decrease in the Q4.not true
In the first quarter, the change of GDP was 2.1% not correctnegative growth1.
The most important factor was the abominable weather. The personal consumption
expenditures for nondurable goods decreased because 1what is this? the inconvenient
of buying your table (footnoted) does not imply a decrease. The Gross private
domestic investment decreased 6.6% because of the huge lower equipment
investment1. The exports decreased extremely and the imports increased. They all led
to the negative growth.
Figure12 : CCI Index in 2014
The GDP growth reached to 4.0% in the second quarter. By analyzing the
components that affected overall GDP growth, personal consumption expenditures
1http://bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=2013&903=1&9 06=q&905=2016&910=x&911=0 2 FactSet
3
and gross private domestic investment played an important role in this significant
growth. Consumption contributed 2.56% change in GDP. After the severe weather,
the private inventory investment, exports, fixed investment, and non-federal
government spending increased.this is a rebound in pretty much all areas However, 5%
more imports negatively impact GDP and offset those positive contributors.
Purchasing Managers’ Index (PMI) also indicated that the economic situation would
turns better. The overall PMI index was over 50 and kept the upward trend, which
represents expansion of the manufacturing sector.overall is both manuf and service
Besides, as shown in figure 1, the consumer confidence index had an upward
tendency, may because corporates operated better??, unemployment rate decreased
was there a strong recovery in this area in 2014? If so, why?, and the income of
residents increased. Income was growing at very low rates
Figure 23
Unemployment rate continuously went down in 2014, and the job market
significantly became better. Businesses have added 10.9 million jobs over 57
3 Bureau of Labor Statistics
4
consecutive months. Private employment has risen by at least 200,000 for ten
consecutive months4. In every month this is not true, there were 241,000 job growth
in 2014 and total employment has risen by 2.65 million in the first 11 months of 2014.
How does this compare to previous years overall jobs? From the Figure 2, we can see
that compare to previous years, the monthly job growth in 2014 was highest. As
Figure 3 shows, the unemployment rate in October has decreased to 5.7% why is
October imp? You have year end which is better. Since July in 2008, it was the first
time that the unemployment rate was lower than 6%. The strong increasing new jobs
were mainly created by business services, legal services and administrative services.
Medical insurance and retail trade also provided a huge amount of positions, and the
recovery of real estate market created lots of jobs for construction. The decreasing
unemployment rate strengthened the confidence of consumers with higher income,
which simulated the consumption and the investment. Good – now look at wages
Figure 35
Retailers were not qualified to increase the price because of the consumer market
4 https://www.whitehouse.gov/sites/default/files/docs/2014-12-year-in-review-update.pdf 5 http://data.bls.gov/pdq/SurveyOutputServlet
amy kratchman � 2016/10/16 1:24 PM
已删除: such
5
depression but you were just saying how good things are, and lower oil prices why are
prices lower? freed funds for other things from upstream of supply chains, so the
inflation risk would not be too high in the short term why short term?. Instead of
inflation, deflation appeared sometimes that implies weakness. Since 2014, only 4
months reached the Federal Reserve’s goal- neg?2% inflation growth. Compared to
CPI, Federal Reserve focuses more on PCE, because it can show the inflation or
deflation for personal consumption expenditures, which can more comprehensively
and stably measure the inflation level. Core PCE was lower than 2% in 2014 as the
Figure 4 shows. With the recovery of GDP, the CPI kept low. Why are you looking at
CPI if you just said the Fed is focused on PCE and it is better?
Figure 46
In 2014, the international trade has become a little better because the European
Union out of debt crisis, the economic recovery of Japan was 2014 a good year for
Japan?, and the change of the foreign trade strategies in US what are you referring to.
6 FactSet
6
Besides, the “ shale revolution” stimulated tremendous production of oil and natural
gas in US, which indicated United States to be more closer to the independence of
energy 2014 was not a good year for this industry but this is an imp trend that needs
to be discussed. They all help US decrease the trade deficit. w/exception of Q3, trade
had neg contrib to GDP However, under the background of developed economic
monetary policies and economic tendency went to different,what does this mean? the
currency rate of US dollar will rise a lot did it?. Since 2014, the exchange rate of the
Euro to the US has been risen about 8%, which had some negative influence to
exports.only against the Euro?
Figure 57
President’s aggressive policies respond its recovery included the Recovery Act
and the payroll tax cut. President Barack Obama also recapitalized the financial sector,
rescue the auto industry and reform financial regulation. No idea what period on time
you are referring to – this is not relevant to the time period being analyzed To some 7 FactSet
7
degree, the Obama Health Care Plan in the US stimulated the personal medical
insurance expenditures, and reflected that consumers were more desire to consume
support this and was it now required or penalty in 2014?. Millions of Americans were
more willing to purchase this more “affordable” health care plans and the government
offered subsidies to low and middle income Americans in 2014?. These changes in
the health care system are major savings for households, businesses, and the Federal
government this is not a true statement. The government decreased the government
spending. After gaining 9.9% in the Q3, Federal spending declined 7.5% in the fourth
quarter due to the 12.5% decrease in defense spending. Such that G contrib pos or neg
to GDP?
Monetary Policy
Fed used expansionary monetary policy not in 2014 – they ended their policy in
order to lower unemployment, boost consumer spending, increase private- sector
borrowing and stimulate economic growth after the recession. The Fed moved
gradually to tighten monetary policy meaning what. The committee reaffirms its
judgment that inflation at the rate of 2 percent, as measured by the annual change in
the price index for personal consumption expenditures???8. This long run goal helped
to stable the price, to moderate long-term interest rates and to maximize
employment. ???? I am confused – analyze what the Fed did and why in 2014
Although unemployment was above its longer-run normal level and inflation was
8 https://www.federalreserve.gov/monetarypolicy/files/20140211_mprfullreport.pdf
8
below 2% objective as Figure 6 shows, the Federal Reserve continued to increase the
size of its balance sheet at a reduced pace. The Fed also announced a decision to
reduce the monthly increase in its holding s of long-term securities by 10 billion a
month to $ 75 billion a month9. They ended QE in October – what were they saying at
that point about the economy? Decision to change rates?
Figure 610: PCE Index
Financial Market
9 https://www.whitehouse.gov/sites/default/files/docs/2015_erp_chapter_2.pdf 10 FactSet
9
Figure 711
From the Figure 7, we can conclude that the overall trend of S&P 500 in 2014
was upward steadily, raising 11.4% for the year. There was sunk in February, August,
October and December. The annual total return of S&P 500 is 13.69%, which
decreased a lot compared to that in 2013 but still an excellent year – why? What
sectors did well? Not so well?. The interest rate of 10-year US Treasury notes
declined from 3.04% in 2013 to 2.17%2014. This decline was more like driven by the
future increase of the Federal funds rate. The general decline in interest rate reflects in
part the environment of slow global growth and low inflation but comes after a huge
increase in 2013 – what specifically shifted. The strong employment and low inflation
with falling oil price allowed the Fed hike rate in the end of 2014 not correct . Low
interest rates could lead to a disastrous asset bubble, but the rising interest rates could
lead to drop in new hiring or expansion plans.why is this relevant here when we are in
2016 Thus, The Fed considered its wait- and-see strategy in 2014. Technology
hardware, storage & peripherals industry performed really well in this year, other
industries did better it may increase about 61% I don’t understand what time period 11 http://quotes.wsj.com/index/SPX/advanced-chart
10
you are covering here b/c this chart is from jan 2013 through current time – this is not
just 2014. Compared to other industry tobacco played a little weaker.???
Figure 812
Where is your performance of the bond market?
You also need to discuss the investment section of GDP in more detail
12 https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml
11
2015
GDP growth
The US economy in 2015 was a modest recovery. The domestic economy grew
robustly was it modest or robust with the rising of personal consumption and
investment. For the gross private investment, except the first quarter, other quarters
performed worse than last year, especially the nonresidential part. why However, the
changes of exports in four quarters were negative, which weighed on overall GDP
growth.
The first quarter, the economy suffered from the appreciation of dollars, severe
weather, and the strike on the west coast which negatively impact the exports, so the
GDP grow slowly. The economy of US was performed badly in the first quarter both
in 2014 and 2015, which indicated that the foundation of recovery was not firm and
still weak.
The second quarter played the best wording off, but its growth was not as
significant as 2014. Gross private domestic investment occupied 70% of US economy
not correct, which was the core power to drive the economy recovery in the second
quarter. This is offFrom the Figure 9, we can see the consumer confidence awoke
from the first cold quarter. Why and in Q1 some areas were strong such as res RE
market
The third quarter and fourth growth was not reach the market expectation. The
inventory and investment decrease mainly cause the lower GDP growth. The
dropping oil price why is it continuing to decline stroked again the mining industry,
12
accelerating the corporates use the inventories do you mean more consumer demand?.
Besides, the dollar appreciated sharply in part caused the export growth to be slow.
Why?
Figure 913: Consumer Confidence Index in 2015
The sharp oil price decrease was the major economic element in 2015. Oil prices
slumped to 11-year lows to around $36 per barrel in December in 2015. CEA
estimates that lower oil prices directly boosted real GDP growth by 0.2 percentage
point during 2015, despite the adverse impacts on domestic energy producers and
manufactures that sell to the energy sector14. So this is very minimal – why aren’t
consumers spending their savings?
The main challenge for the US economy is productivity growth. Thus, the
President has announced many policies like immigration reform, public investments,
tax reform, and expanding markets for U.S. exports13.any of these go through? 13 Factset 14 https://www.whitehouse.gov/blog/2016/02/22/2016-economic-report-president
13
Figure 1015
From December 2014, the labor market has grown by 2.3 million jobs in this year.
Although the pace of job growth was slower than that in last year, it was still an
improvement over other years after recession. The private service sectors contributed
most in job growth, especially the education and health services sector. The
professional and business services sectors also performed really well by adding
534,000 jobs. Besides, the leisure and hospitality sector played an important role in
the economy as well. The unemployment rate still went down in this year from 5.7%
in January to 5.0% in December, which was below its pre-crisis average in 2006-07
unemploy rate was below 5%. The president supported a range of policies to help
promote equality of labor market: such as supporting children in poor families,
ensuring the fir criminal justice system.did any of these pass? Help the economy? The
improvement of the labor market and steadily increasing wages support this drove the
personal consumption expenditures. The mining and logging sector played the worst
because the oil prices decreased a lot in this year, and this sector has lost more than
15 Data from Bureau of Labor Statistics
5.7 5.5 5.5
5.4 5.5
5.3 5.3 5.1 5.1
5.0 5.0 5.0
4.6 4.8 5.0 5.2 5.4 5.6 5.8
Unemployment rate in 2015
14
124000 jobs. If oil prices are down, why would mining and logging be impacting?
Figure 1116: Consumer price Index & Core Consumer Price Index
The CPI growth was negative in January, September and December, and other
months ranged from 0 to 0.2%, varied on the edge of deflation. The main reason for
the low product price is the decreasing price of energy. Although the core CPI index
is stable from 2014, the energy price and related transportation price dragged the CPI
drop. And the core reflects what about the economy in this time period The business
profit growth space was compassed???, which will lead to reduce wages what actually
happened? and cut staff in order to keep the profit. The low CPI increase the
consumers’ purchasing power at the early stage, but if it became a vicious circle,
finally the consumption expenditures would decrease. This is a very academic
statement – what is actually happening is what I want to see
The decline in infrastructure quality and the low long-term interest rates provided
16 Factset
15
a good opportunity for the government to invest in infrastructure, which can boosted
the productive capacity of US economy – did they? Did this add to GDP?. Although it
increased the government spending, but reduce a lot of cost from other dimensions.
Business can reduce the cost of product; households can consume more with lower
maintenance costs; consumers save time for transportation; and labor market can
provide more jobs. Not sure what point you are trying to make here
Monetary Policy
Because the unemployment rate dropped steadily and the labor market structure
meaning what improved, the Federal Reserve would consider raise interest rates. If
the inflation rate touched 2% target, the Fed would execute. In Sept. 15, the
unemployment rate was close to 5%, but the inflation rates were far away from 2%, so
the Fed extended to raise interest rates?? Not relevant – talk about what they finally
did do. The Federal Reserve continues to purchase long-term debt securities, but the
overall size of its holdings keep approximately constant good- meaning?. The
foundation of the economy is too weak, so raising the interest rate was not a good idea
at that time they raised rates in Dec. It may prevent the GDP growth.you are repeating
yourself – give the overview of what the Fed actually did do once and why they held
off one time Until Dec. 16, 2015 the Fed finally raised interest rates, ending the
extraordinary period of government intervention in financial markets. And what did
amy kratchman � 2016/10/16 1:48 PM
已删除: First, it did not benefit the domestic
consumption and investment. High interest
rate would decrease the loan, lowering the
economic activities gradually. Once increasing
the interest rate, the profits of the corporates
would decrease significantly, which would
influence the wages and consumption.
16
they say at that time?
The government promoted worker voice and raised the minimum wages in order
to divide rents more equally in a well-functioning competitive market. This is true but
why is it in monetary policy?
Financial Markets
Figure 1217
The annual return of S&P 500 in 2015 was 1.38% with prices actually declining,
which decreased a lot compared to 13.69% in 2014. The unexpected decline in
commodity prices, especially crude oil, the appreciated dollar, soft economic growth
and the currency devaluation this needs to be expanded in China all impact the
stocks. You also need to discuss Greece/Europe The dramatic drop of oil price
decimated energy-stock earnings – with the sector returning?. High currency of dollar
made U.S. corporations sold worse in market you MUST have someone read through
your paper -abroad. The YTM of 10 year UST was 2.24% meaning what?. High-yield
corporate bonds fell sharply to -5.0% and it also impacted the no energy high-yield
corporates why. The best sector performer in 2015 is consumer discretionary stocks,
such as Amazon and Netflix. The worst is energy sector, which down more than 25%.
17 http://quotes.wsj.com/index/SPX/advanced-chart
amy kratchman � 2016/10/16 1:49 PM
已删除: Besides, the Fed increased the interest
rate in December.
17
What was the return of the overall bond market and why?
2016
GDP growth
In former two quarters of 2016, the GDP growth was not very significant. The
first quarter was only 0.8% and second quarter is 1.4%. The inventories decreased, the
profits were difficult to increase what does this mean, the consumer confidence
declined as Figure 13 shows, which indicated that consumers were worried about the
economy. why Until July, the consumer confidence index seemed going up.
Figure 1318: Consumer Confidence Index in 2016
Fortunately, the second quarter turns better. The personal consumption
expenditures contributed most for the second quarter’s growth. From March, core CPI
index began increasing and got rid of the deflation risk what turned around . The
18 FactSet
18
tendency of this index seems continuously going up in the last section you talked
about deflation risk. From Figure 15, the unemployment rate in 2016 is not as that in
2015 decline steadily. In the second quarter it dropped a while, then went up and
almost kept at 4.9% in the third quarter. The labor market created 151,000 new jobs in
August.we have sept numbers – need to look at average gains Now the unemployment
rate was 5.0%, which may decrease at 4.7% at the end of the year. The solid labor
market, rising wages and rising consumer confidence stimulate the consumption.why
did the rate go up? Support rising wages?
Figure 1519: Unemployment Rate in 2016
However, the gross private domestic investment declined to negative 7.9%,
which weighed the GDP growth a lot. The low oil price oil rebounded in Feb and
rising election uncertainty put more pressure on business investment and consumer
confidence. Is that true now when Clinton is pretty much a certainty? We have data
on Q3 just not GDP 19 http://data.bls.gov/pdq/SurveyOutputServlet
4.9 4.9
5.0 5.0
4.7
4.9 4.9 4.9
5.0
4.6 4.6 4.7 4.7 4.8 4.8 4.9 4.9 5.0 5.0 5.1
Jan Feb Mar Apr May Jun Jul Aug Sep
Unemployment Rate in 2016
19
Figure 1420: CPI index & core CPI index in 2016
Net X is negative in the first quarter but had a tendency to be positive to the GDP.
Actually pos contrib in both quarters The strong dollar is an important factor weighed
on exports. Imports down in Q1 and very little growth in Q2 - whyThe government
spending in the second quarter grew the least in these three years. It expended credits
for lower-income brackets, boost public investment in infrastructure system and raise
the minimum wageyou said they raised the min wage last year? Also this is not a
federal thing and doesn’t impact the G in govt spending to help the poor in order to
cut the growing debt problem. – what debt problem?
Monetary Policy
In 2016 former 3 quarter???, FOMC unchanged policy because the global 20 FactSet
20
economic and financial developments have increasing risk. The economy in the first
quarter did not performed well, so the IMF cut its outlook U.S. economic expansion
in 2016 0.2% from the growth forecast, considering the weak energy industry, the
stronger dollar and the uncertainty of whether U.K. would leave the European Union
or not. What they did back in Q1 is not relevant – the question is where are we now –
we know UK is leaving, oil has rebounded etc The Federal Reserve has not changed
the interest rate in June and September and maintained the federal funds rate target
range at 1/4 to 1/2, considering the vote of Brexit and the lower down employment
rate. The Fed also kept its holdings of longer-term securities at sizable levels over the
first half of the year.
Financial Market
British citizen voted to leave the European Union in June, which impact the
global financial market. It increased the uncertainty about economic growth in the
U.K. Right after the vote, all major U.S. indices declined by about 5%. Although the
fall in equities reversed within a week, the S&P 500 index reached an all-time high.
There are only about 15% of GDP is related to international trade and investors were
anticipating a possible increasing interest rate at least 18 months before it??? What are
you referring to. Thus, Brexit did not impact a lot on U.S. as other economics.it hasn’t
happened so we don’t know what the impact will be. What is the return of the S&P
to date? Sectors?
21
Figure 1521: S&P 500 Index in 2016
From following graph, we can see the tendency of yield of 10 year US Treasury
in 2016 is downward. What rate of return and why
Figure 1622: US 10-YR
Works Cited
Board of Governors of the Federal Reserve System, “ Monetary Policy Report,”
Federalreserve.gov, February 11, 2014
http://data.bls.gov/pdq/SurveyOutputServlet
Council of Economic Advisors, “The Economy in 2014,” Whitehouse.gov, December
21 http://quotes.wsj.com/index/SPX/advanced-chart 22 http://data.cnbc.com/quotes/US10Y
amy kratchman � 2016/10/25 3:03 PM
已删除:
22
23, 2014
https://www.whitehouse.gov/sites/default/files/docs/2014-12-year-in-review-update.p
df
Jason Furman, Sandra Black and Jay Shambaugh, “ The 2016 Economic Report of the
President,” Whitehouse.gov, February 22, 2016
https://www.whitehouse.gov/blog/2016/02/22/2016-economic-report-president
“ President Economic Report,” Whitehouse.gove, December 23, 2015
https://www.whitehouse.gov/blog/2016/02/22/2016-economic-report-presid
ent
“S&P 500 Index,” quotes, WSJ, October 9, 2016
http://quotes.wsj.com/index/SPX/advanced-chart
“Sectors & Industries Overview,” Fidelity Investment, October 9, 2016
https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_m
arket.jhtml
“Unemployment rate,” Bureau of Labor Statisitcs, October 9, 2016
http://data.bls.gov/pdq/SurveyOutputServlet
U.S. Bureau of Economic Analysis, “Table 1.1.1. Percent Change From Preceding
Period In Real Gross Domestic Product,” (accessed September 29, 2016).
http://bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&
904=2013&903=1&9
“US 10-YR,” Data, CNBC, October 9, 2016
http://data.cnbc.com/quotes/US10Y
23
