The Economic Road to Recovery

The chief investment strategist for MFS Investment Management imparts his economic wisdom for the future.

The three R’s for James Swanson, chief investment strategist for MFS Investment Management, are recession, rehab, and recovery.

A summary brief of his recent mid-year outlook, presented earlier this month, pinpoints these three themes looking toward the second half of this year. Swanson advises investors to continue to seek opportunity from large-cap companies with significant revenue from non-U.S. markets, as well as health and technology stocks, which are proven to do well in similar environments.

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Recession

Swanson says the dance around whether we’re in a recession is null and void and “it doesn’t matter,’ the brief says. A high probability of recession is already priced into several markets: bank debt, high-yield bonds, credit swaps, adjustable preferred, as well as parts of the stock market.

The reason the economy is still breathing, the brief suggests, is because interest rates and the real interest rate are lower now than at the beginning of previous recessions. Additionally, inventories are low; companies did not stretch their hiring, spending, and leverage capacity; emerging countries are gaining a greater share of the world economy; and the bull market in commodities is “roaring.’

Rehab

Swanson suggests equity investors should continue to favor large-cap companies that get most revenue from non-U.S. markets. He also points investors to technology and health care stocks—both of which have held up well in similar environments, the brief says. Also ranking high on Swanson’s “opportunity meter’ include bonds—municipal, high-grade corporate, and high-yield.

Swanson suggests America needs to deflate its swelling credit problem. According to Bloomberg data cited in the presentation, the total U.S. credit to GDP ratio has rise to 3.45, meaning America finances nearly $3.50 to finance every dollar of GDP.

Recovery

The presidential election could help economic recovery, as it historically rallies in the latter part of an election year. While the economy might be “at stall speed,’ the brief asserts that the low rates, falling housing prices, and Federal action to stabilize will lead to a “re-ignition,’ of the economy, with growth to come at the beginning of 2009.


UNUM to Pay $5.5M for Not Disclosing Fees

Employee benefits provider UNUM Group will pay $5.5 million in fines and penalties for violations under ERISA.

United States Attorney Karen P. Hewitt on Monday announced that the UNUM Group will pay $5.5 million in fines and penalties to the federal government on charges it failed to report special fees it paid to a San Diego-based insurance broker.

A press release from Hewitt’s office said the Employee Retirement Income Security Act (ERISA) requires the administrators of qualified insurance plans to provide certain specified information (including all commissions and fees paid to insurance brokers in connection with the purchase of group insurance) to the United States Department of Labor (DoL), Employee Benefits Security Administration, and the Internal Revenue Service (IRS). Unum, at the request of the insurance broker, agreed to make payments of certain fees at various times from 2000 through 2004 without disclosing those fees to the insurance plan administrator, a release said.

The fees were typically denoted as request for proposal (RFP), communication, or enrollment fees, and as a result of the fees, the insured unknowingly paid higher premiums. In total, the broker secretly charged the insured millions of dollars in higher premiums based on the undisclosed fees.

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“The Labor Department will not tolerate service providers who fail to disclose fees or compensation arrangements that impact benefit plans,” said Bradford P. Campbell, assistant secretary of the Employee Benefits Security Administration, in the release. “This case demonstrates the importance of our enforcement and regulatory efforts to ensure that benefit plan fiduciaries have the information they need to fulfill their responsibilities and to protect the interests of the workers in their plans.’

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