Capital Ideas Newsletters


The Exodus

May/June 2014

Last year, a record 2,999 Americans gave up their citizenship or terminated their long term U.S. residency, according to new data from the U. S. Treasury Department. That was more than three times the number in 2012 and greater than the combined totals for 2011 and 2012.

These former U.S. citizens include Facebook billionaire Eduardo Saverin and pop star Tina Turner. Of course taxes have a lot to do with this “Exodus”, but where America seems to be headed also has a lot to do with it.

While the general consensus has been that Europe is on the mend, debt levels in the Eurozone have soared. Euro deficits as a whole have shrunk to 3% of GDP in 2013, down from 3.7% in 2012. Nonetheless, total debt in the Eurozone has risen to 92.6% of Eurozone GDP, well above the 60% target in the 1992 treaty that created the Euro.

The weakness in the U.S. and European economies (and their inability to pick up steam) means that lower interest rates are likely to be here for some time.

Another sign of weakness is that the home ownership rate in the U.S. fell to 64.8%, the lowest level since 1995. Additionally, a very weak first quarter 2014 GDP was reported to be 0.1%, the smallest increase since the fourth quarter of 2012- very weak.

As we go to press, the ten year U.S. Treasury note hit 2.45%, down from 3% at the beginning of 2014. While the press trumpets a rising stock market, the Dow is up a mere ½ of 1% this year, and the S&P Index is up 3.2% – hardly reason to celebrate. These advances have paled in comparison to the rally in bond prices.

This past March, as sanctions loomed, Russia sold a fifth of its U.S. treasury holdings totaling $25.8 billion, as the biggest net buyer, Belgium, purchased $40.2 billion. Belgium’s U.S. Treasury holdings have more than doubled in the past year to $381.4 billion, making it the third largest holder behind China and Japan.

As the press discusses the stock market’s advance, as of May 1, the real value of the S&P 500, adjusted for inflation, is 11.2% below the 2000 peak. Fourteen years of no real return. Let me repeat that – fourteen years of no real return.

The Crimean stronghold has allowed Russia to take control of trillions of dollars of oil and gas reserves off its coast. This clearly hurts the geopolitical position of the U.S.

As the world turns, U.S. bank lending standards continue to be the strongest and President Obama’s administration pushes mortgages for those who cannot afford them. At the end of the day, the mountains of debt make low interest rates critical to keep the developed economies afloat. Where it ends is anyone’s guess.

Given this backdrop, innovation and technology have been critical pieces of providing economic buoyancy and the U.S. must maintain its lead in this area.

Bring back the money I say! Corporations have enormous cash overseas and will not bring these dollars home. President Obama should put incentives on the table to encourage that money to be invested at home.

Being nimble and patient will be rewarded in the coming months. Well diversified portfolios are important in maintaining balance through the volatility we expect over the summer.

John Maynard Keynes said, “Successful investing is anticipating the anticipations of others.”

We hope to be ahead of the herd in making your goals our passion.

As always,

Seymour W. Zises

P.S. For those of you who are not clients at this time, it would be my pleasure to sit down with you and discuss your current portfolio to see if we can bring some new ideas to light. I am reachable at 212-872-9610 and

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