Financial Reform Bill Signed into Law
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama on July 21, 2010. Broadly considered to be the most notable overhaul of financial regulation since the 1930s, the bill targets a wide variety of topics related to financial reform. The following article highlights the major points of the legislation.

Potential Impact of Pending Legislation on Stable Value Investments
With nearly 700 billion dollars in assets, stable value funds are an important part of many retirement plans. Stable value funds have proven popular as a conservative investment option for investors striving to maintain principal while earning a higher return than cash.

Due to pending financial regulation legislation, stable value funds could potentially face a different regulatory environment going forward. As stable value is an important asset class for many retirement investors, Marquette Associates has been actively monitoring the possible effects of new financial regulation on the stable value market. This article will first explain how stable value funds work, and then discuss why they could be affected by new regulation, and what those potential effects may be.

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Proposed Financial Reform
Note: this article was written in early April, before various changes to the proposed legislation were made.
As we stand in the aftermath of the most severe economic downturn since the Great Depression, we must reflect upon several of the causes that led us to this point.  The primary causes of the downturn were a result of poor risk management, oversight, and regulation. In response to these factors, lawmakers have proposed a bill that attempts to address several of the shortcomings in our current regulatory/financial system. The bill authored by Chris Dodd and the Senate Committee on Banking, Housing, and Urban Affairs intends to address the following primary issues:

• Protect/educate consumers
• Identify systemic risks
• Eliminate loopholes
• Streamline bank supervision
• Input on executive compensation
• Transparency and accountability for credit rating agencies and financial products
• Strengthen oversight to prevent fraud and manipulation

Today’s Environment: An Unusually Steep Yield Curve
Today’s interest rate environment is unique in American post-war economic history. With the federal funds rate at the zero lower bound and likely to stay low for an “extended period,” the yield curve is as steep as it has ever been since the 1950’s.

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Though the scars of the 2008 financial crisis remain, 2009 helped to alleviate some of the pain as financial markets rallied and tidbits of positive economic news emerged. Most major stock indices posted positive returns in 2009, and the bond market held steady (with the exception of U.S. Treasuries coming back to earth), with sectors such as high yield and senior secured loans recording record returns. Alternative asset classes had more of a mixed 2009: hedge funds reversed their 2008 struggles, while debt access and legacy assets continued to haunt the real estate and private equity markets. On the economic front, GDP turned positive in the third quarter, perhaps signaling that the recession was over and brighter days lie ahead. Despite these facts, many questions still remain. Has the stock market rally outpaced the economic recovery? What should we expect from alternative asset classes? Is inflation a threat to the economy? When will banks resume normal lending practices? Will the unemployment rate improve?

In the following articles, we will take a closer look at each asset class, examining the major news items from 2009, as well as critical issues for 2010. Each article contains insightful analysis and key themes to monitor over the coming year, themes which will underlie the actual performance of the asset classes covered. Articles are offered for the following asset classes: fixed income, domestic equities, international equities, hedge funds, real estate, infrastructure, and private equity. As a launching point, we take a broad view of the economy and examine some crucial macroeconomic topics as they pertain to the U.S. economy.

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Update on Government Stimulus Programs
With the United States’ economy plunging into the most severe downturn since the Great Depression, policymakers have been faced with the unenviable task of reviving an $11 trillion economy saddled with debt and struggling to maintain its lead in the global marketplace. As mounting losses at the nation’s “too big to fail” financial institutions were agitating the global markets, the government was being urged to intervene in order to avoid a systemic collapse. After the traditional tools used to rouse the economy during cyclical downturns provided little relief, it quickly became clear that this unprecedented crisis would require an unprecedented response.  Displaying little faith in free market capitalism’s “invisible hand,” the nation’s financial leaders responded with pointed economic stimulus designed to match the crisis in both size and scope. In response to the crisis, Congress, together with the Department of the Treasury, the Federal Reserve, and numerous other government agencies apportioned over $2 trillion in bank bailouts, tax cuts, and spending programs. This represented the largest amount of government spending America had ever seen. Considered strong and swift by some, and reckless by others, the stimulus was designed for widespread relief and met with an even wider range of public opinion. Now, with the worst of the crisis having passed and a less than certain future ahead, a review of some of the marquee financial programs of the largest government stimulus effort in the country’s history is in order.

Credit Markets Update
The economic crisis that we are currently in the midst of has commonly been referred to as a credit crisis or credit crunch. This is largely due to the fact that much of the rapid deterioration in economic conditions over the past two years was either directly caused by or greatly exacerbated by problems in the credit markets. This crisis, which began as a problem with subprime mortgages in early 2007, gradually spread throughout the credit markets, and eventually brought the global economy to its knees. The consensus among policymakers and economists alike is that the global economy will not be able to recover without a properly functioning credit market, and toward that end, the U.S. government has spent a significant amount of resources toward repairing the damaged credit markets of 2008.

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During these challenging times, we compiled our third quarter Investment Perspectives Newsletter to offer perspective and analysis on the market, asset classes, and issues important to our client portfolios.

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