Equity markets in the US, Japan, and Europe have rallied significantly and have outperformed emerging markets for the year. However, this will be a one year anomaly as borrowing and printing money does not drive prosperity. While Western countries have used the slow economy as a chance to rationalize excessive government borrowing and spending, emerging economies have been able to maintain stability in their governments' balance sheets. Debt to GDP ratios have climbed in the US, Japan, the UK and the Eurozone rapidly since 2000.

Italy and Greece, which already had a debt levels above 100% back in 2000, show the long term consequences of excessive government spending. Their economies are two of the world's slowest growing economies in the 21st century. The rest of the heavily indebted countries will face the same struggle. They will have to choose whether to cause a recession through a "fiscal cliff" style austerity

By Samuel Lee

From the title of Rob Arnott's talk, "RAFI Strategies: Five Years Later," I was expecting an overly long (and frankly premature) victory lap for fundamental indexing. There was some of that, but the meat of the talk was on the "3D hurricane"--deficits, debts, and demographics. He laid out a powerful case that the United States and other rich-world nations are in deep trouble. Certainly the black to Brian Wesbury's white.

On deficits, Arnott said U.S. government deficits have been understated for decades: Under GAAP accounting, the kind applied to corporations, the U.S. has been running yearly deficits of 10% of GDP over the past several decades. He likened the U.S. government's accounting to Enron's. Zing.

On debts, the picture gets scary. Almost every developed nation has run up massive debts. Emerging markets are creditors. In the U.S., Social Security, Medicare, and Medicaid liabilities bring up government liabilities

By Peter Pearce

Take a long hard look at your portfolio and ask yourself if you have a coherent strategy based on research or have you picked a bunch of stocks you’re hoping will perform? Many people focus too heavily on the wrong stuff without getting the portfolio fundamentals right, so empty your head of all that nonsense and let’s fill it with some real finance.

A study by Brinson, Hood and Beebower found that in 91 of the largest U.S. pension funds, on average 93.6% of the variation in returns could be explained by the asset allocation. This leaves about 6% for both market timing and individual stock selection. Despite this, millions of investors, looking to improve their returns but not having a clue as to how to do it, turn on their TV’s and flick on their favourite business program. They listen to “insiders” try to time the