More on Related Themes
2014-07-29 Corporate Earnings Season Update by Ryan Davis, Brian Payne of Fortigent
As the so-called punchbowl provided by the Federal Reserve is slowly withdrawn, $10 billion at a time, investors are increasingly looking to corporate fundamentals to see what might drive equity markets higher in the quarters ahead. Now three weeks into second quarter earnings season, market participants have a better idea of just how the most recent cycle is shaping up.
2014-07-22 2014 Another Ho Hum Year from Hedge Funds by Ryan Davis, Brian Payne of Fortigent
Through the first six months of the year, hedge funds have generated a positive, albeit somewhat modest return. According to data compiled by Hedge Fund Research, the Fund Weighted Composite of hedge funds in their universe had generated a 3.2% return, compared to the S&P 500’s 7.1% gain. While not terrible on a standalone basis, many investors had greater hopes for the asset class following five straight calendar years of underperformance versus the broad equity markets.
2014-07-16 Analysis of Ayres and Curtis Critique of 401(k) Plans by Brian Donohue of October Three Consulting
In our previous article we reviewed [Professors Ayres and Curtis's paper Beyond Diversification: The Pervasive Problem of Excessive Fees and 'Dominated Funds' in 401(k) Plans] (John M. Olin Center for Studies in Law, Economics, and Public Policy Research Paper No. 493). Our purpose in that article was simply to describe what Professors Ayres and Curtis are saying. In this article we evaluate their findings and proposals, discussing the limits of and possible objections to their conclusions.
2014-07-15 The Fed Announces Its Intentions by Chris Maxey, Ryan Davis of Fortigent
Minutes from the mid-June FOMC meeting were released last week, offering keen insight to the Federal Reserve’s current thinking on the economy. While the Fed suggests that the economic outlook is benign, the minutes offered guidance on the Fed’s exit path, which is expected to arrive by the end of the year.
2014-07-08 Will Latest Jobs Report Force the Fed to Act? by Chris Maxey, Ryan Davis of Fortigent
After a reasonably bleak winter, labor markets are on the rebound, just in time for the Federal Reserve to decide when they should stop asset purchases. Recent figures suggest that labor markets are very near Fed targets, raising the possibility that interest rate hikes could begin sooner than expected.
2014-07-02 Alternative Investments: The Right Expectations by Roger Nusbaum of AdvisorShares
Every year around this time we hear about the fiscal year investment results for the various college endowments and typically there is much written about the endowments and 2014 is no exception but this year most of the attention seems to be on the extent to which various forms of alternative investments have been a drag on endowment results after years of their having provided outsized gains.
2014-07-01 Fixed Income Markets Cruise - What's Next? by Chris Maxey, Brian Payne of Fortigent
For the better part of twelve months, fixed income markets have been in a rather benign state. After receiving a scare in early summer 2013 during the “taper tantrum,” volatility subsided, and normalcy returned to the world of fixed income. As money continues to pour into fixed income markets, there is growing concern that the investment opportunity is stretched and the time to rebalance is now.
2014-06-30 The New Normal of Healthcare Spending by John Mauldin of Mauldin Economics
A rather interesting shockwave came across the newsfeeds this week. I was actually doing a TV interview when the host announced that GDP was down 2.9% for the first quarter. There was not much else I could do but note that that was a really bad, ugly, terrible, not very good number.
2014-06-24 Equities Rally on Surprise-Free Fed by Chris Maxey, Ryan Davis of Fortigent
The Federal Reserve held its regularly scheduled meeting last week, and equity markets raced to their strongest daily gain of the week after the announcement was released. There were few surprises, as the Fed chose to maintain its course, while painting a cautious economic picture.
2014-06-24 The Over-Capitalization Curse by William Smead of Smead Capital Management
At Smead Capital Management we are conscious of the few, but significant pitfalls which we believe exist for the long-duration common stock investor. One of the main pitfalls we want to avoid is the over-capitalization curse. This is a situation where investor enthusiasm gets very high, prices get historically high and investors drown the company, industry or sector with capital. In our experience, it pays to avoid the over-capitalized areas for as long as five to ten years as they work their way back to being hated and contentious.
2014-06-17 Oil Spikes on Iraqi Strife by Chris Maxey, Ryan Davis of Fortigent
Of the many global macroeconomic concerns of the past few years, oil has curiously fallen down the list in terms of major areas of investor focus. After recovering in the wake of the financial crisis, the commodity has generally been range bound between $100 and $120 a barrel. Newfound supply of natural gas in the United States has also eased concern about the domestic economy’s reliance on oil imports from the Middle East.
2014-06-09 Jobs return to pre-recession peak by Ryan Davis and Brian Payne of Fortigent
Global equity markets cheered the European Central Bank’s (ECB) decision to lower rates and provide further monetary stimulus last week, as the DJIA and S&P 500 gained 1.2% and 1.3%, respectively. As one might imagine, notable outperformance came from Europe’s peripheral countries with Italy (MSCI Italy) and Spain (MSCI Spain) gaining 3.4% and 2.6%, respectively.
2014-06-02 Corporate Activity Flourishes by Chris Maxey, Brian Payne of Fortigent
With the backdrop of low interest rates, and sluggish revenue growth, 2014 has been the year that M&A activity finally blossomed. Companies are growing more aggressive in their acquisition tactics, leading to many high profile mergers and numerous opportunities to improve profitability.
2014-05-28 Home Sales Gain: Now Where? by Chris Maxey, Brian Payne of Fortigent
This week is full of economic data with the Case-Shiller Home Price index coming out. Also coming out is data on durable goods orders and consumer confidence. On tap for later in the week is the second estimate of Q1 GDP, pending home sales, and personal income growth.
2014-05-20 Inflation Becomes the Latest Topic du Jour by Chris Maxey, Brian Payne of Fortigent
Long discussed pricing pressure is beginning to show up in various domestic indices, leading some to believe the Fed will pull its foot off the brakes sooner than anticipated. While inflation is stabilizing, there are few signs that it is accelerating materially, leaving plenty of room for the Fed to maneuver. It will be important to keep an eye on prices going forward, though, as any acceleration could alter the investment and economic landscape quickly.
2014-05-19 Three Questions Investors Need to Ask About Alternatives by Donna Chapman Wilson of Invesco Blog
The world of alternative investments includes a range of hedge fund-like strategies that typically consist of publicly traded equity and fixed income investments, but are unconventionally managed using a variety of exposures (long, short, market neutral) and financial instruments. These strategies have gained acceptance in recent years, and have become more widely available to individual investors through vehicles such as mutual funds. However, questions still remain about the best ways to incorporate them into an asset allocation strategy.
2014-05-13 Dollar Bulls Drop Their Heads in Frustration by Chris Maxey, Ryan Davis of Fortigent
For some time, strategists have been bullishly positioned on the U.S. Dollar, anticipating a rally that failed to materialize. The arguments were straightforward – the Federal Reserve is exiting its easing cycle, Europe is facing deflationary pressure and likely to ease further, and the economy in the U.S. is on improving footing. Those expectations, while true to some extent, are not translating into gains for the Dollar, leaving many frustrated. The Dollar is suffering from a bad case of dejection and could struggle to see a sustained breakout for some time.
2014-05-07 Does a Perfect Policy Portfolio Exist? by Jeff Knight of Columbia Management
The idea of a policy portfolio, the core strategic asset class weightings for an investment portfolio, has evolved significantly during the course of my career as an asset allocation specialist. From the humble beginnings of standard balanced investing (the good old 60/40), investors have searched for the best neutral asset allocation to serve their goals over the long term.
2014-05-06 Labor Markets Bounce Back from Winter Hibernation by Chris Maxey, Brian Payne of Fortigent
In a less than surprising development, U.S. non-farm payrolls grew by 288,000 in April. While some are loathe admitting the positive nature of April’s report, there was plenty to be happy about in the latest release, suggesting the economy continues to move towards a more favorable footing. As always in the post-2008 world, caveats remain and the trend in the months ahead will provide a clearer picture into the pace of recovery.
2014-05-05 The 5 Commandments of Warren Buffett and Charlie Munger by William Smead of Smead Capital Management
Here you will find our review of the 2014 Berkshire Hathaway Annual Shareholder Meeting. As we consider these men pioneers of long-duration common stock investing, we wanted to share what we believe were the best nuggets of wisdom from the weekend.
2014-04-29 Why Are Hedge Funds Struggling in 2014? by Chris Maxey, Ryan Davis of Fortigent
2014 has been a year marked by shaky equity markets and relatively higher volatility than observed in 2013. With falling equity market correlations and increased stock dispersion, it was presumably a more favorable environment for hedge funds. Unfortunately, that has not been the case as most alternative investment approaches are posting less than stellar results so far this year.
2014-04-23 Highest equity returns may not deliver the best gains by Team of Eaton Vance
Many investors do not consider taxes when investing in equities, nor can they quantify the tax drag on their portfolios. Equities may wield an inherent tax advantage over many other asset classes, as long-term capital gains are taxed at lower rates than ordinary income. Employing the use of equity mutual funds managed for after-tax returns may further help exploit the tax advantages inherent in this asset class.
2014-04-22 Does Rebalancing Reduce Risk? by Michael Edesess (Article)
In a previous article I asked whether rebalancing increases return, as the term "rebalancing bonus" implies. I concluded that it does not. In this article I ask whether it is a tool for reducing risk. The answer depends on whether you believe that the standard deviation of long-term returns is the appropriate measure of risk. This article will show why it often is not.
2014-04-22 Taxes are the Pits, But Not for Everyone It Seems by Chris Maxey, Ryan Davis of Fortigent
A number of Americans breathed a joyful sigh of relief last week after closing the books on their 2013 income taxes. The annual rite of passage rarely elicits excitement when addressed in conversation, and this year was unlikely to be any different. But, the latest tax data suggests the economy is gaining speed, news bound to make even the most hardened filers crack a smile.
2014-04-15 Complacency Makes Volatility Markets a Dangerous Place by Chris Maxey, Ryan Davis of Fortigent
With a dissipation of economic stress in Europe, and a general strengthening of economic conditions in the U.S., equity market volatility has plunged to new lows. Some would argue that market intervention by central banks is acting as an unnatural dampener to market volatility, raising the question as to whether a gradual removal of those policies will cause volatility to resurface. So far, the answer is up for debate, but current positioning suggests many investors are becoming complacent and will be caught off sides if such a scenario emerges.
2014-04-15 Running Backwards to Catch Up by Jerry Wagner of Flexible Plan Investments
Did you ever try to run backwards? I find walking backwards difficult enough. Running in reverse can send you tumbling.
2014-04-09 Take an Active Approach to Selecting Your Active Manager by Robert McConnaughey of Columbia Management
For some time, we have written about the challenges active equity managers face from a market with unusually high cross-correlations. We have also stated our belief that the correlation pendulum would swing back to more normal levels (at least) as the aftershocks of the 2008 financial crisis abated, with a corresponding benefit to active managers. That swing is well under way and a growing number of commentators have begun to echo our observation.
2014-04-08 Labor Markets Looking for a Spring Blossom by Chris Maxey, Ryan Davis of Fortigent
With an unusually harsh winter finally ending, economists were excited to see if labor markets would rebound in March. By many accounts, they were left wanting for more, but the underlying theme in the March report was consistent, steady job growth.
2014-04-08 Predatory Trading ? Just How Big an Issue is High-Speed Trading? by Matt Waldner of Columbia Management
High-frequency trading (HFT) is a topic institutional investors and traders have been battling for years. A new book titled Flash Boys by author Michael Lewis of Moneyball fame, investigations out of U.S. regulators and a 60 Minutes spot on a recently developed exchange, IEX, brought this topic from Wall Street to Main Street. In this article, we?ll take a walk around the issue, educate our investors, and hopefully, quell any concerns.
2014-04-01 A Look at First Quarter Market Performance by Chris Maxey, Ryan Davis of Fortigent
As the first quarter draws to a close, equity markets appear poised to finish in positive territory despite a somewhat tumultuous news environment. As noted by Bloomberg, save for a sharply negative Monday period, the S&P 500 will close out a fifth consecutive quarter in positive territory for the first time since 2007.
2014-03-25 Janet Yellen Enters the Picture by Chris Maxey, Ryan Davis of Fortigent
After bursting onto the scene earlier this year, Janet Yellen held her first official FOMC meeting last week. Rather than upset the apple cart, she held a largely status quo stance, but several comments raised more than a few questions.
2014-03-24 Is the Fed Supporting the Equity Markets? by Tom Riegert of Hatteras Funds
The Federal Reserve?s unprecedented increase in reserves purchased through its quantitative easing programs has paralleled the performance of the equity markets to a startling degree. Has the Fed?s program been supporting the equity markets? We examine the strong correlation between the Fed?s balance sheet and the performance of the S&P 500 since end-2008, and ponder the effects the Fed?s long-awaited tapering will have on market volatility. Investors facing the uncertainty ahead could well find alternative investments a welcome addition to their portfolio.
2014-03-18 Currency Markets Heat Back Up, and Will Likely Remain that Way by Chris Maxey, Ryan Davis of Fortigent
Long dormant after the financial crisis, foreign exchange markets are beginning to heat up, offering ample trading opportunity for asset managers. The U.S. dollar was widely viewed as being the best long trading opportunity for 2014, but so far, that has not played out, with activity in the Euro, Chinese Yuan, and other currencies impeding dollar strength.
2014-03-10 Tech Bubble 2.0? by Chris Maxey, Ryan Davis of Fortigent
The $19 billion acquisition of WhatsApp by Facebook in late February put an exclamation point on several high profile takeovers in the technology space in recent months. Sizeable deals such as Google?s $3 billion acquisition of Nest and Facebook?s $3 billion offer for SnapChat have fueled the idea that an indiscriminate buying spree in the technology space a la 1999 could set up financial markets for another valuation bubble.
2014-03-09 The Problem with Keynesianism by John Mauldin of Millennium Wave Advisors
Keynes himself would appreciate the irony that he has become the defunct economist under whose influence the academic and bureaucratic classes now toil, slaves to what has become as much a religious belief system as it is an economic theory. Men and women who display an appropriate amount of skepticism on all manner of other topics indiscriminately funnel a wide assortment of facts and data through the filter of Keynesianism without ever questioning its basic assumptions. And then some of them go on to prescribe government policies that have profound effects upon the citizens of their nations.
2014-03-07 Tensions between Russia and Ukraine Worry Investors by Gene Goldman of Cetera Financial Group
Over the weekend, tensions escalated between Russia and Ukraine as Russian forces invaded and took complete operational control of the Crimean peninsula.
2014-03-04 A Consumer Releveraging Renaissance? by Chris Maxey, Ryan Davis of Fortigent
After a long period of deleveraging, there are appearances that consumers are entering a stage of releveraging. The devil is always in the details, though, and this releveraging cycle is likely to play out vastly different than those of previous expansions.
2014-03-04 Time for Nat Gas Stocks to Come in From the Cold? by Bradford Evans of Heartland Advisors
The prices of natural gas stocks haven’t risen in concert with this winter’s higher commodity prices. Here’s a look at why that might change.
2014-02-25 Time to Worry About Europe Again? by Chris Maxey, Ryan Davis of Fortigent
The European sovereign debt crisis has all but faded from investors? minds since ECB President Mario Draghi?s famous pronouncement on July 26, 2012 that he would do ?whatever it takes? to save the monetary union. Since that time, equity markets in Europe rallied sharply as accumulated risk aversion fell away.
2014-02-19 Checking in on Earnings by Chris Maxey, Ryan Davis of Fortigent
Earnings season is nearing its finale, and the latest results show plenty of reason to be bullish, but the longer-term trend remains an outstanding question for markets.
2014-02-15 The Economic Singularity by John Mauldin of Millennium Wave Advisors
Today, let’s think about central banks and liquidity traps and see if we agree that central bankers are driving the car from the back seat based upon a fundamentally flawed theory of how the world works. That theory helped produce the wreck that was the Great Recession and will have its fingerprints all over the next one.
2014-02-12 Was the labor report positive, or negative, anyone? by Chris Maxey and Ryan Davis of Fortigent
Stocks were modestly positive last week following three straight weeks of negative performance. Markets crawled back following an ugly Monday in which the S&P 500 suffered its worst loss in more than seven months. For the week, the S&P rose 0.9% while the Dow Jones Industrial Average added 0.7%.
2014-02-04 Investors Should Focus on Wages, Not Jobs by Chris Maxey, Ryan Davis of Fortigent
This Friday investors receive the first official labor market report of 2014. Following a highly disappointing jobs figure in December, many market participants hope to see a rebound - particularly one that will help justify the Fed’s decision last week to continue tapering its asset purchases.
2014-01-31 Buy What You Know? Not So Fast by Russ Koesterich of iSharesBlog
Buy what you know. It’s an old admonition, and on the surface a sensible one. Focusing your investments on those companies that you’re most familiar with should help mitigate the risk of a bad investment choice. Unfortunately, like a lot of conventional wisdom, it’s wrong. Concentrating your portfolio to local investments, while comforting, is a mistake for two reasons.
2014-01-29 How to Retire at 30! by Roger Nusbaum of AdvisorShares
MarketWatch had a very thought provoking post about a couple in Colorado who retired when they turned 30 (they are 39 now). In 2011 they took their story to the blogosphere with the very popular blog Mr. Money Moustache.
2014-01-28 Harvard’s Post-Crisis Endowment Strategy by Justin Kermond (Article)
Jane Mendillo took the helm as CEO and president of Harvard Management Company (HMC) in 2008, after the endowment suffered a devastating $10 billion loss, which depleted its worth by more than 27%. Under her leadership, HMC has emerged from the crisis with innovative changes in its policies and processes regarding asset allocation and risk management of alternative assets.
2014-01-28 Letters to the Editor by Various (Article)
A reader responds to Marianne Brunet’s article, Are Small Businesses the Engine of Job Growth?, which appeared last week, and a reader responds to Robert Huebscher’s article, The Verdict on Unconstrained Bond Funds, which was published on January 14.
2014-01-28 An Active Management Turning Point? by Chris Maxey, Ryan Davis of Fortigent
Active managers faced a difficult road in recent years, leading to many questions about the efficacy of active versus passive investment management. There are signs that the tide is once again changing in favor of active managers and the road ahead could offer happier times.
2014-01-22 Commodities Remain a Source of Frustration by Chris Maxey, Ryan Davis of Fortigent
The environment following the global financial crisis has been a challenging one for asset allocators, as long held relationships shifted and traditional idioms were turned on their head. As we detailed last week in "The Diversification Obituary," investors have seen little work in their portfolios other than US stocks, while supposed diversifiers have offered little more than muted beta and unusually high correlations.
2014-01-14 The Diversification Obituary by Chris Maxey, Ryan Davis of Fortigent
According to some major media outlets, 2013 was the year diversification died. With the S&P 500 racing to a more than 30% gain (the largest since the late ’90s), it seemed as though no other asset class truly mattered last year. While it is true domestic equities had a banner year, one-asset class portfolios will never be robust, and there is reason to believe 2013 is a prime example of why diversification is incredibly important.
2014-01-07 Is 2014 the Year That Alternatives Matter Again? by Chris Maxey, Ryan Davis of Fortigent
In the wake of the financial crisis of 2008, investors piled into alternative investments en masse to help insulate their portfolios from another dramatic market decline. For those who had not yet bought into the idea of improving portfolio risk-adjusted returns, the 50% drawdown in the S&P 500 provided all the convincing needed.
2014-01-07 Turn the Page: Outlook for Economy/Stocks in 2014 by Liz Ann Sonders of Charles Schwab
In this comprehensive (read: long...sorry!) 2014 outlook report, we assess the likelihood a correction is in the offing given the strong gains since 2009.
2014-01-04 Forecast 2014: The Human Transformation Revolution by John Mauldin of Millennium Wave Advisors
It is that time of the year when we peer into our darkened crystal balls in hopes of seeing portents of the future in the shadowy mists. This year I see three distinct wisps of vapor coalescing in the coming years. Each deserves its own treatment, so this year the annual forecast issue will in fact be three separate weekly pieces.
2013-12-26 Newsletter by Harold Evensky of Evensky & Katz
I admit it, I do occasionally pick on Money Magazine and other consumer financial publications, but as I’ve written in the past, for the most part, Money does a great job of educating consumers. Its story on Lessons from the Crash "Lehman Brothers’ collapse in September 2008 sent stocks on a terrifying ride. A year-by-year look back reveals five key takeaways you need to heed today" is an excellent example. Here are Money’s "Lessons."
2013-12-24 How Much Should We Pay to Emit Carbon? by Michael Edesess (Article)
Many consider emissions of greenhouse gases to be what economists call a ’negative externality,’ meaning that they are likely to impose a cost on society through climate change and ocean acidification. The cost of that externality should, in principle, be borne by the emitters, who should pay a price to emit. But what should that price be?
2013-12-21 What Has QE Wrought? by John Mauldin of Millennium Wave Advisors
Now that we have begun tapering, we will soon see lots of analysis about whether QE has been effective. What will the stock market do? The US economy seems to be moving in the right direction, but the Fed has forecast Nirvana (seriously) - do we dare hope they can finally get a forecast right? Or have they jinxed us?
2013-12-17 Optimizing Asset Location: Is It Worth the Effort? by Joe Tomlinson (Article)
Asset location - the choice of whether to hold stocks and bonds in taxable or sheltered accounts - is receiving increased attention as advisors seek more ways to add value. New research has challenged long-held beliefs. I’ll examine that research and answer a question that should concern every advisor and client: Does the value provided by asset-location advice justify the fees for the work involved?
2013-12-17 Will 2014 Bring an End to Central Bank Intervention? by Chris Maxey, Ryan Davis of Fortigent
Nearing the final two weeks of the year, it is customary to look forward to the trends and events that will shape the coming year. A theme that may come to the fore in 2014 revolves around central bankers, specifically the diverging fates in various economies of the world.
2013-12-09 Gauging Tapering Post November Jobs Report by Chris Maxey, Ryan Davis of Fortigent
With another month down in 2013, last week came time to dissect the latest report on employment. If the market reaction was indicative, the highly anticipated November labor report did not disappoint, sending stocks up more than 1% on Friday.
2013-12-07 Interview with Steve Forbes by John Mauldin of Millennium Wave Advisors
For whatever reason, Steve Forbes seems to bring out the passion in me. When I think about what central bank policies are doing to savers and investors, how we are screwing around with the pension system, circumventing rational market expectations because of an untested economic theory held by a relatively small number of academics, I get a little exercised. And Steve gives me the freedom to do it.
2013-12-05 10 for \'14 by Richard Bernstein of Richard Bernstein Advisors
Each December we publish a list of investment themes that we feel are critical for the coming year. We continue to believe the US stock market will continue its run through one of the largest bull markets of our careers. Our positive outlook extends to the following areas: US Equities, Japanese Equities, European small cap stocks, high yield municipals.
2013-12-03 How to Keep Prospects from Stealing Your Ideas by Dan Richards (Article)
After multiple meetings with prospective clients during which you provided recommendations on their situation, at some point every advisor has walked away feeling that someone took their advice and implemented it on their own. How do you prevent this from happening?
2013-12-03 Fixed Income Markets Slog Forward by Chris Maxey, Ryan Davis of Fortigent
The past five years have seen a dramatic influx of investor capital into corporate credit markets. As investors jumped into the market, there is growing concern that credit markets are nearing stretched valuations. Those concerns are likely premature, particularly with central bank intervention in place.
2013-11-24 Game of Thrones - European Style by John Mauldin of Millennium Wave Advisors
The Eurozone crisis is not over, and it will not end quickly or soon. Even if it seems to unfold in slow motion - like the slow build-up in a Game of Thrones storyline to violent internecine clashes followed by more slow plot developments but never any resolution, the Eurozone debacle has never really gone away. The structural imbalances have still not been fixed; politicians and central bankers have still not agreed to solve major fiscal problems; the overall economy still disintegrates; unemployment is staggeringly high in some countries and still rising; and the people are growing restless.
2013-11-21 Are Bank-Loan Investors Getting What They Bargained For? by Ashish Shah, Ivan Rudolph-Shabinsky of AllianceBernstein
Investors who chose high-yield bank loans over high-yield bonds earlier this year, expecting to be insulated against rising rates, might be surprised to find that bonds might have worked out better.
2013-11-19 Asset Class Allocation and Portfolios: Critique and Complication by Adam Jared Apt (Article)
In Part 1 of this essay, I explained that for asset class allocation to become an investment practice, it required a foundation of theory. And Modern Portfolio Theory was that foundation. But today, most financial journalists and investment advisors who proffer advice centered on asset class allocation are?if I may judge from their writings?oblivious of this. And why shouldn’t they be? Theory is abstract and difficult to apprehend.
2013-11-19 Research from Yale on Commodities by Robert Huebscher (Article)
Many would consider the practice of placing assets in a commodity fund to be speculation rather than investing. That perception was amplified by a recent Bloomberg article, which reported the dismal performance of many managed-futures funds and commodity-trading advisors (CTAs). Contrary to that image, Geert Rouwenhorst, a Yale University professor, claims he has found a way to construct a commodity-based fund that earns a significant premium over inflation.
2013-11-19 Letters to the Editor by Various (Article)
A reader responds to Robert Huebscher’s article, Reflections on a Week in Cuba, which appeared last week, and a reader responds, to Bob Veres’ article, Why Deficits Don’t Matter, which appeared on October 29.
2013-11-19 Where Will the Holiday Shopping Season Lead Us This Year? by Chris Maxey, Ryan Davis of Fortigent
The unofficial start to the holiday shopping season kicks off in a few short days. Economic uncertainty abounds, raising fears that consumers will pull back from spending, but some positive developments suggest consumers will be just fine.
2013-11-17 The Unintended Consequences of ZIRP by John Mauldin of Millennium Wave Advisors
Two recently released papers make an intellectual and theoretical case for an extended period of very low interest rates and, in combination with other papers from both inside and outside the Fed from heavyweight economists, make a strong case for beginning to taper sooner rather than later, but for accompanying that tapering with a commitment to an even more protracted period of ZIRP. We are going analyze these papers, as they are critical to understanding the future direction of Federal Reserve policy. Secondly, we’ll look at some of the unintended consequences of long-term ZIRP.
2013-11-14 This May Sting Just a Bit: Global Diversification by Jeff Hussey of Russell Investments
Russell Investments’ global chief investment officer argues that times when global diversification falls out of favor might provide opportunities for investors.
2013-11-13 GameStop and Our Long-Term, Contrarian Investment Approach by Jay Kaplan of The Royce Funds
Because our contrarian approach emphasizes a long-term time horizon, we tend to invest in companies that we believe have the financial wherewithal to withstand out of favor periods. GameStop used trying times to build conviction and expand its core business rather than abandoning its discipline to meet outside expectations.
2013-11-12 Currency Markets Show Signs of Reversal by Chris Maxey, Ryan Davis of Fortigent
A mixture of surprising economic data and changing central bank policy led to sharp moves in currency markets last week. This came after several gyrations in FX markets earlier this year. Looking forward, volatility is likely to remain, but many signs point towards a strengthening U.S. dollar.
2013-11-05 The Key Issues in Today’s Muni Bond Market by Hildy Richelson and Stan Richelson (Article)
Investing in high quality municipal bonds paying a predictable cash flow and returning your principal at the end of the investment is a well-trodden system for lifetime economic success. In this article we discuss some key issues in purchasing municipal bonds to help you make wise choices for your investing system.
2013-11-05 How to Help Clients Who Hate the Holidays by Beverly Flaxington (Article)
I deal with a number of clients who are very wealthy but are miserable around the holidays. Some are older and don’t have family members who see them, others are miserly and don’t feel they should use their money for gifts for people they don’t like. The conversation actually comes up with many of them every year, and I want to be prepared this year. Any ideas or tips?
2013-11-05 Letters to the Editor by Various (Article)
Several readers respond to Bob Veres’ article, Why Deficits Don’t Matter, which was published last week. A reader responds to Adam Apt’s article, Is Gold Overpriced?, which was published Oct. 15, and a reader responds to the commentary, Scrooge McDucks, by Bill Gross of PIMCO, which appeared Oct. 31.
2013-11-05 Ex-US Property Bubble Peaking? by Chris Maxey, Ryan Davis of Fortigent
For several years now, a common storyline on China was the immense overcapacity in the country’s housing market. A mixture of easy credit policies and officials’ explicit economic growth plans based on capital investment yielded construction on a massive scale across the countryside. So-called ghost towns emerged as the pace of building and the migration of rural citizens into these cities fell out of sync.
2013-10-29 Why Deficits Don’t Matter by Bob Veres (Article)
Stephanie Kelton, Associate Professor of Economics at the University of Missouri/Kansas City, believes that the root of our deficit problems can be found in a fundamental misunderstanding ? shared by Democrats, Republicans and mainstream voters alike ? about the government’s balance sheet. She argues, plausibly, that the whole idea that we should control the deficit at all is costing our nation trillions of dollars in lost output. The result is lost income, savings, wealth and prosperity.
2013-10-29 How One Advisor Boosted His Team’s Performance by Dan Richards (Article)
Every advisor wants his or her support staff to operate to its full potential. A conversation last week with a senior manager at a leading bank provided insight into what advisors can learn from financial institutions on using variable compensation to drive performance.
2013-10-29 Letters to the Editor by Various (Article)
Readers respond to Michael Edesess and Kwok Tsui’s article, How Many Monkeys Does it Take to Find a Successful Strategy?, which appeared last week.
2013-10-24 The Pillars of Commodities Investing by Miguel Perez-Santalla of BullionVault
As an advisor your job is to know the most secure places to invest one’s money. This difficult task only becomes more difficult when confronted with demands for an alternative investment.
2013-10-22 Venerated Voices? by Various (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, has announced its Venerated Voices? awards for articles published in Q3 2013.
2013-10-18 Despite Uncertainty, the Market Still Looks Strong by Charlie Dreifus of The Royce Funds
Although it was an ugly battle, on Thursday morning October 17 President Obama signed a bill that reopened the government into January 2014 and raised the debt ceiling until early February of next year.
2013-10-15 Is Gold Overpriced? by Adam Jared Apt (Article)
New research, based on an econometric model of gold prices, has attempted to answer the question, “Is gold overpriced?”
2013-10-15 A Q3 client letter: Mike Tyson on Sticking to Your Plan by Dan Richards (Article)
Each quarter I post a template for a client letter, as a starting point for advisors who want to send clients an overview of the three months that just ended and the outlook for the period ahead.
2013-10-15 Letters to the Editor by Various (Article)
Readers respond to Robert Huebscher’s article, The Futility of the Endowment Model, which appeared last week.
2013-10-12 Sometimes They Ring a Bell by John Mauldin of Millennium Wave Advisors
Three items have come across my screen in the past month that, taken together, truly do signal a major turning point in how energy is discovered, transported, and transformed. And while we’ll start with a story that most of us are somewhat aware of, there is an even larger transformation happening that I think argues against the negative research that has come out in the last few years about the reduced potential for growth in the world economy.
2013-10-08 The Futility of the Endowment Model by Robert Huebscher (Article)
In the past two decades, the so-called endowment model has been adopted by hundreds of endowments, foundations and advisors ? particularly those serving ultra-high-net-worth clients. By aggressively allocating to illiquid alternative asset classes, those investors hoped to duplicate the results of Yale and other top-tier institutions. New research exposes the futility of those efforts.
2013-10-08 The Death of Fixed Income? Not so Fast . . . by Giordano Lombardo of Pioneer Investments
Recent market movements have reminded investors that the fixed income market is facing a secular change, after a 30-year-long bull market driven by a continuous decline in interest rates. I believe the announcements of the death of fixed income as an asset class are greatly exaggerated, and in order to face the new reality, fixed income investors and asset allocators need to adopt a significant change of approach.
2013-09-27 Achievement Awards Announced at the 2013 Insider’s Forum Conference and Leadership Forum by Bob Veres (Article)
The first annual Insider’s Forum conference attracted more than its share of industry leaders. But two of its more prominent attendees received special recognition for their contributions to the financial planning/investment advisory profession.
2013-09-24 William Bernstein ? “Stocks for the Long Run” by Michael Edesess (Article)
William Bernstein’s reading of history is that if you want to build a nest egg and protect against the “four horsemen” that threaten it over the long term, the best thing to do is invest in a globally diversified stock portfolio.
2013-09-24 Why Retirees Should Choose DIAs over SPIAs by Wade Pfau (Article)
Retirement portfolios can be constructed from a mix of asset classes, including stocks, bonds and annuities. In the past, I’ve shown that retirees achieve some of the best outcomes by allocating a portion of those assets to SPIAs. In this column, I extend my analysis to show that DIAs work even better than SPIAs, by providing more liquidity and better longevity protection at a lower cost.
2013-09-21 Rich City, Poor City by John Mauldin of Millennium Wave Advisors
This week we will conclude our look at pension plans for the nonce with a 30,000-foot overview of the states and then take a deeper dive into one city: mine. This will give you at least one version of how to do your own homework about your own hometown. But fair warning, depending on your locale, you may need medical help or significant quantities of an adult beverage after you finish your research.
2013-09-17 Investing for Real People by Sponsored content by Oppenheimer Funds (Article)
Investor goals are the same, but solutions have changed. Today, aiming to meet basic needs requires new solutions. Laser focus on investor goals will help uncover appropriate investment opportunities. Expanding the opportunity set beyond the usual suspects will be critical to long-term success.
2013-09-14 Nothing But Bad Choices by John Mauldin of Mauldin Economics
Crises in government funding don’t simply arrive on the doorstep unannounced. Their progress toward the eventual Bang! moment is there for all the world to see. The root cause is almost always the same: debt. And whether that debt is actually borrowed or is merely promised to the populace, when the market becomes worried that the ability of the government to fund its promises is suspect, then the end is near. Last week we began a series on what I think is an impending crisis in the unfunded pension liabilities of state and local governments in the United States.
2013-09-10 Check or Checkmate... by Blaine Rollins of 361 Capital
The White House’s goal is to persuade Congress to authorize a limited military strike against Syria to punish it for a deadly chemical weapons attack. But after a frenetic week of wall-to-wall intelligence briefings, dozens of phone calls, and hours of hearings with senior members of Mr. Obama’s war council, more and more lawmakers, Republican and Democrat, are lining up to vote against the president.
2013-09-07 Unrealistic Expectations by John Mauldin of Millennium Wave Advisors
Two well-respected analysts of pension funds have produced reports this summer suggesting that pensions are now underfunded by more than $4 trillion and possibly more than $5 trillion. I would like to tell you that the underfunding is all the bad news, but when you probe deeper into the problems facing pension funds, it just gets worse.
2013-09-04 Fixed Income - Where to Now? by Chris Maxey, Ryan Davis of Fortigent
Since the end of the Global Financial Crisis (GFC), investors moved aggressively into fixed income asset classes. They were quickly rewarded in the years following the crisis with a combination of falling interest rates and tighter credit spreads, which led to positive absolute returns. The easy money in fixed income is gone, however, and now is the time for careful asset class selection.
2013-09-04 Weekly Market Review Notes by Team of Tuttle Tactical Management
In August the US Stock Market had its worst month since May 2012 and there are a bunch of interesting issues going into September, including Syria, Problems in Emerging Markets,and Fed tapering.
2013-09-03 So Step Right Up, Pick Your Favorites... by Blaine Rollins of 361 Capital
So with the backing of The White House, the State Department, the Senate & The Economist, the United States is going to launch Tomahawks on Syrian targets. The President did say that he will let Congress vote on a strike, but both he, Secretary Kerry and Senator Reid let it be known that they will be lighting fuses soon. So as a refresher as to who is supporting whom in Syria, the chart below will both assist and thoroughly confuse you...
2013-08-31 How Do I Hate Thee? by John Mauldin of Millennium Wave Advisors
I will list a number of reasons why I hate this market and then suggest a few reasons why that should get you excited. We will look at some charts, and I’ll briefly comment on them. No deep dives this week, just a survey of the general landscape.
2013-08-25 France: On the Edge of the Periphery by John Mauldin of Millennium Wave Advisors
Charles de Gaulle said that "France cannot be France without greatness." The current path that France is on will not take it to renewed greatness but rather to insolvency and turmoil. Is France destined to be grouped with its Mediterranean peripheral cousins, or to be seen as part of the solid North Atlantic core? The world is far better off with a great France, but France can achieve greatness only by its own actions.
2013-08-23 What Does an Improving Economy Mean for Stocks and Bonds? by Charlie Dreifus of The Royce Funds
With the economy improving, inflation tame, and a Federal Reserve meeting approaching in September, Portfolio Manager and Principal Charlie Dreifus believes that small-caps remain an attractive option within the equities market.
2013-08-20 Target-Date Funds: Why Higher Equity Allocations Work by Joe Tomlinson (Article)
Following the 2008 financial crisis, target-date funds (TDFs) were criticized for exposing investors nearing retirement to excessive equity allocations. Were those criticisms justified? How well do TDFs stack up against the venerable strategy of matching one’s bond allocation to one’s age? My research has yielded surprising answers to those questions and to the proper role of single-premium immediate annuities (SPIAs) alongside TDFs.
2013-08-17 Signs of the Top by John Mauldin of Millennium Wave Advisors
The investment media seems obsessed with the question of whether the Fed will taper. The real question should be not about "tapering" but about credibility. What happens when fundamentals become the narrative as opposed to what the central bank is doing? What happens if the Federal Reserve throws a liquidity party and nobody comes? Today we look at some of the fundamentals. The market is in fact overvalued, but that doesn’t mean it can’t become more overvalued. Is this August 1987 or August 1999?
2013-08-15 Correlation and Portfolio Construction by Dean Curnutt of Macro Risk Advisors
We review recent periods of financial market stress, which bring about elevated levels of asset volatility and during which investors are vulnerable to incurring substantial loss of capital. We illustrate that risk is determined both by the volatility of individual investments in a portfolio and the degree to which they are correlated. Often overlooked, correlation is a critical factor. Because assets become more correlated at the same time they become more volatile, we argue that the benefits of diversification often are difficult to achieve when they are most needed.
2013-08-13 Why Clients Don’t Give You Credit for Your Hard Work ? And What to do About it by Dan Richards (Article)
Advisors work incredibly hard, but clients take that effort for granted. How can advisors get credit for all they do for clients?
2013-08-10 We Can't Take the Chance by John Mauldin of Millennium Wave Advisors
What would it have been like to be a central banker in the midst of the crisis in 2008-09? You’d know that you won’t have the luxury of going back and making better decisions five years later. Instead, you have to act on the torrent of information that’s coming at you, and none of it is good. Major banks are literally collapsing, the interbank market is nonexistent and there is panic in the air. Perhaps you feel that panic in the pit of your stomach. This week we’ll perform a little thought experiment to see if we can extrapolate what is likely to happen in when the nex
2013-08-08 What is Risk? by Chris Engelman of Cedar Hill Associates
There are no rewards from investing without some measure of risk. Risk management, a process for recognizing, assessing and prioritizing a variety of risks, is an essential part of managing a portfolio successfully. Cedar Hill takes a holistic approach to risk management by identifying each client’s objectives, preferences and constraints, then creating specific asset allocation and implementation strategies to minimize the effects of negative events.
2013-08-06 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Every investor is unique. Similarly, every investment opportunity is unique. Despite our desires to see otherwise, each situation must be measured on a paradigm of possibilities rather than being pigeon-holed into a structured definition.
2013-08-01 July 2013 Market Commentary by Andrew Clinton of Clinton Investment Management
Fixed income investors have enjoyed a steady move higher in bond prices over the past five years. Given the consistency with which bond values have increased, it is understandable if bond investors were surprised by the just over 0.60%, or 60 basis point rise in ten year Treasury yields and corresponding movement down in bond prices during the second quarter.
2013-07-30 Revisiting “The Cost of Socially Responsible Investing” by Paul A. Ruud (Article)
Endowments have been warned that socially responsible investing incurs a financial cost, based on research by two prominent academicians. But that research ? which has been presented and debated in this publication ? is based on a tenuous model that is highly sensitive to its assumptions. Change those assumptions reasonably, as I did in my research, and the cost of SRI becomes trivial.
2013-07-23 The Price You Pay for Poor Management by Bob Veres (Article)
If you have 100 client meetings a year and could net an additional $65,000 to $70,000 out of them, how much effort would you be willing to put into achieving that?
2013-07-19 How to Catch an Investment Wave\'? Get in the Water! by Joe Kringdon of Pioneer Investments
At the beginning of the summer, I always start singing (or humming) some Beach Boys song as my own personal soundtrack to this glorious and seemingly carefree season. The song “Catch a Wave” has particular significance not because I’m a surfer, but because one of my investing mentors once used surfing as analogy for me.
2013-07-16 Venerated Voices? Awards for the Second Quarter of 2013 by Advisor Perspectives (Article)
We announce our Venerated Voices awards for commentaries published in Q2 2013. Rankings were issued in three categories: The Top 25 Venerated Voices by Firm, The Top 25 Venerated Voices by Author and The Top 10 Venerated Voices by Commentary.
2013-07-16 Letters to the Editor by Advisor Perspectives (Article)
A reader responds to the ongoing exchange of letters regarding socially responsible investing, and a reader responds to Joe Tomlinson’s article, Retirement Portfolios: Fears over Rising Rates are Overblown, which appeared last week.
2013-07-16 Hedge Funds Can Advertise...But Should They? by Chris Maxey, Ryan Davis of Fortigent
In April 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The legislation eased a number of regulatory burdens on small businesses and private industry in a bid to boost job growth. The bill made additional headlines for lifting an 80-year ban on solicitation for private placements, the restriction that prevented hedge funds from advertising their wares to the general public.
2013-07-13 The Bang! Moment Shock by John Mauldin of Millennium Wave Advisors
This week we resume our musings about Cyprus, to see what that tiny island can teach us about our own personal need to engage in ongoing critical analysis of our lives and investment portfolios. Cyprus is not Greece or France or Spain or Japan or the US or (pick a country). I get that. No two situations are the same, but there may be a rhyme or two here that is instructive.
2013-07-10 Employer Mandate: A Pharma Bump in the Road by Bill Smead of Smead Capital Management
As long-duration value investors, we at Smead Capital Management have been very attracted to the conservative accounting, shareholder friendly dividends/buybacks and bright pipeline futures of major pharmaceutical/biotech companies like Merck (MRK), Pfizer (PFE) and Amgen (AMGN). Lately, there has been weakness in these shares and we’d like to review our best theory for recent fears and price weakness, while reviewing the merit of these high quality shares.
2013-07-02 Avoiding the Interest Rate Freight Train with Individual Bonds by Stephen J. Huxley, Jeremy Fletcher and Brent Burns (Article)
For bond funds, rising rates mean that total return has to fight losses on the underlying portfolio. As a fund’s net asset value (NAV) declines, coupon interest may not be enough to overcome the price loss. Making the same fixed-income allocation to high-quality individual bonds instead and holding them to maturity is a superior strategy when rates rise.
2013-07-02 The Practical Application of Behavioral Finance by Mitchell D. Eichen and John M. Longo (Article)
From the Dot-Com bubble onward, traditional investment models have repeatedly disappointed those who relied on them. When compared to mathematically based models, behavioral finance provides a superior foundation. Here is an alternative investment paradigm, grounded in behavioral finance, that is practical and effective over time periods that are relevant for a significant portion of investors.
2013-06-26 Sock Puppet Kabuki; Nikkei Today Parallels Dot-Com Bust by Peter Schiff of Euro Pacific Capital
The Japanese stereotype of excessive courtesy is being confirmed by the actions of prime minster Shinzo Abe who is giving the world a free and timely lesson on the dangers of overly accommodative monetary policy. Whether or not we benefit from the tutorial (Japan will surely not) depends on our ability to understand what is currently happening there.
2013-06-25 The Price Your Clients Pay for Using Safe Withdrawal Rates by David B. Loeper (Article)
Safe-withdrawal rates (SWRs) are perhaps the most extensively studied topic in financial planning literature. But applying a single SWR-driven methodology to all clients neglects their unique and individual needs. A better approach is for advisors to assist clients in defining their ideal and acceptable goals and the relative priorities among them. Then they can demonstrate through Monte Carlo simulation the likelihood of the recommended plan becoming over- or under-funded relative to those goals.
2013-06-21 Austerity is a Four-Letter French Word by John Mauldin of Millennium Wave Advisors
The France that I see as I look out from the bullet train today is far different from the France I see when I survey the economic data. Going from Marseilles to Paris, the countryside is magnificent. The farms are laid out as if by a landscape artist this is not the hurly-burly no-nonsense look of the Texas landscape. The mountains and forests that we glide through are glorious. It is a weekend of special music all over France, and last night in Marseilles the stages were alive and the crowds out in force.
2013-06-19 The Art of Low Turnover by Bill Smead of Smead Capital Management
We have argued vociferously that active managers have given up their preferred position in the investing marketplace to passive indexes because of high turnover. A recent Wall Street Journal article referenced 78% turnover as being the average among large-cap US equity funds. Studies have shown that as much as 144 basis points each year in return is chewed up by trading costs. Explaining turnover and its impact is one thing, but it is more important to ask a question. How do you practice low turnover while seeking maximal long-term performance?
2013-06-18 Retirement Income Designations ? Which Should You Choose? by Wade Pfau (Article)
With more than 50 certification programs based on the withdrawal phase of the planning lifecycle, advisors are faced with a paralyzing choice about which designation provides the most valuable curriculum. Here’s some guidance on choosing the right program for advisors.
2013-06-14 Global Small Cap Investing: Unconstrained Opportunities by Blake Pontius of William Blair
Equity asset allocations have become more global in recent years as investors have sought to reduce the long standing home country bias in their portfolios. Further propelling this trend has been the growing aversion to traditional asset class structures and indeed, conventional asset class definitions, in the aftermath of the 2008-2009 global fi nancial crisis. Against this backdrop, global equity strategies have continued to garner asset fl ows in Europe and have slowly begun to gain traction in the U.S. after years of tepid demand.
2013-06-11 Bursting the Bond Bubble Babble by Andy Martin (Article)
Interest rates will eventually go up. The 50-basis-point spike in May on the 10-year Treasury bond may have been the beginning. But despite industry and media assertions, history shows that there is nothing to fear from rising rates.
2013-06-11 Letters to the Editor by Various (Article)
A number of readers responded to Adam Kanzer’s article, Exposing False Claims about Socially Responsible Investing, which appeared last week. Kanzer’s article was in response to Adam Apt’s article, Measuring the Cost of Socially Responsible Investing, which appeared the week before. Several readers responded to other articles as well.
2013-06-11 Risk Parity - New Thinking or New Packaging? by Chris Maxey, Ryan Davis of Fortigent
Ever since Harry Markowitz brought forth the notion of mean-variance optimization in 1952, academics and practitioners alike have sought ways to build more robust asset allocation methodologies. Recently, the most talked about approach in the institutional world is risk parity, which seeks to focus on risk as its primary input. Risk parity is intuitively appealing, but suffers many pitfalls that investors need to consider.
2013-06-08 Banzai! Banzai! Banzai! by John Mauldin of Millennium Wave Advisors
In practice it may be harder for Japan to grow and generate inflation than it might be for other major nations. Today we’ll focus on Japanese demographics. While the letter is full of graphs and charts, it does not paint a pretty picture. The forces of deflation will not go gently into that good night.
2013-06-04 An Advisor’s Perspective on Prophets and Profits by Gary Moore (Article)
More than 30 years on Wall Street have proven to me that many advisors could do more business ? and do more good for our clients, profession and the world ? if we considered the moral views of investors, whether we agree with those views or not.
2013-06-04 The Beginning of the End (for Bonds) by Charles Lieberman (Article)
Attention has been focused on the stock market, because of its relentless surge to new highs, but the decline in bond prices is also worthy of note. Bond prices declined more in May than in any prior single month in nine years. Moreover, bond prices are likely to continue getting clobbered as interest rates revert to normal, even as individual investors have more exposure to bonds than ever before. The decline experienced so far is just the beginning. Investors who fled to bonds seeking safe investments are bound to be severely disappointed.
2013-06-03 Does Sector Shift Spell A Continued Rally? by Chris Maxey, Ryan Davis of Fortigent
Unlike most robust equity rallies, however, 2013 performance was initially led by traditionally defensive sectors, such as health care, utilities, and consumer staples. Through the first quarter, those three sectors posted an average return of 14.5%, while traditional cyclicals averaged just 9%. While some speculated this trend was due to investors’ reach for yield amid a frothy fixed income environment, the magnitude of this sector leadership (in an up move) was certainly unusual.
2013-06-01 Central Bankers Gone Wild by John Mauldin of Millennium Wave Advisors
For the last two weeks we have focused on the problems facing Japan, and such is the importance of Japan to the world economy that this week we will once again turn to the Land of the Rising Sun. I will try to summarize the situation facing the Japanese. This is critical to understand, because they are determined to share their problems with the world, and we will have no choice but to deal with them. Japan is going to affect your economy and your investments, no matter where you live; Japan is that important.
2013-05-29 Is the Fed in the Home Stretch? by Chris Maxey, Ryan Davis of Fortigent
Global equity markets stammered through a choppy environment last week following increased fears that certain central banks were considering the possibility of pulling stimulus sooner than anticipated. Markets have long been dependent on central banks, but the notion that policymakers could head for the exits leaves investors unsure how to react.
2013-05-21 Why the Lack of Inflation Is a Problem by Chris Maxey, Ryan Davis of Fortigent
Given the outsized role central banks are playing in today’s financial markets, inflation watching has taken on increased significance.It is widely assumed that continued easy money policies are only possible as long as price increases remain under control.At the same time, for a global economy trying to escape an extended period of weak growth and burdensome debt loads, low inflation is a double-edged sword.
2013-05-15 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Even in the face of this year’s remarkably vibrant stock market, there remains some ugly undercurrents of how the bounty doesn’t touch everyone. In particular, I find it extremely disquieting, as an investor and as a citizen, that people might be going to bed hungry.
2013-05-14 David Rosenberg ? My Love Affair with Bonds is Over by Robert Huebscher (Article)
The chorus of rate-spike-fearing inflationists has a new member. David Rosenberg, a stalwart advocate of fixed-income investing for the last quarter century, publicly declared on May 3 that his “love affair with the bond market has come to an end.” Prepare for a redux of 1970s stagflation, he said, and he advised investors how to construct portfolios to prepare for that scenario.
2013-05-14 Mohamed El-Erian: The Three-Speed Global Economy by Robert Huebscher (Article)
The global economy is operating at three distinct speeds, according to Mohamed El-Erian, and investors need to understand the implications of the divergent paths that key countries are following. Japan and most European countries are going backward, he said, and could continue in that direction for decades. The U.S. is “healing,” but not quickly enough to get to “escape velocity.” Certain emerging markets, meanwhile, are adapting technology and innovation and are growing rapidly.
2013-05-14 Nassim Taleb on the Anti-Fragile Portfolio and the Benefits of Taking Risks by Ben Huebscher (Article)
As we recover from the most recent financial crisis, how we can we learn from the mistakes to best prepare for the future? Nassim Taleb tackled this very question in his latest book, Antifragile: Things That Gain From Disorder, which built off his previous works and applies the lessons learned to today’s biggest challenges. Taleb examined how small doses of volatility can help systems handle larger disruptors in the future.
2013-05-14 Housing Finally Breaks Free by Chris Maxey, Ryan Davis of Fortigent
Housing, which for so many years represented everything bad about the credit crisis, is finally beginning to have its day back in the sun. Trends in housing markets around the country are improving, to the benefit of the overall economy. It appears that trend is set to continue.
2013-05-13 Whither Interest Rates and \"Safe\" Investments? by Charles Lieberman (Article)
It was an interesting week for comments from notables regarding the future direction for interest rates. Bill Gross suggested yields had bottomed recently. Warren Buffett "pitied" bond investors, (but not so much he was unwilling to supply them with more bonds issued by Berkshire.) High yield bond yields declined below 5% and risk spreads continued to erode. The "Great Rotation" from bonds into stocks has not really even begun yet. Still, it only seems like a matter of time before interest rates begin to rise, severely hurting investors looking for safety.
2013-05-07 Niall Ferguson: Four Reasons Why the U.S. is Failing by Robert Huebscher (Article)
Niall Ferguson is the champion of anti-Keynesian economists. Last week, he explained why America’s pursuit of Keynesian policies is leading to disastrous consequences.
2013-05-07 Central Banks Steal the Spotlight Once Again by Chris Maxey, Brian Payne of Fortigent
Central banks around the world continue to provide increased stimulus to their respective economies. Increased conviction over pro-stimulus policies comes in light of recent flaws found in the Reinhart, Rogoff January 2010 paper, which suggested that government debt of more than 90% of GDP is detrimental to economic growth. The latest week brought another round of news in the world of central banking, although it seems the number of options left on the table is running short. What central bankers hope for now is that economies will finally enter recovery mode.
2013-04-30 The Best Solution for Protecting Retirement Portfolios: Put and Call Options versus GLWBs by Joe Tomlinson (Article)
Retirees cannot be exposed to severe ? or even modest ? market losses. They need to protect their savings in a cost-effective manner. I will compare the projected outcomes for two types of strategies: options, which can reduce volatility, and products that guarantee lifetime income, such as variable annuities with guaranteed lifetime withdrawal benefits.
2013-04-30 Implementing Behavioral Portfolio Management by C. Thomas Howard, PhD (Article)
Behavioral portfolio management is based on the notion that if the advisor can redirect his or her emotions and mitigate the impact of client emotions, it is possible to build superior portfolios by harnessing market emotions. This article describes how this can be done and presents evidence of the superiority of focusing on investor behavior when constructing and managing portfolios.
2013-04-30 Is May Really the Time to Go Away? by Chris Maxey, Ryan Davis of Fortigent
As investors near the witching hour of May, the oft-asked question once again comes to the foreground is it best to sell in May and walk away? This year could prove the exception to recent history, but a number of trends are beginning to take shape inside the market’s inner workings.
2013-04-26 Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? by Chuck Carnevale of F.A.S.T. Graphs
To me, there’s almost nothing better than finding a great company that I truly want to own at a fair valuation, or better yet, undervalued. In the long run, it has been my experience that this usually leads to outsized future returns, especially if you buy stocks when they are undervalued at the time. But there is quite often a side effect that can prove very disconcerting. Once an undervalued stock starts moving to the upside, momentum will often carry it above what prudent fair valuation would dictate.
2013-04-23 The New Challenges to Reinhart and Rogoff by Robert Huebscher (Article)
Advocates for debt reduction and austerity have had no more authoritative sources than Carmen Reinhart and Ken Rogoff. But last week, these two professors had to defend claims that errors in their research ? ranging from a typo in a spreadsheet to the failure to include data from New Zealand ? invalidated their much-acclaimed findings.
2013-04-23 Venerated Voices? Q1 2013 by Advisor Perspectives (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, has published its Venerated Voices awards for articles published in Q1 2013.
2013-04-23 Q1 Earnings Leave Much To Be Desired by Chris Maxey, Ryan Davis of Fortigent
Following the strongest first quarter in 15 years, it is not surprising to see equity markets faltering in April. Last week’s decline of 2.1%, however, may reflect deeper concerns about corporate fundamentals amid a mixed earnings season.
2013-04-20 Austerity is a Consequence, not a Punishment by John Mauldin of Millennium Wave Advisors
Austerity is a consequence, not a punishment. A country loses access to cheap borrowed money as a consequence of running up too much debt and losing the confidence of lenders that the debt can be repaid. Lenders don’t sit around in clubs and discuss how to “punish” a country by requiring austerity; they simply decide not to lend. Austerity is a result of a country’s trying to entice lenders into believing that the country will change and make an effort to restore confidence.
2013-04-16 Tax Day as Polarizing as Ever by Chris Maxey, Ryan Davis of Fortigent
Tax season is once again upon the American population, and this year, just as in years past, people are less than enthusiastic. It is estimated that the average taxpayer contributed slightly more than $11,000 dollars to federal taxes in 2012 and those figures are on the rise. As might be expected in the current backdrop, however, not everyone shares the same opinion on taxes.
2013-04-09 Four Steps to Becoming the Primary Advisor for Top Clients by Dan Richards (Article)
Recently, an advisor who had successfully persuaded an investor with many millions of dollars to open an account asked me how to turn this foothold into a larger share of this client’s assets.
2013-04-09 Labor Markets Stumble in March by Ryan Davis, Chris Maxey of Fortigent
In an unexpected development, labor markets fell flat during March. Following several months of healthy job growth, the economy was only able to muster 88,000 new jobs in March, well below economists’ expectations for nearly 200,000 jobs.
2013-04-08 The Theology of Inflation by John Mauldin of Millennium Wave Advisors
We begin this week with a simple pop quiz. Is inflation good or bad? Answer quickly. I’m sorry your answer is wrong. Or rather, we can’t know if your answer is right or wrong because we are not sure what is meant by the question. We may think we know and we may be right but we can’t be sure, because the word inflation has different meanings for different people in different places and different times. In fact, even the same people in the same place and time can’t agree on a precise definition.
2013-04-08 “Country Roads, Take Me Home,To The Place I Belong ” by David Lieberman (Article)
Recently, I was listening to a Pod Cast from This American Life about the increasing disability rolls in the United States. The story itself was excellent and I would highly recommend it, but the implications of the numbers are equally remarkable. In the past 20 years, the number of people on disability in the United States has soared, even recently when the unemployment rate has declined materially. Rather than focus on the policy decisions, causes of this phenomena, or even whether they are logical, good, or bad, I’m going to focus purely on the unemployment and economic ramifications
2013-04-02 Choosing an Actively Managed Fund: What Works and What Doesn’t by Joe Tomlinson (Article)
Few topics have been studied as closely as selecting actively managed funds that will outperform the market. Advisors who use such funds need to be confident in their choices ? and justify their methodology to clients. Here’s what the latest academic research says on this highly contentious issue.
2013-04-02 A Q1 Letter to Clients: Why Warren Buffett is Bullish on Stocks by Dan Richards (Article)
Since 2008, I have posted templates to serve as a starting point for advisors looking to send clients an overview of the year that just ended and the outlook for the period ahead. This quarter’s letter draws on Warren Buffett’s most recent letter to shareholders, and why he is bullish on the US equity market.
2013-04-02 Is the Vix Still an Adequate Measure of Risk? by Chris Maxey, Ryan Davis of Fortigent
The 30-day implied volatility index for the S&P 500 calculated by the Chicago Board of Options Exchange (CBOE), known as VIX, has long been used as an indicator of market sentiment. Commonly referred to as the “fear index,” the VIX often portends periods of stress in equity markets, as options traders price in higher volatility in the future. The shape of the VIX futures curve, in particular, has historically been used as an indicator of future volatility levels.
2013-03-26 Adapting the Yale Model for Clients by C. Thomas Howard, PhD and Lambert Bunker (Article)
The Yale University endowment fund is one of the most successful in the country, with a 10-year return besting the endowment universe average return by 300 basis points and the Wilshire 5000 return by 400 basis points. David Swensen is the architect of this program, and his guiding principles are widely used to manage large endowments. They are equally useful for client portfolios.
2013-03-26 Reacting to All Time Highs by Jeff Knight of Columbia Management
The financial press has been all a-flutter, of late, with talk of new highs across U.S. stock markets. Indeed, the Dow Jones Industrial Average set a new all time closing high in March. Meanwhile, the S&P 500, as of this writing, sits less than one percent below its all time high. The surge in these well known market bellwethers in recent months feels good, and no doubt tempts investors to bask in their portfolio gains, and to ease back in their fussing over the nuances of investment strategy.
2013-03-26 Throw the Book at Him by Jerry Wagner of Flexible Plan Investments
On February 2, Ground Hog Day, Punxsutawney Phil failed to see his shadow forecasting, and as legend has it an early spring. Yet on the first day of spring, I looked out my back window at a lake still more than half frozen with my view partially obscured by a wicked little snow flurry. So much for forecasts!
2013-03-13 What's Your Advantage? by Bill Smead of Smead Capital Management
In the March 9, 2013 issue of Barron’s, writer Jonathon Laing wrote an excellent piece about Howard Marks. This article provides the base from which we can discuss the main components of investment portfolio composition. These components are information, analysis of information, and decisions made from information and analysis. In doing so, we will bring to light why we believe today’s best opportunity is in long-duration common stock investing.
2013-03-12 Letters to the Editor by Various (Article)
Two readers respond to Joe Tomlinson's article, Can Advisors Add Value Through Fund Selection?, which appeared on February 26, and a reader responds to Wade Pfau's article, Breaking Free from the Safe Withdrawal Rate Paradigm: Extending the Efficient Frontier for Retirement Income, which appeared last week.
2013-03-12 Bill Ackman on What Makes a Great Investment by John Heins (Article)
In addition to commenting on his high-profile current investments, Pershing Square Capital's Bill Ackman in a recent interview with Value Investor Insight describes the general company traits he looks for in both active and passive investments, why a high public profile is an important element of his strategy, whether his thesis on J.C. Penney has evolved, what lessons he's learned from a few prominent mistakes, and why his short conviction on Herbalife is as high as ever.
2013-03-12 Finally, a Jobs Report Worth Reading by Chris Maxey, Ryan Davis of Fortigent
Surprisingly, the February employment report showed a labor market growing at a reasonably healthy rate. Concerns that the sequester would spill into the broader economy have yet to materialize and if recent trends hold, the economy may finally be approaching a point of robust and sustainable job growth.
2013-03-07 Three Dimensions of Discipline by Team of Franklin Templeton Investments
As New Year's resolutions fade into guilty memories, it's a bitter reminder that maintaining discipline, in life and investing, is just plain hard. Despite best intentions, bear markets can tempt investors to sell everything, while bull markets can whip people into a buying frenzy, both courses of action that rarely end happily.
2013-03-06 Pain Aversion by Pamela Rosenau of HighTower Advisors
As the equity market continues to rally, the consensus among investors has called for a 3-5% pullback. Unfortunately for the market bears, "the pain trade remains higher right now." There are many who claim that equities are "overbought" or that stocks are "too extended." As market strategist Barry Ritholtz stated, "We find it hard to believe that after hiding under a rock for nearly five years, that a few months of equity inflows means investors have gone from petrified to exuberant. That process in our opinion is a longer arc, not a singular event."
2013-03-05 Understanding the Risk in Bonds by Charles Lieberman (Article)
Treasury bond prices rallied this past week, as sequestration promised to act as a drag on growth, while a very messy election result in Italy also pushed safe haven investors into Treasuries. Both factors are likely to be short lived insofar as they support bond prices. Interest rates are likely to head higher even with Fed policy likely to remain highly accommodative. Initially, longer maturity bond prices will decline and the yield curve will steepen.
2013-03-05 Is Now the Time to Diversify? by Chris Maxey, Ryan Davis of Fortigent
The use of global diversification in constructing client portfolios has come under fire in recent years due to the underperformance of many risk assets. Traditionalists who stuck to their familiar S&P 500 and BarCap Aggregate Bond index blends generally outperformed their diversified peers in 2011 and 2012, as historic risk premiums failed to materialize and various alternative investment strategies faced headwinds.
2013-02-27 Potential Threats to Equity Rally by Chris Maxey, Ryan Davis of Fortigent
Equity markets started a third consecutive year in rather impressive fashion, gaining more than 6% to date. With so much optimism in the investment community, it is always worth keeping an eye open for risks possibly overlooked. By now, it is apparent that investors are increasing their exposure towards equities with arms wide open. Data from the Investment Company Institute (ICI) estimates $39 billion flowed into equity mutual funds this year through February 13. Following outflows of $153 billion in 2012, the sudden reversal has been impressive.
2013-02-27 The Healthcare Blues by John Mauldin of Millennium Wave Advisors
It has been some time since we peeked into my worry closet. A few questions this weekend prompted me to think about things I am paying attention to but have not written about, and one thing that I am not worried about at all, despite the apparent media hysteria.
2013-02-26 Howard Marks? Warnings and How to Protect your Portfolio by Geoff Considine (Article)
Howard Marks, founder and chairman of Oaktree Capital Management, wrote in a recent memo that the biggest danger to investors is their willingness to buy risky assets that are likely to provide low returns. Market conditions may not fully reflect current risk; option prices, for example, are very low. Some firms ? notably PIMCO ? recommend investors buy put options to protect their portfolios. I propose an alternative strategy that will be resilient to the potential shocks of increased volatility and higher interest rates, without incurring the cost of options.
2013-02-26 The Postman May Not Ring at All by Paul DiGiacomo of Columbia Management
United States Postal Service is technically insolvent. Last year, the agency exhausted its borrowing capacity and failed to pay $11 billion into its retiree health plan. This year, it will not make a $6 billion contribution. While the current cash balance of $2 billion is sufficient for 10 days of operation, management forecasts a $100 million deficit by October. When payments to employees and suppliers end, so too will the mail.
2013-02-20 Event Driven Investors Receive Their Wish by Chris Maxey, Ryan Davis of Fortigent
For several years, investors have wondered why M&A activity has been so benign.Corporate management teams cited uncertainty about the economic outlook as a primary reason for the depressed activity.With the latest round of tax increases and revenue cuts determined, companies finally appear willing to free their animal spirits and embark on the path of acquisition.
2013-02-19 The Three Minutes that Cost a Million-Dollar Prospect by Dan Richards (Article)
Small investments of time often pay big dividends. That message was agonizingly clear to an advisor who wasted several minutes having a coffee at a Starbucks, when he should have been preparing for the prospect he was about to meet.
2013-02-19 Kyle Bass on Inflation and How to Protect Against It by Mark Quam (Article)
Kyle Bass, the founder of Hayman Capital, foresaw the collapse of the sub-prime mortgage bond market in 2008 and the foreign sovereign debt crisis in Greece. Bass' latest warning is about looming Inflation ? and he advises how to protect against it.
2013-02-12 Consumers Less Enthused to Bail Out the Economy by Chris Maxey, Ryan Davis of Fortigent
Following recent recessions, it was commonplace to rely on American consumers to bail out the economy. The reliance on the American consumer was widely understood as the best remedy for an ailing economy. We are not as fortunate this time around and our dependence on consumers is one reason for the sluggish rate of recovery since 2008.
2013-02-11 Distracting Dividends by John Petrides (Article)
With interest rates at historic lows, bonds have become a difficult place to find income (although paradoxically, in 2012, asset flows into bond mutual funds have outpaced that of stock mutual funds yet again), so investors have looked to other assets for yield, most notably high dividend paying stocks. Stocks continue to be attractively valued relative to fixed income and cash. In addition, high dividend paying stocks offer investors the ability to grow the income to help offset inflation, whereas in bonds, the income is fixed.
2013-02-05 Four Steps to Get in Front of Million-dollar Prospects by Dan Richards (Article)
Most advisors tell me that once you're face-to-face with a prospect, you have an excellent chance of signing them up. It's not the slam dunk that it might have been 15 or 20 years ago, but good odds nevertheless. The big challenge is getting that face-to-face meeting.
2013-02-05 In Uncertain Environment, Jobs Grow Tepidly by Chris Maxey, Ryan Davis of Fortigent
For the 35th consecutive month, private payrolls registered positive growth. It was hardly the robust report economists would prefer, but the labor market continues to mend. However, there are still plenty of reasons to be concerned, especially with sequestration on the horizon.
2013-02-01 Fiscal Cliff: Making Decisions in Crisis Part III by Brian Singer of William Blair
The December 31 fiscal cliff was averted, but by the narrowest of conceivable margins. The resolution is consistent with our November analysis, but the narrowness leaves much to be resolved and prolongs uncertainty through March.
2013-01-31 Fiscal Cliff: Making Decisions in Crisis Part II by Brian Singer of William Blair
Having set a framework using strategic decision theory to interpret the choices of US politicians in response to their incentives around the "ﬁscal cliff," we now similarly turn our attention to the incentives (or disincentives) around the choices facing investors. While the general rise of uncertainty around changes to the rules of a game slow down the decision making process of investors, we consider the implications of a shifting tax burden on longer run equity valuations.
2013-01-30 Fiscal Cliff: Making Decisions in Crisis Part I by Brian Singer of William Blair
Having lost touch with mainstream America, neither the Republican nor the Democratic Party enjoys much governing ability. Second, politicians struggle to function as leaders, regardless of competence, as a result of party disengagement. Third, left to their own devices, politicians will respond to their individual incentives. Bringing these observations together, neither party platform nor leadership vision will provide as much guiding force as the incentives of each politician, sometimes individually and other times in coalition.
2013-01-29 Predicting Asset Class Returns: Recommendations for Financial Planners by Joe Tomlinson (Article)
Developing reasonable estimates for stock and bond returns requires more than just historical data or the assumptions provided in financial software packages. Inappropriate assumptions can doom retirees to outliving their savings or forgoing a life style they could otherwise afford. There are better ways to forecast, and in this article I'll suggest a few of them.
2013-01-29 How to Hire the Best People by Beverly Flaxington (Article)
Numbers rule. Investments, financial plans and future goals can be assessed quantitatively. But the fundamental component of an advisor's practice is the people. Having the right people on your team to work with your clients and support your efforts is crucial to your long-term success, which is why I created a structured process for hiring the best employees.
2013-01-29 In Japan We Trust by Chris Maxey, Ryan Davis of Fortigent
In fewer than 60 days, one country has made a splash larger than all the others. No, we are not referring to the US, where Barack Obama was re-elected to a second term. Nor are we referring to China's recent transition of power. Instead, the country we reference is Japan. After decades of malaise, Japanese officials moved to embrace policies previously only accepted by Western officials.
2013-01-23 Is the European Crisis Over? by Chris Maxey, Ryan Davis of Fortigent
The European sovereign debt crisis that first erupted in 2010 and stoked almost three years of intense market volatility has all but faded from the front pages. Overshadowed by domestic policy issues and European Central Bank (ECB) President Mario Draghi's pledge to do "whatever it takes" to save the Eurozone, fears that the monetary union would crumble and unleash a maelstrom of financial distress appear to have dissipated.
2013-01-22 Venerated Voices by Ranks Economic and Market Commentaries Most Read by Financial Advisors (Article)
Here are the winners of our 2012 Venerated Voices awards: the top commentaries, authors and firms for the past year, based on readership.
2013-01-16 Tax-Deferral Becomes More Urgent As Congress Seeks Fiscal Solutions by Mitchell Caplan of Jefferson National
Many Americans began the New Year relieved that the "fiscal cliff" had been averted, if only temporarily. But there is no escaping their biggest fearthat an increase in their federal tax bill is inevitable. Congress continues to hammer out the final details, but one thing is certain: anyone drawing a salary or receiving other income will be hit with more taxes. And the higher their income, the bigger the bite.
2013-01-15 Forecast 2013: Unsustainability and Transition by John Mauldin of Millennium Wave Advisors
As we begin a new year, we again indulge ourselves in the annual rite of forecasting the year ahead. This year I want to look out a little further than just one year in order to think about the changes that are soon going to be forced on the developed world. We are all going to have to make a very agile adaptation to a new economic environment (and it is one that I will welcome). The transition will offer both crisis and loss for those mired in the current system, which must evolve or perish, and opportunity for those who can see the necessity for change and take advantage of the evolution.
2013-01-15 Are Investors Buying into the Equity Story? by Chris Maxey, Ryan Davis of Fortigent
Last week we discussed the debate over active versus passive management. We believe active managers can add tremendous value in particular segments of the market, despite recent challenges. Outside of the active management discussion, many investors are deciding whether equities are a prudent place to allocate capital at this point in the market cycle. The first week of the year answered investors' opinions on that question loud and clear.
2013-01-15 It's Not What Happens That Matters by Bill Smead of Smead Capital Management
Late in 2008 and in early 2009, a group of what we like to call "brilliant pessimists" hit the airwaves with their economic theories. The prognosticators' vision of the future was and is predicated on the history of similar situations and the mathematical realities of the huge debt overhang from the prior ten years of profligate economic behavior. They put very effective names on their visions like "new normal" and "seven lean years". They marketed their visions incredibly well to the point of shaming anyone who might disagree with their theories.
2013-01-08 Another Lost Year for Active Management by Chris Maxey, Ryan Davis of Fortigent
There is no doubt that 2012 will be remembered by many investors, for reasons both good and otherwise. One group less likely to remember the good of 2012 is active managers. Across the universe of hedge funds and mutual funds, relatively few were able to outperform their comparative benchmarks. This continues a long running trend of active managers lagging their less active counterparts and raises many questions about the efficacy of active management.
2013-01-07 Investments That May Keep Me Up at Night in 2013 by Charles Lieberman (Article)
The outlook for 2013 is quite improved compared with 2012. Domestic economic growth prospects are significantly less troublesome. The election is over. Europe has (painfully) slowly made progress in reducing its own budget problems. It is not all clear sailing, however. (It never is.) Europe remains a work in progress. All of the geopolitical risks of 2012, notably North Korea, Iran, and all of the rest of the Middle East, remain on the docket in 2013. And the battle over the U.S. budget will resume in the near future.
2013-01-02 Somewhere Over the Rainbow by John Mauldin of Millennium Wave Advisors
We are 13 years into a secular bear market in the United States. The Nasdaq is still down 40% from its high, and the Dow and S&P 500 are essentially flat. European and Japanese equities have generally fared worse. The average secular bear market in the US has been about 11 years, with the shortest to date being four years and the longest 20. Are we at the beginning of a new bull market or another seven years of famine? What sorts of returns should we expect over the coming years from US equities?
2012-12-27 The Best Investment-Related Quotes by Glenn Frank (Article)
I've compiled a list of my favorite investment-related quotes. They come from a range of sources ? including many outside the world of finance. I hope that they provide wisdom and inspiration for the year ahead.
2012-12-26 The Ten Key Benefits of Investment Committees by Bob Veres (Article)
In this first part of a two-part report, I'll identify ten core purposes that investment committees serve in different types of firms, ranking them in order of the number of responses I received. If your investment committee is serving all ten purposes, based on the survey, you're among a select minority - which means that many advisors may find new ways to use this versatile new tool in their RIA practices.
2012-12-18 Better Angels by Michael Lewitt (Article)
If all else fails, President Obama should lock the members of Congress inside the Capital about a week before Christmas, post the military at the door, hang big-screen television in each chamber, tune them to CNBC, and turn up the volume up. Faced with listening to endless repetitions of the words "rising above" or "fiscal cliff" or "kick the can down the road," our legislators will have no trouble reaching a compromise quickly.
2012-12-18 What's Going Right? by Chris Maxey, Ryan Davis of Fortigent
Discussions of the fiscal cliff are capturing investor's attention, largely at the expense of trends pointing in the right direction. Year-end is synonymous with future prognostications, but current indicators suggest there is reason to be optimistic about the turn of the calendar this holiday season.
2012-12-11 Shared Sacrifice by David Rosenberg (Article)
Now that everyone is focused like a laser beam on Fiscal Armageddon, it may be more appropriate to look at what is happening on Main Street rather than Washington. Looking ahead, it is going to be more about the economy, and taking it a step further, at times like these, it is important to understand where the real economic power resides, and this is with the people.
2012-12-11 Fine Wine - Why it's for More than Just Drinking by Mark E. Ricardo, JD, LLM, AAMS (Article)
For many investors, an ideal asset class would combine superior long-term absolute and risk-adjusted returns with a hedge against inflation and stock market volatility. There's a way to get all of that, in an asset class you might never have thought of until now: fine wine. Investment-grade wine deserves careful consideration, particularly now that - unlike other collectibles, such as art and rare books - it can be traded on a regulated exchange.
2012-12-11 Letters to the Editor by Various (Article)
Readers respond to a series of articles that appeared over the last several weeks.
2012-12-11 The Death of Managed Futures? by Chris Maxey, Ryan Davis of Fortigent
Managed futures strategies, or systematic trend followers, have long been an important component of diversified high net worth portfolios. Because of their ability to go both long and short in more than 100 global futures markets spanning equities, currencies, commodities, rates, and bonds managed futures have historically generated very uncorrelated performance to traditional investments.
2012-12-05 Argentinas Trials & Trubulations by Chris Maxey and Ryan Davis of Fortigent
Equity markets climbed higher for a second straight week, extending a rally that began November 16. For the week, the S&P 500 rose 0.6% and the Dow Jones Industrial Average gained 0.2%. In the post-mortem on Q3 earnings season, much has been made of the first quarter of negative earnings growth in three years. However, analysis by Morgan Stanley reveals an even more disturbing picture of corporate America: just 10 companies in the S&P 500 delivered 88% of the indexs earnings growth. Of those 10, four accounted for more than half and Apple alone made up nearly one-fifth of the indexs growth.
2012-12-04 Nate Silver's Message for Financial Advisors by Ben Huebscher and Michael Edesess (Article)
By now you are likely aware that Nate Silver of the New York Times correctly predicted the results for all 50 states (plus DC) in this year's presidential election and all but two Senate races. Silver's predictive capabilities across a range of disciplines have made him a near-deity among those whose livelihood depends on accurate forecasting - from poker players to counter-terrorism units. It's clear why: His methods work - at least in some cases. And their strengths and limitations carry important lessons for financial advisors.
2012-12-04 Surprising Choices in the Search for Safety Near-Certain Loss of Purchasing Power versus Short-Term by Jason Petitte, CFA (Article)
Risk, in its many guises, is unavoidable, and investors today are taking on significant amounts of credit risk, duration, and leverage to obtain high yields from many presumably safe bonds. But certain types of risk are often mispriced. By overweighting one's portfolio to those sectors that currently offer attractive risk-adjusted returns, investors will be better positioned to meet their long-term goals.
2012-12-04 How to Turn Acquaintances into Clients by Dan Richards (Article)
The transition from a casual social conversation to a business-related one is tricky, requiring us to do it in a way that's not intrusive and doesn't make the person uncomfortable. Here's an approach that worked for one advisor.
2012-12-04 Cliff Diving by Michael Lewitt (Article)
While there may be compromise to avoid the self-inflicted crisis of the fiscal cliff, the course of fiscal policy is unlikely to alter significantly. There is a great deal of bold talk about tax reform, but the odds of our current leaders replacing our profoundly flawed tax regime with one that would breed economic growth and productivity are low. Congress will be lucky to avoid the fiscal cliff; asking it to alter the economy's DNA is unrealistic.
2012-11-27 Are Equities Still Cheap? by Chris Maxey, Ryan Davis of Fortigent
Since reaching a near-term top in mid-September, the S&P 500 Index fell more than 7%. After a 4% rally in the last five trading days, there are reasons to believe equity markets are poised to extend recent performance despite headline concerns.
2012-11-27 Beta The One Trick Unicorn by Liam Molloy, Bethany Carlson of Galway Investment Strategy
For a long time investors have been told the only free lunch is diversification. In a hurry to buy into the mythical free lunch investors jumped in without asking enough questions, like what is diversification. Instead everyone hurried to fill buckets and cover the style boxes with about as much thought as someone filling out a March Madness office bracket.
2012-11-20 Kyle Bass on the Next Big Crisis by Robert Huebscher (Article)
If economics could be studied in a laboratory, scientists might concoct something like the circumstances now unfolding in Japan ? and policymakers should be paying close attention. According to Kyle Bass, Japan's currency ? and its bond market ? are about to collapse under the weight of the country's unsustainable fiscal deficit.
2012-11-20 President Obama?s Re-Election and the Impact on the U.S. Economy by Eaton Vance Distributors, Inc. (Article)
President Obama?s re-election resolves a major element of uncertainty that has hung over the political landscape. But what kind of impact will his victory have on the economy and the markets, especially with the House still in Republican control? We posed that question to a roundtable of five investment professionals from Eaton Vance Management, Hexavest and Richard Bernstein Advisors.
2012-11-20 Are Inflation-Adjusted Annuities Right for Clients? The Product and Its Prospects by Joe Tomlinson (Article)
Many economists and retirement experts favor inflation-adjusted SPIAs, but advisors and the investing public have never shared their enthusiasm. Detractors contend that the product is fundamentally flawed and will never gain broad acceptance. My own view is more optimistic, but significant obstacles will, nonetheless, continue to impede wider adoption.
2012-11-20 Companies Grapple With Pressure from All Sides by Chris Maxey, Ryan Davis of Fortigent
As we move closer to closing the books on another earnings cycle, it is time to look back at the hits and misses for the quarter. Unfortunately, this quarter brought more misses than investors have seen in quite some time, despite a greatly reduced bar. The outlook also leaves something to be desired, with companies cutting forward guidance and analysts ratcheting down estimates for the next two quarters.
2012-11-13 The Downside to Socially Responsible Investing by Robert Huebscher (Article)
Who wouldn't want a cleaner environment or a more just society? We can all agree these are worthy goals. But it's an established fact that pursuing them through one's investing is costly; environmental-, social- and governance-based investing (ESG) does fine on a gross basis, but loses money net of fees. Now, a recently published paper argues that that ESG is basically a waste of time.
2012-11-13 Harvard's #1 Strategy Guru on the Key Decision for Your Business by Dan Richards (Article)
Competition has brought many once-dominant names to the brink of survival - General Motors, Kodak, Sears and Xerox. Michael Porter, Harvard's top expert on strategy, explains why advisors ignoring the important lesson here do so at their peril.
2012-11-13 Voyages by Michael Lewitt (Article)
Anything short of drastic entitlement reform, serious cutbacks in defense spending, and serious tax reform that alters incentives away from speculation in favor of production will leave this country stuck on the dangerous path it is on today.
2012-11-13 The New Dynamics of Referral Generation by Beverly Flaxington (Article)
Discussion of financial advice among acquaintances has gone totally off the grid. It has become an almost universally taboo subject. People are loath to broach any conversation about personal finances. What are your thoughts?
2012-11-13 The Real Job Creators by Justin Locke (Article)
The election is behind us, but a politically charged phrase that took a starring role in the campaign lingers on: "job creators." Now that cooler heads are returning, it's time to get past the politics and acknowledge the facts: Capital, by itself, does not create jobs. Jobs are created by salespeople.
2012-11-13 China's Transition Occurring at a Critical Time by Chris Maxey, Ryan Davis of Fortigent
While the presidential election in the U.S. was on the forefront of most investors' minds, current events in China could be equally important to the global economy. China is going through a political transition at the same time as it seeks to re-balance its economy. Whether those efforts will be successful remains a great unknown.
2012-11-06 Asset Location: Nine Tips to Create ?Tax Alpha? by Glenn Frank (Article)
With campaign season finally over, taxes are going to dominate the debate in Washington in the months ahead ? however things shake out at the polls today. It's going to be confusing; it's going to be uncertain. But many of the most critical questions advisors will ask can be answered with an analytical approach to deciding where to 'house' assets ? in taxable or tax-sheltered accounts.
2012-11-05 Three Men Make a Tiger by John Mauldin of Millennium Wave Advisors
In a few hours we will know the outcome of the US elections (hopefully without a repeat of 2000!). So, given that eventuality, why should we bother to explore the rather significant disparity in the models being used to create the polls to predict the outcome of the elections? Because doing so will help us understand why the models we use to predict the effects on our investments of market behavior and macroeconomics so often fail us, and why we should approach the use of such models with a full measure of wariness and skepticism.
2012-11-05 Election's Impact on Investors by Chris Maxey, Ryan Davis of Fortigent
Next Tuesday's election will bring some clarity to the types of policies that will shape the fiscal and economic future of America. President Obama and Mitt Romney certainly share different visions on how the US should tackle middling growth, while addressing the longer-term issues of the US fiscal deficit and seemingly unsustainable entitlement programs.
2012-10-30 Building Portfolios that Beat their Benchmark: Measuring Nanometers with a Yardstick by Bob Veres (Article)
Using tools he co-developed with the Nobel-prize winning economist Bill Sharpe, one advisor has found that he can reliably outperform an appropriate benchmark. His work proves it is possible to build a portfolio knowledgably. You just need the right tools to get the job done.
2012-10-30 The Yield Hunt by Michael Lewitt (Article)
The high-yield market is not in danger of imminent collapse as some have argued. As long as defaults remain relatively low, and interest rates remain invisible, investors will continue to chase yield. But a few things could cause a sharp sell-off in the near future.
2012-10-30 Finding Hidden Revenue with Existing Clients by Dan Richards (Article)
Investor skepticism and an uncertain economy are challenging advisors to maintain revenue growth and practice profitability. That's why I was intrigued by an advisor who's used a simple strategy to achieve substantial growth in assets from existing clients, even though she already managed most of their money.
2012-10-29 Waiting for Treasuries to Reverse Course by Chris Maxey, Ryan Davis of Fortigent
In the years since the global financial crisis, investors have funneled money into fixed income securities. This year alone, more than $260 billion found its way into fixed income mutual funds. In an environment desperate for yield-oriented solutions, such demand is not surprising. What might be considered surprising, however, is investors' willingness to embrace such yield with extraordinary risk attached.
2012-10-25 Venerated Voices 2012 Q3 by Advisor Perspectives (Article)
We published our quarterly update for the Venerated Voices awards. Rankings were issued in three categories: The Top 25 Venerated Voices by Firm, The Top 25 Venerated Voices by Advisor and The Top 10 Venerated Voices by Commentary.
2012-10-23 How to Change the Regulatory Debate - Before it's Too Late by Bob Veres (Article)
After almost a decade of lobbying, arguing, and posturing, the long fight on Capitol Hill over who will regulate RIAs and how to define 'fiduciary' is approaching a close. Within the next six months, there will no longer be any real excuse to put off a decision, and new players, both in Congress and at the SEC, will be eager to start fresh.
2012-10-19 House of Mirrors by Jeremy Boynton of Laureate Wealth Management
Did you ever try to navigate the "House of Mirrors" as a kid at your local carnival? You know the one I mean ---- where you walk through a labyrinth of mirrors designed to confuse your orientation while mocking you with various distortions of your body? If you were particularly skilled, you could use the mirror to your own advantage. What a compelling metaphor for the current state of the financial markets.
2012-10-16 Stiglitz vs. Bremmer: What?s Next for the Global Economy? by Ben Huebscher (Article)
On October 3rd, the same night Barack Obama and Mitt Romney were clashing in their first debate, two equally polarized men met in New York City's Kaufmann Concert Hall to discuss the future of economics, both here and abroad.
2012-10-16 The New World of Credit by Michael Lewitt, Editor, The Credit Strategist (Article)
In an era in which economies are driven by the creation of fiat money by central banks, and where the base of hard money is dwarfed by the volume of outstanding debt, every form of capital is tied to credit. In 1919, William Butler Yeats famously wrote that 'the center cannot hold.' A century later, there is no center.
2012-10-15 Economic Singularity by John Mauldin of Millennium Wave Advisors
There is considerable disagreement throughout the world on what policies to pursue in the face of rising deficits and economies that are barely growing or at stall speed. Both sides look at the same set of realities and yet draw drastically different conclusions. Both sides marshal arguments based on rigorous mathematical models "proving" the correctness of their favorite solution, and both sides can point to counterfactuals that show the other side to be insincere or just plain wrong.
2012-10-15 Commodity Inflation Complicating Pro-Growth Policies by Ryan Davis of Fortigent
The return of commodity inflation raises several questions, primary among them being the impact it will have on emerging markets. While rising commodity prices are generally bullish for equity prices in emerging markets, it may also inhibit central bank flexibility at a time when many developing countries are experiencing decelerating economic growth. This issue was paramount in 2010, leading to underperformance in many EM stock markets. Since then, however, commodity prices have generally moved sideways, allowing those fears to subside.
2012-10-11 Alternative Investments Offer Strategies to Avoid Fed-Inflated Bond Bubble by Team of Emerald Asset Advisors
Over the past several years, investors have shifted hundreds of billions of dollars out of stocks and into investment grade corporate bonds and U.S. Treasuries. To date, this strategy has delivered solid results for many investors, as bond prices have generally continued to rally while bond yields have continued to fall.
2012-10-09 Dividend Income: Music to Our Ears by ClearBridge Advisors (Article)
The hunger for income among investors is helping put dividends in the spotlight, say Hersh Cohen and Mike Clarfeld of ClearBridge.
2012-10-09 We Need a Bold Solution to Fix the Retirement System by Joe Tomlinson (Article)
Our retirement system is broken. The average American isn't saving enough to comfortably retire, and the fault lies in our reliance on defined-contribution (DC) plans, such as 401(k)s. Tinkering with DC plans won't solve the problem, and the other extreme - a federally mandated guarantee - isn't likely to gain support. But a number of compromises that lie between those approaches offer a better way forward for future generations.
2012-10-09 A Q3 Letter to Clients - Insights from a Wall Street Legend by Dan Richards (Article)
Here is a template for a letter to serve as a starting point for advisors looking to send clients an overview of the past 90 days and the outlook for the period ahead. In it, I draw upon investing principles articulated by the legendary Barton Biggs, who passed away earlier this year.
2012-10-09 How to Manage an Overextended Team by Beverly Flaxington (Article)
I work for a large financial firm. I am continually frustrated by the fact that we generate lots of good ideas and talk about what we need to do, but rarely get things done. Many things stay open-ended, or up for discussion. I am part of the problem because I am so busy, as is my team. How can I be more of a doer and less of a talker?
2012-10-09 The Yin and Yang of 2012 Stock Markets Through September by Ron Surz (Article)
Despite investor concerns about the economy, stock markets delivered substantial returns in the year-to-date, with the S&P 500 returning more than 16% and Europe, Australasia, Far East (the EAFE index) delivering more than 10%. This growth has been in the face of investor withdrawals from equity mutual funds. So if mutual fund investors are selling, who is buying?
2012-10-09 Letter to the Editor by Various (Article)
A reader responds to Rob Arnott's commentary, The Glidepath Illusion, which was published on September 25.
2012-10-09 A Small Business Complex by Chris Maxey, Ryan Davis of Fortigent
Despite the release of the September labor report on Friday, small business owners seemed to take the biggest proportion of the spotlight last week. According to the Huffington Post, Romney and Obama mentioned the phrase "small business" a total of 29 times throughout the Presidential debate. The issues and importance placed on small business are unlikely to be as cut and dry as both candidates made them seem.
2012-10-02 Woody Brock on Why to Own Stocks Now by Robert Huebscher (Article)
Dr. Horace 'Woody' Brock is the founder Strategic Economic Decisions and the author of American Gridlock. In a recent talk, he explained why investors should own stocks - particularly those with stable dividends - and why bonds are very risky in today's environment. This is the transcript; a video of this talk is also available.
2012-09-29 Uncertainty and Risk in the Suicide Pool by John Mauldin of Millennium Wave
Investors in the stock market, especially professionals, are obsessed with risk, your humble analyst included. We try to measure risk in any number of ways, looking for an edge to improve our returns. Not only do we try to determine probable outcomes, we also look for the 'fat tail' events, those things that can happen which are low in probability but will have a large impact on our returns.
2012-09-27 How Can Balanced Investors Mitigate Their Equity Risk? by Daniel Loewy of AllianceBernstein
Over the past three decades, bonds have provided balanced investors with the best of both worlds. As 10-year Treasury yields fell from a high of 13.7% in 1980 to less than 2% today, bonds provided both strong returns and a great cushion in times when equities were weak. Bonds are still important, but investors shouldn't expect more of the same.
2012-09-25 Bill Gross: Hedging Your Bet on Deflation versus Inflation by Ben Huebscher (Article)
Will deflation or inflation prevail? The answer to that one question determines portfolio construction, according to Bill Gross, founder, managing director, and co-CIO of PIMCO.
2012-09-25 Investing in a Resource-Constrained World by Richard Vodra, JD, CFP (Article)
The potential consequences of stagnant oil production and climate change for society are written about frequently, but here is a simpler question that is important to our community: How are these and related facts likely to affect investment returns going forward? How can we even frame such questions usefully?
2012-09-25 Value Investing in a Macro-Driven Environment by Robert Huebscher (Article)
The GoodHaven Fund (GOODX) is managed by Larry Pitkowsky and Keith Trauner. For most of the previous decade, Larry and Keith held research, portfolio management, and executive positions with the Fairholme Fund. I spoke with them last week.
2012-09-25 How to Build a Portfolio by Adams Jared Apt (Article)
This is the first of a set of three articles intended for the educated layman, in which I will combine the core ideas presented in my preceding articles into a comprehensive description of how to put together a portfolio. In this one, I'll explain what is often called Modern Portfolio Theory.
2012-09-24 Some Parting of the Clouds by Charles Lieberman (Article)
The ongoing rally in the equity market and corresponding rise in Treasury yields mirror the slow improvement in financial market conditions in Europe and moderate gains in domestic economic data. This still leaves more progress to be made on both fronts, but uncertainty remains elevated over the fiscal cliff, the threat of military conflict in the Middle East, the upcoming election, and tax policy.
2012-09-24 Who Deserves Blame (Or Credit) For Current Tax Policy? by Ryan Davis of Fortigent
U.S. Presidential candidate Mitt Romney received sharp criticism this week for his comments regarding the "47% of people who pay no taxes." Regardless of one's political stance, Romney's comments were instructive in highlighting a very real problem. The notion that Republicans or Democrats deserve blame for the current challenges is shortsighted, however, because both parties were contributing members to the current legacy.
2012-09-21 Growth for the Long Run by Jonathan Coleman, Brian Demain, Nick Thompson of Janus Capital Group
"I skate to where the puck is going, not where its been." Wayne Gretzky. Many investors would love to be as successful as The Great One when it comes to their portfolios. Yet investors are often heavily influenced by the past, losing sight of where they need to be going. This seems to be especially true today: mistrust of equities is running high after a decade of disappointing returns and excessive volatility.
2012-09-18 The Question that Prevents Client Defections by Dan Richards (Article)
Unless you take action, even the best advisors are going to lose more clients than you'd like. Fortunately, you can ask your clients a simple question that will counteract the dynamics causing those defections.
2012-09-18 The Trend is Your Friend by Keith C. Goddard, CFA (Article)
John Hussman's recent market commentary, The Trend is Your Fickle Friend, highlighted the limitations of trend-following investment strategies that rely on moving-average crossover rules as a primary filter. But an extensive study conducted by our firm demonstrated that a simple moving-average crossover system outperforms buy-and-hold, while reducing drawdown risk and volatility.
2012-09-18 Your Clients' Toughest Retirement Decision by Wade Pfau (Article)
Want to trigger an impassioned debate? Ask a group of advisors about the choice between systematic withdrawal plans and single-premium immediate annuities. Fee-only advisors are loath to cede control of client assets to an insurance company that might someday default, while annuity advocates fire back that only their strategies provide a lifetime income guarantee.
2012-09-18 Recognize the Relative Advantages of Natural Resource Equities vs. Commodities by RS Investments (Article)
This RS Investments research brief examines how shifts in commodity fundamentals presents the case for employing natural resource equities as a means to benefit from favorable long-term secular trends, while achieving superior risk-adjusted returns, similar diversification benefits, and more reliable inflation protection relative to commodities.
2012-09-18 Letters to the Editor by Various (Article)
Several readers respond to our article, Can Our Retirement System be Fixed?, which appeared last week. A reader responds to Bill Gross' commentary, The Lending Lindy, which appeared on September 5, and a reader responds to David Schawel's article, Three Bond Funds for Rising or Falling Rates, which appeared last week.
2012-09-17 A Fed Fueled Rally by Chris Maxey of Fortigent
The week was overshadowed by policy actions from the Federal Reserve, which led to a 2.2% gain in the Dow Jones Industrial Average and a 1.9% increase in the S&P 500 Index.
2012-09-15 The Direction of the Compromise by John Mauldin of Millennium Wave
I think this election has the potential to be one of those rare times, at least in terms of economic outcomes. In Thoughts from the Frontline we cover economics and investments, money and finance. We only rarely stray into the political world, and then only glancingly. Today, we cross that gray line, but at a somewhat different angle, as we look at the economic consequences of the political decision that will come with the choices we make in November in the US.
2012-09-11 Can Our Retirement System be Fixed? by Robert Huebscher (Article)
Google 'Teresa Ghilarducci' and you'll find countless references to her as the most dangerous woman in America. That dubious distinction stems from her 2008 book, When I'm Sixty-Four, in which she advocated replacing voluntary 401(k) plans with government-mandated savings accounts. Ghilarducci was attempting to address a problem that thus far has eluded solution, so it's important to consider her arguments, which have drawn praise from some quarters, too.
2012-09-11 Ponzi Games by Michael Lewitt (Article)
Whatever schemes the European Central Bank may cook up over the next few months will only prove short-term liquidity relief to what are long-term insolvency problems. Like any Ponzi scheme, the last money in is going to be hurt the worst when the charade comes to an end. In the meantime, investors proceed at their own risk.
2012-09-10 Are Labor Markets the Key to Fed Easing? by Chris Maxey of Fortigent
Widely reported last week was anemic labor market growth in August. Some talking heads took this news in stride, assuming this would guarantee further market intervention by the Fed, but there is a danger in assuming any form of quantitative easing will alleviate the intermediate-term concerns of the market.
2012-09-08 Debt Be Not Proud by John Mauldin of Millennium Wave
The unemployment numbers came out yesterday, and the drums for more quantitative easing are beating ever louder. The numbers were not all that good, but certainly not disastrous. But any reason will do, if what you want is more stimulus to boost the markets ever higher. Today we will look first at the employment numbers, because deeper within the data is a real story. Then we look at how effective any monetary stimulus is likely to be.
2012-09-04 The Ultimate Income Strategy - Higher Yield and Lower Volatility by Geoff Considine (Article)
Investors, especially those in the de-accumulation phase of their retirement, count on high income and low volatility. Achieving the best possible tradeoff between yield and risk is a major challenge for advisors. Over the last two years, I've shown how to construct a low-risk portfolio - the ultimate income portfolio (UIP) - that yields over 9.0%. Let's look back at how those portfolios performed and the components of this year's UIP.
2012-09-04 Lessons from the Weight-Loss Industry: The Keys to Growing your Practice by Dan Richards (Article)
Why do most attempts at dieting result in failure? According to Weight Watchers - whose program has outperformed its competition over many years - it's because of a lack of a good methodology or the right combination of discipline and incentives. The same is true of successful client prospecting, as a recent conversation with an advisor illustrated.
2012-09-04 Risks in the Search for Yield by Charles Lieberman (Article)
Interest rates are so extraordinarily low that investors have pushed up prices (and pushed down yields) of all the traditional investments used for income, so they have even forced into more esoteric or risky investments. This search for yield has created significant risks that may not be well appreciated. This Commentary discusses these risks.
2012-09-04 All QE, All the Time by Chris Maxey of Fortigent
In a week of relatively light trading to wrap up the summer, equity markets trickled lower, as the Dow Jones Industrial Average lost 0.5% and the S&P 500 Index fell 0.3%. It was a mixed week of economic data in the U.S., but markets were clearly locked in on Ben Bernanke's speech in Jackson Hole, Wyoming. News on housing seems to confirm that a bottom is in place, while manufacturing data continues to move in all different directions.
2012-08-31 Risks in the Search for Yield by Charles Lieberman (Article)
Interest rates are so extraordinarily low that investors have pushed up prices (and pushed down yields) of all the traditional investments used for income, so they have even forced into more esoteric or risky investments. This search for yield has created significant risks that may not be well appreciated. This Commentary discusses these risks.
2012-08-28 Who?s Fooling Whom? by Michael Lewitt (Article)
Equity markets are exhibiting a remarkable degree of complacency. The VIX is currently at extremely low levels and it can maintain those levels for a long period of time. The worse things get in terms of the economic data, the higher the market goes on hopes of central bank stimulus. At this rate, the Dow will peak just as the world is coming to an end!
2012-08-25 Boomers are Breaking the Deal by John Mauldin of Millennium Wave
We look at the trends in employment as well as take note of a signpost we passed on the way to finding out that we cant pay for all the future entitlements we have been promised.
2012-08-22 5 Counterintuitive Reasons Why the Investment Vehicle of the the Decade is ... Stocks by Rob Isbitts of Sungarden Investment Research
These days there are more varieties and combinations of investments than selections on a Starbucks menu -- but that's not necessarily a good thing. Now, you can invest in emerging markets, dividend-paying stocks, bonds from Africa and commodities that only farmers and professional speculators used to traffic in. Heck, clients can even tell an advisor they would like a double-long, midcap equity ETF.
2012-08-21 The Profession's Faulty Assumptions: A Top Ten List by Bob Veres (Article)
In the financial planning profession, we make a lot of assumptions about the world in order to run spreadsheet models, retirement projections and sufficiency analyses, and generally determine how much a client should save and invest for the future. But many of the industry-standard inputs into our models are (how can I say this delicately?) garbage. Here are my top ten garbage inputs, with an explanation of how we might possibly improve on them.
2012-08-21 Hype and Reality in the Muni Bond Market by Hildy Richelson (Article)
Meredith Whitney's prediction last year of billions of dollars in municipal bond defaults stirred investors' fears. Earlier this summer, bankruptcies in three California cities reignited them, and last week a Federal Reserve study revealed that muni bonds have defaulted at a higher rate than previously reported. But no crisis has befallen the municipal bond market, and it is highly unlikely that one ever will.
2012-08-21 Inflation Subdued, But Will It Last? by Chris Maxey of Fortigent
As the economy continues to grind along at a sub-optimal rate of growth, many pundits are calling for additional quantitative easing measures from the Federal Reserve. Recent inflation data keeps the door open for further easing, but pockets of higher prices exist, keeping the Fed at bay.
2012-08-17 How Change Happens by John Mauldin of Millennium Wave
This is an encore appearance of the letter that is clearly the most popular one I have ever written, updated with a few thoughts from recent times (it was also part of a chapter in Endgame). Numerous reviewers have stated that this one letter should be read every year. As you read, or reread, Ill be enjoying a week off.
2012-08-14 How Safe are Annuities? by Joe Tomlinson (Article)
For many advisors, the possibility that insurance companies will run into financial difficulties makes recommending annuities a nonstarter. But annuities are the best way to mitigate longevity risk, which may pose a greater danger, and advisors can take steps to help protect clients from insurers' financial problems.
2012-08-14 An Imperfect Storm by Janus (Article)
Changing regulations have drained liquidity from the corporate bond markets, as growth in bond ETFs is distorting a shrinking market. These converging forces are likely to result in a more volatile environment, but we see opportunity for managers able to understand the fundamental risk and reward.
2012-08-14 How One Advisor Adds Three Clients a Month by Dan Richards (Article)
I've had several emails in response to last week's article on how investors are using LinkedIn to help select advisors. Indeed, one advisor told me of a systematic approach that is consistently yielding new business. Let's look at how this advisor is capitalizing on his online presence to attract an average of three new clients per month.
2012-08-14 Blind Faith by Michael Lewitt (Article)
Central banks are facing political and practical obstacles that will render it very difficult for them to deliver anything more than anodyne words and actions as summer moves into the always dangerous August holiday season. IPhones should be kept on alert at the beach through Labor Day.
2012-08-11 And Then There Is Disaster C by John Mauldin of Millennium Wave
I have contended for some time that Europe is faced with two choices: Disaster A, which is the break-up of the eurozone, or Disaster B, which is the creation of a fiscal union, which keeps the euro more or less intact. Over the last few months I have come to realize that there is indeed a third option, which now looks increasingly possible. European leaders might do nothing more than deal with the problem immediately in front of them, moving from crisis to crisis in a slow-motion drift toward fiscal union.
2012-08-07 Why Hedge Funds Destroy Investor Wealth by Michael Edesess (Article)
If all the money that's ever been invested in hedge funds had been put in Treasury bills instead, the results would have been twice as good. So claims Simon Lack - a former JPMorgan executive whose job was once to help steer billions into hedge funds - in his recent book, The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True. You'd think hedge fund advocates would immediately pounce on this and refute it; but it's irrefutable.
2012-08-07 The Game-Changer for Attracting Affluent Clients by Dan Richards (Article)
Until now I've been a skeptic on the value of social media for attracting affluent clients. You can use Facebook and Twitter to connect with investors in their 20's and 30's - but not the older, more prosperous clients advisors target. But last week, three separate conversations changed my mind on this.
2012-07-31 Beyond the Ultimate Death Cross by Georg Vrba, P.E. (Article)
Last week, I showed why the 'ultimate death cross' is not a bearish signal. But the methodology behind that signal - what's known as a 'golden-cross trigger' - can indeed offer a reliable guide to investors. And one can do even better with a simple improvement to the trigger that I have devised.
2012-07-31 Venerated Voices by Venerated Voices (Article)
We published our quarterly update for the Venerated Voices awards. Rankings were issued in three categories: The Top 25 Venerated Voices by Firm, The Top 25 Venerated Voices by Advisor and The Top 10 Venerated Voices by Commentary.
2012-07-30 The Central Bank by John Petrides (Article)
Global markets responded favorably last week to comments from Mario Draghi, President of the European Central Bank, saying that he would do whatever it takes to save the euro (this reminded me of Fed Chairman Bernanke's comments in February 2009, when the Fed started its asset purchase program, and markets responded favorably soon after). Although the world awaits more details as to what Mr. Draghi's comments entail, equity markets rallied, and the yields on Spanish and Italian bonds came in.
2012-07-28 Gambling in the House? by John Mauldin of Millennium Wave
The problem that gave rise to the LIBOR scandal is the lack of transparency. Why would banks want to reveal how much profit they are making? The last thing banks want is transparency. This week I offer a different take on LIBOR, one which may annoy a few readers, but which I hope provokes some thinking about how we should organize our financial world.
2012-07-24 Optimal Strategies for Secular Market Cycles by Michael Kitces (Article)
With alternative investments and active management strategies growing ever more popular, an advisor recently told me, 'It's just a fad and will end with heartache as all investment fads do. I've watched it play out over and over during my 30-year career.' But I am not persuaded. The secular market cycle today is different from the bear market 30 years ago, and not all market cycles favor the same investment strategies.
2012-07-21 The Lion in the Grass by John Mauldin of Millennium Wave
Today we'll explore a few things we can see and then try to foresee a few things that are not so obvious. This is a condensation of a speech I gave earlier this afternoon in Singapore for OCBC Bank, called "The Lion in the Grass." The simple premise is that it is not the lions we can see that are the problem; but rather, in trying to avoid them, it is often the lions hidden in the grass that we stumble upon that become the unwelcome surprise.
2012-07-17 Should You Wait to Buy a SPIA? by Joe Tomlinson (Article)
Advisors may be reluctant to recommend single-premium immediate annuities (SPIAs) with interest rates currently so low. It may be better to wait for rates to rise, which will bring more attractive SPIA pricing. But that leaves the question about how long we will wait for better pricing. In this article, I'll show how the decision to delay can turn out well or poorly, depending on the timing and size of rate increases.
2012-07-17 Can you Beat SPIAs with Long-Term Bonds? by Michael Edesess (Article)
While single-premium income annuities (SPIAs) guarantee a specific income as long as the purchaser lives, their rates of return generally compare unfavorably with long-term bonds over normal life expectancies. This makes SPIAs look like the inferior investment, notwithstanding their value as longevity insurance. But considering the low level of interest rates and the potential for future volatility, SPIAs are still a good choice for many retirees.
2012-07-17 Breaking Bad by Michael Lewitt (Article)
With our largest business and government institutions committing every conceivable act of legal or moral anomie, we have every right to ask who is going to protect the rest of us from those who have been entrusted with so much power and influence. The institutions that were supposed to be the lifeblood of our economy are the same institutions that inflicted the greatest harm on society. When the family has to be protected from the man who is supposed to protect the family, the family is in serious trouble.
2012-07-17 Letters to the Editor by Various (Article)
Two readers respond to Bob Veres' article, Why Are Advisory Fees Lower Than They Have To Be?, which appeared last week, and a reader responds to Larry Siegel's article, Benchmarking Your Retirement Portfolio With a Risk-Free Strategy, which also appeared last week.
2012-07-17 Gundlach ? Avoid Riskier Assets by Robert Huebscher (Article)
Since early this year, Jeffrey Gundlach has warned investors to avoid exposure to riskier assets ? among them, equities, non-dollar-denominated securities and sovereign debt. Still reluctant to move to a more aggressive position, Gundlach said on Thursday that 'substantial opportunities await,' but they may be as much as a year away.
2012-07-14 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
For the last year I have been writing that it is not clear that Europe (with the probable exception of Greece) will in fact break up. The forces that would see a strong fiscal union are quite powerful. In today's letter, I will try to bring you up to date on some insights I have had in the 18 months since Jonathan Tepper and I did the final edits on our book, The Endgame.
2012-07-10 Why Are Advisory Fees Lower Than They Have To Be? by Bob Veres (Article)
How much should you charge for your services? Is there any way to objectively calculate a fair price? Doctors, lawyers and accountants all charge relatively similar prices for their services. Why does the financial planning profession have fees that are all over the map?
2012-07-10 Benchmarking Your Retirement Portfolio With a Risk-Free Strategy by Laurence B. Siegel (Article)
Making the savings from 35 or 40 years of work pay for a retirement of the same length is a real challenge. At a zero real rate of return, you would have to save half of your income to enjoy a retirement that long without taking a cut in your living standard. There is, of course, a better way - judicious use of TIPS and annuities. A riskless strategy using those asset classes can safeguard one's retirement assets and can serve as a benchmark against which riskier portfolios can be measured.
2012-07-09 The 4 Biggest Investment Performance Myths - and How They Can Torpedo Advisor-Client Trust by Robert Isbitts of Sungarden Investment Research
In 26 years in the investment industry, I have seen investor and advisor behavior from many different angles: as an advisor, portfolio manager, strategist, author and proprietor. Two things have been quite consistent during that quarter-century: 1) That clients and advisors both care deeply about investment performance and 2) that investment performance is rarely evaluated with proper perspective.
2012-07-07 Into the Matrix by John Mauldin of Millennium Wave Advisors
What does the current environment of earnings and valuations tell us about the prospects for the US stock markets in general over the next 3-5-7-10 years? This week we have part two of "Bull's Eye Investing Ten Years Later," which we started last week. These two letters have been co-authored with Ed Easterling of Crestmont Research. We take a look at research we did almost ten years ago as part of my book Bull's Eye Investing, updating the data and asking,"Are we there yet? When will we get to the end of the secular bear market?"
2012-07-03 Bond Funds: You Get What You Don't Pay For by Michael Edesess (Article)
Innumerable studies have shown that it's well-nigh impossible to beat the averages consistently investing in equity funds. But what about bonds? Bonds, after all, have more structure - perhaps there are ways an expert fund manager could exploit that structure and gain an edge over other investors. Is it possible to predict how well a bond fund will perform relative to other funds?
2012-07-03 The Value of Planning by Bob Veres (Article)
How much do you charge for your services? When you look hard at the value you provide, the answer may be: 'not enough.'
2012-07-02 Nightmare on Wall Street: This Secular Bear Has Only Just Begun by Ed Easterling of Crestmont Research
Secular bull markets are great parties. Investors arrive from secular bears really wanting to take the edge off. As the bull proceeds, above-average returns become intoxicating. By the time it is over, the past decade or two has delivered bountiful returns. In contrast, secular bears seem like hangovers. They are awakenings that strip away the intoxication, leaving a sobering need for an understanding of what has happened.
2012-07-02 Has Housing Stabilized? by Ryan Davis of Fortigent
In the past two weeks, several important indicators have illustrated a market that, while not quite in a state of recovery, appears to be stabilizing. This sentiment was echoed in the latest Beige Book released by the Federal Reserve, which reported, several Districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile.
2012-06-30 Bull's Eye Investing (Almost) Ten Years Later by John Mauldin of Millennium Wave Advisors
The current valuation of the stock market is relatively high, but it is not overvalued, considering today's conditions. Low inflation-rate conditions should be accompanied by relatively high P/Es. But if deflation or high inflation (or both) are likely upcoming, the market is very expensive. On the other hand, if the inflation rate happens to remain near price stability, then this secular bear could remain active a while longer but how likely is that?
2012-06-26 A Top Analyst: North America Heading to Energy Independence by Robert Huebscher (Article)
Ed Morse, a managing director of Citigroup Global Markets, said last week that by the end of this decade the US and Canada will have a surplus of oil, leaving it with 'no room for imports.' But the longer-term picture is far less certain, as extraction moves from conventional wells to newer sources, such as deepwater fields and shale-based oil.
2012-06-26 Ensuring That Clients Feel Valued by Dan Richards (Article)
Ask advisors whether they value their clients - especially top clients - and care about their future success, and you'll get a funny look wondering what you've been smoking. The answer is so obvious that the question isn't worth asking. But ask clients the corresponding question and the response is often quite different.
2012-06-23 Daddy's Home by John Mauldin of Millennium Wave Advisors
This week we will look at the recent action of the Fed and use that as a springboard to think about how effective Fed policy can be in an age of deleveraging. And we simply must look at Europe.
2012-06-19 Retirement Floors and Implications for Evensky's Cash-Reserve Strategy by Wade Pfau (Article)
Does sensible retirement planning call for funding basic needs with less volatile assets and investing more aggressively for aspirational goals? Or, with client goals clearly defined and prioritized, does sensible planning call for a total returns approach? Multiple schools of thought have emerged, but there is not yet any consensus about what constitutes a proper retirement income floor. These lingering unresolved disagreements reinforce the benefits of Harold Evensky?s and Deena Katz? popular strategy.
2012-06-16 The Bang! Moment is Here by John Mauldin of Millennium Wave Advisors
We know that money is simply flying out of Greek banks. A number of them are clearly insolvent, yet they are meeting demands for withdrawals. Where is the cash coming from? The answer is in the form of yet another acronym from Europe, called the ELA.
2012-06-12 Investing for Retirement: SPIAs, TIPS, Stocks and the 4% Rule by Joe Tomlinson (Article)
Relying only on stocks and bonds to fund a decumulation strategy may no longer be feasible, given today's low interest rate environment and the prospect of muted returns from the equities market. Investors should instead consider using single-premium immediate annuities (SPIAs) to fund at least a portion of retirement needs.
2012-06-11 China Toes a Delicate Balance by Chris Maxey and Ryan Davis of Fortigent
Markets posted their best returns of 2012 last week as investors anticipated additional policy action from global central banks. A series of events during the week heightened optimism that central banks would once again step in to support financial markets. In a Wednesday release, the European Central Bank did not cut its policy rate, but ECB President Mario Draghi said the bank was ready to act in response to the deteriorating state of the Eurozone.
2012-06-09 A Dysfunctional Nation by John Mauldin of Millennium Wave Advisors
European leaders launched the euro project in the last century as an experiment to see whether political hope could become economic reality. What they have done is create one of the most dysfunctional economic systems in history. And the distortions inherent in that system are now playing out in an increasingly dysfunctional social order. Today we look at some rather disturbing recent events and wonder about the actual costs of that experiment. What type of "therapy" will be needed to treat the dysfunctional family that Europe has become?
2012-06-04 Alternative Mutual Funds See Continued Growth by Chris Maxey and Ryan Davis of Fortigent
During an especially difficult week, global equity markets were deep in the red, as the S&P 500 Index lost 3.2% and the Dow Jones Industrial Average fell 3.3%. There was no shortage of disappointing data during the course of the past week, ranging from weakness in the ISM manufacturing survey to an underwhelming May labor market report. It was such a bad week, in fact, that Bespoke Investment Group found that 18 of the 21 economic indicators released in the U.S. fell short of expectations.
2012-05-31 Charting the Benefits of a Diversified Approach by Team of American Century Investments
Weve written quite a bit about diversification recently. Rather than tell you about the potential benefits of a diversified approach, we thought wed use this initial issue of Chart of the Week to show you how a diversified portfolio can potentially smooth out performance and improve cumulative returns over time.
2012-05-29 What Does a Dividend Tax Hike Mean for Dividend-paying Stocks? by Steve Chun (Article)
The Bush tax cuts are due to expire at the end of this year, but owners of dividend-paying stocks need not be afraid. Historically, changes in tax regimes have had little effect on the value of the aggregate stock market. Historical data show that even vulnerable asset sub-classes - high-yield stocks, for example - have not lost value long-term as a result of similar tax increases.
2012-05-26 Meanwhile, Back at the Ranch by John Mauldin of Millennium Wave Advisors
We need to tear our gaze away from Europe and look around at what is happening in the rest of the world. There is about to be an eerily near-simultaneous ending to the quantitative easing by the four major central banks while global growth is slowing down. And so, while the future of Europe is up for grabs, the true danger to global markets and growth may be elsewhere.
2012-05-22 David Rosenberg - I am not a Permabear by Robert Huebscher (Article)
While most sell-side analysts are correctly classified as permabulls, Gluskin Sheff's David Rosenberg has been branded as the opposite - a permabear. He rejects that label. He recently said he's indeed bullish - on bonds and income - and has been so for quite a while.
2012-05-22 Niall Ferguson - The West's Six Killer Apps by Robert Huebscher (Article)
For five centuries, the West dominated Eastern economies. But, beginning with the fall of the Berlin Wall in 1989, the East has now caught up, according to Niall Ferguson. It did so by downloading six "killer apps."
2012-05-22 Life-cycle Finance and the Dimensional Managed DC® Pension by Wade Pfau (Article)
Pension plans are like cars, according to Nobel laureate Robert Merton. People want a car they can drive and a pension that will maintain their standard of living in retirement; they do not care about what goes on under the hood. Advisors, however, must care. So when a new pension-like option hits the market, as DFA's recently did, it's important to go beyond simply kicking the tires and carefully examine how it works as a retirement-saving vehicle.
2012-05-22 Finding Alpha with Active Managers by Jay Feeney of Robeco Investment Management
Many investors are convinced that alpha has disappeared from U.S. equity markets and prefer to use passive investment tools such as exchange traded funds (ETFs) to broadly gain exposure to these markets. The problem with this approach is that it gives up any chance of outperformance and forces an investor to settle for benchmark returns minus fees. It also ignores the fact that alpha potential does exist. Although many active managers have not done a good job in capturing alpha, there are many who have outperformed over time, producing very sizeable excess returns.
2012-05-21 A Worthy Scapegoat by Charles Lieberman (Article)
The $2 billion trading loss reported by J.P. Morgan Chase has unleashed a torrent of comments suggesting an even greater need to impose Dodd-Frank, that bank trading operations need to be reined in, that banks managers are badly overpaid and suffer from hubris that gets them into trouble, that our largest banks are too big to fail and too big to manage, and that regulators need to do a better job of keeping banks from taking too much risk with depositor money.
2012-05-21 Markets Fall on Negative Europe Sentiment by Chris Maxey and Ryan Davis of Fortigent
Worries over the European sovereign debt crisis worsened this week as Greeces political instability increased concern that the country could depart the Eurozone. Greece saw a virtual run on its banks during the week, as depositors withdrew 1.2 billion in two days on fears of massive devaluation from a return to the drachma. While this represented just 0.75% of Greek deposits, it foreshadows a potentially larger crisis if a Greek Eurozone departure becomes imminent.
2012-05-19 Dr. Frankensteins Europe by John Mauldin of Millennium Wave Advisors
We explore the options that the eurozone faces in order to stay together, and what it all means for some of the countries involved. While I have written for a very long time about the probability of Greece exiting the eurozone, the actuality is fraught with risk, not just for Europe but for the world economy. What happens in the next few months will impact us all for a very long time. Indeed, this is one of those years, as Lenin noted, when decades happen.
2012-05-16 Core Alternatives Fund Quarterly Review by Josh Parrott of Hatteras Funds
A balanced position seems prudent given liquidity is slowing, credit spreads have tightened considerably and equity valuations have jumped. The destabilizing market force of deleveraging still exists and many economist have predicted that the coming months might produce some drawbacks in the markets like last summer, but also new entry points for growth areas such as Emerging Markets, Technology, Mortgage Backed Securities and possibly European distressed debt.
2012-05-15 Dividends: A Timeless Component of Equity Return by Loomis Sayles & Company, L.P. (Article)
With interest rates at historic lows and many dividend-paying stocks boasting yields comparable to or higher than US Treasurys, it is no wonder that dividends have recently been at the forefront of many investors' minds. But dividends have a long history as a significant component of total return, and today's buzz is just the most recent chapter.
2012-05-15 Lacy Hunt on Debt, Austerity and Recovery by Robert Huebscher (Article)
Global economies are experiencing unsustainable debt disequilibrium, according to Lacy Hunt. Economic textbooks preach that equilibrium, rather than transition, should be the predominant condition. But our attempts to reduce our indebtedness by taking on more ? and less productive ? debt are weakening our economy and creating unstable conditions.
2012-05-15 Ponzi's Children by Michael Lewitt (Article)
Europe, whose economic condition is nothing less than terminal, is about to receive what physicians refer to as a 'zetz' of morphine in the form of M. Hollande. A 'zetz' is the final dose that doctors give to dying patients to hasten their passage to the afterlife. In Europe's case, however, the medicine is not going to be painless, and its administration is not based on mercy but on resentment and stupidity.
2012-05-15 Earnings Seasons Recap: Is Corporate Strength Fading? by Chris Maxey and Ryan Davis of Fortigent
Strength in the corporate sector since the recession ended has been well documented. In the face of general economic malaise, record profits have been achieved through aggressive cost-cutting and low financing costs. This phenomenon has been one of the major pillars propping up the markets (with the other being central bank policy). Now with Q1 earnings season all but over, it is not unreasonable to question whether that corporate strength is fading. Initial impressions of first quarter earnings season were very favorable after the first big wave of earnings releases.
2012-05-12 Waving the White Flag by John Mauldin of Millennium Wave Advisors
Europe has embarked on a program that will require multiple trillions of euros of freshly minted money in order to maintain the eurozone. But the alternative, European leaders agree, is even worse. Today we will look at the recent German shift in policy, why it was so predictable, and what it means. This is a Ponzi scheme that makes Madoff look like a small-time street hustler.
2012-05-10 Diversification 301: Tailored Solutions for Your Portfolio by Team of American Century Investments
We continue our discussion of diversification and its application to investor portfolios. We explain how there is no single universal diversified portfolio suited to all investors and occasions. Instead, diversification is a highly customizable framework that can and should be uniquely tailored to suit each individual investors goals and risk tolerances. Earlier articles in the series discussed the basic benefits and rationale for diversification and a discussion of alternative investments that can be used to diversify a traditional balanced portfolio of stocks and bonds.
2012-05-08 Annuities versus Systematic Withdrawals: Understanding Tax Effects by Joe Tomlinson (Article)
Given the complexity of most annuities, analysis of them typically only considers pre-tax results. But taxes matter. As we will see, tax impacts vary by the specific type of annuity you're considering, and will make the difference between annuities being cost effective or a drain on cash flow.
2012-05-08 Mohamed El-Erian and David McWilliams: The Key to Resolving Europe's Crisis by Robert Huebscher (Article)
Dealing with a crisis requires three things, according to Jack Welch, General Electric's former CEO. Define your reality - not as you would like it to be, but as it is. Do something about it. Then, third, acknowledge that the crisis wasn't half as difficult as you thought it was. Germany is the key player in Europe's crisis today, and it is still struggling to accurately define its reality.
2012-05-08 Why the Best Conductors Sent Us Home Early by Justin Locke (Article)
As a professional speaker, I focus on leadership and management. But I have a major handicap to overcome: the conventional wisdom that a core goal of leadership is to motivate greater effort.
2012-05-08 Sentiment Readies for a Tumultuous Fall by Chris Maxey and Ryan Davis of Fortigent
Market sentiment has oscillated quite rapidly in recent months on the heels of dramatic market intervention by the ECB and shifting views of global economic stability. Sentiment is likely to remain unstable in the months ahead as investors grapple with any number of events, from elections in Europe and the US to the end of recent monetary easing efforts domestically. While markets have rallied substantially over the past six months, retail investors are maintaining a somewhat neutral view on their allocations.
2012-05-05 A Graphic Presentation by John Mauldin of Millennium Wave Advisors
The job market is still in a deep hole. At April's rate of job gains, it would take well over three years to return to December 2007's employment level, without adjusting for population growth; at the average rate of the last six months, it would take about two years. Earnings are weak, and the strongest sectors aren't those of which economic miracles are spun. QE3 looks like more of a possibility than it did a few days ago.
2012-05-01 How to Respond to the Bachus-McCarthy Bill by Bob Veres (Article)
I recommend that everybody contact your elected representatives and tell them that the proposed Bachus-McCarthy legislation would be detrimental to the small businesses in their district or state. Below is a sample letter for you to send to your elected representatives, and a press release for you to send to your local paper and press contacts.
2012-05-01 The Asymmetric Value of Delaying Social Security Benefits by Michael Kitces (Article)
Despite a compelling body of research arguing that most retirees would benefit by delaying the onset of Social Security payments, the majority who are eligible still elect to begin receiving them as early as possible. But delaying Social Security benefits is one of the best triple-hedges available to any retiree - simultaneously protecting against poor returns, high inflation, and longevity.
2012-05-01 Congress Needs to Stop a Dividend Tax Hike by Richard McMahon (Article)
Bad news is lurking right around the corner for investors, businesses and the nation's economy. Unless Congress acts before the end of the year, dividend income will be taxed at individual tax rates instead of at the same rate as long-term capital gains.
2012-05-01 Is Now The Time To Brace For Another Volatile Summer? by Chris Maxey of Fortigent
In the latest week, the Federal Open Market Committee reiterated its stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. While rates will remain low for now, the Fed will need to fend off other challenges in the months ahead, ones that could send investors racing for the beach sooner than normal. The biggest challenge for the Fed and the economy in the coming months is in the form of Operation Twist. The hope was that such actions would drive down interest rates and encourage borrowing of all forms.
2012-04-24 65+5+Dividends: The case for quality dividend stocks in the first five years of retirement by Legg Mason ClearBridge Advisors (Article)
Retirees are living longer than ever before, and for many, outliving their money is a real concern. A good reason to consider quality large-cap dividend stocks in the early years of retirement - which have historically offered higher returns than fixed income with lower volatility than equities overall.
2012-04-24 Why a 60/40 Portfolio isn?t Diversified by Alex Shahidi (Article)
Maintaining a balanced portfolio is critical, especially when predictions of growth and inflation vary as widely as they do today. Investors are always better off spreading risk than aggressively betting on one economic outcome, and that's especially true when the range of possible economic outcomes is so wide.
2012-04-24 The Number One Priority for Advisors by Dan Richards (Article)
What's the single most critical need for advisors to succeed? There are lots of candidates ? investment knowledge, communication skills, the ability to sell, and attracting and motivating a strong team.
2012-04-24 Letter to the Editor - Jeremy Grantham by Various (Article)
A reader responds to Jeremy Grantham's commentary, My Sister's Pension Assets and Agency Problems, which appeared on April 19.
2012-04-24 Is 2012 the Year for Hedge Funds? by Chris Maxey of Fortigent
Prior to the financial crisis, hedge funds were largely viewed as alpha generating, high return seeking, portfolio diversifiers. In 2008, that model came under attack from multiple angles fraud, illiquidity, and poor returns being the primary culprit. Ever since that time, the value proposition of hedge funds and alternative investments remains in question, causing some to wonder if this is a make or break year for the space. There is reason to think the environment for hedge funds and active managers is improving.
2012-04-21 A Little Bull's Eye Investing by John Mauldin of Millennium Wave Advisors
Bull's Eye Investing was the book that really helped establish this letter. It dealt with a host of investing ideas, secular market cycles, value investing, alternative investing, and more. I have taken that material, updated it, and written a new book, part of the Little Book series done by Wiley, called The Little Book of Bull's Eye Investing Finding Value, Generating Absolute Returns, and Controlling Risk in Turbulent Markets. I have waited to announce this one until it is off the presses and being shipped. Here is the introduction and part of the first chapter of the book.
2012-04-17 The Real Reason to Worry about Oil by Robert Huebscher (Article)
Few question the prevailing wisdom that tensions with Iran have caused the recent rise in oil prices. But another possibility exists - and it's a much greater long-term threat to economic growth.
2012-04-17 Muppet Capers by Michael Lewitt (Article)
Investors enjoyed strong stock market and credit market gains during the first quarter of the year, but storm clouds may be forming on the horizon. Corporate profits have likely peaked. Stocks may be the best house in a bad neighborhood, but houses in that neighborhood appear to be fully priced for now. There are also some troubling signs in the bond markets, particularly the long end.
2012-04-17 Letters to the Editor by Various (Article)
We have several letters from readers, including one in response to Lisa Keung's article on myths about women and investing and one in response to a recent commentary by Dan Ariely.
2012-04-17 Earnings on a Hot Plate by Chris Maxey of Fortigent
While the economy has displayed fits and starts of entering a sustained recovery over the past several years, there has been no doubt about the ability of companies to reshape their balance sheets and refocus their businesses. In the midst of first quarter earnings season, there are some concerns that the corporate hot streak will come to an abrupt end, but the reduction in earnings expectations since late last year appears to be favoring another positive earnings season.
2012-04-14 The War for Spain by John Mauldin of Millennium Wave Advisors
The inflection point that I thought the ECB had pushed down the road for at least a year with their recent 1 trillion LTRO is now rushing toward us much faster than Draghi had in mind when he launched his massive funding operation. So, we must pay attention to what Spain has done this week which, to my surprise, seems to have escaped the attention of the major media. It may be considered a tipping point when the crisis is analyzed by some future historian. And then we'll get back to some additional details on the US employment situation, starting with a few rather shocking data points.
2012-04-12 Diversification 201: Implications of Diversification for Investor Behavior by Team of American Century Investments
Here we look at diversification as a tool to address many classic failings identified by the science of behavioral finance. Earlier we explained the rationale behind diversification and how it can be used for structuring a portfolio to help manage risk and maximize risk-adjusted performance. We also provided an Intro to Alternatives meant to highlight the types of strategies that can be used to diversify a traditional portfolio. In future months well address such topics as diversification in a post-Financial Crisis world, and what types of diversification strategies make the most sense.
2012-04-10 Flexible Strategies for Longevity Protection: Comparing Two Products by Joe Tomlinson (Article)
Products that guarantee income for life can be useful for retirement planning, but many clients also want flexibility and control over their investments. Two products that can meet these objectives are variable annuities with guaranteed lifetime withdrawal benefits (VA/GLWBs) and deferred income annuities (DIAs).
2012-04-10 China Experiencing Growing Pains by Chris Maxey and Ryan Davis of Fortigent
For most of the past two years, investors have been pre-occupied with the fiscal catastrophe in Europe and with good reason. However, the relative health of the worlds second largest economy arguably deserves more headline space. A year ago, Chinas stock market led the broader emerging markets down due to pervasive inflation concerns. Official figures reached as high as 6.5%, and some reports of pork and other food price inflation reached double-digit levels. Chinese authorities were forced to slow down the pace of their economy by raising bank reserve ratios and key lending rates.
2012-04-03 Fewer, Richer, Greener: Why Jeremy Grantham is (Partly) Wrong by Laurence B. Siegel (Article)
Is the human experience getting better or worse? This is a big question investors are rarely asked to confront, yet its answer has profound consequences for market returns.
2012-04-03 Senior Loans Attractively Priced Relative to High Yield by OppenheimerFunds, Inc. (Article)
By restoring confidence in the global financial system, the European Central Bank's Long Term Refinancing Operation has allowed global bond investors to participate in attractive opportunities around the world.
2012-04-03 A Q1 Letter to Clients: Bernanke, Buffett and Siegel on the Prospects Ahead by Dan Richards (Article)
Here is a template for a letter to serve as a starting point for advisors looking to send clients a summary of what's happened in the past 90 days and the outlook for the period ahead.
2012-04-03 The Easy Money Saloon by Michael Lewitt (Article)
When two of the world's soundest central banks (Israel and Switzerland) start investing their reserves in stocks (the Bank of Israel is run by the highly respected Stanley Fischer for God's sake!), one has to wonder what the world is coming to. Apparently the global saloon is expanding its boundaries. No doubt we will soon hear the ECB is merging with the London Stock Exchange.
2012-04-03 The Value of Sentiment Polls by Bill Smead of Smead Capital Management
In our opinion, those who are very bearish about the US stock market need a substantial price increase to trigger historically extreme newsletter writer sentiment. Those who are optimistic should prefer a temporary correction or sideways movement to reinforce fear on the part of the crowd. This would cause the bullish and bearish readings to gravitate to toward each other and remove the risk of having some temporary hell to pay for those of us who seek to practice long-duration common stock investing.
2012-04-03 Have Investors Moved Past Europe? by Chris Maxey of Fortigent
At the end of 2011, the Long-Term Refinancing Operation brought a modicum of stability to financial markets in Europe.When coupled with the orderly default of Greece, the situation in Europe is seemingly on a road to more pleasant ground. Just as soon as investors place Europe in their periphery, however, problems once again begin bubbling to the surface.In recent weeks, the spotlight has turned to Spain, where unemployment is near 24% and the government is expected to run a 5.9% budget deficit for 2012.
2012-03-31 All Spain All the Time by John Mauldin of Millennium Wave Advisors
The events of the last 24 hours compel me to once again look "across the pond" at the problems that not only plague Europe but will be a drag on world growth as well, as Europe goes through its continued painful adjustment as a consequence of trying to adopt a single currency. Since Spain is going to be on the front page for some time, it will be useful to look at some of the problems it is facing, to put it all into context. And what I heard while in Europe in private meetings is troubling.
2012-03-27 GMO: Two Questions We Can't Answer by Robert Huebscher (Article)
Its reputation was built on stellar returns achieved with long-term bets on undervalued asset classes. Current market conditions, however, pose two unanswerable questions for GMO ? leaving the firm with an uncertain strategy for its equities and fixed-income allocations.
2012-03-27 Questions of Character by Michael Lewitt (Article)
As a long-time investor in leveraged companies, the character of management has long informed my decisions of where to direct capital. There is no margin of safety when you invest in a company managed by dishonest or reckless managers, or a management team that has a history of placing its own interests before those of its shareholders or creditors. The same is true of choosing an investment manager.
2012-03-27 Letter to the Editor ? Jeremy Grantham by Various (Article)
A reader responds to Michael Edesess' article, Jeremy Grantham: This Time is Different, which appeared last week.
2012-03-27 Buy Commodities, Sell Brands by Bill Smead of Smead Capital Management
Warren Buffett was quoted the other day saying, We like companies which buy a commodity and sell a brand. We thought it would be very helpful to unpack his thought and put it into the context of today. We believe these current circumstances are framed by the historical over-pricing of commodities, the coming economic contraction of China, the successful cleansing of the income statements of US households and the inevitable rebound in housing in the US. We will look at the makeup of our portfolio companies which buy a commodity and sell a brand to consider their upside in this environment.
2012-03-20 Jeremy Grantham: This Time is Different by Michael Edesess (Article)
Jeremy Grantham is a paradox. A man who has said many times, 'This time it's different are the four most dangerous words in the English language,' is now saying - loud and clear - this time it really is different.
2012-03-20 Bob Rodriguez on the Dangers in Today's Markets by Robert Huebscher (Article)
Bob Rodriguez is the managing partner and chief executive officer of Los Angeles-based First Pacific Advisors. In this interview, he discusses how the challenges faced by the US economy will impact the capital markets.
2012-03-20 The Wages of Denial by Michael Lewitt (Article)
Europe is insolvent, and hopelessly so. Her procurer - the European Central Bank (ECB) - can front her some money for a while, but in the end she is either going to have to repay him or suffer a very rough consequence. In the meantime, however, she can continue to entertain her customers, in this case those willing to extend her credit in one form or another. Sooner rather than later, however, these creditors are going to grow tired of her tricks and turn their attention otherwise. At that point, she will be left to deal with the ECB because nobody else will have her.
2012-03-20 An Actively Passive Debate by Chris Maxey of Fortigent
The debate surrounding active versus passive investment management continues to attract a growing share of investor interest. After several years of underperformance, active managers are finally outperforming their benchmarks YTD, but it may be too late. Investors, frustrated with the underperformance and higher fees, are piling en masse into exchange-traded funds (ETFs) and other low cost solutions. The time for an all-passive solution may not be right now, but active managers are undoubtedly concerned about what the future may hold.
2012-03-17 Where Will the Jobs Come From? by John Mauldin of Millennium Wave Advisors
We will look at why employment is so critical. How are jobs created and what policies can be adopted to help foster more jobs? Should the US try and keep jobs that are going overseas, or develop whole new industries? Who exactly is the competition globally for jobs?
2012-03-15 Diversification 101 by Rich Weiss of American Century Investments
In this edition of Weekly Market Update, Rich Weiss, discusses diversification-the rationale, the benefits, and ways to apply this approach. This is the first in a series of monthly write-ups on the topic with future pieces devoted to topics such as the state of diversification in a post-financial crisis world; portfolio rebalancing; and when and what types of diversification strategies make the most sense, among other topics. Outfitted with this information, investors can make better investment choices, improving portfolio diversification and risk-adjusted performance now and into the future.
2012-03-13 Concentrated Equity Triple Play Higher Returns, Lower Risk, Lower Correlations by C. Thomas Howard, Ph.D. (Article)
Concentrating a portfolio on a few choice assets dramatically increases an investor's chance of superior performance. Nonetheless, most advisors and investors shun portfolio concentration as unacceptably risky. To a great extent, this is driven by the myth that adequate diversification is impossible unless one holds many stocks - a myth I will debunk.
2012-03-13 The Gutenberg Economy by Michael Lewitt (Article)
As commentators near and far speculate on what 2012 will bring to the global economy and markets, there is little question that one factor will be decisive: the central banks' printing presses. Both the Federal Reserve and the European Central Bank (ECB) will keep printing dollars and euros around the clock until their presses run out of ink.
2012-03-12 To Hell and Back In by Charles Lieberman (Article)
This past week saw the three year anniversary of the market low on March 9, 2009. The most crucial lesson that investors should have learned is that good investments recover, no matter how dramatically the market may decline, no matter how volatile it may be at times, and they should approach investing with a long-term plan in mind. Many investors were shaken out of the market over the past few years now have account values that are well behind where they would be if they had simply held on for the vicious ride.
2012-03-09 Earning Real Income With Real Estate by Team of Emerald Asset Advisors
The oldest mantra about investing in real estate holds that the key to success is location, location, location. While there is always the chance that real estate investments will produce capital gains (or losses), we believe a better reason to consider real estate investments is for income, income, income. That's especially true in today's ultra low rate environment. While the words "real estate" conjure images of the woeful state of the residential real estate market, the commercial real estate market is in much better fundamental shape.
2012-03-09 Long-Short Funds Lead Greenwich Indices in February by Clint Binkley of Greenwich Alternative Investments
Hedge funds turned in another month of gains across all major strategies, notes Clint Binkley, Senior Vice President. Results from Long-Short Equity funds show that managers are increasing net exposures as they become more confident about economic conditions. Although some managers continue to expect a market correction, most believe it will be mild as institutional investors are still waiting for opportunities to add to their positions.
2012-03-06 New Tools to Manage Longevity Risk by Joe Tomlinson (Article)
If you could guarantee yourself an inflation-protected stream of income for the rest of your life, would you take it? For many retirees, the answer is yes, and that is rightfully sparking new interest in deferred-income annuities (DIAs). By combining a DIA with a TIPS ladder or more aggressive equity-centric investments, retirees can obtain inflation-protected lifetime income. But they will face important tradeoffs, as I will explain.
2012-03-06 Why Invest? - Part 2 by Adam Jared Apt (Article)
Risk tolerance is a quality inherent in an individual or an institution. Whether quantified or not, risk tolerance is the amount of return the investor requires as compensation for the extra risk that comes with investing. It's a concept that is essential for making investment decisions, yet it is elusive and maddeningly difficult to specify. Even so, many investment advisors like to give the public the impression that they're proficient at determining it.
2012-03-06 Continued Struggle Between Borrowing and Lending by Chris Maxey of Fortigent
Nonfarm payrolls and the unemployment rate headline the weeks economic data. Consensus expects another 200K+ gain in payrolls and no change in the unemployment rate. Other major economic data of note includes the ISM Non-Manufacturing index and the US trade balance. Abroad, there are important releases on tap including Q4 EU GDP and EU retail sales. Both the ECB and Bank of England meet this week, but neither is expected to adjust their key interest rates. Other central banks meeting include Russia, Australia, Brazil, Poland, New Zealand, Indonesia, South Korea, Canada, Peru, and Malaysia.
2012-03-03 Unintended Consequence by John Mauldin of Millennium Wave Advisors
This week we wonder about the consequences of the European Central Bank (ECB) issuing over 1 trillion in short-term loans to try and postpone a banking credit crisis and lower sovereign debt costs for certain peripheral countries in Europe. What if, instead of holding the European Monetary Union (EMU or Eurozone) together, that actually makes a breakup more likely? That would certainly fall under the rubric of unintended consequences, and be worth our time to contemplate in this week's letter.
2012-03-02 Positioning Your Portfolio When You Dont Have All the Answers by Josh Thimons of PIMCO
Faced with difficult questions like the European debt crisis, portfolio managers have two possible courses of action: feign omniscience and seek to position portfolios for one outcome, or admit to not knowing the answer and seek to position portfolios to prosper in the most likely scenarios and hold ground in the least. We believe the latter is the better course because two extreme outcomes appear increasingly likely for almost all asset classes, which increases the risk involved in choosing the wrong answer.
2012-02-28 The Problem with Target-Date Fund Glide Paths by James A. Colon, CFA (Article)
The attack on target-date funds (TDFs) continues to gain steam, and for good reason. Virtually all TDFs offer a mechanical approach to glide-path management, unnecessarily exposing investors to risk - most noticeably when they are on the verge of retirement. A superior approach would keep the long- and short-term volatility of an investor's portfolio within appropriate ranges by actively managing the glide path.
2012-02-28 Oil Prices, Mixed Data Slow Market Gains by Chris Maxey and Ryan Davis of Fortigent
The continued march higher in oil prices is filtering its way down to consumers in a less-than-favorable way. By the end of the week, the average price for a regular gallon of gas was $3.65, 30 cents higher than the price one year ago. Consumers are all too familiar with the taxing effect of higher gas prices, particularly given the extreme run up early last year. Interestingly, the number of Google searches for gas prices recently overtook those for Greece, suggesting that the domestic economic situation is trumping consumers concern about an overseas shock.
2012-02-27 Are Individuals Going Back into Stocks? by Charles Lieberman (Article)
The strong rally in equities in the early part of 2012 raises the question as to whether households will stop buying bonds and will resume buying stocks. I think the answer is no, which I also believe is unfortunate. While the equity market rally has no doubt captured the attention of households, I doubt those who have exited the stock market will venture back into this perceived risky arena until they get badly hurt owning bonds. Thats coming, but it hasnt happened yet.
2012-02-25 Tax That Other Guy by John Mauldin of Millennium Wave Advisors
Last week's letter on taxes drew more response than any letter I have written in years. Questions that were raised simply beg for an answer, and some of the replies were very thoughtful, well-written suggestions for alternatives. This week I am going to do something I can't ever remember doing, and that is to use the entire letter to involve and respond to my readers.
2012-02-22 Tick, Tock Goes the Inflation Clock by Chris Maxey of Fortigent
Despite this short-term good news, the cloud hanging over Europe promises to remain for some time. As expected, the first glimpses of fourth quarter GDP reveal a region under severe economic pressure. Growth in the European Union contracted 0.3%, the first such decline since the recession. Most member countries saw their economies shrink, including Germany (-0.2%), Italy (-0.7%), and Spain (-0.3%). On the bright side, France actually surprised consensus with a 0.2% expansion.
2012-02-21 Woody Brock on Solving America's Fiscal Problems by Robert Huebscher (Article)
Dr. Horace 'Woody' Brock is the founder Strategic Economic Decisions, an economic research and consulting service. In this interview, he discusses his recently published book, American Gridlock, and how America can grow its economy through 'good' deficit spending.
2012-02-21 David Rosenberg: "Searching for Certainty in a Sea of Uncertainty" by Katie Southwick (Article)
David Rosenberg is known for his bearish outlook, and he has not yet seen anything in recent economic news that persuades him to change his tune. Contrary to prevailing "bullish complacency" and the widespread belief that central banking systems "have the answers to the ongoing global debt deleveraging cycle," in the United States Rosenberg sees monumental deficits, flat growth, an underlying trend of deflation, and current fiscal policies that will limit future flexibility. In other words, trouble remains on the horizon.
2012-02-21 A Simple Email to Save a Client by Dan Richards (Article)
A recent conversation got me thinking. Losing a client is a painful experience -even more so when you realize that something as simple as an email could have avoided that outcome.
2012-02-16 Weekly Market Update: Introduction to Alternative Investments by Team of American Century Investments
Alternative investments (or alts as they are commonly known) have exploded in popularity in recent years. What began as specialty investment strategies utilized by only the most sophisticated institutional investorssuch as pension plans and university endowmentsare now readily available to retail investors through a number of mutual funds and exchange-traded funds. Here we try to explain alts appeal in broad terms, discussing how these strategies are used and what role alts may play in an individual investors portfolio.
2012-02-14 ?The Greatest Anomaly in Finance' by Geoff Considine (Article)
If I told you that there is an easy-to-exploit market anomaly that has enabled investors to consistently and substantially outperform the market with less risk for more than four decades, your first instinct might be to roll your eyes. After all, the unending quest to improve returns while lowering risk has yielded countless methods with initial promise that subsequently collapse under further scrutiny.
2012-02-14 The Safety-first, Goals-based Approach to Financial Planning by Wade Pfau (Article)
Little of what is taught in traditional investment textbooks is of value in personal financial planning. Risk is not standard deviation; it is the probability and consequences of not meeting one's goals. That real-world perspective animates a new book by Zvi Bodie and Rachelle Taqqu that implores advisors and their clients to lock in the funding of their essential expenses before worrying about their discretionary goals.
2012-02-14 Letters to the Editor by Various (Article)
A reader responds to Larry Siegel's article, Jeremy Siegel, Rob Arnott and Other Experts Forecast Equity Returns, and another reader responds to Joe Tomlinson's article, An Innovative Solution to Retirement Income, both of which appeared last week.
2012-02-14 A Dejected Asset Class Finds Its Way in 2012 by Chris Maxey of Fortigent
Investor interest is acutely focused on the developed world, specifically Europe and the US. All the while, developing countries continue to be better positioned fiscally, with lower debt and better long-term growth prospects. Despite the outlook, stock markets in emerging markets are largely at the mercy of their counterparts in Europe and the US, suffering in lockstep as opposed to embracing the decoupling phase that was supposed to have begun in 2007. According to the IMF, emerging and developing economies grew 6.2% in 2011, compared to a 1.6% growth rate in advanced economies.
2012-02-13 Bill Gross vs. Warren Buffett and Larry Fink by Charles Lieberman (Article)
While bonds seem frightfully overvalued, stocks are cheap because investors are so hell bent for safety. Investors continue to shift capital out of stock funds and into bond funds virtually every month. This behavior suggests that they are fixated on the zero risk of default and fail to appreciate how they will be hurt by the loss of buying power.
2012-02-11 The Answer We Dont Want to Know by John Mauldin of Millennium Wave Advisors
This election is ultimately about dealing (or not dealing) with the deficit, and putting the country on a path to a sustainable budget deficit, one that is less than the growth rate of the country. As I have argued elsewhere, and will argue in future letters, that is the paramount issue. Not dealing with the deficit runs the very real risk of the bond market treating us just as it is treating Italy and any other country that gets to the point where its debt is unsustainable.
2012-02-10 Indices Show Hedge Funds Off to Strong Start in January by Clint Binkley of Greenwich Alternative Investments
"US equities rallied significantly to begin 2012 and Long-Short managers are the best performers thus far. Hedge funds focused on Market Neutral strategies were also surprisingly strong as both Arbitrage and Event-Driven managers posted their best results in months. Despite investors being drawn into risk-on sectors of the market, most funds remain cautious with the economic situation in Europe still unresolved, notes Clint Binkley, Senior Vice President.
2012-02-10 A Stock for its Dividends - Revisited by Jesper Madsen of Matthews Asia
Since investors often turn to Asia looking for growth, they may overlook that the region offers a well-diversified universe of dividend-paying companies in terms of sectors and countries. This month Jesper Madsen revisits the notion that the Asia Pacific region should play an essential role for investors seeking yield and growth in income.
2012-02-09 Q411 Portfolio Commentary by Jay Compson of Absolute Investment Advisers
We continue to stress that investors remain patient. Given that we are likely in the 1% of money managers that look beyond the next 30 days, it is inevitable that the markets will move counter to our positioning. This is to be expected and is consistent with the Fund's historical performance.We continue to remain disciplined and receive counsel from the investing bible: Graham and Dodd's Security Analysis. For those few true value investors left, it's worth noting that nowhere is the phrase "margin of safety" defined by quantitative easing, government stimulus, or bank bailouts.
2012-02-07 Jeremy Siegel, Rob Arnott and Other Experts Forecast Equity Returns by Laurence B. Siegel (Article)
A forecast of the equity risk premium (ERP) tells you how much to save, how to allocate assets between equities and fixed income, and how much you can consume. Given its great importance, the CFA Institute recently convened a group of top-level academics and practitioners to forecast future ERPs - and to reflect on similar predictions they had made a decade ago.
2012-02-07 A Conversation that Tripled Referrals by Dan Richards (Article)
Last fall, a veteran advisor contacted his retired clients with the suggestion that they meet to discuss one simple goal - to lay out detailed monthly cash flow forecasts matching funds coming in with cash going out. Not only did this exercise benefit those clients, he was able to leverage his efforts to triple his referrals.
2012-02-07 Corporate Earnings Hit a Rough Patch by Chris Maxey of Fortigent
The week started slow, however, with a mixed personal income and outlays report from the Bureau of Economic Analysis. While consumer spending was flat in December, incomes grew 0.5% above expectations and the biggest gain since March. The lack of spending growth is concerning, but somewhat expected given stagnating wage growth. Spending to this point has largely been financed through savings, making Decembers income boost a much welcome improvement for consumers.
2012-02-04 Who Took My Easy Button? by John Mauldin of Millennium Wave Advisors
There is no way enough money can be found to fund our entitlement programs, given the current system, even under the best of assumptions. Things must change. Either we will make the difficult choices or those changes will be forced by the market. The longer we put off the difficult choices, the more painful the consequences. This week we begin a series on the choices facing the US. We need to understand the consequences of the choices we make. Cut spending, say some. Tax the rich, say others. Cut out waste and corruption is always a popular choice. Do all of the above, intone others.
2012-02-02 2011: The US Year by Richard Bernstein of Richard Bernstein Advisors
The market generally proves the consensus wrong, and 2011 certainly adhered to that historical precedent because the consensus "must owns" at the beginning of 2011 generally underperformed during the year. What is somewhat startling to us, however, is that conviction has yet to be shaken. The consensus continues to favor commodities, emerging markets, and "any-bond-but-treasuries".
2012-01-31 Bob Doll Believes the Recent Equities Rally Could Continue by BlackRock (Article)
Conditions have improved compared to last quarter, with the US economy showing signs of acceleration and European policymakers moving further along the path of progress. With the bearish tone receding, investors should consider moving into "risk" assets and out of "safe" assets, especially on pullbacks.
2012-01-31 A 13-Point Plan for Top Clients by Dan Richards (Article)
Time is our scarcest currency. We must be cautious about taking on significant new commitments, and the only exception is when there's absolutely clear cut evidence of a substantial return. That's why a simple way to get your top clients to look forward to your meetings is incredibly important.
2012-01-31 Letters to the Editor ? Reinhart and Rogoff by Various (Article)
Several readers respond to Robert Huebscher's article, Beyond Reinhart and Rogoff, which appeared last week.
2012-01-31 America's Economic Engine Still Healing by Chris Maxey of Fortigent
A thin week of economic data and renewed focus on the European sovereign debt crisis may have prompted profit taking by some investors. Arguably, the biggest development last week was the Federal Open Market Committees (FOMC) press release on Wednesday. For the first time, the central banks decision makers released forecasts for the federal funds rate and the timing for the first rate increase. In that release, the FOMC unexpectedly announced that it expected to hold rates near zero until at least late 2014. This far exceeded previously stated expectations of a mid-2013 rate hike.
2012-01-27 12 Trades for 2012 by Komal Sri-Kumar of TCW Asset Management
Earlier this month, I suggested that investors closely watch 12 macroeconomic and financial indicators in deciding whether the world economy is improving or worsening (12 Indicators for 2012, January 3, 2012). Some readers wrote to ask if I would discuss what those indicators would mean for investment strategies. That was the genesis of the present piece which is intended to be consistent with expectations on the economic and financial fronts.
2012-01-24 Must Bond Investors Fear Rising Interest Rates? by Andrew D. Martin (Article)
Thirty-one years ago, in 1981, the one-year Treasury reached its all time high of 14%. Today it hovers around 0.10%. Never before have interest rates fallen so far. Many economists and investment advisors, seeing nowhere to go but up, expect interest rates to climb from these historic lows. But that would not be the catastrophe that many bond investors fear.
2012-01-24 New Tools to Help Clients with Retirement Decisions by Joe Tomlinson (Article)
Our clients face a range of financial planning issues, and the arrival of retirement typically involves making numerous decisions. Here is a set of tools that provide useful information to professionals who work with clients on the verge of retirement - especially financial advisors, accountants and lawyers.
2012-01-24 Letters to the Editor by Various (Article)
Two readers respond to Robert Huebscher's article, The Misreading of Reinhart and Rogoff, which appeared on January 10, and a reader responds to Matthew Jarvis' letter to the Editor last week, which was in response to Wade Pfau's article, GLWBs: Retiree Protection or Money Illusion?, which appeared on January 10.
2012-01-24 Risk Off, Risk On...? by Chris Maxey of Fortigent
Since the start of 2012, global risk markets have all but ignored the overhang of pessimism that frustrated the markets in 2011. For the most part, equity indices already surpassed their gains for all of last year. While such gains may ultimately prove sustainable, there remains a modicum of uncertainty that could rear its head quite suddenly, and quite viciously. In the meantime, an assessment of the investment landscape shows investors may have a legitimate reason for bullishness in the short term.
2012-01-23 The Path of Least Resistance Is Up by Charles Lieberman (Article)
There is so much skepticism with respect to stocks that most everyone who might be scared out of the market has already exited. Investors fear a credit meltdown in Europe following a Greek default. They also fear a weakening domestic economy. As a result, stock prices are depressed, despite solid earnings growth and a healthy corporate sector. If investor's fears are not fulfilled, stocks should move higher.
2012-01-21 Staring into the Abyss by John Mauldin of Millennium Wave Advisors
Europe's leaders are committed to keeping both the euro and the eurozone as it is. But for it to do so, everything must change, as the wonderful quote from the 1958 Italian novel suggests. This is no easy task, as no one wants a change that will impact them negatively; and there is no change that will allow things to stay the same that does not impact all severely, as we will see. In the third part of a continuing series, we look at the actual options that are available on the menu of choices, or as one group called it, the menu of pain.
2012-01-17 Income Annuities versus GLWBs: A Product Comparison by Joe Tomlinson (Article)
The variable annuity with a guaranteed lifetime withdrawal benefit (VA/GLWB) has become the most popular form of annuity, as retirees seek income protection and equity-market participation. But VA/GLWBs are often costly, and the typical purchaser has few tools with which to assess the costs. Investors need a straightforward way to gauge the fees for VA/GLWBs versus other retirement income alternatives.
2012-01-17 An Essential Client Conversation ?Will I be able to pay for my hip replacement at age 85?? by Dan Richards (Article)
Advisors face a big challenge in planning for boomers. Your assumptions about how long they'll live and the nature and cost of their lifestyle as they age will dramatically impact your planning decisions. Conversations with boomers about those topics and about the implications of funding health care are difficult but important.
2012-01-17 A Society Moving Toward The Brink? by Chris Maxey of Fortigent
With economic growth stagnating, global indebtedness remaining stubbornly high, and unemployment refusing to budge, pressure on governments and ordinary citizens is mounting. Financial crises are notoriously difficult to recover from, but the longer-term sociological problems created by such severe declines in output pose a major headwind to the economy in 2012 and beyond.
2012-01-14 The End of Europe? by John Mauldin of Millennium Wave Advisors
The peripheral countries have no choices that allow them to grow and prosper without first suffering (for perhaps a long time) some very real economic pain. Leaving the eurozone has severe consequences; but the economic pain of leaving would go away sooner and allow for quicker adjustments, than if they stayed. However, the initial pain would be worse than the slow pain they'd suffer by staying in the euro. Their choice is, simply, which pain do they want or maybe, which pain do they think they want? Because whatever they choose, they are not going to like it.
2012-01-11 Greenwich Global Hedge Fund Index Slips 15 Points in December by Clint Binkley of Greenwich Alternative Investments
US equities ended 2011 essentially unchanged but endured significant volatility throughout the year. Hedge funds focused on market neutral strategies were above average performers for the month and the year as they were able to withstand the market uncertainty. Looking forward, we expect Directional and Long-Short strategies to have better performance as the global economy continues to stabilize
2012-01-10 How an Advisor Doubled New Clients by Dan Richards (Article)
It's not always the bold strategic initiatives that pay dividends; rather, executing the little things makes a big difference. In the fall of 2010 I ran a workshop for advisors in which I discussed a regular focus on a short list of high priority prospects. An attendee described how he'd used this idea last year as the jumping off point to add 15 minutes to his Monday morning team meeting - and doubled the number of new clients.
2012-01-09 Corporate Profits Hit a Wall, But Stocks a Buy? by Chris Maxey of Fortigent
Equity markets finished their first week of the New Year with positive gains, with the S&P 500 and Dow Jones Industrial Average rising 1.6% and 1.2%, respectively. Those gains, and more, occurred in the first 30 minutes of trading on Tuesday, the first trading day of 2012. From there, markets traded choppily through the remainder of the week, as lingering problems in Europe dampened risk appetites. Investors returning from holiday break received more positive news regarding the US economy, particularly within manufacturing and employment.
2012-01-07 2012: A Year of Choices by John Mauldin of Millennium Wave Advisors
2012 will the year that the consequences of the choices made by the developed world will begin to manifest themselves in the economic realm. We are in the closing chapters of the current Debt Supercycle, with different countries strewn out along the path, and all headed for a destination that will force major decisions if politically painful actions are not taken. Some countries (e.g., Greece) have a choice between the dire and the disastrous. The option for merely difficult choices was long ago, and there is no going back to where you started without a different but equally painful outcome.
2012-01-03 Motivating Older Clients by Dan Richards (Article)
Two advisors recently reminded me of the subtle differences it takes to successfully work with older clients. Both provide the highest quality of advice and have regular client events to stay in front of their best clients. Two years ago, however, they were frustrated by the difficulty of getting older clients to attend those events - until each came up with a solution.
2012-01-03 Ghosts of Christmas Past by Michael Lewitt (Article)
While Europe desperately needs the liquidity that the latest bailout scheme provides, nobody should mistake liquidity for solvency and think for a moment that the crisis is over. Much more work is needed to heal the wounds that European policy makers and business leaders have inflicted on their societies since the European Union was formed.
2011-12-24 Your Three Investing Opponents by John Mauldin of Millennium Wave Advisors
Recently I have been having a running conversation with Barry Ritholtz on the psychology of investing (something we both enjoy discussing and writing about). Since I am busily researching my annual forecast issue (and taking the day off), I asked Barry to share a few of his thoughts on why we do the things we do. He gives us even more, exploring the three main opponents we face when we enter the arena of investing.
2011-12-21 Seeking Absolute Return: Finding Opportunity in Overly Hyped Alternatives by Team of Litman Gregory
This commentary references and updates views originally shared in our 2003 whitepaper on hedge-fund strategies. Today, we have similar concerns about a low-return environment for stocks in the years ahead. As we concluded eight years ago, hedge-fund strategies do have the potential to add value to a portfolio. However, finding funds that are skillfully managed and offered at a reasonable cost remains a difficult challenge.
2011-12-20 Gundlach on the Key Threat to Global Economies by Robert Huebscher (Article)
If class warfare is to be the dominant theme in next year?s presidential campaign, it will revive the premise of Ernest Hemingway's 1937 novel, To Have and Have Not, which he wrote in the midst of the second downturn of the Great Depression. That was also the title Jeffrey Gundlach gave his conference call with investors last week, during which he warned that wealth inequality will threaten European and domestic economies. Last week also saw Morningstar pass over Gundlach as a candidate for its fixed-income manager of the year award, so we?ll look at whether that decision made sense.
2011-12-20 Do-It-Yourself Equity-Indexed Annuities by Geoff Considine, Ph.D. (Article)
Equity indexed annuities offer retirees a compelling combination of guaranteed income and participation in the market?s upside. But EIAs are exceedingly complex and have been the subject of numerous regulatory challenges. For those who seek a simpler alternative with a comparable return profile, a combination of fixed-income securities and options is viable choice.
2011-12-20 Letters to the Editor by Various (Article)
Readers respond to several articles: GLWBs: Retiree Protection or Money Illusion?, Did Congress Cash In on Insider Stock Trading?, and Can this be Serious?, all which appeared last week, and to John Mauldin's commentary, The Center Cannot Hold, which appeared on Saturday.
2011-12-20 Economy Happy to Close Out a Forgettable 2011 by Chris Maxey of Fortigent
There are several economic indicators on tap for next week, highlighted by the third and final estimate for Q3 real GDP.No change is expected from Novembers estimate of 2.0%. Other items of note include housing starts, existing home sales, new home sales, personal spending, and the durable goods report. As mentioned previously, Wednesdays existing home sales report from the NAR will provide clarity on the size of the agencys five-year revision to home sales. This is a potentially significant event, depending on the size of the adjustment.
2011-12-17 The Center Cannot Hold by John Mauldin of Millennium Wave Advisors
We'll leave aside the politics of the payroll tax extension and look at the economic implications, and then go on to examine the deficit in the US. That will give rise to some thoughts about Europe and what would have to happen for a country to leave the euro. We'll finally close with some thoughts and graphs about the more controversial part of the tax cut extension, the Keystone XL Pipeline. Just how radical is it to build such a pipeline in the US? And what are the implications for the deficit?
2011-12-13 Did Congress Cash In on Insider Stock Trading? by Michael Edesess (Article)
Are members of Congress profiting from insider information on companies their legislation affects, or is something more complicated - and less nefarious - going on? Those who watched the November 13 segment on 60 Minutes that accused members of Congress of insider trading are outraged at these public servants' behavior. But that outrage should be aimed at 60 Minutes itself, along with Peter Schweizer, whose new book, Throw Them All Out, provided the misleading data that was the basis for the broadcast.
2011-12-13 Has Financial Planning Made Itself Appealing Only To Risk Takers? by Michael Kitces (Article)
Financial planning advice may be so equity-centric, that people who don't want equity-style investment risk forgo the use of a financial planner altogether, as a recent Journal of Personal Finance article revealed.
2011-12-13 Harnessing the Power of Momentum by Michael Nairne (Article)
A market phenomena that we can harness on behalf of our clients is momentum - the propensity for price trends to persist in the short-term. I examine the origins of momentum, illustrate its return premium and consider how managers can leverage momentum on behalf of investors.
2011-12-13 Improving on Buy and Hold: A Buy Signal by Georg Vrba, P.E. (Article)
In my August 2010 article I advocated a market timing strategy, to sell or significantly reduce one's stock holdings in anticipation of a recession or slowdown in the economy and switch into cash or a low-beta Treasury bond fund, and then reverse the process ahead of a recovery. A type-A buy signal was generated on December 9, 2011.
2011-12-13 What Happens If A Rising Tide Sinks Some Ships? by Chris Maxey of Fortigent
A multi-day summit in Brussels by European policymakers yielded an expected fiscal union between euro member countries. However, a key refusal by Britain undermined the credibility of the pact. Without unanimous agreement, the original European Union treaty cannot be altered, so a new intergovernmental agreement was created. Some question whether such an arrangement has the teeth to enforce budgetary discipline.
2011-12-10 A Player to Be Named Later by John Mauldin of Millennium Wave Advisors
There are two main points to be taken away from this week's European summit. First, the Germans really took control. This has been coming for a long time, and it's not like we haven't discussed it in these letters. Second, Britain either opted out or was shown the door, depending on your point of view. That is the real game-changer, long-term, for more than the obvious reasons.
2011-12-09 Greenwich Hedge Fund Indices Post Modest Losses in November by Clint Binkley of Greenwich Alternative Investments
Hedge funds as measured by the Greenwich Global Hedge Fund Index posted losses in November, losing ground during the latter half of the month on weak fundamentals in European markets. The GGHFI shed 1.05% compared to global equity returns in the S&P 500 Total Return (-0.22%), MSCI World Equity (-2.69%), and FTSE 100 (-0.70%) equity indices. European headlines continue to dictate the mood of global markets and cause increased volatility in equities. Hedge fund managers have decreased leverage and exposure to mitigate market risk but are still exposed to broader moves
2011-12-06 Why Shiller and Soros May Be Wrong about Farmland Investing by Robert Huebscher (Article)
Earlier this year, Yale's Robert Shiller identified farmland as an asset class in the early stage of bubble formation. George Soros, Jim Grant and Jim Rogers have espoused similarly bullish views. But advisors - even those managing the assets of very wealthy clients - shouldn't bet the farm on these expert forecasts just yet.
2011-12-06 The Unspoken Truth about Hedge Funds by Michael Edesess (Article)
The popularity of the endowment model among advisors has been driven by the belief that hedge funds have produced positive risk-adjusted returns. But the basis for that notion has been statistics gleaned from hedge fund databases, and new research shows returns from those databases are even more upwardly biased than previously thought; the supposed alpha never really existed.
2011-12-06 The Quality Conundrum by J.J. Abodeely, CFA, CAIA (Article)
We are witnessing the end of a remarkable and confounding era for stocks, best described by the 'quality conundrum' investors faced for much of the last two years. During that time the combined outperformance of low-quality stocks alongside the underperformance of high-quality stocks was unprecedented in the last 30 years. Now, we are embarking on an era where high-quality stocks will likely significantly outperform low-quality stocks, resolving this conundrum.
2011-12-06 What Are Investors Up To? by Chris Maxey of Fortigent
With markets ebbing and flowing and making it virtually impossible to differentiate up from down, it has become all the more difficult to determine what qualifies as an attractive investment. While equity markets rallied into the end of November, volatility remains well above its long-term average, causing most investors to question their equity allocations. It should come as no surprise, then, that individual investors are anything but confident in the latest rally. Macroeconomic headlines and excessive volatility are dampening even the most hardened investors faith in financial markets.
2011-12-03 Time to Bring Out the Howitzers by John Mauldin of Millennium Wave Advisors
It is now common to use the term bazooka when referring the actions of governments and central banks as they try to avert a credit crisis. And this week we saw a coordinated effort by central banks to use their bazookas to head off another 2008-style credit disaster. The market reacted as if the crisis is now over and we can get on to the next bull run. Yet, we will see that it wasn't enough. Something more along the lines of a howitzer is needed (keeping with our WW2-era military arsenal theme). And of course I need to briefly comment on today's employment numbers.
2011-11-29 Do You Really Understand Rates of Return? Using them to look backward - and forward by Michael Edesess (Article)
The basic quantitative building block for professional judgments about investment performance is the rate of return. How well do we really understand it? And how can we use past rates to assess the prospects for future performance? You may be surprised to learn that 'expected return' may not be what you think.
2011-11-29 Is 2012 Destined to be a Repeat OF 2008 for Banks? by Chris Maxey of Fortigent
Mounting concerns in Europe and the failure of Congress supercommittee weighed on investor sentiment during the holiday-shortened week. As expected, the congressional supercommittee failed to negotiate a $1.2 trillion deficit reduction by Wednesdays deadline. The move triggers automatic cuts to the federal budget starting as early as this year. Near-term effects are mostly in the form of program non-renewals for example, the expiration of 99-week unemployment benefits, the payroll tax cut, and other Recovery Act stimulus.
2011-11-25 Changing the Rules in the Middle of the Game by John Mauldin of Millennium Wave Advisors
Angela Merkel is leading the call for a rule change, a rewiring of the basic treaty that binds the EU. But is it both too much and too late? The market action suggests that time is indeed running out, and so well look at the likely consequences. Then I glance over the other way and take notice of news out of China that may be of import.
2011-11-22 A Bond-Based Financial Planning Framework by Stan and Hildy Richelson (Article)
Plain vanilla bonds have proven themselves to be the best investments available, and we wholeheartedly agree with Andrew Mellon's prescient late-1920s observation that 'gentlemen prefer bonds.' We believe that ladies should, too.
2011-11-19 Print or Perish by John Mauldin of Millennium Wave Advisors
I do not think the euro will survive with the current mix of countries, nor do I think that Germany thinks so either. Greece is likely to go, as is Portugal. Can Spain really get its deficit under control in time? Do we see a two-euro world, one in the northern states and one in the southern? And to which one does France go? Looking at the politics, one might think the answer is obvious, but if you just look at the numbers, it is clearly not. France is in many respects a Mediterranean country. So many choices and none of them good.
2011-11-16 As Alternative Investments Move into the Mainstream, Advisors and Investors Need to Choose Wisely by Team of Emerald Asset Advisors
We believe that having a piece of an overall portfolio that is committed to liquid alternatives is a critical component to long-term portfolio stability, capital preservation and growth. No one wants a repeat of 2008, or anything close to it. There are an abundance of liquid alternative choices available, some of which have proven themselves through various market cycles and environments. They have gone from Wall Street to Main Street for good reason. Embrace the opportunity, and you and your clients may just sleep a bit better at night during these volatile times.
2011-11-15 It's All Greek to Me by Michael Lewitt (Article)
As one who has written that there is little chance of a long-term solution to Europe's problems without a radical rethinking of global economic policy, the Europeans still have little choice once they peer over the cliff to realize other than to step back and buy some time before taking the inevitable leap. For, in the end, they have no other options than to jump.
2011-11-15 The Problem with Many Performance Charts by Christophe Gauthron (Article)
Performance information conveyed on return charts from many financial sources is misleading. Investors reading these charts will be unfairly biased against income-producing assets.
2011-11-12 Where is the ECB Printing Press? by John Mauldin of Millennium Wave Advisors
There is too much debt in many southern countries; France is not far from having its own crisis if they do not get back into balance. And if they lose their AAA rating, then any EFSF solution is just so much bad paper. The path of least resistance, and I use that term guardedly, is for the ECB to find its printing press. Perhaps they can borrow one from Bernanke.
2011-11-10 Alternative Investments in Focus by Team of American Century Investments
We recently conducted a survey of financial professionals to better understand their view and use of alternative investments. Alternative investments are defined as those outside the traditional big three of cash, bonds, and stocks. These alternatives include commodities, real estate, and inflation-linked securities, among many others. Alternatives have surged in popularity in recent years, as investors and their advisors seek out new and potentially more effective ways to diversify and reduce risk in traditional balanced stock, bond, and cash portfolios.
2011-11-09 Greenwich Global Index Hedge Funds Bounce Back in October by Clint Binkley of Greenwich Alternative Investments
Hedge funds as measured by the GGHFI posted strong results in October, benefitting from a rebound in equity prices during the month. The GGHFI gained 2.27% compared to global equity returns in the S&P 500 Total Return +10.93%, MSCI World Equity +10.26%, and FTSE 100 +8.10% equity indices. 67% of constituent funds in the GGHFI ended the month with gains. Concerns over Europe began to lift in October and hedge funds were able to benefit from the rise in equity prices. Long-Short managers performed well given their cautious stance entering the month.
2011-11-08 Is One Better than Three? by Dave Loeper, CIMA, CIMC (Article)
One way to 'juice' a portfolio is by increasing allocations to small- and mid-caps, as one recently published paper contends. But a careful analysis - properly adjusting for risk - shows how that seemingly appealing approach can destroy client wealth.
2011-11-08 An Uneventful Week If You Forget Europe by Chris Maxey of Fortigent
Trading was volatile this week as news that the situation in Greece was not as clear-cut as originally thought sent the markets sharply lower. Those concerns eased somewhat in the last two trading days of the week on news that Greece, and more broadly, Europe, were making progress. Ultimately, it was another month of sub-par employment growth, but there were signs that labor markets remained steady, despite severe headwinds from Europe and concerns about growth prospects for the US. Although 80,000 jobs is nothing to be ecstatic about, the ability of the economy to stay out of negative is.
2011-11-05 Where Will the Jobs Come From? by John Mauldin of Millennium Wave Advisors
What is the role of government in creating jobs? To answer that, let's look at the data that shows us where jobs come from. And we find that net new jobs for the last 15 years came from new business start-ups. Big business is a net drag on job creation, and small businesses are a wash. Governments have seen job growth, but where does the money come to pay government employees?
2011-11-01 The Danger in European Stocks by Geoff Considine, Ph.D. (Article)
European equity prices, depressed by fears of a sovereign debt crisis, are cheap to such a degree that William Bernstein, author of The Intelligent Asset Allocator, called them a true bargain. Income-oriented investors, in particular, may be tempted by 4.2% dividend yields and a market-wide P/E ratio of approximately 11. My analysis, however, contradicts Bernstein's and shows the underlying risk those investments carry.
2011-11-01 A Better Way to do Financial Planning by Robert Huebscher (Article)
Simplicity is dangerous when it comes to financial planning. Easy-to-use tools that project your retirement savings based on minimal inputs such as your income and savings rate amount to a ?bait-and-switch,? according to Larry Kotlikoff, a Boston University professor of economics. To properly prepare for retirement, one should focus on maintaining a constant standard of living throughout their life ? what economists call consumption smoothing.
2011-11-01 The Questions to Ask about Non-Traded REITs by Robert P. Seawright (Article)
The attraction of high yields comes at the expense of higher risk, a time-worn lesson that should be an ongoing focus for investors in non-traded REITs.
2011-11-01 Regulatory Armageddon by Bob Veres (Article)
Suppose you were somehow able to convince 40 advisors, who are all well-known thought leaders in the profession, to gather in the same room for a six-hour brainstorming session. The goal: to identify the single most important thing that the financial planning profession should be thinking about now. What do you think they'd come up with? Fasten your seat belts, because this may be the most important report you'll read all year.
2011-11-01 Why Invest? by Adam Jared Apt (Article)
Investing has its rational justifications, but like any human activity, it's contingent upon history. American society has come to regard investing in stocks and bonds as a matter of personal responsibility and even an obligation, which in part explains why we invest.
2011-10-29 European Summit: A Plan with No Details by John Mauldin of Millennium Wave Advisors
The market reacted like yesterdays announcement was the Second Coming of the Solution to End All Solutions. But if you look deeply there is more to the market "melt-up" than simple euphoria and relief. What you find is a very disturbing unintended consequence that will come back to haunt us. The finger points to derivatives and credit default swaps. This week, we look at gamma and delta and other odd entities that may be behind the real reason for the market response, as we march inexorably toward the final chapters of the Endgame.
2011-10-25 The Questions You Should Ask about PIMCO?s Total Return Fund by Martin Weil (Article)
When a manager's performance slips, the inevitable question is why. Was this a simple misjudgment on the direction of the markets or an incorrect selection of securities in the portfolio? On the other hand, is the slip indicative of a more serious process failure? When the manager in question is Bill Gross, the answers to these questions become crucial to money managers and investors across the country.
2011-10-25 How a Trivial Oversight Created a Big Problem by Dan Richards (Article)
Over 25 years working with advisors, I've learned that while you need to get the big things right, small issues are often much more important than they appear on the surface. Last week I met with a 25-year industry veteran who told me about a big price he paid for a seemingly minor oversight.
2011-10-25 Miccolis, Bengen and Evensky on the New Challenges in Portfolio Construction by Michael Skocpol (Article)
Conventional wisdom about the best way to construct a portfolio has been discredited, according to three industry thought leaders ? Jerry Miccolis, Bill Bengen and Harold Evensky. Each has distinct visions of the ways in which advisors should build portfolios in the wake of the financial crisis of 2008, but all three agree that traditional methods must be scrutinized.
2011-10-18 Bob Doll: Why the US is Positioned Strongly by BlackRock (Article)
Investor unease has risen dramatically over the past quarter in the face of growing concerns about the world's economic and financial health. The focal point has been the intensifying debt crisis in Europe. The issues facing Europe are highly complex, but essentially are underscored by a single question: Is Europe facing a solvency crisis or a liquidity crisis?
2011-10-18 A Response to Improving on Morningstar Style Boxes by C. Thomas Howard, PhD (Article)
A reader responds to Stephen Dodson's article, Improving on Morningstar Style Boxes, which appeared last week. Taking on the scourge of the active equity mutual fund industry, the style grid, is a laudable goal. I would like to build upon the arguments presented in that article.
2011-10-11 Improving on Morningstar Style Boxes by Stephen Dodson (Article)
No one would ever confuse a short man with dark hair and a tall one with light hair. But this is precisely what investors do when they categorize stocks as either growth or value. Those style definitions, championed by Morningstar and others, are flawed, and I have a way to fix them.
2011-10-11 Managed Futures are not a New Asset Class by Michael Kitces (Article)
The focus on finding investments that have a low correlation to equities has grown to such an obsession that we're willing to name anything that has a low correlation as 'a new asset class.' While some alternatives truly have their own investment characteristics unique from stocks and bonds, other alternatives - like managed futures - simply represent an active manager buying and selling existing asset classes.
2011-10-11 Market See-Saw Brings Us Back to April 2010 Double-Digit Third Quarter Losses Erase Previous Gains by Ron Surz (Article)
Stock markets around the world plummeted in the third quarter, with the US market losing 16% and foreign markets faring somewhat worse with 17% losses. This quarter's loss reverses the gains of the first quarter and brings year-to-date returns below water, with domestic markets losing 11% and foreign markets losing 13%.
2011-10-08 An Irish Haircut by John Mauldin of Millennium Wave Advisors
But here is the issue for Europe. The amount of money needed for Ireland is going to be a lot more than they now think, or at least are willing to admit. When Eurozone politicians worry about 'contagion,' or one country wanting the debt relief that another country gets, it is a very real worry. And rightfully so, as voters in Portugal or Spain or (gasp) Italy who are burdened by debt that is seemingly intractable will also want relief. It is not just an Irish condition, it is a human trait.
2011-10-04 Jeffrey Gundlach: Preparing for the Coming Crisis by Katie Southwick (Article)
Speaking at a luncheon in New York last week, Jeffrey Gundlach, the founder and chief investment officer of DoubleLine Capital, gave investors advice on how to survive pending crises at home and abroad. After outlining the current state of U.S. debt and tax policy, Gundlach advised against European investments, favoring the U.S. dollar and owning U.S. government bonds as a hedge against credit.
2011-10-04 Moneyball Investing by F. Sean Bonner (Article)
In capital markets, emotions often rule the day, to the benefit of those who best remain well grounded in theory and math. The same holds true in baseball, as the new movie Moneyball reminds us.
2011-10-04 The Adjusted Gold/XAU Ratio as an Indicator of Forward Returns for Gold Stocks by Georg Vrba, P.E. (Article)
While the recent bull market took gold prices to new highs, the prices of gold-mining companies lagged. Some claim those companies are now drastically undervalued, and we can investigate that claim by examining the relationship between gold and gold-mining prices.
2011-10-01 Tough Choices, Big Opportunities by John Mauldin of Millennium Wave Advisors
There is a pattern, and the United States is no different than Greece or Ireland or Italy or Japan or any other country in history. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang! confidence collapses, lenders disappear, and a crisis hits. There's a limit to how much the bond market is going to let us borrow. As we approach that limit and we're not there yet, we have time, thank God we can make choices about how we want to deal with the problem. But the problem is too much debt and too high a deficit.
2011-09-27 Reexamining Bill Gross' Decision to Sell Treasury Bonds by Geoff Considine (Article)
Bill Gross made headlines in February by asserting that Treasury bonds were not providing enough yield to make them worth the risk and reducing his allocation to zero in the PIMCO Total Return Fund. The subsequent rally forced him to admit his mistake in August, but by then his fund was trailing 90% of its peers and having its worst year since 1995. I will examine Gross' decision in retrospect, to illustrate its tactical and strategic costs and benefits for his shareholders.
2011-09-27 New Research on Attracting HNW Clients by Dan Richards (Article)
When it comes to winning new clients, most advisors think they need to persuade prospects to replace their existing advisors. But new research shows that an easier course of action is to persuade those prospects that they should supplement the advisor they are currently using. This is especially the case if you're working with high net worth investors.
2011-09-27 Do Low Correlations Favor Active Managers? by FundQuest Investment Management & Research Group (Article)
There has been much debate regarding the challenges for active managers in market environments with persistently high correlations. Some argue that high correlations hinder active managers seeking to generate alpha through security selection. Indeed, in a recent study, we found that active managers were more likely to succeed in low-correlation environments.
2011-09-20 Counterparty Risk in Large Total-Return Funds by Robert Huebscher (Article)
We can add another to the list of concerns facing advisors: counterparty risk ? a potential loss from the failure of a bank or broker-dealer. Underscoring this threat, DoubleLine's founder and chief investment officer, Jeffrey Gundlach, recently warned advisors to avoid all funds with counterparty risk. Heeding his warning, however, is not easy; it is virtually impossible to gauge the extent of counterparty risk in most funds.
2011-09-20 The Irrational Optimist by Michael Lewitt (Article)
'Most past bursts of human prosperity have come to naught because they allocated too little money to innovation and too much to asset price inflation or to war, corruption, luxury and theft,' writes Matt Ridley. These words hit the proverbial nail on the head. The misallocation of capital in today's economy is a severe threat to future prosperity and perhaps survival itself.
2011-09-17 Twist and Shout? by John Mauldin of Millennium Wave Advisors
What in the wide, wild world of monetary policy is the Fed doing, giving essentially unlimited funds to European banks? What are they seeing that we do not? And is this a precursor to even more monetary easing at this next weeks extraordinary FOMC meeting, expanded to a two-day session by Bernanke? Can we say 'Operation Twist?' Or maybe 'Twist and Shout?'
2011-09-13 The Handicap of Experienced Investors by J.J. Abodeely, CFA, CAIA (Article)
In the investment business, assets under management are concentrated with the largest and most established firms. Understandably, investors tend to allocate capital to managers after they've established a good track record. Unfortunately, for many, the analysis stops there. By failing to separate good results from identification of what makes a great investment manager, investors are primed for disappointment.
2011-09-13 An Uncritical Glorification of Hedge Funds by Michael Edesess (Article)
Sebastian Mallaby's book, More Money than God, sheds some light on interesting events in hedge fund history and is strewn with a few valuable insights. Mostly, though, it is a work of serial hagiography. It seems designed to attract worshipers like those who drive by celebrity homes in Beverly Hills.
2011-09-13 The Risks of Exchange-Traded Products by Dennis Gibb (Article)
Every major financial crisis has been foretold by timely but ultimately ignored warnings. At the end of mania, the rush to secure more fees, investment performance and status trumps common sense. In the last few months, the drumbeats of warnings from financial journals and regulators about exchange-traded funds have been sounding. Few seem to be listening.
2011-09-10 Preparing for a Credit Crisis by John Mauldin of Millennium Wave Advisors
This week we turn our eyes first to Europe and then the US, and ask about the possibility of a yet another credit crisis along the lines of late 2008. I then outline a few steps you might want to consider now rather than waiting until the middle of a crisis. It is possible we can avoid one but whether we do depends on the political leaders of the developed world making the difficult choices and doing what is necessary. And in either case, there are some areas of investing you clearly want to avoid. Finally, I turn to the weather and offer you a window into the coming seasons.
2011-09-09 Hedge Funds Minimize Losses in August by Team of Greenwich Alternative Investments
Hedge funds turned in an excellent month of relative performance when compared to equity market benchmarks, notes Clint Binkley, Senior Vice President. Macro, Futures and Short Biased managers produced positive returns in spite of severe market declines. We continue to expect hedge funds to outperform long only strategies in this volatile market environment. Hedge Fund Strategy Highlights: Directional Trading funds are the best performing group of funds in August, gaining 0.3%. Market Neutral funds provide protection from market swings, declining only 2.9% on average for the month.
2011-09-08 Bleak Outlook? MLPs May Help Cushion Against Market Volatility by Team of Emerald Asset Advisors
Professional investors spend a lot of time studying probabilities. That is because, just as the direction of the recent Hurricane Irene featured a "cone of uncertainty," the financial markets often change course without warning and can wreak havoc on investor portfolios. Alternative investments, including Master Limited Partnerships, may help limit damage from the inevitable financial storms that investors may face. In today's uncertain economy and volatile markets, MLPs - while not immune - can provide attractive yields and relatively low correlation to the stock and bond markets.
2011-08-30 Errata and Letters to the Editor by Various (Article)
We correct a couple of errors which appeared in our article last week, The Simplest, Safest Withdrawal Strategy. A reader also responds to that article, and two readers respond to other recent articles.
2011-08-27 The End of the World, Part 1 by John Mauldin of Millennium Wave Advisors
It is only a matter of time until Europe has a true crisis, which will happen faster BANG! than any of us can now imagine. Think Lehman on steroids. The US gave Europe our subprime woes. Europe gets to repay the favor with an even more severe banking crisis that, given that the US is at best at stall speed, will tip us into a long and serious recession. Stay tuned.
2011-08-23 Why Investors are 'Mad as Hell' ? And what you can do about it by Dan Richards (Article)
Last Friday, Jason Zweig of the Wall Street Journal wrote about fear and anger as the two dominant attitudes of American investors today ? fear about their future and anger at those they see as responsible for the latest crisis. Today's investor psyche has fundamental implications that will require changes in how you interact with clients. Before getting into how to respond, let?s look at what's driving today's mindset.
2011-08-23 A Fundamental Investment Strategy for Today\'s Environment by Robert Huebscher (Article)
We spoke with Tim Hartch and Michael Keller, who are co-managers of the Morningstar 5-star BBH Core Select Fund (BBTEX) from Brown Brothers Harriman. The fund's strategy is strictly bottom-up, with investments in established, cash-generative businesses that are leading providers of essential products and services with strong management teams and loyal customers.
2011-08-13 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
In short, there are no easy solutions. We have just about used up all our rabbits in the hat as far as fiscal and monetary policy are concerned. We now need to focus on what we can do to get out of the way of the private sector, so it can find ways to create new businesses and jobs. And that means figuring out how to get money to new businesses, because that is where net new jobs come from. But that takes time...
2011-08-09 Can American Become Greece? by Keith C. Goddard, CFA (Article)
Investors face four possible implications from the recent downgrade of America's long-term credit rating by Standard & Poor's: 1) Lower prices for financial assets; 2) Higher volatility in the asset markets; 3) Greater potential for trend-following investment strategies, and 4) Attractive opportunities in 'blue chip' stocks.
2011-08-09 How Conservative Investing Threatens Retirement by Dan Richards (Article)
Just as the Great Depression left a generation with a poverty mentality that still persists, the two bear markets of the last 10 years risk shaped an entire generation's attitude to investing. That's a key finding from a survey of affluent Americans commissioned by Merrill Lynch and released earlier this year, and it raises important implications for how financial advisors should deal with conservatively-minded investors.
2011-08-03 Converging On The Horizon by Ed Easterling of Crestmont Research of Advisor Perspectives (dshort.com)
By the end of this year, the earnings cycle is likely to be well above its typical thresholds of duration and magnitude. Although earnings could again rise in 2012, the magnitude of excess margins portends a fairly significant decline when the earnings cycle reverts. In addition, the profile of cyclical cycles in the stock market may have also run its course. The market may sustain or extend its gains for 2011 by year-end, but another up-year in 2012 would make history. Not only is duration stretched, but also the magnitude of cumulative gains has now matched the historical average.
2011-08-02 Improving on the Ultimate Income Portfolio by Geoff Considine (Article)
The Ultimate Income Portfolio, which was published in this newsletter July 6 of last year, has delivered the risk-adjusted returns that I projected. Here's a detailed look at how last year's portfolio performed and several ways it can be improved in today's environment.
2011-08-02 Seven Implications for the Coming Retirement Revolution by Dan Richards (Article)
Most advisors look to seniors as a core part of their client base. That's why it's essential to understand how boomers are going to transform retirement, just as they have redefined every other stage of their lives. Let's look at three new pieces of research and the seven implications they carry for retirement planning.
2011-08-02 Solving the REAL Debt Crisis by Michael S. Falk, CFA, CRC (Article)
Now that the debt ceiling impasse (circus) has been resolved, it's time to address this country's real debt crises. Our leaders need to conquer the far more daunting entitlement issues we face. Our choice is simple - either reduce costs and face austerity, or raise taxes. Those alternatives need not be as painful as you or they might think, as I will demonstrate.
2011-08-02 Hitting a Moving Target: Matching Portfolio Risk to Client Expectations by Scott Smith (Article)
Much of the angst faced by investors and advisors over the last several years was caused by mismatched perceptions regarding investors' appetite for portfolio risk. Advisors overestimated the amount of risk investors were comfortable being exposed to within portfolios.
2011-08-02 Crestmont Market Valuation Update by Doug Short of Advisor Perspectives (dshort.com)
The recent article P/E: Future On The Horizon by Advisor Perspectives contributor Ed Easterling provided an overview of Ed's method for determining where the market is headed. His analysis is quite compelling. Accordingly I have added the Crestmont data to my monthly market valuation updates. The first chart is the Crestmont equivalent of the Cyclical P/E10 ratio chart I've been sharing on a monthly basis for the past few years.
2011-07-30 An Economy at Stall Speed by John Mauldin of Millennium Wave Advisors
The economy is at stall speed, it is quite possible well see further downward revisions to the already anemic growth numbers, and Congress and the President are dithering over the debt ceiling. It will not take much to push us into an outright recession. We can go a few days, I think, with the latter problem, but not too long or the markets will throw up.
2011-07-26 Comfort is Rarely Rewarded; Maverick Risk and False Benchmarks by J.J. Abodeely, CFA, CAIA (Article)
Conventional investment strategies, while affording the investor at least a temporary degree of comfort, are destined to produce mediocre results. Only by distancing themselves from the ordinary approach ? as Jeremy Grantham and Seth Klarman have ? can asset managers achieve superior performance and truly fulfill their fiduciary duties by acting as proper stewards of their clients? capital.
2011-07-26 Investing with a View of Significant Inflation by Bob Kargenian (Article)
Almost all the analysis we read has concluded that, with the Fed seemingly printing money out of nowhere, the inevitable consequence must be significantly higher inflation. We're not convinced, but we have identified which strategies are likely to best protect clients if inflation accelerates.
2011-07-26 Income Opportunities in Municipal Bonds and Stocks by Robert Huebscher (Article)
In this interview, Brian McMahon and Chris Ryon of Thornburg Investment Management assess the opportunities for income-oriented investors, particularly in the municipal bond market. They answer questions such as when a separate account is better than a fund, and why a barbell is inferior to a laddered portfolio.
2011-07-23 Kicking the Can Down the Road One More Time by John Mauldin of Millennium Wave Advisors
I hope Europe pulls it off. I really do. They have done the US a huge favor by adopting this latest plan, as it keeps their banking system from imploding; because their banks are essentially insolvent with all the sovereign debt on their books. Such a banking crisis, which would be worse than 2008, in my opinion, would no doubt plunge a world already slowing down back into recession and pull our own slow-growth economy down into recession with them. How long can they kick the can down the road? My guess is that it will be longer than we suspect.
2011-07-19 Gundlach: A Debt Ceiling Impasse Could Drive Rates Lower by Robert Huebscher (Article)
Failing to raise the debt ceiling would be a 'huge financial calamity,' according to Federal Reserve Chairman Ben Bernanke and the general consensus view. But that opinion is 'exactly wrong,' at least as far as the Treasury market is concerned, DoubleLine's Jeffrey Gundlach said in a conference call with investors last Tuesday.
2011-07-19 Retirement Planning and Worst-Case Scenarios by Wade Pfau (Article)
New research suggests that skepticism in a 4% safe withdrawal rate (SWR) is well justified. It is perhaps due to good luck that American retirees have not yet experienced a withdrawal rate below 4%. But a better approach than worrying about SWRs is to focus on the savings rate needed to meet your retirement spending goals, not on what the safe withdrawal rate is.
2011-07-16 Back to the Basics by John Mauldin of Millennium Wave Advisors
This week we are going to revisit some themes concerning the problems of the debt and the deficit. I am getting a number of questions, so while long-time readers may have read most of this in one letter or another, it is clearly time for a review, especially given the deficit/debt-ceiling debate. I will probably offend some cherished beliefs of most readers, but that is the nature of the times we live in. It is the time of the Endgame, where things are not as black and white as they have been in the past.
2011-07-12 Harold Evensky on the New Rules for Wealth Management by Robert Huebscher (Article)
If you don't have a copy of The New Wealth Management on your bookshelf, you should. From gauging the risk tolerance of your clients to measuring the performance of their portfolios, this book provides comprehensive guidance for virtually every aspect of a financial advisory practice. Harold Evensky, the lead author, spoke with me last week and highlighted some key themes in the newly released second edition.
2011-07-12 An End-of-Quarter Letter to Clients by Dan Richards (Article)
Given recent unrest in Europe and uncertainty about economic growth, many clients are looking to their advisors for direction. This template for an end-of-quarter letter is a starting point for your own letter to clients, one that can be a catalyst for a conversation about how to position portfolios.
2011-07-12 Profiting from the Steep Yield Curve by Georg Vrba, P.E. (Article)
The yield curve, as measured by the spreads between the yields of the 10-year note and the 2-year note, has now steepened to levels seen only twice before since 1965. This is only the third time in the last 45 years that investors can take advantage of a flattening of the yield curve this extreme, an opportunity that should not be missed.
2011-07-12 Second Quarter Preserves First Quarter Market Gains: We're Still Above Water and Treading by Ron Surz (Article)
In his award-winning commentary, Ron Surz looks at how the US market performed and then how foreign markets fared. He concludes on a lighter note with a couple of videos that address key topics in the investment arena.
2011-07-11 Hedge Funds Outperform Equity Benchmarks in Turbulent Markets by Clint Binkley of Greenwich Alternative Investments
Hedge funds navigated volatile markets to finish the month with a slight loss. ?Market Neutral and Long-Short Equity funds both outperformed broad equity market indices for the month,? notes Clint Binkley, Senior Vice President. ?Managers were fully occupied in negotiating the risk trade as investor sentiment changed dramatically over the course of the month. We continue to believe that in volatile markets actively managed hedge fund portfolios will provide superior results to index investing.?
2011-07-05 A Million Dollar Meeting Gone Wrong - A Lost Prospect Tells All by Dan Richards (Article)
Over lunch last week, a long-time friend who's a partner at a Toronto law described a recent meeting with a financial advisor seeking his business and how some subtle errors and obvious mistakes cost the advisor the opportunity to do business.
2011-07-05 Momentum Investing Can Achieve Market-Beating Returns by Matthew Tuttle, CFP (Article)
In 2002 and 2008 the investment tide went out. And as Warren Buffett famously predicted, we learned who was swimming naked. Both times, it was the practitioners of Modern Portfolio Theory (MPT).
2011-07-02 My View on the Last Half of the Year by John Mauldin of Millennium Wave Advisors
The economy should be in Muddle Through range (around 2% growth), absent any shocks. For instance, today we had the June ISM number, which was stronger than most analysts expected, at 55.3. There was a lot of whispering that it could dip below 50. Some of the internal components were a little soft, though. New Orders were barely above 50. And Backlogs fell below 50. Exports fell to the lowest level in two years (more on that below). Of the 18 industries surveyed, only 12 reported growth. But Muddle Through is not going to allow us to really cut into the unemployment problem.
2011-07-01 Crestmont Market Valuation Update by Doug Short of Doug Short
The recent article P/E: Future On The Horizon by Advisor Perspectives contributor Ed Easterling provided an overview of Eds method for determining where the market is headed. His analysis is quite compelling. Accordingly I have added the Crestmont data to my monthly market valuation updates. The first chart is the Crestmont equivalent of the Cyclical P/E10 ratio chart Ive been sharing on a monthly basis for the past few years. The Crestmont P/E of 19.3 is 41% above its average of 13.7. This valuation level is almost identical what we saw in my latest S&P Composite regression to trend update.
2011-06-28 An Important Challenge to ?Stocks for the Long Run? by Geoff Considine (Article)
Jeremy Siegel's dictum - to invest in stocks for the long run - faces a new challenge. A recent paper by Robert Stambaugh, a Wharton colleague, and Lubos Pastor of the University of Chicago says that once you take into account the uncertainty of estimating future returns, stocks are not nearly as attractive to retirement-oriented investors as Siegel has claimed.
2011-06-28 How to Get in Front of High-net Worth Prospects by Dan Richards (Article)
Last week, I got a call from an advisor who used a simple idea to set up meetings with three $2 million prospects. This advisor used some research from one of my recent columns to jumpstart conversations about critical issues for the wealthy.
2011-06-28 Reducing Risk through Value-Oriented Tactical Strategies by Mark E. Ricardo, JD, LLM, AAMS (Article)
Conventional wisdom was that the best way to reduce portfolio risk is to adopt a diversified long-term strategic asset allocation. That paradigm was challenged - deservedly so - following the 2008 financial crisis. Fortunately, an improved paradigm has emerged: Investors should combine long-term strategic allocations with a value-oriented tactical rebalancing strategy.
2011-06-28 The Diversified Portfolio Index by Charles Fahy, Sr. (Article)
Investment rates of return that are average but consistent are the products of exceptional performance. Over longer time horizons, these returns become increasingly difficult to outperform. One such example is the Diversified Portfolio Index - a buy-and-hold strategy deployed across all major asset classes.
2011-06-25 The Contagion Risk of Europe by John Mauldin of Millennium Wave Advisors
Europe would be better off just taking the money they are giving to Greece and using it to recapitalize their banks. Let Greece go. Give it up. Let them enter a 12-step program or whatever it is that insolvent nations do. That is harsh, but it is also the truth.
2011-06-21 Investing Based on Jeremy Grantham's Forecast for Diminishing Resources by Robert Huebscher (Article)
In his most recent commentary, Jeremy Grantham became one of the first mainstream investment professionals to publicly forecast a world economy threatened by diminishing natural resources. A survey of our readers showed that an overwhelming majority agree with Grantham's views. But constructing a portfolio positioned to capitalize on those themes is exceedingly difficult.
2011-06-21 Challenging Conventions: Natural Resource Equities vs. Commodities by RS Investments (Article)
Investors look to the commodity market to provide three primary benefits: portfolio diversification, inflation protection, and equity-like returns. However, empirical data shows that over the last decade, shifts in underlying fundamentals have undermined the role which commodities are expected to play in a diversified portfolio, particularly relative to natural resource equities. In this paper, we review how changes in fundamentals impact the unique return streams generated by both commodities and natural resource equities in the context of the benefits expected from each investment option.
2011-06-21 The Greek Comedy by Michael Lewitt (Article)
It is no longer prudent to dismiss the possibility of a worst-case outcome for the Greek debt crisis. Greece is not only laying bare the flawed structure of the European Union, but the fragility of the global financial system. An interconnected and networked global economy cannot ignore problems on its so-called periphery because there is no longer any periphery. Derivatives and other counterparty relationships have seen to that.
2011-06-21 The Toughest Question from Clients And How to Answer It by Dan Richards (Article)
Many existing and prospective clients wonder whether they're getting their money's worth on the fees they pay. They may not say it out loud - but it's often there, casting a cloud of doubt about the advisor they work with.
2011-06-14 Bruce Berkowitz - Ignoring the Crowd on Financials by Sam Parl (Article)
Bruce Berkowitz has said that his deep value and contrarian investing style will not guarantee short-term results, but he promises his shareholders will be rewarded for their patience over the long term. Last week, he explained why some of his positions - especially those in the financial services sector - are among the best opportunities in the market.
2011-06-10 Time to Get Outraged by John Mauldin of Millennium Wave Advisors
This week we look at data from the Bank of International Settlements, by which (if someone does a lot of work) you can figure out how much US banks have written in credit default swaps to banks in Europe on Greek, Irish, and Portuguese debt. The details should not make you happy. I meditate on whether one should buy a house now, and then discuss ?the way out? of all this mess and why we will Muddle Through.
2011-06-08 Gold at $1,500 an Ounce: Speculation or Fundamental Demand? by Team of American Century Investments
We believe gold?s performance in recent years and current price above $1,500 an ounce reflect solid fundamental demand, rather than speculative fervor. A key driver of gold demand in the current environment is buying by central banks around the world. In addition, it appears that investors looking for a hedge against both the falling dollar and broader economic uncertainty have been buying gold for its diversification benefits. Jewelry demand in India and China are other, underappreciated positives.
2011-06-07 The Best Way to Start a Client Meeting by Dan Richards (Article)
What does it take for a meeting with a key client to be successful? To answer that question, first you have to quantify how you measure success.
2011-06-07 Improving on Buy and Hold: When is the Best Time to Sell by Georg Vrba, P.E. (Article)
My model, Improving on Buy and Hold: Asset Allocation using Economic Indicators, has been updated. A Sell-A type signal will be generated by the model in the second week of August and I advise reducing one's stock market investments then.
2011-06-07 Letters to the Editor - Equity-Indexed Annuities by Various (Article)
A number of readers responded to Robert Huebscher's article, Fantasy-world Returns for Equity Indexed Annuities, which appeared last week.
2011-06-07 Nasty Week Leaves Economy With More Than A Few Bruises by Chris Maxey of Fortigent
At the start of the week, regional and national manufacturing reports showed a deceleration in the manufacturing growth rate. It was widely expected that manufacturing activity would slow after reaching a peak of 61.4 in February, but few economists realized the severity of the slowdown in May. The ISM PMI dropped from 60.4 in April to 53.5 in May. In the past decade, no other month-to-month decline was as large as the one in May. The second largest fall occurred just after September 11, 2001 (-5.4) However, at that time, the economy was already in the midst of a recession, not a recovery.
2011-06-03 Economic Whiplash by John Mauldin of Millennium Wave Advisors
The political winds in Europe are shifting. The crowd that runs the various member countries today will not long survive the changes. There will be new politicians with different mandates as it becomes clear that the costs of the bailout are going to fall on the backs of the solvent countries and that austerity is going to mean hellishly bad deflation, high and rising employment, and depression in the indebted countries. And with the US economy slowing down, it might not take much to push us over the edge.
2011-06-01 Recovery Shows Signs of Cracking by Chris Maxey of Fortigent
There was a limited amount of economic data released last week, and most of it turned out to be disappointing. The second revision to GDP showed the economy growing at an annual rate of 1.8% in the first quarter. Though the headline figure was unchanged, several important changes occurred in the data. Specifically, the Bureau of Economic Analysis stated that consumer demand actually rose at a 2.2% annual pace in the quarter, down from the 2.7% annual rate reported. Overall, GDP was weaker than feared in the first quarter as higher inventories and not consumer spending drove expansion.
2011-06-01 Crestmont Market Valuation Update by Doug Short of Doug Short
The recent series of articles by guest contributor Ed Easterling triggered a great deal of interest in the Crestmont P/E ratio. Accordingly I have added the Crestmont data to my monthly market valuation posts. The first chart is the Crestmont equivalent of the Cyclical P/E10 ratio chart I've been updating monthly for the past few years. The Crestmont P/E of 20.2 is 47% above its average of 13.7. This valuation level is almost identical what we saw in my latest S&P Composite regression to trend update and somewhat higher than the 40% above mean for the Cyclical P/E10.
2011-05-28 A Random Walk Through the Minefield by John Mauldin of Millennium Wave Advisors
In the last 48 hours, so much news has come out of Europe that has me frankly shaking my head. It is a strange game of brinksmanship they are playing, and it is one we should be paying attention to (as if the brinkmanship played by US politicians over the debt ceiling is not enough). This week we look at what seems to be European leaders taking random walks through the minefield at the very heart of the European Experiment. As Paul Simon wrote, ?A man sees what he wants to see and disregards the rest.?
2011-05-24 How to Build a Low-Risk High-Income Portfolio by Geoff Considine (Article)
Prominent investors, including Bill Gross and Warren Buffett, now say that the yields on long-term government debt do not justify the risks. But is this perception correct? I offer a way to answer that question - and to construct a low-risk high-income portfolio - using the prices of put options to derive the true risk levels of various asset classes.
2011-05-24 A Washington Forecast for Advisors and Investors by Robert Huebscher (Article)
Only entitlement reform can bridge the federal deficit, and your clients should prepare for changes to Medicare and Social Security, according to Andy Friedman. Cost-sharing and means-testing are among the big changes that Friedman sees on the horizon. Don't expect much progress in the near term, though, as Friedman forecast continued gridlock on the budget at least until the 2012 elections are decided.
2011-05-24 Talking a Jumper off the Ledge by Doug Simmang (Article)
Our clients expect - and appreciate - the planning services we as advisors provide. But in those rare instances when emotion, fear and stress combine to cloud a client's judgment, we have the opportunity to truly make a difference in their lives. A recent story on NBC's Today Show illustrated the importance of the rational and reasoned logic an advisor can offer.
2011-05-24 Economy Enters A Soft Patch by Chris Maxey of Fortigent
Another volatile week resulted in the S&P 500 Index losing 0.3% and the Dow Jones Industrial Average falling 0.7%. Economic data last week continued to confirm that housing markets are sluggish and that manufacturing is entering a weak patch. Existing home sales unexpectedly fell in April. Economists expected sales of existing homes to reach 5.2 million in the month, but the actual tally for April was 5.05 million, down 0.8% from the previous month.
2011-05-17 Four Steps to a Top-Performing Team by Dan Richards (Article)
Over the past 25 years, I've observed many high-performing teams and spent a lot of time talking to advisors and their support staff about the keys to their success. Here are four observations about what it takes to have a well-functioning team.
2011-05-17 Improving on Buy and Hold: An Initial Sell Signal by Georg Vrba, P.E. (Article)
I have updated the model described in my article, Improving on Buy and Hold: Asset Allocation using Economic Indicators. The ECRI U.S. Weekly Leading Index and its annualized growth rate published on May 13, 2011, together with the most recent values of the other indicators, have been incorporated in my model. A basic sell signal was generated last week.
2011-05-17 Is Inflation in the Process of Peaking? by Chris Maxey of Fortigent
Investors turned away from the equity markets last week, as the S&P 500 Index fell 0.2% and the Dow Jones Industrial Average shed 0.3%. Stocks started the week in positive fashion, but an uptick in risk aversion on Wednesday weighed on markets. Market participants were caught off guard by unfavorable inflation statistics from China, a tightening of monetary policy in China and recent strength in the US dollar. At the beginning of May, the US dollar was nearing oversold territory and traders would likely capture profits in the weeks ahead. That is exactly what occurred.
2011-05-17 What 'Secular Cycle' Means by Ed Easterling of Doug Short
There is a skeptical gremlin perched on the left shoulder for many investors. He often sneers at notions of "cycles" and other presumably predictable periods. When the word "secular" accompanies the word "cycle," that gremlin becomes even more scornful. Why do we use the term "secular cycle" with the stock market and what does it mean? Figure 1 presents a view of the stock market over the past century. You will note periods of above-average returns (i.e., the green bar periods) and periods of below-average returns (i.e., the red bar periods).
2011-05-14 Kicking the Can to the End of the Road by John Mauldin of Millennium Wave Advisors
A crisis is brewing in the US and one is coming to a slow boil in Europe. We visit Greece and Ireland and ponder how this will end. It is all well and good to kick the can down the road, but what happens when you come to the end of the road? The European answer seems to be to haul in the heavy equipment and extend the road. In short, we are watching the biggest bubble of all time, the bubble of government debt, try to keep from popping. My bet is that it can?t. And while the ride will be bumpy, the world our kids get will be better off at the end of the process.
2011-05-10 Howard Marks on the Human Side of Investing by Robert Huebscher (Article)
Howard Marks is widely regarded for his thought-provoking essays on the discipline and process of value investing. He is the chairman and co-founder of California-based Oaktree Capital, and he delivered the keynote address at the Value Investing Congress in Pasadena last week.
2011-05-10 Red Flags for Advisors - Communication Gaps with Affluent Clients by Dan Richards (Article)
When hard facts come to light that contradict your preconceptions, it's time to sit back and reassess your thinking. That's exactly what advisors should do following a new research study of Americans with at least $3 million in investments.
2011-05-10 What Return can we Expect from Stocks? by Adam Jared Apt (Article)
What return can we expect from stocks over the long term? This sentence contains four problematic terms: 'return,' 'expect,' 'stocks,' and 'long term.' Intended for the educated laymen, this article considers each in turn.
2011-05-10 Howard Marks on the Human Side of Investing-Q & A by Robert Huebscher (Article)
Howard Marks is widely regarded for his thought-provoking essays on the discipline and process of value investing. He is the chairman and co-founder of California-based Oaktree Capital, and he delivered the keynote address at the Value Investing Congress in Pasadena last week. Here are excerpts from the Q&A.
2011-05-10 The Financial Impact of an Aging Demographic by Chris Maxey of Fortigent
A volatile week of trading resulted in the S&P 500 Index losing 1.7% and the Dow Jones Industrial Average falling 1.3%. However, those losses were tame relative to the rout experienced in commodity markets. According to the Wall Street Journal, crude oil dropped 14.7% last week, while the Dow Jones-UBS Commodity Index lost 9.1%. There was no single cause for the sudden risk aversion, but it appears that recognition of a slowing US economy, along with tighter monetary policy in developing economies, contributed to the renewed caution.
2011-05-10 Hedge Funds Led by Managed Futures Funds in April by Clint Binkley of Greenwich Alternative Investments
Hedge funds, as measured by the Greenwich Global Hedge Fund Index (?GGHFI?), gained across all major strategies in April. The GGHFI gained 1.69% compared to global equity returns in the S&P 500 Total Return +2.96%, MSCI World Equity +4.02%, and FTSE 100 +2.73% equity indices. 78% of constituent funds in the GGHFI ended the month with gains. ?Hedge funds continued to move higher in April driven by strength in equities and commodities,? notes Clint Binkley ?Nearly all hedge fund strategies are at new highs for the year and continue to be successful in a market dominated by headline risk.?
2011-05-07 Muddle Through, or Crisis? by John Mauldin of Millennium Wave Advisors
This week I finish the two-part letter on the Endgame and give you my thoughts on the economy over the next five years. This is the second part of a speech I gave last week at the Strategic Investment Conference in La Jolla. It is a rather bold forecast, and fraught with peril and likely errors, but that is my job here. I must offer one large caveat! If the facts change so will my forecast, but this is the view into my very cloudy crystal ball as I see it today. As always, remember that those of us in the forecasting world are often wrong but seldom in doubt. Read accordingly.
2011-05-03 My Breakfast with Dave by Robert Huebscher (Article)
A month ago, one of the most closely followed market observers, Gluskin Sheff's David Rosenberg, moved his Breakfast with Dave commentaries behind a pay-wall, ending an era of free access to his insights. Last Friday, however, he presented his views publicly to an audience of 500 advisors and investors, your author included.
2011-05-03 Gary Shilling - Five Things that can Derail the Recovery by Robert Huebscher (Article)
Die-hard deflationists - those who foresee a continued bull market in bonds - are so few in number these days they could all share an elevator, according to Gary Shilling. One is Gluskin Sheff's David Rosenberg, whose views are considered elsewhere in this issue. But the loudest such voice belongs to Shilling himself, who has advocated for a long position in Treasury bonds continuously since 1980, a stance that has always proved prescient so far.
2011-05-03 Martin Barnes - How Safe is the Equity Market? by Robert Huebscher (Article)
When members of the Federal Reserve Board seek counsel on tough issues, one of the economists to whom they turn first is Martin Barnes. Speaking publicly last week, Barnes addressed two themes in the US economy and markets: the potential for a sustained bear market in equities and the likelihood of higher taxes. These two distinct questions are both critically important to investors.
2011-05-03 P/E: Future on the Horizon by Ed Easterling (Article)
Most people expect P/E to measure current valuation and to show historical patterns. But more features are available from some versions of P/E. The methodology behind the Crestmont P/E enables investors to anticipate the future. It may not precisely predict the market ten years away, but it frames within a relatively tight range the likely outcome. One component from determining the Crestmont P/E is a means to assess the future trend line for EPS using estimates of future economic growth (GDP).
2011-05-03 Financial Markets Offer Conflicting Opinions by Chris Maxey of Fortigent
Another week of encouraging corporate earnings reports allowed the equity market to continue its recent strong run. On the housing front, the disappointing streak continued. New home sales increased from a seasonally adjusted annual rate of 270,000 in February to 300,000 in March, according to the Department of Commerce. Although the gain was sizeable at 11.1%, new home sales are mired at abjectly low levels. Homebuyers are finding favorable opportunities in the form of distressed properties, reducing the chance of a significant rebound in new home sales in the months ahead.
2011-04-29 The Endgame Headwinds by John Mauldin of Millennium Wave Advisors
By Endgame I mean the period of time in which many of the developed economies of the world will either willingly deleverage or be forced to do so. This age of deleveraging will produce a fundamentally different economic environment lasting anywhere from 4-6 years. Now, whether this deleveraging is orderly, as now appears to be the case in Britain, or more resembles what I have long predicted will be a violent default in Greece, it will create a profoundly different economic world from the one we have lived in for 60 years.
2011-04-28 Venerated Voices? Update for the First Quarter of 2011 by Advisor Perspectives (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, has published a quarterly update to its 2011 Venerated Voices awards. Final results will be tallied at the end of the year. Rankings were issued in three categories: The Top 25 Venerated Voices? by Firm, The Top 25 Venerated Voices? by Author and The Top 10 Venerated Voices? by Commentary.
2011-04-26 Why Mid-Cap? by RidgeWorth Investments (Article)
RidgeWorth Investments has published research detailing six distinct reasons why investors should consider a specific allocation to mid-caps. Specifically, it explores historical performance, evaluates current conditions that favor mid-caps as well as examines how mid-caps have performed during different points in market and economic cycles. Finally, the research looks at the incremental benefit of adding an allocation of up to 40% of mid-cap stocks to a portfolio of solely large and small cap stocks. We thank RidgeWorth Investments for their sponsorship.
2011-04-26 A Unique Way to Engage Key Clients by Dan Richards (Article)
Many advisors struggle with ways to deepen relationships with top clients. My conversations with top-performing advisors have shown that many succeed at building those relationships by rejecting the approach most advisors employ, and instead adopting an unconventional and low-cost approach built around special events.
2011-04-26 Long-term Failure with Short-term Bonds by Hildy and Stan Richelson (Article)
Fear of an impending rise in interest rates has many recommending short-term bonds. Such fears are misplaced, however, and investors can better position their portfolios by constructing a ladder of high-quality individual bonds, rather than moving assets into only short maturities.
2011-04-26 When is a Fiduciary not a Fiduciary? by Jeffrey Briskin (Article)
You would think every investment professional who claims to be acting in a fiduciary capacity for his or her clients understands exactly what that entails. But the results of a recent survey of brokers and RIAs indicates that many apply their own personal 'fiduciary litmus test' when determining where these responsibilities start and end.
2011-04-26 No Child Left Behind... Until They Are Teenagers, At Least by Chris Maxey of Fortigent
News of a potential downgrade to the US credit rating caused a sudden sell off in the equity markets, but positive earnings reports led to a rebound. By the end of the week, the S&P 500 index and the Dow Jones Industrial Average both closed higher by 1.3%. S&P took the unusual step of placing the US on credit watch negative, indicating that there is now a 1-in-3 chance of an outright downgrade to the US credit rating in the next two years. The announcement by S&P resulted in a severe equity market sell off on Monday morning before investors remembered S&P?s previous track record.
2011-04-23 The 'Miracle' of Compound Inflation by John Mauldin of Millennium Wave Advisors
Investors will face the ?zero bound? in interest rates for a while longer. They can sit on their cash and earn nothing. They can fret and wring their hands about a ramp-up in inflation, but the evidence so far does not support it. They can stay in the US dollar, in which case they can watch their dollars weaken relative to the rest of the world. Travelling in Sicily or Rome validates how strong the euro is relative to the dollar. All you have to do is buy a dinner or hotel room.
2011-04-19 Gundlach: Treasuries will Rally When QE2 Ends by Robert Huebscher (Article)
The bonds that PIMCO's Bill Gross sold to take a 3% short position in the Treasury market may have found a buyer in Doubleline's Jeffrey Gundlach. In a conference call with investors last week, Gundlach said that Treasury prices would rise in the near term, once QE2 expires on June 30.
2011-04-19 Four Ways to Make Recommendations Stick by Dan Richards (Article)
All too many client conversations are monologues, with the advisor talking and clients listening. Even when you ask if clients have questions, they say 'no.' If you want clients to buy into your recommendations, you have to engage them in conversation.
2011-04-19 The Bell Tolls in Washington by Chris Maxey of Fortigent
Earnings season brought about a week of choppy trading in the equity market, resulting in the S&P 500 index falling 0.6% and the Dow Jones Industrial Average dropping 0.3%. Economic data throughout the week was mixed, but the impact of higher gas prices is being felt across the economy. Small businesses recorded a severe hit to sentiment last month after the small business optimism index sank from 94.5 to 91.9. A host of concerns, from declining sales expectations to trepidation about the future of the economy, were culprits behind the weakening.
2011-04-16 The Cure for High Prices by John Mauldin of Millennium Wave Advisors
Today we once again think about the inflation/deflation debate, turn our eyes to Europe and the very interesting election happening there this Sunday, and speculate a little about what could derail the US economy. The old line is that the cure for high prices is high prices. When prices rise, businesses tend to respond by producing more. If the price of something gets too high, then people buy less, which then leads to too much supply, which lowers prices. Rinse and repeat. Last week I wrote about what I think is the potential for inflation in the US to rise to uncomfortable levels (4-5%)
2011-04-12 Sentiment Creeps Back into Overly Bullish Territory by Chris Maxey of Fortigent
Over the past six months, actions by the Federal Reserve to purchase assets through its quantitative easing program played a major role in driving market prices. As the markets prepare to transition away from quantitative easing, investors are facing the prospects of a tougher market environment. The upcoming earnings season will go a long way in determining whether this recovery is ready to stand on its own.
2011-04-12 Dumb, Dumber and Dumbest by Barry M. Ferguson (Article)
The two stupidest characters ever to grace the big screen - Lloyd Christmas and Harry Dunne - were first introduced to the world in Jim Carrey's 1994 movie, Dumb and Dumber. If that movie were made today, its leading characters could easily be our government and the supposedly independent Federal Reserve Bank. Both of these institutions have foisted their misguided policies on the American public, who, in their passive acceptance, have proven themselves to be the dumbest of all.
2011-04-08 Hedge Funds Show Mixed Results Among Strategies in March by Clint Binkley of Greenwich Alternative Investments
Most hedge funds advanced in March, but losses in Directional funds dragged down the group. The Greenwich Global Hedge Fund Index shed 10 basis points compared to global returns in the S&P 500 Total Return +0.04%, MSCI World Equity -1.24%, and Barclays Aggregate Bond +0.06% indices. 58% of constituent funds in the GGHFI ended the month with gains. ?The whipsaw action in the market during March led many trend following funds to suffer losses latter in the month,? notes the Sr VP ?The outlook for managers is positive as increased volatility tends to work in favor of most hedge fund strategies.?
2011-04-05 A Close Look at the PIMCO-Met Life Retirement Strategy A Marriage Made in Investment Heaven? by Michael Edesess (Article)
If you embrace their recently announced co-marketing strategy, when you're relatively young you use PIMCO's Real Income Funds for stable income in the near term. When you're older Met Life's Longevity Income Guarantee kicks in and takes it from there. You're set with secure income for life. We examine these products more closely and analyze whether they are good deals, either separately or together.
2011-04-05 Is Alpha Dead? by Andreas Steiner (Article)
While beta has been declared dead several times in the past, alpha is a survivor. My diagnosis is that alpha, however, is in very critical condition itself, even under the most optimistic interpretation. A more realistic assessment is that alpha is dead.
2011-04-05 Fiduciary Focus: The New 408(b)(2) Fee Disclosure Rule Under ERISA by RidgeWorth Investments (Article)
The U.S. Department of Labor (DOL) has now published the long-awaited rule on ERISA Section 408(b)(2). Read the article below from RidgeWorth Investments so that you can be equipped to answer questions and recommend solutions.
2011-04-05 Two Critical Lessons from Japan An End-of-Quarter Letter to Clients by Dan Richards (Article)
Given recent events in Japan and North Africa, many clients are looking to their advisors for direction on what they should do. This template for an end-of-quarter letter is intended to be a starting point for your letter to clients.
2011-04-05 Employment Manufactures Another Month of Positive Growth by Chris Maxey of Fortigent
Equity markets surged into quarter end, with the S&P 500 index rising 1.4% and the Dow Jones increasing 1.3%. For the first time since Feb the S&P 500 increased in two weeks. After hitting a trough on Tuesday morning, several positive employment reports encouraged the equity markets to move higher. As expected, manufacturing activity had a deceleration, as the ISM Purchasing Managers Index fell from 61.4% in February to 61.2% in March. Readings above 50% are representative of expansion in the manufacturing sector. Although the index fell, it is still the third highest reading since 1990.
2011-04-02 The Plight of the Working Class by John Mauldin of Millennium Wave Advisors
Although the headline unemployment number went down to 8.8%, the only way you can get to that number is by not counting the millions who have dropped out of the employment pool, too discouraged to look, but who will take a job if they can get one. If you go back and take the number of people in the labor force just two years ago, the unemployment picture is back over 10% (back-of-my-napkin math).
2011-03-29 GMO's Market Outlook: 'Disappointingly Overvalued' by Robert Huebscher (Article)
Opportunities across US and foreign assets classes are unattractive, according to Ben Inker, the head of asset allocation at the Boston-based global money manager Grantham, Mayo, van Otterloo & Co. (GMO). Neither the equity nor fixed income markets hold the potential for investors to earn acceptable inflation-adjusted returns, Inker said.
2011-03-29 Fiduciary Focus: What You Know About the New Fee Disclosure Rule Under ERISA by RidgeWorth Investments (Article)
RidgeWorth Investments discusses what the new rule about Fee Disclosures encompasses and how it affects advisors. Their complimentary white paper is available for download through the link above.
2011-03-28 A Central Bank Match by Chris Maxey of Fortigent
Equity markets donned the rally cap last week as the S&P 500 index finished higher by 2.7% and the Dow Jones Industrial Average experienced a 3.1% gain. Stability in the price of crude oil and improvement in Japan lent a helping hand to the markets, as did the announcement that AT&T would buy T-Mobile. On the domestic front, investors turned a blind eye to the slew of negative economic data. Housing, in particular, experienced the brunt of the disappointment. Existing home sales offered the first piece of bad news after falling 9.6% to 4.88mln on a seasonally-adjusted annual rate in February.
2011-03-22 Consensus: Groundhog Decade for Stocks by Ed Easterling (Article)
Just as Bill Murray woke up to the same thing day after day in the movie 'Groundhog Day,' it's likely that your outlook foretells a groundhog decade for the stock market that will repeat its near-breakeven returns from the past decade.
2011-03-22 Your Most Critical 30 Minutes this Month by Dan Richards (Article)
Complacency guarantees failure. In a world of intense competition and increasingly demanding customers, anyone who stands pat will be left behind. The only formula for ongoing success today is a commitment to constant improvement.
2011-03-22 Dividend Dynamics: Assessing the Five Key Benefits of Dividend-Paying Stocks by RidgeWorth Investments (Article)
Increased market volatility has placed dividend-paying stocks back into the spotlight. These securities have been long valued for their defensive characteristics during down markets, but their attractive combination of steady income and capital appreciation potential has also delivered consistent, strong returns across full market cycles.
2011-03-21 Inflation Ready To Make Its Grand Entrance by Chris Maxey of Fortigent
Stock markets struggled in recent weeks due to a host of macroeconomic concerns, from earthquakes in Japan to uprising in the Middle East. This is causing a move in the markets that is similar, but different to what is typical during the third year of a Presidential cycle. Generally, markets rally in the first portion of the year before trading essentially flat in the second half. In the first two months, markets were adhering to this same pattern, but the aforementioned macro concerns derailed that rally. This does not mean markets will be unable to stage a recovery.
2011-03-19 The End of QE2? by John Mauldin of Millennium Wave Advisors
The Fed committed to buying $600 billion of Treasuries between the beginning of QE2 in November and the end of June. June is 3 months away. What will happen when that buying goes away? The hope when QE2 kicked off was that it would be enough to get the economy rolling, so that further stimulus would not be deemed necessary. We?ll survey how that is working out, with a quick look at some recent data, and then we go back and see what happened the last time the Fed stopped quantitative easing.
2011-03-16 Economic & Investment Implications of Japan?s Tragedy by Charles Lieberman (Article)
Markets in Japan and elsewhere have sold off fairly sharply, as the full scope of the tragedy in Japan has unfolded day by day. We will focus on the economic and investments implications of the tragedy, strictly from the perspective of our largely U.S.-based investors. Domestic markets have overreacted somewhat, since domestic business prospects are more likely to be helped than weakened, at least in the short-term. Longer-term policies focused on energy policy will likely remain unclear until we can see how policymakers modify U.S. energy policies in response to the reactor problems in Japan
2011-03-15 Mason Hawkins and Staley Cates on Today?s Opportunities for Value Investors by Robert Huebscher (Article)
Southeastern Asset Management's Mason Hawkins and Staley Cates, two of today's most respected value investors, discuss their portfolio and the principles behind their Graham and Dodd methodology. They explain why they like certain commodity-based companies and why they disagree with Bruce Berkowitz on the opportunities in the financial sector.
2011-03-15 Consumers Right the Ship by Chris Maxey of Fortigent
A confluence of macroeconomic events created selling pressure during the week, sending the S&P 500 Index lower by 1.3% and the Dow Jones Industrial Average down 1%. Releases on the domestic economic situation continued to show positive momentum, ranging from improvement in retail sales to a pickup in consumer credit. There was some concern about weaker consumer confidence figures and deterioration in weekly jobless claims, but it was clear last week that consumer balance sheet deleveraging continues. Retail sales for Feb increased 1% from Jan for a total increase of 8.9% in 12 months.
2011-03-08 Ed Hyman: The Key Threat to Economy Recovery by Robert Huebscher (Article)
Ed Hyman is not worried about China, quantitative easing or fiscal deficits. Equity market performance this year will be strong, he predicts, and the US economic recovery will proceed. But there is a caveat in his outlook ? and it is an immense one.
2011-03-05 Are Booming Economies Good for the Markets? by John Mauldin of Millennium Wave Advisors
The important question is whether booming growth is always good for equity markets. On that, the data is mixed. While strong growth usually leads to higher earnings, it typically leads to tighter liquidity. The most dangerous periods for equity markets are typically strong economic activity combined with rapidly rising oil prices. In 34% of the years since 1950 with economic growth have experienced declining EPS growth. A doubling in the oil price is not good for markets. If we begin to work on the deficit with cuts and tax increases, it will be a headwind for economic growth and earnings.
2011-03-01 Understanding Variable Annuities with GMWBs by Robert Huebscher (Article)
It's very tempting: a variable annuity with minimum lifetime payout that can increase - but never decrease - based on market performance. That temptation comes in the form of an increasingly popular variable annuity rider known as a guaranteed minimum withdrawal benefit. We explain the flaws in a widely publicized study by Morningstar/Ibbotson, and provide our own analysis of the product.
2011-03-01 Subsuming the Efficient Market Hypothesis by Keith C. Goddard, CFA (Article)
A recent article highlighted important gaps in the efficient markets model (EMH) that limit its practical applications. It encouraged a search for a new theory of markets that builds upon EMH by rendering it as a special case within a broader, more general theory. Mordecai Kurz? Rational Belief Equilibrium is such a theory.
2011-03-01 The 10% Problem by Nathan Rowader of Forward Management
Many investors continue to expect 10% returns ? but these days, are doing well if they earn 5%. They need to understand why major shifts in the global investment climate are challenging them to reset return expectations and reboot their plans. After six decades of double-digit average U.S. stock market returns, many American investors may have come to expect that they will earn similar returns going forward. And why wouldn?t they? From 1948 to 1978, for example, the U.S. stock market generated an average annualized total return of 10.7%.
2011-02-28 When Inflation Fuels Deflation by Chris Maxey of Fortigent
Global macroecon concerns led to the sharpest weekly sell off in the S&P500 Index in three months. For the week, the S&P 500 Index was down 1.7% and the Dow Jones Industrial Average fell 2.1%. A multitude of catalysts were behind the selloff, including concerns about the situation in Africa and the Middle East, surging commodity prices, in particular crude oil, and finally, a feeling that equity valuations were moving into overbought territory. There were only a handful of important domestic economic releases last week, including several data points on housing and the state of the consumer.
2011-02-26 When Irish Eyes Are Voting by John Mauldin of Millennium Wave Advisors
Mauldin reviews the Irish economy, citing a recent Vanity Fair article by Michael Lewis. Ireland's housing bubble caused prices to rise approximately 500%. More than 20% of the Irish workforce was employed in construction. Irish banks financed this, using selling bonds to other European banks. The Irish government made good on those debts, burdening its taxpayers. The end results is excessive debt for the EU, which appears to be unsupportable. On the crisis in the Middle East, Bahrain is the key country to watch out for.
2011-02-23 A Laughable Attempt at Cutting the Budget by Chris Maxey of Fortigent
In a sadly fitting tribute to the fiscal mismanagement occurring in Washington, D.C. these days, the National Christmas Tree, which stood in the same spot since 1978, was felled by high winds Saturday morning. Not to fear, park authorities had a contingency plan in place and a new tree is on the way. Unfortunately, politicians are not known for the same degree of contingency planning and last week?s budget proposals proved that we are in for a torrent of trouble.
2011-02-23 Coping with Volatility by Charles Lieberman (Article)
The decline in equity prices in reaction to the fighting in Libya is a typical example of how equity markets are vulnerable to stocks at almost any time. We handle such volatility by balancing stocks with less volatile securities, like bonds and preferred stocks, to varying degrees in different types of portfolios. If investors are matched up correctly with the portfolio that provides the correct blend of potential return, stability, and income, they need not flee the market at exactly the wrong time and they can stick with their longer term investment strategy to achieve their objectives.
2011-02-22 Bruce Berkowitz on the Exceptional Value in the Financial Sector by Robert Huebscher (Article)
Fairholme's Bruce Berkowtiz, US stock-fund manager of the decade, discusses his large position in the financial sector and why he believes the big bets he is making do not amount to Russian roulette. He also comments on his recent nomination of former Florida Governor Charlie Crist to the board of St. Joes.
2011-02-22 Toward an Understanding of Risk - Part 2 by Robert Huebscher (Article)
How should clients think about risk in their portfolios? Advisor Perspectives put that question to a cross-section of prominent advisors and academics. Their answers encompassed diverse opinions and underscored how crucial that question is to the investment process. In part one of this series, which appeared last week, we heard from seven practitioners in the financial planning community. This week, we hear from seven well-known academics, including two Nobel Prize winners.
2011-02-22 Stop Wasting Time and Money on Client Communication by Dan Richards (Article)
The world has changed in all kinds of ways. What worked in terms of client communication as recently as five years ago doesn't work nearly as well today. As a result, you need to fundamentally change how you communicate with clients.
2011-02-19 A Random Walk Around the Frontlines by John Mauldin of Millennium Wave Advisors
Today we do a Random Walk Around the Frontlines, surveying what?s going on in the world. The US economy continues to improve in fits and starts. Inflation for the last six months has risen rather smartly. And for the last three months inflation on an annualized basis is running over 3%. The recent drop in the unemployment rate was entirely due to rather dramatic drops in what is known as the participation rate - fewer people looking for jobs. The Fed needs to end its program of quantitative easing.
2011-02-15 Toward an Understanding of Risk by Robert Huebscher (Article)
How should clients think about risk in their portfolios? Advisor Perspectives put that question to a cross-section of prominent advisors and academics. Their answers encompassed diverse opinions and underscored how crucial that question is to the investment process.
2011-02-15 The Stuxnet Paradigm by Michael Lewitt (Article)
Michael Lewitt discusses the situation in Egypt, the economy, rising risk appetites in the market, sovereign debt and municipal bonds. 'It might be very easy,' he writes, 'to be impressed by the 'two years and thousands of man hours' that Ms. Whitney spent researching the fiscal condition of the 15 largest states. What in the world required so much time and effort? It shouldn't have taken nearly so long to determine that these states are in severe financial trouble and that their options for dealing with it are limited.
2011-02-12 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin looks at an important paper from the Bank of International Settlements on ?The Future of Public Debt.? While the debt supercycle is still growing on the back of increasing government debt, there is an end to that process, and we are fast approaching it. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. This leads the BIS to conclude that the question is when markets will start putting pressure on governments, not if.
2011-02-04 An Excerpt from Endgame by John Mauldin of Millennium Wave Advisors
Growth does not look that great, and people don?t feel the recovery. This is unlikely to change. The U.S. and most developed economies are currently facing many major headwinds that will mean that going forward, we?ll have slower economic growth, more recessions, and higher unemployment. Three large structural changes have happened slowly over time that we expect to continue going forward. The U.S. economy will have higher volatility,lower trend growth, and higher structural levels of unemployment (The United States here is a proxy for many developed countries with similar problems.)
2011-02-01 Can Economics Save the Economy? by Robert Huebscher (Article)
Christina Romer, Greg Mankiw and Paul Krugman were among a group of thought leaders who spoke at a conference in Cambridge last week. They cited a lack of sufficiently powerful and politically feasible policy options, calling into question whether economists will be able to produce the clear path to the stronger recovery that the Obama administration seeks.
2011-01-29 A Bubble in Complacency by John Mauldin of Millennium Wave Advisors
The just released Q4 GDP of 3.2% may be overstated by 0.5% to 1.0% as a result of statistical adjustments. Consumer spending advanced, but that must be tempered by the support from fiscal and monetary policies. The growth in the deficit poses imminent danger of another recession, and the political landscape makes it unlikely a solution will emerge. Mauldin would like to see 'thought leadership' in the upcoming presidential election cycle, in order to build support for viable policies to revive the economy.
2011-01-25 Beyond the Efficient Market Hypothesis by Michael Edesess (Article)
John Cassidy's 2009 book, "How Markets Fail," drives the final nail in the coffin of the Efficient Market Hypothesis. Well, perhaps the penultimate nail - as I'll explain. It is the most compelling argument I have read that we need a new and improved theory of markets, a theory that subsumes the efficient market hypothesis, much as Einstein's relativity theory subsumed Newtonian physics.
2011-01-25 Ten Resolutions for Greater Prosperity in 'The Year of the Fiduciary' by Jeffrey Briskin (Article)
If you think selling and servicing 401(k) plans isn't easy today, ERISA is about to make it even harder. The good news is that firms that adjust to these challenges can use them to their competitive advantage Here are ten steps your firm can take to prepare for The Year of the Fiduciary.
2011-01-25 Go for the Long Bond: Technical Indicators are Positive by Georg Vrba, P.E. (Article)
My article, Seeking Beta in the Bond Market: Update December 31, 2010, showed that my Bond Value Ratio (BVR) model indicated the beginning of an up-market for high-beta bond funds on 12/17/10. I present a further indicator here which reinforces this signal.
2011-01-25 Advisor Perspectives Announces First Venerated Voices Awards by Advisor Perspectives (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, today announced its first Venerated Voices? awards, recognizing the market commentators who were most frequently read by advisors during 2010. Awards were issued in three categories: The Top 25 Venerated Voices? by Firm, The Top 25 Venerated Voices? by Author and The Top 10 Venerated Voices? by Commentary.
2011-01-22 The Unsustainable Meets the Irresistible by John Mauldin of Millennium Wave Advisors
States are the largest component of US GDP, and states' revenues have declined 10% from their peak. On top of that, federal stimulus support for states is running out. Congress should allow states to declare bankruptcy and force unions to come to the bargaining table. The US is on an unsustainable path. Absent very serious fiscal remedies, long before we get to 2019 the bond markets will have taken away our ability to finance our debt at low rates.
2011-01-18 Build Loyalty through Annual Client Reviews: Four Questions All Advisors Must Ask Their Clients by Ani Yessaillian (Article)
In today's highly competitive marketplace, you'll never be able to grow your business if you're losing clients. Trust fosters loyalty - but how do you build that kind of trust with your clients? The annual review is one of your best opportunities.
2011-01-18 Letters to the Editor by Various (Article)
A number of readers respond to Nancy Opiela's article, Tactical Asset Allocation and Market Timing: What's the Difference?, and one reader responds to Michael Lewitt's article, The Wages of Growth. Both articles appeared last week.
2011-01-11 The Two Elephants Facing the US Economy by Michael Lewitt (Article)
The consensus has reached the conclusion that financial markets will enjoy a strong start to 2011. This is reason enough to approach the markets with caution as the year begins. When everybody is leaning to one side of the boat, the vessel is far more likely to tip over, particularly if it hits an unexpected wave.
2011-01-11 The Key to Scaling Your Practice by Bob Oros (Article)
Independent advisors who are ill-equipped to handle a large influx of business from retiring baby boomers will struggle to harness the swelling demand. To capitalize on this new wave of assets, advisors need an edge. Many forward-thinking advisors have already discovered such an advantage in model portfolios.
2011-01-04 Seeking Beta in the Bond Market: Update December 31, 2010 by George Vrba, P.E. (Article)
I have updated the model described in my article, Seeking Beta in the Bond Market: A Math-driven Investment Strategy for Higher Returns, which appeared on November 23, 2010. A lower switch point was generated on 12/17/2010.
2010-12-23 Some Thoughts on Market Timing by John Mauldin of Millennium Wave Advisors
I have real doubts that there will be ?hundreds of billions? of losses in the municipal bond market. It would take a default by almost every major municipal issuer, and a lot of small ones, to create a hundred billion in defaults, something not likely to happen. States will be forced to make spending cuts. Mauldin also cites three sources who he "highly respects" who advise to hedge US equity portfolios going into 2011.
2010-12-21 Gundlach: Are Taxes Too Darn Low? by Robert Huebscher (Article)
One way to avert the crisis posed by growing fiscal deficits is a significant tax increase, according to Doubleline's Jeffrey Gundlach. Although he did not advocate this policy, in his conference call with investors last week he said the strain of fiscal deficits poses as yet unanswered challenges to the economy and the markets.
2010-12-20 The New Normal, Anything But Bonds by Charles Lieberman (Article)
Pacific Investment Management, manager of the world largest bond fund, filed with the SEC to expand its holdings to include equity related investments as soon as the second quarter of 2011. Thus, the "bond king", Bill Gross, is trying to diversify away from bonds into stocks, which implies that Pimco's "new normal" may be more of a marketing slogan than an investment guideline. This is a good move for his investors, although it comes more than a year late for the rally in these assets and the plunge in bond prices, including Pimco's own bond funds.
2010-12-17 Kicking the Can Down the Road by John Mauldin of Millennium Wave Advisors
A collapse of a major European bank could trigger counterparty mayhem in the US banking system, at least among our major investment banks. The ECB is now earnestly continuing to kick the can down the road, buying ever more debt off the books of banks, buying time for the banks to acquire enough capital. If the ECB were to keep this up, even in a deflationary, deleveraging world it would eventually bring about inflation and the lowering of the value of the euro against other currencies. One country after another in Europe is coming under pressure. This week the debt of Belgium was downgraded.
2010-12-14 The End of the Asian Bull Market by Robert Huebscher (Article)
A broadly diversified emerging market investor would have earned nearly 12% annually over the last five years, far outpacing investors in the US and other developed markets. Over the next five or even ten years, investors relying on emerging economies will not be as fortunate, however, according to Louis-Vincent Gave, CEO of the Hong Kong-based research and investment management firm GaveKal.
2010-12-14 Year-end Letter to Clients: Investment Advice from Winston Churchill by Dan Richards (Article)
For the past 18 months, my draft letters have been designed to balance some of the extreme pessimism among many investors with an objective, positive outlook - the draft year-end letter for 2010 continues with that goal. In it, I borrow from Winston Churchill's insight into the difference between optimists and pessimists.
2010-12-11 Unintended Consequences by John Mauldin of Millennium Wave Advisors
The recent rise in interest rates is due to the reallocation of globally indexed funds away from sovereign debt and into something else. The may be a prelude to a sovereign default or a more rapid rise in rates, which could unfold very quickly. Global deleveraging is not over. QE2 and the nervousness of investors around the world are pushing up interest rates.
2010-12-06 Research-driven Market Insights from Janus: 4Q Market Perspectives by Janus Investments (Article)
Offer clients research-driven market insights. Every quarter, Janus equity and fixed income teams share their insight and outlook on global market sectors and key macroeconomic indicators in Janus' Market Perspectives Series. We thank Janus Investments for their sponsorship.
2010-12-06 Real Return Expectations by Michael Nairne (Article)
There is nothing more important to long-term investors than the real rate-of-return that they can reasonably expect to earn on their investments. We forecast the expected real annual return for US stocks over the next 10 years and then set out ways to potentially improve on what many will find to be a discouragingly low expected return.
2010-12-03 Texas, Ireland and Ten Little Indians by John Mauldin of Millennium Wave Advisors
Mauldin contrasts the plights of Iceland and Ireland in dealing with excessive leverage. Iceland devalued its currency, while Ireland must accept a bailout package. Iceland's economy is recovering; Ireland's may take years. Mauldin compares the situation in Spain and Portugal to those two countries. The stronger EU countries must rescue the weak, just as Texas is being asked to rescue fiscally troubled states like California.
2010-11-30 Black Gold, Texas Tea by Robert Huebscher (Article)
The flow of money into gold-related funds is, at least in part, driven by good intentions - hedging against dollar debasement, inflation, and systemic risk. As investors drive the price of gold to record levels, though, they are overlooking an equally compelling commodity hedge, one that the Beverly Hillbillies once dubbed 'black gold, Texas tea' - oil, that is.
2010-11-30 Why Bubbles Inflate and How to Avoid Them by Robert Huebscher (Article)
In this interview, Meir Statman discusses the psychological underpinnings behind the creation of bubbles in the financial markets, why some bubbles are good and others are not, and how investors should frame their decisions when facing a potential bubble.
2010-11-30 The Word that Defines Effective Communication by Dan Richards (Article)
Fairly or not, if clients initiate a call, many will believe that the conversation wouldn't have taken place otherwise ... even though it's precisely the same conversation, advisors get much more goodwill and credit if they take the first step in making that call happen.
2010-11-30 Investment in Life Settlements: Certainty in Uncertain Times by J. Mark Goode (Article)
Life settlements are not directly correlated with traditional bond and equity markets and have the potential to yield above-market returns in the intermediate and long terms. Unlike the equity and bond markets, the returns on life settlements are uniquely tied to mortality.
2010-11-28 Recessions are on the Margin by John Mauldin of Millennium Wave Advisors
We had a slate of good news over the past few weeks, including data on business confidence, housing, and unemployment. GDP growth is slowing, but it is still north of 2%. The economy may be able to handle only taking away the tax cuts for those with over $250,000 in income. It will slow things down, but probably not enough to cause a recession. Given that government spending is going to go down (at least I hope so), unemployment is going to take time to get under control; and with the whole developed world in a mess, it is hard to see an environment where we can average 3.5% for this decade.
2010-11-23 Five Words that Get Emails Opened by Dan Richards (Article)
The escalating volume of email means that fewer and fewer emails are being opened. A key challenge is creating a sense of urgency around opening your emails - something that can be achieved with five key words in the subject line.
2010-11-23 Will Municipal Bonds be the Next Disaster? by Dennis Gibb (Article)
It has been an article of faith that municipal bonds are safe investments, but this complacency about the safety of munis may soon be proven unwise.
2010-11-23 The Kings of Cash Flow: Investing in Tomorrow\'s Potential Winners Today by David Vincent and Kevin Collins (Article)
Companies generating a lot of free cash flow generally represent attractive investment opportunities over time. The 'Kings' - companies with the highest free cash flow yields - have historically outperformed companies with lower free cash flow yields and are currently experiencing what may be one of their longest and most drastic periods of underperformance in the last 50 years.
2010-11-23 Why Diversify? by Adam Jared Apt (Article)
Although diversification is commonly regarded as a good thing, there are nonetheless those who regard it as a guarantee of mediocrity. It isn't, but there are right ways and wrong ways to go about diversifying a portfolio. Let's explore how diversification works.
2010-11-23 Seeking Beta in the Bond Market: A Math-driven Investment Strategy for Higher Returns by Georg Vrba, P.E. (Article)
Investors seeking permanent exposure to the bond market should invest in high-beta funds during up markets and low-beta funds during down markets. This simple strategy provides consistent long-term returns that are considerably higher than what a static investment in bond funds would achieve.
2010-11-20 O Deflation, Where is Thy Sting? by John Mauldin of Millennium Wave Advisors
The economy growing between one and two percent. That is better than recession but not good enough to really bite into the unemployment rate, which means trouble. Mauldin examines the construction of the BLI's CPI index and specifically the role of housing: inflation, when you take out housing costs, is a jaunty 1.9%. Right in the Fed target range of 1.5-2%. The Fed's QE program may create inflation where we can least afford it - in energy and food.
2010-11-15 Safety In Bonds? by Charles Lieberman (Article)
Investors routinely think bonds are safe, so the recent sharp decline in the municipal bond market should serve as an early warning. Interest rates remain exceptionally low and investors who have fled the stock market for the safety of bonds are likely to rue this decision. The risks are considerable, while the rewards are very low, hardly a good combination.
2010-11-13 First, Let's Lower the Bar by John Mauldin of Millennium Wave Advisors
Mauldin responds to criticisms of a recent email he sent regarding healthcare reform. Next, he notes that for the last 18 months the trade-weighted yuan has dropped well over 10%, which he calls extraordinary. On the recently announced unemployment results, he says government "fiddling" with seasonal adjustments distorted the numbers. Last, he comments on the Irish sovereign debt issue.
2010-11-12 A Bull in China by Christian Thwaites of Sentinel Investments
On a recent trip to China, we saw encouraging and inexorable signs that the Chinese consumer is becoming a very potent force in the world economy. It wont be without volatilitybut it is happening. Heres how: demographics, changes in consumer behavior and a number of other factors.
2010-11-09 New Strategies in Alternative Investments by Robert Huebscher (Article)
Alternative investments, broadly speaking, and hedge funds, more specifically, have performed as intended over the last 20 years, modestly increasing returns and significantly reducing risk when added to a traditional stock-bond portfolio. Selecting the appropriate vehicle is the challenge, and that task has been made easier by the introduction of new exchange-traded strategies.
2010-11-09 A Reading List for 2010 by Vitaliy Katsenelson (Article)
Updated for 2010 and in time for the holidays, here is the latest installment of my recommended books. I originally wrote this list in 2008 and again last year. I intend to keep adding to and revising it every year. It contains seven sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, Risk and Books for the Soul. The first three sections are presented below and the remaining four will be presented next week.
2010-11-08 Increased Clarity Implies Increased Optimism by Charles Lieberman (Article)
Major events of last week clarified the outlook in a way that is consistently very positive for equities. Much of the weakness in the economy since spring was merely temporary fallout from the Greek debt crisis. Policy remains very expansion oriented and the political environment should improve for the corporate sector. The latest developments imply we should be even more circumspect over the outlook for bonds (if possible) and more optimistic with the equity market's prospects.
2010-11-05 Thoughts on Liquidity Traps by John Mauldin of Millennium Wave Advisors
Lacy Hunt writes that the Oct employment situation was dramatically weaker than the headline 159k increase in employment measures. The most distressing aspect is the loss of another 124K full-time jobs, bringing the 5-month loss to 1.1 million. John Hussman discusses liquidity traps, where investors prefer cash to debt (because of low interest rates) and the central bank loses control. Fiscal policy, not monetary policy, impacts economic growth and inflation - and the proper fiscal measures, such as infrastructure spending, may be the best hope for growth.
2010-11-02 The SEC?s 12b-1 Proposal is Based on Misguided History, Flawed Economics by John H. Robinson (Article)
The SEC's stated aims of its proposed Rule 12b-1 reform are laudable: increasing transparency, reducing investor fees, and increasing competition among mutual funds. However, John Robinson's review of its 278-page proposal found major flaws, including a misinformed historical pretext and naïve economic analysis.
2010-11-02 Tax Location in Today?s Uncertain Environment by Glenn Frank (Article)
The tumultuous political climate in Washington has heightened anxiety around the country, and the uncertainty left when Congress adjourned without tackling any of the looming tax changes has left taxpayers and investors wondering just what is in store for 2011. Though the crystal ball remains cloudy, and while taxes may rise for no one, everyone, or just the wealthiest Americans, steps taken today can help tax planners and their clients be better prepared - no matter what the politicians do.
2010-11-02 Letter to the Editor by Various (Article)
In a letter to the Editor, a reader highlights a few generalizations in a recent article on that, he says, unfortunately cast the entire universe of 529 plans in a uniformly unpleasant light.
2010-10-29 Asset Allocation in an Uncertain Economy by Robert Huebscher (Article)
Advisors should not bet on whether the recession will be L-, V-, or W-shaped. Instead, Ron Albahary said they should use strategic asset allocation and overweight or underweight those asset classes that have historically done well at certain points in the economic cycle. Albahary is the CIO of Convergent Wealth Advisors, a Washington, DC-based wealth manager.
2010-10-29 Be Careful What You Wish For by John Mauldin of Millennium Wave Advisors
Q3 GDP numbers were unimpressive, and it would not surprise Mauldin to see GDP growth be closer to 1% in the 4th quarter, unless we start to see evidence of more inventory building. That is not good for jobs, personal income, tax collections needed to cover deficits at all levels, or consumer confidence. A further threat is posed by large numbers of people whose 99 weeks of unemployment will soon expire. Republicans face big challenges once they gain power, and Mauldin says a VAT is the only way to reduce budget deficits.
2010-10-26 An Exceptional Resource for Asset Allocation by Michael Edesess (Article)
Roger C. Gibson's fine and exemplary book, Asset Allocation: Balancing Financial Risk, Fourth Edition, shows that character and conscience-based counseling still exist, even in the financial profession. It is still possible for advisors to look out for their clients' long-term interests.
2010-10-24 The Subprime Debacle: Act 2, Part 2 by John Mauldin of Millennium Wave Advisors
Buyers of mortgage-backed securities may be able to join together and force issuers to buy back those securities, if the loans they contain are defective. This is further complicated by the fact that some of those buyers were non-US entities. Bank of America is badly exposed through its acquisition of Countrywide, as are "dozens" of other banks.
2010-10-19 Developed Markets and Capitalism in Crisis by Robert Huebscher (Article)
We are not in a globalized world today, according to Ian Bremmer. "The state is back," said the 40-year old president and founder of Eurasia Group, a political consulting firm. Both in the U.S. and throughout the world, governments are exerting their influence through regulation, trade restriction, subsidies, and bailouts, and are threatening the nature of free markets.
2010-10-19 Advising Boomers in a World of Higher Taxes by Janus Investments (Article)
Taxes may be rising in 2011. Are you prepared to answer client questions? Advisors need to have meetings now through year-end to help guide their clients to help mitigate potential tax risk. Learn more from Janus' materials on Advising Boomers in a World of Higher Taxes.
2010-10-12 The Perfect Storm: Threat or Opportunity by Dinesh Sharma and Michelle Goldstein (Article)
Our primary client base, baby-boomers, is quickly sliding into retirement, leaving us to question where our growth will come from. And now we have the uncertainty surrounding the Dodd-Frank Wall Street Reform and Consumer Protection Act and the anxiety that comes with it. Financial advisors can choose to see the convergence of these factors as a threat to their well-being or as an opportunity to prosper.
2010-10-12 Letter to the Editor by Various (Article)
In this letter to the Editor, a reader responds to our article, The Misguided Promise of 529 Plans, which appeared last week. We were wrong, the reader says, to compare 529 plan performance to the 'market,' and solutions superior to our recommended zero-coupon muni bond strategy are available through actively-managed equity funds.
2010-10-12 Capitulation to Uncertainties ? Does a Bond Bubble Really Exist? by Frank Wei of FundQuest
The recent near-record low in Treasury yields may be largely attributable to investors' capitulation to today's unusual and uncertain economic environment. While investments in Treasury bonds involve less uncertainty than other asset classes, their valuation is typically rich when yields are low. There remains a vast amount of potential for more lucrative investment opportunities in this low-yield environment, with only slightly more risk involved.
2010-10-05 The Information Risk Premium: A New Danger to Client Portfolios by Bob Veres (Article)
Michael Aronstein, who manages the Marketfield Fund, connected two dots that most of us are aware of intuitively, but may not have consciously considered. As Bob Veres writes, Aronstein says that the primary challenge for investment advisors, financial planners and money managers today, which is different from the challenges you faced in the past, is the sheer amount of attention that investors are now able to pay to the ups and downs in their portfolios.
2010-10-05 Thinking Bond Market Bubble? Consider Short-Term Bonds by RidgeWorth Investments (Article)
The current market environment - characterized by historically low interest rates and money market reform - has created an opportune time to invest in short-term bonds. RidgeWorth believes investors with excess cash reserves earning near zero percent, as well as those invested in long-term bonds who may be most impacted by a rise in rates, will be well served to consider an allocation to short-term bonds. We thank RidgeWorth for their sponsorship.
2010-10-05 A September to Remember by Ron Surz (Article)
In his quarterly market analysis, Ron Surz notes that September has historically been the worst performing month for US stock markets, losing 1% on average over the past 85 years, while the average return in the other 11 months was a positive 1.3%. Not so this September. Surz reviews global market performance and provides his thoughts on peer group analysis and target date funds.
2010-10-02 The Morality of Chinese Growth by John Mauldin of Millennium Wave Advisors
Mauldin provides highlights from a recent conference. John Hofmeister is the former president of Shell Oil. He paints a very stark (even bleak) picture of the future of energy production in the US unless we change our current policies. David Rosenberg argues that GDP growth has been helped largely by inventory rebuilding, which is not sustainable. The analysts at GaveKal discuss the tension between Chinese policies toward economic growth and the social welfare it provides for its citizens.
2010-10-01 Insolvency Too by Niels C. Jensen, Nick Rees and Patricia Ward of Absolute Return Partners
On 1st January 2013, Solvency II, a new directive governing capital adequacy rules in the European insurance and life insurance industry, will come into effect. Going forward, European insurers will have to be able to pass a 1-in-200 years' event stress test, which has been designed to give the industry enough of a cushion to withstand even the most severe of bear markets without being forced to sell. Risky asset classes such as equities, commodities and other alternative investments will be assigned much higher reserve requirements than less risky asset classes such as bonds.
2010-09-28 The Future of Oil by Robert Huebscher (Article)
No commodity impacts the global economy more than oil. When geopolitical threats loom, two questions often dominate discussion: Will the price of oil rise? And what will be the economic consequences? We review the key drivers of recent, current, and forecast oil prices, including a template for the necessary eventual alignment of supply and demand.
2010-09-28 Unraveling the 12b-1 Debate by Robert Huebscher (Article)
The SEC has proposed sweeping changes to the way commission-based advisors will be compensated for the services they provide. Those changes will rename and modify the 12b-1 fees that many mutual funds now charge. To understand their impact, we spoke with Avi Nachmany of NY-based Strategic Insight, whose clients include the largest mutual funds.
2010-09-25 Pushing on a String by John Mauldin of Millennium Wave Advisors
The Fed will move forward with aggressive quantitative easing (QE), unless economic growth reaches 1.5 percent to 2.0 percent. The Fed's QE efforts thus far have been ineffective, because funds remain on banks' balance sheets. Future efforts would likely lower interest rates or possibly devalue the dollar, but it is unlikely it will stimulate growth.
2010-09-21 America?s Demographic Advantages by Art Patten (Article)
Joel Kotkin's inherent optimism is a welcome antidote to the gloom and doom that's taken hold of so many in the wake of the great recession. In The Next Hundred Million: America in 2050, he uses copious reference material and broad strokes to paint a relatively cheery vision of America's future, which he believes will be driven largely by people, place, and national character.
2010-09-20 Stay in the Pocket by John Petrides (Article)
Those with a long-term investment time horizon should be considering stocks right now, due to the market's long-term capital appreciation potential. With regard to fixed income, investors should first consider active management versus passive (bond funds), and should consider income sources from other areas, such as REITs and MLPs, rather than just bonds for income, as well as diversifying their holdings among corporate, high yield, convertible and floating rate bonds.
2010-09-14 Identifying Opportunities in the Municipal Bond Market by RidgeWorth Investments (Article)
Ridgeworth Investments shares its perspective on the muni bond market in a recent white paper entitled "Identifying Opportunities in the Municipal Bond Market" which outlines the historical benefits of municipal bonds, the changing market dynamics in 2009 as well as RidgeWorth's outlook for municipal bonds in 2010 and potentially beyond. RidgeWorth concludes that despite a challenging market environment, munis still offer attractive investment opportunities. We thank them for their sponsorship.
2010-09-14 The Centre Cannot Hold by Michael Lewitt (Article)
"A refusal to shed discredited monetary and fiscal policies and embrace creative and politically bold solutions is keeping our economy mired in high levels of structural unemployment and below-trend growth," writes Michael Lewitt in the latest edition of the HCM Market Letter. He also believes that "misguided faith in Keynesian solutions to debt crises, a near-religious belief that mild deflation must be avoided... and uninformed media hype about the alleged benefits of mergers and acquisitions" should be added to the list of bad ideas that lead economic policy and markets astray.
2010-09-11 The Last Half by John Mauldin of Millennium Wave Advisors
Mauldin provides another excerpt from his forthcoming book. He argues that growth in government spending comes at the expense of private sector growth. Fiscal stimulus will not work in the current environment, because we are now at the end of an unprecedented debt cycle. The preferred solution is for a country to grow its way out of debt, but that requires running a trade surplus, which cannot be accomplished by all countries simultaneously.
2010-09-07 Jeffrey Gundlach on Bonds, Stocks and Gold by Robert Huebscher (Article)
DoubeLine's Jeffrey Gundlach recently reduced his position from "overweight" to "small underweight" in Treasury bonds, and cited "divergent behavior across the yield curve." In this interview, he discusses that behavior and the rationale behind his move, as well as his thoughts on other asset classes, including equities and gold.
2010-09-04 The Last Chapter by John Mauldin of Millennium Wave Advisors
Mauldin presents content from his forthcoming book. He reviews some fundamental precepts of economics, focusing on the Keynesian approach the US is taking to revive the economy. He presents data from Woody Brock showing that the US debt may rise by as much as $1.5 trillion per year. Ultimately, he says, the bond market will revolt and interest rates will rise and the results will be very unpleasant. Using taxes or savings to handle a large fiscal deficit reduces the amount of money available to private investment.
2010-08-31 The Riskiest Pension Assets (and the Implications for Muni Bonds) by Robert Huebscher (Article)
State finances are in trouble, in large part due to unfunded pension liabilities. To assess the depth of those problems, one can look at what is likely the riskiest component of states' pension assets - their exposure to alternative investments and, in particular, to private equity. We assess those risks and look at the larger question of whether unfunded liabilities can trigger municipal defaults.
2010-08-31 Why Mid-Cap? by RidgeWorth Investments (Article)
RidgeWorth Investments has published research detailing six distinct reasons why investors should consider a specific allocation to mid-caps. Specifically, it explores historical performance, evaluates current conditions that favor mid-caps as well as examines how mid-caps have performed during different points in market and economic cycles. Finally, the research looks at the incremental benefit of adding an allocation of up to 40% of mid-cap stocks to a portfolio of solely large and small cap stocks. We thank RidgeWorth Investments for their sponsorship.
2010-08-31 The Alternative to Big Bonuses by Charlie Curnow (Article)
Do bankers deserve big bonuses? Economists will tell you that bonuses improve employee productivity by rewarding good work. But did the large performance-based payments given to Wall Street securities traders, for example, really steer them to better choices during the run-up to the recent financial crisis? What about financial advisors who base their fees on a percentage of the assets they manage? We take a critical look at Dan Ariely's latest research and the insights it provides.
2010-08-28 The Dark Side of Deficits by John Mauldin of Millennium Wave Advisors
At the start of each bull cycle, the markets had single-digit P/E ratios, with no exception. No secular bull market ever began with high P/E ratios, even though significant rallies often started from high P/E ratios. The lesson of history is that all periods of high valuations come to an unhappy end. The most significant driver of stock market returns is the valuation embedded in the P/E ratio. We are still in a secular bear market. Valuations, while lower, are still not at what could be called historical cyclical bottoms. Patience is the order of the day. We will get there.
2010-08-24 What Investors Really Want by Robert Huebscher (Article)
Using a mean-variance optimizer to construct a retirement portfolio that sits on the efficient frontier is tantamount to dining on a well-prepared meal that was pureed in a blender, believes Meir Statman, a professor of finance at Santa Clara University. Statman's research focuses on behavioral finance, and how advisors can help investors make smarter decisions.
2010-08-24 Improving on Buy and Hold: Asset Allocation using Economic Indicators by Georg Vrba, P.E. (Article)
Most long-term stock market investors follow a buy-and-hold strategy, one that makes big losses unavoidable when major downturns strike the stock market. This strategy assumes that an investor cannot know when to switch from one asset to another and that if one avoids the bad days of the market, one is also likely to miss the best days. In this guest contribution, Georg Vrba presents a way to resolve this dilemma, based on various economic indicators that provide timely buy and sell signals for the S&P 500 index.
2010-08-24 This is No Way to Run a Railroad by Michael Lewitt (Article)
In the latest edition of the HCM Market Letter, This is No Way to Run a Railroad, Michael Lewitt says the railroad known as the United States economy is chasing its own tail these days. Driven by misbegotten fiscal and monetary policies that ignore the lessons of history in favor of discredited financial and economic theories, the economy is trapped in a cycle of boom and bust. Lewitt also comments on the bond market, the European stress tests, GM, and the private equity industry.
2010-08-21 How We Get Through This Mess by John Mauldin of Millennium Wave Advisors
Don't expect a v-shaped recovery, but GDP may still grow in Q3. Unemployment and deficits will remain high. It is going to be a tough environment for the next 6-8 years. Growth opportunities will be in entrepreneurial ventures that can adapt to this environment and to future unforeseen hurdles.
2010-08-17 A New Framework for Retirement Income Planning by Manish Malhotra (Article)
In this guest contribution, Manish Malhorta proposes a new framework to solve many problems associated with retirement income planning, one that answers questions investors often ask, such as: "How much retirement income can I have with only a 10% chance of failure?" and "How much do I need to have now to draw $50,000 for 30 years with full certainty?"
2010-08-17 Cerulli Survey Results: New Themes in Advisors? Portfolio Strategies by Bing Waldert (Article)
New ideas, such as tactical asset allocation and the use of alternatives, have seen some uptake even before the market crisis, particularly within large institutions, but they are receiving increased attention as solutions for risk-averse clients. This article examines some of the evolutions, using data from a Cerulli Associates survey of Advisor Perspectives readers conducted in June and July of 2010.
2010-08-17 Letters to the Editor: Harold Evensky, et. al. by Various (Article)
Our letters to the Editor include three responses to articles in last week's issue from Harold Evensky of Florida-based Evensky & Katz.
2010-08-14 The Gulf Oil Spill Disaster by John Mauldin of Millennium Wave Advisors
The ecological destruction from the oil spill that was first feared is not going to be as bad as once thought, for a variety of reasons. It is not good, but it is not the unmitigated disaster it could have been. The government should have allowed certain ships to assist in the cleanup. The ban on offshore drilling should be lifted.
2010-08-10 Three Steps to Talk About Risk by Dan Richards (Article)
Among the most important things that good advisors bring is the ability to help clients make the right trade-off between risk and return ... and, as Dan Richards says, to help clients understand the critical relationship between the timeframe over which they hold investments and the volatility they experience.
2010-08-10 Zvi Bodie on Stocks and Annuities in Retirement by Dan Richards (Article)
In this interview, retirement expert Zvi Bodie discusses the role of stocks and annuities in a retirement portfolio, and how advisors and clients should think about risk. This is the transcript of the interview.
2010-08-10 Is the Market Efficient? by Adam Jared Apt (Article)
After Marxism, no economic theory today may be as derided and despised as the hypothesis of market efficiency. The idea is often misunderstood, sometimes willfully. So what does "market efficiency" mean? In the latest installment of his series for the educated layman, Adam Jared Apt provides some answers.
2010-08-07 The Problem With Pensions by John Mauldin of Millennium Wave Advisors
A report just out from the Center for Policy Analysis indicates that state and local pension funds are drastically underfunded. By the authors' calculations, state and local pensions are underfunded by $3 trillion. Pension funding in some states will be required by law to consume 25-30 percent or more of tax revenues. That is going to mean much higher taxes or reduced services. John Mauldin also discusses a possible surprise from President Obama concerning Fannie Mae and Freddie Mac, and provides an economic update on China.
2010-08-03 Woody Brock: How to Achieve Growth without 'Bad' Deficits by Robert Huebscher (Article)
Of all the challenges facing our nation, none is as daunting as trying to achieve economic growth and reduce unemployment without adding layers of debt to our already bloated deficit. Legislators and economists have debated the merits of stimulus measures, changes in tax rates, and monetary policies, but they are no closer to a consensus than they were at the onset of the financial crisis. H. 'Woody' Brock, however, says a genuine solution is possible.
2010-08-03 'Fiduciary': Much Ado about Nothing! by John Lohr (Article)
The most overused, misused and misunderstood word in the investment industry is 'fiduciary.' Independent advisors, trade organizations and self-styled 'expert' groups have called for stockbrokers to adopt the 'fiduciary' standard to achieve a grand leveling of the playing field for those who provide investment advice. This is nothing more than unnecessary marketing hype, says securities lawyer John Lohr in this guest contribution.
2010-08-03 Letter to the Editor by Various (Article)
In a letter to the editor, a reader responds to Dave Loeper's article, Fake Diversification Exposed: Does Asset Allocation Work?, which appeared on July 13.
2010-07-31 Are We There Yet? by John Mauldin of Millennium Wave Advisors
The reported Q2 GDP growth was unimpressive. If we take away housing and project slower inventory growth and less government spending, we could see the GDP number for this quarter fall to the 1% range and stay there for the rest of the year. Deflation is a real fear, analogous to driving our economy "without a spare."
2010-07-27 Important New Research Talking to Seniors About Risk and Market Volatility by Dan Richards (Article)
New research shows how to talk to seniors about their investments. Titled "Behavioral finance and the post-retirement crisis" and released in May, this report compiles findings on how older investors perceive risk and make financial decisions. Dan Richards discusses the findings.
2010-07-27 Active Managers Add More Value in Bull than Bear Markets by Jane Li, CFA, CAIA (Article)
In this guest contribution, Jane Li of FundQuest argues that both active and passive investing have their strengths and weaknesses; it depends on the market segment in question and on the economic climate. Active managers tend to add value in bull markets, but their value is shakier in bear markets.
2010-07-26 Back to Even and Still Bullish by Charles Lieberman (Article)
The equity market has recovered to being even for the year to date, overcoming a possible credit crisis in Greece and Europe, as well as fears of a double-dip recession at home. While the economic outlook is 'unusually uncertain,' it is the pace of the recovery that is most subject to question, more than its sustainability. Notwithstanding these concerns, corporate profits continue to increase at a solid pace, cash is accumulating, and stocks have become cheap. This offers an excellent entry point for investors, who are able to hang in despite the market's volatility.
2010-07-24 Some Thoughts on Deflation by John Mauldin of Millennium Wave Advisors
We face the deflation of the Depression era, and central bankers of the world are united in opposition. This is due to excess capacity, high unemployment and massive wealth destruction. Deflationary pressures are the norm in the developed world (except for Britain, where inflation is the issue). The US has mild (1 percent) inflation now, but if it trends to deflation, the Fed will react by monetizing the debt.
2010-07-20 Cash Investing: Considerations for Investing in a Low Interest-Rate Environment by Northern Trust Investments (Article)
Northern Trust's chief economist, Paul Kasriel, forecasts that interest rates will remain low for the remainder of 2010. Investors are looking for guidance on how they should best position their cash and fixed income portfolios to take this environment into consideration, and should consider the tradeoff between liquidity and yield. We thank Northern Trust for their sponsorship.
2010-07-20 Martin Leibowitz? Failed Defense of the Endowment Model by Michael Edesess (Article)
The latest book from Martin Leibowitz, one of the most respected thinkers in the investment industry, attempts to justify the endowment model of investing. As Michael Edesess writes in this review, Leibowitz's defense is highly problematic, and that should concern any advisor utilizing a Yale-like strategy.
2010-07-17 The Debt Supercycle by John Mauldin of Millennium Wave Advisors
The Debt Supercycle, as posited by the Bank Credit Analyst, is the decades-long growth of debt from small and easily-dealt-with levels, to a point where bond markets rebel and the debt has to be restructured or reduced or a program of austerity must be undertaken to bring the debt back to manageable proportions. The consequences for each country will be different, and the U.S. is a long way off from "the end." A key point will be the 2014 elections, when critical budget decisions must be made.
2010-07-14 Second Quarter Commentary by William H. McAfee of WHM Capital Advisors
Gains in productivity are likely to translate into continued improvement in corporate earnings. Earnings surprises in this environment will benefit investors who have patiently invested in equities, even in the current downturn. In the mid-term, large-cap companies have done a very successful job of raising cash and paying down debt, giving them opportunities to capitalize on a slower growth environment. Smaller companies dependent on bank debt are still likely to face risks as bank lending is likely to stay depressed as real estate concerns continue to pervade bank portfolios.
2010-07-13 Nouriel Roubini on Crisis Economics by Michael Edesess (Article)
There's good reason why Nouriel Roubini has been dubbed Dr. Doom. After reading his book co-authored with Stephen Mihm, Crisis Economics, one might despair for our economic system. Roubini makes the recent crisis seem inevitable, hard to stop, and very hard to keep from happening again.
2010-07-13 How to Fix the SEC by Bob Veres (Article)
Bob Veres' view is that the SEC is adequately funded, but perhaps is not ideally allocating the resources it already has. Fiduciary standards and regulatory reform are only part of the solution to protecting consumers from the predatory behavior of some financial services professionals in our midst. The remainder of the fix is potentially uncomplicated. See Bob's other contribution below.
2010-07-13 The Retirement Readiness Checklist by Dan Richards (Article)
Dan Richards describes a recent research report which offered a retirement readiness index. Attached to the report was a questionnaire that advisors can walk clients through to benchmark where they stand on each task and identify areas that need improvement.
2010-07-13 Deficits Monetary and Moral by Michael Lewitt (Article)
"The word 'deficit' has come to epitomize not only our economic dilemmas but also our moral and intellectual failures to address them in an era that should be boasting of new breakthroughs in the social and physical sciences," writes Michael Lewitt in the latest installment of his HCM Market Letter, Deficits Monetary and Moral. "Instead, our ability to solve complex problems is weighed down by flawed and corrupted government processes and the lack of courage to forthrightly change them."
2010-07-13 A Marketing Guide for RIAs: Part 2 ? Craft Your Message by Kristen Luke (Article)
As part of her series on low-budget marketing for startup RIA firms, Kristen Luke discusses how to craft your message.
2010-07-10 It's More Than Just Birth-Death by John Mauldin of Millennium Wave Advisors
Mauldin examines the methodology used by the BLS when it calculates unemployment. He reviews claims by Jeff Miller of New Arc (which we published on Thursday) that distortions caused by unreported data are greater than those of the birth/death model. Mauldin also discusses a conversation he had with Mohammed El-Erian, who said that unemployment may now be a leading (instead of lagging) indicator of economic growth.
2010-07-07 Lebron James and Earnings Season by Charles Lieberman (Article)
It appears that everyone is reducing their expectations for the economy. The stock market, a discounting mechanism, is responding accordingly and suggesting that analyst's 2011 earnings expectations are too high. However, the market is now trading at a price-to-earnings multiple near that of March 2009 market lows, when the structure of the global economy was in question, the credit markets were still frozen, and corporate balance sheets had not yet begun being repaired, a far cry from where we are today. This does not seem appropriate.
2010-07-06 The Ultimate Income Portfolio by Geoff Considine, Ph.D. (Article)
Conventional approaches to constructing income-oriented portfolios use either bonds or high-yield stocks. In this article, Geoff Considine explores a compelling alternative to that approach: a carefully selected model high-yield portfolio consisting primarily of low-beta, high-dividend stocks, against which the investor sells call options.
2010-07-06 How to Calculate Your Personal Safe Withdrawal Rate by Lloyd Nirenberg, Ph.D (Article)
Traditional approaches for determining safe withdrawal rates (SWRs) rely on back-testing portfolios with different asset allocations using historical data. Instead, in this guest contribution, Lloyd Nirenberg provide a new, transparent analysis that enables investors to explicitly update their SWR based on new beliefs about their future returns and inflation.
2010-07-06 Template for a Mid-Year Letter ? Navigating through this Calamitous Decade by Dan Richards (Article)
It's always important for clients to feel they're being kept informed of what's happening in markets - but never more so than in markets like we've seen in the past few months. Dan Richards provides a template for a mid-year market commentary to clients, adaptable to your own opinions and circumstances, based on a recently rediscovered speech by Benjamin Graham.
2010-07-06 And the Winner Is... by Michael Nairne (Article)
As investors rush into U.S. Treasury bonds in response to a weakening economy that may portend the onset of deflation, this begs the question whether there is a superior deflationary hedge. History can be instructive in this regard, as Michael Nairne explains in this guest contribution.
2010-07-06 Second Half Growth Will Slow, but is a Double-Dip Certain? by Chris Maxey of Fortigent
While it is easy to remain pessimistic on the state of the economy, especially following the events of 2008, the signs of a double-dip recession are simply not there yet. Slower growth is a given at this point, but this should not come as a surprise considering that it has been well-documented that previous stimuli would become a detractor to growth in the second half of 2010 and through 2011. Further stimulus packages are already being debated, even in the face of fiscal tightening by countries across Europe, as politicians face difficult battles at the polls.
2010-06-29 Timber as an Asset Class: If a Tree Falls in the Forest, Should you Buy It? by Charlie Curnow (Article)
"If the sun shines and it rains, the trees grow about on schedule," wrote Jeremy Grantham, chairman of Boston-based investment firm GMO, in his quarterly newsletter in April 2007. Grantham's enthusiasm for timber, which remains true to this day, may be excessive, despite the fact that, on the surface, historical data seems to support his optimism. If a tree falls in the forest, should you buy it?
2010-06-29 Jeff Gundlach: The US will 'Politely Default' on its Debt by Robert Huebscher (Article)
Jeff Gundlach's keynote address at last week's Morningstar conference documented the immensity of U.S. debt obligations and the lack of choices available for alleviating that burden. As he has stated in the past, he does not view inflation to be a threat in the capital markets today. He cited six options open to policy makers, but believes a seventh - some form of default - is most likely.
2010-06-29 Inflation Protection Investment Strategies by Vern Sumnicht (Article)
The value of the dollar is sure to erode, and investors will be left to grapple with the inflationary consequences. As Vern Sumnicht shows in this guest contribution, recent policies suggest steep inflation may be just around the corner. Fortunately, investors have some options to bolster their portfolios against the threat of inflation.
2010-06-28 Are We Greece or Are We Japan? by Charles Lieberman (Article)
Does the US economy have more in common with Japan, whose longstanding economic troubles have had disastrous results, or with Greece, whose lack of fiscal responsibility is causing the country to face an economic Judgment Day? Dr. Charles Lieberman argues that our situation is not as dire as either of these nations, as long as we continue to rein in the budget and see increasing job growth.
2010-06-28 On The Merits of Hedged Equity by Chris Maxey of Fortigent
Despite positive predictions for the housing market, existing home sales fell in May. This may be due to a number of first time buyers who snapped up distressed properties, requiring a longer wait between contract acceptance and closing date. At the same time, new home sales plummeted and median home sale price fell. A glimmer of hope exists in this market as home prices are in the positive over a year-over-year basis.
2010-06-26 The Risk of Recession by John Mauldin of Millennium Wave Advisors
The risk of recession is 50/50, but several things could make it less likely: if the expiration of the Bush tax cuts are not as harmful as expected, if those tax cuts are extended, or if there is a pickup in bank lending. The ECRI leading indicators and the M3 money supply numbers are indicating a recession is likely. If there is a recession, it will be deflationary and the Fed will react with another dose of quantitative easing.
2010-06-22 Improving on Morningstar's Ratings: Moving Beyond Past Performance by C. Thomas Howard, PhD (Article)
Past returns provide little or no help in choosing the best fund going forward, and Morningstar's stars are the best known example of this failure. In this guest contribution, Tom Howard presents new evidence of the failure of past performance to predict future returns, and shows how his strategy-based rating methodology offers measurably better predictive power.
2010-06-21 Why Own Gold? by John Petrides (Article)
Buyers of gold assume that a buyer will materialize who is willing to pay more for their shiny rock than they did. For this reason, buying gold is the epitome of a speculative investment. How does one value gold, from a fundamental standpoint? The conceptual answer is to match supply with demand and an equilibrium price is created, but how does one measure supply? Well, gold is mined, so that is one part of the equation, but what about holders such as central banks and investors, who keep the shiny rock in their vaults? How is that level of supply factored into the equation?
2010-06-18 Be Careful What You Wish For by John Mauldin of Millennium Wave Advisors
Governments can fight deficits by cutting spending, but that has the effect of reducing growth, which reduces taxes and income, essentially forcing a recession. This is the situation facing the US. The probability for a recession in the US in 2011 is 50%.
2010-06-15 Asset Allocation Matters, But Not as Much as You Think by Robert Huebscher (Article)
The market downturn has caused a rethinking of many core principles underpinning investment advice, chief among them the role of asset allocation. We talk with Yale's Roger Ibbotson about the impact of market returns and active management in explaining return variance and the role of asset allocation going forward.
2010-06-15 BlackRock Examines an Altered Fiduciary Landscape by BlackRock (Article)
Do your plan sponsors understand what it means to be a fiduciary and act prudently in that capacity? Are they aware of recent regulatory changes and how these may impact their fiduciary duties? Joe Lee, head of BlackRock's Advisor-Sold DC Distribution, discusses the opportunity advisors have to build and strengthen relationships with plan sponsors in the current environment. We thank them for their sponsorship.
2010-06-15 Strategy Advice from Apple and Google by Dan Richards (Article)
Last week Dan Richards conducted a webinar focused on the key decision that will drive advisors' long term success. Richards talks about what advisors can learn from the success of Apple, Google, Coke and Walmart.
2010-06-14 The Wisdom of Peter Lynch by Charles Lieberman (Article)
Peter Lynch once recounted how he was forced to stop reading the papers over the weekend because the doom and gloom depressed him so much that he was unable to make any investments on Monday. Charles Lieberman of Advisors Capital Management knows how he felt. If we believe the news, Greece will default and the euro is at risk of falling apart, while the housing market is about to weaken once again. Fortunately, none of these popular views holds up to scrutiny. Our recovery may be weak relative to prior recoveries following deep recessions, but it is still gathering momentum.
2010-06-11 The Frog in the Frying Pan by John Mauldin of Millennium Wave Advisors
Jonathan Tepper of Variant Perception, a research firm in London, writes this column as a guest contribution. He says that Mauldin's Muddle Through Economy is the product of several major structural breaks in the economy, which have important implications for growth, jobs, and the timing of a future recession: lower GDP growth will lead to more frequent recessions and higher economic volatility; high unemployment rates will be the norm, especially for less educated workers.
2010-06-08 Why Wall Street Won't be Reformed by Robert Huebscher (Article)
Michael Lewitt, author of the highly respected HCM Market Letter, has just released a new book, The Death of Capital. In this interview, he identifies the challenges facing those who seek to regulate Wall Street, and why most of the proposed reforms are likely to fail.
2010-06-08 What?s Driving Investment Management Outsourcing? by Northern Trust Investments (Article)
Advisors who fully outsource their investment management want to free time for clients and grow their practice. But, as Northern Trust Investments' research explores, not all advisors are comfortable with full outsourcing. We thank Northern Trust for their sponsorship.
2010-06-08 Ten Ways to Improve Manager Selection by Nancy Opiela (Article)
Today's emphases on fiduciary responsibility, risk management and increased transparency require better due diligence when selecting managers. Especially in today's turbulent markets, advisors who spend more time and resources to do due diligence well can find themselves at a distinct competitive advantage. While these ten tips won't necessarily help you identify the next active management superstar, they can bolster your manager selection and due diligence program.
2010-06-08 The First Thing We Do, Let?s Kill All the Quants by Michael Lewitt (Article)
In the latest issue of the HCM Market Letter, Michael Lewitt draws the parallels between the Gulf of Mexico oil spill and financial reform - both, he says, demonstrate our inability to learn from our mistakes. Lewitt also comments on quantitative trading strategies, economic recovery and the capital markets.
2010-06-05 There's a Slow Train Coming by John Mauldin of Millennium Wave Advisors
The question before the jury is a simple one, but the answer is complex. Is the US in a "V"-shaped recovery? Are we returning to the old normal? Mauldin concludes that the fundamentals are too weak to support robust growth, as typically follows a recession. He cites data from the Consumer Metrics Institute Growth Index, which suggests there will be a 2% GDP contraction in the third quarter, which he doubts will happen, but says the consensus 3% seems quite possible. He warns that if we go back into recession, the market on average drops 40%.
2010-06-02 Whither the Regulatory Winds? by Nouriel Roubini of RGE Monitor
While reforms like eliminating the 'too-big-to-fail' card and adopting Glass-Steagall-like regulations to unbundle different types of financial activity are necessary to ward off asset bubbles and combat systemic risks, they might not be feasible for political reasons. In the event of a Glass-Steagall type separation, we would expect a divergence in credit spreads between banks with and without insured deposits, but expect the cost of credit for depository institutions to be very close to sovereign risk. On the flip side, dilution risk would be concentrated in depository institutions.
2010-06-01 Municipal Bond Market Insights by Northern Trust Investments (Article)
Not surprisingly, the most profitable investment trends tend to be those with the most staying power. That could be particularly good news for investors in municipal bonds, since structural forces are in place that may make tax-free bonds - and the income they generate - even more valuable in the years to come. Northern Trust provides their secular outlook for municipals, and we thank them for their sponsorship.
2010-06-01 The Burden of Choice by Charlie Curnow (Article)
Columbia business professor Sheena Iyengar, author of The Art of Choosing, is the woman behind the famous jam study. Her research, which has been cited by Dan Ariely and others, shows the implications of providing consumers with choices that are too numerous or complex to easily evaluate. Charlie Curnow reviews her book.
2010-06-01 Can the Consumer Continue to Drive Economic Growth? by Chris Maxey of Fortigent
Consumers shook off the cob webs and made an exceptional comeback over the past 12 months. They are still tenuously overextended, however, and are unlikely to provide a necessary boost to economic growth in the coming quarters without serious improvement in wage or credit growth. The household debt ratio remains above the long-term average, but is returning to a more appropriate level and indicates that the consumer balance sheet is slowly being realigned. Fortigent also comments on government responses to sliding stock prices, and the week ahead.
2010-05-28 Six Impossible Things by John Mauldin of Millennium Wave Advisors
You can run a trade deficit, reduce government debt and reduce private debt but not all three at the same time. Choose two. Choose carefully. The UK will likely allow the pound to devalue to reduce its deficit, but will face higher costs of imported goods. Greece, in contrast, has no good options, and ultimately will default on its debt.
2010-05-25 Seth Klarman is More Worried than at Any Time in his Career by Robert Huebscher (Article)
The concern that the dollars he earns for his clients will lose their purchasing power is always on hedge fund manager Seth Klarman's mind. The possibility that the government will continue to print money to solve our economic problems has left him more worried than at any time in his career. We report on Klarman's remarks at last week's CFA conference.
2010-05-25 The Prospecting Approach that Works Today by Dan Richards (Article)
The problem with viewing a prospect conversation as an event is that you have to ask for a firm commitment at the end of any interaction - whether it is a request to meet when talking on the phone or asking for a decision to invest when meeting face-to-face, according to Dan Richards. All too often, that request will be premature - and if it's too soon in the process, the prospect feels under the gun. Richards offers a solution.
2010-05-25 Sleeping with the Enemy by John W. Pfenenger II, CFA (Article)
When it comes to investing, our worst enemy may be the one we see in the mirror every morning - ourselves. In this guest contribution, John Pfenenger looks at how emotions affect investment decisions, and how understanding behavioral economics can help advisors work with their clients.
2010-05-24 Macro Woes Refuse to Abate by Chris Maxey of Fortigent
Despite the $1 trillion rescue package, Greece and other small European countries will probably still default on their debts. As it stands now, Greece faces two scenarios: default or endure years or even decades of deflationary growth. The root problem for the PIGS is lack of competitiveness within the euro area - an inevitable consequence of the one size fits all interest rate policy. Even if the PIGS governments could slash their fiscal deficits, the lack of competitiveness within the euro area calls for years of relative deflation.
2010-05-22 The Case for a Fed Rate Hike by John Mauldin of Millennium Wave Advisors
Everywhere there are arguments that we are in a "V"-shaped recovery. And there are signs that in fact that is the case. Today we will look at some of those, and then take up the topic of when the Fed will raise rates. We open the case and look at the evidence. Is there enough to come to a real conviction? Mauldin thinks there is, but concludes that the Fed is "on hold" until 2011.
2010-05-18 Anthony Boeckh on the Great Reflation by Robert Huebscher (Article)
Tony Boeckh has been the guiding force behind Bank Credit Analyst, and in this interview he discusses his new book, The Great Reflation. Boeckh stakes out a deflationary forecast, and explains how the flow of liquidity in the financial system will determine asset class performance.
2010-05-18 Spain: After the Bubble by Charlie Curnow (Article)
Today, Barajas Terminal 4 one of the most visible artifacts of the profligacy that fueled Spain's property bubble and led to the country's current financial crisis. Spain, like several other European states, has continued to spend rapidly over the past two years, even as its economy has contracted. As a result, the Spanish government's debt has skyrocketed, raising fears of a possible sovereign default.
2010-05-15 Europe Throws a Hail Mary Pass by John Mauldin of Millennium Wave Advisors
This week's $1 trillion EU bailout is analogous to the US TARP program, and represents a "Hail Mary" last-ditch attempt to save the eurozone. The problems in the EU run deeper than government debt; when private debt is included, overindebtedness is even more striking. Mauldin says the prospects for growth in the EU are dim, the euro will go to parity with the dollar, and the EU will dissolve in the next 5-7 years.
2010-05-11 God Is Dead: The Implications of the Goldman Sachs Case by Michael Lewitt (Article)
Michael Lewitt provides us with the most recent issue of the HCM Market Letter, where his discusses the implications of the Goldman Sachs case. Lewitt says Goldman faces a terrible dilemma, and should heed the lessons of the downfall of Drexel Burnham two decades ago. Lewitt also comments on the private equity industry, public pension funds, and bank capital requirements and the ratings agencies.
2010-05-11 Inspire Client Trust by Delivering Clear, Insightful Investment Communications by Ani Yessaillian (Article)
One of the best ways to build trust with your clients is to consistently deliver clear, insightful investment communications. In this guest contribution, consultant Ani Yessaillian tells you how to make the most of your quarterly performance report and your off-cycle investment communications.
2010-05-11 A Historical Perspective on the Slight Depression by Robert Huebscher (Article)
Armed with textbooks and formulas, economists attack a problem by drawing lines, forming equations and trying to fit data to the real world. Niall Ferguson, a historian by training, thinks you can learn more simply by analyzing what has already happened. So what's a historian's take on the current crisis? Ferguson says it has yet to run its course.
2010-05-11 Why Some Hedge Funds Made Money in 2008 by Robert Huebscher (Article)
Steven Drobny is the co-founder of Drobny Global, an international macroeconomic research and advisory firm that counts many of the leading global hedge funds and money managers as clients. He is also author of a recently released book that identifies why some hedge funds made money in the 2008 crisis, while the majority did not. In this interview, he discusses the common themes among successful strategies.
2010-05-11 Talking to Clients about Expected Returns by Dan Richards (Article)
Of all the assumptions that go into clients' retirement plans, none has a bigger impact than the expected return on their investments, says Dan Richards. That number determines how much investors need to save, when they can afford to retire and the kind of lifestyle they can anticipate. Richards provides a context for discussing expected returns with clients.
2010-05-04 Lacy Hunt: Keynes was Wrong (and Ricardo was Right) by Robert Huebscher (Article)
Underpinning the Obama administration's economic policies is the work of John Maynard Keynes, the legendary British economist who called for large fiscal and monetary interventions to counter the Great Depression. On this critical issue, Keynes was wrong, says Lacy Hunt, the internationally renowned economist with Texas-based Hoisington Investment.
2010-05-04 Iran, Iraq and Embracing the Devil by Robert Huebscher (Article)
Just as imbalances arise in economics, so they do in geopolitics. Its power weakened, the US now faces a difficult choice in the Mideast, where its best option is now to strike a deal with the regional player it most demonizes, Iran, according to George Friedman, founder and CEO of the geopolitical consulting firm STRATFOR.
2010-05-04 Four Words of Advice from a Top Advisor by Dan Richards (Article)
Last summer, Dan Richards talked to a thirty-year veteran of the business who's consistently ranked as a top advisor. The week before, he'd talked to a group of rookies just entering the business. In the question and answer period, he was been asked about the single most important thing he learned over the course of his career.
2010-05-04 How Much is that Investment Worth in Real Money? by Adam Jared Apt (Article)
In the latest installment of his series of articles geared to the educated layman, Adam Apt looks at the topic of the time value of money, and how discount rates can be used to determine the value of a security. He shows the practical applications of present value calculations and its limitations.
2010-05-01 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin defends Goldman Sachs, arguing that buyers of the synthetic CDO it created should have been aware of the risks. He then comments on a paper by the Bank of International Settlements (BIS) which analyzes the level of sovereign debt across a number of countries. The BIS says the overall debt levels for these countries, which include many of the G20, are unsustainable, and the US is among those with the worst long-term outlook.
2010-04-27 Paul McCulley?s Design for Financial Regulation by Robert Huebscher (Article)
PIMCO's Paul McCulley parents his 20-year-old son with an overarching principle: If you want access to the "Bank of Dad," then you must comply with the regulations of the "Bank of Dad." Wall Street abandoned similar tenets with in the run-up to the credit crisis, and now McCulley says that core principle - to play the game, you must accept regulation - needs to be restored before another crisis unfolds.
2010-04-27 Gary Shilling: America?s Lost Decade by Robert Huebscher (Article)
The US faces 10 years of slow growth and deflation that could rival Japan's "lost decade" - two words which Gary Shilling did not utter but which unmistakably characterize his forecast. Shilling is founder and President of the New Jersey-based economic consulting firm A. Gary Shilling & Co.
2010-04-27 China: House of Cards or Emerging Superpower? by Robert Huebscher (Article)
Few topics are as contentious as the fate of the Chinese economy. The bulls argue that its growth will propel the global economic recovery and that China will ultimately supplant the United States as the leading world superpower. According to the bears, the Chinese economy has been fueled by unsustainable fiscal stimuliand is a prototypical bubble poised to burst. Five panelists at the Strategic Investment Conference debated this question.
2010-04-19 Goldman, as Scapegoat by Charles Lieberman (Article)
Goldman's crime, which appears to be more of a technicality than the kind of truly nasty crimes that were being committed by some financial market players, seems to be targeting the name, not the crime. This suggests it is more of a show event, perhaps in anticipation of the elections, than a real effort to punish miscreants, such as lenders at Countrywide or New Century. This show may fill the media over the coming months and quarters, but fortunately, it will not derail the economic recovery.
2010-04-17 First, Let?s Kill the Angels by John Mauldin of Millennium Wave Advisors
Provisions in the Dodd financial reform bill will impede angel investing in new ventures. Those provisions are the 120-day waiting period following SEC filing and the increase in minimum wealth requirements for accredited investors. Separately, the problems that Goldman now faces are "the tip of the iceberg," and at least eight other banks will face similar problems.
2010-04-13 Shameless by Michael Lewitt (Article)
The fiscal train wreck in the United States has not been set back on the tracks, and the global imbalances that led to the financial crisis have not gone away. Quite to the contrary, writes Michael Lewittin Shameless, the latest edition of his HCM newsletter. In fact, if progress isn't made with respect to these issues, and if intelligent financial reform is not enacted, future instability is guaranteed.
2010-04-13 James Heckman on the Drivers of Human Success by Dan Richards (Article)
"What we have come to learn from modern genetics, which has huge social implications, is that it's neither nature nor nurture. It's both combined," says James Heckman in this interview with Dan Richards. Heckman, who won the Nobel Prizein Economics in 2000, discusses the key drivers of success in human development.
2010-04-09 Reform We Can Believe In by John Mauldin of Millennium Wave Advisors
Appointments to positions of power in the Federal Reserve system should be independent of the political process and party politics. Credit default swaps should be regulated by requiring that they be traded on an exchange. Commercial and investment banking should be separated, so that commercial banks cannot engage in speculative activity such as running hedge funds. Leverage use by large banks should be restricted. "Fix the big things. Credit default swaps. Too big to fail. Leverage. Then worry about the details. And leave the Fed alone."
2010-04-06 A Q1 Letter to Send Clients by Dan Richards (Article)
Dan Richards provides the latest in his very popular series of quarterly letters for advisors to send to their clients. This Q1 2010 article combines the attributes he considers essential: a balanced outlook, candor, short enough for clients to get through yet long enough to be substantial, fact-based, and customizable to your own voice.
2010-04-06 Emerging Markets: High Growth does not mean High Returns by Dan Richards (Article)
Recent research explores the return payoff of investing in emerging markets such as Brazil, Russia, India and China, writes Dan Richards. Contrary to popular beliefs, investing in high-growth emerging markets has produced inferior returns to those obtained from slower growth economies.
2010-04-06 Ten Steps to Get Started with New Media Marketing by Kristen Luke (Article)
For advisors not familiar with social media (Facebook, Twitter, LinkedIn, Viddler, BlogTalkRadio, and YouTube), Kristen Luke provides a 10-step plan to get started.
2010-04-03 Is This a Recovery? by John Mauldin of Millennium Wave Advisors
"We will likely see a reduction in government spending (from all levels) over the next few years, a really nasty set of tax increases, which will hit small businessmen the hardest, and continued high unemployment, and all of it coming in a weakening economy by the end of the year," says John Mauldin. "I put the odds of a double-dip recession in 2011 at better than 50-50." Mauldin also offers asset allocation advice over a 10-year time frame.
2010-03-31 days of dreck by tom brakke of the research puzzle
For whatever reason, it seems that hype is in full bloom right now. While evidence supports the view that post-crisis, the average investor has become more cautious, the claims of easily available riches seem to get wilder by the day. What is common among these schemes is that they all use some movement in price to grab the attention of the electronic village, and then the game is on. 'Some movement in price' can be remarkably easy to come by. The really sad part is that these promotional tactics are common and have been adopted to a degree throughout the investment industry.
2010-03-30 America's "Failing" Infrastructure? by Charlie Curnow (Article)
In 2007, the spectacular collapse of the Mississippi River Bridge in Minneapolis killed 13 people and was the catalyst for calls for massive investment in infrastructure projects. Whether that catastrophe was truly symptomatic of systemic failure or simply an unfortunate but relatively isolated incident, however, remains up for debate. In fact, once one looks past the politics of infrastructure investment to the hard data, there's reason to believe the latter.
2010-03-30 Surprising New Research on Diversification from Emerging Markets by Dan Richards (Article)
Historically there have been two reasons to invest in emerging markets: the promise of higher returns that come with faster growing economies, albeit with greater volatility, and the prospect that emerging markets will offer diversification from the performance of stocks in developed economies. Dan Richards reports that new research into the impact of global diversification, though, has produced some surprising results.
2010-03-30 Seven Tips for a Successful Family Foundation by Nancy Opiela (Article)
Managing a foundation's assetswins you the cachet of being seen as helping your clients fulfill their philanthropic goals, and it is extremely lucrative work that can create a practice-building bridge to the next generation.The administrative aspects, as Nancy Opiela writes, can be daunting and she offers seven tips for a successful family foundation.
2010-03-30 Not a Lost Decade for Diversified, Balanced Portfolios by Joni L. Clark, CFA, CFP (Article)
Did the last ten years really demolish the foundations of Modern Portfolio Theory and classic investing principles? How did portfolios that stuck to the principles of effective diversification and buy-and-hold investing actually perform during the so-called "Lost Decade?" The answers to both questions is an unqualified "no," writes Joni Clark of Loring Ward in this guest contribution, based on her analysis of a DFA-based strategy.
2010-03-29 I'm Entitled by Charles Lieberman (Article)
Greece's budget problems reflect the willingness of the government to pay workers wages and benefits that exceed the willingness of citizens to pay taxes. The simple lesson is that governments cannot promise benefits without considering their cost. It is therefore disappointing that the U.S. government chose to create a new healthcare entitlement program at a time when it is already running high budget deficits. Markets are not ready to stop financing U.S. budget deficits right now, but this may become a problem down the road.
2010-03-27 What Does Greece Mean to You? by John Mauldin of Millennium Wave Advisors
The potential consequences of the Greece debt crisis can be explained by chaos theory, where a small perturbation in one place (the Greek economy) can cause bigger ripples in the global economy. Greek debt is held by European banks, and a Greek default would weaken the European economy. The real crisis, though, is the impending end of a "60-year debt supercycle," which implies many years of deleveraging and a weak global economy.
2010-03-23 The Best Books on Passive Investing by Indudeep Chhachhi & Edward R. Wolfe (Article)
Two finance professors, Edward Wolfe and Indu Chhachhi, survey the literature on passive investing and offer their recommendations for authors and books. Whichever side of the active-passive debate you take, these books should be required reading. The evolution through which the literature on passive investing has gone is striking. Early writers started out with a point to prove: that passive investing is the only way to invest that makes sense. Today, the writing in this area has moved beyond "proving a point" to expanding on what is a settled issue.
2010-03-20 The Threat to Muddle Through by John Mauldin of Millennium Wave Advisors
Mauldin criticizes Krugman's call for a 25% tariff on Chinese imports, and instead predicts that China will allow its currency to appreciate 5-7% per year for the next several years. Protectionism, he says, is the biggest threat to global recovery. In defense of his argument, Mauldin says similar tariffs could be imposed if the euro, Yen and the Canadian dollar continue their current trends. The larger problem is the growing US deficit, which must be dealt with in the medium term, or there will be no long term.
2010-03-13 The Implications of Velocity by John Mauldin of Millennium Wave Advisors
Mauldin examines the relationship between the velocity of money, economic growth and inflation. After reviewing the economic theory, he shows that the velocity of money in the US has decreased since the onset of the financial crisis, and attributes this to deleveraging and the pullback from the financial innovations that accelerated the velocity of money, particularly in the 1990s. The Fed has compensated for the slowdown in velocity by increasing the money supply, and Mauldin questions whether the Fed can effectively reduce the money supply once velocity increases.
2010-03-09 Letters to the Editor by Various (Article)
In our letters to the Editor, readers respond to a number of recent articles, including the charity challenges posed by Roger Schreiner and Dave Loeper, the active v. passive debate, Morningstar ratings, and our article on the PIMCO Total Return fund.
2010-03-06 Welcome to the Future by John Mauldin of Millennium Wave Advisors
Mauldin reflects on an executive program held by the Singularity University that he recently attended. He discusses the potential for new advancements in robotics, artificial intelligence, nanotechnology, water purification, biotechnology, and several other areas.
2010-03-02 Massachusetts Pensions in Crisis by Charlie Curnow (Article)
We wrote in the past about the perilous situation of public pension systems nationwide, and the Massachusetts state pension system is no exception. The severe problems Massachusetts faces - created by years of generous worker benefits and declining asset values - mirror challenges faced by many other states.
2010-03-02 Nine Essential Lessons from Olympians by Dan Richards (Article)
For the past two weeks, the world's eyes were on the Winter Olympics in Vancouver, focusing on those athletes who excelled, pulling away from the pack with multiple medals. Watching the Olympics, however, isn't just about athletes achieving their goals. As Dan Richards writes, financial advisors looking for guidance on hitting their own goals can take away nine important lessons.
2010-03-02 Robert Pozen on the Financial Crisis, Social Security, and the Mutual Fund Industry by Dan Richards (Article)
Robert Pozen is the chairman of MFS Investment Management and a senior lecturer at the Harvard Business School. In this interview with Dan Richards, he discusses the financial crisis, Social Security, and the mutual fund Industry. We provide a transcript and a video replay of the interview.
2010-03-02 Letters to the Editor by Various (Article)
In our letters to the Editor, a reader responds to our article How to Squander $170 Billion, and another responds to a claim that clients are moving away from their existing advisory relationship as a result of recent market events.
2010-03-01 M&A is Back by Charles Lieberman (Article)
Mergers and acquisitions are back, but unlike the wave of deals in 2005 and 2006, these new M&As are strategic rather than financial. They are initiated by companies within the same industry that seek complementary businesses or overlapping activity where cost-cutting can significantly increase competitiveness. Implicit in these new deals is that stocks are cheap and firms have enough confidence in their outlooks to proceed with acquisitions.
2010-02-23 Interest Rates, Inflation and the PIMCO Total Return Fund by Robert Huebscher (Article)
The current generation of financial advisors has never experienced rising interest rates, but that will change, based on the forecasts we collected in our survey last week. We review our survey results and look at the implications for the largest bond portfolio, the PIMCO Total Return fund.
2010-02-22 Getting Back to Normal by Charles Lieberman (Article)
The Federal Reserve's hike of the discount rate was a message that economic and financial conditions are returning to normal, and that interest rates must follow suit. Real rate hikes will not occur for another few quarters, and policy should remain accommodative for a long time. Economic growth should continue to build, and the outlook for stocks remains very positive. Bond yields should also rise gradually over time.
2010-02-20 The Pain in Spain by John Mauldin of Millennium Wave Advisors
Mauldin examine the Greek crisis the the potential direction of the euro. Spain, he says, is a more threatening crisis because its debt is much greater than Greece's. "Pay attention to Greece and Spain and especially Japan over the next few years," he says. "Unless the US gets its fiscal house in order, we will be next."
2010-02-19 best in show by Tom Brakke of the research puzzle
Picking a fund manager can be like choosing the winner of the Westminster Dog Show. Choices can come down to small things noticed at the last minute, or may have been in the cards for months, with the process just existing for show. The stock-by-stock choices of the individual investor can also be similar in that they require us to carefully and objectively examine the reasons for the choices we make.
2010-02-16 It's the Budget, Not the European Union at Risk by Charles Lieberman (Article)
The Greek government will likely use continued membership in the European monetary union as an excuse to raise taxes or cut spending, while the rest of Europe will help Greece stay in the common currency. Restrictive fiscal policies in Greece, as well as Ireland, Portugal and Spain will lead Europe to lag behind the global economic recovery.
2010-02-16 Changing the Rules: The Roth IRA Conversion Opportunity by Various (Article)
The only individual retirement account that allows for tax-free growth has gotten even better. The rules governing conversions to Roth IRAs have changed -- and that's good news for your clients and for you. Janus can help you take advantage of this ideal opportunity to connect with your high net worth clients and to share your expertise on financial and investment issues. We thank Janus for their sponsorship.
2010-02-16 Boom and Bust by Michael Lewitt (Article)
The US and global economies are "trapped in a cycle of boom and bust as a result of fiscal and monetary policies from which there is no easy escape," says Michael Lewitt of Harch Capital Management. Lewitt believes the S&P will rally to 1,200-1,250, but says the long-term prognosis is "somewhere between grave and terminal." We are privileged to provide this excerpt from Lewitt's monthly newsletter and encourage our readers to subscribe to it directly.
2010-02-16 Robert Shiller on Trills, Housing and Market Valuations by Dan Richards (Article)
Robert Shiller, a professor of economics at Yale University and co-creator of the Case-Shiller Housing Index, discusses several topics in this interview with Dan Richards, including his plan for governments to finance their debts by issuing "trills," a security representing a fractional claim on the country's GDP.
2010-02-16 How Professionals Select Investments by Adam Jared Apt (Article)
In this guest contribution intended for the educated layman, advisor Adam Apt discusses the process by which investment managers select individual securities, contrasting the disciplines of fundamental and technical analysis.
2010-02-09 Building High Net Worth Client Loyalty with Social Security by BlackRock Investments (Article)
Long dismissed as a supplemental income stream only for retirees with fewer assets, Social Security benefits can be important for clients of all asset levels, including high net worth (HNW) investors. As you are well aware, HNW clients are often particularly sensitive to government taxation and are usually interested in strategies which can help them retain or reclaim their money. We thank BlackRock for this article and their sponsorship.
2010-02-09 Letters to the Editor by Various (Article)
Our letters to Editor include two responses to our article about Joseph Stiglitz and one in response to Keith Goddard's article about asset allocation using Shiller P/E ratios.
2010-02-08 Another (Half) Step Forward by Charles Lieberman (Article)
The economy continues to gain momentum as GDP grows and inflation stays low, says Charles Lieberman of Advisors Capital. Households will resume spending as real incomes rise and businesses will hire to meet rising demand, but turmoil in Greek markets could signal trouble ahead in Europe.
2010-02-06 A Bubble in Search of a Pin by John Mauldin of Millennium Wave Advisors
Mauldin covers three topics. He digs into the employment numbers and concludes that it is a "mixed bag" - the numbers of unemployed rose but the unemployment rate declined. Looking at the Reinhart-Rogoff book, he argues that Fed policy makers were at fault for failing to recognize the housing bubble. Last, he discusses Greece's fiscal problems in a historical context.
2010-02-02 2010 Off to a Tepid Start by Chris Maxey of Fortigent
This is a review of last week?s market activity and economic data announcements, with a focus on the GDP announcements from the UK and the US.
2010-02-02 Stiglitz: U.S. Economy Will Falter without More Stimulus by Susan B. Weiner, CFA (Article)
The U.S. government has botched its handling of the economy over the last eight years, according to Nobel Prize-winning economist Joseph Stiglitz. He explained how the U.S. created the global recession - and how we can get out of it - in a public presentation on his new book, Freefall: America, Free Markets, and the Sinking of the World Economy.
2010-02-02 Chuck Akre on the Akre Focus Fund by Robert Huebscher (Article)
Chuck Akre is the Managing Member and Chief Executive Officer of Akre Capital Management, which he founded in 1989. He has a track record of above-average performance over the last 20-plus years managing mutual funds, separately managed accounts and partnerships, and he discusses the strategy he employs in his new Akre Focus Fund.
2010-02-01 Well, Better Late than Never by John Petrides (Article)
The author supports the reconfirmation of Bernanke as Fed Chairman, but warns that investor unease about policy decisions is justified.
2010-01-30 This Time is Different by John Mauldin of Millennium Wave Advisors
Mauldin begins with an analysis of the reported Q4 GDP numbers, saying that it is not indicative of underlying growth in the economy. He then comments on the Reinhart-Rogoff book "This Time is Different," focusing on the point that governments can survive debt-fueled growth until confidence in them evaporates. He is discusses Greece's fiscal problems.
2010-01-26 Diversification Really Does Pay Off by Geoff Considine, Ph.D. (Article)
The last decade severely tested investors' belief in the value of diversification and strategic asset allocation, leading some in the financial media to assert that diversification and asset allocation failed and were worthless during the crash of 2007-2008. Now is an ideal moment to look back and assess the carnage.
2010-01-26 Using Alternative Investments to Build a Stronger Portfolio by Robert M. Hussey (Article)
Traditional asset classes may no longer provide sufficient portfolio diversification, but there's a new wave of mutual funds that offer alternatives strategies previously available only to large institutions. Robert Hussey of Natixis Global Associates describes how alternative strategies can be used in a mutual fund package. We thank them for their sponsorship.
2010-01-26 The Potemkin Market by Michael Lewitt (Article)
We are again privileged to publish the current issue of Michael Lewitt's newsletter, titled The Potemkin Market. Lewitt updates his forecast for the S&P 500, criticizes the current financial reform efforts and the ongoing GSE bailout and Fed Chairman Bernanke. Lewitt argues that risk is overpriced in many segments of the market.
2010-01-26 Punctuated Equilibrium by Dan Richards (Article)
Dan Richards says we're dealing with a more fundamental issue than the recent market turmoil. "We're going through one of those rare periods of ground-shaking change that have taken place throughout history, something that was in the works well before last fall's market excitement," he says, and explains how advisors should deal with more demanding customers, new technology and global competition.
2010-01-25 Keep Focus on the Recovery by Charles Lieberman (Article)
?... we must keep close tabs on the machinations in Washington to see if the political turmoil undermines the economic recovery or investor confidence in the market. It is distressing that we must do
2010-01-25 Bears Rejoice by Chris Maxey of Fortigent
?Some pundits saw fit to blame China for the recent pullback [in US equity markets], as a result of the monetary tightening occurring in that country, but such an accusation is unfounded in our opinio
2010-01-22 Policy Incompetence by Charles Lieberman (Article)
While the objective [of President Obama's proposed bank regulatory policy] is laudable and the financial system is in need of new regulations to protect it more effectively, the proposed approach i
2010-01-22 Thoughts on the End Game by John Mauldin of Millennium Wave Advisors
"As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubbl
2010-01-20 Geithner's Debt Nightmare by Chris Maxey of Fortigent
The problem for the Treasury moving forward is twofold. For one, interest rates have nowhere to go but up. At the end of 2009, the average interest rate on all outstanding US debt stood at 3.3%, a f
2010-01-19 Steve Leuthold: The Market will Rally This Year by Robert Huebscher (Article)
Steve Leuthold is chairman of the $4.5 billion Leuthold Group and one of the most widely-followed market analysts. In his keynote presentation at last week's Fortigent conference, he offered an upbeat forecast for the first half of 2010.
2010-01-19 John Cochrane on the Dangers of Current Economic Policies by Dan Richards (Article)
John Cochrane is a professor of finance at the University of Chicago and the incoming president of the American Finance Association. Cochrane is also author of the widely-circulated article, How did Paul Krugman get it so Wrong?. In this interview, Cochrane identifies the shortcomings and dangers of current economic policies.
2010-01-19 Ten Tips to be More Likeable by Dan Richards (Article)
When Dan Richards ask advisors about what it takes to attract and retain clients, they give him answers like above average returns, preserving capital in tough markets and strong communication. Those are all true - to these can be added delivering strong value and having clients trust your competence and integrity. One other factor is often overlooked, however - and that's likeability.
2010-01-12 Bruce Berkowitz on the Keys to Success for the Fairholme Fund by Robert Huebscher (Article)
Bruce Berkowitz, manager of the Fairholme Fund, was just named Morningstar's US fund manager of the year. In our interview, he discusses current market conditions, the thesis behind several of his largest positions, his views on health care reform, and the elements of the macro environment that concern him most.
2010-01-11 Low Expectations Are Made to be Exceeded by Charles Lieberman (Article)
Is the equity market overpriced and vulnerable after its sharp rally off the March 2009 lows, as suggested by the bears? While the economy has many problems to overcome, equity valuations are actually
2010-01-11 Investors Kick Off the New Year in Quick Fashion by Chris Maxey of Fortigent
2010-01-09 2010 Forecast: The Year of Uncertainty by John Mauldin of Millennium Wave Advisors
"This will be my tenth annual forecast issue. Time has flown by, and I enter a new decade of writing Thoughts from the Frontline. And even as I write about the high level of uncertainty of the curr
2010-01-05 Why it is Difficult to be Bearish by Mark Oelschlager of Oak Associates
2010-01-05 Capture Ratio as a Tool to Measure Investment Performance by David Vincent and Ray Pinelli (Article)
In this guest contribution, David Vincent and Ray Pinelli of Fred Alger examine the correlation of traditional up- and down-capture ratios to investment performance. They show that combining these two measures results in a metric with much higher correlation.
2010-01-04 The Decade that Refused to go Quietly into the Night by Chris Maxey of Fortigent
2009-12-29 End-of-Year Letter Templates by Bob Veres (Article)
Bob Veres is the editor and publisher of Inside Information, a publication focused on practice management and related issues for the financial planning profession. He just introduced a new monthly service, Client Articles, which will contain articles (and cartoons) that can be sent to clients, for example as part of your quarterly newsletters. He provides two sample letters.
2009-12-28 I'll Get Back in When the Market Corrects by John Petrides (Article)
2009-12-22 The Danger of "Expert Advice" - Financial or Otherwise by Kim Snider (Article)
A study by three neuroscientists at Emory University finds that when given expert advice, the decision-making part of our brain shuts down. That's not a big deal if the advice we are receiving is good. But what if it isn't? In this guest contribution, Kim Snider explores the problems with relying too heavily on supposed experts, and how to counsel clients who fall into this trap.
2009-12-21 Looking Backwards to Move Forward by Charles Lieberman (Article)
2009-12-19 The Age of Deleveraging by John Mauldin of Millennium Wave Advisors
2009-12-15 The Next Black Swan? Underfunded Public Pensions by Robert Huebscher (Article)
The plights of California and other states reveal an ominous threat our economy faces: underfunded public pension liabilities. We examine the size and scope of this problem, focusing on whether the underlying assumptions used to calculate liabilities are realistic.
2009-12-01 Think Like a Marine by David Raileanu (Article)
Retired Marine Patrick Gould has just published a book, Prudent Decision Making in an Imprudent World, and his theories prove useful for understanding decision-making in all arenas, not just those that involve life-and-death decisions. He applies many of his theories of risk, reward, preparation, security, and asset management to the financial world, working from modern portfolio theory and ultimately offering a practical decision method.
2009-11-24 Gary Shilling's Version of the New Normal by Robert Huebscher (Article)
A dramatic reduction in consumer spending has doomed the US economy to slow growth and deflation, according to Gary Shilling. America's 25-year spree of profligate spending is over, and it will be supplanted by a decade-long retrenchment that will ultimately bring the consumer savings rate from 4% to double-digits, where it has not been since the mid-1980s, he said.
2009-11-24 Dan Fuss and the Long-Term Outlook for Interest Rates by Robert Huebscher (Article)
Dan Fuss, the highly respected bond manager at Loomis Sayles in Boston, says we are in the early stages on a long-term rise in interest rates. His view was shared by two other panelists, Carl Kaufman of Osterwies and Margie Patel of Evergreen. If you accept this consensus, you must ask whether your fixed income allocation is appropriate.
2009-11-24 Tapping into Today?s Number One Client Concern by Dan Richards (Article)
Larry Porcelli, the head of the private client group for US fund giant BlackRock said that their research shows that 70% of Americans are willing to move their accounts if another firm or advisor offered expertise on constructing portfolios to avoid running out of money. Dan Richards identifies two things advisors need to do to capitalize on this opportunity.
2009-11-24 Interview: Brian McMahon of Thornburg Investments by Robert Huebscher (Article)
We speak with Brian McMahon, CEO and CIO of Thornburg Investment Management about the Thornburg Income Builder Fund (TIBAX) and the challenges of finding income-producing securities in today's markets.
2009-11-24 Buy Bonds and Not Bond Funds by Hildy and Stan Richelson (Article)
Record inflows into longer-term bond funds in the last six months have provided investors purported relief from the near-zero returns in money market funds. Do not mistake those inflows or rising prices for an endorsement of bond funds, write Stan and Hildy Richelson in this guest contribution. Bond funds are inferior to individual bonds, as those who are now buying bond funds may soon discover.
2009-11-24 Letter to the Editor ? Buffett and Burlington Northern by Various (Article)
In a letter to the Editor, a reader responds to Bruce Greenwald's comments and defends Warren Buffett's purchase of Burlington Northern.
2009-11-17 Federal Taxes & Municipal Bonds Historical & Current Perspective by Munder Capital Management (Article)
With income tax increases seemingly around the corner given the budget deficit and a potentially very expensive federal health care plan, the spotlight has returned to municipal bonds and the power of tax-free income. Municipal portfolio managers at the Munder Funds identify the attractiveness of municipal bonds based on projected budget deficits, current spreads over treasuries, and macroeconomic trends. We thank them for their sponsorship.
2009-11-17 Bruce Greenwald on Positioning First Eagle?s Funds by Robert Huebscher (Article)
Bruce Greenwald is a professor of finance at Columbia, the Director of Research at First Eagle Funds, and a leading expert on value investing. Last week we published part one of our interview, where he discussed the structural problems in the economy and his forecast for higher unemployment. This week he discusses the positioning of First Eagle's investments, and why Warren Buffett's purchase of Burlington Northern was a mistake.
2009-11-17 Disheartened by Michael Lewitt (Article)
We are again privileged to publish an excerpt from Michael Lewitt's HCM Market Letter. In this issue, titled "Disheartened," Lewitt argues that the powers-that-be are making limited progress addressing the structural problems in the economy, and that the greatest challenge is to achieve budgetary discipline.
2009-11-17 Letters to the Editor by Various (Article)
We have two letters to the Editor - one responds to last week's interview with Bruce Greenwald and the other responds to two recent articles which argued that advisors should avoid active management.
2009-11-10 Bruce Greenwald on Structural Problems in the Economy and Unemployment by Robert Huebscher (Article)
Bruce Greenwald is a professor of finance at Columbia University, the Director of Research at First Eagle Funds, and perhaps the foremost expert on value investing. In part one of our two-part interview, he discusses the structural problems facing the economy, the parallels to the Great Depression, and the implications for the unemployment rate.
2009-11-10 Roubini: Fed Policies are Destabilizing the Financial System by Robert Huebscher (Article)
Nouriel Roubini, the once-obscure economist who gained celebrity and the title "Dr. Doom" after correctly forecasting the financial crisis, believes that current Fed policies are destabilizing the markets and pushing the economy toward another collapse.
2009-11-10 Not by Return Alone: Judging Investment Performance by Adam Jared Apt (Article)
In the latest installment of his articles intended for an educated layman, Adam Apt addresses the relationship between risk and return, and shows that the connection between them is neither rigid nor obvious, and that we can be cheated of our money by disregarding risk and fixating only on return.
2009-11-03 I am a Fiduciary Financial Advisor by Ron A. Rhoades, J.D., CFP (Article)
The fiduciary standard of conduct is necessary to properly align investors' interests with those of the advisors who serve them, says Ron Rhoades in this guest contribution. Moreover, the fiduciary standard of conduct is not onerous and should not be feared. Advisors who embrace a fiduciary standard of conduct must simply follow the guidelines he sets forth.
2009-10-27 Leveraged Index Mutual Funds Evolve to Meet Market Needs by Direxion Funds (Article)
Until recently, leveraged index funds had daily objectives, rebalancing their leverage at the end of each trading day in order to match their stated exposure rate. This characteristic made it necessary for investors to monitor them daily in order to both track and manage the exposure rates applied to their investments in the funds. Direxion Funds has released the first monthly-rebalanced leveraged funds, and they explain how they operate. We thank them for their sponsorship.
2009-10-20 Life in and after the NBA Financial Planning for Professional Athletes by Robert Huebscher (Article)
During a 13-year career that began in 1987, Chris Dudley was called on to defend some of the greatest centers in NBA history - among them Shaquille O'Neal, Robert Parish, and David Robinson. While developing a reputation as an exceptional shot-blocker and rebounder, Dudley also devoted time to preparing for his post-basketball career - as a financial advisor - and he shares with us his thoughts about financial planning for the professional athlete.
2009-10-20 Finance After Auschwitz by Michael Lewitt (Article)
We are again privileged to provide an excerpt from Michael Lewitt's HCM Market Letter. In this installment, Finance After Auschwitz, Lewitt examines the dangers posed by Iran, whether the market is overvalued, the future of securitization, and what should be done about the private equity industry.
2009-10-13 Work Smart by Building Thinking Time into Your Day by Dan Richards (Article)
Consistently committing the time to think critically can lead to a dramatic boost in overall productivity. So how do we go about ensuring we're "working smart"? Dan Richards offers five opportunities to build thinking time into your business - you can do this annually, quarterly, monthly, weekly ... or even daily.
2009-10-13 Five Secrets to Effective Communication by Beverly D. Flaxington (Article)
Advisors may think they are excellent communicators, but in Beverly Flaxington's experience many have a lot to learn. Whether they are developing new business, engaging with centers of influence, introducing themselves to new prospects, or simply building existing relationships, five key techniques can improve their communication skills.
2009-10-13 In Defense of Leveraged and Inverse ETFs by Tom Lydon (Article)
Leveraged and inverse exchange traded funds (ETFs) have been a lightning rod for controversy. Reasonable concerns underpin criticism of them, but these funds are largely misunderstood. Tom Lydon sets the record straight and identifies those investors for whom leveraged and inverse funds are appropriate.
2009-10-06 Analyst Viewpoints: Market Perspectives from Janus' Seven Global Sector Teams by Janus (Article)
The retail, financial and healthcare sectors are critical drivers of economic recovery. The analysts at Janus examine the latest trends in these industries, and assess which companies are best positioned to capitalize on opportunities in both the short and long term. We thank Janus for their sponsorship.
2009-10-06 A Quarter-End Letter to Send Clients by Dan Richards (Article)
Last fall, Dan Richards began posting quarter-end letters that advisors could adapt for their own use. Many advisors have told him that they have received an outstanding response to the letters they sent as a result, and Dan provides a template for a third-quarter letter.
2009-10-06 So Far so Good: The Decrepit Decade Winds Down by Ron Surz (Article)
Ron Surz provides his award-winning market commentary, covering performance in the US and global markets, broken down by style, sector, and other dimensions.
2009-09-29 A Tale of Two Investors by Brian Murphy (Article)
Just as Dickens contrasted the fortunes and misfortunes in England and France in his classic novel, A Tale of Two Cities, today the divergence is painfully apparent in those who plan to accumulate wealth for their retirement and those who seek excess returns in their portfolios. In this guest contribution, advisor Brian Murphy tells the tale of two clients - one who aggressively sought alpha and the other who passively built retirement wealth.
2009-09-29 Interview: Jeff Mortimer, CIO of Charles Schwab Investment Management by Robert Huebscher (Article)
Jeff Mortimer is Senior Vice President and Chief Investment Officer-Charles Schwab Investment Management, Inc. (CSIM). Mortimer has overall responsibility for approximately $240 billion in Schwab Funds and managed accounts. We spoke with Mortimer two weeks ago about the economy and why he believes the market has already priced in the bad news trumpeted by the media.
2009-09-22 The Financial Market Solution to Carbon Emissions by Robert Huebscher (Article)
While health care remains the hot topic on Capitol Hill, another piece of legislation is poised to gain similar attention. Regulating carbon emissions to address the threat of global warning is a top priority of the Obama administration, and its favored approach is to create a "cap-and-trade" market. John Parsons, an expert in the field, explains how this financial market solution might work.
2009-09-15 The 'Cash For Clunkers' Economy by Michael Lewitt (Article)
We are once again privileged to offer the latest edition of the HCM Market Letter, edited by Michael Lewitt, titled The 'Cash for Clunkers' Economy. Lewitt examines the drivers behind the current market rally, the health of the banking system and the housing industry, the the future for derivatives regulation. If you enjoy this newsletter, we encourage you to subscribe directly though the link provided with our article.
2009-09-15 The Key to Trading and Investing in ETFs by Paul Weisbruch (Article)
In this guest contribution, Paul Weisbruch argues that an ETF does not require a certain amount of trading volume in order to be liquid. The underlying securities of the ETF determine its liquidity. Many within the industry do not grasp this reality and are missing out on a lot of quality ETFs.
2009-09-08 Are REITs Now Undervalued? by Geoff Considine, Ph.D. (Article)
The last couple of years have been rough for real estate, but there was a time not too long ago when it seemed that this was a 'special' asset class, with REITs providing valuable diversification benefits and consistently high returns. Do today's low valuations represent an opportunity to buy? Can investors expect a return to low correlations for REITs with the major equity market indexes?
2009-09-08 Tapping into Your Prospect?s Hot Buttons by Dan Richards (Article)
Experienced advisors know the importance of identifying and responding to the emotions that drive client's and prospect's behavior - and tailoring the way they interact with each individual's hot buttons. Dan Richards discusses how you can simplify your clients' lives with respect to communication, and provide a valuable service at the same time.
2009-09-08 Sell in September? Time for a Reality Check! by Jeffrey Miller (Article)
Anyone paying attention to market news must know that September is the weakest month for stock market performance. In this guest contribution, Jeff Miller explains why the so-called September-effect is really nothing more than a statistical aberration.
2009-09-08 Infrastructure Investing by Michael D. Underhill (Article)
With global markets improving, liquidity returning to the credit markets, and valuations improving, the infrastructure market looks promising. In this guest contribution, Michael Underhill argues that infrastructure assets,when chosen correctly, can diversify an investor's portfolio because of their low correlation with other asset groups, their consistent returns coupled with lowered levels of risk, and their potential for inflation-linked returns.
2009-09-01 Politics and Fund Managers by Robert Huebscher (Article)
Those readers who would like to know whether to invest with Democrat or Republican fund managers finally have some guidance, thanks to a new academic study. We report the results, along with a host of reasons why you shouldn't read too much into this data. We also provide the names of the top fund manager donors to each party over the period from 1992 to 2006.
2009-09-01 The Levers to Financial Freedom by Russ Thornton (Article)
Virtually the entire financial services industry is built upon spending vast amounts of time, money and other resources on things over which we have absolutely no control - like attempting to manage investment returns. In this guest contribution, advisor Russ Thornton shows that, by focusing on those things you can control, you as a financial planner can build better, more resilient plans for your clients.
2009-09-01 Letters to the Editor by Various (Article)
Our letters to the Editor contain a response to a letter last week regarding a healthcare reform, a response to our interview with economist Paul Krugman, and some kind words on our article last week, Building a Practice in America's Fastest Dying City.
2009-08-25 The New Normal and Asset Allocation Merriman?s Response by Larry Katz, CFA (Article)
Larry Katz, Director of Research at Merriman, Inc., responds to Geoff Considine's article two weeks ago, What the New Normal Means for Asset Allocation. He has multiple objections concerning much of Considine's logic, and would not recommend his alternative portfolio to their clients.
2009-08-25 Should Investors Hold More Equities Near Retirement? by Ron Surz (Article)
A just-published paper argues that investors should hold more equities as they near retirement, contrary to conventional wisdom and to the glide paths employed by the target date fund industry. Ron Surz examines this research, and argues that the authors of the paper failed to properly consider the risks inherent in such a strategy.
2009-08-25 Letters to the Editor by Various (Article)
In our letters to the Editor, a reader responds to Dougal Williams' article last week, A Crash Course in Investing: Six Lessons from the Market Meltdown, and other readers respond to our article on Actively Managed TIPS and to an Advisor Market Commentary on healthcare policy.
2009-08-18 A Crash Course in Investing Six Lessons from the Market Meltdown by Dougal Williams, CFA (Article)
The market decline from October 2007 to early March 2009 was the worst since the late 1930's. Stocks dropped 60%, investor uncertainty skyrocketed, and trust and confidence were shattered. The age-old rules for personal investing are now being questioned: Is Buy-and-Hold dead? Has Asset Allocation outlived its usefulness? Does Diversification still work? In this guest contribution, Dougal Williams provides answers to these questions that can serve as a guide for long-term investment success.
2009-08-18 Turbulence Can Improve Portfolio Diversification by Susan B. Weiner, CFA (Article)
Classic diversification has failed, Mark Kritzman says, because traditional, independent measures of volatility and correlation don't provide enough information to indicate which portfolios will deliver the lower risk or higher returns that, at least theoretically, should come with investing in imperfectly correlated asset classes. Kritzman offers the concept of turbulence as an alternative way to approach diversification, and provides his latest research on the subject.
2009-08-11 The Business You Don?t Want: 401(k) Plans by Robert Huebscher (Article)
Wealth managers who are considering managing 401(k) plans need to re-think those plans, according to Brian Murphy. Murphy, who runs Pathways Financial Partners, a Tucson, AZ-based investment advisory firm, says the 401(k) business has become a highly commoditized industry that makes it easy for clients to switch to an alternative, lower-cost provider.
2009-08-11 At the Risk of Repeating Ourselves by Michael Lewitt (Article)
We have said before that Michael Lewitt's newsletter is a must-read, and this edition is no exception. Lewitt questions whether we are witnessing a summer calm before the storm, comments on the secured and unsecured debt asset classes, and opines on the abuses of unregulated dark pools of capital. We encourage you to subscribe to this valuable publication through the link we provide.
2009-08-11 Behavioral Finance Traps En Route to Investment Success by Dan Richards (Article)
To understand why investors fail to stick to their plans, economists and academics are studying the rapidly growing field of "behavioral finance," analyzing the patterns of behavior that cost investors serious money. Dan Richards looks at the current research and its implications for investors and advisors.
2009-08-04 Paul Krugman on the Prospects for Recovery by Eric Uhlfelder (Article)
Nobel laureate economist Paul Krugman tells Eric Uhlfelder that massive government spending is essential for generating growth, but fears the first stimulus package will not be enough to keep the economy from slipping back into recession nor reducing unemployment.
2009-08-04 Uncovering the Mayhem in 2008 in the TIPS Market by Robert Huebscher (Article)
In an interview two weeks ago, Yale Endowment manager David Swensen singled out TIPS as the best way to protect against inflationary and deflationary scenarios. We review a comprehensive study of the history of the inflation-indexed bond market, including an explanation for the extreme volatility in TIPS last year.
2009-08-04 How to Think about Return and Risk at the Same Time by Adam Jared Apt (Article)
In this guest contribution targeted to the educated layman, Adam Apt discusses the relationship between return and risk. Only when you can keep in mind at one and the same time these two concepts can you properly understand how to invest. And you will also understand why you should invest. Without the marriage of the concepts, you will be playing the market-or shunning it-as if it were a casino.
2009-08-04 Letters to the Editor by Various (Article)
In our letters to the Editor, readers respond to last week's article, How Long is the Long Run?, Geoff Considine's article, The Retirement Portfolio Showdown: Jeremy Siegel v. Zvi Bodie , and Ted Wong's article, Moving Average: Holy Grail or Fairy Tale - Part 3.
2009-07-28 Moving Average: Holy Grail or Fairy Tale - Part 3 by Theodore Wang (Article)
Buy-and-hold remains deeply entrenched in the financial planning community, despite many of the flaws Ted Wong's previous articles have illustrated. Although many financial advisors suffer dearly from their buy-and-hold practices, they are reluctant to change their approach. Who dares to challenge investment sages like Bogle, Siegel, and Malkiel who emphatically support this long-standing investment principle? Academic research studies overwhelmingly endorse buy-and-hold. How can they all be wrong?
2009-07-21 Q2 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe by Robert Huebscher and Mary Pitek (Article)
Each quarter we analyze changes in the Advisor Perspectives database - a $50+ billion universe of high- and ultra-high net worth assets managed by Registered Investment Advisors. Our analysis has three parts. We look at changes in asset allocation, the performance of the most popular mutual funds, and the mutual funds that showed significant gains or losses in popularity during the quarter.
2009-07-21 Letter to the Editor Compelling Evidence that Active Management Really Works by Various (Article)
In a letter to the Editor, a reader challenges some of the findings reported several weeks ago in an article, Compelling Evidence that Active Management Really Works.
2009-07-14 Behavioral Finance ? A Three-Part Model for Client Relationships by Susan B. Weiner, CFA (Article)
Behavioral finance can improve your client relationships during market turmoil, if you recognize your clients' emotional right-brained reactions before you offer insights based on your analytical left-brained analysis. By applying a three-pronged process of Recognize-Reflect-Respond, you can adapt to new information in a thoughtful and effective framework.
2009-07-14 Billie Jean, YOU are the One by Mariko Gordon (Article)
Michael Jackson's Billie Jean wasn't the first to make headlines. Back in 1973, Billie Jean King moved the sports world a big step forward ... a step that the financial services industry is still waiting to take. Guest contributor Mariko Gordon of Daruma Asset Management explains why our overwhelming male-oriented industry necessarily leaves investment returns on the table.
2009-07-14 Three Steps to a Referral Conversation that Works Today by Dan Richards (Article)
Recommendations initiated by someone looking for an introduction to an advisor doing a good job for a friend have always been an important driver of referrals, but this will be especially true this summer. In some instances, your clients will be asked outright how they feel about the job you've done and if they are comfortable recommending you. Dan Richards provides a three-step plan to make this happen.
2009-07-07 Marty Whitman: The Outlook for Distressed Securities by Robert Huebscher (Article)
Marty Whitman is the founder, Co-Chief Investment Officer, and Portfolio Manager of the Third Avenue Value Fund and a veteran value investor with a long, distinguished history as a control investor. In our interview, he discusses the opportunities in distressed securities created by the financial crisis.
2009-07-07 Burton Malkiel Talks the Random Walk by Robert Huebscher (Article)
Passive investing has no more outspoken advocate than Burton Malkiel. At age 72, Malkiel remains every bit as committed to the efficient market hypothesis as when he wrote A Random Walk Down Wall Street in 1973. Malkiel, who has taught finance at Princeton for the last 20 years, was a featured speaker at the Forbes Advisor Conference last week. He insists that investors should buy and hold index funds and defended his position against a series of challenges put to him.
2009-07-07 The True Cost of Volatility by Dan Richards (Article)
Most advisors and investors hate volatility - the up and down hits to clients' long term goals. (To be more accurate, we hate the downs - the ups we don't mind so much.) Dan Richards discusses the big price clients pay for that volatility - not just stress and lost sleep at night, but volatility in portfolios that induces behavior that costs many investors serious money.
2009-07-07 Riding the Stock Market Wave in the First Half of 2009 by Ron Surz (Article)
Ron Surz provides his award-winning market commentary, reviewing the first half stock market performance around the world. He looks at the past decade, to set expectations accordingly. Have markets become cheap enough yet? He concludes with a realistic and sobering look at our current debt problems - a cause for concern for both young and old.
2009-06-30 In Search of Unconventional Thinking by Dan Richards (Article)
Astute investors search out insights that aren't reflected in stock prices. For this to work, though, you have to be prepared to differ from the pack and defy conventional thinking - once an idea enters the mainstream, it no longer gives you an edge. Dan Richards discusses some important positive ideas that unconventional thinking elicits from the news and analysis presented in traditional media.
2009-06-30 Moving Average: Holy Grail or Fairy Tale - Part 2 by Theodore Wong (Article)
Many renowned financial experts declare that passive investing in a diversified index like the S&P500 is the only sensible way to manage money. In a follow-up to his article two weeks ago, Moving Average: Holy Grail or Fairy Tale - Part 1, Ted Wong says that he respects their opinions but is unable to verify their claims. By examining the evidence, he shows that the Moving Average Crossover (MAC) system offers a superior risk-return profile to a buy-and-hold strategy.
2009-06-30 Letters to the Editor: Moving Average: Holy Grail or Fairy Tale, Part I by Various (Article)
We have two sections of letters to the Editor. The first set features responses to Ted Wong's article, Moving Average: Holy Grail or Fairy Tale - Part 1.
2009-06-30 Letters to the Editor: The Road to Zimbabwe by Various (Article)
In the second set of our letters to the Editor, we publish responses to to our article, The Road to Zimbabwe.
2009-06-16 Seth Klarman: Why Most Investment Managers Have It Backwards by Robert Huebscher (Article)
In his keynote speech last week to the Boston Security Analysts Society, Seth Klarman discussed how he repositioned his portfolio last fall to capture opportunities created in the wake of the financial crisis. Klarman is the lead editor of the sixth edition of Graham and Dodd's Securities Analysis, and his fund, The Baupost Group, is among the top performing hedge funds over its 27 year history.
2009-06-16 New Target-Date Fund Research from Janus by Janus (Article)
New research shows widespread target-date fund misuse and misperceptions by defined contribution plan participants. Janus Investments' white paper shows that investors misunderstand the role of target date funds in their overall portfolio and rely heavily on their employer for investment advice. We thank them for their sponsorship.
2009-06-16 High-Yield Bonds A Potential Opportunity for the Risk Tolerant by Northern Trust Investments (Article)
High-yield bonds have recently offered investors historically high spreads relative to Treasury and investment-grade corporate bonds, presenting attractive current income potential in today's low-rate environment. The current recessionary environment also poses a heightened risk of default, underscoring the importance of security selection and intensive analysis of underlying fundamentals. We thank Northern Trust Investments for this contribution and their sponsorship.
2009-06-16 Tackling Today?s Number One Client Challenge by Dan Richards (Article)
Talk to advisors about the challenges they face today and you'll get a lengthy list - often headed by unhappy clients, reduced income and a struggle to stay positive and productive. While these are all serious issues, says Dan Richards, for most advisors they are dwarfed by the number one obstacle to getting business back on track - rebuilding investor confidence in our trust and integrity.
2009-06-09 Nassim Nicholas Taleb?s Prescription for a Black Swan-Proof Economy by Bruce W. Fraser (Article)
According to Black Swan author Nassim Nicholas Taleb, the U.S. economy is broken - but not beyond repair - and that repair will not be a snap. It does not necessarily need more regulation, but more intelligent regulation - plus the will to let entities like Citibank and General Motors fail once they become too big and cumbersome and act irresponsibly.
2009-06-09 Let?s Talk Stocks: Berkowitz, Marsico and Weitz by Robert Huebscher (Article)
Three of the industry's most accomplished value investors - Bruce Berkowitz of the Fairholme Fund, Tom Marsico of Marsico Capital Management and Wally Weitz of Weitz Funds - spoke at a panel discussion at the Morningstar Investor Conference on May 28. We present some excerpts of their thoughts on key questions raised during the panel.
2009-06-09 Q1 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe by Robert Huebscher and Mary Pitek (Article)
Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on performance across the most popular mutual funds.
2009-06-02 Helping Advisors Grow by Susan Weiner (Article)
George Tamer, Director of Institutional Sales at TD AMERITRADE Institutional, discusses the innovative strategies advisors are using to add clients and improve profitability. Tamer is also seeing an upturn in merger activities, and describes how advisors looking to buy or sell a firm can best position themselves. We thank them for their sponsorship.
2009-06-02 Market Perspectives from Janus' Seven Global Sector Teams by Janus (Article)
The last 18 months have challenged advisors, as they now wait for the market and economy to stabilize. Despite the generally bearish sentiment, Janus believes many individual investment opportunities in the market today offer compelling valuations and risk/reward profiles. We thank them for their sponsorship.
2009-06-02 John Bogle and the Lantern on the Stern by Robert Huebscher (Article)
In his remarks at the Morningstar conference last week, Vanguard founder and index fund pioneer John Bogle criticized many aspects of the mutual fund industry. Bogle, who turned 80 this year, is primed to fight his next battle - reducing investor reliance on past returns - which he likens to a lantern on the stern of a ship.
2009-06-02 Letters to the Editor What the "Missing Out" Argument Misses by Various (Article)
We publish a number of responses to Ted Wong's article last week, What the "Missing Out" Argument Misses.
2009-05-26 What the ?Missing Out? Argument Misses by Theodore Wang (Article)
Market timing is discredited by passive investment advisors as a voodoo ritual. Buy-and-hold proponents argue most compellingly by citing the "missing out" scenario - they show a dramatic drop in return, to Treasury Bill levels, if investors are out of the markets for only a few good days. In this guest contribution, Ted Wong debunks the missing out argument, using 137 years of market data.
2009-05-19 David Swensen's Ascent by Mebane Faber (Article)
Mebane Faber provides an excerpt from his new book, The Ivy Portfolio, on the ascent of David Swensen and the development of the tools employed to manage Yale's endowment. Faber shows the data Swensen used to determine Yale's aggressive allocation to alternative asset classes.