25, 2010 - Vol 4, Issue 21
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.
Among the crush of analysis devoted to the financial
crisis, perhaps none has been as influential as that of Kenneth
Rogoff and Carmen Reinhart, co-authors of the book This Time
is Different. Looking back at 800 years of data on emerging
and developed economies, they showed that financial crises - and
the recoveries from those crises - follow a highly predictable
pattern, and the title of their book was a jab at those who
suggest otherwise. Rogoff also spoke at the CFA conference.
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.
More articles below...
Just because marketing is difficult to measure, it doesn't mean
you should give up trying to do so, says Kristen Luke. Your
time is valuable and you have a limited budget, so you will want to
make educated decisions about where to best allocate your resources.
The best way to do this is to utilize your customer relationship
management (CRM) system to track your marketing efforts.
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.
In a letter to the Editor, a reader responds to Charlie Curnow's
March 30 article, America's "Failing" Infrastructure?.
Lastly, we highlight submissions to Advisor Market Commentaries.
We welcome guest submissions from our readers. For more
information, here are our guidelines.
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Seth Klarman is More Worried
than at Any Time in his Career
"A Hostess Twinkie is something that has made many childhoods
slightly happier with totally artificial ingredients," Klarman
said. That metaphor explains the prevailing environment in the US
over the last year, he said, when virtually every market condition was
maintained by the government, which kept interest rates at zero, bought
up mortgage-backed securities, and installed far-reaching lending
Seth Klarman is More Worried than at Any Time in his
Ken Rogoff Expects Slow Growth
and Sovereign Defaults
The US is already
approaching levels where its debt will impinge on growth, according to
Ken Rogoff, which he believes may be a longer term issue. Rogoff
rejected the notion that debt is unacceptable because it is crushing
burden on one's children and grandchildren. "No," he
said. "It is a burden on you. Even Americans will find
that out this time."
The Prospecting Approach that
The world has changed when it comes to attracting new
clients. Advisors are going to have to be more patient and think about
client development as a process rather than an event, where your goal
is to cultivate and nurture prospects over time.
The Prospecting Approach that Works Today
Measure the Success of your
Marketing through your CRM
Sleeping with the Enemy
Confidence is an admirable and beneficial quality, but
overconfidence can be costly, especially in the investment world.
Studies consistently demonstrate our tendency to overestimate our knowledge
Sleeping with the Enemy
Letter to the Editor
Highlights from Market
During the past 130 years, whenever the Graham/Dodd/Shiller normalized
P/E ratio goes above 20.6x (it is 21x today), the market experiences a
significant correction - a correction of 31 percent on average over the
next 16 months. It never fails. Rosenberg also examines new evidence of
deflation from the labor market, and statements from the Federal Reserve
suggesting that the central bank will not consider raising interest rates
Shiller P/E Ratios, Deflation, and FOMC Notes by
David Rosenberg of Gluskin Sheff
Without a central taxing authority, the common European currency can only
survive if participating countries strictly control their deficits. It
should not be difficult to recognize that confidence in any currency is
tied to confidence in the assets which stand behind it, and associated
confidence in the restraint of fiscal and monetary authorities. The
bureaucrats in both the U.S. and European central banks have chosen to
betray that trust.
Two Choices: Restructure Debts or Debase Currencies
by John P. Hussman of Hussman Funds
Doug Short analyzes monthly closes of the S&P 500 since 1950 to
back-test several monthly moving average strategies versus buy and hold.
The results suggest that in secular bull and bear markets, passive
management is a successful strategy on the way up, but is a losing
proposition on the way down. The reverse is true for active management
with simple moving averages. It's unlikely to outperform buy and hold on
the way up, but outperformance on the way down is a virtual guarantee.
Unfortunately it's impossible to pin-point those secular tops and bottoms
and change strategy on a dime.
Learning from the S&P 500 Monthly Moving Averages
by Doug Short of Doug Short