Insights into the world of high- and ultra-high net worth investing
January 19, 2010- Vol
4, Issue 3
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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.
One of the most popular assumptions
used in investment modeling is that stock
prices follow a random walk. However, a growing body of evidence
shows that this is a bad assumption, and
that stock prices go through periods of over-pricing and under-pricing that
affect future returns. Joe Tomlinson, a Maine-based advisor, offers a model based on Shiller PE ratios to
disprove the random walk hypothesis.
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
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.
Along with Steve Leuthold, Rob Arnott,
Doug Kass and DoubleLine co-founder Joe Galligan were among the
speakers at Fortigent's conference. These three speakers' bearish sentiment extended across a
wide range of asset classes, opening lots of possibilities for those who
prefer contrarian bets.
Last year's financial roller-coaster ride may have you convinced that the
less you trust, the better off you'll be. Recent research, however,
supports Daruma's Mariko Gordon's long held belief that "too little" trust can be just as
detrimental to investment gains as "too much."
Readers responded to a range of topics in our letters to the Editor: our Paul Krugman interview, our
article last week on the causes of the financial crisis, our article on the
true cost of insuring the uninsured, and our article on costless collars
Lastly, we highlight submissions to Advisor
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Relative good news from earnings announcements will lead to growing enthusiasm
and a 16-20% gain in the stock market in the first six months of this year,
and the S&P 500 will reach 1,300-1350 and a normalized PE of 19-21, at
which point it will be "clearly overvalued," Leuthold said.
Those advances, he said, will be powered by "momentum, breadth, and
divergence" - and not by fundamental undervaluation.
Steve Leuthold: The Market will
Rally This Year
Shiller PE's and Modeling Stock Market Returns
behavioral influence on stock prices has been described in the popular
press as an excess of greed when stock prices are high, and an excess of
fear when prices are low. The result is stock price movements that do not
follow a random walk. This model also rejects the random walk assumption,
but it is based on a different characterization of investor behavior - some
fear (but not enough) when prices are high, and some greed (but not enough)
when prices are low.
Shiller PE's and Modeling Stock
John Cochrane on the Dangers of Current Economic Policies
"Once we get into a situation where we are worried about the US government debt, inflation comes and there is nothing the
Fed can do about that. I don't think the Fed realizes this and I
certainly don't think most of my colleagues realize this, because we are
coming off of 50 years of US history where debt was not causing a problem."
John Cochrane on the Dangers of
Current Economic Policies
Ten Tips to be More Likeable
It's really quite simple - everything else being equal, clients like to
work with people they like. Some advisors believe that likeability is
innate - we either have it or we don't. That's true to a point. But
there are specific things that advisors can do to be more likeable
Ten Tips to be More Likeable
Truly successful investing demands a contrarian attitude; little can be
gained by following the crowd's consensus. That's the closest thing to a
silver lining to emerge from the presentations by Rob Arnott, Doug Kass and
Joe Galligan. The bearish sentiment expressed by these three presenters was
so all-encompassing that virtually any position in any asset class would
qualify as a contrarian bet.
A Market for Contrarians
To Trust or Not To Trust, That is the Question
what's the right level of trust? As with most of life's big questions, it
depends. One thing seems clear from the research, however. The defiant,
macho, dorsal-fin stance of aggressive distrust that seems to be the
default starting point of investors may result in leaving money on the
table, as profitable opportunities requiring a little trust may be
To Trust or Not To Trust, That is
Readers responded to a range of topics in our letters to the Editor: our
Paul Krugman interview, our article last week on the causes of the
financial crisis, our article on the true cost of insuring the uninsured,
and our article on costless collars using options.
Letters to the Editor
Highlights from Advisor Market Commentaries
"The U.S. is facing a long and difficult road as it attempts to
correct the over-indebtedness and wasteful expenditures of the past two
decades. Both current and historical research help us to understand where
we are in the continuing economic crisis, and to put it in
"Hard Road Ahead" by Van
Hoisington and Lacy Hunt of Hoisington Asset Management
"On Wednesday, the U.S. Treasury reported a record cumulative deficit
over the 12 months ended December 2009 of $1.472 trillion (see Chart 1).
Although the editorial board of the WSJ surely will rail against exploding
federal spending, it will probably fail to mention another key driver of
ballooning federal deficits - collapsing federal receipts."
"Ballooning Treasury Deficits - It Takes both
Outlays and Receipts to Tango" by Paul Kasriel of Northern Trust
"At current valuations, we believe REITs are overvalued. We think REIT
investors are anticipating a quick and meaningful rebound in cash
flows/dividends. Our dividend growth assumption over the next year assumes
a reversal of stock-in-lieu-of-cash dividends and modest growth from
accretive acquisitions. We think this will result in a 20%-plus increase in
dividends in 2010. In 2011, we are assuming above-average dividend growth
of 7% in our base case-the average dividend growth in the two prior REIT
recoveries was 4.8%."
"Domestic REITs" by Litman
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