September 27, 2011 - Vol 5 Issue 39
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Reexamining Bill Gross' Decision to Sell Treasury Bonds
By Geoff Considine
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.
New Research on Attracting HNW Clients
By Dan Richards
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.
A Buying Opportunity in Investment-Grade Corporate Bonds
By Chris Shayne, CFA
Given that yields on Treasury and high-quality corporate bonds are near 50-year lows, investors looking for relative value in fixed income should consider purchasing lower-rated investment-grade corporate bonds. As Gluskin Sheff's David Rosenberg said last Wednesday, 'if you have money to put to work, and are looking for a reward that more than compensates for the incremental risk involved at this juncture, credit is a good place to be looking.'
When Greece Defaults
By Keith Goddard
The Greek default is indeed inevitable, but there remain two possible ways the world may learn about it, and financial markets will react very differently depending on which of these two processes for default occurs.
Do Low Correlations Favor Active Managers?
By FundQuest Investment Management & Research Group
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.
Top 10 Websites for Financial Advisors
In a recent survey conducted in partnership with Cerulli Associates, we asked our audience to list the sources they frequent for investment commentary and content on a regular basis. Here is a list of the top ten.
Errata and Letter to the Editor
A reader responds to our article, Counterparty Risk in Large Total-Return Funds, which appeared last week, and we correct an error in that article.
Our Most Read Article from Last Week:
Counterparty Risk in Large Total-Return Funds
By Robert Huebscher
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.
Highlights from Market Commentaries
Below are the three most widely read commentaries during the last week:
Preparing for a Greek Default
The yield on 1-year Greek government debt ended last week at 110%, down slightly from a mid-week peak of 130%. Even with the pullback, the Greek yield structure continues to imply default with certainty. All the markets are really quibbling about here is the recovery rate. That figure was still hovering near 50% as of Friday, but was a bit higher than we saw a few days earlier. A bailout today does not avert default, but at best defers it to a later date, and squanders funds that could otherwise be used to stabilize the European banking system once that inevitable default occurs.
Tags: US Europe Sovereign Debt
Preparing for a Greek Default by John P. Hussman of Hussman Funds
How to Prevent a Depression
The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers. The risks of an economic and financial crisis even worse than the previous one-now involving not just the private sector, but also near-insolvent sovereigns-are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a depression and financial meltdown? The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.
Tags: US Europe Sovereign Debt
How to Prevent a Depression Nouriel Roubini of Project Syndicate
Over the past 41 years I have observed a few comparisons that have had fairly good correlations to what was occurring at the time and have used them to help allay panic among investors at inappropriate times. Most recently, I have suggested the panic lows of August 4th and 8th showed such extreme panic-selling readings that participants had to go back to May 13, 1940, when the Germany Army broke through the Maginot Line and invaded France, to find similar panic levels. That observation was consistent with the analogue I have been using for two months.
Deja Vu? by Jeffrey Saut of Raymond James