Category Archives: Investing Money

Sunny with a Chance of Turbulence

coins and flagMy Comments: Many of us were blindsided by the severity of the pullback that happened in 2008-09. Many of us are still trying to get back to where we were and are fearful of it happening again soon. Some on TV are pushing the idea that it’s just around the corner.

It’s not. The chance of a massive collapse like happened a few years ago is virtually non-existent, short of an asteroid falling on us somewhere. Scott Minerd has a great understanding of financial dynamics, and his comments are always worth reading.

June 25, 2015 by Scott Minerd, Chairman of Investments, Guggenheim Partners

It seems summer brings out the sunny disposition in everyone. Despite the fact that returns across U.S. investment categories are pretty dismal year to date, markets are pricing optimistically and it seems the sunshine has brought growth back to the U.S. economy. Recent data from the Bureau of Labor Statistics showed a 280,000 increase in employment in May. Additionally, building permits rose 11.8 percent in May, better than the 3.5 percent decline forecast by economists, while the pace of existing home sales hit its fastest rate since late 2009. Taking everything into account, the likelihood that the U.S. economy will suffer a recession in the next year or two would appear to be extremely remote.

Still, seemingly isolated events could yet sour the mood. Since the euro crisis erupted back in 2010, the possibility of a “Grexit” has been a recurring issue. A number of commentators have painted the possibility of a Greek exit from the euro zone as the equivalent of a Lehman Brothers-style event, a view I’m not so certain is correct. With that said, seemingly minor occurrences have in the past set the stage for larger economic events, such as the collapse of the Thai baht, a seemingly contained event that ultimately proved to be the first domino to fall in the 1997 Asian crisis. While we cannot discount the consequences that a Greek exit could potentially herald, I believe a solution to paper over this seemingly never-ending crisis is likely to calm markets in the near term.

As for developments at the Federal Reserve, while some commentators have suggested that the Fed is leaning toward December, I can see no reason why the Fed would consider delaying a rate rise beyond September. Either way, I don’t think it matters: The bottom line is that a rate hike is coming. Personally, I consider the bond market to be in fairly good shape and capable of handling the beginning of “normalization” without a rerun of the 2013 taper tantrum, but only time will tell.

Lastly, despite the generally positive environment, it disturbs me how low returns have been across almost every asset class year to date. This tells me that markets may be getting fully priced for the near term, and that investors have already placed their bets on how they see major events of the day playing out. With all the chips on the table, new market inflows are likely needed in order to push prices higher, but I don’t envision significant inflows occurring until the fourth quarter. As evidence, the S&P 500 has not had a weekly move of more than 1 percent in either direction in two months, which is the longest such streak in over two decades. During this period, breadth has broken down in a meaningful way. For now, it doesn’t appear that investors are being compensated for the risks they are taking.

Despite poor year-to-date performance, the majority of forecasters have yet to alter their year-end S&P 500 price targets. In fact, the dispersion around analysts’ predictions is as tight as it’s been since 2009. This tells me the market doesn’t really feel like there’s a lot of uncertainty, which is concerning, because such high levels of complacency usually foreshadow some form of financial accident. I am not talking about a financial crisis, or a recession—we certainly have no indications of either yet—but there have been a number of periods of prolonged expansion where complacency climbs high and we wound up in an extremely turbulent period. Think about 2011, when there was a severe summer pullback in U.S. equities. Similar to today, at that time investors had basically put their bets on the fact the recovery was in place, and that stocks were going higher. Those bets turned out to be correct, but only after we narrowly avoided a 20 percent pullback.

With complacency as high as it is today, I fear we could be in for meaningful turbulence this summer. For this reason I would encourage investors to consider accumulating cash reserves or Treasuries in order to insulate themselves against any potential summer squalls during the next few months.

Economic Data Releases – U.S. GDP Revised Up in Final Estimate; Consumer Spending Records Fastest Growth in Nearly Six Years
• First-quarter GDP was revised up in the final estimate, but was still negative at -0.2 percent annualized. Better consumer spending helped revise the growth number upward.
• Existing home sales beat expectations in May, rising 5.1 percent to an annualized pace of 5.35 million homes. The percentage of first-time buyers rose to 32 percent.
• New home sales increased 2.2 percent in May, up to 546,000 after a positive revision to April’s data.
• Durable goods orders, excluding transportation, met expectations in May, up 0.5 percent. Nondefense capital goods orders excluding aircraft rose 0.4 percent, missing expectations after falling in April.
• The Federal Housing Free Agency House Price Index rose 0.3 percent in April, matching the previous month’s gain
• Personal spending jumped 0.9 percent in May, a stronger showing than the 0.1 percent gain in April and ahead of market expectations of a 0.7 percent increase.
• Personal income climbed by 0.5 percent in May, matching the upwardly revised increase seen in April.
• In the 12 months through May, the personal consumption expenditures (PCE) price index rose 0.2 percent. The core PCE price index, excluding food and energy, rose 1.2 percent in the 12 months through May

Euro Zone PMI Data Releases Continue to Point toward Growth
• Euro zone consumer confidence was unchanged in the initial June survey, remaining at -5.6.
• China’s HSBC manufacturing purchasing managers index (PMI) improved in June, but remained in contraction at 49.6.
• The euro zone manufacturing PMI showed a slight acceleration in activity in June, rising to 52.5 from 52.2. The services PMI rose to 54.4, a more than three-year high.
• Germany’s manufacturing PMI was better than forecast in June, rising to 51.9 vs. expectations of 51.2. The services PMI also rebounded after declining for the past two months.
• The French manufacturing PMI returned to expansion in June at 50.5, the highest reading in 14 months. The services PMI also made a multi-year high.
• Germany’s IFO Business Climate Index fell more than forecast in June, with both the current assessment and expectations worsening.

5 Dumbest Investing Bets

Social Security 3My Comments: There is a distinction between dumb and ignorant. The second you can fix with mental effort, but the first just happens. Sometimes I wonder if people are born this way or whether they have to work at it.

These five ‘bets’ happen often. Many times it’s because someone has “sold” them the idea, whether on TV or in person. Either way, the outcome can be avoided if you are willing to exercise some mental effort on your own behalf. Like reading this article by Allan Roth.

by Allan S. Roth JUN 15, 2015

When I look at professionally designed investment portfolios other advisors have assembled for clients or prospects, I nearly always find something that concerns me. Maybe it’s because of fees, or because they’re choosing active rather than passive strategies. I can even debate the validity of “core and explore.”

But roughly 80% of the time, I see one or more of these five really dumb investment strategies.

Absolutely none make sense. And they have virtually no chance of working for the client. Admittedly, many advisors don’t actually know that they are executing any of these five strategies, though that won’t console clients much.

Here are the five strategies I suggest you avoid.

1. GAMBLE IT AWAY
Clearly, it would be illegal to siphon off some of our clients’ money and gamble it away in Las Vegas. Anybody would see the obvious folly; after all, every Las Vegas game (from blackjack to craps) is staked in favor of the house.

Clients understand that an advisor needs to take some risk to get returns, but they want advisors to invest money in vehicles that at least have some expectation
of gains.

To be fair, I’ve never actually seen advisors literally take their clients’ money to Vegas. But that’s essentially what they are doing when they invest in certain alternative
investments.

For example, managed futures and options are zero-sum games — not a penny has ever been made with these strategies, in the aggregate, before costs. I’d even go as far as to say that, after the costs (both the funds’ and the advisor fee), the odds at the tables in Vegas look attractive by comparison.

Only slightly better are market-neutral funds, which have an expected return of the risk-free rate, which is currently about 0.01% — close to zero, for all practical
purposes.

The typical response from advisors is that they are making one of these investments because they are uncorrelated with the stock market. Well, taking a chunk of your clients’ money to Las Vegas isn’t correlated with the market either — but that doesn’t make it any less dumb.

Only 31% of financial advisors felt they understood alternative funds “very well,” according to a survey by Natixis Global Asset Management, yet 89% of them used alternatives. That’s not just dumb, but
irresponsible.

2. BET ON BOTH SIDES
If gambling away clients’ money in Vegas is dumb, the concept I’m going to describe is dumber. If you’d bet half of a client’s money on Seattle in this year’s Super Bowl and the other half on New England, you would have been sure to lose by paying the bookie twice.

No advisor would suggest that, of course. And yet planners do something equivalent when they buy an inverse or levered inverse market fund, which bets against the broader equity market (and in the case of the levered version, the fund borrows to bet against the market).

It might only be a strategy I disagree with if they didn’t also have the client long in stocks; often the advisor will have both a levered inverse S&P 500 fund and an S&P 500 fund.

Typically, advisors claim the inverse position is a hedge against the possibility of a declining market. They often say something like, “You’ll be glad you own the inverse fund if markets plunge.” OK, but why pay a management fee to be in on both an up and a down market?

You can’t win by having both a short and long S&P 500 fund. Wouldn’t it be far more cost-effective to hedge by keeping some cash on the sidelines? This is especially true now that cash can earn an FDIC-insured return of 1% annually, if you do a little research.

One might assume, at least, that one of the two bets must be right, since you can’t lose on both sides of a bet — but one would be wrong. In 2011, for instance, both the ProShares UltraPro S&P 500 (UPRO), a triple levered long fund, and the ProShares UltraPro Short S&P 500 (SPXU) lost double digits.

3. BORROW AT 4%, LEND AT 2%

This is pretty much the opposite of how a bank makes money. It’s a common mistake, and there is an enormous amount of money at stake when people get it wrong.

This error typically surfaces when a client comes to me with a mortgage at 4% and bonds paying 2%. Advisors typically argue that the mortgage is only costing the client 3% after taxes and that clients can get higher expected returns on their overall portfolio. When interest rates go up, they say, clients will be glad they have this cheap money.

Unfortunately, it’s still just as dumb for the client to be borrowing money at twice the rate they are earning on a comparable low-risk investment that also happens to be taxable. If rates do go up (and the top economists have a great track record of calling that wrong), then the clients’ bonds and bond funds go down. The client can’t win.
As far as taxes go, one must remember that the goal is not to pay less in taxes, but rather to make more money after taxes. As a CPA, I know that taxes matter — and in roughly 75% of the cases I’ve looked at, the tax argument makes it even more compelling to pay off the mortgage.

That’s because the clients either aren’t getting the full value of the mortgage interest deduction (due to phase-downs or part going to meet the standard deduction), or are getting hit with the extra 3.8% Medicare passive income tax on the investment income they have from not paying off the mortgage.

I’ve had more than a few advisors tell me how wrong I am on this point, but I’ve given everyone a chance to prove it by lending me money at 2% and borrowing it back from me at 4%. To date, no one has taken me up on this offer.

4. GUARANTEE A LAG
I’m not one to say that active management can’t ever beat the low-cost index equivalent — although research suggests that active funds do tend to lag the broader market.

I am, however, willing to go out on a limb and say that a high-cost index fund can’t beat the lower-cost one. For example, take the Rydex S&P 500 C fund (RYSYX) — which has an expense ratio of 2.32%, or more than 46 times the 0.05% expense ratio of the Vanguard S&P 500 Admiral (VFIAX). One would expect it to underperform by the differential of 2.27% annually — although, according to Morningstar, the five-year shortfall was actually a bit higher, at 2.74% annually as of the end of May.

I used the most extreme example I could find, but in general, when it comes to index funds, you actually get more by paying less. The larger, lower-cost funds tend to be far better at indexing, as smaller funds must buy more expensive derivatives.

In the true confessions category, I’m actually guilty of this mistake myself: I own the Dreyfus S&P 500 Index fund (PEOPX), which carries a 0.50% expense ratio — not as egregious as the Rydex, but well above the Vanguard option. Dumb as it is, the tax consequences of moving to a lower-cost fund are just too huge to make the switch.

5. LEAVE CASH UNINSURED

I have clients that come to me with as much as tens of millions of dollars earning 0.01% annually, which I round to nothing — although, in truth, that money will double in value in a mere 6,932 years.

In some cases, the advisor is even charging an AUM fee — so the money is actually losing value. And the money isn’t even federally insured.

If the client is going to keep cash, at least get it federally insured and earning 1% interest; as of early June, that was still possible with FDIC-insured savings accounts at banks such as Synchrony or Barclays. It’s fairly easy to get
millions of dollars in FDIC insurance by titling the accounts correctly.

Taking on more risk for a fraction of the return is just dumb. Really smart people sometimes do really dumb things. Sometimes what drives us is ignorance, while other times it’s the financial incentives.

For example, advisors who get compensated by a percentage of assets under management may be loath to tell clients to reduce those assets by paying down the mortgage or keeping cash outside the advisors’ custodian.

But being a fiduciary means advisors must constantly examine what they are doing for clients. That means taking a step back and looking at what admittedly might be some unpleasant facts.

If you find yourself using some of these strategies, at least examine the arguments being presented here. Then think of how you will answer your clients if they come to you with logic that’s similar to what I’ve presented.

Allan S. Roth, a Financial Planning contributing writer, is founder of the planning firm Wealth Logic in Colorado Springs, Colo. He also writes for The Wall Street Journal and AARP the Magazine, and has taught investing at three universities. Follow him on Twitter at @Dull_Investing.

Exposing The Dark Side of Personal Finance

USA EconomyMy Comments: In keeping with the prevailing assumption that anything you see on TV or read on the internet is gospel, financial planners are constantly trying to undo the “lessons” taught by certain celebreties who are more interested in selling books than they are in providing good information.

Whenever I’ve attended regional meetings with hundreds of other advisors, and someone deliberately or accidentally mentions some of the well known names referred to here, there is a collective groan from the audience.

The following comments come from a Brian J. Kay, the Executive Director of a company called Leads4Insurance.com. He talks about a video and interview with Helaine Olen, author of the book “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” Here is what he wrote:

The interview – and her book for that matter – really sticks to it the talking heads of the personal financial industry such as Suze Orman and Dave Ramsey.

First, she calls out Orman for suggesting that people put all their savings in the stock market, a strategy Orman does not employ to her own finances out of concerns for stock market volatility.

More broadly, Olen objects to the idea that one person can give blanket advice to millions of viewers and readers.

“The idea that anybody can give specific advice to millions of people… it doesn’t really work. We’re all specific. We are not archetypes,” Olen said. Bingo.

Every person has a different income than the next. Different needs embedded in their tightly woven budgets. Different plans for retirement. Different levels of comfort with savings and investing.

And it should be mentioned that all those talking heads are millionaires. It’s much easier for them to say, “Paying down all your debt is your number one priority” when they can immediately do so with the change in their couch cushions.

Real people are living under the economic pressure that hasn’t seemed to let up on those living and working on the ground level of our economy. They rely on credit for medical emergencies, unexpected repairs to their cars and homes, or to help them get through a long drought of unemployment.

Though I am not a big fan of her financial recommendation to “always buy indexed funds,” I strongly agree with her assertion that our financial problems stem from a culture that avoids having frank conversations about debt and savings.

If you are like me and can’t standing seeing flocks of people led astray by these “experts,” take solace in knowing that you provide an antidote to our culture’s financial problems.

By that, I meant that you provide honest, frank discussions with clients about their personal finances, savings and debt. You provide personalized financial advice to them for their – and only their – situation.

Not only do you provide that ideal financial solution, your solution is less complicated, more applicable and more trustworthy.

TV can’t say something relevant to everyone watching (though they think they are).
A book can’t build up enough trust with clients to hold them accountable to achieving their stated financial dreams. A talking heard can’t follow up with prospects after initial meetings via phone, e-mail or snail mail.

And neither can answer a call or text from clients when they have questions.

My hope is that you use this as ammo to keep fighting the good fight and to dare to ground people who are lead into the clouds by famous “experts” and dropped without a parachute.

Like It Or Not, All Advisors Are Now Fiduciaries

My Comments: In my capacity as a financial planner and investment advisor, I’ve long embraced a fiduciary standard. This means I’m bound morally, ethically and legally to do what, in my professional opinion, is in my client’s best interests.

Corporate financial America (Wall Street in general, the insurance industry, money managers, et al) and their shills in Congress have pushed back hard as they don’t want to assume full responsibility for what their salesmen and saleswomen may say and do that is not patently illegal. If it happens to be in their client’s best interest, that’s an incidental benefit. They argue that holding them to a fiduciary standard will increase costs to the consumer. In my opinion, that is self-serving bulls@@t.

On balance, consumers will benefit from an evolution of products and services that serve their interests rather than the interest of corporate America and their shareholders. This is the same standard that applies to Certified Public Accountants, to Attorneys, to Trust Officers, to Certified Financial Planners and a few other categories. It’s long past time for it to apply to all investment advisors and other advice driven financial professionals.

Article by Roccy DeFrancesco on May 29, 2015

Recently the Department of Labor (DOL) put out a set of new proposed regulations that cover advice given to clients who have money in qualified plans and IRAs. Here is a summary of the new regs, which include some stunning fee/commission disclosure language.

Best interest of the client

I find the fact that many advisors are all up in arms about these new regs somewhat comical. Who would argue that all advisors should always give advice that’s in their client’s best interest? Apparently, some B/Ds and Series 7 licensed advisors would make such an argument, and that argument will now fail.

Al advisors are now “fiduciaries,” including insurance agents and Series 7 licensed advisors.

Under DOL’s proposed definition, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary.

The fiduciary can be a broker, registered investment advisor, insurance agent, or other type of advisor.

A game changer?

For three years now, the writing has been on the wall when it comes to insurance agents having to obtain some kind of a securities license in order to avoid regulatory issues with the “source of funds” rule.

There are many in the industry who have advised insurance agents not to get a Series 65 license because doing so would make them a “fiduciary” and would increase their liability. I’ve strongly stated that I think this opinion is dangerous, but now with the DOL regs pertaining to assets in IRAs, my position that every insurance agent should get a Series 65 license has been greatly strengthened.

Since the DOL’s new regs state that any advisor giving advice to clients about money in their IRA is a “fiduciary,” insurance agents might as well become fiduciaries by obtaining their 65 licenses.

The new DOL regs are trying to force advisors to truly give advice that’s in their clients’ best interest. I can’t wait for the lawsuits against advisors who violate this rule. Hopefully, they will run many out of the business.

The best way to comply with these new regs is to get a 65 license and find a low drawdown/tactical money management platform to use.

Summary

It’s a new day and the time of Series 7 licensed advisors who are used to selling loaded mutual funds or insurance only licensed agents who are used to selling massive amounts of FIAs in IRAs is coming to a close.

One trick ponies (advisors who offer a limited amount of options to clients looking to protect and grow wealth in qualified plans/IRAs) are looking at lawsuits for violating the new DOL fiduciary standard regs. Advisors who plan on continuing to go after the IRA market better wake up, or the DOL may be coming to visit.

Insurance agents, you better think seriously about getting a 65 license.

For Series 7 licensed advisors, this is the excuse you need to become an independent advisor.

Strange Machinations

InvestMy Comments:There is an old adage about stock prices being a function of earnings, earnings, earnings. It’s similar to the adage about real estate prices being a function of location, location and location. You and I know there are other variables, but how to identify and quantify those variables is another matter.

Perhaps you’ve noticed a lot of pricing volatility in the world these days. This means there is more uncertainty than usual about stock prices, about interest rates, and about which countries across the world should be included in your mix of investments. As a result, the perception of risk, both for the short term and the long term plays a role in what you do today and your expectations. It also matters what you mean when you say “short term” and “long term”. (I once knew someone who traded stock positions daily across the world based on currency values. For him, a “long term” position was about 3 days!)

by Scott Minerd, Guggenheim Partners on May 15, 2015

What to make of markets that are no longer on speaking terms with their fundamentals.

I can’t recall in my career where I had such an accurate forecast on the economy, and then was so surprised by the market’s reaction. Weeks before first-quarter U.S. gross domestic product (GDP) was announced, we were forecasting extremely weak economic growth—near zero or even negative for the quarter. Market consensus was 1 percent, so the shock of just 0.2 percent GDP growth should have driven rates down. Since 2010, GDP disappointments like this have led 10-year Treasury yields to fall by 5.5 basis points on average in the two days following the release. This time around, the opposite occurred—yields rose by double that, and continued to rise.

Many have speculated about what caused this selloff because it was so out of line with what one would expect following a surprisingly weak GDP print. I think the reason had more to do with what was happening in Europe than what was going on in the U.S. economy. European bond market volatility has been extreme. The yield on the German bund has gone from a low of 8 basis points on April 20 to around 70 this week, a move of over 800 percent (by the way, if you purchased a bund at the bottom in yields, it would hypothetically take 65 years’ worth of yield to erase such losses). Violent convulsions like these are not based on fundamental changes but relate to technical factors resulting from market distortions created by quantitative easing and macroprudential policy. Similarly, the backup in U.S. rates is likely a result of market machinations. Call it a volatility overflow from Europe.

Ultimately, all of this unusual market behavior should prove to be just noise. We are likely to continue down the road we’ve been on, with a flood of liquidity coming into the system as foreign investors pursue relatively attractive yields in the United States. The reality though is that Europe cannot abort its quantitative easing program early. In fact, I expect the European Central Bank will soon confirm that it will stay the course until September 2016 as it seeks to calm the nerves of the market.

For the moment, given the rise in interest rates that we’ve had, the market has discounted a fair amount of risk and has repriced for that. On balance, we’re better positioned today in terms of value than we were two or three weeks ago. The risk-on trade remains intact, despite recent market irrationality, and the sensible reaction is to remain long equities and credit.

In equities, the old adage “Sell in May and go away” usually has a high statistical significance of working. This year, it may not. Since 1980, the average U.S. equity return through this point in the year is nearly 5 percent. So far, however, performance has been sluggish, with the market up just 3 percent. This may mean there is headroom for stocks heading into the summer months. This view is reinforced by the fact that stocks have historically performed well in the period leading up to the first Federal Reserve rate hike. The S&P 500 has historically gained on average more than 9 percent in the five months prior to tightening by the Fed, which I continue to believe will commence in September.

Dog Days of the U.S. Expansion

moneyMy Comments: How is your money growing? Is it growing? Do you care? Are you prepared for pain when it stops growing and shrinks, perhaps dramatically?

As a professional in this world, I’ve long since given up worrying about this. All anyone can do is pay attention, or pay someone to pay attention for you. But it’s NOT different this time, and some of us will get hammered and some of us not so much. Here’s a clue to follow.

The Kentucky Derby marks the beginning of summer, but ultimately investors must prepare for the coming winter.

May 08, 2015 Commentary by Scott Minerd, Chairman of Investments and Global CIO

Ever since I was a child, the Kentucky Derby has always been for me a symbol of the changing of seasons—winter is over, spring is in air, and, most importantly, summer is right around the corner. Back in 2009, at the time of the annual “Run for the Roses,” I wrote a memo to our clients using this analogy to explain where we are in the business cycle. The ravages of winter were over, I wrote, and we were headed for the warmth of summer with bright prospects for investors. Six years later, the summer sun continues to shine on credit and equities, but the question I am consistently asked—especially during times of heightened volatility, like this past week—is how much longer can it last?

I answered this question recently at the Milken Institute Global Conference. If the economic “summer solstice” was mid-2009, then today we are somewhere in “late-August.” The expansion is now over 70 months old and is entering its mature phase, having already exceeded the average length of prior cycles of 57 months. However, “late-August” means there still is time left in summer and room left in this expansion. The past three cycles have also been longer than normal, averaging 94 months. Additionally, growth has been abnormally sluggish in this recovery (which, as I’ve written, is a byproduct of macroprudential policy). Slower growth means the current expansion may have more headroom than is typically the case at this point in the cycle.

What can investors expect as summer draws to a close? Our view of the future is that the Federal Reserve will likely begin interest rate “liftoff” in September of this year, and will continue to tighten at a steady pace until it nears the terminal rate (or peak Fed funds rate) in the cycle. This will likely occur toward the end of 2017 or early 2018 in the range of 2.5 to 3 percent. Recent experience suggests that a recession typically occurs about a year after we reach the terminal rate. If this tightening cycle plays out as we suspect, the U.S, economy will face its next recession in late 2018 or early 2019.

While the best of the post-crisis returns are now behind us, the good news is that historically, until central banks remove the proverbial punch bowl of accommodative monetary policy, the party can continue for investors. As a matter of fact, our research shows that both the lead up to, and the first year after, the Federal Reserve begins a tightening cycle have been positive for both credit and equities. Historically, U.S. equities have returned close to 4.5 percent in the 12 months after a Fed tightening cycle begins, based on an average of the last 13 cycles, while bank loans returned an average 5.8 percent, high-yield bonds returned 3.9 percent, and investment-grade bonds returned 3.3 percent in the three cycles since 1994 (when the data for fixed-income asset classes became available). The 12 months prior to a Fed hike have proven even better for investors, with equities returning an average 16.4 percent, high-yield bonds returning 8 percent, and investment-grade bonds returning 9.9 percent.

I don’t want to sound overly bullish, however. My view is that it is prudent to start to recognize what stage of summer we are in, and to understand that long-term investors need to start planning for winter, even if winter is a couple of years away. This doesn’t mean there aren’t opportunities between here and there—the punch bowl is out, the party is still going on, and we should drink long and deep for as long as we can. The European Central Bank has told us that it won’t halt its quantitative easing program until September 2016 at the earliest, which is another positive for credit and equities, even as the Fed raises rates in the United States.

So let’s enjoy the end of this long summer party. There are still some golden, halcyon summer days ahead and it would be premature to put on our winter clothes just yet. Indeed, on the extreme end, the expansionary cycle of the early 1990s lasted over 118 months. However, when all is said and done, the easy money in this expansion has already been made and investors should be thinking about the winter to come.

Luddites Fear Humanity Will Make Short Work of Finite Wants

LudditesMy Comments: A conversation yesterday with a good friend resulted from her comment about the absurdity of Obamas’ suggestion that college education should be free for all students. Mindful that some of them will not qualify, and some will not want a college education, I argued that it was a great idea, that many employers today cannot find workers with the skills necessary to get the work done. Rather than stifle employment, a free track to acquire additional skills will, in my judgment, result in a net economic gain for all of us.

Walter Isaacson / March 3, 2015 / The Financial Times

If new technologies really cut jobs, we would all be out of work by now, writes Walter Isaacson

Ada, Countess of Lovelace and Charles Babbage understood the potential of technological innovation.

Lord Byron was a Luddite. The Romantic poet’s only speech in the House of Lords defended the followers of Ned Ludd, who were smashing the mechanical looms in England during the early 1800s because they feared the machines would put people out of work. Back then, some believed that technology would create unemployment. They were wrong. The industrial revolution made England richer and increased the total number of people in work, including in the fabric and clothing industries.

Byron’s daughter Ada, Countess of Lovelace, was more prescient. On a trip through the English Midlands, she admired how punch cards instructed the looms to produce beautiful patterns, and envisaged how such cards could enable the numerical calculator being designed by her friend Charles Babbage to process not just numbers but words, music, patterns and anything else that could be encoded in symbols — a computer, in other words.

Today’s pessimists predict that these computers will put people out of work. These latter-day Luddites are also wrong. Technology can be disruptive. It can eliminate jobs, from weavers to buggy-whip makers. But 200 years of data show it improves productivity and increases wealth, leading to more demand and new types of jobs.

Take those mechanical looms. They were invented just after 1800 by Joseph Marie Jacquard in Lyon. Did that end up reducing employment in the textile industry in eastern France? No. Two centuries later, Lyon is Europe’s top centre for high-tech textiles. The city is the home of the Textile and Chemical Institute, 40 labs and schools, 140 companies and 10,000 textile jobs. Nor did the machines destroy employment in England, as Lord Byron feared.

The combination of computers and the internet began transforming our economy decades ago. The “app economy” is the latest example. It began in 2008 when Steve Jobs yielded to the advice of his team at Apple and decided to let outside developers create apps for the iPhone. The global app economy last year was worth $100bn, more than the film industry. This is an industry that did not exist seven years ago.

Apps and other advances in technology have helped create new forms of work, such as the “sharing economy” in which enterprising folks can rent out rooms on Airbnb and provide rides on Uber and Lyft. Likewise, online marketplaces such as Amazon and eBay have recreated the kind of artisanal cottage industry that existed in the pre-industrial age. If you have a good recipe or can make a cool product or service, you can find customers. If you create a book or song, you now have ways to self-publish and distribute. If you dream up a new specialism — ethical hacker, pet psychologist, nutrition coach? — you have a chance of finding takers. More than 600,000 people nowadays earn a living by selling on Amazon and eBay.

If new technologies reduced the total number of jobs, we would all be out of work by now. But times of technological advance have been times of job creation. Last year, as whole new waves of robotic systems were introduced, the US added 3m jobs. The unemployment rate hit a six-year low, and average hourly earnings for private sector workers rose.

Be wary of those who lament the demise of jobs for checkout clerks and meter readers, as if preserving such jobs will lead to a healthier economy. This Luddite fallacy is based on a presumption that there is only a set amount of goods and services people want. If technology permits those things to be produced more efficiently, Luddites argue, there will be less work to do. In reality, technology leads to an increase in productivity and wealth. That in turn leads to increased demand for goods and services and thus more jobs, including ones in fields we can barely imagine.

The writer is chief executive of the Aspen Institute and author of ‘The Innovators

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