Category Archives: Investing Money

Euro: Parity Like It’s 1999

My Comments: The writer featured here provides, in my judgment, the most insightful reflections on what is happening economically across the globe. It appears here without his permission, but unless and until I’m told not to share them with you, I plan to continue.

March 20, 2015 / Commentary by Scott Minerd, Guggenheim Partners

Europe stands to benefit as the euro nears parity with the U.S. dollar – the Fed knows the U.S. economy faces a winter soft patch – the outlook for equities and fixed income remains fundamentally strong.

When the euro was introduced as an accounting currency on Jan. 1, 1999, it declined quickly, depreciating by 14.7 percent by Dec. 31 and hitting parity with the dollar early in 2000 before plunging to $0.83 by October of the same year. The euro’s recent slide has been no less severe, falling by 21 percent against the dollar since July of last year. With parity once again within sight, it seems quite plausible that one euro will once again equate to one dollar, and could potentially head even lower.

Of course, the biggest beneficiary of the depreciating euro has been Europe itself. Economic data coming out of the euro zone has been decent of late, and economic sentiment in Germany remains at a high level. The ZEW index of economic expectations for Germany, although perhaps tempered slightly by concerns over Greece and the Ukraine, still rose to a reading of 54.8 for March, up from 53 the previous month and the highest level since February 2014. Meanwhile, European equities are being powered higher—on Monday, Germany’s DAX Index breeched the 12,000 barrier for the first time and is now trading at just above that level—and euro zone consumer confidence is at levels last seen in 2007.

In contrast to the party spirit emanating from Europe, the U.S. economy faces some tough sledding in the weeks ahead, although not so much that it prevented the Federal Reserve from removing the word “patient” from its March meeting statement, signaling that there is enough strength in the economy for the Fed to start raising rates, most likely in September. In the short-term, temporary seasonal factors will likely tarnish investors’ faith in the economy. This seasonal downturn is not lost on the Fed. In the Federal Open Market Committee’s March meeting statement, it changed its description of economic growth from “has been expanding at a solid pace” to “has moderated somewhat.”

While U.S. job growth has been impressive, retail sales were weaker than expected, with last week’s sales print again coming in below expectations. But weak, weather-distorted first-quarter data is nothing new, and should not be taken as a sign of lasting weakness. In the early months of 2014, key economic data points, such as housing, retail sales, and even employment, were negatively impacted by an extended winter cold snap. Indeed, the U.S. economy shrank by 2.1 percent in the first quarter of 2014 before promptly turning back around in the second quarter. I expect a similar scenario to play out in 2015 as a result of another severe winter season.

The most likely place where we will see the direct impact of weaker economic data is the bond markets. Yields on U.S. 10-year Treasuries could fall meaningfully from 1.93 percent, perhaps even making a run on the lows we saw in January, with investors likely to be spooked by weaker economic data as the current quarter progresses. Personally, I have a great deal of confidence that the U.S. economic recovery remains on track and I don’t see weather-related economic data distortions having a lasting impact on the real economy. The prospects for U.S. equities and credit remain strong this year and recent weakness represents a buying opportunity.

Tough Sledding: Winter Weather Could Weigh on Interest Rates
As it did last winter, recent economic data has surprised to the downside as a result of severe weather. Retail sales have fallen the past three months, housing starts plunged 17 percent in February, and consumer confidence has backed off its recent highs. With economic momentum temporarily slowing, the Fed signaling the possibility of a later rate hike, and capital continuing to pour in from overseas, U.S. Treasury yields could be headed lower in the near term.

Why Invest in Real Estate?

home mortgageMy Comments: This is a topic about which I know relatively little. But it’s real, people do make money, sometimes lots of it, and over the few years since the crash that started in 2008, some folks have made tons of money.

The dramatic opportunities are probably behind us for a while as after several years, life tends to move on. But I have clients who would like to allocate some of their money to real estate. This is a helpful introduction if this is you.

By John Miller, posted in Real Estate on 02/28/2015

Real estate is one of the most stable and wisest investments you can make for your personal finances. Unlike bonds and other non-material investments, land and homes are material products that don’t go away.

In fact, real estate values remain quite high, and their rates improve with time. Many people have become millionaires because of real estate investments.

It takes a lot of money and capital to start out in real estate. People with big real property investments usually start out with the profits they get from their own businesses, from the gains they get from the stock market, or from other sources of income.

Some people think that real estate investments are an easy way to make money. Some think that one can just sit back, relax, and watch the profits grow. On the contrary, real estate requires a lot of dedication, hard work, and patience. Real estate investments do not grow overnight; you need a lot of skill and dedication to make earn profits from a real estate investment.

Where to Get Real Estate Deals
Any property for sale that has land in it has a great potential to be a serious money maker. If you’re only starting out to invest in real estate, you would do well to consult with an experienced real estate broker or investor who can guide you through your first land purchases.

Books, magazines, and other print resources can help you greatly just in case you don’t know what you’re doing with your real estate investment. Like any investment, you shouldn’t put your hard-earned money on land that will not rake in good profits.

Keys to Success
The trick to making the most of real estate is to buy the best land at exactly the right place at exactly the right time. Remember that real estate purchases are relatively permanent. You should also consider how much you’re willing to spend. Land costs millions, and you don’t want to end up with a piece of real estate that doesn’t pay for itself very well.

This Too Shall Pass

moneyMy Comments: The daily grind of figuring out if you are going to make or lose money today can become tiresome. It’s the primary reason most of us turn the responsibility over to others. We tend to hope we made a good decision and leave it alone. It’s one reason I never subscribed to the Wall Street Journal; worring about what was happening today caused me to lose sight of the long term perspective, which is financial freedom, for my clients and for myself.

I really like the thoughts expressed weekly by Scott Minerd. Here are some more.

March 13, 2015 Commentary by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, Guggenheim Partners

Behavioral finance reminds us that ignoring daily volatility roiling the market is wise. Instead, investors should focus on the positive, fundamental outlook for equities and fixed income.

At Guggenheim, a key tenet of our investment process draws on the Nobel Prize-winning work of behavioral finance pioneer Daniel Kahneman. In his most recent book, Thinking Fast and Slow, Kahneman admonishes investors that “closely following daily fluctuations is a losing proposition.” I often honor this principle by reminding individuals that they would be better off checking their portfolios much less frequently (Kahneman recommends once a quarter, for example).

In the spirit of this Nobel laureate’s foundational work, investors closely following the recent daily convulsions in the financial markets could be prone to overreaction. It never ceases to amaze me how a few days of sell-off in the stock market—or a modest back-up in rates, for that matter—can have everybody talking about bear markets. Looking beyond the myopic churn and burn, the important macro indicators remain positive, and nothing has occurred to fundamentally alter our positive outlook for equities or credit.

In U.S. interest rates, generally speaking, the pattern since 2009 has been for Treasury yields to decline, only for a sell-off to ensue before conditions stabilize and rates test their previous lows. This is the pattern I believe we are witnessing play out now. The yield on the 10-year Treasury note declined in January by more than 50 basis points before rebounding in February. Today, with quantitative easing underway in the euro zone, the risk is that U.S. 10-year rates are headed back lower. Despite the recent back-up, and the incessant chatter around the Federal Reserve’s “patience,” or lack thereof, the near-term risk to U.S. rates is likely to the downside. Fixed-income investors would be wise to stay fully invested given the current backdrop.

Meanwhile in the euro zone, central bankers commenced their commission to buy sovereign debt despite concerns over the fact that some bonds eligible for QE are trading at negative yields. If the program is successful, investors should see a weaker euro, improved growth, a sustained uptick in lending to the non-financial corporate and household sectors, and an increase in future inflation expectations. Early indications are that QE is working as the European Central Bank intends—bond yields are dropping and the euro continues to depreciate, which is stimulative to growth. In the United States, it’s very likely that we will see more demand for U.S. Treasury securities as a result of these record low rates in Europe, thus keeping a cap on U.S. rates.

In equities, instability in the U.S. market has caused the S&P 500 and the Dow Jones Industrial Average to lose the ground they gained thus far in 2015, but I believe this downward movement is just a momentary blip. Breadth remains strong. Seasonal factors are strong. The bottom line is that in the near term I see very little risk for stocks, and credit also remains a compelling proposition for investors. The recent turmoil is a quintessential call for the wisdom of behavioral finance and principled, long-term investing. To quote an old, sage scripture, “this too shall pass.”

Despite Recent Decline, Bull Market in Equities Should Remain Intact

Put into historical context, the recent move in U.S. equities appears normal. Since 1954, U.S. equities have rallied 12 out of 13 times in the 12-month period leading up to the first rate hike, with an average return of 18 percent. Despite a pickup in volatility recently, the underlying momentum for U.S. equities remains strong.

The White House and Hidden Retirement Fees

InvestMy Comments: It’s fairly easy to paint Wall Street as a villain in almost any article that deals with the management of money for the vast majority of Americans. After all, they typically act in their own best interest, which may or may not coincide with what’s in my best interest. But that’s the American way, isn’t it?

Here I’m reminded that if I’m bound by a fiduciary standard, as is my attorney, my doctor, my CPA, and by some of us in financial services, I have a legal, moral, and ethical obligation to do only that which is in my client’s best interest. And working hard to find ways to not disclose the fees I’m charged seems to violate what is in my best interest as a consumer.

Don’t expect this effort to remedy the problem to come from politicians who are in bed with Wall Street firms.

By Matt Levine February 24, 2015

The way that a lot of retirement investing advice goes is that you go to your broker and ask him what you should invest in, and he says, “Oh Fund XYZ is great, put all your money in Fund XYZ,” and the reason he does that is not that he loves Fund XYZ in his heart of hearts, but rather that Fund XYZ writes him a big check for steering you its way. I’m sorry, but that is the way it works. I mean maybe he also loves it in his heart of hearts, but that is not observable; the check is. As is Fund XYZ’s subsequent underperformance versus its benchmark.

A lot of people think that that is a bad system, and how could you blame them really? When I put it like that it just sounds terrible. U.S. President Barack Obama’s administration, in particular, seems not to like this system, and today the White House released this fact sheet (“Middle Class Economics: Strengthening Retirement Security by Cracking Down on Backdoor Payments and Hidden Fees”), and this report from the Council of Economic Advisers (“The Effects of Conflicted Investment Advice on Retirement Savings”), explaining how bad some retirement advising is. (Some: The administration also has high praise for the “hardworking men and women” who work as fee-only investment advisers.) New Labor Department rules are coming that would, if not quite outlaw these practices, at least make them more awkward, and part of the point of today’s releases is to justify those rules.

More On Legal & Compliance from The Advisor’s Professional Library
• Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.

• Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.

We don’t have the rules yet, though there is already a rather enormous literature on what they will or should or won’t or shouldn’t say. But we do have the Council of Economic Advisers report, and it is pretty interesting! The main conclusion is that “conflicted investment advice” costs Americans about $17 billion a year.

The math here is:
— There’s about $1.7 trillion in individual retirement accounts invested in funds that pay brokers to recommend them.
— The people who invest in those funds could improve their performance by about 1 percentage point a year by switching to other funds that don’t pay brokers.

Pages 17-18 of the report walk through the second point in some (stylized) detail. The report assumes an employee who invests in a low-cost index fund through her employer’s 401(k) plan. The expected gross return on the index fund is 6.5 percent, but the employee pays trading and administrative costs of 0.5 percentage points, for a net return of 6 percent. But then she quits her job, and an unscrupulous adviser recommends that she roll over her retirement fund into a new individual retirement account — and that she invest the IRA in a fund with a similar expected return, but with 1.5 percentage points of costs. She gets a net return of 5 percent, and the adviser and the mutual fund split the extra fees among themselves.

This math looks a little familiar. The Vanguard Group will cheerfully compare expense ratios of its funds against other funds, because Vanguard largely markets itself as the popularizer of low-cost index funds. Here for instance is a little thing from Vanguard’s description of its Total Stock Market Index Fund:

Vanguard feesI highlighted the 1.08 percent average expense ratio of “similar funds,” which is 1.03 percentage points higher than Vanguard’s advertised expense ratio. The Investment Company Institute finds an average expense ratio of 0.89 percent for actively managed equity funds, versus 0.12 percent for equity index funds, or a 0.77 percentage point difference. Also the actively managed funds tend to underperform the passive funds even before taking out fees, though that is a sensitive topic.

So you might conclude that somewhere between three-quarters and all of the costs of “conflicted investment advice” are really just costs of actively managed mutual funds. In other words, all the stuff about “backdoor payments” and “hidden fees” and “fiduciary duties” is a non-load-bearing distraction. Most or all of the work in the CEA paper is done by the difference in costs between actively managed mutual funds and passive indexing. The conflicts of interest boil down to: It is in the financial industry’s interest to steer investors into high-fee active funds rather than low-fee passive funds.

I don’t really know what to make of that. It would be weird if the White House put out a fact sheet called “Strengthening Retirement Security by Cracking Down on Active Investing.” And obviously that’s not quite what it’s going for with this paper. But it’s close. The world view underlying this report seems to be that a lot of what the financial industry does is extract unproductive fees for itself from ignorant consumers, and that you can crack down on the fees — and save consumers money — without reducing the incentives for any socially productive activity. This, it goes without saying, is a hugely popular theory. I feel like it is generically wrong, but there may be many, many places where it is specifically correct.

In my more dictatorial moods I think people should get to choose one of two options for their retirement investing:
1. You can invest only in a list of pre-approved, low-cost, fee-capped, diversified, probably mostly passive portfolios run by reputable managers, and if you lose money everyone will nod sympathetically and tell you it’s not your fault.
2. You can sign the omnibus liability waiver and invest in whatever you want, just go nuts, but if you lose all your money it’s a felony to complain.

But that is not the system we have now. It’s almost the reverse: The people with the least money and expertise, who really want and ought to have simple low-cost generic retirement savings, are at high risk of being steered into weird expensive stuff. It seems reasonable enough to try to nudge them back toward simplicity.

1. The White House fact sheet has some general (and tendentious) description of the new rules. Here is Bloomberg News, the Wall Street Journal, InvestmentNews, a Vox explainer. Here is Sifma expressing unhappiness, and more from Sifma on the topic. Here is a memo from Debevoise & Plimpton for the Financial Services Roundtable, also opposing the rule. Here is an FAQ from the Labor Department, and here are all the comment letters on the fiduciary-duty rule that the Labor Department proposed in 2010 and then withdrew because it was too drastic.
Since I have you here, two generic things that I think about fiduciary standards are:
1. It is impossible to make all broker-dealers fiduciaries, and trying to do so is a category mistake: Dealers are principals, and if you are selling someone something that you own, you can’t be asked to put her interests above your own. You would prefer a high price, she would prefer a low price, and making you give it to her for free because you are her fiduciary makes no sense at all.
2. There is an argument of the form, “If we couldn’t scam people quietly, we couldn’t afford to provide them the services that they need.” This argument is distasteful, but that doesn’t make it wrong. There are probably places where it is right. Arguably being sold on an expensive bad retirement plan is better than not being sold on any retirement plan and forgetting to save for retirement.
That said, I weakly think that neither of these things apply to retirement-plan brokers. They’re not acting as principal, so there’s no category-mistake problem in making them fiduciaries. And if you’ve got a retirement plan anyway — the new rules seem to be mostly about recommending rollovers and changes in allocations in existing 401(k)s and IRAs — then being sold a bad plan is probably not going to improve your situation. In that vein, the CEA report describes one mystery-shopper study:
The study finds that advisers recommend a change to the current investment strategy in about 60 percent of cases when the client had a return-chasing portfolio and in about 85 percent of cases in which the client had a diversified low-fee portfolio. The authors conclude that advisers “seem to support strategies that result in more transactions and higher management fees,” even when clients appear to hold the optimal portfolio.
Yeah that doesn’t seem like an improvement. (Try the Debevoise memo for a persuasive case the other way; Question 8 in the Labor Department FAQ is a good rebuttal.)
2. The fact sheet characterizes this as “$17 billion of losses every year for working and middle class families,” which is just plainly not true. The $17 billion number is for all “load mutual funds and annuities in IRAs,” or individual retirement accounts, as you can tell from page 19 of the report. Presumably a lot of IRAs are held by people who are not “working and middle class.” Mitt Romney has a notably large IRA, though I guess it’s not invested in load mutual funds.
Incidentally the report notes that “more than 40 million American families have savings of more than $7 trillion in IRAs,” meaning that that $17 billion comes to about $425 per year, per family with an IRA.
3. The stylized version is different from the actual version, which cites academic studies finding a wide range of underperformance. The report hangs its hat mostly on one study finding 113 basis points of underperformance.
4. As I’ve disclosed before, a lot of my money is in Vanguard funds (mostly though not all index funds), and I am personally a fan of their work.
5. Vanguard’s footnote cites to Morningstar for that average.
6. Also an interesting one. Here is a good post from Josh Brown, which we’ve discussed previously. Some amount of active underperformance is driven by specific market circumstances: For instance, active managers tend to favor certain factors that underperformed in 2014. Some of it is arithmetic: Everyone can’t be above average, and if everyone in the equity markets is a professional (not true, but becoming more true), then most professionals can’t be above average either.
7. Is this one? Well, what is “this”? It seems obvious to me that some amount of active allocation of equity capital to businesses is socially desirable, so rules that strongly disincentivize active management would be bad. But you don’t need rules to disincentivize it: Active management is more expensive than passive management, so the market should more or less discourage people from paying for it. The question is how to subsidize it, if it’s socially desirable. (I mean, not really, but something like this; we’ve discussed this topic recently.)

It is less obvious to me that the things the White House is explicitly objecting to — conflicted payments for investment advice, basically — are socially desirable, though again there is an opposing argument. Also note that these conflicted arrangements might be one way to subsidize active management, although actively allocating capital on behalf of bamboozled principals doesn’t seem socially optimal either.

— To contact the author on this story: Matt Levine at mlevine51@bloomberg.net

The Great Monetary Expansion

US economyMy Comments: Dozens of emails cross my desk daily, some promoting stuff that is clearly not relevant, many with a narrow focus that is largely self-serving, few of them truly informative. Those that come from Scott Minerd and Guggenheim Partners are usually worth paying attention to. They’re not too long, and they seem to have relevance for many of us. This is one of them.

March 05, 2015 by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, Guggenheim Partners

While winter weather will likely distort first-quarter economic data, accommodative monetary policy around the world means the long-term outlook remains positive.

The European Central Bank will this month begin a program of full-scale quantitative easing to match what the central banks of Japan, the U.K., and the U.S. have been doing for some years now. The People’s Bank of China, by cutting its benchmark deposit and lending interest rates by 25 basis points last Saturday, provided further evidence—if any was needed—that the global economy will remain flush with liquidity for some time to come. The takeaway from this is that the great global monetary expansion is far from over and the outlook for stocks remains positive.

With regard to economic data here in the United States, we are potentially headed toward a period marred by winter distortions. This is nothing new. In the early months of 2014, key economic data points such as housing, retail sales, and even employment were negatively impacted by an extended winter cold snap. When the economy shrank by 2.1 percent in the first quarter of 2014, investors debated the fundamentals of the American economy. Of course, the economic soft patch of early 2014 proved temporary and the economy quickly regained momentum upon the arrival of the spring thaw. If similar factors are now at play, economic activity may be temporarily delayed, but not canceled.

If we do begin to witness a similar softening in economic data over the coming weeks, debate around the fundamentals of the U.S. economy will likely start afresh. Investors may even begin to question the Fed’s appetite for raising rates. However, I believe the underlying economy remains exceptionally strong and investors should not be panicked by seasonal setbacks. Indeed, considering the strength of the U.S. economy and the wave of liquidity emanating from various central banks around the world, the general investment environment should remain attractive.

A Stand-in For The Fiduciary Standard?

moneyMy Comments: I apologize for continuing to push this issue. But as a fiduciary, I’m bound to give advice that results in what is best for the client, legally, morally and ethically. That Wall Street firms resist this is not in your best interest.

Meanwhile, I received an angry call this week from a group that for now will remain nameless. The caller proceeded to rip me new one as I had borrowed an article that, according to him, belonged exclusively to his organization and I’d used it without specific permission. I was to take it off the web site immediately or face the consequences.

I have neither the time nor inclination to fight a losing battle, so I took it down. Never mind it was posted last October, attributed to the author, a prominent attorney and as coming from the organization in question. I was assailed for using other peoples ideas in my posts, never mind that they arrived unsolicited in my email inbox in the first place. My objective with this blog is to share what I consider good ideas and give credit to whomever is deserving.

I’ve been doing it this way now for four years and this is the first time I’ve been called or contacted in a critical manner. I intend to keep sharing stuff with whomever reads this blog. If you choose not to read any of it, that’s OK. But I still think all of us in this business who interact personally with clients need to be held to a fiduciary standard.

Mar 03, 2015 | By Allen Greenberg

With sincerest apologies to Walt Whitman:

O Fiduciary! My Fiduciary! Our fearful trip is (nearly) done,
The rule has weather’d every attack, the prize we seek is within grasp,
A new standard is near, the lobbying I hear, the people all exulting.

I don’t know about you, but I’m certainly “exulting.” Not just because the regulatory sausage-making may soon be done but because, frankly, I’ve heard enough of the Department of Labor’s wait-for-it, it’s-coming-any-moment-now, soon-to-be-unveiled fiduciary standard to last a good, long while.

This intensified soon after since President Obama announced his endorsement of the DOL’s plans to unveil its newly crafted fiduciary rule last week. But it actually began last summer, as speculation started to build about just when the DOL would move forward.

Of course, most of America couldn’t tell you whether a fiduciary was a noun, verb or something that happens after you eat too much Italian food. According to a recent AB Global survey, even plan sponsors are “confused or misinformed” about the fact that they themselves are, in fact, fiduciaries (30 percent fail to realize this). The sad fact is that investors are confused, too.

A campaign to help investors identify true fiduciaries “committed to objectivity, transparency, and plain English communications.” As reported by Barron’s this week, a survey by Opinion Research Corp. in 2010 of 1,319 investors found that 60 percent wrongly assumed that stockbrokers were already held to a fiduciary standard.

Not surprisingly, 90 percent wanted their brokers held to the fiduciary standard after being told about the difference between the fiduciary standard and the “suitability” standard that brokers are supposed to meet.

The Institute for the Fiduciary Standard understands this very well, which is why it has come up with an 11-point plan for anyone hoping to behave like a fiduciary, instead of, you know, posing as one.

Here’s a link to the IFS’s best-practices proposal. As you’ll see, there are items about acting in good faith, keeping fees under control, avoiding conflicts of interest, steering clear of soft-dollar commissions and third-party payments and more.

If a lot of Wall Street and its allies come off as acquisitive in this debate, Knut Rostad, president of the IFS, is our story’s hero, an even-handed player interested in doing more to protect investors without crippling the brokers.

“We hope brokers look at them seriously,” he said recently in speaking about his group’s best practices. “They were crafted with an explicit objective of being open to having brokers meet the practices … without lowering the standards.”

The institute’s proposal will be open for public comment until Monday. The organization’s board is expected to give final approval over the summer.
By that point, the DOL could be in the midst of multiple hearings on its fiduciary standard. Months later, perhaps many months later, it might have something hammered out.

Somebody in Congress – perhaps someone as powerful at Sen. Orrin Hatch – could then throw the proverbial wrench into the works with legislation that would make the DOL’s efforts moot.

Oh, wait, Hatch’s Secure Annuities for Employee Retirement Act already includes a provision that would do just that.

So, what’s the bottom line? The chances of a broader DOL fiduciary rule any time soon seem slim. The IFS version lacks regulatory bite, but at least we’d be doing something and then can get on with the next voyage in our lives

When Patience Disappears

Interest-rates-1790-2012My Comments: We’ve talked extensively about the likelihood of a market correction, if not a crash, coming in the near future, maybe this year. What many have not talked about are the implications of a rise in interest rates.

This is going to happen, given that they’ve been on a downward trend for twenty plus years and can’t go much lower, if at all. If you want folks like me who manage your money to anticipate these things to avoid chaos and help you make money, you should at least be aware of some of the variables. Here’s an articulate overview.

Commentary by Scott Minerd / February 13, 2015

Advance notice of the timing of a rate hike by the Federal Reserve may hinge on the removal of just one word, warns St. Louis Fed President Bullard.

Market observers keen to anticipate the Federal Reserve’s next move are wise to follow the trail of verbal breadcrumbs laid down by St. Louis Fed President James Bullard, a policymaker I hold in high regard. When Fed policy seems uncertain or even inert, Dr. Bullard’s public statements have historically been a Rosetta stone for deciphering the Fed’s next move.

For example, in July 2010, Bullard wrote in a report ominously titled “Seven Faces of the Peril” that it was evident the Fed’s first round of quantitative easing had not been sufficient to stimulate the economy. In the report, which was widely picked up by the financial press, Bullard warned about the specter of deflation in the U.S. economy, and that the U.S. was “closer to a Japanese-style outcome today than at any time in recent history.”

That summer, months ahead of any Fed decision to proceed with QE2, it was Bullard who began a drumbeat of steady public messages about the necessity of a second round of easing. By August, the Fed was not talking about whether it should implement a new round of QE, but how. In November 2010, the Fed announced its plan to buy $600 billion of Treasury securities by the end of the second quarter of 2011. If you followed Bullard, you were expecting it.

While Bullard is not a voting member of the Federal Open Market Committee this time around, I still view him as an important policy mouthpiece. That is why it was so interesting when he underscored Fed Chair Janet Yellen’s comments at a press conference following the committee’s Dec. 16-17 meeting in an interview with Bloomberg, saying that the disappearance of a specific word—“patient”— from the Fed’s statement may be code that a rate increase will come within the next two FOMC meetings. He reiterated the point in a subsequent speech, saying “I would take [“patient”] out to provide optionality for the following meeting…To have this kind of patient language is probably a little too strong given the way I see the data.” When Bullard, the man who told us months in advance to expect QE2, goes to great length to describe when the Fed will raise rates, I tend to pay attention.

While Bullard says the Fed could raise rates by June or July (and I wouldn’t rule that out), I think the likelihood is closer to September and that the central bank will likely raise rates twice this year. Whenever “lift off” actually occurs, we’ve long been anticipating that this day would come. It is a particularly interesting time for investors to consider increasing fixed-income exposure to high quality, floating-rate asset classes, such as leveraged loans and asset-backed securities. The good news is there is still time to prepare for when the Fed finally runs out of patience.