Tag Archives: financial advice

US-Iran Treaty Can Send Oil to $40

oil productionMy Comments: I’ve already said that I much prefer a negotiated deal between adversaries than continued threats to bomb the crap out of them. In todays economic and political environment, that option poses too many risks that I’m unprepared to accept.

Here’s some economic thoughts about what might happen, now the deal is in place. Yes, Congress has 90 days to approve, and no, the oil industry will be unhappy, but it’s time to think what is best for ALL OF US, and not just the few.

by Barry Ritholtz – July 14th, 2015

While the world is distracted by the unending Greek saga (will it or won’t it leave the euro?) and the epic Chinese stock-market meltdown (and manipulation), something really important is going on. Three words sum it up: Iran and oil.

Negotiators have reached a deal with Iran to constrain its nuclear arms program. Despite the pessimism and outright fear-mongering, an agreement has been reached.

Don’t let China’s stock market and Greece’s debt melodrama distract you from paying attention to this issue — now that this deal is all but consummated, the repercussions are potentially enormous.

The agreement to end 13 years of sanctions against Iran over its nuclear aspirations is likely to be the defining foreign policy achievement of the Obama administration. Iran had opportunistically pursued its nuclear ambitions after 9/11, accelerating the program once its biggest regional enemy, Saddam Hussein, was removed by the U.S. military invasion.

Normalizing relations between one of the largest military powers in the Middle East and the major nations of the West is a huge, game-changing event. Iran’s ruling party wants access to global markets, technology and capital; Iranian youth would like access to Western consumer goods, culture and most of all, the Internet. How much any of these become part of the end result of a deal has yet to be determined.
What is perhaps most fascinating about this deal is the role and ambitions of China and Russia.

China’s motives are more obvious: It would like to blunt the projection of U.S. military power around the world, disengagement of the U.S. from Middle East politics and — most of all — a reduction of geopolitical tensions that tend to raise oil prices.
Russia’s interests are more complex, since it benefits from higher oil prices. Putting Iran’s huge oil production back on the market could exacerbate today’s global crude glut. Speculation that this will happen has already helped push down the price of oil, which has fallen by about a third in the past 12 months. Further signs of a Chinese economic slowdown also are weighing on crude prices.

Given the current situation, including sanctions against Russia for its role in destabilizing eastern Ukraine, one has to wonder what advantage there is for Vladimir Putin & Co. if Iranian oil begins to flow freely to the global market.

The Houston Chronicle quoted Neil Atkinson, an oil analyst at Lloyd’s List Intelligence in London, who observed, “It’s finally dawning on the market that the overwhelming weight of supply growth isn’t just going away… Iran is a huge factor. I can see $50 in sight for West Texas Intermediate [when a deal is reached].” Iran has 40 million barrels of crude stored on at least 23 ships that could be released into the market relatively quickly, the Chronicle added.

So what’s driving the Russians to be so cooperative? Perhaps the lessons of the 1980s are still fresh in Putin’s mind. What brought down the Soviet Union wasn’t the result of military failures or armed conflicts through surrogates. Rather, it was the economic might of the U.S. Supporting a huge military requires a large, efficient and productive economy and the Soviets simply couldn’t compete with the U.S. As much as former U.S. President Ronald Reagan is praised for the collapse of the USSR, Adam Smith deserves more credit.

The Russians may have figured out that fighting the American economy has been a losing game for them.

A peaceful, non-nuclear Iran might help to limit the U.S. presence in the Middle East, according to Gary Samore of Harvard’s Belfer Center. “The Russians don’t like to see the U.S. going around the world, bombing countries,” he noted.

Given the painful sanctions on Russia — and the related precarious economic state it is in because of much-reduced oil prices — greater cooperation between Russia and the U.S. could be mutually beneficial. Both want to see a defeat of the Islamic State. So does Iran. All benefit from a more stable Middle East, albeit for very different reasons.

Putin is smartly playing a long game. Lower oil prices will be painful in the short run for Russia. But an aggressive U.S., with an expansionist military around the world may be even worse. Hence, the surprising willingness of Russia to sign on to an agreement to lift sanctions against Iran.

The key takeaways of the deal with Iran is that it has the potential to lower energy prices, reduce tensions in an area fraught with conflict and create an opening for Russia to find a way to end the sanctions now hobbling its economy. A Russian economy that is better integrated into the world economy will have far better growth prospects.

It will be interesting to watch the contortions and hysterics among members of Congress opposed to the Iran deal. But as of now the critics of the accord lack a veto-proof majority. However much they might complain, it is likely to just be political noise.

Watch the price of oil. Consider what increases in supply and reduction of Middle East tensions do to its price. Then imagine what that could mean for the global economic recovery.

THE FOUR ESSENTIAL CHARACTERISTICS OF ALL BEAR MARKETS

money mazeMy Comments: This article comes from January, 2009 and was written by Nick Murray. Two months later, the bear market that started in mid 2008 was over, though it took some time to realize.

Meanwhile, we’ve been in a bull market for over six years now, and many are suggesting we are overdue for a correction. These comments will help you better understand how this is all going to play out.

By Nick Murray, January, 2009 (gratefully used without permission; I have no idea where it was published)

This material is loosely adapted from my forthcoming book, Behavioral Investment Counseling. Bits and pieces of this material have certainly appeared, explicitly and implicitly, in this newsletter over the years, and will not be unfamiliar to longtime readers. They are collected, synthesized and offered here in the interest of rushing some more long-term perspective to the front lines in the current pitched battle against panic.

A bear market, as I’ve suggested elsewhere in this issue, is a period of time during which people who believe this time is different, sell their common stocks at panic prices to people who understand that this time is never different. The very first truth of bear markets – the perception after which we must order all our other perceptions – is that all bear markets are fundamentally the same.

If and to the extent that this is true, the question then becomes: in what identifiable (and therefore predictable) ways are they all the same? What can we know about a bear market as we are going through it – despite all its apparently unique terrors – which will never fail to restore our perspective and defeat the urge to capitulate? I believe that there are four such immutable truths.

(1) Bear markets are an organic, natural, constant element of a never-ending cycle. The capital markets are capable of perfectly psychotic behavior — constrained only by their capacity for emotional excess — in the relatively short term (a year or two; rarely more). In the intermediate to longer term, the capital markets in general and the equity market in particular are powerless to do anything but reflect the underlying economic fundamentals.

And as long as human nature is the essential driver of all economic activity, economies will alternately cycle above and then below their long-term sustainable trendlines — overshooting their capacities in optimistic expansions, and then undershooting them in frightened contractions. The dot.com bubble is an example of the former; the great unwinding of 2000 – 2002 the latter. The cheap-credit-fueled real estate/mortgage bubble of 2003 – 2005 typifies the former, and the current unpleasantness the latter.

Human nature being what it is, any economic enterprise worth doing is worth overdoing, and the capital markets must follow not just a similar but the same cycle of euphoria and panic. We have met the enemy, as Pogo Possum said all those years ago, and he is us.

(2) Bear markets are as common as dirt. We are currently struggling through the thirteenth bear market (which I and most others define as a decline in the broad market of about 20% on a closing basis) since the end of WWII. Thirteen episodes in 63 years seem to imply that they occur on an average of about one year in five (though with lamentable irregularity). At that rate, you’ll see eight of them in a 40-year career of working and saving, and six more in the average two-person retirement.

One had better get used to them. Moreover, since their beginnings and endings are impossible to time, one had better develop the emotional maturity and financial discipline to remain invested through them.

(3) Equities’ great volatility is the reason for, and the driver of, their premium returns. “Volatility” does not, other than in the hyperbolic lexicon of catastrophist journalism, mean “down a lot in a hurry.” (Nearly four years in five, equities go up a lot — quite often in a hurry — but journalism somehow never characterizes such markets as “volatile.”) Rather, volatility refers to the extreme unpredictability — up and down — of equity returns in the short term.

For example, you have not only never seen but cannot even imagine bonds providing a 20% total return in one year (through a combination of interest and price appreciation), and then posting a 20% negative return the next year. You would intuitively say that bonds just aren’t that volatile, and you’d be right.

Equities do it all the bloody time. Equities are that volatile. You just never know what they’re going to do from one period to the next. And the premium returns of equities are an efficient market’s way of pricing in that ambiguity. There are no good markets and bad markets; there is one supremely efficient market. And its way of dealing with equity volatility is to demand — and get — returns which have nominally been about twice those of bonds, and — net of inflation — real equity returns that are nearly three times greater. Premium equity volatility and premium equity returns are thus two sides of the same coin.

Take care then, in moments of great stress such as the current environment occasions, not to wish away the volatility of equities, because you are, whether you realize it or not, wishing away the returns.

(4) A bear market is always — repeat, always — the temporary interruption of a permanent uptrend. As I write, the broad market, as denominated in the S&P, is in the neighborhood of 1200, late in the thirteenth of these very common ends-of-the-world (for so each and every bear market is characterized by the media). The tippy-top of the market the night before the onset of the first of these thirteen cataclysms — May 29, 1946 — saw the S&P close at 19.3.

Think of it, dear friends: from the peak before the first bear to something approaching the trough of the thirteenth, stock prices alone (ignoring the compounding of dividends) have risen more than 60 times in about as many years. And why? Because earnings are up 60 times — and, in this great golden age of globalizing capitalism, they are of course still going up. The advance is permanent; the declines are temporary. Always.

But mustn’t there be some way of defending capital against these horrific if transitory episodes? Must there not be some formula, some reliable strategy for taking capital out of harm’s way? As a matter of fact, no.

Bear markets begin and end often, but not regularly: there is no consistent way of anticipating when an ordinary market correction will deepen into a genuine bear, nor when — having done so — the bear market decline will run its course. Peter Lynch wrote something to the effect that more money has been lost by people trying to anticipate and avoid bear markets than in all the bear markets themselves. (This is the equity market corollary of Paul Samuelson’s observation that the consensus of economists had forecast nine of the last three recessions.)

Bear markets are so irregular and evanescent, and bull market advances so powerful and long-lasting, that trying to time the market becomes the ultimate fool’s errand: it is a formula for long-term returns which are a fraction of the market’s. Churchill famously said that democracy is the worst form of government ever formulated by man, except for all the others. Buy-and-hold is, in exactly the same sense, the worst equity investment strategy ever devised by man.

Except for all the others.

Here’s What the Next Recession Could Look Like

Bruegel-village-sceneMy Comments: There is no doubt that both politicians and financial people generate success by evoking fear in those to whom they are talking. Sometimes it’s legitimate, but much of the time its BS designed to persuade you to part with your vote and/or your money. What follows here is consistent with my belief that while there will be another downturn, it’ll be nothing like the last one.

 

Corey Stern Jun. 20, 2015

Since World War II, the average expansion period for US gross domestic product has lasted less than five years — and the current expansion is now in its sixth year. Does that mean we’re due for another recession?

The GDP slowdown in Q1 of this year had some economists fearing that a recession was near. But recent strong economic data has calmed those fears.

Recessions don’t just happen because they are overdue; they need to be induced by some event.

In a note Thursday, Dario Perkins of UK-based Lombard Street Research pointed to the stock bubble as the most likely cause for an upcoming “lesser recession.”

“Asset prices have risen sharply over the past five years in response to low long-term interest rates and aggressive central bank stimulus,” Perkins wrote. “This presents an important risk to the global economy, perhaps the most likely trigger for the next recession.”

He added, on a positive note, that unlike the most recent economic downturn, the next one would likely only be tied to stock prices. This is because while stock values have skyrocketed over the past few years, home values in developed economies have made modest gains. Though a stock market crash would be a bad thing, it wouldn’t nearly have the same effect on GDP a housing market crash.

Think dotcom bust, not global credit crisis

Perkins illustrated his point by comparing the effect on GDP from both the dotcom crash and the subprime-mortgage crisis. During the dotcom bust, which didn’t affect housing prices, GDP continued to rise for the most part in the quarters following the stock market peak.

He also pulls research from the Bank of England showing that credit trends, while very similar to the trajectory of the business cycle, have peaks that are twice as large and twice as long. The worst recessions are those that coincide with a credit crunch, as in 2009. But we are still in a credit upswing since then. In other words, the next recession isn’t likely to be accompanied by a credit bust, which will further mitigate the harm done.

The next downturn will also be protected by the still sluggish recovery from 2009. That is, there are fewer imbalances, less systematic risk, less household debt, and less bank leverage.

A more mild recession will be good for central banks that have limited tools left to respond to an economic crisis. Interest rates — already near zero — can only go so much lower, and a very high benchmark would be needed to justify restarting QE.

Perkins explains: Suppose, for example, the next recession is caused by the bursting of a bubble in equity prices. Would QE be able to reverse such a decline? And if central banks were blamed for causing this bubble, would they be willing to try to reflate the bubble with the same policy? Obviously we can only speculate about this, but it is clear both the Fed and the Bank of England were anxious to stop doing QE because they were concerned about its potential impact on financial stability.

In short, while Perkins thinks a stock market crash could cause a recession soon, the effects will be nothing like those felt in 2009.

Source: http://www.businessinsider.com/what-the-next-recession-could-look-like-2015-6#ixzz3djPsygjj

Bond Crash Across the World As Deflation Trade Goes Horribly Wrong

Interest-rates-1790-2012My Comments: You can call me an alarmist if you like, I really don’t care. We are long overdue for a market correction, from both a stock value perspective and interest rate perspective. If you don’t believe it’s coming, I have some nice real estate just east of Daytona Beach I can sell you for peanuts.

By Ambrose Evans-Pritchard / 10 Jun 2015

The global deflation trade is unwinding with a vengeance. Yields on 10-year Bunds blew through 1pc today, spearheading a violent repricing of credit across the world.

The scale is starting to match the ‘taper tantrum’ of mid-2013 when the US Federal Reserve issued its first gentle warning that quantitative easing would not last forever, and that the long-feared inflexion point was nearing in the international monetary cycle.

Paper losses over the last three months have reached $1.2 trillion. Yields have jumped by 175 basis points in Indonesia, 160 in South Africa, 150 in Turkey, 130 in Mexico, and 80 in Australia.

The epicentre is in the eurozone as the “QE” bet goes horribly wrong. Bund yields hit 1.05pc this morning before falling back in wild trading, up 100 basis points since March. French, Italian, and Spanish yields have moved in lockstep.

A parallel drama is unfolding in America where the Pimco Total Return Fund has just revealed that it slashed its holdings of US debt to 8.5pc of total assets in May, from 23.4pc a month earlier. This sort of move in the staid fixed income markets is exceedingly rare.

The 10-year US Treasury yield – still the global benchmark price of money – has jumped 48 points to 2.47pc in eight trading sessions. “It is capitulation out there, and a lot of pain,” said Marc Ostwald from ADM.

The bond crash has been an accident waiting to happen for months. Money supply aggregates have been surging all this year in Europe and the US, setting a trap for a small army of hedge funds and ‘prop desks’ trying to squeeze a few last drops out of a spent deflation trade. “We we’re too dogmatic,” confessed one bond trader at RBS.

Data collected by Gabriel Stein at Oxford Economics shows that ‘narrow’ M1 money in the eurozone has been growing at a rate of 16.2pc (annualized) over the last six months. You do not have to be monetarist expert to see the glaring anomaly.

Broader M3 money has been rising at an 8.4pc rate on the same measure, a pace not seen since 2008. Economic historians will one day ask how it was possible for €2 trillion of eurozone bonds – a third of the government bond market – to have been trading at negative yields in the early spring of 2015 even as the reflation hammer was already coming down with crushing force.

“It was the greater fool theory. They always thought there would be some other sucker to buy at an even higher price. Now we are returning to sanity,” said Mr Stein.

M3 growth in the US has been running at an 8pc rate this year, roughly in line with post-war averages. The growth scare earlier this year has subsided, as was to be expected from the monetary data.

(If you want to see the charts associated with this article, go HERE)

The economy has weathered the strong dollar shock and seems to have shaken off a four-month mystery malaise. It created 280,000 jobs in May. Bank of America’s GDP ‘tracker’ is running at a 2.9pc rate this quarter.

Capital Economics calculates that hourly earnings have been rising at a rate of 2.9pc over the last three months, the fastest since the six-year expansion began.

Bond vigilantes – supposed to have a sixth sense for incipient inflation, their nemesis – strangely missed this money surge on both sides of the Atlantic. Yet M1 is typically a six-month leading indicator for the economy, and M3 leads by a year or so. The monetary mechanisms may be damaged but it would be courting fate to assume that they have broken down altogether.

Jefferies is pencilling in a headline rate of 3pc by the fourth quarter as higher oil prices feed through. If they are right, we will be facing a radically different economic landscape within six months.

This has plainly been a bond market bubble, one that is unwinding with particular ferocity because new regulations have driven market-makers out of the business and caused liquidity to evaporate. Laurent Crosnier from Amundi puts it pithily: “rather than yield at no risk, bonds have been offering risk at no yield.”

Funds thought they were on to a one-way bet as the European Central Bank launched quantitative easing, buying €60bn of eurozone bonds each month at a time when fiscal retrenchment was causing fresh supply to dry up. They expected Bunds to vanish from the market altogether as Berlin increases its budget surplus to €18bn this year and retires debt.

Instead they have discovered that the reflationary lift from QE overwhelms the ‘scarcity effect’ on bonds. Contrary to mythology – and a lot of muddled statements by central bankers who ought to know better – QE does not achieve its results by driving down yields, at least not if conducted properly and if assets are purchased from outside the banking system. It works through money creation. This in turn lifts yields.

The ECB’s Mario Draghi has achieved his objective. He has (for now) defeated deflation in Europe. After six years of fiscal overkill, monetary contraction, and an economic depression, the region is coming back to life.

How this now unfolds for the world as a whole depends on the pace of tightening by the Fed. Futures contracts are still not pricing in a full rate rise in September. They are strangely disregarding the message from the Fed’s own voting committee – the so-called ‘dots’ – that further rises will follow relatively soon and hard.

The Fed is implicitly forecasting rates of 1.875pc by the end of next year. Markets are betting on 1.25pc, brazenly defying the rate-setters in a strange game of chicken.

The International Monetary Fund warned in April that this mispricing is dangerous, fearing a “cascade of disruptive adjustments” once the Fed actually pulls the trigger.

Nobody knows what will happen when the spigot of cheap dollar liquidity is actually turned off. Dollar debts outside US jurisdiction have ballooned from $2 trillion to $9 trillion in fifteen years, leaving the world more dollarised and more vulnerable to Fed action than at any time since the fixed exchange system of the Gold Standard.

Total debt has risen by 30 percentage points to a record 275pc of GDP in the developed world since the Lehman crisis, and by 35 points to a record 180pc in emerging markets.

The pathologies of “secular stagnation” are still with us. China is still flooding the world with excess manufacturing capacity. The global savings rate is still at an all-time high of 26pc of GDP, implying more of the same savings glut and the same debilitating lack of demand that lies behind the Long Slump.

As Stephen King from HSBC wrote in a poignant report – “The World Economy’s Titanic Problem”- we have used up almost all our fiscal and monetary ammunition, and may face the next global economic downturn with no lifeboats whenever it comes.

The US is perhaps strong enough to withstand the rigours of monetary tightening. It is less clear whether others are so resilient. The risk is that rising borrowing costs in the US will set off a worldwide margin call on dollar debtors – or a “super taper tantrum” as the IMF calls it – that short-circuits the fragile global recovery and ultimately ricochets back into the US itself. In the end it could tip us all back into deflation.

“We at the Fed take the potential international implications of our policies seriously,” said Bill Dudley, head of the New York Fed. Yet in the same speech to a Bloomberg forum six weeks ago he also let slip that interest rates should naturally be 3.5pc once inflation returns to 2pc, a thought worth pondering.

Furthermore, he hinted that Fed may opt for the fast tightening cycle of the mid-1990s, an episode that caught markets badly off guard and led to the East Asia crisis and Russia’s default.

The bond reductions this week are an early warning that it will not be easy to wean the world off six years of zero rates across the G10, and off dollar largesse on a scale never seen before. Central banks have no safe margin for error.

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.