Tag Archives: financial advisor

Rates Must Rise To Avert The Next Crisis

200+year interest ratesMy Comments: Interest rates are the price paid for using money owned by someone else. The rise and fall of that price, which we call interest, is a critical element when it comes to deciding how your money should be invested. For over 30 years they have been trending down and you will soon see that trend reversed. Being prepared will result in greater financial freedom for you.

By Scott Minerd, Chairman of Investments, Guggenheim Partners
As appeared in the Financial Times global print edition, July 16, 2015

In 1898, Swedish economist Knut Wicksell argued that there existed a “natural” rate of interest that balanced the supply and demand of credit, assuring the appropriate allocation of saving and investment.

Should market interest rates remain below the natural rate for an extended period, investors will borrow excessively, allocating capital into less productive investments, and ultimately into purely speculative ones.

This is what the US economy faces today after years of meagre borrowing costs. Policymakers have created a Wicksellian dilemma where investment spurred by low interest rates is driving economic growth, but these inefficient investments support growth at the expense of lower productivity in the economy.

In recent years, this investment has flowed into housing, commercial real estate, and equities, driving asset prices higher, exactly the goal of the Federal Reserve in the wake of the financial crisis. But as the recovery in real estate and equities matures, a darker side of this imbalance between natural and market rates is beginning to emerge. Many investments today using artificially cheap capital are not increasing productivity – they are being made, because money is cheap and the profit motive is strong.

Consider the evidence. This year likely will witness record US stock buybacks; the second biggest year for mergers and acquisitions; the highest percentage of non-investment grade borrowers among new issuers of corporate debt; and a record for covenant-light loan issuance.

In the midst of all this, stock prices are appreciating at the slowest pace since the financial crisis. Why? Because top-line growth is low and productive investments in core businesses are wanton.

Over time, the natural rate of interest should roughly equate to the average return on new capital investment. Distortions in economic activity begin to occur when the natural rate varies materially from the market rate.

The aftermath of the current period of corporate borrowing and splurging will be nasty. Consider that the majority of defaults of US high-yield bonds during 2008 and 2009 were loans originated between 2005 and 2007 – the final three years of the last credit cycle when M&A and leveraged buyouts peaked. Similar to today, credit remained cheap and the Fed was slow to raise interest rates.

We are not back in the frothy days of 2007, but we are leaving the realm of smart investment decisions and moving into the “silly season” when investors become convinced that recession is nowhere on the horizon and market downside is limited.

It is a world where asset prices continue to appreciate and confidence remains strong, while capital chases a shrinking pool of productive investment opportunities. Similar to the run-up to 2007, rising asset prices and malinvestments today may be sowing the seeds of the next financial crisis.

The harsh reality is extended periods of malinvestment result in declining productivity growth, lower potential output, and slower increases in living standards. A failure to normalize market interest rates soon will result in more capital plowed into investments that are less productive and more speculative.

As productivity declines, long-term growth will be stunted. Eventually, inflationary pressures will build, forcing market interest rates to rise. The longer market rates remain below the natural rate the greater the purge will be once higher rates induce a recession, causing a sharp rise in defaults among malinvestments made during the period of cheap credit.

Today looks a lot like 2004 or 2005, when investors were blissfully ignorant of what awaited. It is still early, but I get increasingly concerned the longer I see undisciplined investors clamoring for bonds with suspect credit worthiness at ludicrously low yields. Higher rates, higher prices, or both are on the horizon. Before long, some of those bonds may become toxic waste.

The good news is there remains time to take action. Policymakers can still make adjustments to avoid the worst phase of the credit cycle. To reduce the continued accommodation of these marginal investments, the US central bank should normalize rates soon. For investors, the time has come to consider opportunities to book gains in assets that in the reasonable light of day a prudent investor would never buy.

Staring Into An Abyss

deathMy Comments: Greece is the focus for many of us whose professional interest is the management of money, both for ourselves and our clients. I’ve said the crisis has the potential to be calamitous, not just for Europe, but for the rest of the world too.

Here, Scott Minerd suggests we step back a bit and stop being apocalyptic.

July 06, 2015 Commentary by Scott Minerd, Guggenheim Partners

In the wake of the results of Sunday’s Greek referendum, there fundamentally remain three possible outcomes. The first is as follows: Greece remains in the European Union (EU) and the eurozone while remaining in arrears on its payments to the IMF and defaulting or falling into arrears on its next payment to the European Central Bank, which is due on July 20, and the Troika begins to work out a restructuring of Greek debt.

The likelihood that the ECB will extend more liquidity to Greek banks seems remote under any circumstances. The ECB could call loans made under Emergency Liquidity Assistance to Greek banks or just maintain those loans. Either way the ultimate outcome will be the same – Greek banks will run out of euros sometime this week and the whole of the Greek banking system faces insolvency.

The second option is the same as the first except that Greece or the EU decide that Greece should leave the eurozone. I don’t see this as being much different than the first except that it increases questions about the long term viability of the euro. I think that question exists regardless, but it obviously raises the severity of the issue in the near term.

The third option would be like the second, but would include Greece exiting the EU. I think this is very unlikely unless Russia or China (or both) were to suddenly provide some kind of lifeline to Greece. This could be devastating to the EU and the NATO Alliance. I believe this is a low probability outcome. We will not know which path policymakers will follow until later in the week and then maybe longer. Nevertheless, markets will have to deal with the uncertainties created by the outcome of the referendum and have not fully priced for the risk of this event. If we had a “YES” vote I think equity markets would have rallied and bonds would have generally sold off. That tells me that some of this risk has been baked into prices.

A replay of last Monday is quite likely, which means a classic risk-off trade with a rally in German bunds and Treasury notes and bonds. Bonds of European periphery governments like Spain and Italy are likely to sell off again. The euro should come under pressure, while the dollar advances and global equity markets experience another sell off.

How long will this go on and how protracted will this risk-off period be? That is the real question. A number of years ago, the contagion threat posed by “Grexit” is a lot different than today. Since then, most banks outside of Greece have been purged of their Greek credit exposures, which now look immaterial relative to bank capital.

Of course, exposures are material in official institutions, but still small in absolute terms at less than 2 percent of annual European GDP. Questions still loom as to undefined derivative exposure throughout the financial system. Compared to the resources and tools available to the global central bankers (particularly the ECB) and the relative preparedness in contrast to the days when Lehman Brothers failed, I do not believe we are on the brink of a systemic collapse as we were in 2008.

But there remains at least one black swan event that deeply concerns me and should not be ignored. If other countries in Europe which have engaged in austerity should view the Greek outcome as a win, then political pressures may build and the survival of the euro, which one commentator referred to Sunday night as “hanging by a thread”, may itself be drawn into question. The warning signs of that outcome would be to see German bund prices decline in the wake of bad news. While I assess this risk as low, keeping an eye on bund prices as a barometer for survival is still important.

Regardless, the reaction of central banks will be vigilance. The trusty printing press stands ready to inflate asset prices and swell liquidity as needed. Don’t expect preemptive action. Central bankers will wait to see if and how much actual action is needed. There will be an attempt at the illusion that money printing will not be immediately undertaken to avoid the appearance of creating moral hazard. But, if anything was learned by the Lehman event, moral hazard exists and it is alive and well. Every effort will be made to stem any crisis in the wake of the Greek referendum.

For those who are ready to declare the failure of the great European experiment and view Greece as the beginning of the endgame for the euro, they might be advised to wait.

The Greek referendum will likely cause yet another round of innovation and recommitment by European policymakers to the success of a unified continent. In the days ahead, pro-growth policies will likely be expanded around the continent. For example, just last week Prime Minister Mariano Rajoy of Spain announced an acceleration of tax cuts while increasing projected economic growth to 3.3 percent for 2015, a growth rate which may end up greater than that of the United States. Expect more of these announcements in the coming days.

Countries at the core of Europe are deeply invested in the success of the eurozone. The idea that Greece may exit will be enough for policymakers to double down in the days ahead. While many see Grexit as the beginning of the end, it may end up ushering in a new beginning for Europe. Let’s face it, many believe Greece should never have been allowed entry into the eurozone in the first place. Few would make that statement for Italy, Spain, Portugal, or Ireland. Nevertheless, the eurozone is a political creature whose fate will ultimately be decided through political means. That’s why policy makers will move quickly to offer largess to shore up the currency union.

While risks loom, it would be premature to throw in the towel on Europe especially as it is beginning to turn the corner. The wild card event may be that after an initial bout of euro-skeptic turbulence, things in Europe will get better, not worse.

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.

Connecting the Dots

profit-loss-riskMy Comments: Interest rates change. For the past 35 years, they’ve been on a downward trend, matched only by the down trend from 1861 to 1898. It’s a given that the Fed is going to start moving them up, probably in September. A stream of positive data supports a September rate hike, but summer storms loom on the horizon.

One thing you should NOT DO, is believe the message offered by Ron Paul as seen on TV lately. Scott Minerd, the author below is a far better predictor of what is coming. Paul is now just another shill for Wall Street firms that want you afraid so you send them your money and charge you fees. The only thing he can guarantee is that your account will be charged for whatever services they claim to provide.

Commentary by Scott Minerd, Chairman of Investments and Global CIO, Guggenheim Partners – June 19, 2015

A popular rule of thumb for defining a recession is two consecutive quarters of negative growth. As we all know, the U.S. economy shrank by 0.7 percent in the first quarter. Since then, a steady flow of positive economic indicators has successfully removed any concerns that U.S. economic activity is diminishing, confirming that the ruminations of recession based on the first quarter’s soft patch were entirely overblown.

As the U.S. economy resumes its upward march, the Federal Reserve is becoming increasingly convinced that the environment is strong enough to begin raising rates. Core inflation has increased at a 2.4 percent annualized rate through the first five months of the year, above the 2 percent goal the Fed has been saying inflation needs to reach in order for it to tighten monetary policy. This is additional confirmation that a September increase in rates is still on track.

This week, the Federal Open Market Committee (FOMC) confirmed this hypothesis in what can be generally described as a more dovish outlook for the long term, but one that clearly puts September in the crosshairs for an interest rate hike after six long years at the zero bound. The Fed’s “dots” represent where Fed presidents and governors believe short-term rates will be in the future. The market is getting more intensely focused on this rather obscure piece of information, and with good reason. In March, the last time the dots were released, the market rallied because of the unexpected decline, reflecting an expectation of lower short-term rates. This time around, the Fed did the same and U.S. stocks rallied once again, albeit modestly.

As far as the rest of the world is concerned, pressure is on China to reflate and on Europe to remain strong in the face of floundering negotiations with Greece. Volatility is a constant companion. While Europe is fairly well insulated against a collapse in the Greek economy, a breakdown in talks could cause bonds on the periphery to sell off hard, and lead German bunds and U.S. Treasury securities to rally.

In the United States, the market is starting to show signs of a summer slowdown. We’re seeing evidence of this in the subdued performance of equities, the negative performance of the high-yield bond market during the first two weeks of June, as well as in the lack of new money flowing into mutual funds. The bottom line is we are becoming vulnerable to some sort of summer risk-off trade.

While I remain generally positive on U.S. equities over the next two to three years, I think it is very likely that we are going to have some sort of a nasty market event during the course of the summer. At this stage, it would be prudent to prepare for a risk-off period by the opportunistic liquidation of lower-quality high yield and bank loans, which have appreciated in price this year, and selectively taking gains in stocks while increasing holdings in cash and Treasury securities, as a precaution in preparation of a potential looming summer dislocation.

The most recent Federal Reserve dot plot—a projection of where individual policymakers on the FOMC expect the fed funds rate to be at the end of each year—showed a more dovish stance compared to March. The median expected rates for 2016 and 2017 were lowered by 0.25 percent to 1.625 percent and 2.875 percent, respectively. While the median projection for 2015 remained unchanged at 0.625 percent, the number of members predicting rates will stay below 0.5 percent by the end of the year increased from three to seven. Despite its rather dovish stance, the Federal Reserve remains on track to end its zero-rate policy later this year, as 15 out of all 17 members indicate that a rate hike is likely before the end of the year.

Flawed Math on Student Loans

Piggy Bank 1My Comments: The staggering level of student loan debt has the potential to sink the economic future of this country. Young families with the debt hanging over them will be less likely to buy a house, to buy a new car, to spend money on consumption items, all of which means economic stagnation. Income earned doing whatever they can will Instead be used to pay down debt, leading to stronger profits on Wall Street. Much of that money will be transferred overseas where it will do very little for us. Absent that debt, the money will be spent and flow into the economy. With the proven multiplyer effect, it will result result in more and better jobs and increased financial freedom for ALL OF US.

I encourage you to pay attention to those presidential candidates who are willing to talk about this and find a remedy good for all ALL OF US, including leaders of corporate America. I have no problem with them making millions if the rest of us have a fair chance to survive and thrive.

Kate Flanagan – May 5, 2015

Aggregate student loan debt surpassed credit card debt in size for the first time in 2010. Since then, the gap has continued to grow and now exceeds $200 billion. Student loans (at over $1 trillion) are now the second-largest category of consumer lending, second only to home mortgage lending.

While the total pool has been growing, the share owned by the Federal government has grown even faster. In 2000, the government’s student loan book was valued by the CBO at $149 billion; now, it exceeds $1 trillion. More than 90% of new student loans are being initiated by the government.

The rapid growth in the government’s portfolio can be traced to several policy changes:
• The government chose to largely remove banks from the lending process, following the financial crisis. The commonly stated objective was to save of $60 billion in fees over ten years (though that number has been questioned by the CBO).
• A decision was also made to expand the type of lending done without screening criteria.

Typically, student lending done by banks had involved application of some basic credit criteria, even if the government would ultimately own the loans. Now, for the majority of loans, that is no longer the case. What is the quality of this massive loan book, and what are the implications for both students and taxpayers? The New York Times, on March 22 of this year, noted that “many” of these loans “appear to be troubled.”

Unfortunately, it’s difficult to know exactly how bad the problem is. The Federal government’s own lending is exempt from the stringent loan forecasting, accounting, and reporting requirements that apply to lending by financial institutions. The March 22nd Times article noted that the Fed has had to resort to purchasing student loan data from credit bureaus in an attempt to get some metrics on this portfolio. The Education Department does not provide even basic vintage delinquency data to the agencies that oversee the financial system. This is ironic, given that Federal reporting requirements for banks have grown massively since 2008, and reporting of more than 100 data elements is now required at the individual loan level on a monthly basis.

Another unknown is equally troubling. It’s really not clear whether the expertise to manage this kind of portfolio exists within the Education Department. Consumer lending is primarily driven by technology and analytics. These tools work best when deployed by staff with deep expertise in management of risk assets. Has the Federal government had the time (or budget) to invest in the massive loan tracking and management systems that underlie the operations of consumer banks? Constant updating of data (both from the students themselves and external sources) should be taking place, leading to frequent loan level modeling of default risk. This type of modeling could drive targeted rollout of both predelinquency and early delinquency programs. Such programs could potentially aid borrowers before it’s too late.

Proactive management of this $1 trillion portfolio is crucial, both for the borrowers and the lenders (the taxpayers). It’s important that the implications of this coming wave of defaults for future Federal budgets be clearly understood. How much of a loss do we expect to take?

It is particularly hard to know the answer to the last question, as the CBO is required to use an unusual method of accounting for these loans. They have released quite a few reports noting that fair value accounting would yield a much less favorable assessment of the Federal loan book. A recent report documented a negative swing of over $200 billion. Crucially, these estimates are being made without the benefit of true credit quality data, which should underlie forecasting on all risk assets. The real “hole” may be much worse. And the problem is just kicking in, as the no-payment grace period is just now expiring on many of the loans made in recent years.

Good intentions followed by poor execution can bring damaging results. Some years back, the idea of providing a way for most Americans to own homes sounded very appealing. But the result was a situation in which many lower incomes households became excessively leveraged and terribly illiquid. Many were badly harmed when housing prices started to drop, and suffered further pain when the job market tanked. In its execution, these home ownership programs seemed to end up hurting some of the very folks that they had been intended to help.

More recently, the idea of extending a loan to anyone who qualified for college also sounded appealing. However, not all courses of study will provide sufficient additional income potential to ensure payback.

Both the economic value of the asset (the degree itself) and the available credit data on the borrower should have been considered when lending was expanded. Finally, and more controversially: interest rates on Federal student loans should have been varied in relation to the risk of the loan. This is Risk Management 101. By not doing this, the government is essentially admitting upfront that they plan to subsidize loans to riskier borrowers, or in areas of study that do not typically bring large returns. Our national policy on this point should have been debated openly. College tuition grants should be done explicitly, in accordance with a comprehensive policy framework, not through the back door (and not in a way that demeans students by first having them default on obligations).

It’s worth noting that household debt can be discharged in bankruptcy court. However, Federally backed student debt cannot. Many students who were given loans initiated without appropriate risk assessment face a situation in which repayment will be difficult, and legally available opportunities to reset their obligations will be few. It seems likely that the rules governing discharge will have to be changed. As noted, loan forgiveness programs will doubtless be greatly expanded, and a sizable portion of this $1 trillion loan book will likely be written off. The impact to the lives of the graduates in question will be severe, as discharges and forgiveness programs must be reported to the bureaus. Credit scores will drop hugely as a result.

The graduates in question will therefore find it harder to get jobs, credit cards, car loans, and even apartments. Credit scores are routinely checked in relation to many transactions these days, including potential offers of employment.

The longer we wait to face this growing problem, the more future graduates (and taxpayers) we will put at risk. The bell is ringing. It’s time to get the math right on student loans.

* Kate Flanagan is a guest contributor at the Center for Financial Stability (CFS). She has spent 25 years in consumer banking, most of it with Citibank. She has extensive experience in the credit card business and in consumer lending generally, with particular expertise in risk analytics and technology. Her consumer credit experience spans 40 national markets. In her 23 years at Citibank, she moved between functions and regions to implement rigorous, analytics-based business methods across all stages of the consumer credit cycle (from originations to collections). Since 2010, she has been doing consulting in risk analytics. Kate holds a BA in Math from Brown University and an MBA in Finance from Columbia University.

The Center for Financial Stability (CFS) is a private, nonprofit institution focusing on global finance and markets. Its research is nonpartisan. This publication reflects the judgments and recommendations of the author(s). They do not necessarily represent the views of Members of the Advisory Board or Trustees, whose involvement in no way should be interpreted as an endorsement of the report by either themselves or the organizations with which they are affiliated.

Republicans Dismiss Latino Concerns At Their Peril

My Comments: I’ve talked before about immigration issues. As an immigrant myself, I’m perhaps more sensitive to these issues, even though I arrived as a child from Europe. My father was looking for a better way to provide for his family and since he had lived here as a child and had a degree from LSU, the US was the logical place to live.

For me, the upcoming presidential election is less about the ability to shout slogans than it is about choosing leaders with a fiduciary mind set with respect to ALL people living here. Too many candidates to this point are like many life insuarance agents I’ve come across over the past 40 years. They were trained to tell you anything you wanted to hear. Their primary motivation was to have you sign an application and a check so they got paid. If what you were sold was in your best interest, that was simply an incidental benefit, not the reason for the sales effort.

by Cynthia Tucker May 30, 2015

Undocumented immigrants have lost another round in federal court. So has President Obama, who has attempted to put in place an enlightened policy that would delay deportations for some 4 million illegal border crossers, many of them young people who think of themselves as Americans.

But several days ago, a panel dominated by conservative judges reaffirmed an earlier ruling that blocked the president’s executive order from going into effect. That means Obama’s plan to sidestep Congress and grant temporary quasi-legal status to qualified undocumented immigrants is in trouble.

Predictably, many Republicans are exulting. They have blasted Obama’s executive orders as despotic, and many of them play to their ultraconservative base by bashing immigrants without papers. They see the court rulings as justifiable limits on a president whose policies they abhor.

Yet, these court rulings on immigration have hardly done Republicans a favor. In fact, the decisions are likely to prove a major headache for GOP presidential primary candidates, who are already suffering a poor reputation among Latino voters.

Since Mitt Romney’s defeat in 2012, Republican strategists have attempted to repair the party’s image among Latinos, urging their major political players to adopt a more favorable policy toward illegal immigrants. They know that Mitt Romney was haunted by his rhetoric favoring “self-deportation”; Latinos supported Obama over Romney 71 percent to 27 percent.

Still, Republicans have had difficulty reaching out to them. Most of the presidential candidates have tried to keep quiet on the issue of illegal immigration, hoping not to be caught in the sort of misstep that Romney made, but also trying not to alienate their primary voters.

Among the major contenders, only Jeb Bush, former governor of Florida, has been outspoken in advocating a compassionate approach to illegal immigrants. Speaking at an April event celebrating his father, Bush said: “Yes, they broke the law, but it’s not a felony. It’s an act of love. It’s an act of commitment to your family. I honestly think that that is a different kind of crime that there should be a price paid, but it shouldn’t rile people up that people are actually coming to this country to provide for their families.”

But even Bush has soft-pedaled on a significant point, according to Washington Post blogger Greg Sargent: “(Bush) has also retreated to a safer position, hinting he agrees we must secure the border before legalization.”

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.