Tag Archives: financial advisor

What the Dept. of Labor Might Do With the Fiduciary Rule

My Comments: Last week I attempted a definition of the word FIDUCIARY. My goal was to somehow increase the chances that financial professionals who use the term “advisors” are in fact fiduciaries, and as such, bound by law, by tradition, by ethics, to act and behave in their clients best interests.

As a reminder, there are forces at work who we typically refer to as “Wall Street” who don’t want their salesmen and brokers to be held to a fiduciary standard, any more than your local car dealer salesmen and brokers are anything more than just salesmen and brokers. That’s not to say they are dishonest; they are not. But when there is a dispute, there is no accountability, as there is with a fiduciary.

This is another report on the saga those of us in the financial trenches face as we try to level the playing field.

By Paula Aven Gladych / March 26, 2014

The U.S. Department of Labor is scheduled to release its re-proposed fiduciary rules sometime this year or early next, so what should the industry expect in the latest rendition of the regulation?

The final rule, for starters, could include restrictions like preventing firms from paying their brokers or agents more for selling in-house products.

But according to Bradford Campbell at Drinker Biddle & Reath, the recrafted rule will most likely include exemptions for certain prohibited transactions.

The industry hopes DOL will exempt broker-dealers from having to change their business model, which reaches lower and middle-income investors who need advice but can’t afford a registered investment advisor.

If the DOL allows broker-dealers to continue doing what they’ve always done, despite their lack of fiduciary status, those in the industry who are opposed to the re-proposed rule may stop objecting to it.

Fiduciary status dictates how advisors set up their business. Fiduciary advisors usually are fee-based, whereas brokers tend to work on commission. Under the re-proposed fiduciary rules, brokers to IRAs would have to follow the same rules as registered investment advisors. Any advice they give to clients would be considered fiduciary advice.

The rules could cost millions in compliance and higher costs to investors, opponents say.

Another big issue is IRAs and rollover treatment, according to Campbell. If the DOL continues to apply the fiduciary standard to IRAs and restricts rollover solicitations, this could become the most controversial portion of the rule.

Opponents believe that restricting advice will damage the savings of low to middle-income people who can’t afford to pay for an RIA but can take advice from their broker-dealer. The problem with that scenario, according to the DOL, is that advice given by broker-dealers sometimes has monetary gain attached to it. The broker gets a commission if a client buys certain investments.

Under current law, investment advice is viewed as fiduciary investment advice only if it concerns valuation or buy/sell/hold recommendations and meets all five of these criteria, according to Drinker Biddle:
• Regularly provided (not just one-time advice);
• for a fee;
• individualized to plan;
• pursuant to a mutual understanding;
• that the advice will be a primary basis for plan decision-making.
A 2010 fiduciary rule proposal expanded the definition of fiduciary to include management recommendations, such as selecting an asset manager. Once implemented, it will require greater transparency and responsibility on the part of securities brokers who work with IRAs and 401(k) plans.

Other regulatory items that are on the 2014 agenda include the second round of fee disclosure rules, which propose that plan providers include a guide showing how plan sponsors can find all of the fees they are paying throughout plan documents.

Also expect the DOL to continue discussions about brokerage windows, lifetime income projections, annuity selection safe harbor and target date disclosure in upcoming months, Campbell said.

Fabulous Freebies 2014

My Comments: The people at Kiplinger have created another great blog post for me to borrow. I encourage you to explore their site and gather as much information as you need. If, at the end of the day, you need someone local to help you make smart financial decisions, Florida Wealth Advisors LLC has its’ hand up, trying to get your attention. We’ve been doing this for almost 40 years. Give us a call or send an email.

This image is what you will find if you simply click on the image. You will find yourself at the Kiplinger web site page about the Fabulous Freebies. Be aware it is a slide show and to get to the next slide, just click on the red arrow at the top right. It will take you to the first of many pages. Some are great, others not so, but there is something for everyone. Have fun.

Social Security Tips: How to Use File & Suspend

SSA-image-2My Comments: I offer great thanks to the author of the following article, Michael Kitces. You’ll find his credits at the end of this post.

This will take a little time to read and understand. But if you are getting ready to file for Social Security benefits, or are just now starting to think about when and how to file, you need to read this and develop at least a basic understanding.

As part of our efforts at Florida Wealth Advisors, we will provide you with a no-cost analysis and report that creates a timeline to help you maximize your benefits over time. The two caveats are (1) we have no idea when you are going to die and (2) we make no assumptions about cost of living increases each year.

Getting it right is important. There are 97 months for you to choose from when it comes to filing for benefits. The difference between the best one and the worst one can be as much as several hundred thousand dollars over your lifetime. Doesn’t it make sense to ask us for one of these reports?

by: Michael Kitces / Monday, March 24, 2014

An especially popular strategy for maximizing Social Security benefits is to utilize the file-and-suspend rules. These permit an individual to file for benefits but suspend them immediately, allowing delayed retirement credits to be earned while letting the spouse begin spousal benefits simultaneously. They can even be used to activate family benefits for young children.

Yet the file-and-suspend strategy is not just an effective planning tool for couples and families with minor children. Since benefits that have been suspended voluntarily can be reinstated later, even singles may wish to routinely file-and-suspend if they intend to delay anyway, as a way to hedge against a future change in circumstances.
At the same time, there are caveats to the file-and-suspend strategy, as well: Suspending will put all benefits on hold (which limits couples from crisscrossing spousal benefits by having each file and suspend); filing and suspending also triggers the onset of Medicare Part A benefits, making a client ineligible to make any more contributions to a health savings account.


The basic concept of file-and-suspend is straightforward: A client files for retirement benefits (triggering all the rules that normally apply), but then suspends the benefits without receiving any payments (allowing the client to earn delayed retirement credits that increase the future benefit by 8% of the individual’s primary insurance amount). The strategy’s primary purpose: By filing for benefits, the client can render a spouse eligible for spousal benefits (only available once the primary worker has applied for retirement benefits), while still earning delayed retirement credits.
• Example 1: A 66-year-old man eligible for a $1,500-a-month benefit chooses to file-and-suspend, letting his 66-year-old wife begin a $750-a-month spousal benefit. The husband continues to accrue 8% a year delayed retirement credits on his monthly $1,500, which by age 70 rises to $1,980 a month, plus cost-of-living adjustments.

Notably, the ability to suspend benefits is available only to those who have reached full retirement age (66 years old for those born between 1943 and 1954; up to 67 for those born in 1960 or later). If benefits are filed early, the election generally cannot be undone (though clients can change their mind within 12 months of the first filing).

Even if benefits were filed early, they can still be suspended going forward once full retirement age is reached. This will not undo the reduction that applies for taking benefits early, though it can almost fully offset the original reduction as delayed retirement credits are earned.
• Example 2: A 66-year-old woman eligible for a $1,000 monthly benefit filed for benefits early at age 62, reducing benefits by 25% to $750 a month. If she now chooses to suspend benefits, she can begin to earn 8% a year delayed retirement credits for the next four years, ultimately increasing the benefit by 32%, back up to $990 a month. (Ongoing cost-of-living adjustments would also be applied along the way.)

While the file-and-suspend strategy is often explained as a loophole to maximize benefits, it actually was a provision added to the Social Security system in 2000, under the Senior Citizens’ Freedom to Work Act, to allow for the associated planning strategies (especially for couples’ benefits).

As noted in example 1, the primary purpose of the file-and-suspend strategy is for married couples to better coordinate the claiming of individual and spousal benefits – in particular, for one spouse to claim spousal benefits while the other continues to defer individual retirement benefits to accrue the credits. Otherwise, both members of the couple could face benefit delays. If the husband in example 1 had chosen to delay benefits without going through the file-and-suspend strategy, for instance, both he and his wife would have had to wait until he reached age 70 for retirement benefits.

File-and-suspend may be relevant even in situations where both spouses have their own benefits, but each wishes to delay. By adopting the file-and-suspend strategy, one spouse can claim benefits while both generate delayed retirement credits.
• Example 3: Both members of a couple are 66; the wife is eligible for $1,600 a month in benefits and the husband for $1,300 a month. Both are very healthy and wish to hedge against the risk that they could live well into their 90s, so both want to wait and earn delayed retirement credits. If the wife goes through the file-and-suspend process, then the husband can file a restricted application for just spousal benefits while delaying his own individual benefits. The husband gets $800 a month in spousal benefits based on his wife’s record, then can switch to his own $1,300 monthly individual benefit in the future (and earn 8% a year in delayed retirement credits while he waits). And because she filed and suspended, she also earns 8% a year delayed retirement credits on her benefit.

Another benefit of the file-and-suspend rules is that by filing, the primary worker not only activates eligibility for a spouse to claim spousal benefits, but also for dependent benefits to be paid on behalf of minor children as well (albeit subject to the maximum family benefit limitations).


While the file-and-suspend rule primarily helps married couples, the strategy also allows individuals who started benefits early to change their mind, suspend benefits and begin to earn delayed retirement credits.

There is another file-and-suspend planning opportunity as well. Under Social Security rules, those who are full retirement age can file for retroactive benefits, but only as far back as six months (resulting in a lump-sum payment of prior benefits). An individual who is 66 1/2 can retroactively file for benefits back to age 66, receiving makeup payments for the prior six months; at age 68, the payments can only go back to age 67 1/2.

Yet if the individual files-and-suspends at full retirement age, a subsequent filing for retroactive benefits goes all the way back to the date of the file-and-suspend. Under Social Security rules, there’s a difference between the standard filing for retroactive benefits and a request to reinstate voluntarily suspended benefits. To preserve flexibility, a client who plans to delay benefits may want to file-and-suspend rather than simply waiting.
• Example 4: A single 66-year-old woman is eligible for a $1,600 monthly retirement benefit. Because she’s in good health, she plans to delay her benefits until 70 to earn delayed retirement credits. But at 68, her health takes a significant turn for the worse and she believes she may not live much longer. Realizing there’s no longer a reason to delay her Social Security benefits, she applies immediately – and retroactively – but at best she can only get benefits going back to age 67 1/2.

If the same woman had filed and suspended at 66, then when she got the unfortunate health news, she would be able to reinstate her benefits all the way back to age 66 – giving her a lump-sum payment for 24 months, rather than just six.

Alternatively, if the woman stayed healthy after doing file-and-suspend, she could still delay her benefits to age 70.

There are a few caveats to the strategy. First, remember that the request to suspend benefits will suspend all benefits, barring couples from crisscrossing spousal benefits.

The act of filing also makes the client eligible for Medicare Part A. In fact, because enrollment is automatic for anyone older than 65 who applies for Social Security benefits, clients can’t opt out of Medicare Part A even if they want to.

Automatic enrollment in Medicare Part A isn’t necessarily problematic – at worst, it’s duplicated coverage, but doesn’t have separate premiums or cost like Medicare Part B. However, it renders a client ineligible to contribute to a health savings account. For clients with a high-deductible health plan, file-and-suspend will render them ineligible to make new contributions.

Beyond these caveats, the file-and-suspend strategy provides a great deal of flexibility, a lot of opportunity to maximize Social Security benefits and the ability to hedge the risk of delaying benefits with the potential to reinstate the voluntarily suspended benefits in the future.

Michael Kitces, CFP, is a partner and director of research at Pinnacle Advisory Group in Columbia, Md., and publisher of the planning industry blog Nerd’s Eye View. Follow him on Twitter at @MichaelKitces.

What’s Happening In China These Days?

China dragonsMy Comments: China is today the 2nd largest and arguably the 2nd strongest economy in the world. It differs from us in a material way in that it has few of the myriad infrastructure elements of our economy, which have evolved over the past 235 years. In China, it’s very much a work in progress.

Which means there are going to hiccups along the way. We’ve had our share, and indeed we still have hiccups, as we saw in 2008-2009. But China is a different animal and if it sneezes, there is going to be snot everywhere. That’s not a pleasant thought, is it? Which is why as an investor, you need to pay attention. Or at least have someone managing your money who is paying attention on your behalf. Then perhaps all you need is a handfull of tissues.

Will it result in another crisis like we had a few years ago? Unlikely. Those seem to come along about once every 65 – 75 years. Lots of time to condition our grandchildren for that eventuality. In the meantime, just keep chugging along, especially if you have someone you can trust looking over your shoulder.

Investors Take Note: China’s ‘Lehman Moment’ Is Looming, Help Is Not On The Way / Steve Picarillo / Mar. 21, 2014

• Recent defaults in China are threatening to change investor perceptions of the safety of Chinese investments.
• The weakening property markets in China could slow the Chinese economy and potentially weaken Chinese banks.
• Investors have seen this before with Bear Stearns, Lehman and the Irish Banks, so we know how the book could end.
• Help may not be on the way as it appears that the Chinese government is willing to see defaults as it shifts to a more market-driven economy.

China’s first-ever default of a corporate bond may not have been China’s “Bear Stearns moment” or its “Lehman moment” but China’s Lehman moment can happen at any time and investors should take note.

Unlike the fall of (the independent) Bear Stearns and the demise of Lehman, Chaori Solar’s recent default did not change the market’s perception of credit risk inherent in the Chinese economy and Chinese investments. The reason? It was widely known that the solar company was in distress and at risk of being the country’s first corporate default. Moreover, unlike Lehman and Bear, the Chaori default did not add uncertainly as to the government’s intentions.

The Lehman and Bear events caused market panic as investors believed that the US government would have provided some form of support to prevent such a material default. Indeed, the fall of the independent investment bank Bear Stearns and the bankruptcy of Lehman Brothers marked key market events during the great recession. Investors across the globe certainly noticed these events which trigger other defaults across the globe. It is fair to say that investing and banking in the US has been altered for years to come. Chaori’s default did not trigger such market events; however, it led to fears that it could be the start of a surge of Chinese bond defaults. This fear remains well founded and may prove to be very accurate.

In the weeks since the Chaori default, shares in various Chinese property firms have fallen after the Chinese developer Zhejiang Xingrun Real Estate collapsed as it could not repay its estimated $500 million of outstanding loans. This default may be the defining event in China as it is the latest sign that the Chinese government will like to see some “dead bodies” as it moves toward a more market-driven economy. Government help does not appear to be on the way, as China’s central bank has denied reports that it is in emergency negotiations with the company.

China’s property sector is the main threat to the stability of the world’s number-two economy. Property developers in China have been a particular source of concern as many have increased their debt loads in recent years to buy land and build. The ripple effect of a deteriorating economy in China may very well lead to market disturbances across the globe. Investors will shift funds from China seeking investments that they perceive as safer. Moreover, a struggling Chinese economy, given its size and scale, will negatively impact exports of its major trading partners, thereby threatening to weaken the global economy.

Chinese financial institutions are at risk due to the brewing housing bubble. The average price of a new home in 70 Chinese cities increased at a slower pace than in recent months. Indeed, average new home prices in major Chinese cities rose 8.7% (year on year) in February, according to the National Bureau of Statistics, cooling from a 9.6% rise in January. While this does not sound all that concerning on its face value, however the trend is certainly worth noting.

Cities in China have taken to battle rising home prices amid fears of a bubble, and banks have increasingly tightened lending to real estate firms. This disturbing trend is extremely similar to those that led to the Great Recession in the US, the UK and in Europe. So we may know how this book ends.

As demand slows, developers will feel financial strain. The concern is this most recent default will trigger a series of similar distressed situations across weaker companies in the property sector. The most recent financial crisis in Ireland was sparked by the same types of events, a weakness in the property sector, leading to the near nationalization of the country’s banks. Similarly, Chinese banks have significant exposure to the property sector. Should defaults increase, banks would need to set aside more funds for bad loans and would likely become more risk averse, thereby further slowing growth or worst, potentially de-stabilizing the balance in Chinese banking.

The property sector has become a backbone of growth for the Chinese economy, accounting for 16% of gross domestic product, 33% of fixed asset investment and 25% of new loans in 2013, according to market estimates. Slowing property markets lead to a slowing economy.

There are a many potential triggers for a correction in the property market including a rise in interest rates, decreased credit availability or the introduction of a property tax. This risk of spreading “ghost towns” across China is a real reality as developers abandon projects due to lack of demand and financing.

Given the magnitude of property to the Chinese GDP, if this sector slows severely, there is no obvious replacement to support economic growth. So whether it is a Bear Stearns, Lehman or Irish bank moment, a defining moment is looming.

About the author: Steve Picarillo is an internationally known and respected financial executive, analyst and author. Steve has spent most of his career on “Wall Street” as a lead analyst covering large financial institutions, corporates and sovereigns in the US and in Europe. In addition to being an expert on global banking, credit ratings, banking regulations and compliance, Steve is a student of the global economic environment, a motivational speaker and an active philanthropist. The opinion in this article and other articles are the opinions of the author and of Creative Advisory Group, Inc.


My Comments: A quick check using your smart phone will reveal that this word, used as a noun, means “… a person to whom property or power is entrusted for the benefit of another.” In addition, it can be used as an adjective, an example of which is fiduciary capacity or fiduciary duty or fiduciary obligation.

In my years as a financial planner and investment advisor, I early on assumed a fiduciary role in my relationship with clients. For me, this means an ethical, legal and moral obligation to do only that which is in a clients best interest.

This distinction is important these days as there are “Wall Street” companies working very hard and spending millions of dollars to enable their employees to function as ‘advisors” to members of the general public, and not be held to a fiduciary standard. From a marketing perspective, they want their salesmen and brokers to call themselves “advisors” and not be held to a fiduciary standard. Unlike those of us not affiliated with Wall Street who are fiduciaries when we call ourselves “advisors”.

An analogy from my past is when I tried to earn a living for several months as a salesman for a local car dealership. I was allowed to say virtually anything I wanted to a potential customer, the objective being to sell a car. That was to the benefit of the dealership, and if the buyer got what he wanted, that was an incidental benefit.

When I became a salesman for a life insurance company, it was suggested that I not tell lies, but beyond that, all that mattered was how many policies could I sell. The more I sold, the more money the company made, and if I crossed certain thresholds, I got more money and more goodies. Great trips to the south of France, etc.

Along the way, I increasingly wanted to be held in high regard by my peers who happened to be CPAs and attorneys. By law, if you are a CPA or a member of the bar, you are, by definition, a fiduciary. But in the insurance world, it wasn’t until the invention of the designation Certified Financial Planner, that the fiduciary role was assumed. If you were awarded a CFP designation, you effectively swore that your conduct going forward was as a fiduciary.

This now causes no amount of angst among the Wall Street crowd as many of their salesmen and brokers have been awarded CFP designations which at a personal level makes them fiduciaries but at the corporate level, they are not. How to remedy this apparent contradiction and conflict of interest?

For a time, there was an attempt to force the folks behind the CFP designation to create a CFP Lite, meaning some folks could use the CFP designation in their relationships with clients without being held to a fiduciary standard. That idea eventually fell apart.

The pressure behind this problem is that companies that sell financial products don’t want to be held accountable and be financially liable if a dispute happens and their salesman or broker, someone they have encouraged to be identified as an “advisor”, did something NOT IN THE CLIENTS BEST INTEREST, and it’s now come back to bite them.

My reasons for writing about this are that (a) I consider myself a fiduciary and for many years now have held myself out as a fiduciary in my advisor/client relationships; (b) I don’t have the resources to lobby the Securities and Exchange Commission, the SEC, to give me an out if I make a mistake, (c) I like being able to hold my head high and have the respect of my peers in the legal, accounting, and advisory community; and (d) I’m tired of not working and living on a level playing field. And I suppose I can stress it’s not in my clients best interest to be faced with this arcane conundrum which potentially puts their financial and legal future at risk.

Here’s a full definition I found several years ago that you might find helpful.

Fiduciary Responsibility: A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. [2] The fiduciary duty is a legal relationship of confidence or trust between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary. In the case of insurance the fiduciary duty is between the agent and his or her client. One party (the agent) acts in a fiduciary capacity to another (the insured). In a fiduciary relation one person justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests. In other words, the agent cannot consider commissions above the interests of the client.

A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (called the principal): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust.

When a fiduciary duty is imposed, equity requires a stricter standard of behavior than the comparable tortuous duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without express knowledge and consent (acknowledging, for example, that a commission will be paid). A fiduciary cannot have a conflict of interest. It has been said that fiduciaries must conduct themselves “at a level higher than that trodden by the crowd” and that “the distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.”

Are We Looking At A Bond Bubble?

Interest-rates-1790-2012My Comments: There are just as many ways to lose money with bonds as there are with stocks. The risk is different; what happens to interest rates in the future vs corporate earnings and their relative size. That’s an oversimplification but you get the idea.

The chart above shows interest rates from 1790 – 2012. You can draw your own conclusions about where they are likely to go next. It won’t surprise anyone if it happens this year or three years from now, but happen it will. And yes, I’m sensitive to the length of the horizontal axis.

When it does, you need to be positioned to not only avoid losses, but to potentially make money. It can be done and smart people will make money. Who you talk with and when you act is up to you.

By Gillian Tett / March 13, 2014 / The Financial Times

The more money that floods into fixed income, the more risky any reversal

Seth Klarman, the publicity-shy manager of the $27bn Baupost hedge fund, has given investors a slap. In his quarterly investment letter, he declared capital markets are in the grip of a wild bubble.

“Any year in which the S&P jumps 32 per cent and the Nasdaq 40 per cent while corporate earnings barely increase should be a cause for concern,” he wrote, pointing to “bubbles” in bond and credit markets, and “nosebleed stock market valuations of fashionable companies like Netflix and Tesla”.

It might sound reminiscent of 1999, when “fashionable” technology stocks last soared on this scale. But there is a twist: today it is not equities but bond markets that may yet be the most significant cause of concern.

In recent years an astonishing amount of money has quietly flooded into fixed income funds, which buy corporate bonds, emerging markets bonds and mortgage debt. And as the US looks more likely to raise interest rates, creating potential losses for bondholders, the flows could reverse – creating destabilising shocks for regulators and investors alike.

Consider the numbers. Just after Mr Klarman issued his warnings, the investment research group Morningstar produced analysis that suggests US investors have put $700bn of new money into the most mainstream taxable US bond funds since 2009. Since bond prices have risen, too, the value of these funds has doubled to $2tn. That is striking. But more notable is that these inflows to fixed income have outstripped the inflows to equity funds during the 1990s tech bubble – in both absolute and relative terms.

Meanwhile, Goldman Sachs estimates (using slightly different forms of calculation) that $1.2tn has flowed into global bond funds since 2009, compared with a mere $132bn into equities. And a new paper from the Chicago Booth business school estimates that inflows to global fixed income funds have been almost $2tn since 2008, four times that of equity funds.

Given this, it is no surprise that investment grade companies have been rushing to sell bonds at rock-bottom yields (this week General Electric, Coca-Cola and Viacom were just the latest). Nor is it surprising that junk bond issuance hit a record last year; or that Moody’s, the US credit rating agency, warned this week that investors are so desperate to gobble up bonds that they are buying instruments with fewer legal protections than ever before.

But the $2tn question is what might happen if, or when, those flows change course. Until recently it was often presumed that corporate bond investors were a less skittish group than equity investors; fixed income funds were not prone to quite such wild sentiment swings.
However, the four economists who penned the Chicago Booth paper argue that this is no longer the case.

Analysing market data since 2008, they conclude bond market investors have an increasing tendency towards volatile swings and herd behaviour. That is partly because of fears that the US Federal Reserve could soon raise rates. But the sociology of asset managers is crucial, too.

“Delegated investors such as fund managers are concerned with relative performance compared to their peers [because] it affects their asset-gathering capabilities,” they note. “Investing agents are averse to being the last one into a trade [which] can potentially set off a race among investors to join a sell-off in a race to avoid being left behind.” And while such behaviour can affect all fund managers, the Chicago analysis suggests bond fund managers have recently become much more skittish than their equity counterparts.

One sign of this occurred last year when bond markets, fearing the Fed was about to tighten monetary policy, had a “taper tantrum”, the Chicago Booth authors say. They warn that “bond markets could experience another tantrum” when the “extraordinary monetary accommodation in the US is withdrawn”. And since it is now the bond funds, not banks, that hold the lion’s share of corporate bonds, if another taper tantrum does take hold that could be very destabilising.

Today, as in 1999, nobody knows when that turning point might come. But the more money that floods into fixed income, the more dangerous any reversal could be. Investors and policy makers alike need to heed the message from the Chicago paper – or from Mr Klarman. History may not repeat itself; but, when bubbles occur, it does have a tendency to rhyme.

10 Things You Must Know About Medicare

My Comments: The people at Kiplinger have created another great blog post for me to borrow. And if you insist, you have “my permission” to click on their links and get more good information from them.

At the end of the day, however, you may need someone local, a dedicated, knowledgable professional whose experience over the past 40 years counts for something. I like to think I’m that person. At least my hand is raised in the air to let you know I want to talk with you and possibly help you find the right answers.

Here is an image of what you see when you go to the Kiplinger page about the Ten Things to Know. Be aware it is a slide show and to get to the next slide, note there is a red arrow at the top right which navigates you to the first of the 10 Things to Know. Just click on this image and you’ll be there. 10-Medicare-things

It Is Informed Optimism To Wait For The Rain

profit-loss-riskMy Comments: Yes, the title above is a little odd, but the word “optimism” caused me to stop and read.

By every contemporary, standard definition, I am a “financial advisor”. That term is restricted, or should be, to those of us providing financial advice to clients that conforms to a fiduciary standard. Simply put, we SHOULD be bound legally, morally and ethically to do what is in the client’s best interest.

Recently, I met with a family whose matriarch has been a client for almost 20 years. The objective was to help her and her heirs come to terms with advice I had given her over those years that, because in retrospect, I gave her flawed adice. It  could now cause them some additional grief when she passes. My suggestion was to cause the funds to be repositioned such that the additional grief would not happen. If what John Hussman suggests below does happen, their grief will be compounded signficantly unless they adopt the changes I suggest.

Unfortunately, inertia ruled the day and with the advice of another financial person, it was decided to leave things alone. My hope is the family will read this and come to a different conclusion. While I cannot guarantee the avoidance of the cliff described by John Hussman, what I have virtually all my clients invested in are programs that will perhaps make money when everyone else is losing their shirt. The numbers from 2008 and 2009 were all positive.

John Hussman Mar. 10, 2014

Based on valuation metrics that have demonstrated a near-90% correlation with subsequent 10-year S&P 500 total returns, not only historically but also in recent decades, we estimate that U.S. equities are more than 100% above the level that would be associated with historically normal future returns. We presently estimate 10-year nominal total returns for the S&P 500 averaging just 2.2% annually over the coming decade, with zero or negative nominal total returns on every horizon of less than 7 years. Regardless of very short-term market direction, it is urgent for investors to understand where the equity markets are positioned in the context of the full cycle.

Importantly, this expectation fully embeds projected nominal GDP growth averaging over 6% annually over the coming decade. To the extent that nominal economic growth persistently falls short of that level, we would expect U.S. stock market returns to fall short of 2.2% nominal total returns (including dividends) over this period. These are not welcome views, but they are evidence-based, and the associated metrics have dramatically higher historical correlation with actual subsequent returns than a variety of alternative approaches such as the “Fed Model” or various “equity risk premium” models. We implore investors (as well as FOMC officials) to examine and compare these historical relationships. It is not difficult – only uncomfortable.

Objectively, there is no specific level at which investors can be told “no, stop, don’t” once the speculative bit is in their teeth. Historically, however, such periods have typically reached their extremes when a syndrome of overvalued, overbought, overbullish, rising-yield conditions emerges. By the time one observes extreme conditions simultaneously – rich valuations, overbought market conditions, lopsided bullish sentiment, and rising 10-year yields – equity markets have generally been at precarious and climactic highs. Prior to the current market cycle, these points singularly include 1929, 1972, 1987, 2000, and 2007 (slightly broader criteria also would include 1937). In the uncompleted half-cycle since 2009, however, we’ve seen these conditions at the 2011 market peak (followed by a near 20% decline that was truncated by investor enthusiasm about fresh quantitative easing), and several instances over the past year – specifically, February 2013, May 2013, December 2013, and today.

Investors and policy-makers that focus attention on some alternative valuation measure (usually because it seems pleasantly benign) would be well-advised to examine the data, and compare the historical relationship between competing measures and actual subsequent market returns. Remember also that outliers are instructive. For example, the actual total return on equities in the decade following 1964 was much weaker than one would have projected, because stock valuations collapsed at the 1974 market low. Conversely, the actual total return on equities in the decade following 1990 was much stronger than valuations would have projected, because valuations became so extreme by the 2000 bubble peak. To the extent that stocks have done a few percent better in the most recent 10-year period than valuations would have projected, it is because stocks have become so profoundly elevated at present. Such outliers are the first thing to be wiped out over the completion of the market cycle.

Again, regardless of very short-term market direction, it is urgent for investors to understand where the equity markets are positioned in the context of the full market cycle. While the most extreme overvalued, overbought, overbullish, rising-yield syndrome we define has generally appeared only at the most wicked market peaks in history, investors have ignored those conditions over the past year. We can’t be certain when the deferred consequences will emerge. But a century of market history provides strong reason to believe that any intervening gains will be wiped out in spades.

A final note – in my view, it is incorrect to believe that the 2008-2009 market plunge and financial crisis were caused by the housing bubble. The housing bubble was merely the expression of a very specific underlying dynamic. The true cause of that episode can be found earlier, in Federal Reserve policies that suppressed short-term interest rates following the 2000-2002 recession, and provoked a multi-year speculative “reach for yield” into mortgage securities. Wall Street was quite happy to supply the desired “product” to investors who – observing that the housing market had never experienced major losses – misinvested trillions of dollars of savings, chasing mortgage securities and financing a speculative bubble. Of course, the only way to generate enough “product” was to make mortgage loans of progressively lower quality to anyone with a pulse. To believe that the housing bubble caused the crash was is to ignore its origin in Federal Reserve policies that forced investors to reach for yield.

Are Gold And Silver Ready To Rumble?

My Comments: I’ve never been much of a gold bug. I recognize it’s value as a trading opportunity and the need for a large portfolio to include what are thought of as non-traditional investments. But since it tends to increase in value during times of high inflation and general woe and gloom, and being a person whose natural inclination is optimism, it tends to disappear from my personal radar.

Plus there are some in the blathering media who seem to glorify the act of owning gold, as though having some was a path to rightousness.

A recent conversation with someone caused me to see this as it crossed my desk and I thought you should be aware there is a strong sentiment that you can make serious money with gold over the next couple of years.

James P. Montes, Equity Management Academy / Mar. 2, 2014

At first glance, silver appears to be moving in step with gold. Gold’s up 11% year to date and up over 7% month to date, while silver’s up 10% for the year and gaining 11% for the month.

“The silver market is showing quiet strength and major support has been defined in the $19 to $20 levels for May Silver.” Commented Karl Schott, a silver specialist with the Equity Management Academy. The fundamentals have not changed and in fact have gotten stronger.

“Silver is finding its own support independent of gold due to strong buying from China and India and an increase in industrial production of electronics,” including smart phones, said Eric Sprott, CEO Sprott Asset Management in a recent phone interview.

Now let’s deal with some reality in the real physical gold market in 2013. As we discussed in 2013, the supply/demand data suggests to us that physical demand was overwhelmingly greater than mine supply.

Here is a chart showing the World Gold Supply

It is obvious to us that precious metals markets were manipulated in 2013. It is also obvious that demand far exceeded annual mine supply. Now let’s analyze what should happen, going forward, with these revelations. If gold prices are back on their long-term trend, ex-manipulation, a linear progression of the gold chart from 2000 to 2014 would suggest a price of $2,100 now (62% higher than the current $1,300 level) and $2,400 by year-end (Figure 2).

Trend showing price of goldThe gold and silver markets have met and fulfilled all expectations for an upswing into the late February time frame as documented and published on Seeking Alpha.

The silver market needed a rally above 20.97 to turn The VC Price Momentum Indicator up and complete the expected initial target zone level of 22.10 documented in last weeks’ report and culminate this initial advance. “The gold and silver markets have given a very powerful confirmation of the 1 to 3 month outlook for an initial bottom confirmed late December into late February. Major resistance shows up in the 1336 to 1347 area for the April futures contract. The silver major resistance shows up in the 22.10 to 22.37 levels basis the March contract.”

Echoing my comments, “The market will provide us with another opportunity to get long again for those that missed the initial breakout. A close below 1322 would confirm a correction into the 1311 to 1297 areas is possible where it would offer traders/investors with another ideal buying opportunity to get long. Buy corrections and add to your long-term positions in silver as we approach the 21.44 to 21.02 levels. A close below 21.71 would confirm a possible test to the mid to low 21 area for March silver futures.”

Our Live trading room subscribers exited all long positions short – term to intermediate above 22.10 for May silver. They were well informed and prepared days ahead of silver moving towards these expected levels of resistance and realized some very substantial profits. The weekly high was 22.18.

( If all of this interests you, then here is the link to the original article where you can get the full monty about both SILVER and GOLD.- TK )

12 Steps to a Blissful Retirement

retirement_roadMy Comments: Monday morning, the sun is shining, and perhaps an exciting week ahead. Only I tried retirement, and it was not blissful (billsful maybe). So I’m back working full time, knowing that what used to take me an hour to accomplish, now takes at least two.

That being said, whenever I see a list presented about something in which I have an interest, I tend to read it. I suspect that may also be true for some of you. Or at least it will be when you have enough years under your belt.

By Paul Merriman / Jan. 29, 2014

OK, maybe “blissful” is a bit too strong to be realistic as an image describing retirement. But some of the smartest people I know have figured out how to make this stage of their lives very satisfying and rewarding.

This article isn’t about money. I would be the last person to play down the importance of having adequate financial resources when you retire. But no matter how much — or how little — money you have, the quality of your life will be determined mostly by what you do with your time, energy and opportunities.

I’ve had the good fortune to know lots of very smart people, and they taught me a lot about how to live well. Here are some pearls of that wisdom:

1. What I just said
Happiness in later life isn’t a direct function of how much money you have. This is no surprise to the smartest people I know. To a large extent, your happiness depends on your attitudes, your behavior and your choices. This is equally true before you retire, but sometimes it becomes more obvious after you stop working.

2. You won’t stand out if you wait to be told what to do
The happiest people I know cultivate habits and follow rules that others don’t. Want examples? Look closely at the people in your life that you most admire. What do they do that you don’t?

3. Smart people know what makes them tick
They’ve found whatever it is that’s likely to make them want to get up in the morning — and they make sure their daily life has some of that special something. Want examples? Again look around at the people you know who are actively embracing life.

4. Have fun
The smartest retirees I know make a point to have fun every day. Here’s an interesting thing about fun: It isn’t the activity itself. What’s fun to one person (golf?) may be drudgery — or worse — to somebody else. If you pay attention, you may notice that what makes something “fun” is often an attitude of playfulness, mischief, creativity, surprise. Try to pay attention to what’s going on when you’re having fun. Chances are you will find that you’re focused instead of scattered, loose instead of uptight.

5. Search for balance
Smart retirees look for a balance of taking it easy and working on things that matter to them. The right balance between relaxation and activity won’t be the same for you as it will be for your friends, and it will undoubtedly evolve over time. The key point is to find it and maintain it.

6. Have a mission
The happiest retirees have at least one driving force or mission in their lives. It can be as complex and demanding as running an organization or as seemingly simple as mastering a craft or fulfilling a family obligation. You will know you have found this special something when, every time you do certain things, you just feel good about yourself and you’re glad to be alive. For many people, this leads naturally to my next point.

7. Find something you can do for others
Whether you realize it or not, you have something valuable to give somebody. If you figure out what that is, and if you actually give it, I am pretty certain that a couple of things will result. First, the world will be a little bit better place because of you; second, your life will be richer and more satisfying. In the words of an old country song , “He who’d walk a mile just to hold an empty hand, knows what it means to be a wealthy man.”

If you have an entrepreneurial bent, look around in your community and see what needs fixing. Then figure out whether or not you can get it fixed. If you are looking for a worthwhile established charitable or other nonprofit organization, I think a great place to start is at greatnonprofits.org .

8. Combine passion (No. 6 above) with generosity (No. 7)
When you find something that gets you out of bed in the morning with a spring in your step AND it’s something you regard as really worthwhile in some way, you have truly found your calling. If anything deserves to be called a home run in retirement, this is it.

9. Surround yourself with people you love and who love you
As I wrote last winter, the quality of your life will be shaped by the quality of people in your life. Cultivate friendships with young people, and try to learn from each of them. Many studies have found that having a close group of family and friends is strongly correlated with health and happiness in retirement.

10. Don’t wait too long to do the most important things on your bucket list
We’ve all known retirees whose health or other circumstances prevented them from doing things they had so eagerly anticipated. If travel is a high priority for you, as it is for so many people, do it in the early years of your retirement, while you are physically able.

11. If you are a grandparent, be a good one
Spoil your grandkids. Love them. Teach them. Learn from them. Introduce them to people, experiences and places they wouldn’t know otherwise. Remember that they will learn most just from the example you set. It’s highly likely that even decades after you are gone they will still remember some of the things you said and did. There are many books on grandparenting. One that I particularly like, by Janet M. Steele, is Great Ideas For Grandparents: How to have fun with your grandchildren and promote positive family relationships .

12. Keep your mate happy
If you are married or in a primary relationship, keep your spouse or partner happy. Some of the smartest people I know express that commitment by regularly telling their spouses: “You should have what you want.” Obviously you cannot give your spouse the world. But you can seriously adopt this attitude. As one of my friends likes to say, “Life works best when my sweetie is happy.”

You may not need any guidance other than that. But if you want specific ideas, here’s an article that suggests 50 ways to please a wife and here’s one written for women on 50 ways to please a husband.

There is much more that could be said about living well after retirement. You can find a lot of it in a book I like: The Joy of Not Working: A Book for the Retired, Unemployed and Overworked- 21st Century Edition by Ernie J. Zelinski.

Click HERE for the source article and all the links.