FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Housing Is Not Exempt From The Fiscal Cliff (Bank of America Merrill Lynch)
In a new note, BofA’s Michelle Meyer writes that housing is not exempt from the fiscal cliff. In particular she writes that policymakers need to “consider how to prioritise support for the housing and mortgage market”.
For now policymakers are concerned with removing or scaling back the mortgage interest tax exemption that costs the Treasury about $80 billion a year. But 90 per cent of those who use this earn more than the median income so removing it would “hit the higher priced markets disproportionately”.
Kate Mackenzie at FT Alphaville points out the inherent problems in traditional investing, since fund managers have different motives than their clients, and because the mere act of getting a fund manager shows a “disbelief in efficient markets theory”.
Paul Woolley and Dimitri Vayanos of the London School of Economics have a manifesto to tackle this problem. Their strategy involves 10 basic tenets that include adopting a long-term approach to investing, capping annual turnover of portfolios, and being cautious of alternative investing.
Jeff Gundlach’s New Trade (Business Insider)
At his latest webcast Jeffrey Gundlach advised his DoubleLine Funds clients to watch for inflation in Japan. He said the country will pursue currency debasement as it tries to stimulate the economy. Recently, Japan’s trade balance turned to a deficit as the demand for nuclear energy fell, forcing energy imports to spike. Gundlach told his clients to short the yen and long the Japanese stock market.
The Chinese Boom Story Doesn’t Pass The Smell Test (Advisor Perspectives)
“We at Smead Capital Management believe that prolonged faith in China’s economy and the belief that emerging market growth will be an elixir for developed market multi-national companies is the erroneous gift that just keeps giving. If China’s economy has been successfully soft landed from its boom, why is the internal Shanghai Composite index making new lows as recently as last week (November 29th, 2012)?
From its peak on October 16, 2007 through December 3, 2012, the Shanghai Composite is down over 64.8%, whereas the S&P 500 is up 2.7% on a total return basis. We at Smead Capital believe that China’s boom and the boom in commodity prices which it undergirded do not pass the smell test!”
Brokers Breathe A Sigh Of Relief As FINRA Clarifies Suitability Rule (The Wall Street Journal)
Brokers that have been anxious about the Financial Industry Regulatory Authority’s (FINRA) strengthened suitability rule can breath easy. The rule had brokers concerned because of FINRA’s broad definition of ‘customer’ that could make them liable for comments made during social gatherings.
“The new guidance, which was posted on Monday to Finra’s website, dials back the possible circumstances in which the rule would apply.
It specifies that the potential investor must become a customer in order to trigger the broker’s suitability obligations. The rule wouldn’t apply, for instance, if a potential investor doesn’t act on the recommendation or if he or she executes the recommended transaction on their own or with another firm.”
‘The Bond Cult Has Been Financing The Bull Market In Stocks’ (Dr. Ed’s Blog)
In the 12-months through October bond funds witnessed new inflows of $392 billion, while equity funds saw $80 billion in net outflows. Non-financial companies have been borrowing money from “the bond cult”. Some of those funds have been used for share buybacks and in that regard “the bond cult has been financing the bull market in stocks”.