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Now That The Fed Has Flinched Our Investment Themes Are Defensive And Eclectic (A. Gary Shilling Insights)
The Fed’s announcement earlier this year that it would taper its $US85 billion per month asset purchase program prompted investors to switch to risk-off mode. But, “seeing the damage it had wrought, the Fed flinched and “risk-on” investments returned,” writes Gary Shilling. While he still expects the “Grand Disconnect between robust security markets and subdued at best economic reality,” to close, his investment themes are now “defensive — to avoid getting whipsawed — and eclectic to take advantage of situations that are somewhat removed from the Fed’s line of fire.”
Shilling is 1. “Long Treasury bonds, but modestly.” 2. “Long Japanese stocks and short the yen.” 3. “Long dividend-heavy stocks such as utilities, consumer staples and health care.” 4. “Short commodities.” 5. “Short commodity-exporter currencies.” 6. “Short emerging market stocks and bonds.”
5 Reasons Everyone Needs To Hire An Advisor (Rick Ferri)
The main role of a financial advisor is to “get a client on a simple plan and keep them on track,” writes Rick Ferri. Even for investors that swear by index investing. he says there are five reasons to hire an advisor.
1. “To put space between you and your investments so that you don’t make emotional decisions.” 2. “To do detailed research on asset allocation or index funds because you would rather spend time doing more enjoyable things.” 3. “To provide help to a spouse or family member who isn’t inclined to do it on their own.” 4. “To provide help to a spouse or family member when you’re no longer able.” 5. “For legal purposes to reduce your fiduciary responsibility such as a charitable trust account.“
In a new WSJ column Norb Vonnegut writes that “mandatory arbitration is the root cause” of the wealth management industry’s “PR problem.” And financial advisors are the biggest losers under this system — in which clients are asked to take up their complaints with FINRA and waive their rights to courts.
“Good advisers may be the biggest losers from arbitration. BrokerCheck reports no positive buzz. It just implies the absence of trouble. No carrot, all stick. However, the real problem is that disputes encourage firms to throw their advisers under the bus when trouble strikes.
“Let’s put it out there: Some investors go thug when their investments sour. They authorise a buy. The stock crashes. And then they say, “I never authorised that trade. Blank you. Pay me.” Talk about a rogue client.
“In a situation like this, the firm can fight the claim and defend the adviser through arbitration. Or, it can settle the case and move on. It is just business for the firm. But the adviser carries a ding on his or her U-4 forever, an uncomfortable discussion point in those first meetings with prospects.”
Hedge Funds Have Never Been More Crowded Into The Oil Trade (BofA Merrill Lynch)
“Large speculators reduced WTI crude oil longs to $US37.4 billion from $US38.7 billion notional [last week],” according to BAML analysts. “Despite the marginal pullback, both net notional and net notional as a [percentage of open interest] are near record all time highs.” Of course this could become a risk if there was a sell off.
Investors Should Stop Relying On The Fed Put (Bloomberg)
Richard Fisher, president of the Dallas Fed has said that investors can’t rely on the Fed put i.e. easy central bank monetary policy that supports markets. “Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets” he said at a press conference in Portland. He added that this could also cause a “serious misallocation of capital. Fisher said the Fed needs to “gingerly unwind it [quantitative easing] so as not to prompt market havoc.”
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