VANGUARD: This Is Not The Right Time To Sell Bonds And Buy Stocks

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4 Reasons Advisors Should Tell Clients Not To Sell Their Bonds (Vanguard)

The run-up in interest rates earlier this summer had investors worried about a bond sell-off. With concerns of a Fed taper on the table, many are asking if the should sell bonds and buy stocks. But Vanguard’s Fran Kinniry tells advisors to advise against this move for four key reasons.

1. “The short-term movements of the financial markets should not dictate a long-term investment strategy. Indeed, rash moves are rarely rewarded.” 2. “Stocks have outperformed bonds over the past year, and even more dramatically since the depths of the 2008 — 2009 bear market. This has prompted investors to increase their exposure to stocks, and “as such, it may be an opportune time to rebalance, which would require directing new cash flow to bonds or selling stocks to buy bonds, as counterintuitive as that may appear.” 3. Offer some data on the stock market to put it in perspective. For instance, “the S&P 500 has risen 175% since its trough during the financial crisis. …While we are not predicting the next bear market or even a sharp pullback, it is worth emphasising to clients that stock downturns are much more severe in magnitude than bond downturns.” 4. “Even with the probability of loss, high-quality bonds, such as U.S. Treasuries, are one of the few asset classes negatively correlated with equity tail risk, making them among the best diversifiers of equity risk.”

Financial Advisors Are Struggling With K-1 Statements (The Wall Street Journal)

Financial advisors are struggling to ensure that their clients have enough liquid assets to cover tax payments stemming from K-1 statements that often arrive right before the extended deadline to file returns. “As more investors diversify their portfolios with partnerships, their financial advisers are stuck with a growing summer headache: late Schedule K-1 statements,” writes Aden Dale at The Wall Street Journal.

“Some would say it is a high-class problem…I call it the effluence of wealth,” Henry Bragg, partner at Houston-based Horizon Advisors told the WSJ. “It can be, and most often is, an absolute cluster of inefficiency.”

Howard Marks Nails It In His Memo About ‘The Riskiest Thing In The World’ (Oaktree Capital)

Oaktree Capital’s Howard Marks is out with a new letter titled ‘The Role of Confidence’ in which he talks about the riskiest thing in the world.

“I often say the riskiest thing in the world is widespread belief that there’s no risk. And certainly that was the prevailing condition in the pre-crisis years of 2005-07, as well as during the tech bubble of the late 1990s. In both instances the “era of well-being” was followed by a significant economic slowdown and market decline.

“A feel-good environment characterised by strong confidence creates pleasant current conditions but encourages dangerous behaviour and an ascent (in the economy and the markets) from which a correction becomes inevitable. In that way, the less confident attitudes of 2013 create a lackluster, less enjoyable environment, but also a preferable and more prudent base for the future. (The wild card, as described in “Ditto,” January 7, 2013, is that the actions of central banks to lower interest rates have caused even un-confident investors to engage in pro-risk behaviour, setting the stage for the market declines of June and perhaps for additional pain in the future.)”

Investors Beware Old-Fashioned Phishing (FINRA)

The Financial Industry Regulatory Authority (FINRA) has issued a new investor alert, warning them about imposters cold calling investors and posing as representatives of at least well-known brokerages. While internet phishing schemes had got more popular, FINRA is now saying some fraudsters have reverted to phone calls.

“In this latest twist on phishing scams, fraudsters are cold calling investors claiming to offer information about certificates of deposit with yields well above the best rates in the market in an attempt to get potential victims to divulge their personal or financial account information. Armed with this information, the fraudsters may attempt to steal the person’s identity or money from his or her account. FINRA is reminding investors who receive unsolicited telephone calls never to provide personal information or authorise any transfer of funds to any unknown person.”

Byron Wien: I Am Worried About The Second Half Of 2013 (Blackstone)

Wall Street analysts expect U.S. economic growth to finally pick up in the second half of the year and that this should help drive stocks higher. But Blackstone Vice Chairman Byron Wien doesn’t think so.

“It is unlikely that we are going to see better earnings if sales don’t improve. Second-quarter sales are only expected to rise 1.25% over last year and full-year estimates are for a 2.75% increase. If there is some pressure on margins from modestly higher labour costs, depreciation and energy prices, that meager level of revenue improvement may not be enough to keep margins from eroding. It has been my view that profit margins are peaking and we should see if that observation is correct in the second half of 2013.”

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