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5 Signs Your Advisor Is A Financial Zombie (Marketwatch)
Marketwatch’s Brett Arrends tells investors there are many financial zombies on Wall Street. He writes that investors can be sure their advisor is a financial zombie if they utter these five things we often hear bandied about by pundits on television.
1. “…Cash on sidelines… market going higher. …No money has ‘come into’ the market at all. This is a matter of simple logic, yet the cash-on-the-sidelines mantra refuses to die.” 2. “…Great rotation coming… out of bonds… into stocks.” 3. “Households in good shape…debt trouble over.” Debts are still at 2006 levels argues Arrends. 4. “…Corporate balance sheets so great….” 5. “Stocks… will… earn… 9% a year.”
The bond wars are coming writes Bill Gross in his new investment outlook. And bonds like other investments have “weapons” that can be used “to defend against higher interest rates.” These weapons are “carry” which comes in the form of maturity extension, but also other forms of carry that “not necessarily yield or interest rate dependent.” Bonds also have carry in the form of maturity risk, credit risk, volatility risk, curve risk, and currency risk.
“Bonds issued by less than Aaa sovereign countries and all corporations have a credit spread that can provide a significant or even higher risk-adjusted carry than does maturity extension. These spreads might widen as interest rates rise, but historically they have not, acting as a diversifier rather than a bear market enhancer. Bonds also have a volatility premium that produces carry, a premium more susceptible to negative consequences if yields rise suddenly like May/June but not during a more gradual increase like one that PIMCO forecasts over the next few years. In addition, bonds have a carry component inherent in the yield curve itself, one which refers to choices between a bullet or a barbell strategy — the bullet providing historically more carry than the barbell under most market conditions. And a bond can be denominated in non-dollar currencies, all of which provide the potential at some point to enhance carry.”
“…Capitalism depends on the successful offering and capture of carry in its multiple forms. If capitalism is faltering (recession) in developed/developing economies and yields are close to the zero bound, then portfolios should have less carry than before. If prospects are mediocre, portfolios should be overweight carry. If prospects are very bright, they should again be underweight bond carry. If we can be mindful of this, and accurately forecast it, we will be successful.”
JEREMY GRANTHAM: Don’t Try To Pretend Like The Fed’s Next Move Matters (Bloomberg Businessweek)
GMO’s Jeremy Grantham is a legendary long-term investor. This is why he isn’t worried about the Fed taper. In an interview with Businessweek, when asked if the Fed can take taper without shocking the markets he replied: “Who cares? This is the game I’m complaining about. We will prosper by the quality and quantity of our labour and capital. Do not pretend that how they twitch around has any material effect.”
SEC Commissioner Says New Custody Rules Won’t Hurt Brokers (Investment News)
New rules approved by the SEC require brokers that control their clients’ money to file a quarterly Form Custody with information on the amount and location of the funds. They also have to file an annual compliance report. The idea is that this will help curtail Ponzi schemes, though some have complained about the costs to broker-dealers.
“Any well-run operation should be able to implement the rules without difficulty,” SEC Commissioner Luis Aguilar told Investment News in an interview. “Investors need to have confidence that the assets they hand over to broker-dealers will be protected. Without such confidence, investors are likely to stay out of the markets, which isn’t good for the economy.”
Six New Fundamentally Weighted ETFs Are Coming Your Way (Charles Schwab)
Charles Schwab has unveiled six new Schwab Fundamental Index ETFs will begin trading next week. These ETFs will track the Russell Fundamental Index Series. These ETFs are based on fundamentally weighted strategies.
1. Schwab Fundamental U.S. Broad Market Index ETF (FNDB) 2. Schwab Fundamental U.S. Large Company Index ETF (FNDX) 3. Schwab Fundamental U.S. Small Company Index ETF (FNDA) 4. Schwab Fundamental International Large Company Index ETF (FNDF) 5. Schwab Fundamental International Small Company Index ETF (FNDC) 6. Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)