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“Why have so many Americans – including politicians and media – bought into the narrative that our economic problems stem from an out-of-control budget deficit? And why are they repeating this hokum even now, when we’re staring at a fiscal cliff that illustrates just how dangerous deficit reduction can be? Because an entire deficit-cutting industry has grown up in recent years, bent on selling this false story.”
Ray Dalio’s Take On The U.S. Economy In 2013 (Business Insider)
At yesterday’s Dealbook Conference Bridgewater Associates founder Ray Dalio gave his outlook on 2013. He expects stocks to do better than bonds but thinks that risk premiums can only go down from here.
Moreover, the economy faces austerity from the fiscal cliff and the Fed has limited tools at its disposal. In this backdrop, he thinks yields can’t go down further, the economy is running out of steam, QE is losing its efficacy and rate turn is coming in late 2013.
Fed chairman Ben Bernanke has taken volatility out of the bond and equity markets. The Fed will also prevent a sustained bond selloff considering its policy and corporate balance sheets are in good shape.
In this environment, “it’s not about being bullish, bearish, agnostic, or contrarian. It’s about being ideas-driven, creative, and taking advantage of the information and whatever certainty the Fed is willing to provide us in this highly uncertain macro and market environment. At a minimum producing returns better than you can get in cash which is destined to produce negative real returns for the next half-decade should not be altogether that difficult to achieve.”
Rosenberg writes that there are opportunities to earn mid-to-high-single-digit returns in “‘relative value trades’ or ‘long short portfolios’, both in equities and in fixed-income” and that the Fed is “handing these particular strategies a silver platter right now”.
From ‘Grexit’ to ‘Brixit’ (Morgan Stanley)
Morgan Stanley’s global economics team presented its list of surprises fo 2013, a series of unlikely scenarios that could rattle the markets. Here’s one: “Financial markets come round to the idea that Greece will stay in the euro for the foreseeable future. Instead, investors are getting increasingly concerned about the UK’s political stance on Europe, especially in view of a possible referendum on EU membership. Polls during 1H13 start to suggest that an exit of the UK from the EU is now seen as more likely than an exit of Greece from the euro. The London property market wobbles as financial institutions start making contingency plans for moving employees to Frankfurt and Paris.”
10 Trading Commandments From Todd Harrison (Minyanville)
Former Wall Streeter and CEO of Minyanville Todd Harrison offered 10 pointers for investors. These include: ‘Don’t let bad trades turn into investments’, ‘zig when others zag’, ’emotion is the enemy when trading’, and ‘respect the price action, but never defer to it’.
Brokerages Choose Not To Cut Advisor Pay In 2013 (The Wall Street Journal)
Advisors typically get a per cent of fees and commissions they bring in for their company, with bigger producers getting a bigger slice of the pie. In the past, many big brokerages penalised advisors when they didn’t measure up as they tried to expand their profit margins.
But this in part caused advisors to jump ship to rival firms. realising that its cheaper to keep their own advisors, many brokerages are choosing not to increase penalties on advisors in 2013. “Merrill Lynch, Morgan Stanley Wealth Management and UBS Wealth Management Americas all kept their pay grids the same and made some relatively minor changes to bonuses for their brokers. There was a clear emphasis on carrots, not sticks. “