FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
“2013 Is The Year Of The Snake” (Advisor Perspectives)
While political uncertainty is lifting, the “cyclical environment” still poses obstacles and is expected to continue into 2013, according to Johanna Kyrklund of Schroders. In this environment safety is expensive, cash isn’t attractive, and there are good opportunities in stocks in developed countries.
“According to the Chinese horoscope, 2013 is the year of the snake. If anything, I think that what many investors currently perceive as ‘safe haven’ assets could turn out to be the snake lurking in the grass next year.”
One Advisor Explains How He Adds Value For 401(k) Clients (The Wall Street Journal)
401(k) investments tend to look the same. To make his service stand apart Brian Heckert founder of Financial Solutions Midwest said he “examines each worker’s tax withholding for hidden cash that could be saved–without affecting their take-home pay.”
Black swan events are unlikely but unlikely event also tend to happen. Yesterday we published Deutsche Bank’s 13 Outliers for 2013 in which they said:
“…There is a tendency not to deviate too far from consensus, perhaps seeing safety in being part of the herd. From a statistical perspective, this is very similar to assuming markets follow a normal or Gaussian distribution. That is, markets are well behaved and extreme outcomes are rare. The financial crisis of 2008 taught us otherwise, yet it is very difficult to shrug off the bias to assume normality in markets.”
Photo: Deutsche Bank
Expect Consumer Discretionary To Outperform In 2013 (Dr. Ed’s Blog)
After looking at monthly performance chart of the S&P500 to its 10 sectors Ed Yardeni found that that in the last three bull markets, the best-performing sector outperformed the others from the beginning through to the end of the bull market.
This time consumer discretionary has been the best-performing sector. “While past performance is no guarantee of future results, we do expect that Consumer Discretionary may continue to outperform in 2013.”
Coming spending tax hikes and spending cuts are likely to send the economy into a recession, and that recession is going to be “the real killer” because monetary easing will not work.
“The real killer is going to be the next recession. And there will be one. The policymakers are trying hard to have it both ways…Ultimately as you address the fiscal situation, you’re going to run the risk of a recession. When the next recession comes, it’s going to be a real killer because what exactly is going to be the policy response. It will be policies in terms of raising taxes and cutting spending that help to bring on the next recession I think, so I don’t think it’s very plausible that you’re going to just turn around and go back to the old method of pumping up the economy with debt.”
Why Everyone Should Care About Badly Behaving Economic Models (Project Syndicate)
Constant revisions to estimates of Europe’s economic recovery have raised questions about the validity of the economic models, according to Robert Skidelsky of Warwick University. The two big mistakes involve underestimating the fiscal multiplier and assuming that “monetary expansion would provide an effective antidote to fiscal contraction”.
And Skidelsky points out that while this seems technical it is a “cruel deception” since they create a vicious cycle. “Their consistent over-optimism about these policies’ impact on economic growth validates pursuing them, and enables governments to claim that their remedies are “working,” when they clearly are not.”
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