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“The bond market has become bloodied enough that one could easily — and likely should — expect a near-term reversal in the breathtaking yield jump of late,” writes Gluskin Sheff’s David Rosenberg. “The selling has been nothing short of dramatic and looks to be overdone, if not a capitulation of sorts.
“Municipal bonds, in particular, where the underlying fundamentals have hardly changed — and yet June’s net fund outflow represented a huge 2.2% of assets under management in what was the second largest on record (the yield on 10-year, triple-A rated municipal bonds is now a relatively juicy 2.4% — we haven’t seen that in at least two years!).
“So if it is the case that investor risk appetite overall is intact, and all we saw here was either some massive profit-taking or forced selling in the bond market, it would seem that for a trade the cheapening-up in part of the fixed-income space now offers up a nice near-term buying opportunity at better price levels for those with the dry powder at hand.”
Gold Is In The Sweet Spot (JonesTrading)
Gold was up a whopping 3% on Thursday to $1,284.80. But gold is still well off its peak of $1,900. Mike O’Rourke of JonesTrading says gold is now in the sweet spot, and that Bernanke has lost some credibility.
“We don’t believe the Chairman’s intentions have changed. Regardless, the Chairman’s credibility is once again damaged. If the Dollar breakdown continues, it will be a sign that the market believes the Chairman has again lost control over policy. The asset clearly in the best position in such an environment is Gold. After such a notable correction in the past 9 months, the precious metal once again becomes a very attractive global asset if monetary policy in the largest economy of the world spins out of control.”
The Great Rotation Into Stocks Is Beginning (Advisor Perspectives)
Scott Colyer at Advisors Asset Management thinks a Great Rotation is starting, and money is flowing from bonds and into stocks.
“The flight of capital from the bond markets is not so much a statement of the credibility of the issuers in the market, but a general lack of potential reward as compared to the record duration risk linked to bonds. Money that is invested in the bond markets is generally there because it is risk adverse and looking for income. When the volatility begins to increase, any yield is wiped away quickly and losses quickly emerge.
“Selling is almost instantaneous and significant into a market in which dealers have greatly scaled back their capital. Could this be a buying opportunity? Maybe in the short term, but in the longer term a better U.S. economy tends to support higher interest rates and lower bond prices. We believe that investors who have been holding their breath in the bond markets have likely run out of oxygen. The Fed is trying to push money into risk assets…don’t fight the Fed. We see the balance of 2013 as supportive for equities and we see the flight of funds from bonds flowing toward equities.”
Why You Shouldn’t Dismiss Concentrated Portfolios Outright (The Aleph Blog)
David J. Merkel or The Aleph Blog has a new post defending concentrated portfolios. After hearing Dave Ramsey criticising stock pickers on air, Merkel writes that he also said concentrated portfolios are too risky. Merkel however thinks there is tremendous value in knowledge.
“The idea is that value investors gain detailed knowledge of companies that they invest in. That takes time and effort, so they limit the number of companies that they invest in. The idea is to do so much research, that you have an information advantage over 99% of the market. It pays off.
“Buffett himself wrote an article called, “The Superinvestors of Graham and Doddsville [PDF],” which was published in Hermes [Columbia Business School], and republished as a forward to later versions of “The Intelligent Investor.” Most of the “Superinvestors” ran concentrated portfolios by today’s standards. Some were highly concentrated — the one common thing among them is a value style that focuses on a margin of safety to avoid large losses, and purchasing shares of companies whose assets are out of favour, where a bargain price can be obtained.”
Why The Barrier To Entry For Advisors Is Too Low (The Wall Street Journal)
The Series 7 exams and the NASAA’s Series 65 Uniform Investment Advisor exams are the only barriers to entry for advisors. And most advisors pass these exams so it’s difficult for clients to choose advisors, writes Victor Hicks of Lumin Financial in a Wall Street Journal column. Part of the reason the barrier to entry is so low according to Hicks is because there aren’t enough advisors.
“So why can’t lawmakers raise the barrier to entry to our profession to a similar level by simply making the CFP a requirement for all advisers?
The answer comes down to supply and demand: There simply aren’t enough advisers to serve all the individuals who need financial advice. At the moment, only 20% of advisers are CFPs, according to a recent report by the CFP board. Restricting the number of advisers in the field by raising the bar to enter would both increase the cost of financial advice across the board and prevent many individuals from getting any financial advice at all. In a country where the average family is saving only about half of what they’ll need for retirement, limiting the accessibility of financial advisers would do more harm than good.”
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