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Breaking Free from the Safe Withdrawal Rate Paradigm: Extending the Efficient Frontier for Retiremen
by Wade Pfau,
The traditional safe withdrawal rate approach that relies on a portfolio of only stocks and bonds produces among the worst possible outcomes for meeting spending needs and preserving financial assets for other uses. My research demonstrates there is a better approach.
What to Say When a Friend Doesn?t Want to be a Client
by Dan Richards,
Many great client relationships emerge from friendships. That said, some investors are uncomfortable working with advisors with whom they have close friendships. Here's how to respond when a good friend eliminates the possibility of working together, precisely because of your friendship.
Wait for Your Pitch in Today's Market
by John West of Research Affiliates,
Great hitting in baseball depends in part on waiting for the right pitch. In today's market, most asset classescoming off their impressive 2012 recordare "high and outside" the valuations necessary for future big league returns. Patience is the name of the game today.
Critical Juncture?
Headwinds have reemerged and investor concern is heightened yet again. We still believe stocks can run further, but a pullback is more likely in the near-term. The sequestration is now in affect but that doesn't necessarily mean it's here to stay and more budget fights loom, particularly in advance of the potential government shutdown on March 27. Meanwhile, some members of the Fed are in favor of scaling back its quantitative easing (QE) program, rattling markets a bit.
Jeremy Siegel on Why Stocks Are -- and Will Remain -- the Best Bet
by Team of Knowledge @ Wharton,
Though stock market volatility continues to rattle investors' nerves, the future looks bright for equities in the U.S. and many emerging markets, according to Wharton finance professor Jeremy Siegel. That's not so for bonds, which could become money-losing investments as rising interest rates drive bond prices down. In an interview with Knowledge@Wharton, Siegel says that investors should think about reducing their bond holdings, buying more stocks and keeping just enough cash for a rainy day and other liquidity needs, since interest rates on cash are near zero.
The Great Migration
We are value investors dedicated to creating portfolios for clients, whether growth (equities), income or a balanced blend of both, of undervalued securities with meaningful upside potential and a margin of safety to guard against permanent loss. For us, the bottom-up factors are the most compelling, but we are also mindful that we need to take account of the top-down macro factors. We know how the Crash of ?08 and the accompanying recession created havoc for investors, including us, no matter how undervalued stocks were.
Love, Money or Disappointment: What Will Asian Credit Investors Find in Their Red Envelopes?
by Robert Mead, Raja Mukherji of PIMCO,
Our cyclical economic outlook for Asia in 2013 is unusually dependent on breakthroughs in structural policies. Although we continue to favor select opportunities in key sectors, in general Asian credit spreads are trading historically tight. Bottom-up research is critical, along with careful top-down views on shifting economic conditions, and investors need adequate compensation for taking credit risk. Some sectors and companies can grow significantly faster than their respective economies.
Looking For A Reason To Sell-Off
Markets were looking for a reason to correct. Risk assets had outpaced themselves since mid November and in the first seven weeks the S&P[1] had outperformed the US Treasury 10-year note by 12% and the 30-year bond by 15%. The markets will lumber through the sequester and face the next test on the debt ceiling and first quarter results. Below the surface, the outlook is mildly optimistic. Why the qualifier? Because everything, in Europe, US and Japan, must be set in the context of the asset deflation and deleveraging going on and that will go on for some years.
A Permanent Investment
by Jeffrey Saut of Raymond James,
The Buying Power, and Selling Pressure, indicators continue to suggest no major top is in the works. Ditto the Advance/Decline line traded to a new high before the mid-week pullback, also confirming the upside. The major averages continue to reside above their respect 50-DMAs and 200-DMAs; and, those moving averages are rising, another bullish sign. Then there is Berkshire Hathaway (BRK.A/$152,009/Not Covered), which is somewhat of a proxy for the stock market, as it traded to a new all-time last Friday.
Uncovering 'Diamonds in the Rough' in Today's Credit Markets
by Mark Kiesel of PIMCO,
There are still good opportunities for yield and total return in the credit markets, but there has been a shift in where and how investors can find them. A "diamond in the rough" is a credit that is under-covered, or not actively followed or researched by many investors. At PIMCO, we identify these opportunities through our top-down and bottom-up investment process. We've identified a number of sectors that appear poised for above-average growth.
The 2030 Most Likely Best Case Scenario
Two weeks ago we started looking at the 2030 alternative world development scenarios as laid out by the National Intelligence Council (NIC). The NIC forecasts the likely paths that are either currently underway or are forecast to occur in the future. In its most recent report, the NIC projects four possible global political and economic states based on these expected trends. Last time, we presented the most likely worst case scenario. This week, we will explore the most likely best case scenario.
Whatever It Takes
Was it only a few years ago I visited the Emerald Isle of Ireland? The collapse of its largest banks foreshadowed the demise of many other European banks that had borrowed money from British, German, and other European banks to lend against homes and property. The Irish government had to guarantee deposits and bond holders in order to prevent a bank run. I think I am correct when I state that the Central Bank of Ireland was the first central bank to avail itself of large-scale use of the Emergency Liquidity Assistance (ELA) provision of the European Central Bank.
Six Recommendations for Working with Widows
Widows are a fast-growing segment of the U.S. population, with almost 12 million women currently widowed and another 800,000 joining their ranks each year. Working with a widow, especially in the early stages of her grief, requires a non-traditional approach to financial advising.
Kyle Bass on Inflation and How to Protect Against It
by Mark Quam,
Kyle Bass, the founder of Hayman Capital, foresaw the collapse of the sub-prime mortgage bond market in 2008 and the foreign sovereign debt crisis in Greece. Bass' latest warning is about looming Inflation ? and he advises how to protect against it.
Asset Class Allocation and Portfolios
by Adam Jared Apt,
Asset class allocation has been so thoroughly absorbed into the culture of investing that today, most investment guidance is built around it, and you may even have heard that it is the foundation of an investment plan. And like nearly all respectable investment ideas, it is misunderstood and abused. One misconception is that asset class allocation and portfolio management are the same thing. I'll explain why they aren't later, but let's start by considering another misconception.
The Milton Friedman Centenary: One Hundred Years of Surprisingly Little Solitude
Milton Friedman was once a lonely voice for capitalism in a collectivist era, and seemed doomed to a hundred years of solitude. Instead, he arguably became the preeminent public intellectual of the hundred years that followed his 1912 birth.
Investing in a Low-Growth World
by Jeremy Grantham of GMO,
This quarter I will review any new data that has come out on the topic of likely lower GDP growth. Then I will consider any investment implications that might come with lower GDP growth: counter intuitively, we find that investment returns are likely to be more or less unchanged a little lower only if lower growth brings with it less instability, hence less risk. Finally I will take a look at the reaction to last quarter's letter, specifically about my outlook for lower GDP growth.
We Have Met the Enemy, and He Is Us
If modern portfolio management has a single defining urge, it is almost certainly diversification. We look for diversifying assets, strategies, and managers. A thoughtful investor can argue against almost any asset class stocks, bonds, hedge funds, private equity, commodities, you name it but arguing against diversification is like arguing against indoor plumbing. I dont want to sound like I'm calling for a return to chamber pots and outhouses, so I'm not actually going to argue against diversification.
The 2030 Outlook
Over the next several weeks we will look into the more distant future, to the year 2030. We will explore the long-term strategic alternative world development scenarios as laid out by the National Intelligence Council (NIC) and present our views regarding the developments. The NIC forecasts the likely paths that are either currently underway or are forecast to occur in the future. The NIC projects four possible global political and economic states based on these expected trends.
Currency War or Something Altogether Different?
"Who is afraid of currency wars?" asks Gavyn Davies in the FT. I have known Gavyn for 25 years and have to confess that he is way out of my league intellectually. He is one of the smartest people I have ever met and, thankfully, also one of the humblest. He rarely gets things wrong so, when I occasionally disagree with him, it always makes me slightly uneasy.
Ditto
Anyone who reads my memos of the last 23 years will see I return often to a few topics. This is due to the frequency with which themes tend to recur in the investment world. Humans often fail to learn. They forget the lessons of history, repeat patterns of behavior and make the same mistakes. As a result, certain themes arise over and over. Mark Twain had it right: "History doesn't repeat itself, but it does rhyme." The details of the events may vary greatly from occurrence to occurrence, but the themes giving rise to the events tend not to change.
The Bernanke Shock
The financial world was shocked this month by a demand from Germany's Bundesbank to repatriate a large portion of its gold reserves held abroad. By 2020, Germany wants 50% of its total gold reserves back in Frankfurt - including 300 tons from the Federal Reserve. The Bundesbank's announcement comes just three months after the Fed refused to submit to an audit of its holdings on Germany's behalf. One cannot help but wonder if the refusal triggered the demand.
Monthly Investment Bulletin
by Team of Bedlam Asset Management,
Financial discipline is collapsing and with it, trust in the value of money. Many heavyweight thinkers in America, such as Nobel laureate Paul Krugman have suggested that a solution to avoid national debt ceilings imposed by Congress would be to mint a trillion dollar platinum coin. Meanwhile, heavyweights close to policy makers in Britain and Japan have been musing whether their central banks should write-off the mountains of government bonds they have bought recently.
Credit Supernova!
by Bill Gross of PIMCO,
They say that time is money. What they don't say is that money may be running out of time. There may be a natural evolution to our fractionally reserved credit system which characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a "big freeze" trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence.
U.S. Debt Crisis End-Game Looms in 3-5 Years
Last week, one of the most respected research groups in the world predicted that the US likely has only 3-5 years before the wheels fall off and the world is thrust into a major financial crisis, possibly even a depression. We'll talk about all of these things as we go along today. But before we go there, let's take a brief look at the economy before tomorrow's advance (first) estimate of 4Q GDP.
Expanding Horizons: The Most Difficult Environment for Generating Income in 140 Years
In the most difficult environment for generating income in 140 years, we survey the landscape of income-generating options, review lessons from the previous bond Bear Market, and demonstrate why we believe global, dividend-paying equities deserve a prominent role in investor portfolios.
A Few Things to Consider. Plus a Look at Maine and Illinois
by Gregg L. Bienstock of Lumesis,
This week's commentary is a slight departure from our standard format. It's been a few weeks since we mentioned the fiscal cliff, sequestration and the like. This is due to our collective saturation and the perspective of so many that the problem was solved. Well, we want to provide a reminder or two and throw a few thoughts at you to kick around. We conclude with a quick look at Maine and Illinois.
Cliff Dwellers
In the ensuing days and weeks there will be plenty of opinions about what passed and what will continue to be negotiated in the drama known as the fiscal cliff. The spectacle of across-aisle dealings makes for a well rated "Reality" show (Fiscal Riff?), but poor ratings for both effectiveness and efficiency in governance. With US-centric issues in the forefront, the focus has been taken off the ongoing Euro Zone talks, which continue to plod along.
Prisoner of the Bureaucracy
I wrote some time ago that Greece had a choice between Disaster A: staying in the euro; and Disaster B: leaving the euro. I have recently come back from four days in Greece, meeting with lots of people at all levels of society, and will share with you in this letter my analysis of their choices and the results. I'll also have a few things to say about what the developments in Greece might mean for the rest of Europe and the developed world.
10-Year Shiller P/E Exposes Cyclical Overvaluation and Undervaluation
Last week we spoke to the Washington Hay Growers Convention in Kennewick, Washington. Those who grow hay have enjoyed a very similar boom in the last twelve years that wheat and corn growers have enjoyed. The parking lot was full of nearly new heavy duty trucks and the convention floor was packed with $400,000 to $700,000 farm implements from major manufacturers. These farmers have been feasting in the boom and it got me thinking about how to correctly value cyclical businesses, because at Smead Capital Management valuation matters dearly.
Is the European Crisis Over?
by Chris Maxey, Ryan Davis of Fortigent,
The European sovereign debt crisis that first erupted in 2010 and stoked almost three years of intense market volatility has all but faded from the front pages. Overshadowed by domestic policy issues and European Central Bank (ECB) President Mario Draghi's pledge to do "whatever it takes" to save the Eurozone, fears that the monetary union would crumble and unleash a maelstrom of financial distress appear to have dissipated.
Quarterly Review and Outlook
The American Taxpayer Relief Act has lifted the immediate uncertainty of the fiscal cliff. Nevertheless, tax increases that are already in effect from this act, as well as the Affordable Care Act, impose a major obstacle to growth for the U.S. economy in the first half of 2013. The result of these taxes is considerable, especially in light of the poor trend in household income. In addition, these tax increases will continue to act as a drag on economic growth until late in 2015 and are unlikely to produce the revenue gains advertised.
Taking Stock of the Greek Issue
Euro zone officials have shown a lot of flexibility in dealing with Greeces efforts. As the crisis extended to other countries, EMU politicians have put the integrity of the euro area above all and are unlikely to give up on their efforts should further difficulties arise. A Greek exit from the euro area does not seem to be an option any longer, but Greece must continue its efforts to return its public finances to a sustainable path.
The Year Past, The Year Ahead
by Michael Gomez of PIMCO,
The multiyear run of performance by emerging market (EM) sovereign external debt has been remarkable but residual valuations look either just fair (investment grade) or expensive (high yield) versus other comparable credits. We still see abundant opportunities in EM local markets, while EM equities are poised to benefit from a relatively low starting point for both earnings and earnings expectations.
The Rise of Asia's REITs
by Sherwood Zhang of Matthews Asia,
Real estate investment trusts (REITs) in Asia are following in the footsteps of their U.S. counterparts as they become an increasingly important asset class attracting investors looking to gain exposure to a diversified pool of real assets and relatively high yields. In the past decade, REITs have become a growing force in the regions investment universe. This month Sherwood Zhang, CFA, takes a look at just how far Asia's REIT markets have come, and what new opportunities as well as risks may still exist.
ProVise Bullets
By now you may have read more than you care to about the changes to income taxes. We avoided rushing to get you something as so many others did, so that we could provide you with some comprehensive and practical information. It is a long read, but we hope you find it to be worth your time.
The Trillion Dollar Trick
by Peter Schiff of Euro Pacific Capital,
The birth, and the apparent death, of the trillion dollar platinum coin idea may one day be recalled as a mere footnote in the current debt crisis drama. The ultimate rejection of the idea (which was to use a loophole in commemorative coinage law to mint a platinum coin of any denomination) by both the President and the Federal Reserve seems to offer some relief that our economic policy is not being run by out-of-touch academics and irresponsible congressmen. In reality, our government has been creating more than one trillion dollars out of thin air every year for the past five.
Forecast 2013: Unsustainability and Transition
As we begin a new year, we again indulge ourselves in the annual rite of forecasting the year ahead. This year I want to look out a little further than just one year in order to think about the changes that are soon going to be forced on the developed world. We are all going to have to make a very agile adaptation to a new economic environment (and it is one that I will welcome). The transition will offer both crisis and loss for those mired in the current system, which must evolve or perish, and opportunity for those who can see the necessity for change and take advantage of the evolution.
The Year Past, The Year Ahead
by Michael Gomez of PIMCO,
While not immune to global economic headwinds, emerging market investments remain well positioned to outperform their developed world counterparts over time. The multiyear run of performance by emerging market (EM) sovereign external debt has been remarkable but residual valuations look either just fair (investment grade) or expensive (high yield) versus other comparable credits. We still see abundant opportunities in EM local markets, while EM equities are poised to benefit from a relatively low starting point for both earnings and earnings expectations.
Invest In Equities: Your Future Self May Thank You
Investors have had an illusion about the stock market since the financial crisis. With the barrage of negative headlines and abhorrence toward risk, investors seemed to feel that equities would not improve going forward. This turned out to be a mistaken belief.
Things Can Only Get Better
As long-duration common stock owners, we at Smead Capital Management don't put much emphasis on predicting the year-to-year movements in the stock market. We expect at least a 10 percent or greater decline during each year and a greater than 20 percent decline at least once every five years. With that caveat in place, we will throw our two cents into the debate about what the US stock market will do in 2013.
An Unconstrained Approach to Bond Market Investing
by Sabrina Callin, Lisa Kim of PIMCO,
Investors are increasingly focused on alternatives to traditional investment strategies. Unconstrained bond portfolio construction should be driven by an outcome-oriented goal, with strategies assessed on an individual risk/reward and correlation basis, and each investment in the portfolio evaluated rigorously for the expected risk and return as well as the potential impact of the correlation to other investments in the portfolio.
Gundlach's High-Conviction Investment Idea
by Robert Huebscher,
Count Jeffrey Gundlach among those who expect Japan's currency to collapse because it can't service its debt. Japan's challenges may parallel those that the US faces, and Gundlach feels strongly that they have created a compelling investment opportunity.
The Ten Key Benefits of Investment Committees
by Bob Veres,
In this first part of a two-part report, I'll identify ten core purposes that investment committees serve in different types of firms, ranking them in order of the number of responses I received. If your investment committee is serving all ten purposes, based on the survey, you're among a select minority - which means that many advisors may find new ways to use this versatile new tool in their RIA practices.
Results 2,451–2,500
of 2,772 found.
