Outside-IN
Feb 26, 2013, 2:38 PM EST
Uncle Sam's conjurring has clients investing in make-believe
In recent years, a high degree of economic, financial and political uncertainty has resulted in acute volatility in stocks, real estate, commodities and precious metals. I believe that another aggravating factor has been the increasing skepticism with which the investing public views government statistics and statements. To make prudent decisions, investors need to have key economic indicators, including economic growth, inflation rates, unemployment levels and the real cost and value of money. For the past 20 years or so, the key assumptions behind the calculation of these figures have been changed or, more accurately, distorted in favor of the government.Perhaps the most important government statistic for investors is the inflation rate. The precise degree to which money is depreciating is the bedrock upon which all other financial determinations rest. The rate is the prime input that determines the discount rate used for calculating ... Read full post
Jan 29, 2013, 10:08 AM EST
How ignorance hampers the pursuit of alpha
Walking through the art studio at my son's high school last year, I was drawn to a piece featuring a blindfolded woman trying to find an apple that she couldn't see in front of her. My son explained that this was the centerpiece in a series that he was doing on “Truth versus Ignorance.” Ignorance — that is the lack of knowledge and/or insight — often is a contributor to prejudices, biases, and bad decisions, he said. The piece resonated with me immediately. No matter what decision is to be made, the solution will almost assuredly be better if the decision is based on truth (knowledge) rather than ignorance. It is hard to make good decisions when you are unaware of —or unwilling to accept — the relevant facts and circumstances. This is certainly true for investment decisions, in part because their consequences have a direct impact on the economic options for the ultimate beneficiary. All too often,... Read full post
Jan 22, 2013, 4:56 PM EST
Peter Schiff: Why Krugman & Co. is dead wrong about inflation
In dismissing the inflationary warnings of Austrian School economists, the pro-stimulus Keynesians have largely refrained from attacking the roots of our logic. (Given that this involves defending the position that money printing does not lead to inflation, their reluctance is understandable). Instead they point to the lack of "evidence" that shows prices going up in step with money supply increases. Paul Krugman himself unpacked these arguments in a recent blog post designed to specifically discredit my views.According to Krugman, the sub 2.5% increases in the Consumer Price Index (CPI) over the past few years are all that is needed to invalidate the fears of the inflationists.However, there is plenty of evidence to suggest that the measurement tools used by Krugman and his cohorts to measure inflation are as deeply flawed as their arguments. And to conclude that inflation has been quelled requires a dismissal of the macroeconomic... Read full post
Jan 15, 2013, 12:01 AM EST
Finra's suitability rules on private funds create conflicts
Over the last several years the entry costs for marketing alternative investments has been pushed ever higher. Now a series of somewhat conflicting regulations has pushed those costs to new heights and threatens the traditional way in which many of these investments are marketed. The regulations at issue here are the SEC/CFTC's Rule that has been implemented pursuant to Section 404 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as Rule PF (and Form PF); FINRA's enhanced Rule 2111 concerning suitability; and most recently FINRA Rule 5123. Rule PF is generally viewed as demanding confidential information with the understanding by the industry that the information will be guarded by the SEC/CFTC and kept in confidence. The other rules listed above now would take the confidential information in Form PF and disclose it to the world. The clash of these regulatory mandates will noticeably change the... Read full post
Dec 18, 2012, 12:01 AM EST
Finding value, minus the stock pickers
A repeat performance of the 2008 stock-market debacle again failed to materialize in 2012, as U.S. equities outperformed most asset classes despite a global economy wracked by tumult. Can-kicking and bond-haircuts have supplanted soccer as the most popular pastime in Europe; debt-laden Japan engages in outright monetization of its obligations; and emerging and developed nations alike wrestle with slow-growth, slowdowns, and recessions. Amidst the din, U.S. stocks have defied the chorus of “Profit margins are too high! Unemployment is too high! Valuations are stretched!” What's going on and how can investment advisers benefit?There are two lasting truths to the equity markets. One, the obvious, is volatility. Equities are more volatile than bonds. This works in both positive and negative directions, but as losses bring more pain than gains bring joy, the downside is burned into the long-term memory of investors. The other... Read full post
Dec 4, 2012, 11:36 AM EST
Bill Gross: Pimco's investment picks and pans
You didn't build that.......... 332I built that ....................... 206 Well, I guess that settles it: you didn't build that after all. Or maybe you did, but not all of it. Or maybe like the convoluted John Lennon above “you think you know a yes, but it's all wrong. That is you think you disagree.” Whatever. Rather than an economic mandate, November's election was more of social commentary on the Republicans' habit of living with eyes closed. Their positions on what Conan O'Brien labeled “female body parts” – immigration, gay rights and student loans – proved to be big losers, and they will have to amend rather than defend those views if they expect to compete in 2016. I suspect they will. Political parties are living social organisms that mutate in order to survive. We will see straight talking Chris Christie or Hispanic flavored Marco Rubio leading the Republican charge four years from now... Read full post
Nov 20, 2012, 8:06 AM EST
Peter Schiff: Fiscal cliff not the problem — it's the solution
Now that President Obama has been re-elected, the media is finally free to focus on something besides the clueless undecided voters in Ohio, Florida, and Colorado. The brightest and shiniest object that has attracted its attention is the "fiscal cliff" that we are expected to drive over at the end of the year unless Congress and the President can agree to turn the wheel or apply the brakes. Fresh from his victory, the President took time today to let the nation know how he proposes to avoid the cliff: to raise taxes on those Americans who make more than $250,000 per year. He made clear that no one making less than that will be asked to pay any more. The two percent of taxpayers that the President is targeting earn 24.1% of all income and pay 43.6% (as of 2008) of all personal federal income taxes. Sounds like a fair share to me. But the four or five percent tax increases on those earners that are being proposed would only yield around... Read full post
Nov 13, 2012, 3:59 PM EST
Jeffrey Saut: Why Obama will compromise
The following is an excerpt from the commentary of Jeffrey Saut, chief investment strategist and managing director of equity research at Raymond James & Associates, for Monday, Nov. 12. To read the full commentary, click here. As most of you know I was in Glasgow, Edinburgh, London, Zurich, and Geneva during election week seeing institutional accounts and speaking at conferences. Of course the question on all the portfolio managers' (PMs) minds was about the election, the subsequent effect on the economy and the various markets, currencies, and the Fiscal Cliff. The election results really should have come as no surprise to readers of these missives, or listeners to my verbal strategy comments, because for months I have said the election was President Obama's to lose. It should have also been apparent that Mitt Romney just plain alienated too many constituencies to get elected. Aiding in the democratic win was an exceptionally low... Read full post
Nov 6, 2012, 10:48 AM EST
Gross: Romney or Obama? Doesn't matter
So I pulled out my magic lamp that for some reason works only every October 22nd, and rubbed until the Genie appeared in his red and white checkered cloak with a 10-inch diameter Flavor Flav clock hanging ceremoniously around his neck. Being a rather forward, although not disrespectful Genie, he immediately said, “Mr. G, instead of the yield on the 10-year Treasury, perhaps this year you should wish to know who is going to win the Presidential election?” After some thought I replied, “Nah, I need some breaking news, Mr. Genie, something that will make a difference, something that will shock the world, like when does the iPhone 6 come out?” Obama/Romney, Romney/Obama — the most important election of our lifetime? Fact is they're all the same – bought and paid for with the same money. Ours is a country of the SuperPAC, by the SuperPAC, and for the SuperPAC. The “people” are merely election-... Read full post
Oct 23, 2012, 11:02 AM EST
The truth about diversification
We learn in finance theory that diversification simply means not putting all your eggs in one basket. Simple as the idea is, most investors do not hold portfolios that are even close to being truly diversified. Two reasons make this sensible objective difficult to achieve. First, most investors are not disciplined enough to implement diversification. To illustrate my point, pause and check whether you are willing to reduce equities when the trailing 12-month return on stocks is 20+ percentage points higher than bonds? Second, but not less importantly, most investors do not actually diversify their equity risk with their investment decisions; they are still exposed to one common significant shock. Returning to our initial definition, many portfolios look like a truck with several baskets of eggs loaded on it. Clearly, investors' eggs are vulnerable to the truck tipping over. This issue of Fundamentals will show why it is so important to ... Read full post
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