Why Wall Street shouldn’t get its way in the fight over financial advisers – TheGuardian.com 08-13-15

Salient to Investors:

If you ask your adviser to whom he or she owes their first legal duty of care, and you don’t get an immediate answer “you, as my client” then the chances are that they are not acting as a fiduciary. You can’t be a part-time fiduciary.

The first legal duty of financial advisers at firms like Merrill Lynch or Morgan Stanley is to their company and their work for you is covered by a looser “suitability” standard. The bait-and-switch nature of the “suitability standard” allows financial firms to publicize their devotion to their clients only to back away from them in arbitration hearings or lawsuits over conflicted advice and costly, inappropriate products. Wall Street advertising phrases like “ethically obligated” and “should make you feel” should trigger alarm bells – they are not the same as legally obligated and count little in an arbitration.

A fed study concluded that financial advisers who steered clients into more expensive or less attractive investment products ended up costing investors in IRA accounts between $8 billion and $17 billion in underperformance.

Those who argue that the high costs of accepting the fiduciary rule means it will become too costly to serve middle-class investors are trading on fear. Many firms have already cut back on their willingness to provide financial advice to smaller clients – nearly 4 years ago Merrill Lynch told its advisers that they would not be paid for working with new clients with less than $250,000 in assets.

Read the full article at http://www.theguardian.com/money/us-money-blog/2015/aug/13/financial-advisers-wall-street-fiduciary-standard-obama-administration

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Fareed Zakaria GPS – CNN 03-22-15

Fareed Zakaria said:

  • The greatest vulnerability for Israel is its legal jurisdiction over 4.5 million Arabs who have neither a state nor a vote – a situation that cannot last in a democratic society.
  • The Stockholm IPRI says Israel’s defense budget is larger than that of Egypt, Jordan, Syria and Lebanon combined.
  • The UN says the US has taken in the equivalent of only .08% of its population in refugees, versus 1% for Sweden and 9% for Jordan.
  • IHS Global Defense Trade Report says the worldwide defense market rose more than 13% to a record $64 billion in 2014; Saudi Arabia overtook India as the world’s top importer and China was third.

Martin Indyk said Netanyahu has alienated just about every world leader including Israel’s closest friends Merkel and Sarkozy, by doing many things which contradict the promises that he has made them.

Elliot Abrams said the situation with Israel is the worst in a very long time because of Obama’s terrible personal attitude toward Netanyahu.

Michael Lewis said:

  • The technology is almost getting rid of Wall Street, but the resulting complexity and opacity still needs gatekeepers.
  • In the 1980s, the kind of young person who went to Wall Street changed from being one who was in the bottom of their class at Yale to one who was at the top and who can cause a lot more trouble – very bright people without a particular ambition except to be a success type.
  • Wall Street women are kept largely separate from the risk taking decisions. However, after the financial crisis, women rose to positions that were sufficiently senior that they could be plausibly blamed when things went wrong and were.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://transcripts.cnn.com/TRANSCRIPTS/1503/22/fzgps.01.html

Fear Thaws Out for Investors as Online Brokers Defy Funk – Bloomberg 06-30-14

Salient to Investors:

Analysts expect earnings to fall this year at Goldman Sachs, JPMorgan Chase et al, but rise  20 percent or more at discount brokers.

Chad Morganlander at Stifel, Nicolaus said household investors are getting more confident as their fear thaws out – volatility terrifies retail investors.

James Gaul at Boston Advisors said retail confidence tends to come later in an economic cycle than institutional confidence – optimism is very high now.

Client trades at E*Trade, Schwab and Ameritrade have averaged 390,838 a day in 2014 versus 108,835 at the peak of the dot-com bubble in 1999.

When the VIX hovered above 13 from 2004 to 2006, Schwab’s earnings increased at an annual average of 31 percent and E*Trade’s at 41 percent. The measure, known as the VIX, is below 12, compared with its two-decade average of about 20.

Charles Peabody at Portales Partners said smaller firms are not as driven by turnover as they are by asset level values, whereas the big firms need turnover of volume.

This rally is over 5 years old versus the average 4.1 years for bull markets since WWII.

The S&P 500 is at 17.9 times earnings.

Matt McCormick at Bahl & Gaynor said the firm has no plans to own any large money-center banks.

Dan Veru at Palisade Capital Mgmt said despite the risk of a correction and expected decline in profits at bigger financial firms, bank stocks will be a go-to group for investment once the Fed raises interest rates.

James Bullard at FRB St Louis said the Fed will raise interest rates in Q1 2015.

John Carey at Pioneer Investment Mgmt said the benefit to big banks from higher rates will be more muted than for the brokers, where there is a clear relationship between higher rates and better earnings.

Read the full article at http://www.bloomberg.com/news/2014-06-29/fear-thaws-out-for-investors-as-online-brokers-defy-funk.html

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Barclays Joins UBS in Pursuit of African Millionaires – Bloomberg 08-02-13

Salient to Investors:

Barclays is joining Citigroup and UBS in targeting millionaire clients in Africa.

Cap Gemini and Royal Bank of Canada said the number of Africans with at least $1 million of investable assets climbed 9.9 percent to 140,000 in 2012, the fastest rate of increase outside North America. Cap Gemini said 42 percent of the millionaires in Africa and the Middle East are prioritizing wealth accumulation, a higher proportion than in North America, Europe or Asia.

Mark Mobius at Templeton Emerging Markets said it is a great time for private banking, wealth management and asset management in Africa.

UBS, the world’s biggest wealth manager, said in May it will expand its operations in Africa as economic growth rates boost demand. The industries contributing most to wealth creation on the continent include the resources, telecommunications and consumer industries, according to the Zurich-based bank.

The IMF said economic growth in sub-Saharan Africa will accelerate to 5.9 percent in 2014 from 5.1 percent in 2013, while Nigeria will grow 7.2 percent in 2013.

Thabo Khojane at Investec Asset Mgmt said pools of savings are being created across the continent in counties like Nigeria, Kenya and Ghana.

Patrice Rassou at Sanlam Investment Mgmt said local and international wealth managers seek to bolster earnings being squeezed by tougher regulatory requirements. Rassou said South African banks and global banks have been bad in general in the wealth management market – Barclays Africa has the product set to be a game changer.

Read the full article at  http://www.bloomberg.com/news/2013-08-01/barclays-joins-ubs-in-pursuit-of-millionaire-clients-in-africa.html

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Banks on Brink of S&P 500 Supremacy as JPMorgan Beats Microsoft – Bloomberg 07-28-13

Salient to Investors:

Banks, brokers and insurance companies make up 16.8 percent of the S&P 500, almost double the level from 2009 and versus tech companies at 17.6 percent. Banks were the largest US industry during the bull market that began in 2002, and financial firms grew to 18.8 percent of the index in the late 1990s,

Bulls contend the change signals banks will lead the economy even after the Fed begins to taper. Bears say S&P 500 profits would be down this quarter if not for banks, and the last time financials were the biggest industry, in 2008, the consequences were disastrous.

Kevin Caron at Stifel Nicolaus said the reasonably good performance of the banks provides confidence in the underlying economy – without the financials working, all the rest would not be working.

Analysts expect S&P 500 earnings to climb 3.3 percent, led by a 27 percent increase in bank profits: ex-financials industry, S&P 500 earnings would contract 1.2 percent. Banks are beating analyst estimates by 8.9 percent. Economists expect GDP to increase 1.8 percent in 2013, and 2.7 percent in 2014, and versus the average of 2.4 percent since 1990. Computer makers and software designers have reported earnings 0.4 percent below analysts’ estimates on average.

Jeff Saut at Raymond James said we are rebounding as the banking system is getting healthier and eventually that flows into the economy in making it easier to get a loan.

JPMorgan, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley controlled 95 percent of cash and derivatives trading for US bank holding companies at December 31, 2012.

Stanley Nabi at Silvercrest Asset Mgmt said the regulators are going to look over the shoulders of the banks and make sure that they are not raising their risk profiles.

Matt McCormick at Bahl & Gaynor said expectations are ahead of themselves, so prefers tech over banks in 2013.

Dan Veru at Palisade Capital Mgmt said banks will continue to tread higher as investors are starting to say that they need to invest in the sector.

Todd Lowenstein at HighMark Capital Mgmt said financials were hit hardest in the crisis we are still in the early innings of recovery.

Read the full article at  http://www.bloomberg.com/news/2013-07-28/banks-on-brink-of-s-p-500-supremacy-as-jpmorgan-beats-microsoft.html

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Jim Rogers Wary On The U.S. Bull Market — Agriculture Shines But Fracking Could Flop – Financial Advisor 07-25-13

Salient to Investors:

Jim Rogers said:

  • Agriculture will enjoy an extended boom,Very bullish about farmland and other agricultural products.
  • Bearish on Wall Street brokers and Ivy League professors.
  • The central corridor from north Texas up to the Dakotas has the highest growth rates in employment, income growth and savings in the US, and is the only region whose primary limits to growth are supply and capacity constraints.
  • A global shortage of farmers could become serious since most farmers in the US, Japan and elsewhere are in their 60s or older and young people are not entering the business – more Americans are graduating with degrees in public relations than in agriculture.
  • Gold is experiencing a complicated bottoming process.
  • The 30-year bull market in bonds is over and likely to be followed by a bear market of similar duration.
  • No bull market in any asset class goes on forever.
  • The bull market in US equities is getting close to ending in a big mess, worse than 2001 and 2008-2009.
  • Global central bank promiscuity virtually ensures turbulence and tough times will follow.
  • Shorting shorting junk bonds as the riskiest assets will get hurt the most when the central banks’ house of cards collapses.
  • Bullish on Russian stocks, especially because it is the second most hated market after Argentina.
  • Bearish on fracking because rig usage is down 75 percent and pumps are down 50 percent over the last 2 years, and most oil shale well production declines very rapidly after the first year or two.
  • Water is a more attractive commodity, but don’t own it as politicians will hang you in the public square. Better to transport, clean or filtrate it and be a hero in the public square.

Read the full article at  http://www.fa-mag.com/news/jim-rogers-wary-on-the-u-s–bull-market-agriculture-to-shine-while-fracking-could-flop-14984.html

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S&P 500 Climbs for 4th Week to Record on Earnings, Fed – Bloomberg 07-19-13

Salient to Investors:


  • 73% of 103 S&P 500 companies so far reporting have beaten estimates
  • 53% have beaten revenue estimates.
  • 80% of S&P 500 financial companies have beaten estimates by an average of 8.7%. Banks and insurers are predicted to report earnings growth of 26% this quarter. Excluding financial stocks, S&P 500 companies are expected to report a 2% drop in profit.
  • 17 tech companies in the S&P 500 so far reporting earnings have missed estimates by an average 3.6% versus 2.7% above forecasts for all index stocks.

Tim Leach at US Bank Wealth Mgmt said Bernanke made it clear that the Fed will remain flexible, while earnings are well supported going forward by economic activity and strong corporate balance sheets.

Vincent Lowry at VTL Associates said there is a broad-based move by retail investors into the equity markets, which are the place to be because they will be able to absorb any gradual increase in interest rates. ETFs are attracting money at the fastest rate since September 2008.

Read the full article at http://www.bloomberg.com/news/2013-07-19/s-p-500-climbs-for-4th-week-to-record-on-earnings-fed.html

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Schwab Topping Goldman Sachs Presages American Return to Stocks – Bloomberg 06-09-13

Salient to Investors:

Shares of discount brokers are gaining the most since 2003 relative to the S&P 500, a sign that small investors are joining the 4-year bull market. Discount broker stocks beat the market by at least this much in 1997, 1999, 2003 and 2009, years in which the S&P 500 rallied an average of 14 percent from June 10 through December. Inflows into stock mutual funds totaled $108.5 billion during the last six months of 1997, $91 billion in 2003, and $12.3 billion so far in 2013.

Bulls say this shows individuals are preparing to buy shares, bears say buying by individuals who missed the rally indicates we are close to a top.

James Paulsen at Wells Capital Mgmt says when the retail investor finally gets more confident about the future, flows follow.

Jerome Dodson at Parnassus Investments said the huge run-up in stocks this year and the appearance of an improving economy getting better will attract more people wanting to enter which tends to push the market higher.

S&P 500 earnings are forecast to rise 6.6 percent in 2013 and 11 percent in 2014, while banks in the S&P 500 will rise 6.2 percent in 2013 and 5.6 percent in 2014.

James Butterfill at Coutts said trading by private investors provides no insight into the direction of the market because the inflows we are seeing are coming on the back of very low volume.

US equity trading is down 1 percent to 6.38 billion shares per day on average in 2013 versus the average of 8.13 billion from 2009 through 2012.

TD Ameritrade’s Investor Movement Index is bullish and at the highest level since June 2011.

Laszlo Birinyi at Birinyi Associates says individuals will push stocks higher as flows tend to multiply late in the rally, when gains force skeptics to capitulate, in the last ‘exuberance’ leg.

US equity ETFs have attracted $79 billion in 2013, on track to the highest annual inflow since at least 2009.

The Stoxx 600 Financial Services Index is up 12 percent in 2013 versus the 5.6 percent advance for a gauge of European banks – the last time gains in European brokerages exceeded banks by that much, in 2006, the Stoxx Europe 600 Index rose a further 14 percent in half2 2006.

Colin McLean at SVM Asset Mgmt said the inflows do not indicate the end of the rally because there is still a lot of money to come in.

Read the full article at http://www.bloomberg.com/news/2013-06-09/schwab-topping-goldman-sachs-presages-american-return-to-stocks.html

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MetLife Cuts 2,500 Advisers Seen Lacking Chance of Success – Bloomberg 05-30-13

Salient to Investors:

MetLife cut its adviser force by a third, eliminating 2,500 jobs as the company scales back variable annuity sales and turns to other nations for growth.

MetLife has 5,000 advisers who sell insurance and investment products, down from 7,500 in February of 2012.

Danny Sarch at Leitner Sarch Consultants said salespeople are having a harder time breaking into financial-services fields. Rules have limited cold-calling, and potential customers have become more likely to turn to advisers suggested by friends.

The largest banks are cutting back broker training.

Sean Dargan at Macquarie said there has not been an influx of younger advisers to replace the advisers who are going to retire.

Read the full article at http://www.bloomberg.com/news/2013-05-30/metlife-cuts-2-500-advisers-seen-lacking-chance-of-success.html

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More Evidence Hedge Funds Are an Expensive Way to Trail the S&P 500 – Bloomberg Businessweek 05-24-13

Salient to Investors:

Hedge funds continue to be an overpriced, middling asset class.

Goldman Sachs found that hedge funds returned an average of 5 percent in 2013 versus a 15 percent gain in the S&P 500, while only 5 percent of the funds beat the S&P and more than 1 in 8 posted a loss. Goldman said hedge funds betting on stocks to rise have done well, but incorrect short positions cut into returns. Goldman found that 31 of the 50 ‘very important short positions’ for hedge funds beat the S&P while only 4 lost value, as the hedge funds hoped.

Hedge funds have underperformed the S&P since the financial crisis, yet Hedge Fund Research says funds saw inflows in 14 of the last 15 quarters.

eVestment says hedge fund net inflows have slowed to $5.8 billion through the first four months of 2013, the slowest rate of growth to start a year going back to Q3 2003, while $10.5 billion has exited equity hedge funds in 2013 versus inflows of $31 billion into fixed-income and credit strategies.

Jason Rosiak at Pacific Asset Mgmt said there is a continuous brain drain on Wall Street, and hedge funds are playing in asset classes for the first time.

Read the full article at http://www.businessweek.com/articles/2013-05-24/more-evidence-hedge-funds-are-an-expensive-way-to-trail-the-s-and-p-500

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