Ken Fisher Warns: RIA World Gone in 10 Years – ThinkAdvisor 11-21-13

Salient to Investors:

Ken Fisher at Fisher Investments said:

  • Ending QE would be the most bullish thing we can do because it is not a stimulus – it flattens the yield curve and slows things down. We are doing well despite QE, not because of it. Historically, a steeper yield curve is more bullish for the economy.
  • Bernanke’s goal has been not to increase the quantity of money but to build bank balance sheets, which he has done very successfully. QE does not increase the quantity of money, which has gone up less in this expansion than in any economic expansion in our lifetime.
  • The Fed lies a lot. It has never been incumbent on central bankers to be open, transparent and tell the truth. If they did, somebody would trade ahead of them and profit.
  • The economy is in a slow but steady recovery. Markets move in advance of the economy – the stock market is one of the strongest leading economic indicators, which always predict the economy 6 months out. We have never, ever had a recession while LEI was high and rising.
  • The market looks at health care and doesn’t care.
  • If and when QE ends, long rates will rise and short rates remain low because the Fed keeps them there. The steeper the yield curve, the more eager banks become to lend.
  • Since 2008, the Fed has been using demand-side monetary policy which does not work. No bank will ever lend a penny when both short and long rates at zero.
  • Bonds will be flat or slightly negative in total return.
  • Fed chairs’ prior activities have not been predictive of what they will do.
  • Sam Peltzman at University of Chicago said people risk more when there are rules in place that make them think they are safer, and risk less when those rules are taken away.
  • Congress passes bills and worries about their details later: but the details end up getting honed to benefit those who are the most successful at lobbying.
  • During the whole shutdown the market did fine. Markets move in advance of such events.
  • We are slowly entering the back half of the bull market. John Templeton said bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. We have one foot in skepticism and one in optimism.
  • Everything takes a long time in bull markets. We are 5 years into this one and have not reached optimism so we have years to get to euphoria.
  • Twitter had a spectacularly successful IPO but most of the other IPOs that same week did badly, a sign there is no real optimism and euphoria.
  • Earnings are at all-time highs and progressing at a moderate rate, while revenues are growing at a respectful rate. Q4 will be slightly stronger than people expect, with 70% of earnings exceeding expectations.
  • The chance of a market crash in 2014 is remote – 2014 will be a good year. The biggest threat to the market in 2014 is unknown, and would most likely be caused by stupid government policy.
  • We are in a long bull market, so large, high quality stocks will reward. Pharma, tech, some energy, consumer staples. Midsize banks and non-European foreign banks take in deposits and make loans are attractive.
  • US stocks have outperformed the world but that will begin to equalize as emerging market stocks rebound and European stocks play catch-up.
  • Implementation of Dodd-Frank would result in RIAs being absorbed by broker-dealers within a decade.
  • The big broker-dealers have seen huge increases in concentration of market share – 20 firms have all the money and will keep getting more because they have all the lobbying power.
  • Many broker-dealers claim to be fee-only advisors when in fact they are not.

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Billionaire Fisher Says U.S. Still in Middle of Stock Rally – Bloomberg 06-21-13

Salient to Investors:

Ken Fisher at Fisher Investments said:

  • The rally that began in 2009 is only in its middle stages because most investors still underestimate the strength of the economy – in between the transition from skepticism to optimism
  • It is amazing that people do not marvel at the power of global capitalism and global economies.
  • If the Fed reduces QE the economy will grow faster because key interest rates will rise, encouraging banks to lend more money to companies for hiring and expansion.
  • Rising long-term interest rates are a positive sign.
  • Mr. Market is trying to see if it can turn you against your better judgment.
  • Gold through most of history loses money. Before the 2011 peak, people were hoping for QE to translate into inflation which did not happen.

Fisher said at the end of March 2007 that he was wildly optimistic – the S&P 500 went on to rise 10 percent about six months later, before falling as much as 57 percent through March 2009. In April 2009, Fisher correctly predicted the S&P 500 would extend a rally that started in March 2009. In January 2011, he correctly said not to expect high equity returns in 2011.

The Bloomberg Consumer Comfort Index shows Americans were the least pessimistic about the economy in 5 years.

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Breaking Up Big Banks Hard to Do as Market Forces Fail – Bloomberg 06-27-12

Salient to Investors:

Michael Price at MFP Investors said five of the six biggest U.S. banks are selling at or below tangible book value, meaning the pieces are worth more than the whole, including some wonderful assets.

Bank of America has traded below book value since 2009, Citigroup since 2010.

Ken Fisher at Fisher Investments, underweight bank stocks for 3 years, is unclear why a bank needs to be in lots of financial services that aren’t banking. Fisher said the inherent nature of many CEOs is to love empire building.

David Trone at JMP Securities said the universal bank model is broken, while JPMorgan and Citigroup would be worth more broken up. New regulatory constraints will become even tighter after the JPMorgan trading loss – Trone says the biggest U.S. banks are un-investable because of new regulation and risks from the European sovereign-debt crisis.

Corporate raiders or potential takeovers don’t provide the same impetus for banks as they do in other industries due to laws that prohibit non-financial firms from buying lenders, and banks can’t make purchases that give them more than 10 percent of U.S. deposits.

Price, Trone and others say new regulatory burdens are core threats to bank profitability. Marc Lasry at Avenue Capital Group said banks will have a difficult time making money. Davide Serra at Algebris Investments said the universal bank model has through time been the winning one.

David Ellison at FBR Fund Advisors said high compensation for bank CEOs and their boards of directors makes them resistant to change. Professor Amar Bhide at Tufts University said bank managements and boards are protected from market forces – regulators won’t permit LBOs and the largest U.S. lenders are too large to be candidates for LBOs.

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Bank Investors Dismiss Moody’s Cuts as Years Too Late – Bloomberg 06-22-12

Salient to Investors:

Downgrades of 15 global banks by Moody’s Investors Service were met instead by rallies in stocks and bonds.

Gerard Cassidy at RBC Capital Markets said American banks are stronger than three years ago, and market prices have long reflected concerns raised by Moody’s.

Moody’s announced on Feb. 15 that it was reviewing the 17 banks, so by the time the results came out, the worst-case scenario for downgrades was already priced in. George Strickland at Thornburg Investment Management sees Morgan Stanley bonds rallying.

Richard Bove at Rochdale Securities said that to downgrade a BofA or Citigroup or companies sitting on hundreds of billions of dollars of cash in government-backed securities makes no sense – you can forget Moody’s.

Ken Fisher at Fisher Investments said Moody’s won’t detect a problem in advance and move a rating to warn the public – Moody’s effectively validates what the market’s already done.

David Hendler at CreditSights said large U.S. banks had ratings of Baa1 (BBB) or lower in the 1980s and early 1990s following Latin America’s sovereign-debt defaults of the 1980s – the industry has been through a triple-B phase before, and will come back from it again.

James Leonard at Morningstar sees the Moody’s cuts a  mea culpa from 2007 and 2008, saying the banks have improved so much in the last few years in terms of capital while their ratings keep going down, indicating the ratings were so wrong before.

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