DOJ Rule on Retirement Accounts

January 26, 2016

I took issue with this clearly biased piece on the proposed DOJ ruling. There are business interests supporting both sides of the argument and of course politicians are weighing in with little to no understanding of financial markets and the market for financial advice.  

THIS is how Obama can fix 401(k)s

When it comes to understanding the value of financial advice, regardless of what you think it’s worth paying for – within reason, consider this.  In 2007-2008 how many financial advisors aggressively persuaded their clients to market time and go to cash ahead of the financial crisis?  Easy to believe that number approaches 0%?  That’s probably closer to true than not.  However, in 2008-2009 when the markets were in free fall, and in hindsight were bottoming, how many financial advisors were complicit in allowing their client’s fears to allow them to sell at or near the bottom.  I’m willing to believe that the answer here is equally close to zero. 

The value of financial advice, measure purely in dollars is flawed. Furthermore the value of financial advice measured over short term performance and/or market volatility is also flawed.  The single most valuable service a good advisor can give to a client is to build a sound portfolio around your goals, risk tolerance and objectives, and then hand hold you through turbulent times so you don’t derail your own financial outcomes. 

The prospect of low cost, robotic (if even that) advisors taking control of trillions of dollars in retirement savings poses a far greater risk to consumers and financial markets.  

Will you robot call you during the next crisis and help you understand what you own, why you own it, help you navigate hard times without realizing permanent losses?   If it does, let me know as I will put all of my own money in the stock of the company that figures that out. 


It’s all about that dollar ’bout that dollar. 

January 15, 2016

The USD index ascent coincides precisely with the stall and subsequent sell off in risk assets. A strong and rising dollar makes USD cash a strong investment despite much yield on a relative basis.  It has exacerbated commodity market volatility, credit market volatility and is finally being felt in equity markets.  

What’s noticeable is the persistence of this dollar strength, at its highest levels in a decade, has sustained high levels now longer than during the financial crises.  This is the new currency paradigm. China spent it’s period of long and prosperous growth pegged to a weak USD.  They are struggling to navigate  this new paradigm. 

We should all be cautious here and recognize that cash is an asset class and has significant value when it’s purchasing power is increasing.  

Uncoordinated Central Bank Policy

January 7, 2016

It is unwise to forget that the Fed’s December decision to raise the overnight reference rate was the first such divergence in a globally coordinated central bank policy of easing. 

It is also unwise to forget that the preceding 7 years of coordinated easing was managed at least in part to help support risk asset values. 

It is therefore naive to expect stability in risk assets at the moment of divergence. 

Libor spreads are ballooning from unprecedented low levels. 

Currency pairs are unwinding at rapid rates.  

Financial markets lack the liquidity required to accept larger episodes of risk aversion and deleveraging. 

Complacency set in two years ago. 

This time is different.  This time everyone will learn that the patient has been sick all along, and despite announcements to the contrary, the global economy has been in ICU since 2008.