Reuters Money
Is the U.S. economy heading for a double-dip recession?
Is the U.S. economy heading for another recession?
Two investment strategists who spoke to a group of Thomson Reuters brokerage clients at a conference in Phoenix on Tuesday say the chances are slim. Despite the bear market blues, David Joy, chief market strategist at Ameriprise, says a double dip recession is unlikely. The U.S. is destined to be in two percent growth environment for the foreseeable future — “or 2.5 percent, if we are lucky,” Joy says.
Rick Robinson, regional chief investment officer at Wells Fargo, who is based in Scottsdale, Arizona, told attendees the chance of a recession in the U.S. is about 35 percent. However, the construction and manufacturing industries in the U.S. are operating at “Depression-like” levels, he says.
The downturn in equities presents a long-term buying opportunity in U.S. as well as foreign stocks, Joy says, but he notes that investors need a time horizon of at least three years. “If you have a five-year time horizon, even better,” he says. When asked when the Dow Jones Industrial Average will hit 20,000, Joy says it won’t happen until 2025. “I hope I’m wrong,” he quips.
Robinson says the 20,000 threshold may be reached even sooner, but first the U.S. economy needs to deal with current credit issues — for example, municipalities are cash-strapped and banks are holding bad mortgages. That deleveraging will take five to seven years to work its way through the financial system, he adds.
The silver lining? While stocks are in the dumps, the financial industry is in decent shape, Robinson says. “We don’t think this is like 2008. The banks and the government have had three years to address their balance sheets. Banks are better capitalized than they were in 2008,” Robinson says.
While the global economy is sluggish, a bigger worry for the markets is more psychological than fundamental, says Joy, who is based in Boston. “The problem is we are just stuck,” Joy says. And he blames gridlock in Washington for much of America’s mental anguish. “The debt ceiling debate was a debilitating event for psyche of the U.S. investor, even more than the Lehman Brothers collapse,” Joy says.
Financial advisers consistently ask the wrong questions
If you go to see a financial adviser and you are only asked two main questions — how much money will you need in retirement and what’s your risk tolerance? – you should run for the hills.
Financial advisers who are shackled by conventional wisdom or just looking for numbers to plug into off-the-shelf portfolio software may be asking you the wrong questions.
You deserve a more customized approach, and can get one if you demand it.
Because it’s difficult to pin down a number that represents a decent lifestyle. It’s a moving target for many of us, and most of us are lousy judges of risk. Estimates can be tragically wrong.
Dan Ariely, the bestselling author and behavioral economist at Duke University, thinks many advisers are barking up the wrong tree.
In a recent Harvard Business Review piece, Ariely blasts this whole charade and the common compensation scheme of charging clients 1 percent annually to manage money.
“Frankly I think trained monkeys could do the same basic job giving answers to those two questions,” Ariely writes. “Certainly algorithms can do it, probably with many fewer errors. This is not something for which we should pay 1 percent of assets under management.”
There’s a bigger issue being highlighted here: the term ‘financial planner’ is being used by people who aren’t. Now the actual financial planners have been forced to coin a new term just to differentiate themselves from the salesmen holding themselves out to be planners.
Fund managers see tough times for Treasuries
The fact that U.S. Treasury bonds managed to cling to their coveted triple-A rating this week failed to impress several prominent bond fund managers, who say they are lightening up on Treasuries and stocking their portfolios with corporate bonds instead.
Despite the debt ceiling deal, U.S. sovereign debt remains in the crosshairs of ratings agencies like Moody’s and Standard & Poor’s. The rating agencies remain concerned that the U.S. is “not doing enough to reduce spending and/or increase revenues to bring down the trajectory of the country’s mounting debt,” warns BlackRock’s head of fixed income portfolio management, Peter Fisher, in a report issued earlier this week. If the U.S. were to be downgraded by one or more agencies, he observes, “the odds are very high that there would be knock-on consequences of other borrowers getting downgraded — both corporate and public, in the U.S. and overseas.”
Robert Persons, who manages the MFS Bond Fund, believes corporate America is replacing Uncle Sam as the borrower with the strongest financial profile. He exited U.S. Treasury debt nearly two years ago and has not returned since; he asserts government bond yields are so low that the risk of investing in them just isn’t worth it.
“Companies are the ones who have fixed their balance sheets, cut costs, and generated higher cash flows,” he says. “It’s the public sector that’s dropped the ball and left taxpayers to pick up the tab.”
Even before all the debt drama unfolded, many bond fund managers weren’t enamored with U.S. Treasury bonds because of their historically low yields, which are currently hovering at about 2.6 percent for the 10-year bond.
The average intermediate-term investment grade bond fund has about 14 percent of its assets in Treasury securities, according to Lipper — less than half the 32 percent weighting in that sector for the Barclays Capital U.S. Aggregate Index, a benchmark for U.S. investment-grade debt.
A number of fund managers with the flexibility to pick their spots in the bond market had little or no exposure to Treasury securities before the debt debacle, and have no plans to up the ante any time soon.
“And the fact is, corporate balance sheets look better than the government’s balance sheet right now.”
You’d think they’d be ashamed to say it, considering where so much of the “balance” came from, even if the article is out of phase with the rest of Reuters.
There haven’t been any reports that anyone besides GM ever paid back the TARP loans.
I really get the impression that the economy will fold because an awful lot of very well placed people may have decided that it was going to fold ten years ago and made the biggest golden parachute you could imagine. I’d like to know where they expect to land? I’m sure wherever it is, they don’t accept food stamps?
I could despise the business class of this country. From the start of the two wars it was obvious that Bush’s administration, and Obama isn’t very different either, was trying to sell a mercenary or volunteer war effort, as “sustainable” warfare. They also knew it would die if it ever came to a draft.
The two personified nukes in the preceding comments could incinerate their neighborhoods and we would be no closer to the truth about what has been going on over the last waste of a decade.
Debt ceiling: 10 reasons not to move your money now
Reuters Money reached out to members of the financial community to see how they’re calming the folks they advise. An overwhelming majority expressed faith that lawmakers would broker a deal by the deadline, and markets would adjust regardless.
Here are 10 reasons they give not to juggle your investments right now.
1. A short-term crisis demands long-term thinking.
While it’s true a debt ceiling crash might resemble the sky falling, no one knows if that’s going to happen. Markets reward investors who stick to sensible strategies over time. “Rather than obsessing about the debt debate, we are telling clients to get engaged in a long-term conversation about risk management,” said Michael Gault, senior portfolio strategist at Weiser Capital Management. Gault, who manages $200 million, stressed that the last few months on Wall Street have been good ones. “The concept of ‘risk’ has taken a back seat as the markets’ recovery has been in a relatively smooth upward trajectory. We think there’s tremendous value in rebalancing here.”
2. Smart investors adjust to market fluctuations, not political grandstanding.
“We’re telling clients that what is happening in D.C. is primarily political positioning,” said Mackey McNeill, CPA, PFS, and the principal of Mackey Advisors in Covington, Kentucky. McNeill manages $45 million, “mostly with Boomers,” and noted, “We continue to hold asset allocations based in the client’s plan. As asset classes respond to the market, we will take advantage and rebalance. We believe and have seen that trying to time the market in any environment puts clients money at undue risk.” The reckless ones, he thinks, are those gambling with political capital: “We also have encouraged via social media that this is a call for election reform.”
3. Cash reserves make for a strong defense.
A short term crisis does indeed require long term thinking, but I’m not at all convinced this is a short term crisis.
Why couples have trouble saying “I do” to financial planning
The Sweets showed moxie compared to the majority of couples, however, and sat down together earlier this month with a financial planner. The picture is less harmonious for other couples, according to a new study released by the Principal Financial Group and conducted by Harris Interactive. Surveying more than 600 financial advisers, they found 82 percent of couples in financial planning have one spouse that doesn’t want to be involved.
As for why, experts say it’s like that classic reply to “How do I love thee?” That is, let them count the ways marrieds avoid the topic like the plague.
“Some of the biggest contributing factors are procrastination, complacency and just fear,” said Timothy Minard, a senior vice president at Principal. “And clients tend to stretch the truth when asked, ‘Do you live within your means?’”
When the Sweets sat down with Eve Kaplan, a certified financial planner and principal of Kaplan Financial Advisors in Berkeley Heights, New Jersey, she got their attention by listening to and validating both of their points of view. (Brennan is the numbers guy; Christine is an intuitive, global-view gal.)
“She had each of us talk separately, and the other didn’t say a word,” Brennan said. “She was very holistic in her approach. She really got us to listen to each other,” Christine added.
“It’s very important that both spouses have enough time and space to tell me what’s important to them about money and themselves,” said Kaplan, a fee-only planner. That way, “they become emotionally engaged in the various goals couples have together.”
Plenty of Americans are coping with financial overload, said Jean Chatzky, a New York-based financial expert and author of “Money 911” (Harper). She asked Principal to address spouses and financial planning because of the avoidance issue. “If I ever have to deal with tech in my household… I hand it off to my husband or a professional, and a lot of people feel the same about their finances. But while you can live without your iPod, the same just isn’t true of money,” she said.
I am curious about the 82% statistic. Was it the financial advisers who reported if one member of the couple was not interested in the financial planning or was it the clients themselves who self identified? I want to use this statistic in a book but want to make sure I understand it fully.
Thanks. Interesting article.
Kathleen Burns Kingsbury
Does growing up mean outgrowing the family financial adviser?
As a boy, Bernie Reed watched his father ride into the hills of their Nebraska farm on a yellow-orange Case tractor to farm corn, alfalfa and winter wheat. Bernie’s ancestors homestead has occupied that land since the 1800s, and his dad — a weathered, leathery man with a linebacker’s build — tackled it some 16 hours a day, resting only on church-going Sundays.
The Reed family farm prospered, nearly tripling in size to 1500 acres, and so did the Reed estate: Today it is conservatively worth $3 million. And the financial advising team that his parents, Doran and Maxine Reed, started with almost 40 years ago in Holdrege, Nebraska is the same one his mom uses today, along with Bernie and four of his five siblings. (A sister lives in Grand Junction, Colorado; Doran Reed passed away almost nine years ago).
“Mom and Dad didn’t specifically tell us what to do; it seemed logical to continue on,” said Bernie Reed, 60, a ministry development consultant. “There’s a lot of trust and peace of mind in knowing that this has been a proven path for our family.”
“Most people here know me or my family, and my credibility is my last name,” said Dave Hunt, the Principal Financial Group representative who handles estate planning and finances for the majority of the Reeds. “With people in big cities, that might not make sense. But this is a town of 5,000. It means a lot here.”
In advising more than one generation of the same family, Hunt is something of a rarity. A new survey of 600-plus financial professionals by Principal reveals that in most cases, less than 25 percent of client relationships involve multiple family generations. And only 2 percent indicate that three-quarters or more of their clients are part of a multi-generational relationship.
“It’s a symptom of how many times parents [have failed]to sit down and advise the children,” said Timothy Minard, a senior vice president at Principal. “People of all generations haven’t taken the time to nail down their financial lives.”
Yet this apparent communications gap has a flip side that any parent of teenagers can appreciate: Even if you’re ready and willing to talk money, that doesn’t mean your kids want to listen.
Financial disclosures can make advice worse: Yale study
Washington watchers are sure to see a lot of one particular word in the months to come: disclosure.
The Securities and Exchange Commission is preparing a fiduciary standard for brokers that is expected to require them to disclose their financial conflicts. The Consumer Financial Protection Bureau plans to launch next week with a plan for new mortgage term disclosure forms. And Elizabeth Warren, the president’s adviser who set up that agency, has given speech after speech in which she discusses the virtues of requiring clear disclosures as a mode of financial regulation.
“Regulations should be about making sure that customers have the information they need to make the decisions that are right for them,” she has said, in some form, over and over.
There’s just one thing wrong with all of those disclosures: They don’t always work. Sometimes, they actually encourage consumers to make bad decisions, according to a new survey of academic research.
“We aren’t saying that disclosure or transparency is a bad thing,” Daylian Cain, an assistant professor of organizational behavior at the Yale School of Management, and one of the study’s authors, says. “But our research has found some instances where it has a perverse effect and can make consumers worse off. It just doesn’t work as well as we think it does.”
In addition to the obvious problems with disclosures done poorly — those overly long, incomprehensible, 60-page boilerplates that come attached to every new account and that Warren wants to simplify — there are disclosures done well enough that still have the wrong effect, says Cain. He is skeptical that commissioned investment salespeople will be able to act in the best interests of their clients if they simply are required to disclose that they are paid to sell certain products. (The leading securities industry trade group asked the SEC for just such a rule in a letter released today.)
“We found that conflicted advisers who disclose their conflict gave worse, more selfishly biased advice than those who didn’t disclose. They felt more comfortable giving misleading advice,” he says.
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Charles Schwab to consumers: Rate our services
It’s easy to find consumer reviews for restaurants, hotels and cars on websites like Zagat, Yelp and Edmonds. But what about financial services? Slim pickings.
This summer, Charles Schwab is rolling out Clients Speak, a ratings and review service that gives clients a public platform to talk about their experience with the company. Based in San Francisco, Schwab says it is the first brokerage firm to publicly allow clients to provide such feedback.
Sure, Schwab may open itself up to criticism, but Jonathan Craig, senior vice president of Schwab Investor Services, says it’s more important to be transparent. “We are very comfortable exposing our client experiences as publicly as possible,” he says. More often than not, clients gripe about a product they’d like — not realizing the company already offers it.
In addition, opinions — positive or negative — are a helpful marketing tool for consumers looking to make informed decisions. Potential clients “don’t only want to hear from us,” Craig says. “They want to hear from clients about real-life experiences — the good, the bad, the ugly.”
In the wake of the financial crisis, survey after survey shows that consumers are skeptical of the financial industry. (You’ll find ratings and reviews of Schwab from big third-party firms like J.D. Power & Associates here.)
Initially, customers will be able to provide online ratings in three core account areas: brokerage, retirement and banking services. When the site is fully interactive in August, Schwab’s clients will be able to rate their accounts on a five-point scale in areas including customer service, investment help and fees. They can provide detailed recommendations and add comments.
What about reviews for financial advisers who work within the Schwab network? “We are looking at different ways to expand,” Craig says.
Why more investor protection is needed, not less
Government isn’t the enemy when it comes to investor protection. Less is not more.
GOP Congressmen and its money-trust allies, though, are busy trying to dismember the Dodd-Frank financial reform law despite the evidence that investor protection had been underfunded when ordinary people needed it the most.
The last decade has been scarred by a stock and housing meltdown, the tail-end of the dotcom blow-up and two recessions. Most Americans are behind on saving for retirement. One would think that investor protection would near the top of the Congressional agenda (in addition to job creation).
Yet it’s clear from regulators that investor protection has become steadily more porous as the financial industry has grown.
A little-read U.S. Securities and Exchange Commission study on broker-dealers and advisers published earlier this year bluntly told the story:
“The growth of the investment advisory industry over the past six years has not been matched by a corresponding growth in Commission resources,” the study states as part of a Dodd-Frank regulation.
While the amount managed by registered investment advisers grew 59 percent from $24 trillion to $38 trillion (from Oct. 1, 2004 through Sept. 30, 2010), SEC inspection resources fell almost 4 percent during that period.
The congressmen advocating less regulation are PWAP’s “People Without A Plan”. All they know is what the lobbiests tell them. How many accidents does a drunk driver have to have before they take him off the road. All they know is let the financial community run wild and take money from social security and medicare.
I agree with doctorjay317.
Brightscope launches online marketplace for adviser shopping
Brightscope, which made a splash two years ago with its online performance measurement tools for 401(k) plans, is launching a free service on Tuesday to help people research and shop for financial advisers.
Brightscope’s new service could give a needed jolt of transparency to the financial advisory field, where finding an adviser is often a hit-and-miss process driven by word-of-mouth and referrals. And consumers find themselves wading into a market where almost anyone can hang out a shingle and start providing financial advice; planners may have any number of certifications or titles attached to their names, but none are required.
Meanwhile, the advisory marketplace is on the cusp of dramatic change as Washington works to write new rules on the fiduciary responsibilities of advisers, spurred by the Dodd-Frank financial reform act.
Brightscope hopes its success in the 401(k) market can be replicated in the advisory industry. Brightscope goes deeper than most other 401(k) data sources by leveraging the actual audit reports that all plans file with the U.S. Department of Labor on criteria including matching contributions, expense ratios and performance. Brightscope then assigns a simple numerical rating to all the plans and makes the scores available to investors for free.
Brightscope Advisor Pages aims to bring that kind of transparency to the adviser shopping process. The site pulls together a variety of public data that most consumers would have trouble finding into a single view, and allows users to search and compare advisers using criteria such as location, qualifications, amount and types of assets under management, area of specialty, legal disputes and formal complaints.
All of this information is publicly available from sources such as the Securities and Exchange Commission or FINRA BrokerCheck, but the information can be difficult for dig up. And some of the data is buried in PDF documents that search engines can’t crawl.
Advisor Pages could have its biggest impact by simply making a wealth of data on advisers visible to major search engines, says Mike Alfred, who co-founded the company with his brother Ryan. “One of our big objectives is to change the business by adding search visibility. Our data will be better and more prominent than what’s on an advisory firm’s websites or on a LinkedIn profile.”
A double dip recession requires a recovery of sorts. In Utah, jobs are supposed to be stronger than most states. It doesn’t feel like that on main street. Help wanted ads are almost non existent. Workers who enjoyed strong careers are settling for anything. Corporate profits – up. Executive salaries and bonuses – up. Mid level management jobs – gone! Workers are trading good paying jobs for low money service jobs. Still in 1st Dip!!! http://www.utahcareernews.com