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Articles by Tom Lockard
What The Election, Pandemic May Mean For Municipal Bond Investors
Tax-exempt municipal bonds continue to trade favorably to Government Bonds as the Federal Reserve and Treasury support most fixed income markets with the exception of municipals. Unless, of course, you count the little used $500 billion Municipal Liquidity Facility (MLF) created by the Federal Reserve Board in conjunction with resources provided in the CARES Act at the beginning of the pandemic.
Muni Bond Issuers Reach Out to Individual Investors (and Their Advisors)
On the heels of tax reform, the elimination of advance refundings, and record new-issuance municipal volume at the end of 2017, the municipal market was expecting new issuance to contract in 2018. In spite of predictions, new-issuance volume in 2018 is just slightly behind 2017’s pace.
Muni Bond Issuers Reach Out to Individual Investors (and Their Advisors)
On the heels of tax reform, the elimination of advance refundings, and record new-issuance municipal volume at the end of 2017, the municipal market was expecting new issuance to contract in 2018. In spite of predictions, new-issuance volume in 2018 is just slightly behind 2017’s pace.
The Test Most Advisors Fail: “How do you justify your fees?”
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives Before I give a talk to advisors, I ask the sponsor to send out a survey to participants asking a number of questions. The key one is: What’s the most difficult question you get asked by prospects? The responses center on how to justify fees and value. The problem is that very few advisors know the right way to answer these most commonly asked questions.
Should You Drop Your Broker-Dealer Status?
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. The more I talk to dual-registered advisors, the more I hear that many of them are looking to get out of the brokerage business entirely and operate as a fee-only RIA firm. If this is something that has crossed your mind, here are the pros and cons and what you should consider.
Buffett Whispers of Danger
In the 2017 Berkshire Hathaway Annual Letter, Warren Buffett told us what he is doing, and, in as quiet a voice as he could use, what he says to do. Our readers will not be surprised at our summation of Buffett’s letter, but here we go anyway. 1. Buffett explains his bet of the S&P 500 Index against a basket of hedge funds: “The bet illuminated another important investment lesson: Though markets are generally rational, they occasionally do crazy things.
More Trouble for the Equity Markets Ahead
All last year, we were waiting for the 10% correction in the United States equity market that never came. By the fourth quarter, many investors were beginning to think stocks would never go down, especially with real GDP growth picking up to 3% in the U.S. and spreading to other economies globally. All this was reflected in the data for market enthusiasm. The indicator I look at most closely is the Ned Davis Crowd Sentiment, which I like because this tool is based partly on transaction activity.
With Volatility Back, Time for More Quality
Markets have calmed somewhat, but make no mistake: Volatility is back. Russ discusses quality stocks can help in this environment. Markets have calmed down in recent days. Still, while U.S. stocks have managed to recoup roughly half of their recent losses, there has been a palpable shift in the environment. Markets no longer end each day at all-time highs and the S&P 500 Index’s annualized return no longer approaches triple digits. Another manifestation of this regime shift is volatility.
Where do we go from here?
Okay, that was a little intense. Now that we've had our long-awaited 10% correction, where do we go from here? I have some ideas. My final thoughts call the Greater Fools by their name. The KMI is a visual summary of current stock market conditions.
The Fed Should Be Careful What It Wishes For
Major central banks’ fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next – the battle against too-high inflation. CAMBRIDGE – Empirical relationships in economics are sufficiently fragile that there is even a “law” about their failure.
Can You Do Too Much Marketing?
Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here. Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. Our partners take marketing very seriously. They are focused on growing and want to create a sustainable business. We’re all very involved. The problem is, it is too much.
The Italian Elections: Part II
In Part I of this report we outlined the geopolitics of Italy and its political economy. This week, we continue the report with an analysis of the upcoming elections and Germany’s impact on the EU, concluding with potential market ramifications. The Election There are four major parties in Italy. Below we detail each party, its current support in the polls and major policy positions.
The Fallacy of America's "Crumbling Infrastructure"
3. Politics Often Dictate Where Infrastructure Money is Spent President Trump wants to spend $1.5 trillion rebuilding America’s infrastructure – roads, bridges, airports, railroads, ports, water systems and whatnot – over the next decade.
Adjusting Your Portfolio? 3 Implementation Capabilities to Keep in Mind
Note: This is the third blog in a three-part series: Know what you own; Know where you want to go; Know how to get there. Your portfolio needs to move. You know where you want to go. But how do you get from point A to point B? Let’s assume you’ve done the work to know where you want to be. You’ve decided on the asset class shifts and the revised underlying asset-class structures. Maybe you’ve even researched specific investment manager products and selected the actual managers.
Cracks Appearing in Five Highly Leveraged Economies
In each of these markets, a change in household sentiment, a significant increase in new housing supply and tightening and regulation aimed at lessening risk to the whole financial system have all combined to help drive the correction. This boom is starting to dissipate in all five markets. House prices have largely reversed course, be it slowing appreciation or outright decline.
Powell’s Monetary Policy Testimony
The House Financial Services Committee has shifted Fed Chair Powell’s monetary policy testimony to Tuesday, February 27. Jerome Powell has been a Fed governor since May 2012 and has given plenty of speeches. However, this will be his first major appearance as chair, so financial market participants will be paying much closer attention. His prepared testimony will be released before the actual hearing, but investors will want to observe the body language.
Global Economic Perspective: February
Volatility Returns to Financial Markets, but US Economic Fundamentals Remain Solid The opening months of 2018 have seen volatility return to global financial markets, but we think it is important to stress US economic fundamentals have remained broadly the same. After an unusually long period of calm in many markets, the reappearance of volatility at some point seemed likely, even if the speed of market gyrations has been unsettling for investors.
Working Toward the Next Economic Paradigm
Building support for a new unifying economic paradigm to replace the discredited Washington Consensus will be an analytically challenging, politically demanding, and time-consuming process. In the meantime, both economists and policymakers must ensure that the existing paradigm doesn't cause more damage than it already has. LAGUNA BEACH – For decades, the Western world put its faith in a well-defined and broadly accepted economic paradigm with applications at both the national and global levels.
Poll Results: Advisors’ Asset Class Forecasts
In partnership with The Wall Street Journal, over the last month we conducted a series of polls asking our readers to forecast the returns for the next 10 years for a series of asset classes. The results are below. Here are some of the notable findings: With the exception of inflation, we asked advisors to forecast nominal, annualized, dollar-based returns. To calculate the weighted averages, we had to make assumptions in some cases.
Do You Have the Mental Fortitude to Accept Huge Gains?
This comment usually gets a hearty laugh, which merely goes to show how little most people have determined it actually to be a problem. But consider how many times has the following sequence of events occurred? For a full year, you trade futures contracts, making $1000 here, losing $1500 there, making $3000 here and losing $2000 there. Once again, you enter a trade because your (trading) method told you to do so. Within a week, you’re up $4000.
Options, Hurricanes and Hedging
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. The purpose of my scribbles is not to provide you with a fish but to teach you how to fish (though sometimes some fish will sneak in). The scribble I am about to share with you I wrote to IMA’s (the firm that employs me) clients in January 2018. Its purpose was to explain why we were going to start hedging their portfolios with put options.
The Myth of Sound Fundamentals
The recent correction in the US stock market is now being characterized as a fleeting aberration – a volatility shock – in what is still deemed to be a very accommodating investment climate. In fact, for a US economy that has a razor-thin cushion of saving, dependence on rising asset prices has never been more obvious. NEW HAVEN – The spin is all too predictable.
How Advisors Should Address the Hidden Risks Facing Older Clients
The authors, Carolyn Rosenblatt and Mikol Davis, will be presenting a webinar on this topic on March 29. All subscribers to our newsletters will receive an invitation to attend this webinar in the next two weeks. Diminished cognitive skills, often the result of Alzheimer’s disease, are the greatest threat to the financial stability of your older clients, particularly those over age 65. A new book directed to advisors provides the tools to identify and overcome those threats.
Why Defaults Aren’t Likely to Rock High Income’s Boat
Worried about rising defaults? Here are two good reasons not to be. First, even in 2009’s high-default environment, when the default rate topped 10%, US high yield delivered an astonishing 59% rate of return. Second, for 2018, we expect the high-yield default rate to rise to just 2.5%. That’s in line with the average over the past 10 years. So don’t add high defaults to your list of worries. There is likely to be some volatility ahead, however, for income-oriented investors.
Surprises
Surprises in 2018 may mean investors will need more help from advisors to stay focused on the long term, says Sean Walters of the Investments & Wealth Institute.
Italian Election Outlook and Why We Don’t See an ECB Rate Hike Before 2020
The upcoming Italian election is not attracting the same sort of attention among investors as votes last year in France and Germany. For that very reason, David Zahn, Franklin Templeton’s head of European Fixed Income, believes an unexpected result might provoke an outsized market reaction.
Fear and Loathing in Consumer Debt
My ancestors escaped the steppes of Russia in the early 1800s. At first it was a trickle and then by late 1800’s it was a flood. They essentially escaped the marauding Russian Pogroms with the clothes on their backs, a hope and a dream for a better life. Some came to the USA, Some chose to stay in their homes and have been lost to history. And some, my lineage, steered course to Southern Africa.
Implications of the Tax Cuts and Jobs Act for Municipal Bond Investors
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives The 2017 Tax Cuts and Jobs Act will impact advisors and muni bond investors. Here’s what they should expect moving forward in 2018. The Act’s most obvious change is a reduction in the highest marginal Federal tax rate from 39.6% to 37% for married filers earning more than $600,000, beginning this year.
The Tech Landscape: Results of the 2018 Technology Survey
The 2018 Software Survey, conducted by Advisor Perspectives, Joel Bruckenstein at T3, and my firm, Inside Information, offered by far the most comprehensive data on the advisor tech landscape ever collected. In all, we received 1,554 useable responses, representing firms very small to very large, across a broad spectrum of experience in the business. You can read the full report here.
Margin Debt and the Market
Note: The NYSE has suspended their NYSE Member Firm margin data as of December 2017. We have replaced our Margin Debt data with FINRA data, which includes data for all firms, not just NYSE member firms. The New York Stock Exchange previously published end-of-month data for margin debt on the NYX data website, including historical data going back to 1959. Because of NYSE's suspension of publication, we have turned to FINRA to continue our analysis. The figures differ in their inclusion of firms.
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