Wall Street Smarts
Interesting opinion from a random guy the author met. I’ve never thought of this, but like him, I cannot find a compelling flaw to the theory. I am not sure what the smartest guys from my dad’s generation, born around war times, do as their profession. Maybe doctors, businessmen, teachers. Is there even a demand for banking people then? However, I do know that the smartest people works in banks now. Can’t imagine the cream of the crop working for the government or MAS…
October 5, 2009
Source: Citigroup Inc.
Citi today announced a strategic shift in the retail investment business of Citi Personal Wealth Management by focusing qualified Financial Advisors located in Citibank branches on providing fee-only investment advisory services instead of commission-based transactions.
“Moving to an investment advisory model is the right decision for our clients and for Citi. This model is where the market is headed and it will help us offer clients greater flexibility, transparency and meaningful investment choices,” said Terri Dial, head of North America Consumer Banking and Global Consumer Strategy. “This change is about keeping our clients at the center of all we do and providing them with the investment advice they’re looking for and the services they need.”
Investment advisory clients may work with a team of Citi Personal Wealth Management’s own investment advisors who will act as fiduciaries, the industry’s highest standard, charging a transparent fee for advice, based on assets instead of commissions. Clients can also work with Citi Personal Wealth Management’s National Investor Center where they can transact on a self-directed basis or after seeking advice from a “coach-on-call,” choosing from an array of individual securities or a select set of advisory products.
By David Wilson
Sept. 22 (Bloomberg) — Stocks offer greater value than bonds and are poised to “catch up” with a rally in corporate debt, according to Rod Smyth, chief investment strategist at Riverfront Investment Group LLC.
The difference in yield between corporates and 10-year Treasury notes has narrowed more quickly than the Standard & Poor’s 500 Index has risen since March. The yield comparison is based on a Moody’s Investors Service index of Baa-rated debt.
Since December, the yield gap has fallen to 2.9 percentage points from a peak of 6.2 points, according to data compiled by Bloomberg. This spread is near its lowest level since January 2008, when the S&P 500 was about 22 percent higher.
Spreads have narrowed so much that stocks have more room to rise than bonds, especially as earnings increase, it added.
Smyth isn’t the only strategist whose focus has shifted to shares. “Equities no longer look expensive relative to corporate bonds,” Andrew Garthwaite, a global strategist at Credit Suisse AG, wrote in a Sept. 18 report. He downgraded credit, or bonds, based on relative value.
Barry Knapp, a U.S. strategist at Barclays Capital, drew a similar conclusion last week. Stocks have more to gain from the economic recovery that’s now in progress, he wrote in a report dated Sept. 14.
The low interest rate environment that may have kept the financial system alive, but it really seriously hurt savers. I’m talking about real savers, not investors. People who place money in the banks every month trusting that at the end of their working life, they will have a comfortable retirement.
Last checked, you will get less than 1% on a 1 year fixed-deposit and that is for a minimum amount of around $10,000. With inflation at above 4% the last 2 years, many people who worked so hard to save money are desperate for yields now.
Is it any wonder that bonds and bond funds performed so well this year? Globally, investors sank over $40 billion into bond funds in August, an all-time high for a single month, and are on pace to break that record again in September. For this reason, Stocks Likely to Catch Up With Corporate Bonds
A few important points to note.
Nearer to everyone’s mind is the collapse of 158-year-old Lehman Brothers last September, triggering the fallout of financial markets. S&P 500-stock index dropped 9% last September and further 17% in October.
Many Septembers have nasty reputations. Great Depression started with a stock market crash in September 1929. During September 1930, the Dow Jones fell 15%. The worst fall in Great Depression and in history, was September 1931 where the index plunged 30.7%.
Then there was S&P 500 plunges of 12% in 1974; the 1997 Asian Financial Crisis which worsened in September; Black Monday of 1987 which came after stocks started going downhill in late August; September 11, 2001 terrorist attacks, where DJIA fell 14.3% in a week and 11% drop in S&P 500 in 2002. Locally, some cite the Hungry Ghost effect.
According to the Stock Trader’s Almanac, the S&P 500 index drops an average of 1.1% in September, making it the worst month of the year. Mentality can weigh surprisingly heavy on the markets. The return of finance professionals after summer holidays as a reason for volatility has been greeted with skepticism. “No modern funds and traders of any decent size goes for the whole summer off”
The answer to that question is NOW! Here is the 3 possible scenarios U-shaped recovery, V-shaped recovery, W-shaped recovery and why.
drawn on MSCI World Index, area circled is NOW.
I’m not saying if you have $200 thousand, you should go dump in all into investment tomorrow. As one of the risk management strategies, break it up into a few tranches. It is impossible to time the market to the exact day. You would have been incredible if you can catch the low prices of a few months. Based on 3 assumptions: that there IS eventually going to be a recovery; your time horizon is 3 years or above; and you haven’t lost all your liquidity.
Of course, risk management and liquidity management applies. We do not have a gambling problem.
In some developed countries, a financial adviser is a professional. The profession consist of highly educated and respected members of society. In Singapore, given the low entry criteria, financial advisers are looked upon as uneducated and people who cannot land better jobs, such as lawyers, engineers, doctors, etc. A friend once asked me why I would consider this role given my ample academic qualifications. Many have asked me when I said I am a financial adviser, “you mean selling insurance?”
In UK, they are talking about plans to ban commission payments from product providers and force financial advisers to agree fee payments with clients upfront.
There was an column published last Friday in Business Times. Just some thoughts.
“A fifth of the Asian banks surveyed have lost more than 25 per cent of their client assets, compared to the global average of 10 per cent of banks”
One of the main reasons is that the AUM of Asian banks are newer and have been managed for a shorter time. Unlike in developed western countries where wealth have been with banks for decades if not generations. Another related reason is also the ‘trading’ and ‘quick buck’ mentality of the clients and short term ‘bonus maximizing’ mentality of RMs. Banks, the RMs and clients are responsible for this. How many of you truly believed that the banker who sold you the 5-yr Structured Product will be there for the whole period?
The push for “transparency and simplicity” and “open architecture” is good for clients. I have thought for some time that the usual affluent client do not need complex structures and derivatives just to achieve the extra bit of returns. There was a time it seems that products will be so complicated that even RMs will have difficulty appreciating them.
Yesterday, the Australian and New Zealand dollars traded near the highest level in 10 months after Reserve Bank of Australia Governor Glenn Stevens said he will have to raise interest rates at some stage as the economy recovers. This is to guard against inflation.
Elsewhere, global fund managers are betting China will let the yuan strengthen for the first time in more than a year to keep inflation at bay following a flood of foreign capital and record lending. New loans in China almost tripled to $1.1 trillion this year, contributing to a 60% surge in property sales. A US$585 billion stimulus plan helped July’s retail sales rise 15.2% from 2008. Reserves swelled to US$2.1 trillion on June 30 after a record quarterly jump as overseas investments led China to sell yuan to hold it down. The Shanghai Composite Index, Asia’s second-best performer this year with a gain of 72%, is in “bubble territory”.
The predicted appreciation in Yuan pale alongside six-month rallies of 18% and 14% for the Indonesian rupiah and the Korean won.
All these bodes well for Asian currencies and fund inflows. Asian stocks rose after the U.S. Federal Reserve said the recession is easing and pledged to keep interest rates low.
U.S. Federal Reserve statement on Wednesday provided 3 points which boosts the market. Firstly, Fed pledged to keep interest rates low, boosting share prices on a short-term basis. Secondly, Fed said the U.S. economy is “leveling out”, meaning it is time now to wait for positive signs. Thirdly, the Fed will stop buying U.S. treasuries directly from the U.S. government by October. This is seen as a huge sense of confidence by the Fed and also made countries holding huge U.S. dollar reserve happy.
Short-term volatility will still be present. This week, Shanghai Composite Index fell, completing the worst week since February, on concern this year’s rally has overvalued the prospects for earnings growth.
As medium to long term investors, you should concentrate on the second and third point stated above. These 2 points points to a positive outlook over 3 years period, especially in Asia.
There has been much controversy over Goldman Sachs recent success despite the sub-prime, financial and subsequently economic crisis. I believe most of the fuss, at least at the consumer level came about with this piece by Matt Taibbi, writer with Rolling Stone. It is strange, I always thought Rolling Stone is a magazine only rockers and emo-kids get from HMV.
Gist of the article
Goldman has a part to play in the Great Depression by playing up investor sentiments thought layers of investment trust.
Goldman’s underwriting standard and tactics for IPO were questionable. Amidst all the enticement for investors to subscribe, they knew the companies were worthless and protected themselves from any losses.
Similarly, Goldman knew the sub-prime mortgages packaged into CDOs would default not long after they started structuring them. Goldman continued to sell them while having a short position in the CDOs.
Through influence they have in the US government, therefore regulations in commodities trading, they are able to manipulate the market. Goldman released analyst reports and forecast for oil to reach US$200 a barrel.
Through this influence too, they are able to rigging the bailout, receiving funds and payment from AIG, letting competitor Lehman Brothers collapse and finally totally unharmed and extremely profitable. Taibbi also has a problem with the fact that Goldman paid so little tax in 2008. US$14 million in tax while paying out $10 billion in compensation and benefits and made a profit of more than $2 billion.
The next big global bubble to be exploited is the carboncredit market. Goldman has been positioning itself to push for the legislative approval for the framework and opening a market for carboncredit. Same reason why oil trading disrupts supply/demand, Goldman wants a big slice of the pie.
Conclusion, Goldman has been inflating bubbles around the financial assets to profit from it and has influence to do so.
Nice piece, I wish I had the narrative gift of Taibbi. However, technically, it has a lot of flaws. Goldman is just better at making money this time round. Many financial institutions are involved in the tech bubble and oil trading as well, and profited from it. I believe that there might be some bending of ethical standards in Goldman’s pursuit of profits, but the conspiracy theory is hard to swallow. Furthermore, the much information and details are that are pieced together have little relevance to the issue.
If you are not afraid of being even more confuse, you can read a view by another columnist. Then again, I’m not sure she is in the finance profession.