Posts filed under “Investing”

Two Election Winners

Two Election Winners
David R. Kotok,
November 5, 2014




Two winners emerge after the election.

One is the Gini coefficient. It measures the income divide of the population. It has been widening. Those at the top income level have improved their wealth. The middle income level has been eroding and is experiencing some pressures because of it. And, the lower income-level cohort has arguably grown in numbers and is confronting a host of issues.

The Gini coefficient’s upper levels rejected increased taxation and experienced an anti-business attitude conveyed by Washington. They voted.

The lower levels stayed home. They elected to give up and not participate. The pundits are busily debating why.

The middle level was promised a lot of attention and support but did not receive either. The polls show they do not approve of either party. Many despise Washington. When faced with election choices, they elected to reject six years of old and worn promises with no delivery. The Gini coefficient tells part of the election story.

The second winner is the labor participation rate. It has been falling for 15 years. It peaked when the dot com era attracted an extra 1.5 to 2 million folks into the labor force to participate in businesses that were new, exciting, and in many cases not profitable. Those businesses were funded by speculative equity money. Most of them subsequently collapsed. The jobs they had generated also collapsed. Since the tech bubble, the labor participation rate has been in a constant decline. Since the financial crisis of 2008–09, it has accelerated downward to levels not seen since the 1970s.

The US also has record numbers of people receiving permanent disability benefits. We have not seen any breakdown of voters by disability category, so we don’t know how they voted or if they voted. We are only guessing that they did so with a sense of insecurity about the status quo.

Meanwhile, the US has an older population worried about future income and financial security. Older Americans have experienced financial repression because of the sustained very low interest rate policy. Any older, retired saver and investor who voted yesterday did so with the experience that a 5- or 10-year bank CD has rolled over into the new interest rate environment. Twenty-five million Americans know that their old 5% and 6% municipal bonds have rolled over into 2% and 3%. We do know that the older voter turnout was high and voted decisively against more business as usual in Washington.

The result of this election may have been foretold in the economic statistics that we see. The Gini coefficient gave us guidance. So did the declining labor participation rate.

Cumberland Advisors’ clients, staff, consulting professionals, and network of colleagues in financial services are involved in daily business activity at the upper level of the Gini coefficient. Our daily does not often encounter victims of a declining labor participation rate. Most of our clients work if they choose to do so. We are in the business of managing portfolio assets.

Poor people do not have portfolio assets. Those with middle-class incomes have limited portfolio assets and are worried about them. The top level of the Gini coefficient has had a remarkable recovery in asset values. The middle class and the poor have not.  That widening of the Gini coefficient worries us.

This election outcome was about the divisions within our society. Those divisions will continue for the next two years. They are likely to be just as profound in 2016. That presidential race started in earnest last night.

Let’s get to the business issue. We remain fully invested in the US stock market in our exchange-traded fund (ETF) strategies. We believe US and worldwide stock markets have an upward bias. We continue to see the short-term interest rate at very low levels worldwide for an additional period of months or years.

David R. Kotok, Chairman and Chief Investment Officer

Category: Investing, Politics, Think Tank

Disbelief in Equities is What is Driving Them Higher

As a fan of investor psychology, I find sentiment intriguing. Measuring it is a challenge. We can’t trust what people say because they become bullish after they buy and bearish after they sell, convincing themselves that past trades were the correct way to go. Humans are notorious liars — especially to themselves. When they are…Read More

Category: Investing, Psychology, Sentiment

Find a financial adviser who will put your interests first

Find a financial adviser who will put your interests first Barry Ritholtz Washington Post, October 26 2014       Today’s column is going to be on the wonky side, but stay with me — it is very important stuff. For investors seeking some help, it can be crucial. If you want financial advice, there…Read More

Category: Apprenticed Investor, Investing, Legal

Misunderstanding the Magazine Cover Indicator

One of the more infamous and misunderstood market signals is the magazine-cover indicator. Created by Paul Macrae Montgomery, this contrary indicator essentially tells us when some investment theme or fad has reached a crescendo. The thinking goes that by the time the editors of Time find out about some hot investing trend, it is all…Read More

Category: Contrary Indicators, Investing

Why There Are Two Standards for Financial Advice

> My Sunday Washington Post Business Section column is out. This morning, we look at the various legal standards of care financial advisors must adhere to. The print version had the full headline Why Two Standards for Financial Advice? while the online version was Find a financial adviser who will put your interests first. As I…Read More

Category: Finance, Investing, Legal

Asset Classes: Real 10-Year Expected Return

Source: Research Affiliates   Rob Arnott of Research Affiliates writes: In a world of low bond yields and slow economic growth, historically realized 5-6% real (7-8% nominal) asset class returns may be unrealistic expectations for the future. In other words, assets with above-average valuations may not deliver the sort of returns people came to expect…Read More

Category: Asset Allocation, Investing, Markets

You Are Worrying About the Wrong Things

o, you are not going to die from Ebola. To quote a wag on Twitter, “More Americans have been married to Kim Kardashian than have died from Ebola.” But the latest scare does have a small positive: It provides me with yet another opportunity to lecture you about how incredibly dumb your lizard brain is. (It’s…Read More

Category: Investing, Politics, Psychology, Really, really bad calls

What Town Should We Visit Next?

  We just got back from D.C. where we visited lots of existing (and future) clients. We also met lots of folks who were interested in LiftOff. We are planning our next trip for earlier next year, and decided to throw this open to the crew: What town should we visit next? If you would…Read More

Category: Asset Allocation, Investing

Emerging Market Maker

Neat little interactive tool to play with some aspects of overseas investing by comparing emerging markets across key metrics:   Click for an interactive graphic. Source: BlackRock

Category: Data Analysis, Digital Media, Economy, Investing

Market Sell Off May Not Have Run Its Course Yet

The change in tone in the equity markets is unmistakable: There is a palpable tension that leads some money managers to shoot first and ask questions later. The net result of that anxiety can be seen in the flood of new money into U.S Treasuries, which ever so briefly drove the yield on the 10…Read More

Category: Cycles, Investing, Markets, Trading