World Markets Sink on Greece Credit Woes

Please refer to my 4/15/10 blog on the topic of the growing weight of the world's fiscal problems. It looks like today's news on Greece may be treated with more weight than the news on Greece over the past month.



The world financial system is increasingly a "house of cards." At any moment, the bull market party may come crashing down with the camel no longer being able to suffer the collective weight of the world's debt problems.
ACTION PLAN
Investors should retain advisors who can adjust their allocations to reflect the increased sovereign risk of certain countries. At the same time, investors and advisors should embrace the decreased risk from investing in high quality, dividend paying companies, many of which are now awash with liquidity.

Portfolios should also be positioned to defend against the potential weakening of certain currencies and use commodity exposure (via Managed Futures) along with dynamic asset allocation as a way to protect against the possibility of inflation and other market risks.

INVESTING LESSON:
Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Wall Street Wins Again-Dodd Drops Fiduciary Provision

Chalk it up as another win for the insurance and securities industries.

Senator Chris Dodd, Chairman of the Senate Banking Committee, caved to special interests groups in March, removing the requirement for ALL financial advisors to place the interests of the consumer ahead of their own.

Proponents for a fiduciary standard for ALL financial advisors (including this blog author) view the decision as the result of misleading information provided to the committee from the insurance industry and "Wall Street." This is nothing new. Wall Street and the big insurance companies have long been in bed with each other. They both are interested in what products they can sell people that will earn the seller big, fat commissions, with little or no worry as to whether the product is the right fit or not.

Look no further than the U.S. Federal Government this past week slamming JP Morgan with a lawsuit that they misled investors regarding certain mortgage products that they sold. No way. Really? Not a Wall Street brokerage firm. Yes, really.

It seems like Senator Dodd's committee should look again.

"Insurance agents were 'worried about the sales of their high cost and often misleading annuity products,' if forced to be held to a fiduciary standard," said Babara Roper, director of investor protection for the Consumer Federation of America. Well, there you have it, we would not want insurance agents and brokers to have to actually quit earning 10% commissions on products that offer uneducated and uninformed investors a "free lunch."

From the beginning of mankind, the emotions of greed and fear have ruled inside one's brain. As long as investors keep looking for a free lunch, there will be insurance agents and stockbrokers, ready, willing and able to meet the demand.

Sample Fine Print In Brokerage Agreements
The name of the company as been changed to protect the guilty.

Conflicts of Interest
XYZ acts as an introducing broker for XYZ’s accounts and, as such, will receive a portion of the brokerage commissions you pay in connection with your account or receive a portion of the interest income (if any) earned on an account’s assets. The funds we invest your money with, outside of XYZ, may also pay XYZ a portion of the fees they receive from accounts introduced to them by XYZ. Fees vary among different investment products and may be high. You are responsible for negotiating both brokerage commission rates and the amount of interest income credited to your account, as well as any management and performance fees you pay to any money manager trading your account. XYZ may also provide consulting services to its clients for a monthly service charge pursuant to individlual managed account consulting agreements.

As a result, there exists a conflict between XYZ’s interest in maximizing the commissions and fees paid by you (in which it will participate) and your interest in minimizing those commissions and fees.

INVESTING LESSON Same old boring thing: There is no such thing as a free lunch.

NOTE: Regardless of which political party has/is, or will be in control, the lobbying efforts of special interest groups all too often win out over the needs of the U.S. consumer. I am equally confident that had a Republican been in charge, the same poor outcome would have still been the result.

Butler Coach Epitomizes Commitment

For years, we have been living in a world where one's word too often means nothing. The lack of commitment to one's word has seen an appalling decline in college sports especially.

It is now the norm to expect that when a coach signs a good player that there is a significant chance that the player will only stay one or two years. The majority of the large, Division One college basketball players come to play basketball, with little or no concern about getting a degree and actually sticking around for four years to help their school win a championship.

The same lack of commitment is commonplace with the coaches as well. A current example is Minnesota's Tubby Smith. Having been at Minnesota only three seasons and only halfway through his contract, it is common knowledge that Mr. Smith is open to other suitors.

Thank God for the smaller schools with a double thank God to Butler coach Brad Stevens! He just turned down large schools that were willing to pay him over $2 million per year and essentially guarantee him $10 million dollars over the course of a contract. He resigned with Butler for a 12 year contract. Come on, 12 years, can that be true? Fairy tales still exist in my home state of Indiana!

Click this YouTube link that reveals the character of Butler Coach Brad Stevens and that, despite the obituary, there still do exist men of character in college sports.

http://www.youtube.com/watch?v=iCrdk8I_c8g

How Does This Apply To You and Investing? The average tenure for a mutual fund manager is four years. The majority of financial advisors "sell people stuff" and then wash out of the business. Over 80% of financial advisors who enter the career are no longer in the career in 10 years.

For 26 years, I have told clients that they would know where to find me. The majority of those clients have stuck around for the ride, enjoyed the view and still know where they can find me and now my legacy company, Wade Financial Group. This is called mutual commitment!

One Sneeze, Two Sneeze, Third Time You are Out?

Here's the score for the past year since 4/21/09:

• S&P 500 (SPY) up 42%
• Emerging Markets (EEM) up 57%
• Emerging Europe (GUR) up 81%

Virtually, all global economies have recovered since the trough of the recession early last year, but that recovery has been uneven and is likely to remain that way. Emerging markets have emerged first and the U.S. is ahead of the European developed markets in its recovery.

I expect the unevenness in returns to continue and likely result in greater volatility vs. the "straight to the top" rise of world stock markets this past year. Passive, broad-based asset allocation strategies utilized by the many advisors and investors may not be well positioned to capture the new opportunities and more importantly, avoid catastrophic declines after such a run up in stock prices.

Sneezes vs. The Flu
The world sneezed once with Dubai's credit problems, twice with Greece's credit problem, both times with world stock markets barely breaking stride. It is only a matter of time when one of these sneezes turns into a worldwide "easy credit flu." You do not want to be overly allocated to stocks when the last straw breaks the camel's back.

Oddity (Not Really)
The asset class (as measured by the S&P 500 index) the "crowd" is most bullish on currently is the one that has:

1. Lost money over the past 10 years.
2. Has gone up 42% over the past year.

Action Plan
Investors should retain advisors who can adjust their allocations to reflect the increased sovereign risk of certain countries. At the same time, investors and advisors should embrace the decreased risk from investing in high quality, dividend paying companies, many of which are now awash with liquidity.

Portfolios should also be positioned to defend against the potential weakening of certain currencies and use commodity exposure (via Managed Futures) along with dynamic asset allocation as a way to protect against the possibility of inflation and other market risks.

INVESTING LESSON:
Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Butler Can Still Hold Their Heads High

They had two chances to win in the last minute, but it simply did not happen. For the first time in the NCAA tournament, the opposing team's defense was better than Butler's. Duke had the big 7 foot center down low. Duke was able to get their players more open shots than Butler's offense did. Despite all that, Butler was one possession away from winning.

The "talking heads" before the game that had Duke winning by 7-15 points shot their usual 0% accuracy with predictions. Bill Walton got it right, saying it was a toss up.

All the talk of Butler's Gordon Hayward being ready for the NBA can be put to bed. He is not anywhere near ready. He had a poor game. To be ready for the NBA, he needed to take over the game and deliver the win-he did not. Had he delivered the win, he would be NBA bound.

My biggest disappointment was the Hoosier fans, who made up 65% of the crowd. They were pathetic. They sat on their rumps until the last five minutes and even then were not the "shake the arena" factor that could have made a difference. For all the talk of the home field advantage, the Duke fans kicked the butts of the homeboys. I was shocked.

Here are the facts for next year:

1) Butler brings back four of its five starters.
2) Gordon Hayward hates to lose and will remain at Butler.
3) Coach Brad Stevens is going to stay at Butler for quite a while. He will leverage this season and bring in the "next level" players that will allow Butler to have the big men down in the paint that they need to win it all. Matt Howard, Butler's 6'6" center would be playing forward on any other team.
4) They will be ranked 1,2 or 3 in the preseason polls. If they are not, Butler will have to prove something once again. Memories are short!

Butler Nation has been born and the future is very bright.

Butler all the way!

Well, I bit the bullet and bought tickets for the Butler vs. Duke once-in-a-lifetime basketball saga--center court, near the top of the lower center sections. It's 4 p.m. on Easter Sunday and I am in the car, with my Butler junior daughter Erin, on the "road to the Final Four."

As a writer from the Indianapolis Star put it when they made the final 8, Butler Nation has been born.

There are two places I frequently travel to: Savannah and Butler. People look at me with a blank look on their face and say, "Why are you going there?" I always answer with, "You must go to Savannah to understand the city's charm." Regarding Butler and the glory of Indiana basketball, people will no longer have to ask me why I have cherished every trip to watch them play at Hinkle Field House the past four years. I am a RABID Butler B-Ball fan!

Add to that the fact that I grew up in Indy, three miles down 46th street from Butler. I used to ride my bike there, go there for grade school field trips and to concerts there with my mom. Once you have Indiana basketball running in your veins, you never lose it.

Butler's destiny was set ever since USA Today ran the cover two weeks ago with Butler guard Shelvin Mack wearing his jersey with #1 on the front page of the main paper, above the fold. You get the picture: Butler will be cutting down the nets Monday night.

If my prediction does not come true, it will still go down as one of the greatest basketball stories ever.

Go Dawgs!