Ken Solow's Presentation On Friday Marks A Pivotal Turn For Investment Advice: Active Management Now Respected By Many Mainstream Private Wealth Advisors
Monday, May 28, 2012 14:10

Tags: active management | asset allocation | asset management | investment strategies | RIAs | Wealth Management

The fact that Ken Solow, who runs an RIA with more than $1 billion AUM, is going to speak this week at the A4A webinar series about tactical asset allocation, reflects a major shift in thinking in the private wealth advice business. There was a time not so long ago when active management was publicly frowned upon.


Professing anything but strategic asset allocation was heresy, considered market timing and all but ignored by Certified Financial Planners running RIAs. The roaring bull market  from 1982 to 2000 made advisors using  simple buy-and-hold strategic asset allocation look like geniuses.


In the introduction to his 2009 book, Solow says that the tech bubble bursting turned him into a heretic. Until then, Solow ran a traditional buy-and-hold, broadly-diversified RIA. The 2000 to 2002 bear market turned Solow, a CLU and ChFC, toward researching tactical asset allocation.


Now, a decade since the 2000 bear market ended and one financial-crisis later, having endured the wrenching 2008-2009 bear market and recent upsurge, Solow has evolved in his thinking. In fact, his firm, Pinnacle Advisory Group, has launched a business providing active investment advice systems to financial planners and wealth managers.


Solow and his co-founder of Pinnacle, John Hill,  are smart. Among other really smart moves, they had the good sense to hire and Michael Kitces,  give him free rein to pursue his eclectic interests and research, and make him a partner.


This Friday's session should be good. 


It marks a real change in thinking about how advisors should manage money.















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Strength In The Swiss Franc Is A Signal That Countries Are Preparing For Euro Collapse
Monday, May 28, 2012 10:02

Tags: euro | European zone | global investing | US investing

Some countries are gearing up for the possibility that the euro will cease to exist. Switzerland is one of them. Since Switzerland has never adopted the euro, there are concerns that its Swiss Franc would spike in the event the euro falls apart.


As questions of a Greek exit from the Eurozone gain intensity, the Swiss currency's status as a political and economic fortress is being confirmed.

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However, the Swiss economy could be threatened as the currency gains strength because that strength is the very thing that could upset an economy so heavily dependent on exports. Demand is weakening in the Eurozone as a result and the Eurozone is the primary importer of Swiss goods and services.
The Swiss finance minister has pulled together a task force to formulate a strategy for managing a worst case scenario. Eurozone members are also strategizing and creating contingency plans in the case of a Greek exit and a collapse of the euro. The euro recently has traded close to a carefully supported floor of 1.20.
The Swiss government has reiterated its dedication to supporting that minimum exchange rate no matter what happens. The International Monetary Fund (IMF) has given support to maintaining the floor. This is an exceptional move on the part of the IMF as it traditionally does not support interference with the currency markets.
The reasons these issues are important for the US economy are direct in the sense that what happens in Europe affects US markets. They are indirect in that the result in Europe might have a bearing on US budget policy. In a global marketplace, what happens in other areas of the world has a more direct bearing on both the US economy and investment strategies for investors.


So-Called Safe Havens May Not Hold Traditional Status As The Nature Of Markets Changes
Monday, May 28, 2012 09:47

Tags: global investing | gold | investing

With a resolution to the crisis in Europe still uncertain, gold may once again emerge along with US Treasury bonds as a haven for investors seeking to shield their funds from whatever the fallout might be.

Currently, however, gold prices are moving along with higher risk investments, making entry points dicey. The price volatility reflects the change in perception by investors of gold’s traditional safe haven status and investors' desire to be in cash while macroeconomic sentiment fluctuates.

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After the major risk factors are calmed, gold may regain its status as a safe haven much like it did after the fall of Lehman Brothers in 2008. Prices of between $1640 to $1660 per ounce would indicate stabilization in gold prices.
One question might be the function of a so-called safe haven. Safe havens seem to be thought of as ports in the storm during volatile markets. This points out the need to weigh traditional thought against the changing nature of the markets so that investors are not lured into exposure to risk in instruments previously considered to have no or very little risk.



New Biomass Process Is Still In The Experimental Stage But Is Far Enough Along To Attract Investors With Clout
Monday, May 28, 2012 08:05

Tags: energy | gas prices | investing

New technologies in transforming natural gas and wood chips into gasoline may hold the keys for developing a green form of gasoline. Some may not take such a venture seriously but investors including Kleiner Perkins and Oak Investments think there’s enough value there to take a stake in the development of the process.

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Chesapeake Energy is another investor. Yet by-standers are wondering why larger oil companies are not exploring this type of process, too. It’s an unusual process and runs counter to the 80-year old process used by big oil companies in countries like Qatar to transform natural gas into oil. The new process costs less and also streamlines the transformation.
The big companies already have a lot invested—twice the original estimates—in the plants they’ve developed in the Middle East. Sometimes it’s the smaller player who has the vision and the drive to simplify the process and contain costs. The utilization of wood chips also qualifies under the new Renewable Fuels Standard. The low costs mean producers can make a higher margin on the end product—gasoline.
Critics say it makes better sense to use pulverized coal or solely natural gas. Using so-called biomass ingredients like wood chips doesn’t seem to make sense to them since, again, larger companies also would be wanting to get in on the higher margins. The biomass process is still largely experimental and is viewed as very high risk. But it might be a development worth watching.

China's Direct Access To Treasury Auction Market Benefits The US Economically And China Politically
Sunday, May 27, 2012 22:43

Tags: China | Treasury bonds | U.S. debt

Institutions like mutual funds and pension funds are beginning to cut out primary Wall Street dealers and buy Treasuries directly at auction. It turns out they are simply following suit from China. A recent Reuters report says China is the only major US debt purchasing country that has been given a computer link between the People's Bank of China and the US Treasury auction system.

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Primary dealers have traditionally handled the trades. In doing so, they require certain information that foreign countries may prefer not to disclose.
The China exception may seem to be a privileged arrangement. But, in fact, anyone or any entity can buy directly from the Treasury if all the guidelines have been followed and appropriate arrangements have been made.
China holds $1.7 trillion in US Treasury debt. Its ability to buy that debt directly symbolizes  the close links between the two countries' economies. Especially with the size of China’s US debt purchases, buying directly makes managing its US holdings easier than having to go through an intermediary.
Whether China has received favorable treatment relative to other large purchasers of US debt, the two countries need each other. The US needs China's demand for US imports to manage its high level of debt. China feels uncomfortable with the perception that it is financing a spendthrift country with the labor of its citizens. Buying directly helps China with its internal political perception and provide the US with the funding it needs.


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