April Newsletter: Do you really need a Financial Advisor?

April 1st, 2015

In February of 1993, I started as a green horn financial advisor with Shearson Lehman Brother’s (later to become Smith Barney, the firm that “made money the old fashioned way, they earned it.”)  It was a great time to get started because Wall Street had figured out that people were sick of dealing with “Stock Brokers” who cared more about the commissions than the investments.

In contrast, my training class was one of the first to emphasize a holistic, financial advisor approach to working with clients.  One based first on gaining a thorough understanding of a client’s Assets, Liabilities and Estate Planning needs and then advising them which investments and services were best suited to promote their long term financial well-being.  It’s a great approach and one that I have spent nearly half my life working to perfect.  But it’s not without its detractors.

Most suggest that paying someone for these services is foolhardy since many can do it on their own.  On the surface, this statement is true, many people can do it on their own. But, to do so well, requires far more time than most people can devote.  Not only time to get up to speed, but even more time to stay up to speed.  Let’s face it, the global economy is a big place with a lot of moving parts.  Trying to stay current on a part time basis, often ends in disaster.

In spite of this, the detractors keep coming.  Their latest incarnation is the Robo-Advisor.  Simply answer the 10 questions and the algorithm will select your investments.  Who needs to hire a Financial Advisor when a computer can do the work for you?  George Jetson might be impressed but not me.  Even the devout numbers guys (including myself) understand that selecting investments is part science and part art.

The reason is simple, people invest, not computers. And people and their human emotions are complex (Don’t believe me, just ask your significant other).  Which variety of factors are necessary to entice people to invest is very complex and ever changing. And which straw will break the economy’s back and send investors scrambling? Well, even Alan Greenspan will tell you that’s a hard one to determine.  For this reason, there will always be a human element to investing—a person who gathers the analytical data (the science) but who also studies the economy and gauges the mood of investors (the art) to determine how best to invest.

For our clients, most have seen the value in what we do and for that we are grateful.  And what about the people who have embraced the Robo-Adisor.  Well let’s hope that George Jetson and the people over at Spacely Space Sprockets did a good job with the algorithm.  But I’m not so sure.

Home Sales On The Rise

March 22nd, 2015

Share prices of Home Builder KB Homes soared 8% after a better than expected earnings report.  Chief Executive Jeffrey Mezger said there was more demand from would-be home buyers in the first quarter than a year earlier. The company sold nearly 20% more homes in California last quarter, at an average price of $550,600 — about 5% higher than a year earlier.  As one of the larger home builders in the United States, high demand and higher prices for KB Homes bodes very well for the overall U. S Housing market and the U.S. economy as well.  To view then entire article from the Los Angeles Times CLICK HERE

Now may be the time to rethink international allocations

March 19th, 2015


Deutsche Bank’s Foreign Exchange (FX) team forecasts that the U.S. dollar will continue to appreciate against other major currencies through 2017. As this occurs, U.S. investors with international allocations may continue to see their returns eroded by the currency effect. In their white paper on the subject, they make a strong case for a long term cyclical scenario during which the U.S. Dollar will rise against most other foreign currencies.  To view the entire white paper click this link: Deutsche Bank White Paper

7 Reasons Oil Prices Will Continue to Tumble

March 19th, 2015

As reported by Oxford World Financial Digest: Fortune magazine has run an engaging and enlightening article, written by market analysts, which argues that there are seven signs why oil prices will continue to drop. The first reason is that the world is flooded with oil. US production is near a thirty-two year high at near 9.4 mbd. Secondly, oil producers are not curtailing their output and the US is producing 14.5% more oil than this week last year, meaning supply will continue to grow. Thirdly, the demand side is flat, and perhaps falling, as OPEC is forecasting that demand for oil will hit a twelve-year low in 2017, when the world will need 600,000 less barrels of oil per day. The fourth reason is that Saudi Arabia can stand low oil prices. Because of their ultra-low cost of production (~$10) and huge foreign reserves, they are comfortable riding out this period of low prices. Fifthly, and very interestingly, oil fields are more profitable than many believe—a survey of 2,222 oil fields recently found that only 1.6% would have negative cash flow at price of $40 per barrel. The sixth reason is that many oil-exporting countries, such as Russia or Venezuela, have no choice but to keep producing oil no matter the price, as shutting off their pumps would be economic suicide. Finally, the last reason is that it is becoming increasingly hard to store oil as the US is running out of space to do so.