Fear and Greed and your portfolios

Over the years, just two emotions account for most of the mistakes investors will make in the financial markets. Succumbing to either one of them will have a deep and long-lasting impact on your ability to retire comfortably. In my business, there is often a joke that you know when the markets are peaking out on the upside when clients call and want to become more aggressive. The flip side of that is when the markets are tanking and clients demand at the very bottom that you sell everything and put them into cash. The number of phone calls is directly related to the fear or greed that investors are feeling in any given period. Guess what—the number of phone calls and emails are accelerating. It should come as no surprise that 100% of the calls are investors who want to “chase” the market. Greed is now taking over and I can see it throughout the stock markets. It is part of my job to discourage these emotional requests. I’ve talked quite a number of investors out of making decisions based on these twin emotions. You really can’t blame investors, however. Most humans have the natural impulse to gather as much wealth as possible in the shortest amount of time. This goes double for those of us who are close to retirement age and feel we don’t have enough money to manage our retirement. Investors also suffer from the “herd” effect. If your friends or associates are making more money in the markets than you are, well, that just makes those horns of greed and envy sprout from your...

One for the little guy

The retirement world is changing. A long-sought after regulation by the Department of Labor was released in April. It goes a long way toward protecting retirement savers from brokers and insurance agents. Here is what you need to know. The new ruling insists that those who advise investors on appropriate investments for their IRAs, 401 (K) s and other tax deferred savings plans must put the client’s interest above their own and the company they work for. In short, they must act as a “Fiduciary” rather than simply recommend “appropriate” investments. You see, an “appropriate” investment for someone with little investment experience might be an annuity or a target retirement fund. The fact that these securities might also have a very high cost (called an expense fee) or perform poorly over time doesn’t matter. They are still an appropriate investment. Most investors do not realize that their broker buddy and his company take advantage of this. It is why he has a new car every year and a swimming pool while savers like you lose over $17 billion a year in unnecessary fees. Readers may recall that I have been on a crusade for the last nine years in my columns to change these abuses. Despite enormous protests from their friends in congress, the DOL ruling is in effect now. Brokers and insurance agents have a year to become compliant with the new regulations. So what does this mean for you as a saver? It should reduce the fees that you are charged in your retirement plan. Remember, that independent research has revealed that over a 25 year period...

The Rise of the Robots in banking

If you think the human factor is rapidly disappearing from the workplace, you may be surprised to know that Skynet has arrived and even C-3PO and R2-D2 are being left behind. Nowhere is this change more apparent than in the nation’s banking system.   Automation, robots and artificial intelligence is on the rise. At the forefront of this change is the nation’s banking system. One of the reasons I know this is because my sister, Cassie, is in the banking industry. No, she is not in the corner office or hanging out in the executive suites. Since 1965, she has worked as a teller and other front office jobs in her bank’s branch offices. She knows the business from soup to nuts and regularly interfaces with her bank’s retail clientele. “Fortunately, I’m fairly senior, otherwise, I would have been phased out a long, long time ago,” she says, “Tellers and practically any other jobs performed by humans today will be phased out in this business.” What is driving this change is the opportunity for the nation’s banking system to reduce costs and at the same time (hopefully) improve the customer experience. Although robots and automation have long been a factor in the nation’s factories and even in areas such as space exploration and other dangerous or difficult environments, the promise of more advances in intelligent robots and artificial intelligence has not kept pace with expectations—until recently. Breakthroughs in information processing and digital sensors, among other technologies, have vastly improved the capabilities and future potential of intelligent robots. That’s not to say that you can expect robots in human form greeting...

OPEC’s poker game

The news this week that some OPEC members have at least agreed to talk, and possibly freeze production, had traders covering their oil shorts, sending crude up over 15%. But why should simply freezing production at multi-year levels stem oil’s price decline? Nay Sayers are right when they argue that holding production where it is does not solve the oversupply problem in world energy. At the present rate of production, an additional 330 million barrels of oil (or about 1 million bbl. / day) of unneeded oil is flowing onto world markets. That oversupply has been building for a year or more. It is being stored in spare oil tankers, storage tanks and wherever else suppliers can find to stockpile the stuff. And storage capacity is close to being filled, despite the winter weather in the U.S. At most, freezing production solidifies an extremely negative supply imbalance. As usual, not all is what it seems when reading the headlines, especially when it comes to the politics of OPEC and the Middle East. Remember that up until now, OPEC’s largest producer, Saudi Arabia, as well as Russia (the largest non-OPEC producer) have not even discussed global energy oversupply. The fact that they are now willing to talk and possibly freeze production could be an important first step in a possible solution to the firestorm of falling prices that has done damage to both countries and their finances. Bears point to the fact that oil producers like Iran have no intention of freezing production. The global embargo on that country’s energy exports, imposed over Iran’s nuclear program, has only now been...

A tale of two Chinas

For years, investors bought into the China story. Growth rates twice as fast as the rest of the world, fueled by sky-rocketing exports made competitive by billions of hard-working, low-wage employees grateful to have a job. What happened? Times have changed. Back in the late 1970s when China first opened its fledgling economy to foreign investment, manufacturing became the chief driver of economic growth, which led to increased exports, more foreign investment and double digit growth rates. The powerful Communist government controlled the process through its sponsorship of state-owned enterprises. These mammoth companies became the symbols of a new “Chinese Authoritarian Capitalism.” As such, they played a pivotal role in channeling that foreign money and the goods it produced through the economy. Along the way, these companies were listed both on the Chinese stock market as well as abroad. They became the investments of choice and were included in all the most liquid and popular mutual funds and exchange traded funds. As time wore on, these companies borrowed more, hired more and purchased more and more. Corruption, mismanagement and scandal began to pop up among the managements of these companies. At the same time, as the worldwide financial crisis unfolded, the Chinese economy started to falter. Unfortunately, at about the same time, China’s leaders decided that it was time to transition the economy from its reliance on manufacturing and exports to a new growth model more dependent on consumer services and other forms of consumption. The move made economic sense. China, through opening its economy, had engineered the birth of an enormous and growing middle class. These new consumers,...

How “black” will this Black Friday be?

For retailers, the upcoming Thanksgiving holiday traditionally signals the beginning of the do-or-die holiday selling season. The question worrying Wall Street and retailers alike this year is will the results justify the hype? Listening to the third quarter earnings and revenue guidance from retailers last week, there was little to applaud. Department stores were especially downbeat on their expectations for the entire 2015 holiday shopping season. Big discount stores, like Walmart, were less negative, and argued consumers were simply keeping their powder dry, while waiting for next weekend’s super deals. Some analysts argue that the disappointing earnings most retailers posted had more to do with the exceptionally warm fall weather we have been experiencing than lack of shopper enthusiasm. October, after all, will go down in the history books as the warmest October on record. That had to hurt winter clothing and apparel sales. You may have noticed that the usual sales hype we come to expect wherever we look about now has been somewhat muted over the last week. That may have more to do with the terrorist bombings in Paris than anything else. Promoting the latest gizmo for your dog, or a better hair curler to de-frizz your hair may not be as meaningful to you when Parisian cops are storming apartment buildings and Russian planes are blowing up over Syria. Most pundits are expecting a 3.7% rise in retail sales, which is below last year’s 4.1% gain. Is it the economy, the weather, geopolitical events or changing tastes really behind the slowdown, or is Black Friday losing its mojo? Officially, Black Friday was an invention of...