2014 Clear Harbor Flash
Market Flash: Elections and Earnings Comment
November 10, 2014
We now have a significant midterm election, another round of earnings, and three quarters of the year’s market performance in the rear-view mirror. While our full 2015 Outlook will be forthcoming at year-end, we wanted to provide the Clear Harbor take on some of the most salient developments now.
Wealth Flash: Behavioral Economics - Protecting Our Portfolios From…Ourselves
July 31, 2014
If Keynes and Graham were writing today, their insights—like those of Ritholz, Ellis, Shiller and others—would be taken to support what has become known as the academic study of behavioral economics. This still-nascent field is a fascination to many of us at Clear Harbor, as it offers a psychological window into the decisions that all of us make in particular economic environments, including some of the most persistently vexing attributes of investor behavior.
Why, for example, do investors tend to buy equities when they appear fundamentally expensive, and sell those same securities when they are fundamentally attractive? Perhaps most perplexing, why do individuals behave this way in financial markets—even though the very same people would never pay $20 per pound for cherries, but instead wait for the grocer to lower the price closer to $3 per pound?
Market Flash: Strong-Dollar Signals
June 3, 2014
“A strong dollar,” says the Fed official/Treasury official/sitting president of the moment, “is in the interests of the United States.” So has it ever been proclaimed: to say anything different would be to suggest weakness at home, and invite concerns over a currency war abroad.
The reality is that market observers routinely look past this political theater for insights from the actual behavior of the greenback. There are times when a strong dollar clearly reflects caution, as global investors seek a safe haven; in other periods, monetary authorities may quietly permit, or even engineer, a weaker currency—and lower interest rates—to make U.S. exports more competitive, supporting domestic growth despite their cries of “dollar strength.”
Some prognosticators are now registering concern over a recent, relative strengthening in the dollar versus the yen and euro. There has also been an accompanying increase in Treasury prices, as investors accepted roughly half a percentage point less of yield so far this year for the privilege of investing in U.S. sovereign debt. For the better part of a decade now, this pair of signals has reliably portended pain to come: the dramatic fallout from the financial crisis; questions over the future of the Eurozone; simple concerns that economic growth may be stalling. But is that what it means today?
Market Flash: The Return of Volatility
April 14, 2014
At the start of the year, and again as recently as two weeks ago, we outlined our view that equity markets would likely return to a more normalized return and volatility profile. We noted that this would contrast markedly with 2013, when volatility trended lower as the year progressed with few real corrections.
Markets last week confirmed our confidence in this view as the S&P 500 lost 2.6%, the Nikkei declined 7%, and Eurozone equities faltered 1.5%. By one common measure, the CBOE Volatility Index (VIX), volatility has risen 12% since April 2, to stand at 16.2—still well shy of its historical average of about 21. The seesaw between last week’s selloff and today’s shaky improvement may be with us for some time.
Wealth Flash: Compound Interest, the Eighth Wonder of the World:
March 24, 2014
We often receive questions from current and potential clients about our view on the importance of making large asset allocation changes with the goal of “timing” the market. Investors often ponder, “If I had just sold everything before the tech bubble burst or before the commencement of the economic crisis in 2008”…which, while a perfectly sensible thought in hindsight, is just that; the benefit of hindsight. While our investment methodology includes tactically tilting portfolios towards asset classes which our investment team believes offer compelling risk / rewards at any given point in time, more significant alterations in our client asset allocations based on “timing the market” have never served as a proverbial arrow in our strategy quiver.
Market Flash: Ukraine and the Landscape of Global Energy
March 5, 2014
As freedom-loving people watched Russian troops and tanks roll into Crimea this past weekend, world markets shuddered at the prospect that a conflict between two independent nations could erupt into a broader global skirmish. Equities fell while safe-haven currencies, sovereign debt and commodities all rallied. While Tuesday’s bizarre press conference suggested Mr. Putin may see the need to modulate his very offensive posture, concern remains extraordinarily high that he may fail to come to his senses.
While the situation in Ukraine is very fluid, the last several days remind us that not only freedom from tyranny, but true “energy independence” from commodity-exporting nations remain unfulfilled quests. The crisis brings to the fore several long-term aspects of the global energy production landscape that investors would do well to recognize even in the absence of a particular geopolitical flashpoint.
Market Flash: Hold That Spinnaker
January 26, 2014
The first month of the year has been a rude awakening to those who expected the extraordinary gains of 2013 to continue without interruption. Stocks have fallen around the world, while flight-to-quality currencies, commodities, and sovereign debt have all rallied. The 10-year Treasury is now well below the 3% level seen at the start of the year, and this past week the S&P 500 witnessed its most significant weekly correction in 19 months.
The Clear Harbor team does not believe that price action for any three-week period seals the fate for the whole year. However, neither do we consider this the moment to raise the flying spinnaker and hope for the best. Instead, we continue to focus on the mainsail of protecting our clients’ overall financial condition, while keeping the trysail at the ready to stay nimble where appropriate.