Investor, business and consumer optimism has not been fazed in the least by a multiplicity of mega disasters and political drama in Washington, D.C. Stocks reach new highs nearly daily; price volatility is a distant memory; interest rates refuse to rise; credit spreads are tight and getting tighter; inflation is wilting. In this month’s letter, Bill Longbrake observes that we have seen this movie before – indeed many times. When optimism prevails and there is ample liquidity, financial markets turn giddy. Times, such as the one the global economy finds itself in currently, occur when the economic cycle is mature. They are fueled by copious amounts of liquidity curtesy of central banks. For a while, sometimes for a very long while, these goldilocks moments go on and on sustained by optimism-driven positive feedbacks. But, ultimately, they end either in the soft landing the Fed is trying to engineer or a hard landing. Enjoy the moment but prepare for more difficult times!
The CFP and CFA Institute are hosting a conference on the active versus passive investment management debate in Washington, DC on Wednesday, November 1, 2017.
Details about the event can be found below along with the Director of the Center for Financial Policy, Russ Wermers, latest paper in this area: http://terpconnect.umd.edu/~wermers/faj.v67.n6.5.pdf
We hope you can join us!
Event & Registration Details:
You can find all of Professor Wermers’ papers here:
Russell Wermers, professor of finance and director of the Center for Financial Policy at the University of Maryland’s Robert H. Smith School of Business, participated in a dialogue on securities market regulation on Sept. 8, 2017 at Securities and Exchange Commission (SEC) headquarters in Washington D.C.
The event, jointly sponsored by the SEC and NYU Stern, brought together practitioners, regulators and academics to learn, engage and discuss the state of the current ETP market and to exchange ideas on issues related to investor protection and market efficiency. Wermers shared the platform with faculty from New York University and Ohio State University, plus moderator Scott Bauguess, SEC deputy chief economist deputy director of the SEC’s Division of Economic and Risk Analysis.
The experts discussed implications from a two-decade surge in the number (now 2,000) of U.S.-listed exchange-traded products (ETPs), which has brought assets under management in excess of $2.7 trillion. This activity now represents more than 30 percent of trading volume on securities exchanges. The dialogue (archived for playback, here, by the SEC) explored how ETPs affect the efficiency and quality of financial markets, the potential implications for investors who hold ETPs, and where the ETP market is headed.
Optimism in the domestic and global economic outlooks has ratcheted up a notch, but has not reached a euphoric level that often presages a building speculative bubble and end-of-cycle climax. Political drama in our nation’s capital and a spate of global and domestic natural disasters have not dampened optimism. Economic activity is grinding higher ever so slowly. Risks, which always lurk beneath the surface and which have a nasty habit of surprising markets, are slumbering. Eventually, a correction, or more likely a recession, will occur. Bill Longbrake observes that predicting timing is always difficult as the good times always seem to go on a lot longer than expected. In the absence of flagrant speculation-driven bubbles, there is good reason to expect favorable economic conditions to prevail for the next several quarters.
Professor Wermers notes: “Yet analysts and academics have uncovered various precedents that can help to predict above-average returns. Their findings aren’t guaranteed to lead you to a top-of-class fund, but they could help to identify good performers and avoid poor ones.”
Read the full article: http://www.barrons.com/articles/in-fund-management-winning-trends-persist-1504930850