FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Current U.S. Monetary And Fiscal Policy Are Unsustainable (Advisor Perspectives)
According to John Hussman of Hussman funds, government intervention, or monetary and fiscal policy, is getting to a point where the long-term costs will greatly outweigh current short-term benefits.
Right now, U.S. Treasury debt exceeds 105 percent of GDP, and the Fed has expanded the monetary base to more than 18 percent of GDP. According to Hussman, this is highly unsustainable and massive inflation is inevitable.
"A century of U.S. economic history indicates that a normalization to Treasury bill yields of just 2 percent could not tolerate more than 9 cents of monetary base per dollar of GDP without inflation," he said, in the note.
Markets Are Rallying Because Of Strong Fundamentals AND Easy Money (Morgan Stanley)
There are two theories going around that explain why the stock market has been ticking upwards: 1) easy money and a dovish Fed, and 2) strong fundamentals.
Morgan Stanley's Gerard Minack demonstrates what each thesis looks like in charts.
This chart correlates the stock market with the Fed's expanding balance sheet:
Morgan Stanley
And this one stock market valuations with economic surprises:
Morgan Stanley
Minack believes that stocks are more likely being driven by fundamentals because easy monetary policy hasn't benefited other international markets.
No One Knows What The SEC Expects Of Brokers And Advisors (Wall Street Journal)
Right now, investment advisors are bound by law to act in their clients best interests. Brokers, however, are not. They simply have to make sure that their investment advice is suitable for clients. The Securities and Exchange Commission has been authorized to impose a common standard on the two, but they haven't yet done so.
The SEC is currently seeking input and might eventually create a new framework of ethical standards under which all brokers and registered investment advisers would operate. But so far, it's hard to tell what changes they will actually implement.
Gold Is Falling Because Investors Expect Interest Rates To Normalize (Business Insider)
When interest rates rise, gold prices fall. The inverse correlation between 5-year TIPS (Treasury Inflation-Protected Securities) and the price of gold is tight. Take a look:
Bloomberg, Business Insider
When the gold sell-off began in November, it was because of a slight uptick in 5-year TIPS yields. But ever since, 5-year TIPS yields haven't moved much, but gold had continued to fall. This is probably because the market expects that bond yields will eventually rise.
Wealth Managers Are Bullish On Stocks, Less So On Bonds (Barron's)
According to an annual survey by Penta, wealth managers are recommending that their clients invest more money in stocks and less in bonds than they did last year. Both wealth managers and clients are worried that interest rates will rise, which would hurt bond values.
This could mean that the market is beginning to normalize, Chris Wolfe, chief investment officer at Merrill Lynch Wealth Management, told Barron's.
This also supports the idea that a "great rotation" of money out of bonds and into stocks is taking place.