A Conversation with John Hussman
Dr. John P. Hussman is the founder and president of Hussman Strategic Advisors. John also directs the Hussman Foundation, a 501©(3) charitable foundation that supports medical research, education, and assistance to vulnerable individuals with urgent needs or significant disabilities.
Hussman defined a “bubble” as a period when investors set their expectations for future investment returns by extrapolating past returns with little concern for valuations, allowing prices to become untethered from underlying fundamentals. Valuations across asset classes are high, and the estimated 12-year nominal return on a 60/30/10 (stock/bond/cash) portfolio is approximately -2.3%. “The valuations are the highest that we’ve seen across all measures,” he said. We are looking at valuations that have historically led to “very long interesting trips to nowhere,” according to Hussman. While low interest rates are currently accompanied by high stock market valuations, those valuations also imply similarly low expected returns for stocks. The structural shift in the U.S. economy to more profitable service companies explains only a small part of current valuations. Valuations are slightly more attractive outside the U.S., he said, and investors should diversify internationally. Hussman also favors hedged equity strategies that can increase market exposure when downward “spikes” in valuations improve expected returns.
A Foolproof Way To Engage Anyone 100% of the Time
A conversation with Dan Solin and Bev Flaxington. Dan discussed the research in the fields of psychology and neuroscience underlying The Solin Process. He emphasized the importance of setting aside your agenda, not trying to “spin” the conversation in any direction, and empowering prospects to talk about any issues of concern to them. He also explained why taking notes during the initial meeting impairs your ability to emotionally connect. As an expert in human behavior and advisor growth, Bev shared tactics to help advisors reframe the selling process to “sell” more comfortably and productively. Her insights on how teams can work together cohesively to deepen client relationships are focused on leveraging behavior style and the resulting improvement in communication.
A Conversation with Brian Smedley
Brian Smedley is a senior managing director at Guggenheim Investments, where he is Chief Economist and Head of Macroeconomic and Investment Research.
Smedley forecasts robust economic growth of around 8% this year, but he thinks most investors are overestimating the risk of high inflation. He assigns a 75% probability to a new stimulus package being passed sometime this year. He expects low interest rates for an extended time based on the Fed’s new framework for managing monetary policy that was introduced in August of 2020. “They are going to be a lot more tolerant of a really tight labor market and above-target inflation,” he said. He noted that this will result in a favorable backdrop for risky assets like stocks and credit, but also for government bonds given his view that the market is pricing in premature Fed rate hikes. He also predicted that new home construction and renovations are going to be an important driver of growth for years to come. The shortfall in new home construction since the housing bubble burst, he said, “is finally catching up to us.” Single-family home prices will continue to rise rapidly because it will take a good while for supply to catch up with demand, according to Smedley.
Market Outlook: Opportunities in a Changing Landscape
Tom Wald leads Transamerica’s investment thought leadership and market insights. He writes the Transamerica Market Outlooks and other relevant commentaries available for clients, advisors and the media.
Tom shared with Advisor Perspectives his views on market catalysts and concerns in what has been a changing environment for investors over the past few months. In doing so, he covered topics such as the ongoing economic recovery, COVID-19 medical trends, interest rates, equity valuations and the comparative opportunities of value and growth stocks.
Tom believes the US economy will likely complete a V-shaped recovery later this year and is now growing much more rapidly than expected just months ago. Corporate earnings for 2021 are on pace to exceed previous expectations and longer term interest rates will probably continue to rise, though not to concerning levels. Equities are valued reasonably with further upside for investors over the next year or so.
“The more obstacles the markets and investors seemingly face, the more asset prices tend to rise when those concerns are reconciled,” he said.
The vaccine rollout, fiscal and monetary stimulus, rising consumer confidence and spending, and the re-opening of the economy indicate that there is opportunity for investors in a reasonably valued equity market.
On value versus growth stocks, Wald documented the relative outperformance growth has experienced over the past decade. However, this year value investing has made a comeback because of rising economic growth, the re-opening of the economy and higher long-term interest rates, all of which could prove comparatively favorable for value stocks. He sees the basis of this favorable trend for value stocks continuing in the year ahead.
In regard to the bond markets, Wald commented “There are no easy-answers for income-seeking investors, except to look for credit-expertise in managers, be prudent on your portfolio durations and be diversified in your asset selection to achieve income.”
A key number standing out to Tom is Bank of America’s estimate that there is approximately $3.5 trillion in additional savings among Americans versus a year ago at this time and this could play a key role in pent-up demand driving higher levels of consumer activity as the economy further re-opens in the months ahead.
Annuities for Today’s Retirement Realities
In this session, Wade Pfau, Michael Finke, David Blanchett, and David Lau examined the unique challenges facing retirees and reviewed solutions and strategies – backed by the panels own research – to consider for addressing them.
Lau discussed the new challenges presented in funding retirement in a low interest rate environment, highlighting the fact that retirement now lasts 1/3 of a person’s life and is largely self-funded.
Blanchett identified the challenges of spending in retirement and underscored longevity risk – the reality that neither client nor advisor can accurately pin life expectancy. A few important questions regarding retirement planning he emphasized included: How does spending evolve in retirement? What is the length of retirement? And what is your retirement spending flexibility? The answers to those questions align with the use of annuities as guaranteed income in retirement.
Pfau’s research underscores the efficiency of creating guaranteed income in retirement with deferred-income annuities. Not only do annuities help advisors address “The four L’s of retirement: lifestyle, longevity, liquidity, and legacy,” annuities help retirees control exposure to sequence risk in their portfolio.
Finke highlighted the extensive psychological research he’s conducted during the past 10 years that shows that retirees with an annuity are generally happier and willing to spend their retirement income. He challenged advisors to ask their clients simple questions – like " How much money do you need to live on in retirement?” – to help them start to recognize the power they would feel in knowing that their living expenses are covered each month. Lau closed with comments regarding the change underway in the industry, as more and more fiduciary advisors are using commission-free annuities that align with their ethics in financial plans.
A Fireside Chat with Stephanie Link of Hightower
with Suzanne Siracuse and Stephanie Link
We are not in a bubble because we have unprecedented liquidity in the system, according to Stephanie Link. Link expects more fiscal stimulus to be passed, which will be a further tailwind for U.S. equity prices. She also expects double-digit GDP growth this year and a “really great economic recovery.” She was particularly bullish on housing based on signs that millennials are becoming prominent buyers of houses. Link said that many of the “reopening” sectors, like travel and hospitality, are attractively priced, as are parts of the technology sector, including artificial intelligence, cybersecurity and SASS could-based services. She also related her career path, which included a stint working with Jim Cramer as the co-portfolio manager of his charitable trust. She is now one of the few female chief investment strategists in the advisory profession.
45-minute beginner yoga class
This yoga can be done at any time and we encourage you to watch this or save this link to use in the future.
At Advisor Perspectives we pride ourselves on a healthy work-life balance and started our virtual summit with yoga led by our own, Ashley Taylor. In this 45-minute class we explored foundational poses through an alignment-based practice. Focusing on grounding down and elevating up we worked our way through a practice incorporating standing postures, twists, forward folds, and hip openers. This yoga can be done at any time and we encourage you to watch this or save this link to use in the future.
Read more articles by Robert Huebscher
