active funds source of returnpassive fund source of return Interest Rate Seers Scramble To Make Sense Of It All As The Economy Shrinks

The yield on the 10-Year fell past its supposed “resistance” level of 2.50% yesterday, landing at 2.44%.  Needless to say, the head-scratching over bonds (alt) is kinda turning into, like, really awkward bloody hair-pulling: “The short answer is that euro-zone bond yields fell on some weak German economic and employment readings and dragged U.S. yields lower too.  The much longer (and scarier) answer is that nobody really seems sure exactly what’s going on.”  Apparently a shrinking economy (alt) isn’t very scary.  Most of the explanations being tossed around are based on technicals and supply/demand analysis.  I like Michael Santoli’s explanation: “‘If I want to give you a list of the countries whose 10-year debt trades at lower yields than the United States, it’s almost all the developed world…the United Kingdom, Canada and Germany are among the countries with lower yields than U.S. debt right now.  ‘Globally, there’s a scarcity of yield.’”  Deutsche Bank has a pretty convincing explanation based on weak supply: “U.S. Treasury net issuance is around $123 billion year-to-date, down 59 percent from a year earlier, while net issuance of corporate paper and mortgage backed securities has also fallen…In addition, [Deutsche Bank] expects net U.S. Treasury issuance will be around three times the January-to-May pace, based on the Congressional Budget Office’s estimates, while at the same time, corporate issuance is likely to pick up as acquisition deals are finalized.”  Meanwhile, gold is super confusing.  Theories as to why the precious metal has fallen to a nearly four-month low range from improving U.S. data, less fear over Ukraine, China buying less gold and US equity indexes at all-time highs.  Apparently “fear is not an asset class” doesn’t do it for people.  Meanwhile, as the stench of dead volatility creeps into the nostrils of oil traders, the Financial Times makes some really good points about the “stability” creeping back into markets: “Fears of ‘QE3 taper tantrums’ in emerging markets appear to have receded, while the probability of a ‘hard landing’ in China is considered low.”  Furthermore, while central banks’ accommodative monetary policies may have resulted in low volatility, or “a regime of fixed prices,” the market is transforming “from a place in which prices reveal information about market imbalances, which then incentivise behavioural changes to deal with those imbalances, to [a market]place where supply and demand adjustments on the sidelines guarantee price stability.”

Beta : Alpha :: Larry Fink : ProShares

Liquid-alternative funds (alt), which frequently mimic hedge-fund strategies, have exploded in popularity in the past year.  Individual investors have poured tens of billions of dollars into the funds, and many big investment firms see them as a growth area…One of the reasons money managers like the funds is the same reason financial advisers don’t: high fees.  Because they use more complicated trades, the average expense ratio for a liquid-alternative fund is 1.9%, compared with 1.3% for a typical mutual fund and 0.8% for an index fund…The revenue potential is important to fund companies that have lost out on fees as investors have moved toward low-cost index funds in recent years.”  Meanwhile, Morningstar has done some great research on measuring portfolio’s alpha, beta and sources of return: “investors should be perfectly content with a fund that provides nothing but beta (returns that are in sync with broad market volatility).  Having exposure to some strategic beta factors can help on the margin.  It is clear that beta provides the majority of return, even among funds that manage to capture significant alpha (outperformance attributed to skillful active management).”  Meanwhile, Larry Fink hates ProShares and so should you!

Concentrated Markets May Have A Secular Impact On Unemployment Recovery

Harvard Business Review has an interesting theory on how unemployment is about to fall a lot faster than we expect: “In past recessions, small businesses fueled early job growth and drove a predictable pattern that is currently used to estimate unemployment.  During the current economic recovery, however, the largest of businesses added to their payrolls first, while small businesses have significantly underperformed in job growth…if small businesses add jobs at the volume suggested by historical averages, the slope will accelerate more quickly.  This can give us all confidence that we will see a steady drop to 5.0% unemployment next year.”  Meanwhile, the Goliaths are everywhere.

Millennials Aren’t Planning On Dying Anytime Soon, Are Planning On A Grande Burrito

“Young adults who wait longer to start families are also putting off death planning…life insurance sales in the U.S. slipped 45 percent to 9.7 million policies in 2012 from a high of 17.7 million in 1983…’I’m not planning on dying any time soon so it’s a waste of money,’” said 30-year old Usman Ahmad while eating lunch “at a food court.”  Meanwhile, “almost a third of the world is now fat, and no country has been able to curb obesity rates in the last three decades, according to a new global analysis.”

USA: The Digital Disruption In Banking

Here are some key findings in Accenture’s latest report on North Americans and their attitudes towards digital banking: 1) 39% of Millennials say that if they were to switch banks, they would consider a bank with no branch location, 2) 74% of Americans say that their relationship with their bank is defined by simple transactions, as opposed to brighter financial future-style advice, 3) 51% of respondents said they “want their bank to proactively recommend products and services for their financial needs,” and 4) 48% of respondents are “interested in real-time and forward-looking spending analysis.”

China: GSK Salesmen Want ‘Bribes’ Reimbursed (Alt)


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