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Franklin Templeton’s $38 billion Global Bond Fund is suffering from its weakest start to a year since 2005, trading at it lowest price since January 2017 amid a slump in local debt of Brazil, Mexico, and Argentina – three of its biggest long-term holdings.

The fund, run by Michael Hasenstab, is down around 1.5% YTD after a dismal May that erased a gain for the year that had placed the fund at the top of its peer group at the end of April.

Hasenstab’s biggest holdings were in short-dated Mexican bonds, mid-dated Brazilian bonds, mid-dated Indian bonds… and over $1.1 billion worth of Argentine debt…

 

That was until yesterday, when Hasenstab – the ‘private sector IMF’ as The FT’s Robin Wigglesworth crowned him – decide to bailout Argentina with his investors’ money.

The Financial Times reports that Argentina’s “success” in its bond auction/roll last night was due to the Franklin Templeton manager who bought more than $2.25 billion – or more than three quarters of the 73bilion peso ($3bn) in Argentina ‘Botes’.

Tripling his fund’s exposure to the South American nation as it begins its bailout talks with the real IMF.

This is not the first time the ‘private sector IMF’ has bailed out a country in distress… as The FT notes,  Mr Hasenstab, the chief investment officer of Franklin Templeton’s global macro team, has earned a reputation for placing big bets on countries in economic and financial distress, such as Hungary in the wake of the financial crisis, Ireland at the depths of the eurozone crisis, and Ukraine around the time of its revolution.

While Franklin Templeton declined to comment on the Bote sale, Mr Hasenstab said in a statement:

“The current government continues to demonstrate incredible resolve and skill in giving life back to an economy that had all but collapsed.”

He added:

“Over the last months some policy errors did occur, as is common in any reform effort as large as is currently being undertaken. Importantly, errors were recognised and reversed and we remain confident the right policies are in place to improve the economy, (the) welfare of Argentines and the markets.”

Hasenstab also defended his long-term holdings in Latin America in an interview with Bloomberg TV earlier this month, saying that Argentina is a “long-term buy” because it has already reversed its policy mistake and will now get back on track.

He stressed that Argentina and Brazil are examples of countries that have rejected populism and unsustainable macro policies, giving them “great potential.”

That was right before the currency collapsed…

While Hasenstab has gone “all-in” on Argentina, he is not alone in his bullishness as it seems the entire buy- and sell-side is anxiously pitching investors to remain long EM debt, FX, and stocks no matter what…

“We see nothing in the recent unwind of emerging-market positions which in any way changes the benign outlook for EM,” said Jan Dehn, the head of research in London at Ashmore, which manages about $77 billion of developing-nation assets. “This is the time to buy EM, not to sell.”

Morgan Stanley Investment Management also agrees.

“We believe that the EM fundamentals generally remain strong and this period of underperformance will end and EM assets will once again begin to outperform,” it said in a note received Wednesday.

The dollar’s recent strength was fueled largely by speculative investors covering their short dollar positions — and “not due to a change in investor perception of the macro backdrop,” Goldman Sachs Asset Management said in a note.

“Recent relative underperformance in emerging-market debt appears excessive and we don’t think broad-based weakness is warranted given strength in select EM markets.”

Are they all worried?

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Rudy Giuliani, President Trump’s attorney and longtime associate, told Fox News on Wednesday that special counsel Robert Mueller has notified Trump’s legal team that he will follow Justice Department guidance and not seek an indictment against Trump.

“All they get to do is write a report,” said Giuliani.

Giuliani, himself a former federal prosecutor and mayor of New York City, also told Fox that Mueller’s investigators have not responded to five information requests from the president’s team. That has forced Trump’s legal team to push off making a decision about whether the president will sit for an interview with the special counsel — a decision they had hoped to reach by Thursday.  –Fox News

Federal prosecutors are barred from indicting a sitting president, as laid out in a Justice Department memo. Giuliani says that Mueller has no choice but to follow its guidance. 

Meanwhile, the special counsel’s office and Trump’s legal team continue to hash out the conditions under which the President will communicate with investigators. 

Giuliani joined Trump’s legal team last month and has repeatedly warned that an in-person interview of the president by the special counsel’s team would constitute a “perjury trap.” Complicating matters, Trump himself has refused to rule out agreeing to an interview with Mueller.

In an interview with Fox News’ Sean Hannity earlier this month, Giuliani said that the Mueller team had ruled out allowing the Trump team to submit written answers to the special counsel’s questions.

Giuliani said last week that the president’s legal team would oppose any subpoena unless they could “reach agreement on the ground rules.” He argued that Trump could invoke executive privilege, and the team would point to Justice Department opinions in fighting a subpoena and “on both law and the facts, we would have the strongest case you could imagine.”-Fox News

Giuliani has pointed to the fact that the Trump team has handed over 1.2 million documents to Mueller as evidence of cooperation with the probe – which marks its one-year anniversary on Thursday. 

So far, Mueller’s probe has resulted in the resignation of National Security Advisor Michael Flynn, the arrests of Paul Manafort and Rick Gates, and the indictment of 13 Russian nationals on allegations of hacking the 2016 election – along with the raid of Trump’s personal attorney, Michael Cohen.

Earlier this month, Deputy Attorney General Rod Rosenstein – who is officially in charge of the Russia investigation – admitted that Trump can’t be indicted.

“The Department of Justice has in the past, when the issue arose, has opined that a sitting President cannot be indicted,” Rosenstein said. “There’s been a lot of speculation in the media about this, I just don’t have anything more to say about it.”

In a series of memorandums, the Justice Department’s Office of Legal Counsel concluded that indicting a sitting president would violate the Constitution by undermining his ability to do his job. Those memos, too, though, said the answer was a matter of structure and inference.

The Justice Department’s regulations require Mr. Mueller, the special counsel, to follow the department’s “rules, regulations, procedures, practices and policies.” If the memos bind Mr. Mueller, it would seem he could not indict Mr. Trump, no matter what he uncovered.-NYT

No American court has ever addressed the matter, however elements of the issue were argued before the Supreme Court in United States v. Nixon in a 1974 case in which Richard Nixon was forced to comply with a subpoena from special counsel Lee Jaworski during the Watergate investigation, however the issue of indictment was not ruled on. 

“This case is essentially over,” Giuliani said. “They’re just in denial.”

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Authored by Richard Rosso via RealInvestmentAdvice.com,

The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only.  – John Maynard Keynes

It’s time we expose a few of the greatest financial mismatches in history. At the top of my mind, due to a myriad of behavioral and cognitive hiccups, are select retail investors (you know who you are), who must come to grips with how they’re handling current stock market volatility.

It’s a moment of truth

Too many investors possess a hook-up mentality with stocks. Holding periods are at historic lows. According to the New York Stock Exchange’s extensive database, the average holding period for stocks in 1960 was 8 years, 4 months.

As of December 2016, it was 8.3 months.

Last year’s unprecedented stock market performance for the S&P 500 was the worst event for investor psyche.

I’ll explain.

No doubt, it was a magical year. The market closed higher every month (first time in history). The Sharpe Ratio, or returns on the S&P relative to the risk-free (Treasury Bills) and volatility was 3.7. Since volatility was non-existent last year, risk-adjusted returns for the market were among the best I ever lived through; at least the highest in over 50 years.

Think of it like dating the most popular girl (or guy), in high school. In the beginning, you wonder how the heck it happened. Such luck! Eventually, you believe you’re entitled to dating prom kings and queens in perpetuity. The problem is ego. You convince yourself the perfect prom date is the norm and begin to compare every date after to “the one.” What a great way to set yourself up for failure, missed opportunities and myopia that slaughters portfolio returns (and possibly, relationships!)

In 2017, equity investors witnessed a storybook investment scenario. This year so far? Reality bites. It’s not that your adviser doesn’t know what he or she is doing; it’s not the market doing anything out of the ordinary, either. The nature of the market is volatility, jagged edges and fractals. The sojourn, the Sunday drive in perfect weather with the top down on a newly-paved road in 2017, was an outlier. The environment you’re investing through today is the norm; therefore, the problem must be the driver, the investor who doesn’t realize the road conditions are back to resembling 5pm rush-hour in a downpour.

Do you experience frustration with a purchase your adviser implements or recommends if the price doesn’t quickly move in your favor? Do you question every move (or lack thereof), a financial partner makes?

How often do you say to yourself – “She didn’t take enough profit. Why did he buy that dog? Why isn’t he or she doing anything? (Sometimes doing nothing is the best strategy, btw).

Do you constantly compare portfolio performance every quarter with a stock market index that has nothing to do with returns required to meet a personalized benchmark or long-term goal like retirement?

Ostensibly, the ugly truth is there may be a mismatch between your brain and your brain on investments. Listen, stocks aren’t for everyone. Bonds can be your worst enemy. Even the highest quality bond fluctuates and can be sold at a loss before maturity. This is the year as an investor you’re going to need to accept that volatility is the entrance fee to play this investment game.

According to Crestmont Research, volatility for the S&P 500 tends to average near 15%. However, volatile is well, volatile. Most periods generally fall within a band of 10% to 20% volatility with pockets of unusually high and low periods.

The space between gray lines represents four-year periods. Observe how volatility collapsed in 2017, lower than it’s been in this decades-long series.

Per Crestmont:

“High or rising volatility often corresponds to declining markets; low or falling volatility is associated with good markets. Periods of low volatility are reflections of a good market, not a predictor of good markets in the future.”

So, as an investor, what are the greatest financial mismatches you’ll face today?

Recency Bias

Recency bias or “the imprint,” as I call it, is a cognitive affliction that convinces me the trade I made last Thursday should work like it did when I placed a trade on a Thursday in 2017 when the highway was glazed smooth for max-market performance velocity. This cognitive hiccup deep in my brain makes me predisposed to recall and be seduced by incidents I’ve observed in the recent past.

The imprint of recent events falsely forms the foundation of everything that will occur in the present and future (at least in my head). Recency bias is a mental master and we are slaves to it. It’s human. It’s the habit we can’t break (hey, it works for me). In my opinion, recency bias is what separates traders from long-term owners of risk assets.

When you allow volatility to deviate you from rules or a process of investing, think about Silly Putty. Remember Silly Putty? Your brain on recency bias operates much like this clammy mysterious goo.

Consider the market conditions. The brain attaches to recent news, preconceived notions or the financial pundit commentary comic-of-the-day and believes these conditions will not change. To sidestep this bias, at Clarity and RIA we adhere to rules, a process to add or subtract portfolio positions.

Unfortunately, rules do not prevent market losses. Rules are there to manage risk in long-term portfolio allocations.

Losses are to be minimized but if you’re in the stock market you’re gonna experience losses. They are inevitable. It’s what you do (or don’t do), in the face of those losses that define you. And if you’re making those decisions based on imprinting or Silly Putty thinking, you are not cognitively equipped to own stocks.

Hindsight Bias

When you question your adviser’s every trade or the big ones you personally missed, you’re suffering from hindsight bias. Hindsight bias is deception. You falsely believe the actual outcome had to be the only outcome when in fact an infinite number of outcomes had as equal a chance. It’s the ego run amok. An overestimation of an ability to predict the future.

The market in the short-term is full of surprises. A financial partner doesn’t possess a crystal ball. For example, to keep my own hindsight bias under control, I never take credit for an investment that works gainfully for a client. The market must be respected. Investors, pros or not, must remain humble and in infinite awe of Mr. Market. A winning trade in the short term is luck or good timing. Nothing more.

With that being said, stock investing is difficult. Unlike the pervasive, cancerous dogma communicated by money managers like Ken Fisher who boldly states that in the long-run, stocks are safer than cash, stocks are not less risky the longer you hold them. Unfortunately, academic research that contradicts the Wall Street machine rarely filters down to retail investors. One such analysis is entitled “On The Risk Of Stocks In The Long Run,” by prolific author Zvi Bodie, the Norman and Adele Barron Professor of Management at Boston University.

I had a once-in-a-lifetime opportunity to break bread with Dr. Bodie recently in Nashville and spend quality time picking his brain. I’m grateful for his thoughts. He expressed lightheartedly how his retail books don’t get much attention although the textbook Financial Economics co-written with Robert C. Merton and David L. Cleeton is the one of choice in many university programs.

In a joking manner, he calls Wharton School professor and author of the seminal tome “Stocks for the Long Run,”Jeremy Siegel his “nemesis.” He mentions his goal is to help “everyday” people invest, understand personal finance and be wary of the financial industry’s entrenched stories about long-term stock performance. He’s a man after my own heart. He’ll be interviewed on the Real Investment Hour in early June.

In the study, he busts the conventional wisdom that riskiness of stocks diminishes with the length of one’s time horizon. The basis of Wall Street’s counter-argument is the observation that the longer the time horizon, the smaller the probability of a shortfall. Therefore, stocks are less risky the longer they’re held. In Ken Fisher’s opinion, stocks are less risky than the risk-free rate of interest (or cash) in the long run. Well, then it should be plausible for the cost of insuring against earning less than the risk-free rate of interest to decline as the length of the investment horizon increases.

Dr. Bodie contends the probability of a shortfall is a flawed measure of risk because it completely ignores how large the potential shortfall might be. Sound familiar? It should. We write of this dilemma frequently here on the blog. Using the probability of a shortfall as the measure of risk, no distinction is made between a loss of 20% or a loss of 99%.

If it were true that stocks are less risky in the long run, it should portend to a lower cost to insure against that risk the longer the holding period. The opposite is true. Dr. Bodie uses modern option pricing methodology i.e., put options to validate the truth.

Using a simplified form of the Black-Scholes formula, he outlines how the cost of insurance rises with time. For a one-year horizon, the cost is 8% of the investment. For a 10-year horizon it is 25%, for a 50-year time frame, the cost is 52%.

As the length of horizon increases without limit, the cost of insuring against loss approaches 100% of the investment. The longer you hold stocks the greater a chance of encountering tail risk. That’s the bottom line (or your bottom is eventually on the line).

Short-term, emotions can destroy portfolios; long term, it’s the ever-present possibility of tail risks or “Black Swans.”I know. Tail risks like market bubbles and financial crises don’t come along often. However, only one is required to blow financial plans out of the water.

An investor (if he or she decides to take on the responsibility), must follow rules to manage risk of long-term positions that include taking profits or an outright reduction to stock allocations. It’s never an “all-or-none” premise. Those who wholesale enter and exit markets based on “gut” feelings or are convinced the stocks have reached a top or bottom and act upon those convictions are best to avoid the stock market altogether.

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For Jordan Belfort -the Long Island penny-stock boiler-room operator of “Wolf of Wall Street” infamy – trouble does not seem to stray too far from his life on ‘Main Street’ as prosecutors say, he isn’t just a con, but also a deadbeat, and they want him to pay up.

For those who’ve forgotten, Bloomberg reports that at his sentencing in 2003, Belfort was ordered to pay $110.4 million in restitution and other penalties.

Belfort was released from prison in April 2008. He was convicted of defrauding 1,513 investors out of more than $200 million and sentenced to four years behind bars. He was also ordered to pay 50 percent of his gross income to victims after he was freed.

Belfort’s brash, dishonest behavior at Stratton Oakmont was glorified on screen by Leonardo DiCaprio in the movie based on his memoir.. and made the ‘wolf’ about $100 million, helping to start Belfort’s second career as a motivational speaker.

There’s just one problem with all this new-found wealth…

The government says he still owes about $97 million. U.S. District Judge Ann Donnelly in Brooklyn, New York scheduled a hearing Wednesday on the matter.

The argument is likely to focus on technical legal and accounting issues. Prosecutors say in court papers that Belfort paid about $700,000 to victims between 2007 to 2009, and nothing in 2010; he has also paid $12.8 million, mainly from property he relinquished at sentencing, they say.

Belfort and his lawyer, Sharon Cohen Levin, dispute the government’s numbers and what he should pay.

In 2014, Belfort told Inside Edition that he planned on paying back about $100 million to more than 1,500 victims that year.

“I’m actually doing a US tour that I announced and I’m giving a hundred percent of the profits to pay back the victims,” he told Inside Edition’s Chief Investigative Correspondent Lisa Guerrero.

However, it’s three years later and he still owes the same amount of money despite living a life of luxury, as The Daily Mail reports, these days he travels the world making big bucks as a lecturer, spilling the secrets of how you can ‘become rich’ too.

“Once everyone is paid back, believe me I will feel a lot better,” he said at the time.

“My goal is to give more than I get, that’s a sustainable form of success.”

“I want to vomit when I look at these pictures,” retired dentist Alfred Vitt and Belfort victim said when he was shown photos of Belfort’s lavish vacations by Inside Edition.

“He’s a liar and a damn crook.”

We tend to agree with Mr. Vitt as at the current rate Belfort is paying – between $4,000 and $5,000 per month – it would take him more than 1,600 years to pay back all his victims.

 

 

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Authored by Audrey Conklin via The Daily Caller,

Sexually transmitted disease (STD) cases have reached record-high numbers in California, the Los Angeles Times reports, as the ‘sharing’ economy goes viral.

In 2017, the number of California residents diagnosed with gonorrhea (over 13,000 cases), chlamydia (over 75,000 cases) or syphilis (over 218,000 cases) hit a consecutive three-year record, according to the California Department of Public Health.

The 300,000+ people diagnosed last year represents a 45-percent increase in STD cases since 2013.

Those most commonly affected by chlamydia and gonorrhea are under 30 years old. As The Sacramento Bee reports, “Rates of chlamydia are highest among young women, while men account for the majority of syphilis and gonorrhea cases.”

“While there are advocates and champions for cancer, nobody is out there saying, ‘I have gonorrhea and these are the best ways to treat it.’ There’s no one out there being a champion for these conditions,” said Klausner.

What you need to know about drug-resistant gonorrhea…

Officials are particularly concerned by mothers infected with syphilis, which has led to a significant increase in the number of stillborn babies. Stillbirths have quadrupled since 2013. In 2017, there were 278 stillbirths and 47 babies born with congenital syphilis in LA.

But California isn’t alone; STDs have been on the rise over the past five years across the U.S. As the Times explains, “Experts blame the increases on falling condom use, fewer public health clinics and people having more sexual partners linked to dating apps.”

If left untreated, these STDs can lead to a range of health issues in both adults and babies with infected mothers including infertility, ectopic or premature birth, chronic pain, blindness, hearing loss, meningitis and neurological disorders.

Rates for chlamydia, gonorrhea, and syphilis have been rising nationally for several years. More than two million new cases of all three infections were reported in the United States in 2016 — the most ever, according to the Centers for Disease Control and Prevention. CDC numbers for 2017 won’t be available until later this year.

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Forget MAGA, it’s a MANA market in 2018…

Since the start of the year NYSE’s FANG+ Index has massively outperformed the broad market…

With Information Technology accounting for 97% of the S&P 500’s total return performance YTD…

 

However, as S&P Dow Jones Indices’ Howard Silverblatt tweeted today, it gets even more concentrated, forget FAANG+, FANG, it’s MANA that matters as just four stocks – Microsoft, Apple, Amazon, and Netflix – were responsible for over 68% of the S&P 500’s total return through Monday.

So the message from 2018’s markets is simple – diversification is for losers, buy what’s working, trend is your friend, it’s a no-brainer…

MANA – Make America Normal Again

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The Senate voted on Wednesday to restore the FCC’s rules on net neutrality, passing a bill which will probably die on the floor of the House, but may ignite a fierce debate among Democrats ahead of midterm elections.

Senate Democrats managed to force the Wednesday vote using a rare legislative tool called the “Congressional Review Act” (CRA) – which allows Congress, with a majority vote in each chamber along with the president’s signature, to overturn recent policy changes. 

Democrats argue that without the FCC’s net neutrality rules, companies such as Comcast and Verizon will have free reign to discriminate against certain content, or allow superior access to partner websites and services. Under the old rules, internet service providers (ISPs) are required to treat all internet traffic equally.

In order to pass through the House, the bill would need 25 Republicans to support the Democratic effort in order to even bring it up for a vote. 

Most Republicans have argued that the FCC’s net neutrality rules are overkill and not required for broadband providers – urging Democrats to come to the table and negotiate a legislative solution to replace the FCC rules. The broadband industry is predictably very supportive of this effort. 

Supporters of net neutrality, however, flatly reject the notion that the GOP-controlled Congress can come up with solutions which protect content as well as the FCC rules. The proposed GOP legislation, for example, would allow internet service providers (ISPs) to create “fast lanes” which would charge websites to provide faster speeds to end users. 

Of course, as Recode pointed out last year, Obama’s net neutrality rules were celebrated by websites and content providers who could be subjected to throttling by telecom and cable companies who own distribution networks.

Adopted in 2015 under former President Barack Obama, the U.S. government’s current approach to net neutrality subjects the likes of AT&T, Comcast, Charter and Verizon to utility-like regulation. That legal foundation prevents them from blocking or throttling web pages, while banning content-delivery deals known as paid prioritization. And it grants the FCC wide legal range to review virtually any online practice it deems harmful to consumers.

Such strong rules always have been popular in Silicon Valley, where startups in particular fear they could not compete without tough net neutrality safeguards. But they long have drawn sharp opposition from the telecom industry, which sued the FCC in 2015 in a bid to overturn them.

Before that case could come to its conclusion, however, Trump entered the White House, ushering in a new era of Republican control at the nation’s telecom agency. And Pai, a fervent opponent of utility-like regulation of net neutrality, set about undoing the Obama-era rules almost as soon as he took over the FCC. –Recode

In addition to the Senate bill, there is a separate battle in court to fight the FCC’s repeal – however that is likely to drag on for months. 

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