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Fear and greed are two extreme emotions that never go away and that's why we have cycles, according to David Rosenberg. In a 2007 FOMC meeting Dallas Fed president Richard Fisher said, "I lived through the corrections of the S&L market, portfolio insurance, the crashes of '87, '97, and so on. When you sort through them, all of them have a common basis, and that is a search for greater yields or greater return, leverage in order to achieve that return and some assumption of risk mitigation leading to what i call 'rational complacency'. I believe that's at play presently."
Here verbatim is what Rosenberg sees today 1) Margin debt on NYSE at multiyear highs 2) The VIX index at a multi-year low 3) BBB bond yields down to 3 percent 4) The spread between bulls and bears is now over 30 percent in the Investors Intelligence sentiment poll 5) The return of cov-lite lending 6) Record inflows into emerging market equities, and 7) Small-cap stocks at record highs.
The Financial Industry Regulatory Authority (FINRA) has filed a complaint against Westor Capital Group Inc and its president for alleged misuse of customer funds.
"Finra said Westor, acting through Mr. Bach, allegedly used customers' fully paid common stock to effect and cover short sales by another customer without the authority to do so. As a result, Westor and Mr. Bach failed to maintain physical possession or control of securities, as required by the federal securities laws and rules.
"The regulator also alleged Westor refused a customer's request to withdraw $97,000 from his account and operated an unapproved self-clearing business".
After the FOMC recently took up a more hawkish tone, investors have wondered when the Fed will start tightening and how tightening could impact markets. In a new note Deutsche Bank Chief U.S. Equity Strategist David Bianco says, "Don't fear interest rate normalization". He also shows what happened to markets each of the 15 times the Fed tightening policy starting 1965.
From December 1965 - 1966 Bianco writes "The 1965 tightening followed many previous hikes that were largely a post-war renormalization of rates. But the curve inverted in Dec. 1965 and yet hikes continued through Nov. 1966 on low unemployment – hawkish policy. Stocks fell into a bear market in 1966 even without recession and then the Fed started easing in Dec. 1966 and the market rallied."
Barclays says there are two key reasons that there will be a lot more mergers and acquisitions (M&A) volume. The first is that M&A picks up when volatility is low. Volatility has been declining. 2. High yields compared to funding costs also make M&As more compelling.
In A Bear Market Value Investing Is The Way To Go (Advisor Perspectives)
At a strategy conference hosted by Societe Generale Peter Tasker, Japan expert and founder of Arcus Investment, said in a bear market, value investing is the best way to go.
"Tasker said that his experience contradicts those who might argue that in a stagnant, risky marketplace, 'more companies are going to go bust, are going to need restructuring, are going to need to issue more equity as you get into more financial difficulties,' rendering value stocks a bad bet.
"On the contrary, Tasker said, these stocks have greatly outperformed expectations, while safer-looking growth stocks have shown themselves to be much more vulnerable to the vagaries of a persistently sour economy.
“'Bad markets are about surprise and they are about de-rating,' he said. “What gets de-rated is the stuff that is highly rated. The stuff that is lowly rated has got that much less of a hurdle to jump and that much less potential to be de-rated.
"By way of example, he recalled that in 2003, shortly after Japan experienced its second banking crisis in less than a decade, the press widely publicized a group of companies, dubbed the 'Dirty 30,' which were supposed to be on the verge of inevitable bankruptcies in the wake of the crisis. 'A couple of those 30 companies did in fact go bust,' Tasker said. 'The remaining 27 or 28 quadrupled and quintupled stock prices.'"
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