For years, ads have screamed in our direction in an effort to get our attention. Nuance Communications hopes its latest offerings will get us to stop plugging our ears -- and even to talk back. Nuance, a provider of speech recognition and language technology, on Monday announced a new ad format, Nuance Voice Ads, that allows consumers to carry on spoken conversations with mobile advertisements. Nuance’s push for more interactive ads underscores the challenge marketers face in delivering their messages on small smartphone screens that give them only a few inches of space (if that) to make an impression. Facebook and Twitter, for example, have redesigned their applications and websites to help brands bring their sponsored photos and videos to the fore. Yet unlike images and videos, Nuance’s Voice Ads won’t settle for being seen and heard. They also demand to be spoken to. “It’s sort of like a little slice of a virtual assistant application,” said Nuance chief marketing officer Peter Mahoney. “It’s designed to engage you so you can literally have a direct conversation with a brand.” In a demonstration of the technology, Nuance showed how a fictional deodorant company, dubbed "Alpha," could use Voice Ads to create an spot featuring a chatty Magic 8 Ball that answers questions and dispenses advice, all while working in the company’s tagline and staying loyal to the brand’s image. Ask the Magic 8 Ball, "Should I go to work today?" and a male voice answers, "Do you want to?" No. "Um, duh, don't go," the ad answers. "But on the off chance that you run into someone in person, use Alpha. Smells like money in the bank." Though the deodorant example is more fun than functional, the Voice Ads could be designed to offer coupons or dispense practical information about a product. Nuance’s speech recognition technology can also distinguish the speaker’s gender, so it could tailor the ad copy to either women or men, in real time, depending on who’s speaking. Mahoney said that since the ads can ask questions in a conversational and friendly way, Voice Ads would not only be able to get a user's attention, but collect personal information as well. “There are some really interesting applications for ads that have a data gathering or survey application,” he said. “You could imagine seeing an ad for a coffee shop that says, ‘Hey I can give you free drink coupon. What’s your favorite coffee?’ And you could say, ‘I would like a double mocha chai.’ And it would understand what that was and say, ‘Let me give you a coupon for one of those that you like.’” “The data is really valuable, of course, for the brand, because they want to know what people like,” Mahoney added. “And that creates loyalty for people because they feel like it’s great customer service.” Voice Ads are currently designed to appear within advertising on mobile apps, such as the banner ads that appear at the top of free games. According to Mahoney, the company could eventually expand the technology to other devices, including televisions or even cars, where radio commercials might one day be able to carry on a conversation. He estimates that Voice Ads are two to three months away from appearing on consumers' phones. Marketing experts agree that the first brands to incorporate Nuance’s Voice Ads will benefit from the sheer novelty of the approach. But Nuance's more interactive audio advertising could also be more intrusive. Rebecca Lieb, an analyst with the Altimeter Group, a research and advisory firm, argues that people are often on their smartphones in settings where it would be inappropriate to talk out loud. “Smartphones are largely meant for browsing and for time-wasting, and people use smartphones in many, many situations that are not appropriate for talking,” said Lieb. “When you think about serving the right ad to the right person at the right time, this is not always going to be [it], because voice interaction is not always going to be desirable or possible for smartphone users.” And do people really want to talk to the ads they so often try to ignore? The appeal of Voice Ads -- and whether the technology can become an indispensable offering -- will ultimately depend on how advertisers incorporate them. Nuance is partnering with several ad agencies, such as Leo Burnett, Digitas and OMD, and a handful of mobile advertising firms, including Millennial Media, Jumptap and Opera Mediaworks, to persuade companies to adopt the new form of chatty marketing. “To some this will be annoying and gimmicky no matter how it’s deployed,” said Chuck Martin, chief executive of the Mobile Future Institute, a research firm. “But it can evolve to be useful because now that the capability exists, marketers will figure out how to best use it."
U.S. equity markets rallied once again after opening weaker Monday repeating previous performances. There wasn’t much news domestically. The Fed continued modest POMO actions which will grow in scope throughout the week. Stocks were quiet most of the day but got a lift on rumors that Apple (AAPL) will declare a dividend of some kind. If they do this, then the SEC should be monitoring who and what groups were front-running this piece of news. Perhaps helped by Apple rumors U.S. equity markets continued to rally as the DJIA (DIA) set another (ho-hum) record high. The focus now turns to the S&P 500 (SPY). To match the DJIA, the index only needs to rally roughly less than 10 points, which will launch a flurry of more bullish headlines. Tech (XLK) and Financials (XLF), the heavyweight sectors in the S&P, led the way higher Monday. The dollar (UUP) was strong early in the day only to reverse course and settle slightly lower from the day’s highs. Gold (GLD) was modestly higher and marking time while commodities (DBC) were flat. Bonds (TLT) were also mostly unchanged. The only other serious financial news Monday (away from Apple shenanigans) was from China. Chinese authorities reported Industrial Production of 9.9% and Retail Sales of 12.2%. Generally, this kind of data would thrill most countries and their investors but for China these data points are a disappointment. In parallel, investors fretted that the government will tighten further by increasing interest rates and/or raising bank reserve requirements. On top of that, add in the general mistrust of China data by investors and pundits—all said and done, things get pretty murky. In any event, stocks in China were lower once again. We did a chart video regarding popular GXC (SPDR China ETF) just two weeks ago but today did another which can be accessed here. Last week we also featured a video regarding the popular Shanghai CSI 300 Index and detailing how one might trade the market overall. We’ve raised our long exposure to equities from 50% to 68% in our flagship DSP Portfolio. For more conservative investors it may pay to be cautious with stocks getting overbought. But that condition can remain intact especially as the Fed’s money printer is set to “turbo”. In such an environment, it’s hard to consider shorting against this tsunami of liquidity. This is why I’ve recommended to subscribers to build a base around our suitable Lazy portfolios as the core of investing and adding selective issues to generate alpha. That said, this ultra-light volume in combination with current market conditions being overbought makes markets more accident-prone. Volume remains in some sort of new normal level of “light” while breadth per the WSJ was mildly positive. You can follow our pithy comments on twitter and become a fan of ETF Digest on facebook. Continue to U.S. Sector, Stocks & Bond ETFs Continue to Currency & Commodity Market ETFs Continue to Overseas Sectors & ETFs The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term. The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise. There isn’t much economic news scheduled until Wednesday. And, let’s not forget quadwitching is Friday which coincides with the highest POMO of the week scheduled (cough) coincidentally for that day. Let’s see what happens.
From GoldCore Ron Paul: “6,000 Years of History, Gold Is Always Money, Paper Money Fails” Ron Paul spoke with Bloomberg television and said that we are in a currency war and we have been for decades. He noted that governments have always competed against each other’s currencies even under Bretton Woods. It has always been a form or protectionism and will make people want to export more. Dr. Paul said don’t blame countries like China and Japan just look at the debt the U.S. is buying. There will always be currency wars. The Bank of Japan claims it has to defend itself against deflation and decades of slow growth. Ron Paul noted that the Bank of Japan’s yen devaluations will eventually lead to further price inflations that are to come. Investors and citizens will eventually reject the yen and switch to other currencies like dollars or Swiss francs. Then eventually people will move to hard assets altogether as they are losing confidence in paper assets. Dr. Paul was asked, “Do you think protectionism will lead to a crash in the international monetary system? He replied, “Nothing good can come of it. Even short run trade benefits leads to a weaker economy and higher prices. It doesn't solve the problem they won't face the truth. That is that all governments spend too much money, there is too much debt and they get away with it by taxing people”. “It seems that all we have is more debt, more printing money, and more government interventions. Governments won’t even talk cutting things. They only want to make slight decreases of proposed increases in their budgets!” On the next U.S. Treasury Secretary, Jack Lew, Paul says, “We don't need an intervener. He should have a strong dollar policy by defining it, and not by propping up the market. Don't devalue a currency. It is then that you hurt savers and cost of living goes up. This only damages the middle class and the poor no matter what welfare programmes you have because they lose purchasing power.” Dr. Paul says that he feels the Obama administration is trying to devalue the dollar, they are very different then sound people and different then the Austrian economists. They feel debt is ok. The interviewer noted that the gold standard has not immunized us from financial crisis. Dr. Paul retorts, “If you look at it over several years it does maintain money. There were flaws with the gold standard, during wars, there were problems in the past and we understand so much more today and we could do better.” “If you think we need a wiser Federal Reserve, central economic planning for the manipulation of credit, or a better Treasury Secretary, I reject that. “ After all, Ron Paul says for over 6000 years of history gold is always money and paper money fails. IMF Russia Gold in Million Fine Troy Oz, Monthly – (Bloomberg) Russia buys gold to protect against “cataclysm with the dollar, euro, pound or any other reserve currency" Not only has Putin made Russia the world’s largest oil producer, he’s also made it the biggest gold buyer. His central bank has added 570 metric tons of the metal in the past decade, a quarter more than runner-up China, according to IMF data compiled by Bloomberg. The added gold is also almost triple the weight of the Statue of Liberty. “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency,” Evgeny Fedorov, a lawmaker for Putin’s United Russia party in the lower house of parliament, said in a telephone interview in Moscow. Gold, coveted by Russian rulers including Tsar Nicholas II and the Bolshevik leader whose forces assassinated him, Vladimir Lenin, has soared almost 400% in the period of Putin’s purchases. Central banks around the world have printed money to escape the global financial crisis, sapping investor appetite for dollars and euros and setting off a scramble for safety. In 1998, the year Russia defaulted on $40 billion of domestic debt, it took as many as 28 barrels of crude to buy an ounce of gold, data compiled by Bloomberg show. That ratio tumbled to 11.5 by the time Putin first came to power a year later and in 2005, after it touched 6.5 -- less than half what it is now -- the president told the central bank to buy. NEWS Gold ticks up in holiday-thinned trade - Reuters Silver Climbs as Gold Little Changed Before Euro Finance Meeting - Bloomberg Gold edges higher as dollar weakens – Market Watch Putin Turns Black Gold Into Bullion as Russia Out-Buys World - Bloomberg Venezuelan devaluation sparks panic – The Financial Times COMMENTARY Video - Ron Paul: Are We in a Currency War? - BloombergVenezuela Launches First Nuke In Currency Wars, Devalues Currency By 46% - Zero Hedge No One Knows How Much Gold China's Central Bank Is Buying – Seeking Alpha How Much Gold Does China Really Have? – Money Morning Economist Predicts Higher Gold Prices In 2013 - Lower Thereafter – CME Group For breaking news and commentary on financial markets and gold, follow us on Twitter.
By the look of things, Europe’s banking system is breaking down again. Bankia’s shareholders have received a nasty new year’s surprise. They may lose most of their investments or even all of them says the Spanish bank rescue fund in its latest report. According to FROB, the Fund for Orderly Bank Restructuring, Bankia has a negative value of 4.2 billion euros, and its parent group BFA is 10.4 bn in the red. Valuation is key in the recapitalisation of Spain’s banking system, weighed down by massive bad loans accumulated in a property bubble that burst in 2008. Bankia/BFA is set to receive 18 bn euros of European aid, and become the country’s biggest bailout recipient. http://www.euronews.com/2012/12/27/bankia-worthless-says-new-report/ Greece’s four largest banks need to boost their capital by 27.5 billion euros ($36.3 billion) after taking losses from the country’s debt swap earlier this year, the largest sovereign restructuring in history. National Bank of Greece SA, the country’s biggest lender, needs to raise 9.8 billion euros, according to an e-mailed report by the Athens-based Bank of Greece (TELL) today. Eurobank Ergasias SA (EUROB) needs 5.8 billion euros, Alpha Bank (ALPHA) needs 4.6 billion euros and Piraeus Bank SA (TPEIR) needs 7.3 billion euros, according to the report. Total recapitalization needs for the country’s banking sector amount to 40.5 billion euros, the report said. http://www.bloomberg.com/news/2012-12-27/greek-bank-capital-needs-at-eu27-5-billion-bank-of-greece-says.html The above articles tell us point blank that Europe’s banking crisis is neither fixed nor even close to over. Consider the article on Spain. A little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank. So… when the newly formed bank goes bust, “poof” your savings are GONE. Not gone as in some Spanish version of the FDIC will eventually get you your money, but gone as in gone forever. This is why Bankia’s collapse is so significant: in one move, former depositors at seven banks just lost virtually everything. In the case of Greece, the above article needs some perspective. Sure, €27.5 billion sounds like a lot of money, but just how big is it relative to Greece’s banks. The entire capital base of the Greek banking system is only €22 billion. By saying that Greek banks need €27.5 billion Greece is essentially admitting that is needs to recapitalize its entire banking system. Also, you should know that Greek banks are still sitting on €46.8 billion in bad loans. There is a word for a banking system with a capital base of €22 billion and bad loans of €46.8. It’s INSOLVENT. Take note, the EU Crisis is anything but over. The ECB may have pushed it back by a year by promising unlimited bond buying… but that relief rally is coming to an end. With that in mind, smart investors are taking advantage of the lull in the markets to position themselves for what’s coming. We offer several FREE Special Reports designed to help them do this. They include: Preparing Your Portfolio For Obama’s Economic Nightmare What Europe’s Crisis Means For You and Your Savings How to Protect Yourself From Inflation And last but not least… Bullion 101: Everything You Need to Know About Investing in Gold and Silver Bullion… You can pick up free copies of all of the above at: http://gainspainscapital.com/ Best Phoenix Capital Research
Banking high-flyers await phone call after secretive, brutal selection process that involves no job advert and no interviewThe phone call lasts just a few seconds. The words "congratulations, you've become a partner", are just about all Lloyd Blankfein, the boss of Goldman Sachs, will have time to say to the 85 or so bank high-flyers he will ring next Wednesday to invite into one of the most prestigious and lucrative cliques on Wall Street.It is a day of huge expectation for individuals spanning time zones from Sydney to New York who are waiting to hear that they have been given a role for which there is no job advert and no interview.The whittling down of the candidates is under way this week in Goldman Sachs's head office in New York. Stretching across several days, a team of partners led by London-based Michael "Woody" Sherwood are deciding upon whom to bestow the glittering title of Goldman Sachs partner.The decision comes at the end of a thorough, secretive and sometimes brutal decision-making process that happens only every two years. This year's deliberations began in the summer and include the selection of managing directors, one rung below partnership.With the title of partner comes prestige that is, arguably, unrivalled in the financial world. It also brings vast wealth in the form of a partnership bonus pool that pays out millions of dollars each year. And it opens the door to high-profile career moves: former US Treasury secretary Hank Paulson was in the golden circle, as was one-time BBC chairman Gavyn Davies. Annual payouts can reach tens of millions of dollars – each – on top of annual salaries which are thought to start at almost $1m. Blankfein, for instance, took home more than $16m last year, according to Forbes, but received $68.5m (£43m) in 2007.To be selected, candidates will have survived a process known as "cross-ruffing", a term borrowed from the card game bridge. Insiders describe it as a rigorous cross-checking procedure that involves teams of Goldman partners interviewing each other about potential candidates.The individuals being cross-ruffed should, in theory, be unaware that their strengths and weaknesses are being scrutinised. They are not interviewed.But in reality, the hierarchical nature of the firm means that anyone with any ambition will be aware they are next in line for promotion, and William D Cohan, a former US banker who authored a book about Goldman called Money and Power, told the Guardian the partnership selection procedure was "an incredible endurance test on one hand and incredibly anxiety-inducing on the other".The Goldman hierarchy is rigid. Graduates are hired as analysts while business school graduates come in as associates. The next rung is vice-president – the level attained by the disgruntled former employee Greg Smith who has just written a book about the hard-nosed culture of the bank – which is known as executive director in London. Then comes managing director – and there are hundreds of them – and ultimately partner managing director, the highest level of the firm.Sherwood, a partner since 1994 who can still recall the brief but crucial call he took 18 years ago summoning him into the elite group, describes how partners are given the job of interviewing their fellow partners to discuss candidates put forward by divisional heads. The partner selected to cross-ruff is always drawn from another part of the firm, possibly even in another part of the world. No stone is left unturned — every aspect of their career to date is scrutinised — the deals they have worked on, the profit they have generated and the way they are regarded by their colleagues and staff.The process, which Cohan believes was formalised by former Goldman banker and existing board member Stephen Friedman, continues even though the firm was floated on the stock market in 1999 and is no longer a partnership in the conventional sense. But the idea of partnership was retained "to maintain various core aspects of the firm's partnership culture among its leaders, including teamwork, client focus and a commitment to excellence".To those inside the firm, the status is much more than just a job title. "The idea of having a partnership within a public company is quite literally brilliant," said one partner, who has now stepped aside. This year 33 partners have departed, leaving the total at 407 before the new crop – or "class" as Sherwood describes them – are appointed next week. Those who leave the partnership – often only in their late 40s and early 50s – go on to other careers, retire or stay on as advisory or senior directors. Some even join the board, such as is the case of the outgoing chief financial officer David Viniar.In 2010 Blankfein made calls to 110 new partners. This year he may not spend so much time on the phone: the precise number of new appointments is still being worked on, but at a time when the firm has been cutting staff to save costs, it is likely that the 2012 "class" will be fewer than 100, with speculation that between 75 and 100 Goldman bankers will make the grade.An aspiring partner describes how the "process is intense"."It's a brilliant process but it is a reasonably odd one because as a candidate you don't have an interview. No one talks about it but everyone knows you are up for it. People are asking questions about you but you are having zero involvement."Cross-ruffing allows comparisons to be made. Rankings given to candidates by the department heads are cross-matched against those drawn up by the partners leading the assessment process. Differences are sometimes exposed. Sherwood stressed that it "is not about how you did any one year".And, if the process of being named a partner sounds gruelling, getting a foot on the ladder lower down the firm is tough too. Even though many investment bankers are now often ashamed to say what they do in polite company, and Goldman is often portrayed as the epitome of all that is wrong in the financial world, it is a still an organisation that ambitious people scramble to join. Goldman's annual report reveals that almost 300,000 applied for jobs in 2010 and 2011. Fewer than 4% were hired "and though most had multiple offers, nearly nine out of 10 people offered a job accepted".Cohan writes in his book that candidates can be subjected to 30 interviews and describes Goldman as a place that is not for "prima donnas" but "stuffed to the gills with high-achieving alpha males".Each year there is a formal assessment process. Staff are subjected to a 360-degree review, where they are rated and assessed by their peers, subordinates and superiors.These assessments are resurfaced during the final selection process in the promotion to partner. Few are hired from outside at partner level, although these so-called "lateral" hires can hope for fast-track promotion.The easy solution would be to select those who generate the most revenue for the firm. This is what Smith suggested when he resigned from Goldman and penned an excoriating attack on the firm and its culture in the New York Times. "Today, if you make enough money for the firm (and are not currently an ax [sic] murderer) you will be promoted into a position of influence," he wrote.Sherwood disagrees. In his view the partnership is something far more altruistic: "It is often about doing something that is good for the whole firm, to make the firm better and subduing your individual motivation and aspirations for the good of the whole firm."Acting for the good of the partnership is a prerequisite once membership of the exclusive club has been attained. The average tenure of a partner is eight years. As Cohan puts it: "It's very good for the junior people."Viniar reckons that 20% leave every other year. But it is not just a benevolent act to encourage younger bankers. It is also about the bonus pool that exists for the partners. The prospectus accompanying the 1999 flotation described the process: "Upon selection to the partner compensation plan, participants will be allocated a percentage interest in a pool for annual bonus payments in addition to base salaries. The size of the pool will be established by the partner compensation plan committee annually, taking into account our results of operations and other measures of financial performance."In 2009, in the wake of the financial crisis, the 100 London-based partners decided they needed to demonstrate that they understood public anger with the banking sector – so they capped their pay and bonuses at £1m each. But that was a one-off.Sherwood insists that the partners' bonuses are handed out after the wider bonus pool is agreed and that the process of becoming a partner is a meritocracy: "Some are great leaders, some drive the organisation, others are just incredibly productive people or are building new businesses. Some are lateral hires. There is no particular person, there is no particular nationality, race, region or gender. It's a collection of very motivated, very diverse people who come from all types of different backgrounds.""If you talk to the candidates it is a very aspirational process," Sherwood said, acknowledging that it also means that some hoping to become partners will not make it.Those aspiring partners who pick up their phones next week and hear not Blankfein's New York tones but, perhaps, the more familiar voice of their divisional boss on the end, will know their time has not come. Some will walk. But others, as Sherwood puts it, "will go back to their desk, and work hard" and try again in two years' time.Goldman SachsBankingWork & careersUnited StatesJill Treanorguardian.co.uk © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds
Earlier this week two former Merrill colleagues, since separated, were reunited on several media occasions, and allowed to spar over their conflicting views of the world. The two people in question, of course, are Gluskin Sheff's David Rosenberg, best known during the past 3 years for not drinking the propaganda Kool-Aid, and systematically deconstructing every "bullish" macroeconomic datapoint into its far more downbeat constituent parts, and his ebullient ex-coworker, Richard Bernstein, formerly head of equity strategy at a firm that had to be rescued by none other than Bank of America and currently head of RBA advisors, who just happens to be bullish on, well, everything. And since any attempt at holding an intelligent conversation on CNBC is ultimately futile (as can be seen here) and is constantly broken up by both ads, and interjecting anchors and show producers who care far less about facts than keeping the presentation 'engaging' (and going to such lengths to even allow Jim Cramer to have his own TV show), Rosenberg decided to dedicate his entire letter to clients today to "providing a rebuttal" of the slate of reasons why according to Bernstein the "we are on the precipice of a 1982-2000 style of secular market." What follows is one of the most comprehensive "white papers" debunking the bullish view we have seen in a while. Read on. From Gluskin Sheff's David Rosenberg R AND B It is music though not necessarily of the B.B. King variety. It's the Rosenberg and Bernstein duet. My good friend and former Merrill Lynch research colleague Richard Bernstein and yours truly duked it out at a business executive forum on Thursday over the market outlook. It was like the good or days and felt really good. I would say that over the long haul, Rich and I tend to share very similar philosophies regarding global events and how they will play out over time.But when we differ, we differ big time. That said, I have to tip my hat to Rich for having been earlier than I on the bull call for equities this cycle. At the same time, the bond-bullion barbell strategy and S.I.R.P. thematic has also managed to help generate decent risk-adjusted returns over the past three-plus years. But kudos to Rich for the stock market view. That's what the debate was (and is) about. He got it more right than wrong. Be that as it may. just as past returns are never a guarantee for future performance in the money management field, so it is true in the realm of forecasting that extrapolating your latest successful calls can often be a big mistake. Rich has said verbally and in print that we are on the precipice of a 1982-2000 style of secular bull market and has listed a slate of reasons why, and I intend on providing a rebuttal to each. First, Rich is excited about the fact that the total national debt (government, business and household combined) has come down to 340% from the record peak of 370% set in 2009 and as such the deleveraging phase is gathering apace. I agree that going on a debt diet is a good thing to do, but it also eats into domestic demand and is one of the reasons why this goes down as the weakest economic recovery on record. And at 340% on the aggregate debt/income ratio, we are merely back to the levels we were at the bubble highs five years ago. I find it doubtful that the debt ratio has managed to find its way back to a sustainable level, and Rogoff and Reinhart did the hard research showing that post-bubble deleveraging cycles last at least ten years. So in baseball parlance, we're probably no better than in the fourth or fifth inning. And don't forget that the wonderful 1982-2000 secular bull run was caused in part from the multi-year run-up in the all-in deb/GDP ratio from 160% to 260% — the correlation with the S&P 500 was large at 82%. To be sure, correlation does not imply causation, but there can be little doubt that the proliferation of credit products and ever-greater accessibility to leverage contributed immensely to economic growth and corporate profits during that virtually non-stop two-decade period of unbridled prosperity. Today, and tomorrow, the movie is continuing to run backwards and will prove to be an enduring drag on the pace of economic activity, not just in the USA, but globally. Three other critical differences worth mentioning before moving on. In 1982. at the start of the secular bull run, the median age of the 78 million pig-in-the-python otherwise known as the baby boomer, the group which controls most of the wealth and has had a big hand in influencing everything in the past six decades from capital markets to the economy to politics, was 25 years old, heading into their prime risk-taking years and as such ushering in the era of aggressive growth and capital appreciation strategies. Today the median age is 55 and going on 56 and the first of the boomers are now turning 65— 10,000 will be doing so each day for the next eighteen years. And their tolerance for risk and need for income is considerably different than it was three decades ago. That much is certain. The expansion in credit and the favourable demographic trends in that 1982- 2000 period helped generate annual economic growth, in nominal terms, of nearly 6.5% on average, taking the trend in corporate profits along for the ride. Not even the most bullish prognosticators see growth coming in anywhere near that pace for the foreseeable future. And of course, while Ronald Reagan was no fiscal conservative, his worst sin was a 6% deficit GDP ratio, much of it being cyclical by the way, and a 28% federal debt/GDP ratio. Today the deficit is closer to 8% (there is a much larger structural component) and the federal debt/GDP ratio is about to pierce the 70% threshold. Not to mention entitlements being a much more acute ticking time bomb as the ponzi schemes are that much closer to facing insolvency without some tinkering. Remember — fiscal policy in the U.S. in the go-go 1980s and 1990s was all about receding top marginal tax rates and greater deductions. Everybody liked this so much that many of the folks sitting across the aisle from the GOP were labeled "Reagan Democrats". No such bipartisanship exists today, nor is it likely to given the large degree of acrimony, so evident in the last presidential (and veep) debates. It may end up taking some sort of a crisis, in the end, to galvanize the two parties to work towards a resolution to the fiscal morass (as happened in Canada in the early 1990s). That Obama can never seem to get a budget passed or that Simpson-Bowles is collecting dust was not the politics of the Reagan-O'Neill accords of the 1980s. Even Clinton learnt how to compromise and work with the enemy (he was very good, by the way, at the Democrat convention — no doubt he would win another term running against either candidate, and it was so obvious that neither one really fully comprehends just how massive the fiscal problem is and the complexity and painful shared sacrifice that it will take as part of any viable solution). The 1980s and 1990s were all about industry deregulation. That fostered a durable expansion of both the 'E' and the 'P/E' as far as equity market valuation was concerned. That is hardly the case today, is it? And the 1980s and 1990s were all about breaking down harriers to global trade, again allowing for greater multiple expansion. This cannot be emphasized enough, especially in lowering business costs. Today, trade tensions are growing and protectionism rearing its ugly head via surreptitious currency wars. Sorry, but it ain't the 1980s and 1990s all over again, by any stretch. What the stock market has really experienced is a classic reflexive rebound from a depressed oversold condition, aided and abetted by radical government intervention, not entirely unlike what we saw from 1932 to 1936. As I said, in 1936, it would have been foolhardy to have overstayed the party by extrapolating a vigorous bounce off the trough into the future. I recommend that people don't repeat that mistake. The reason why policy rates in most parts of the world are at or near zero percent is because risk is high. Especially political risk. Make sure this is acknowledged in every financial decision you make. Moreover, in the 1980s and 1990s, the government was getting out of the way. Back then, if a publicly elected official asked "what can I do for you", the answer by most was "nothing. Thanks". Today, the same question is met with "where's my cheque''? In the 1980s and 1990s, the Fed was ushering in an era of disinflation, again a powerful way to expand the market multiple — which it did — as it led to better business decision-making and more efficient resource allocation. Now the Fed is covertly attempting to create inflation so as to monetize our debt morass. Not only was government getting out of our way in the 1980s and 1990s, but the Federal Reserve found its moorings under the legacy of Paul Volcker, and followed years of what can only be described as a sound money policy. We have on our hands today, not just the Fed but many major central banks manipulating interest rates and relative asset values. It is imperative to recognize that as the Fed and ECB act in a manner today that has investors convinced that "tail risks" are being reduced, the cost of these unconventional policy measures are both unknown but very likely far-reaching, and have thereby introduced "tail risks of their own, even if not realized for years down the road. Anyone who does not recognize the extent of the Fed's manipulation in order to generate a positive wealth effect on spending should not be in the wealth management business. Because managing wealth means managing risks... and the Fed and other central banks have merely papered over the debt overhang by printing vast amounts of paper money. Once the inflation does come back, believe me, all hell will break loose, and the law of unintended consequences will rear its head. At that point, the Fed will have no choice but to do some very heavy backtracking and the game will be over. This again is being very forward- looking, to a fault perhaps, but the Fed, once it gets the inflation it so desperately wants, will he slow to respond at first but will end up having to unwind its pregnant balance sheet. One reason why gold bullion and gold mining stocks will prove to have been very effective hedges down the road (but when buying the companies, be very selective). If you are bullish on equities, at least he bullish for the right reason. For the here and now, the correlation is dominated by the size of the Fed balance sheet. From 2000 to 2007, the correlation between the Fed's balance sheet and the direction of the S&P 500 was less than 20%. Since 2007, that correlation has swelled more than four-fold to 86%. This is the missing chapter in the classic Graham and Dodd textbook on value investing, published 80 years ago. So no doubt, Ben Bernanke (as well as Mario Draghi have thought their balance sheet machinations have been able to engineer a buoyant stock market. This is the most crucial determinant of the positive sentiment underpinning valuations at the current time Lord knows, it's not corporate earnings, which are now contracting. Now profits are an absolutely essential driver of the equity market and the downtrend may be one reason why the major averages have basically been range-bound since QE3+ was announced on September 13th (in fact, through the daily wiggles, the interim peak was September 14th). But as high as the historical 70% correlation is between corporate earnings and the equity market, it is still dwarfed by that 86% correlation with the Fed's bloated balance sheet. Call it the "new normal' — a term hardly bandied about any more than "fat tall risks' in those wonderfully prosperous 1980s and 1990s. Just to reiterate — deleveraging, which is necessary and will inevitably blaze the trail for more sustainable organic economic growth in the future, is a dead-weight drag for the here-and-now. In fact, the total debt/GDP ratio, for the past 30 years, has a positive 82% correlation with the trend in equity values. Opinions are one thing, statistical analysis quite another. And common sense. Deleveraging is inherently deflationary. It's a painful process that typically involves years of rising savings rates and depressed growth in domestic demand which then feeds right into the 70% that matters for the equity market which is corporate earnings. The over-riding problem of excessive global indebtedness relative to the income-generating capacity to service the debt remains acute, notwithstanding the "don't-worry-be-happy" market mindset This is why central banks remain in aggressive treatment mode. What else? Well, Rich lays his bullish claim on the classic contrarian signpost of there being rampant pessimism. But is that actually the case? No doubt the latest AAII survey does show that fewer than 30% of individual investors are bullish on the outlook for equities. As I have said time and again, this is not some sort of classic contrarian play It is a deliberate shift in investor attitudes towards how best to diversify the asset mix with an eye towards generating 'risk-adjusted" returns. Meanwhile, many other survey measures actually point to a high level of optimism among those in the financial industry. Market Vane sentiment is 66% bullish, at the high end of the range. The Investor's Intelligence survey shows 43% bulls but only 26% bears. The Rasmussen investor index at just under 100, much like Market Vane, currently sits at the high end of the range for much of this cycle. Beyond the survey evidence, look at the market positioning. The ICI data show that equity mutual fund managers are sitting on 4% cash — the exact same ratio that prevailed at the market peak back in October 2007 (the cash ratio in aggressive growth funds is only 3.5%). Bond fund managers are sitting on 7.6% cash. Managers of hybrid funds have also boosted their cash ratios to 9%. Also look at how the hedge funds have re-positioned themselves in the wake of QE3+ ... It is already evident that when the Fed tells the world that risk-free rates will remain at zero at least semi-permanently, capital will flow to risk assets. After a prolonged period of being cautious, the latest CFTC (Commodity Futures Trading Commission) data show that the net speculative long S&P 500 positions on the CME has swung violently since early September from a net short backdrop of 10,896 contracts to a net long position of a record 18,346 contracts (in both futures and options). In other words, if you are bullish on equities, I wouldn't exactly be using depressed investor sentiment or "money on the sideline" market positioning as a reason. The counterpoint that Rich likes to make is that the cult of equities is dead and this extreme pessimism is a bullish signpost. Sort of like the "Death of Equities' on the front page of BusinessWeek decades ago (though that front cover showed up in 1979, about three years prior to the market trough). There is this view promulgated that whatever the herd effect is in the retail investor space, you want to do the opposite. The problem with that is that in 2007, the individual investor began to pull out ahead of the institutional investor who was slow to raise cash (ostensibly buying into the consensus view of a 2008 "soft landing"... remember that one?). First off, it is not clear when you look at ETF flows, that retail investors have totally abandoned the equity market or have completely shunned risk. For one, based on the numbers I have seen, the 42% weighting that U.S. households have as equities in their overall mix is smack-dab in the middle of the historical range. To be sure, outflows from strict capital appreciation/aggressive growth funds have been large and relentless, but a good part of that has reflected not just a shift towards ETFs but also "hybrid" or balanced funds that focus more on income orientation and less on generating alpha with beta. To be sure, and keep in mind the demographic overlay, there is a secular drive towards bond funds, but the vast majority of that (over $200 billion of net inflow in the past year) has been in "spread product'', mostly corporates. Less than $40 billion have actually flown into "safe" government bond funds. It's not like households are hiding under the table in the fetal position — if that was the case, assets in money market funds would have expanded $90 billion in the past year instead of losing that exact amount What individual investors are doing is a deliberate asset mix shift towards more diversification, less risk, and cash flows. Finally, in terms of valuation, I would agree with Rich that we are not at extremes. But from my lens, the market is fully priced and with earnings now contracting and record margins being squeezed, the reduced prospect of more multiple expansion is likely to leave the major averages range-bound at best over the near- and intermediate-term. When Rich was the equity strategist at Merrill, he always focused on GAAP reported earnings. I concur. And on that basis, the trailing P/E ratio is now 15.5x. No doubt that is far from the blowout peaks we saw in 2007-08 and in 2000-01, but those were the only two cycles which saw the multiple go to radical extreme nosebleed territory (and look at those two bear markets — one was double the usual decline and the other was more than triple a normal cyclical downturn). But looking at five decades of history, we see that the average multiple at the peak of the market is 16x — we are a half-point from that right now. Of course the average peak multiple is far higher than that (46x), but what should matter for investors is what the multiple normally looks like at the highs for the market. By the time the multiple actually hits its extreme peaks, the market had already rolled over for an average of eight months— because the 'E' falls faster than the 'P', at least initially as companies take the writedown hits early on. So in a nutshell, I am sure that Rich and I will agree to disagree. From my perspective, there are slices of the stock market that I do like (even if I am not excited for the S&P 500 as a whole). And being a long-time bond hull, it is the part of the equity sphere that behaves like a bond: Dividend growth. Dividend yield (though avoiding traps). Dividend coverage. Corporate bonds. Muni's. Canadian banks. Gold mining stocks (that now pay a dividend!). Energy and energy infrastructure. Consumer Staples. Discount retailers. Beneath the veneer, there are opportunities. But I do not agree that the equity averages have more upside potential than downside risks from today's levels. I do not buy into the view that the fundamentals, valuation metrics, market positioning and sentiment indices are wildly bullish. I do buy into the view that central bankers are your best friend if you are uber-bullish on risk assets, especially since the Fed has basically come right out and said that it is targeting stock prices. This limits the downside, to he sure. but as we have seen for the past five weeks, the earnings landscape will cap the upside. I also think that we have to take into consideration why the central banks are behaving the way they are, and that is the inherent 'fat tail' risks associated with deleveraging cycles that typically follow a global financial collapse. The next phase, despite all efforts to kick the can down the road, is deleveraging among sovereign governments, primarily in half the world's GDP called Europe and the US. Understanding political risk in this environment is critical. And that is my point. It is not about gross nominal returns as much as risk- adjusted returns — now more than ever. Getting it right for clients in the wealth management business means striving every single day to identify the risks, assess the risks, price the risks and then rigorously manage the risks. Having an appreciation of the risks doesn't necessarily make you ultra risk-averse, but what it does is empower you and lead you on the path of making prudent decisions. Richard Bernstein and I may differ on the optimal strategy at the current time to achieve risk-adjusted returns, but I am sure on that last comment we are on the same page. I look forward to his rebuttal!