The Golden Edge
{Sapientiae & Veritas}
Commentary on economy that effects the markets, that help you generate trade ideas, research and tested strategies, Not fake news just the facts, , Real Time Knowledge To Secure Your Future. Read daily or weekly
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The No. 1 difference between millionaire investors and the rest of us
Researchers asked high-net worth investors what goes through their mind when they think about equity exposure
When investors from all rungs of the income ladder make decisions about equity exposure, they’re most likely to be thinking about their risk of illness and injury expenses.
That’s according to a study released Monday on what’s going through the minds of investors with portfolios worth at least $1 million.
In contrast to the importance that high-net-worth investors placed on input from financial advisers, a nationally representative sample of investors at all income levels put advice from a financial planner
To be sure, affluent and everyday investors are fueled by a number of the same concerns, the research shows. That includes years until retirement, risk of illness and injury expenses and the need for cash on hand.
‘We are a field that has had an image problem — we present ourselves as a solution for wealthy families and individuals, and that perception lingers.’
The risk of rare stock market disasters also weighed on the minds of both groups. It’s the fourth-most cited factor for the representative sample and fifth for the wealthy sample. (Researchers fielded both surveys years before the coronavirus pandemic’s economic fallout but years after the Great Recession.)
“Unfortunately, it’s also created the illusion that paying for financial planning or advice is neither needed nor in an investor’s best interest as it can be seen from the lens of the average investor as an expense without value,”
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In New 60/40 Portfolio, Riskier Hedges Are Displacing U.S. Debt
The hunt for new hedges is in full gear.
While much has been made about the search for yield in a world of ultra-low interest rates, valuations in the U.S. Treasury market also leave very little room for price gains to counteract losses should the high-flying stock market turn lower. It’s a dilemma that could reshape the classic investing strategy of 60% stocks and 40% bonds as the Federal Reserve holds rates near zero for the foreseeable future.
Vivien Lou Chen and Katherine Greifeld
Tue, October 20, 2020, 3:00 AM MST
(Bloomberg) -- The hunt for new hedges is in full gear.
While much has been made about the search for yield in a world of ultra-low interest rates, valuations in the U.S. Treasury market also leave very little room for price gains to counteract losses should the high-flying stock market turn lower. It’s a dilemma that could reshape the classic investing strategy of 60% stocks and 40% bonds as the Federal Reserve holds rates near zero for the foreseeable future.
Many investors have no choice but to stick with Treasuries because of fund mandates, or they do so since they’re unconvinced it’s worth taking a chance on something else. Yet others are exploring riskier assets -- from options to currencies -- to supplement or fill the role of portfolio protection that U.S. government debt played for decades, a trend that highlights the dangers that the Fed’s rates policy can create.
“Modern Portfolio Theory is part of a solution, but not the entire solution, because it doesn’t deal with market risk directly,” he said. “It relies on different asset classes to be inversely correlated, which we know doesn’t always happen.”
“Any investors that are holding fixed income to hedge their equity risk can’t count on those bonds as giving them capital gains when equities are declining,” Normand said.
Some alternatives are to own the yen versus other currencies, the dollar against emerging markets, or gold
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Death Of Greenbacked ATM Machine |
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Central bank digital cash could raise pressure for "currency substitution" - IMF
* CBDCs could see foreign cash displace domestic cash -IMF
* "Currency substitution" can erode monetary policy impact
Tom Wilson
Mon, October 19, 2020, 5:03 AM MST
* CBDCs could see foreign cash displace domestic cash -IMF
* "Currency substitution" can erode monetary policy impact
o engage."
LONDON, Oct 19 (Reuters) - Central bank digital cash could see foreign currencies displace domestic money in national economies, with adoption of the tech also potentially boosting illicit capital flows without proper safeguards, the International Monetary Fund said on Monday.
Central banks around the world began looking closely at their own digital currencies, known as CBDCs, after Facebook last year unveiled its yet-to-be-launched Libra stablecoin.
Guiding their research is the question of who will control money in the future, with many fearing the loss of control over payment systems if privately issued currencies such as Libra become widely adopted.
In a report, the IMF said the economic and policy consequences of CBDCs and Big Tech-issued stablecoins depends on adoption - something hard to predict, with CBDCs still far from a reality in major economies and the fate of Libra unclear.
CBDCs and stablecoins could raise pressure for "currency substitution," where foreign currencies displace domestic currencies for local use, it said.
Currency substitution can erode authorities' control over domestic liquidity, reducing the stability of money demand and potentially weakening the impact of monetary policy.
Without adequate safeguards, foreign CBDCs and stablecoins could also boost illicit flows and make it harder for local authorities to enforce checks on capital movement, it added.
Still, the benefits of CBDCs and stablecoins for cross-border transactions are "conceptually clear" but as yet hard to quantify, the report said, citing lower transaction costs and the chance for financial services to leverage transaction data.
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Fed's Powell: More important for U.S. to get digital currency right than be first
Mon, October 19, 2020, 5:50 AM MST
(Reuters) - In any development of a cross-border digital currency, it is more important for the United States "to get it right than be first," U.S. Federal Reserve Chair Jerome Powell said on Monday.
"We do think it's more important to get it right than to be first and getting it right means that we not only look at the potential benefits of a CBDC, but also the potential risks, and also recognize the important trade-offs that have to be thought through carefully," Powell said in a panel discussion on digital payments hosted by the International Monetary Fund.
Powell said it is vital the Fed assess what impact a CBDC might have on a range of critical issues.
"In addition to assessing the benefits - and there may well be benefits - there are also some quite difficult policy and operational questions that need to be thoroughly evaluated," Powell said. "Just to mention a few, I would mention the need to protect a CBDC from cyber attacks, counterfeiting and fraud, the question of how a CBDC would affect monetary policy and financial stability, and also how could a CBDC prevent illicit activity while also preserving user privacy and security."
Powell said that while the Fed has made no decision yet on issuing a digital currency, it is an active participant in research into the prospect in partnership with other central banks and the Bank for International Settlements. Moreover, it is conducting research on its own.
"One set of experiments is being carried out at the board of governors here in Washington, D.C.," Powell said. "Complementary efforts are also now underway, for example through the Federal Reserve Bank of Boston, which, in collaboration with researchers at MIT (Massachusetts Institute of Technology), is developing a hypothetical central bank digital currency."
The world's largest central banks, and even some of the smaller ones, are toying with the idea of issuing digital currencies.
While most projects are still at an early stage, central banks have switched into higher gear in the past year after Facebook <FB.O> announced plans to create its own virtual token and the COVID-19 pandemic boosted digital payments. Their main fear is losing control of the payment system if private currencies such as Facebook's proposed Libra are widely adopted.
China, which has been ahead of other major economies in experimenting with a digital currency, has publicly said it aims to become the first to issue one to reduce its dependence on the global dollar payment system.
In efforts to catch up with China and private projects such as Facebook's <FB.O>, seven major central banks last week laid out key principles for issuing CBDCs.
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Gold prices end higher as investors focus on talks on coronavirus relief
Gold prices on Monday ended higher to start the week, with talk of a last-ditch effort to strike a deal by U.S. lawmakers on a fresh round of fiscal relief before the 2020 presidential elections helping to drive buying appetite, experts said.
A weaker dollar also provided support for bullion because weakness for the buck can draw interest in gold from buyers using currencies that are relatively weaker than the buck.
With fresh hope for a U.S. stimulus, positive vaccine news from the UK and noted weakness in the dollar, the “path of least resistance in the gold and silver markets is pointing upward,” said analysts at Zaner Metals in a Monday note.
“Furthermore, gold and silver should draft support from favorable Chinese economic news which showed better-than-expected retail sales and an overall growth level commensurate with pre-Covid-19 levels,” they said.
Additional relief, should it come, is viewed as bullish for gold which is being used by some as a hedge against governments dialing up spending and lowering interest rates to combat the pandemic that has seen more than 40 million people infected across the globe, according to data aggregated by Johns Hopkins University.
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