Money Clip

Blog by Matthias Paul Kuhlmey


Matthias Paul Kuhlmey is a Managing Director & Partner at HighTower Advisors, where he serves as wealth manager to High Net Worth and Ultra-High Net Worth Individuals, Family Offices, and Institutions.

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  • Rewind

    Friday, July 18, 2014

    Posted By: Avita Sukhram

    So this week I was going to focus on net neutrality, women’s rights, labor laws, Janet Yellen, and other things that have seemingly faded from our headlines.  Instead, 3 major conflicts resurfaced which made me wonder if we (as a global community) are really making any progress. So here it goes:

    (1)   Israel and Palestine: With everything happening in Iraq, Iran, Syria, and Lebanon over the last few weeks, maybe the Israel-Palestine conflict was feeling a bit left out.  I say this because I can’t seem to understand why this needed to happen. 10 days later, innocent lives on both sides are continually lost and all for the sake of politics.   It feels like the song and dance we’ve seen before, where no one really understands how or why it got started, it just did.

    (2)  Ukraine: Where does one even begin in this mess?  First off, sadly, Malaysian Airlines suffered another devastating loss as an innocent “fly” bystander to the ongoing rebellion.  The latest news shows that a pro-Russian group is responsible and Putin’s approval numbers are in great shape.  Even worse, this could have been avoided! Commercial airlines have thought about and implemented new flight paths  during war times. So, what happened here?! “Better late than never” is just not an appropriate response but likely this is somehow the airline consumers fault as we have to pay for the additional fuel and with longer , delayed, or cancelled flights.

    (3)  Detroit:  In our business, every day we hear about some version of the great path the US is on, be it economic recovery or the ACA success or home sales, things are really looking good!  What’s that noise? Oh yea, don’t mind them, that’s just Detroit protesting for water!!  I can’t even think about WHY this is not a bigger issue for many.  Sure it’s just a percentage of the population but they are still people and we should be trying to do something to help.  #justsayin

    If we continuously battle the same issues like income inequality, climate change, and gay marriage there’s no way we can anticipate things like a Weird Al comeback or Fedex’s drug problems. Things are not as rosy as we’d like to think they are, but then again… could it ever be?

    We hope you had a great week and have a great weekend ahead!

    Other Interesting Links:

  • The Archer’s Paradox

    Friday, July 18, 2014

    Posted by: Matthias Paul Kuhlmey

    How is it even possible that Justin Timberlake’s, “Not A Bad Thing” is down to #34 in The Hot 100 charts, even though I listen to “my boy” and his fabulous song over and over again? Shouldn’t my contribution make a significant difference in the rankings? Similarly, regarding capital markets, how is it that I encounter more dedicated bears than bulls, and, yet, equities continue to move up, even trading near all-time highs? The challenge may be related to our “compartmentalized” thinking, or, as my father so famously states, that our “thinking [in general] may be a matter of luck.” I will take my father’s challenge to a more self-critical level.

    Recently, we mused over the fact that numerous measures to determine the “vitality” of a seemingly inexhaustible equity rally may not be applicable today. We pretty much concluded that volatility, as a measure of risk, cannot be the most reliable indicator, considering that Central Banks continue to “massage” risk outcomes. Let’s stay on this path: When analyzing current Price/Earning (P/E) Ratios, as a measure of a stock’s value relative to its price, we can arrive at a similar disconnect between the norm and today’s conditions.

    The S&P 500, when measured on the basis of 12-month-forward-looking P/Es, is currently trading at about 17 (aka “seventeen times earnings”), nearly identical to levels at the end of 1996 when Alan Greenspan warned the world of irrational exuberance in asset prices. To the contrary, Fed-chair Janet Yellen concludes that current “valuations [remain] roughly in line with historical norms … suggesting that, in aggregate, investors are not excessively optimistic regarding equities.”

    Mathematically, Ms. Yellen is “spot-on,” especially considering that her calculation includes all the excessive valuation measures of the late 1990s (S&P 500 P/E Multiples at nearly 30x in ’99). As we have committed to be critical, here is a different perspective, potentially allowing for much higher P/Es to be acceptable going forward. In 1996, the yield on the U.S. 10-year bond was noted at 6.5% vs. 2.5% today, and the effective Fed Funds Rate set at (!) 5.3% vs. 0.10% today. Market participants continue to reach for yield, and will accept paying higher multiples for earnings and attractive (dividend) yields, especially considering that 1) volatility (i.e., perceived risk) remains artificially low, and 2) retail investors have not really been allocated to equities to begin with.

    More recently, Ms. Yellen stated her concerns that standard models Central Banks are utilizing today may not capture the complexity of market conditions any longer (her example related to inflation). With this in mind, we need to continue with good brain-flexing exercises to effectively analyze current market metrics from a different angle. Just as in the 1930s when Dr. Robert P. Elmer concluded “that an arrow will succeed in hitting a target even though the arrow is placed at an angle to the side of the target prior to shooting” (aka Archer’s Paradox), we may need to think “off target” when investing.

    On a different, but related note, and food for thought: The Fed may just want stocks to be considered an attractive investment. A recent study of 400 public sector institutions found that “central banks around the world, including China’s, have shifted decisively into investing in equities as low interest rates have hit their revenues.”

  • Collective Wisdom Moneylife Radio Show

    Wednesday, July 16, 2014

    Posted by: Matthias Paul Kuhlmey

    What are some of the tactical positions being considered by our advisors? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my partners, Richard Steinberg and Adam Thurgood, to discuss Small Cap U.S. Stocks, the current MLP environment, and High Yield vs. Emerging Market Debt. Please click here to listen.

    HighTower was designed specifically not to follow a single viewpoint, or “house view,” in Wall Street jargon. Consequently, as we do not have to sell product, but rather provide advice, our business model allows us to reduce or avoid many conflicts we may have faced earlier in our careers as financial advisors. As partners in our business, we take great pride and responsibility in sharing best practices and ideas to deliver excellence to our clients.

  • Rewind

    Friday, July 11, 2014

    Posted By: Avita Sukhram

    “I don’t understand it, and I don’t like what I don’t understand.” – Charlotte’s Web, E.B. White

    Not only a children’s favorite, this is likely the sentiments amongst most Brazilians this week after the initial shock (o que aconteceu?!?!) wore off.  The unraveling of the Brazilian soccer team in the semi-final game against a not-so-sweaty Germany was the kind of shock that is going to be felt until 2018.  One could compare this devastating loss to that of a famous duel that took place on this day in history (fun fact!) but some may say “it’s just a game” and a tad dramatic (or not).

    The other thing we don’t really understand this week: Middle East tensions re-rising (not a word, I know!) between Israel and Palestine while ISIS progresses in its goals, and Syria comes back into the headlines as the dynamics change in a never-ending civil war.  With all of this happening during the Islamic Holy month of Ramadan, it’s no wonder that some are starting to think American involvement may not even be worth it.

    Well if it’s not the Middle East, what is America focused on right now? There’s so much to choose from: Ryan Gosling’s pending offspring, Obama racking up Texas votes,  the declining budget deficit,  the bourgeoning groups of reform conservatives and fusion conservativesACA success, or maybe it’s just Cleveland’s own Odysseus  LeBron James’ return home.

    With all of these things happening, who has time to make sense of things like net neutrality or corporate taxes.  Ah well, unlike our dear friend Charlotte, for us… there’s always next week.

    We hope you had a great week and have a great weekend ahead!

    Other Interesting Links:

  • Collective Wisdom MoneyLife Radio Show

    Wednesday, July 9, 2014

    Posted by: Matthias Paul Kuhlmey

    We are back with Part II of our 2014 Review and Outlook. What is “in store” for the remainder of the year? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my colleagues, Matt Harris and Maja Janko, to discuss risk and opportunities in the U.S., Europe, and Emerging Markets. Please click here to listen.

    HighTower was designed specifically not to follow a single viewpoint, or “house view,” in Wall Street jargon. Consequently, as we do not have to sell product, but rather provide advice, our business model allows us to reduce or avoid many conflicts we may have faced earlier in our careers as financial advisors. As partners in our business, we take great pride and responsibility in sharing best practices and ideas to deliver excellence to our clients.

  • Collective Wisdom MoneyLife Radio Show

    Wednesday, July 2, 2014

    Posted by: Matthias Paul Kuhlmey

    In our economic outlook, Consensus?, released in January of this year, we summarized 2014 expectations of a variety of analysts and research providers. Now that we have officially “closed the books” on Q2 2014, did the first half of the year meet expectations? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my colleagues, Matt Harris and Maja Janko, to discuss the fundamental and technical aspects of global markets that have driven equity and fixed income returns through the first half of 2014. Please click here to listen.

    HighTower was designed specifically not to follow a single viewpoint, or “house view,” in Wall Street jargon. Consequently, as we do not have to sell product, but rather provide advice, our business model allows us to reduce or avoid many conflicts we may have faced earlier in our careers as financial advisors. As partners in our business, we take great pride and responsibility in sharing best practices and ideas to deliver excellence to our clients.

  • Joyride

    Friday, June 27, 2014

    Posted by: Matthias Paul Kuhlmey

    “Hello, you fool, I love you …­ c’mon join the joyride.” Somewhat memorable words that were blasting from my speakers during the ‘90s’ Roxette mania. Per Gessle, the creative brain behind the Swedish hit-duo, was inspired to write the song by a note his girlfriend left on his piano. Over the past five years, investors could have been just as easily motivated to be “all in” for a joyride in equities. Returns, ever since the bottom fell out in markets, have turned out to be more than stellar – and sure enough, whoever was reserved or fearful after the Crisis of 2008/2009 looks like the fool today.

    According to our friends at Cornerstone Macro, current markets are nothing short of one of the “most hated rallies” in equities, and yet conditions still appear to be attractive compared to other peak years, for example, before the market sell-off in 2008. In other words, continue to be “all in”, as on a relative basis, U.S. Equities have room to move up. A rather critical view is offered by astute market observer, John Hussmann, Ph.D., suggesting that “a market crash is [not] imminent, but it is a risk because very reliable valuation methods (that have remained reliable even in the recurring bubbles since the late-1990s) presently estimate negative prospective nominal total returns for the S&P 500 on every horizon of 7 years or less, and an annual total return of about 1.9% over the coming decade.”

    The difference in analytical findings can be explained: We are dealing with one of the most manipulated financial markets in modern history. Accommodative Central Bank policies have compressed the level of global yields, decreased the occurrence of “natural” risk outcomes, and, quite possibly, re-inflated assets around the world. Given the absence of “safe” returns in bond markets, investors are now willing to “reach” for income, and consequently will not mind to pay-up for dividend returns in equities, manifested in the formation of higher Price/Earnings (P/E) multiples. Pair this with the perception that “equities are not so risky after all,” and stocks have indeed room to move up – for all the wrong reasons.

    All in mind, many market measures to assess conditions (i.e., P/E Ratio as a valuation basis, VIX as a risk measure) may not apply any longer or, for now, may take less of a precedence (as I had discussed in our latest Collective Wisdom Radio Show). What to do? At the risk of sounding repetitive, stay with the basics. As stock markets, by definition, will not outperform the real economy, at least over prolonged periods of time (under regular conditions), GDP growth is still a good data point to follow. In simple textbook fashion, GDP is computed as follows: GDP=Consumption+Investment+Government+NetExports.

    Powered with this “new” Econ 101 knowledge, it should be a concern that U.S. consumer spending, when adjusted for inflation, has now been falling for two consecutive months, after having grown at its slowest pace in nearly five years in the first quarter of 2014. Newly adjusted data that the economy shrank by -2.9% on an annualized basis in Q1 makes the picture even more troublesome; it’s the consumer, baby! With an understanding that our Consumption portion of the GDP formula may be challenged, we need to see if the I+G part can compensate, or better, overcompensate to improve GDP. Until there is better data, we prefer to remain cautious, as equity prices may be getting a bit lofty …

    Don’t need no book of wisdom
    I get no money talk at all …
    … ‘Cos it all begins again when it ends
    (Yeah)
    And we’re all magic friends …

    -Excerpt from Joyride lyrics

  • Collective Wisdom MoneyLife Radio Show

    Wednesday, June 25, 2014

    Posted by: Matthias Paul Kuhlmey

    Can the current bull market continue to run? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my partner, Leo Kelly, to discuss what factors may cause equities to move even higher, what risks remain in this scenario, and where we see long-term investment opportunities. Please click here to listen.

    HighTower was designed specifically not to follow a single viewpoint, or “house view,” in Wall Street jargon. Consequently, as we do not have to sell product, but rather provide advice, our business model allows us to reduce or avoid many conflicts we may have faced earlier in our careers as financial advisors. As partners in our business, we take great pride and responsibility in sharing best practices and ideas to deliver excellence to our clients.

  • Rewind

    Monday, June 23, 2014

    Posted By: Avita Sukhram

    “I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.”– Muhammed Ali

    I think many would agree with Muhammed Ali’s thoughts when it comes to a number of things, but this week it actually felt like maybe we should just know when enough is enough.

    Iraq.  Quite the conundrum you got there Mr. President.  At this point, all the possible outcomes seemingly point to one (inevitable) conclusion.  This is likely not news to anyone who’s followed this tumultuous conflict!  Nonetheless, there go oil prices, up, up n away!  Meanwhile, the world’s displaced population has increased significantly spurred by increasing global conflict.  Iraq (and other Middle East disturbances) clearly won’t help this cause either.

    Otherwise a generally slow week: RadioShack isn’t doing so well, Washington looks for an email, World Cup fever, a Facebook outage gets retweeted (global panic ensues and teenagers everywhere finally go to sleep!) , Megyn Kelly lets loose on Dick Cheney, a Dow rally,  Republicans search for a nominee (felons need not apply,  no matter how good looking), and American Apparel Founder Dov Charney finally gets what’s been coming to him (ugh!).

    Needless to say, in some situations, there are no champions, no matter how hard you try or how much you suffer.

    We hope you had a great week and have a great weekend ahead!

    Other Interesting Links: