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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  • COLLECTIVE WISDOM MONEYLIFE RADIO SHOW

    Wednesday, July 30, 2014

    Posted by: Matthias Paul Kuhlmey

    Can record profit margins as part of the current earnings picture be maintained, and will revenue growth pick-up in time? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my colleagues, Mike PeQueen and Patrick Fruzzetti, to discuss Q2 earnings that have been reported so far, the current drivers of U.S. Equity valuations, and our respective interpretations with regard to investing. 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.

  • Traffic

    Friday, July 25, 2014

    Posted by: Steven Tresnan

    Since Memorial Day weekend marked the unofficial start of summer, many of us in the Northeast find ourselves scrambling each weekend to get away from the office, making a mad dash for the shore town that has become our special home away from home. This phenomenon may be much more widespread along the east and even west coasts of the U.S., but, in my experience from living around Philadelphia and New York City over the last 10 years, the “Jersey Shore” was not just created as a backdrop for the former horribly-genius TV show by the same name; it is a very real and significant part of life here. Fortunately, it’s not all “Sun’s Out, Guns Out” emblazoned tank tops and “Gym, Tan, Laundry” (GTL) routines. Rather, much of the shore scene is very family-oriented, often spanning multiple generations. And unlike the fortunate few that helicopter out to their weekend destinations, we drivers can be reminded on any given weekend of the impressive amount of shore traffic that cannot be escaped on the coastal roadways of New Jersey.

    For my newlywed wife and me, that special Jersey Shore town is Cape May – the southernmost tip of New Jersey, or Exit 0 of the Garden State Parkway. We met on a bench outside of the Ugly Mug restaurant during Memorial Day weekend seven years ago, and were recently married the day of our anniversary on the beach in Cape May. The wedding? It was beyond expectations, and absolutely perfect for us. The travel? Not ideal – especially for our friends and family dedicated enough to have made the trek from Pittsburgh, PA.

    When setting a GPS to drive from Pittsburgh to Cape May, it will indicate an estimated travel time of just over 6 hours. When our Pittsburgh guests told us this estimate, I had to laugh … and then I tried to adjust their expectations that it was extremely unlikely. When traveling on a Friday during beach season, there will be plenty of traffic to easily extend such a trip to 8+ hours.

    While I now have the luxury of commuting via public transportation into New York City, I spent many years of my life in suburban America, driving everywhere, sometimes as much as 35,000 miles per year, basking daily in the joys of “stop-and-go” traffic. I have noticed that drivers tend to speed up as soon as the herd starts moving, closely following the car in front of them, and then slam their brakes when the cars stop again; instead of this tactic, I prefer to go about 15 miles/hr, holding back the cars behind me, with the goal of not having to touch my brakes. My assumption has always been that this should smooth out the traffic for drivers behind me, but only based on intuition. Upon doing some research on this topic, however, there exists not only anecdotal evidence of truth to my traffic strategy, but also a book dedicated to the subject of traffic, including case studies that indicate I may be onto something. Essentially, adding this space between cars provides a sort of “traffic cushion” that quells the waves and actually improves the traffic flow.

    After spending years managing investments, it is difficult to look at traffic patterns and not be reminded of financial markets and business cycles. These waves of traffic are very much like market volatility and the oscillation of economic activity. Sometimes financial markets do well (traffic moving), and other times they perform poorly (slow or stopped traffic), and they often follow patterns. The same is true of the economy. Things improve, everyone accelerates, adding to investments, spending money (or credit), until they are moving faster and faster. Then someone receives a tweet (this applies directly to both driving and finance, in today’s world) that causes them to take their eyes off the road and slow down, or to sell some investments out of caution. Other drivers (investors), overreact slightly, pressing the brakes a bit harder, or selling even more investments; this scenario is then repeated and compounded, sometimes resulting in outright panic, with slamming of brakes of selling of all investments (many at deep losses) in favor of cash, eventually bringing everything to a standstill. In the worst cases, an accident occurs, rapidly resulting in the above process, regardless of whether or not there “should have been” traffic. These macro risks, such as political turmoil, financial crises, or wars, can abruptly change the landscape of the investable universe, with little or no warning.

    As with the above “smart motorist” strategy, central bankers attempt to cushion wavy economic cycles via monetary policy. To speak in simplified terms, when they see “cars” slowing down, they can lower interest rates and try to encourage borrowing and spending, in an effort to get things moving again. Conversely, when inflation is rising, and the economy is speeding along, increasingly in danger of “overheating,” central bankers can raise interest rates and attempt to tap the brakes of the financial system. This latter scenario is similar to what has been making headlines for months now, as the world is wondering when the unemployment and inflation situation will spur the U.S. Federal Reserve to begin raising interest rates.

    As advisors, our goal is to build volatility cushion into portfolios, by developing a clearly defined investment framework. By “setting the GPS” to reach long-term goals, we can look beyond the waves of traffic on the horizon, or even take alternate routes to try and reach clients’ financial destinations more quickly. With a broad perspective, it is easier to remember that we should expect volatility at times; this “congestion” is temporary, though unpleasant, and the cars will eventually start moving again. A slow-and-steady, long-term investment approach should allow investors to eventually catch up to the “speeders,” while minimizing the amount of time spent “sitting in traffic.”

  • COLLECTIVE WISDOM MONEYLIFE RADIO SHOW

    Wednesday, July 23, 2014

    Posted by: Matthias Paul Kuhlmey

    Should investors pay more attention to Brazil? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my colleague, Matt Harris, to discuss the country’s dependency on the commodity cycle, improving macro fundamentals, and the technical outlook of the local stock index, the Bovespa. Please click here to listen.

    Please note: The Bovespa price-to-earnings (P/E) ratio of 17 mentioned in the interview is based on 12-month-trailing earnings, rather than 12-month-forward-looking earnings. The P/E based on 12-month-forward-looking earnings is 12.

    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 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.