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.

  • Nouvelle Cuisine

    Thursday, April 17, 2014

    Posted by: Matthias Paul Kuhlmey

    The American palate has had a love-hate relationship with Asian-induced cuisine, but, once again, interest in these creations appears to be strong. Especially when one (as my family) lives near the hubs and Asian centers of influence, e.g. New Jersey’s Fort Lee, a Kimchi Burger is nothing to write home about, but is to be expected. In an attempt to “cook-up” a well-diversified global bond portfolio, the fusion choices are extraordinarily baffling, and some are clearly relatable to “in-love” and “out-of-love” scenarios.

    Most notably, by definition, are Chinese Dim Sum Bonds. Dim Sum does not only refer to a traditional Cantonese way of preparing food in small bites (or dumplings), but also to an increasingly important segment of Hong Kong-issued fixed income, denominated in Chinese Yuan. This market has been hot and cold, with the latter trends mainly impacted by investors’ concerns over currency exposure, liquidity, and credit quality. Whereas a positive trend is forming, with issuance volume increasing, returns for Dim Sum Bonds have been negative for the first quarter of 2014.

    As with Chinese bonds, the “hot and cold” relationship is also playing out in Japanese Government Debt (JGBs). This past Monday, new issuance for the 10-year JGB did not trade once, for the first time in 13 years! According to market participants familiar with the situation, the massive buying program by the Bank of Japan, in an effort to ultimately fight deflationary forces, has distorted conditions, with the Government currently “recycling” 70% (!) of total JGB issuance – how about this for a commitment to Quantitative Easing?!

    Policymakers have not only altered outcomes in Asia, but also in Europe. Peripheral European Debt, which was shunned after Greece’s Debt restructuring about 2 years ago, has recovered to levels not expected by most. The yield of Italian 10-year Government Debt even reached a historic low, noted at 3.11%, some days ago.

    Whereas a failed auction in Japan and surprisingly low refinancing cost for seemingly troubled nations do not establish a trend, the global investment community continues to receive warning signs to the potentially inherent limitations of Quantitative Easing. Low yields are not necessarily indicative of a recovering economy and the end of deflation, but are a reflection of Government intervention at all costs, given the example of Japan.

    For all the cooks in the kitchen, two important lessons should be noted: 1) the value of most Government-issued debt continues to be inherently flawed; and 2) relative value calculations favoring stocks over bonds on the basis of yield differentials may prove to be incorrect, as the “garbage in – garbage out” rule applies under described circumstances.

    For further information, please see my latest article with The Huffington Post, The World Is Flat – Again!, or listen to HighTower’s recent Collective Wisdom Podcast, recorded with my partners Richard Steinberg and Michael Bapis, both of whom reside at our HighTower offices in New York.

  • Collective Wisdom – MoneyLife Radio Show

    Wednesday, April 16, 2014

    Posted by: Matthias Paul Kuhlmey

    Can fixed income investors find opportunity, given the current interest rate environment? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my partners, Michael Bapis and Richard Steinberg, to discuss potential interest rate movements, positioning of bonds within portfolios, and complementary strategies to consider for the eventual rise in rates. 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.

  • Elephunk

    Friday, April 11, 2014

    Posted by: Matthias Paul Kuhlmey

    By popular demand, we are bringing back the music reference: Elephunk was a best-selling album by American hip hop band Black Eyed Peas, released in 2003. Funk, by strict definition, may refer in its origins to a french dialect, funquer, meaning “to give off smoke.” As the investment community tends to forget important lessons (quickly) by going “ga ga” over the most obvious and main stream media-proclaimed outcomes, we are convinced to do better: With the memory of an elephant, and definitely considering the common wisdom of “where there is smoke there is fire,” current market events need to be viewed with caution.

    The global financial crisis, some years back, is engraved on most memories as an event spanning the years 2008-2009, mainly affecting equity markets. The schooled observer, however, would recall the situation differently, broadening the time frame to a starting point in 2006. That year, the U.S. Housing Bubble burst, fueled by cheap money and loose financing conditions, severely affecting securities tied to real estate as well as bank balance sheets. In 2007, warning signs became more obvious, but were still “localized,” with problems mainly affecting lower-quality U.S. mortgage lenders. In late 2007, several major global investment firms started to halt redemptions in mortgage-based investment funds.

    With a perfect storm brewing, equity investments, for the most part, remained “constructive.” It took more than a year after the peak of the housing market to witness more severe losses in the S&P 500, which traded at 1447 in January 2008 (close to its historic all-time high of 1565, recorded in October 2007), before declining to 666 in March 2009. Most warning signs, such as multiple minus 300+ points down-days in the Dow Jones Industrial Index (in January, February and June 2008) were ignored; in fact, those were considered opportunities, as most losses were met with significant buying sprees in the aftermath of the sell-offs.

    If we translate our historic observations to the current environment, we need to closely understand the NASDAQ Biotech Index (NBI). Market observers continue to see this market in a new paradigm, as a revolutionary “bull,” rather than a bubble. The formation of the NBI from a technical perspective, however, appears to be similar to every other bubble formation experienced throughout recent investment history. Further to consider:  Year-to-date, the NBI has experienced 23 days with positive or negative advances/declines of 2% or more. To put this occurrence in perspective: During the entire course of 2013, only 35 such trading days were observed.

    Volatility is picking up considerably, but so far in market segments that are not commonly watched by mainstream observers. With the risk of a “spillover” to major market indices, we consequently, need to stick with our music reference, broaden our focus, and beware of the potential “black eye.”

  • Collective Wisdom – Moneylife Radio Show

    Wednesday, April 9, 2014

    Posted by: Matthias Paul Kuhlmey

    Where can equity investors find opportunity, in light of the current market environment? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my partner, Adam Thurgood, to discuss investing in the U.S. vs. abroad, as well as the potential impact of movements in the U.S. Dollar on investors’ portfolios. 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.

  • 1+1=3

    Friday, April 4, 2014

    Posted by: Matthias Paul Kuhlmey

    Today’s title is expressive of mainly two outcomes: for one, an overly ambitious and commonly chosen projection when combining resources, or, more simply, a false calculation. Even with all progress “in the modern,” bad math is not a rare occurrence and can make life difficult (or entertaining), such as in Engineering, Obamacare, or homework with our children. More concerning, however, is a recent study revealing that about one out of five adults in the U.S. “lacks the math competence expected of a middle-schooler, meaning they have trouble with [those] ordinary tasks and aren’t qualified for many of today’s jobs.”

    Let’s stay with math and jobs for a moment: interesting employment math has also been practiced with respect to the globe’s shale gas revolution. In the U.S. alone, direct and indirect opportunities around this new energy boom should create 800k to 1.6 Million jobs until 2035. In Europe, the opportunity is equally compelling, with an expected 400-800k job opportunities being created by the same year. For perspective, as a result of the financial crisis, a total of 7 Million jobs have been lost since Q2 2008 globally; with this in mind, all future additions are welcome.

    Here comes the catch: both projections have been computed by associations of oil and gas producers, and it should not come as a surprise that the math behind the numbers may have been positively tilted. A recent study of real facts (and less projections) is now shedding light onto the matter, proving that the impact of shale-gas-related job creation has been far less prominent than originally anticipated: drilling-related activities in the six states that span the Marcellus and Utica Shale formations have produced about 33,000 jobs between 2005-2012 – far less than original estimates of between 180,000 and 300,000 jobs.

    To make matters more complicated, even gas reserves resulting from “fracking” (hydraulic fracturing) may be overstated (bad math or not); established, old shale gas “plays” are experiencing a more significant decline in reserves than previously anticipated, and newer “plays” may have calculated future results based on “inflated” expectations.

    As astute advisors, we embrace differing or new facts. Opportunities related to the U.S. energy revolution are plentiful, and yet we need to beware of too much excitement. Recently, the investment sector for Master Limited Partnerships (MLPs), a central component to the domestic energy infrastructure, has been titled “the sausage maker of the investment world,” as “yield-starved” investors are seeking a good story and yield. MLPs may just offer that. We are not promoting “risk-off” or the end of this particular investment theme, but whenever there is hype, investors should review risk/return characteristics of their investments and, more importantly, engage professional management – not a cheap beta play.

    Let’s close out the week with real life and entertaining math trivia: If your home budgeting allows for some extra spend, you may truly be able to participate in a “1+1=3” deal. Currently on auction is Knight Rider’s 1986 DH Pontiac Firebird, two-door hatchback, aka KITT (remember David Hasselhoff?). A car, a friend, and (maybe to some?) a good investment. Bids start at $15k.

  • March Madness

    Friday, April 4, 2014

    Posted by: Steven Tresnan

    It’s that time of year again when millions of Americans are filling out many more millions of forms, hoping to get some money back when all is said and done. No, we’re not talking about the mundane business of taxes (sorry, CPAs), but, rather, the massive phenomenon that is informally known as March Madness; more officially, it’s the NCAA Division I Men’s Basketball Tournament.

    For many, March Madness has become less about actually watching college basketball, and more about trying to choose the winners of tournament matchups, in order to gain bragging rights among coworkers and friends or potentially even win some money. In fact, for completion of the perfect bracket, Warren Buffett legitimately offered $1 billion! The only problem is that “there are a few more than 9.2 quintillion combinations for a 64-team bracket … a 1 with 18 zeros behind it,” and even the best 3 brackets only survived the first 24 games of the tournament.

    This Saturday, April 5th, the Final Four teams will face off to determine who will play for the championship next Monday evening. While a select few of the 60 million Americans who completed brackets correctly chose the remaining 4 teams, the rest of us can only wonder why we didn’t pick a 7-seed (Connecticut) and an 8-seed (Kentucky) to have made it this far – after all, it’s so easy in hindsight!

    Similarly, for those that follow finance, the tournament challenge can be a great reminder of just how difficult navigating markets can be. After all, this is a “game” of arguably infinite inputs and outcomes – not just 64 teams that can either only win or lose. There are always political events, market reactions, currency movements, etc. that we could have forecast differently with the benefit of hindsight, and even the “most certain” market forecasts are often wrong, just as many 1-seeds don’t make it to the Final Four.

    In contrast to having a completed bracket before tip-off of the first game of the tournament, as wealth managers, we have the advantage of being able to react and dynamically adapt to new information. This concept is important not only regarding markets and political events, but also within client situations. For example, in retirement planning, each year we gain perfect clarity of a given client’s expenses and investment performance over the previous 12 months – data we could have only forecast one year earlier, but which can lead to refinement of an investment plan to increase chances of financial success … almost like getting to “redo” our tournament bracket after each round.

  • COLLECTIVE WISDOM – MONEYLIFE RADIO SHOW

    Wednesday, April 2, 2014

    Posted by: Matthias Paul Kuhlmey

    How does money translate to happiness? This morning, it was a great pleasure to make an appearance on Chuck Jaffe’s MoneyLife Show, along with my partner, Peter Klein, to discuss the complexities of wealth, including planning, legacy development, and charitable giving aspects that require significant thought and attention to create a fulfilling outcome. 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.

  • Put That Lime …

    Saturday, March 29, 2014

    Posted by: Matthias Paul Kuhlmey

    You may not be a lover of soft drinks, but with “lime coverage” popping up in recent news, a rather catchy 2005 TV commercial comes to mind: “Put that lime in the coke, you nut …” If you prefer to use lime in your after-work Margarita, Guacamole, Salad Dressing, or whatever pleases, prospects are rather bleak these days. Due to severe weather conditions in the Mexican States of Oaxaca, Colima, and Guerrero (all main suppliers of limes to the United States), and a spreading citrus disease, the price of the “shiny green sour” has skyrocketed. Whereas a case of limes was sold at $14 last year, it is about $100 today.

    Producers of the other “shiny green,” the U.S.-Dollar, are feeling pretty good these days. With an improving economy and low inflation, the Fed was bold enough to produce a rather entertaining animated video, explaining the concept of inflation. The surprising element of the clip is that the Fed leads the tutorial with price increases of ice cream cones and hot dogs. The schooled observer, however, knows that inflation is measured differently. Official numbers focus on core inflation, which does not account for volatile items, specifically price increases related to energy and food, including limes!

    With food price inflation running about 2 times higher than core inflation, and “gas at the pump” having nearly doubled over the past five years, the average consumer is surely feeling the “pinch,” even with a pleasingly low core-inflation rate of 1.57% (in Feb. ’14); this is where many people scratch their heads. The reason we have not experienced significant core inflation, despite the trillions of dollars injected into the financial system, is twofold: 1) the velocity of money (casually speaking, the speed at which a dollar changes hands) remains at historic lows, and 2), somewhat related, banks keep hoarding trillions in cash on their balance sheets, even exceeding all bank loans outstanding by about $2.5 trillion, a record level and likely indicative of a rather conservative lending stance.

    Investors need to consider the increasingly obvious disconnect between economic growth and inflation. Common wisdom would argue for a rise in inflation on the back of an improving economy, with output gaps closing and capacity constraints occurring. As reality appears to be different, low core-inflation readings could simply be symptoms of an economy that is inherently weaker than the one broadly promoted. If we allow this construct of thought, the Fed could: a) hold rates low for much longer than expected, or b) increase the current inflation target to reduce effective borrowing cost, and to speed up interest rate normalization. Along these lines, “last November, Fed economists published a paper arguing that lifting the inflation target to 3% would rapidly lower unemployment while allowing the Fed’s policy rate to rise higher, faster.” Beware not only of rising rates, but of higher inflation as well; quite the sour mix (lime or not).

  • Rewind

    Friday, March 28, 2014

    Posted By: Avita Sukhram

    “Success is the sum of small efforts – repeated day in and day out.”– Robert Collier

    Okay, I admit it… I may have jumped the gun on welcoming spring last week since this week it was still in the 20s here in the Northeast!!!  WTH Mother Nature!!! The fact that I consistently recycle, drive a gas mileage friendly car, and host paperless events (GIS Forum shout out!) should have earned enough good karma for a week, if not a year, above freezing temperatures.

    Weather complaints aside, this week really was all about the “small efforts”:  the Ukraine was approved for $1B in US aid in addition to $18B from the IMF with the potential for war in the near future,  Bridgegate came back and the official word is… Christie is… cleared! Then what’s this about?  Microsoft finally released Office for iPad (but you still can’t do this), Turkey is still “cold” on social media,China cozied up to Germany, the search is still on for Malaysian Airlines, Vanity Fair tells all, Bank of America pays its dues, the White House gets a petition, and Mark Zuckerberg has his head in the clouds.

    At least it’s not snowing right? “…sum of small efforts” indeed.

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

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