HEADLINES WARN: "The financial and banking headlines are screaming a fresh warning," according to author and Swiss America chairman Craig R. Smith, who is growing more concerned daily about the banking and economic risks he detailed in his blockbuster 2014 book, DON'T BANK ON IT. "Secret summits" ... "Rich investors withdraw money" ... "Robo-advisers try to calm investors" - all in the headlines today. It is worth noting the last time the world's top bankers met together was back in 2008 - just before the financial crisis erupted. Our readers are able to draw their own conclusions and then take action accordingly.
Top financial groups hold secret summits -CNBC
"The world's largest asset managers have held secret summit meetings to hammer out proposals for improving public company governance to encourage longer-term investment and reduce friction with shareholders. Jamie Dimon, chief executive of JPMorgan Chase, and Warren Buffett convened the sessions with the heads of BlackRock, Fidelity, Vanguard and Capital Group to work on a new statement of best practice that would cover the relationship between U.S. companies and their investors. The unusual collaboration comes at a time of rising shareholder activism and a raging debate about whether public markets demand short-term profits at the expense of long-term investment." FULL STORY
UBS bank shares plunge as rich investors withdraw money -AP
"Swiss bank UBS saw its shares slide on Tuesday on news that investors had pulled billions out of its division serving wealthy clients - a token of the market turbulence that has shaken the world in the past few months. The Zurich-based bank, which nevertheless booked higher fourth quarter profits, cited 'very low levels of client activity and pronounced risk aversion' as it reported $3.3 billion had flowed out of its wealth management arm, which handles money from rich people outside the U.S....Markets for everything from stocks to oil have been marked by turmoil over fears that China will not be able to support global growth as before, that emerging markets face troubles with debt and capital outflows and that low oil prices mean weakening demand in the economy." FULL STORY
'Robo-advisers' try to calm investors -Financial Times
"The biggest 'robo-advisers' are relying on old-school call centers and blog posts to calm anxious investors, trying to persuade them that there is no need to abandon the algorithms in times of heightened volatility....Robo-advisers require customers to complete an online questionnaire on their goals and risk appetite. The software then selects a portfolio, often focusing on cheap exchange traded funds, and periodically rebalances to optimize profits and taxes. Most of the worried callers to Schwab's Intelligent Portfolios service did not do anything with their accounts after hanging up, said Mr McDaniel, noting that less than 1 per cent of about 63,000 accounts changed their risk profile or portfolio composition in the first three weeks of 2016." FULL STORY
Bank of Japan, negative interest rates and the risks of monetary alchemy -AFR
"It is what one analyst has called the 'turning point "¦ in the greatest monetary experiment ever.' The Bank of Japan's negative interest rates have been applauded by global investors....Yet that just shows how addicted financial markets have become to the stimulus of cheap money. So cheap that you have to pay someone to hold it for you. Like most mind-altering addictions, that may provide the temporary appearance of brilliance. But over time, the inevitable distortions it causes will likely be dissolute. The BoJ's sub-zero rates policy follows two-and-a-half decades of attempts to kick-start its economy, mostly through the biggest printing press operation of any of the quantitative easing central banks. Twenty-five 'lost years' later, the arsenal is so exhausted that it has followed the European Central Bank in resorting to a pay-to-save strategy." FULL STORY
Rewardless Risk -Salient Partners
"Negative rates are an intentional effort to weaken your own country's banks. Negative rates are a punitive command: go out there and make more bad loans where risk is entirely uncompensated, or we will, in effect, fine you. The more bad loans you don't make, the bigger the fine....There's a reason that the Fed kept paying interest on bank reserves even in the darkest, most deflationary days of the Great Recession. Yes, it's the Fed's job to support full employment. Yes it's the Fed's job to maintain price stability. But the Fed's job #1 - the reason the Federal Reserve was created in the first place - is to maintain the stability of the banking system....You know what negative rates are? They are the final stripping away of the illusion that central bankers somehow exist above and separately from domestic politics, that they are wise and able stewards of financial stability." FULL STORY
Fed to Test How Banks Would Handle Negative Rates - Bloomberg
"As interest rates turn negative around the world, the Federal Reserve
is asking banks to consider the possibility of the same happening in the
U.S. In its annual stress test for 2016, the Fed said it will assess the
resilience of big banks to a number of possible situations, including
one where the rate on the three-month U.S. Treasury bill stays below
zero for a prolonged period....Three-month bill rates have slipped
slightly below zero several times in recent years, including in
September after the Fed delayed rate liftoff amid global financial
market turmoil, touching a low of minus 0.05 percent on Oct. 2." FULL STORY
Latest Featured Commentary by Craig R. Smith: DON'T BANK ON YELLEN'S FED
