Tiburon’s Open Letter to the Industry

On Tuesday, Oct. 8, at the Tiburon CEO Summit XXXVII, sponsored by Tiburon Strategic Advisors, Ken Fisher, a well-known money manager and billionaire, made remarks that many in attendance found to be misogynistic (see one reaction at https://www.wealthmanagement.com/people/ken-fisher-s-sexual-comments-roil-tiburon-conference); and Fisher was informed that he will no longer be welcome at Tiburon events.

Market Commentary - Cumberland Advisors - Tiburon's Open Letter to the Industry

So why does a man of Fisher’s status place himself this way in front of such a prominent audience? Did he think the NDA that participants signed would protect him? Was he trying to be cute or cool? His motivation is a subject for others. The outcomes are the subject of this commentary.

In the professional world of his asset management peers, his behavior was viewed as appalling and offensive. He subsequently apologized. Most of the shocked professionals I spoke with said, “Too little, too late.”

I started to write a longer discussion about my last 50 years and how the previous all-boys club of finance has changed. For us, that evolution happened a long time ago. Women have owned parts of Cumberland and held prominent officers’ positions for three decades plus.

Then Chip Roame, managing partner of prestigious Tiburon, spoke out publicly about the incident. His words are eloquent, and they are totally consistent with Cumberland’s view. Chip agreed to letting me quote him. We thank him for that permission. Readers are invited to read and consider Chip’s message.

Here’s Chip Roame’s unabridged public response:

OFFENSIVE COMMENTS
Some offensive comments were made by one fireside chat participant in a session late Tuesday afternoon. There remain disagreements as to exactly what was said, how it was intended, and how it was interpreted. I was on stage and have my own understanding of the situation which I have discussed with many long time Tiburon members. I further reached out specifically to several additional female Tiburon members who were present when the comments were made to solicit their views. I will not share these members’ views but I welcome them to share their own views if they so wish. They helped me to act, and act firmly. Some though told me they thought this deserved no response. I respectfully disagree.

I will speak only for myself today. I was extremely disappointed by the comments that I heard in the way that I understood them. I can, in no way, condone or find acceptable what I heard in the way that I understood its intent. These comments lacked the dignity & respect that should be expected by any Tiburon CEO Summit speaker or attendee. These were unacceptable words at Tiburon, in the wealth & investments industry, and in society generally. Furthermore, these comments further the inclusion problem in the wealth & investment management industry. And on a related note, I am disgusted to be included in phrases referring to old boys’ clubs. Tiburon is the opposite. I have worked tirelessly to try to find women speakers and encourage women attendees at the Tiburon CEO Summits. Given that we target CEO attendees, finding title-qualified women (and minorities by the way) is a tremendous challenge in the wealth & investment management industry. We work endless hours every six months on this same issue. We have held 37 Tiburon CEO Summits semi-annually so we have been fighting this battle for 18½ years.

On Wednesday morning 7:45am, before the start of the second day of Tiburon CEO Summit XXXVII, I took the stage and announced that the speaker who made these remarks will not ever be invited back to a Tiburon CEO Summit. One attendee is quoted in one of the many articles as saying that my response was only “a passing reference”. This attendee must be referring to my comments at a social gathering the prior evening. In my opinion, that was not the setting to address such a serious issue. I addressed the issue from the stage at 7:45am the following morning. Criticize that timing if you must, but that is an aside to the issue folks.

Laura Varas (Hearts & Wallets) is a Tiburon member and was present for the comments. Laura’s email to me afterwards included these words, “I would like to say, on the record, that Tiburon, through the Tiburon CEO Summits, has been one of the few shining beacons of support for me as a female CEO. The willingness of the other CEOs, mostly male, to welcome, encourage and advise me has been a great support. Many people give lip service to supporting female CEOs. You and the people you assemble at Tiburon, as well as my investors (all of whom are male), are some of the very few who actually do support me. In contrast, I have heard venture capitalists, often female, admit they invest in female-led companies because the valuations are lower. I refuse to accept capital at lower valuations simply because I am female. I just want to be treated like everyone else, and that is what I find at the Tiburon CEO Summits. In the Tiburon CEO Summits, I have found support from kindred spirits whose shared drive to innovate matters much more than gender. It is ironic that people who pay lip service to supporting female CEOs are criticizing people who actually do support them, so I would like to correct that.” Thank you, Laura.

TIBURON CEO SUMMITS MEDIA POLICY
Tiburon has tried various media strategies over the years for its Tiburon CEO Summits. Over the past few years, Tiburon has settled on a no media policy, like many similar CEO-level events. Many Tiburon member CEOs run public companies and need to adhere to SEC rules around their communications. Other Tiburon member CEOs express their desire to have candid conversations and try to jointly address industry issues. Nearly all members believe that media would inhibit candid discussion. Social media posts by attendees are welcome but Tiburon asks that attendees not quote speakers without their approval. This entire media policy is reviewed by the moderator at the start of each Tiburon CEO Summit.

The point of the Tiburon CEO Summit media policy is to adhere to SEC rules, encourage open dialog, and protect proprietary insights, not hide offensive behaviors. Tiburon seeks candid exchanges of views, not to hide inappropriate, offensive, and/or crude remarks. Tiburon has an inclusive culture and I will personally defend that at all costs. Tiburon has removed dozens of prior Tiburon CEO Summit attendees from the Tiburon CEO Summit invitee list for a variety of reasons, including insulting comments, disrespectful remarks, sales efforts, and lack of discretion.

I will always support a participant who calls out inappropriate behavior and even does so publicly. Alex Chalekian, who I do not know well, should be commended for having the strength to go public Tuesday night with his views of offensive behavior. I have not spoken to Alex since his controversial Tweet so this letter will be the first he knows that I support his efforts. While Alex did technically violate the Tiburon CEO Summit media policy, he recognized that the issues of dignity, respect, and inclusion are more important than the Tiburon CEO Summit media policy, and he took action.

INDUSTRY INCLUSION ISSUE
The wealth & investment management industry has an inclusion issue. One 2017 study reported that women account for 58% of employees in financial services, but only 48% of first and mid-level management roles, and 31% of senior & executive level management roles. And frankly, that is propped up by women’s relatively higher success in banking. In investment management, these numbers are 51%, 41%, and 26%. In brokerage, the numbers are 39%, 34%, and 19%. Results in wealth & investment management are horrible. And the participation of minorities may even be a bigger issue. This is a big issue.

BOTTOM LINE & CALL TO ACTION
We all choose our ways to deal with bad behavior. The recent situation that arose at Tiburon has been dealt with firmly. I believe that I clearly repudiated the comments and apologized to all the attendees. I further barred the speaker from ever attending again. I am not naming names today because this issue is not about one person; this is an industry issue. I hope to share a learning opportunity with industry participants, not deliberately harm one’s business.

A few suggestions for those of you who really want to have impact… Do not assume too quickly. Do not judge too quickly. Do not tell us that we must prioritize replying to journalists. Do not claim that we refused to comment (which is not true). Watch our actions. Help us. The industry’s issue will not be improved by a few people sending off uniformed tweets and emails, making further accusations. Propose how you can work with Tiburon to address these issues. Propose CEO-level women (and minority) speakers for our Tiburon CEO Summits. Help us recruit them to come speak. Bring on your ideas and your hours of effort! This is a serious industry issue. Let’s move past the Tweets and get to work on the dignity and inclusion issues. Comments like we heard on Tuesday, in my opinion, will discourage women from participating in the wealth & investment management industry.

Charles (“Chip”) Roame
Managing Partner
Tiburon Strategic Advisors


David R. Kotok
Chairman and Chief Investment Officer
Email | Bio





Taxing Wealth Instead of Income, Part 2

As a follow-up to David Kotok’s piece last week on taxing wealth (https://www.cumber.com/cumberland-advisors-market-commentary-wealth-tax/), it may be useful to remind readers what the potential incentive effects might be when it comes to the implications of wealth tax proposals to tax wealth may have on entrepreneurs and business structures. Proponents of a wealth tax are motivated by the need to finance what is now a growing federal deficit as well as to address what is perceived to be a problem with growing wealth inequality in today’s economy.

Market Commentary - Cumberland Advisors - Taxing Wealth Instead of Income

Two of the proposals that are more easy to understand and calibrate are those put forward by Senators Bernie Sanders (https://berniesanders.com/issues/tax-extreme-wealth/) and Elizabeth Warren (https://elizabethwarren.com/plans/ultra-millionaire-tax). The Sanders proposal contains a progressive tax with a maximum of 8% on net worth over $10 billion, declining gradually to 2% for families with net worth between $50 and $250 million. The Warren proposal is less progressive, with a 2% tax for households with net worth between $50 million and $1 billion and a 3% tax on net worth above $1 billion. While the plans seem quite different, we can plot what might happen over time to the net worth of households that started with $10 billion of net worth. The chart below shows the path for net worth under both plans over the most relevant range.[1]

The Sanders’ plan would halve net worth in about 11 years while the Warren plan would halve net worth in about 23 years. It is important to recognize that these are maximum-impact cases, since the analysis ignores any investment returns or other sources of growth in the value of wealth. If the household could earn at least enough on its asset holdings to more than cover the cost of the tax, for example, then effectively the net-worth tax proposals would amount to capping net worth at whatever the current levels were. In the Sanders proposal, for example, an individual with at least $10 billion in net worth would have to earn a bit more than the marginal 8% tax rate. In Warren’s proposal, the household would only have to earn a bit more than 3%.[2] So while the proposed net-worth taxes would generate revenue to support the government, they would do little to address concerns that many have about wealth inequality which would have to depend solely on increasing the wealth of those not subject to the taxes.

Implementation of such programs could, however, have significant implications for how people manage their wealth. In a previous commentary, I noted how the composition of wealth varies over different classes of net worth. The most recent data available are from the Federal Reserve’s 2016 survey of consumer finances, shown in the following chart.

For those with net worth over $1 billion, which is really the target group for the wealth-tax proposals, I noted that “more than two thirds of the wealth of the $1-billion-dollar-net-worth cohort is composed of what are termed ‘business interests.’ The Survey of Consumer Finances divides business interests into those businesses in which the owner has an active management role and those in which the owner does not play an active role, and well over 90% of such business interests involve active management. Thus, those who wish to tax wealth rather than yearly income are, in fact, targeting mainly privately held businesses whose value is derived from the active entrepreneurial involvement of the principal and his or her family.[3] Such assets are hard to identify, since they can include loan guarantees, intellectual property, etc. Those business interests are not frequently traded and are extremely hard to value. These are the same business interests that generate employment and benefits to many others.”[4] But capping net worth effectively caps the value of household business interests, and this cap has implications for how such businesses can grow and increase their capital as well as their risk taking incentives. If the effect is to stifle growth and employment, then the unintended consequences might well be detrimental to the economy going forward. If the effect to promote excessive risk taking, then the stability of the economy may be at risk.

In Sanders’ case, it is estimated that the proposal would impact about 180,000 households, and the IRS would be tasked with the job of valuing the net worth of those households each year. This would seem to be a very difficult and costly bureaucratic process to undertake, and one can imagine the disputes over values that would accompany implementation of the wealth tax. In short, proponents of a wealth tax need to delve a bit deeper into the likely first- and second-round implications of their proposals, which may not be quite as simple as they are represented.

Robert Eisenbeis, PH.D.
Vice Chairman & Chief Monetary Economist
Email | Bio

[1] One can easily calculate from this chart how many years it would take to reduce net worth by one half, from, say, $4 billion to $2 billion, under either plan.
[2] Of course, as the marginal net-worth tax rate declined, the earnings requirement would be reduced.
[3] See for example “Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances,” Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach, and Kevin B. Moore, revised 2009, Federal Reserve Bulletin, Vol. 95, 2009, https://www.federalreserve.gov/pubs/bulletin/2009/articles/scf/default.htm.

 


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Cumberland Advisors Market Commentary – Warren?

Elizabeth Warren (@ewarren)

“On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking—everywhere.” (Twitter, 4:26 PM, Sep 6, 2019)

Market Commentary - Cumberland Advisors - “You can’t make this stuff up” by Suzanne Greenberg

Elizabeth Warren’s increasing political strength relative to Joe Biden’s is leading market agents to become serious about policy changes under a Warren presidency. The tweet above is an example of a proposed policy.

Meanwhile, Trump’s growing impeachment problems and his Navarro-advised failing trade policy have weakened the US Manufacturing sector and changed some of the granular polling data. It is now impossible to confidently forecast the 2020 election outcomes. While the Democrats are still favored to keep their majority in the House and the Republicans to keep their majority in the Senate, the best guesses today are made with high uncertainty.

Meanwhile, market agents are repricing risk, and that risk includes possible changes in health care and banks/financial and, given the above tweet, the domestic US Energy sector.

Let’s use an example.

Natural gas is a terrific American production success. We have a lot. It’s a clean fuel. The world wants to buy it. America is a safe source and has reliable long-term contract law.

Warren’s tweet puts energy capex on notice. Does she encourage investment in energy or discourage it? You know the answer.

Add to her tweet her advocacy of a Sanders-type wealth tax and apply that tax to risk-taking in oil and gas production, exploration, transportation (pipeline), and equipment supplies. Does she encourage or discourage these investments? You know the answer.

Meanwhile, once-expected LNG exports to China and elsewhere are slowed by the ill-conceived, Navarro-designed Trump Trade War. Encourage or discourage? You know the answer.

Is it any wonder the US Manufacturing sector is mired in a slowdown and economic growth is under 2%? Trump and Warren are polar political opposites whose widely divergent policies harm or stand to harm a large sector of the US economy.

We are a year from an election, and this writer only expects the various proposals to get worse while the debate gets uglier. The opinions expressed on CNN and Fox now epitomize the divide. Tax increases or cuts won’t happen for at least two years, and this writer is not sanguine about any of the outcomes.

Dear readers, once fiscally responsible Republicans have delivered a one-trillion-dollar deficit and a modern version of Smoot-Hawley protectionism, while some Democratic hopefuls seek to destroy wealth with taxation and to attack capital formation in American industries and business.

The now-familiar expression “You can’t make this stuff up” was coined by Suzanne Greenberg, a now-deceased former Cumberland Partner. She was prescient.

Fortunately, the Fed has awakened to the liquidity issue after dodging the repo bullet. Better late than never.

To this writer, stock markets seem to be discounting the worst as the ugly headlines continue. As long as the markets remain fearful of worst-case risks, stocks can rally to new highs as we progress to year end. Widespread pessimism is a buying opportunity.

We remain fully invested in our US stock market ETF strategy and in our US stock market quantitative strategies (three of them). Please email me if you would like to see the white paper on the quantitative work.

P.S. Here’s a Bloomberg opinion column we recommend. It focuses on truth, politicians, and constitutional issues of free speech. It also has a warning for each of us.

https://www.bloomberg.com/opinion/articles/2019-10-09/facebook-can-fight-lies-in-political-ads.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Bloomberg-Expect Markets to go Higher – Kotok (Radio)

Cumberland Advisors’ David R. Kotok says the moves we have heard on trade are lacking in substance, but the market has still been given some comfort.
Cumberland's David Kotok on Bloomberg Radio
He goes on to his expectations for a strengthening energy sector.

If you’ve enjoyed this exchange, please feel free to explore other interviews and conversations at the Cumberland Advisors website or YouTube channel.
Website: https://www.cumber.com/tag/radio-podcasts/
YouTube: https://www.youtube.com/CumberlandAdvisors


NOTE: Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.


If you like podcasts, check out this one from 2015 featuring David Kotok talking about his background and Camp Kotok with Barry Ritholtz. They also talk about the history of Cumberland Advisors since its founding, and delve into fundamental principles of investing and valuation.


Links here
https://itunes.apple.com/us/podcast/masters-in-business/id730188152?mt=2

And here
http://www.bloomberg.com/podcasts/masters-in-business/




Cumberland Advisors Week in Review (Oct 07, 2019 – Oct 11, 2019)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

Week In Review

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.



In this week’s review, Matt talks about:
-What encourages us?
-What causes a “higher-low”?
-Where are we stuck?
-Let’s talk about stepping back and recency bias.
-We share some charts from Dorsey Wright and look at performance.
-Where should allocations have been made at various times?
-Flexibility and the ability to always take a look at multiple asset classes and try to analyze risk and reward is necessary for long-term performance.
-Enjoyed our time at recent Sarasota Chamber of Commerce get-together and we want to share our favorite quote from guest speaker, Tony Moore.
-“What got you here, won’t get you there.” -TM
-Matt paraphrases, “What got you here investing-wise, may not get you there in the future.”
-Email us at info@cumber.com or give us a call at (800) 257-7013

Enjoy your weekend and please send us your questions and comments. We thank you for joining us!

Watch in the video player or at this link: https://youtu.be/Z4RN2VHv06w

Matt enjoys your feedback. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-mcaleer-9415b16/


It’s that time of year when the Team at Cumberland Advisors provide their Q3 Reviews. We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read to learn more about the thinking behind our positioning of portfolios and how we execute strategies. https://www.cumber.com/2019-q3-reviews
Reviews cover the strategies that follow.

US ETF/Markets by David R. Kotok, Chairman of the Board & Chief Investment Officer:
https://www.cumber.com/cumberland-advisors-market-commentary-3q19-review-us-equity-etf/

Market Volatility by Leo Chen, Ph.D., Portfolio Manager & Quantitative Strategist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-market-volatility-etf/

International ETF by William Witherell, Ph.D., Chief Global Economist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-international-equity-etf/

Taxable Fixed Income by Dan Himelberger, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-taxable-fixed-income/

Puerto Rico by Shaun Burgess, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/3q2019-review-puerto-rico/

Tactical Trend by Matthew C. McAleer – Executive Vice President & Director of Equity Strategies
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-tactical-trend/

Tax-Free Muni by John R. Mousseau, CFA – President, Chief Executive Officer & Director of Fixed Income:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-tax-free-municipal-bond/

Read the rest here: https://mailchi.mp/cumber.com/cumberland-advisors-week-in-review-sept-30-2019-oct-04-2019


Camp Kotok - Big Lake - Stacked Stones - Conversations from Camp Kotok

We invite you to visit our YouTube channel and explore the “Camp Kotok” video playlist. This playlist is comprised of Camp Kotok interviews with guests and “campers” who participate and enjoy sharing with us. We also include panel talks, scenes from the location in Maine, and other snippets we find interesting. Enjoy! #CampKotok


Wealth Tax

Democratic presidential candidates Castro, Sanders, and Warren have explicitly sponsored wealth taxation.

Readers may view the candidates’ proposals at their campaign websites:

Castro: https://issues.juliancastro.com/working-families-first/

Sanders: https://berniesanders.com/issues/tax-extreme-wealth/

Warren: https://elizabethwarren.com/plans/ultra-millionaire-tax

A New York Times article published last week considers the economic implications of both Sanders’ and Warren’s proposals: “Democrats’ Plans to Tax Wealth Would Reshape the U.S. Economy” (https://www.nytimes.com/2019/10/01/us/politics/sanders-warren-wealth-tax.html).

Follow link here to read some of our bullets: https://www.cumber.com/cumberland-advisors-market-commentary-wealth-tax/


Cumberland Advisors' Robert "Bob" Eisenbeis, Ph.D.

The Market Knows

The Federal Reserve Bank of New York announced on Friday, Oct 4 that it would continue to offer a maximum of $75 billion in overnight repurchase agreements and at the same time offer a series of term repos through at least November 4 according to the following schedule:[1]

This extension seems to be an attempt to use the market to determine exactly how much excess collateral is in the financial system that needs to be financed.  The term repos are a way of sterilizing a large portion of the excess supply of securities and then the overnight repos provide some indication of how much funding may or may not be available on the margin. The following chart provides some clues as to the maximum amount of financing that the Fed may be willing to provide and represents an experiment to let the market determine, given the lack of bank financing that is apparently quite scarce for this market, how big a facility might be necessary to support the primary dealers.

Continue reading here: https://www.cumber.com/cumberland-advisors-market-commentary-the-market-knows/


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




2019 Q3 Strategy Reviews – Links to All Commentaries

2019 Q3 Reviews

It’s that time of year when the Team at Cumberland Advisors provide their Q3 Reviews. We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read to learn more about the thinking behind our positioning of portfolios and how we execute strategies.

Reviews cover the strategies that follow.

US ETF/Markets by David R. Kotok, Chairman of the Board & Chief Investment Officer:
https://www.cumber.com/cumberland-advisors-market-commentary-3q19-review-us-equity-etf/

Market Volatility by Leo Chen, Ph.D., Portfolio Manager & Quantitative Strategist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-market-volatility-etf/

International ETF by William Witherell, Ph.D., Chief Global Economist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-international-equity-etf/

Taxable Fixed Income by Dan Himelberger, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-taxable-fixed-income/

Puerto Rico by Shaun Burgess, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/3q2019-review-puerto-rico/

Tactical Trend by Matthew C. McAleer – Executive Vice President & Director of Equity Strategies
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-tactical-trend/

Tax-Free Muni by John R. Mousseau, CFA – President, Chief Executive Officer & Director of Fixed Income:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-tax-free-municipal-bond/


Cumberland Advisors invites you to join us each Friday on YouTube and hear about Cumberland’s week in trading. Visit and/or subscribe here: https://www.YouTube.com/CumberlandAdvisors


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary – Wealth Tax

Democratic presidential candidates Castro, Sanders, and Warren have explicitly sponsored wealth taxation.

Wealth Tax

Readers may view the candidates’ proposals at their campaign websites:

Castro: https://issues.juliancastro.com/working-families-first/

Sanders: https://berniesanders.com/issues/tax-extreme-wealth/

Warren: https://elizabethwarren.com/plans/ultra-millionaire-tax

A New York Times article published last week considers the economic implications of both Sanders’ and Warren’s proposals: “Democrats’ Plans to Tax Wealth Would Reshape the U.S. Economy” (https://www.nytimes.com/2019/10/01/us/politics/sanders-warren-wealth-tax.html).

Here are some of our bullets.

1. Is there a workable system to rank wealth for progressive wealth taxation? Remember that a progressive taxation system needs breakpoints and thresholds. Here is a Bloomberg Businessweek article on this subject, titled “Everyone has a wealth number. What’s yours?” https://www.bloomberg.com/news/articles/2019-09-30/everyone-has-a-wealth-number-what-s-yours

2. Will charities be included? My colleague Matt McAleer and I have discussed the billions a year in American philanthropy that might disappear under a “billionaire tax scheme.” Bill and Melinda Gates are a prominent example of philanthropists who would have less to give.

3. If charity is exempt from wealth taxation, the exemption rules invite evasive behavior and investment changes. If charity is included, other changes will occur. A key point is that static analysis of these tax schemes is likely to be wrong as to the magnitude of results. Estimates from political candidates are likely to be heavily biased. The same is true for estimates from incumbents.

4. Can you equate a wealth tax to an income tax? Yes. With a few assumptions. Here’s an example using Sanders’ lowest bracket. The Wall Street Journal offers a synopsis of Sanders’s plan:

“The tax would apply to married couples with net worth of at least $32 million and individuals with net worth of at least $16 million. The rate would start at 1% per year and rise to 8% for married couples with assets of least $10 billion. That 8% rate would mean that megabillionaires who don’t earn at least an 8% return would see their fortunes shrink, and Mr. Sanders said Tuesday that there should be no billionaires.” (“Bernie Sanders Calls for 8% Wealth Tax on Richest Americans,” https://www.wsj.com/articles/bernie-sanders-calls-for-8-wealth-tax-on-richest-americans-11569334693)

Let’s take the lowest threshold, $16 million number at 1%. If it includes real estate, pensions, or charity, it is an annual tax on the appreciation of earnings. If it exempts these assets, it favors reallocation to them from assets that are taxed.

What about tax-free bonds? If exempt from wealth taxation, their value just went up on a relative basis. If taxation is applied, the current 3% yield just got reduced to 2%. Most of the $4 trillion of American’s municipal bonds are held by folks who would be taxed by Bernie Sanders. And most of those people are not “billionaires.”

Wealth taxation risk is creeping upward as the political season progresses. Trump’s behavior has invited impeachment investigation proceedings, which now have Speaker Pelosi’s sponsorship. The politics may have weakened Trump. That means more scrutiny of Democratic proposals is now called for. The Trump attacks on Biden seem to be strengthening Sanders and particularly Warren. Biden has not engaged in the type of wealth taxation rhetoric originated by Sanders and Warren.

The evolution of wealth taxation is one of those proposed changes that seems to generate increasing competition for candidates to outbid each other. They all attack “billionaires.” But to raise substantial money for spending programs or deficit reduction, the income thresholds must be much lower than “billionaire”.

Sanders has defined the lowest level as $16 million. That is a long way from a billion, as the Bloomberg article shows. America’s history of new taxation forms suggests that any new taxation scheme would start with a smaller group of taxpayers and end up broader over time.

So exactly what would be subject to the wealth tax? We think the tax-free municipal bond would be exempt under a wealth tax. Attacks on municipal bonds have been unsuccessful in the past, starting with Senator Bob Packwood’s attempt launched decades ago. Remember that there are 90000 distinct issuers of municipal bonds. Thus a wealth taxation scheme poses an indirect way to tax every school district, hospital, airport, sewer plant, etc.

We’re uncertain about retirement plans or charitable funds or closely held or private businesses or about art or other collections of personal items. They are certainly targeted by some of the proposals.

We’re fairly certain that traditional investments like stocks and real estate would be taxed. We shall see the “devils” emerge in the details as time passes.

Wealth taxation is on the political debate agenda. We expect this debate to intensify as political forces in both parties use “class warfare” language in the debate. Stay tuned.


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Cumberland Advisors Market Commentary – The Market Knows

The Federal Reserve Bank of New York announced on Friday, Oct 4 that it would continue to offer a maximum of $75 billion in overnight repurchase agreements and at the same time offer a series of term repos through at least November 4 according to the following schedule:[1]

This extension seems to be an attempt to use the market to determine exactly how much excess collateral is in the financial system that needs to be financed.  The term repos are a way of sterilizing a large portion of the excess supply of securities and then the overnight repos provide some indication of how much funding may or may not be available on the margin. The following chart provides some clues as to the maximum amount of financing that the Fed may be willing to provide and represents an experiment to let the market determine, given the lack of bank financing that is apparently quite scarce for this market, how big a facility might be necessary to support the primary dealers.

The proposed extension shows the Fed could provide up to $225 billion in total financing, which is a little more than the maximum amount provided on September 30.  Clearly, the demand for overnight financing has slacked off, probably in part because of the availability of significant term financing. This may mean that the upper limit of $75 billion in overnight financing may be larger than needed. At the same time, while the facility is billed as temporary, some have speculated that this is a precursor to establishing a permanent repo facility.

The one caution is that such a facility is really a backdoor to creating a discount window for primary dealers and indirectly for money market funds and GSEs.  Moreover, the volume of securities on the balance sheet of the primary dealers that may need to be financed on a short duration basis, creates a potential problem of financial instability for two reasons.  The extreme short-term nature of the funding means that any hint of a problem could put the primary dealers at risk, necessitating rescue by the Fed.  Then there is also the interconnectedness among the market participants that could transmit financial difficulties in a large and important portion of the market.  Maybe it is time to re-evaluate the usefulness of the primary dealer system relative the risks and benefits.

Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio

UPDATED 1Oct 10, 2019 – One final point.  Interested readers may want to tune into the GIC virtual event recorded on Oct 10 at 12:00PM when Chris Whalen, Bill Kennedy and Robert Eisenbeis, Ph.D. discussed developments in the repo market. Registration is complimentary and those who are interested may register at https://www.interdependence.org/events/browse/repo-market-virtual-event/.

 


[1] See: https://www.newyorkfed.org/markets/opolicy/operating_policy_191004

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Cumberland Advisors Week in Review (Sept 30, 2019 – Oct 04, 2019)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

Week In Review

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

In this week’s review, Matt talks about:
-We went out this week within a stone’s throw of where we closed last week
-Lot’s of volatility this week
-We’ve received two buy signals from our Quant Work in the last 6-7 trading sessions
-What we’re seeing day-to-day is real extremes in fear and greed
-While we try to take advantage of that in the short-term in a trading strategy, in the longer term, it’s important to sometimes step back and see what’s really going on.
-Today we’re sharing three charts thanks to our cracker-jack  trader, Shea Slawson, and I’ll talk about them:
1) S&P500 (SPY)
2) DOW (DIA)
3) NASDAQ 100 (QQQ)
-We try not to stay ultra-bullish or ultra-bearish
-We try to see what’s available, see where the risk is, see where the reward is, size our positions appropriately, and take advantage of what the market gives us.
-Please keep the comments and questions coming.
-Email us at info@cumber.com or give us a call at (800) 257-7013

Enjoy your weekend and please send us your questions and comments. We thank you for joining us!

Watch in the video player or at this link: https://youtu.be/MiFwl3VvWxs

Matt enjoys your feedback. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-mcaleer-9415b16/


It’s that time of year when the Team at Cumberland Advisors provide their Q3 Reviews. We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read to learn more about the thinking behind our positioning of portfolios and how we execute strategies. https://www.cumber.com/2019-q3-reviews
Reviews cover the strategies that follow.

US ETF/Markets by David R. Kotok, Chairman of the Board & Chief Investment Officer:
https://www.cumber.com/cumberland-advisors-market-commentary-3q19-review-us-equity-etf/

Market Volatility by Leo Chen, Ph.D., Portfolio Manager & Quantitative Strategist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-market-volatility-etf/

International ETF by William Witherell, Ph.D., Chief Global Economist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-international-equity-etf/

Taxable Fixed Income by Dan Himelberger, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-taxable-fixed-income/

Puerto Rico by Shaun Burgess, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/3q2019-review-puerto-rico/

Tactical Trend by Matthew C. McAleer – Executive Vice President & Director of Equity Strategies
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-tactical-trend/

Tax-Free Muni by John R. Mousseau, CFA – President, Chief Executive Officer & Director of Fixed Income:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-tax-free-municipal-bond/

Read the rest here: https://mailchi.mp/cumber.com/cumberland-advisors-week-in-review-sept-30-2019-oct-04-2019


Camp Kotok - Big Lake - Stacked Stones - Conversations from Camp Kotok

We invite you to visit our YouTube channel and explore the “Camp Kotok” video playlist. This playlist is comprised of Camp Kotok interviews with guests and “campers” who participate and enjoy sharing with us. We also include panel talks, scenes from the location in Maine, and other snippets we find interesting. Enjoy! #CampKotok



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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Repo Market, Monetary Policy, & Liquidity Discussion – An On-Demand Webinar

In early September 2019 there was an unusual spike in rates in the repurchase (“repo”) market causing a liquidity squeeze on broker-dealers that use repos to finance their portfolios of Treasury and agency securities.  It remains a mystery as to what catalyzed the liquidity squeeze.  The response by the Federal Reserve Bank and market participants has created more uncertainty.

On-Demand Webinar - How does the Repo Market, Monetary Policy, & a Liquidity crunch affect Financial Markets

Why is this important to investors? U.S. money markets have been unnerved resulting in the Federal Reserve implementing daily interventions. It is thought by some that this has prevented repo contagion from infecting other key areas of finance, but for how long? Does our central bank need to take much grander action and put in place a long-term solution? What can we expect or even demand the Federal Open Market Committee do when it meets Oct. 29-30?

The  Global Interdepedence Center (GIC) is pleased to present two financial markets veterans, Bob Eisenbeis and Chris Whalen, who will discuss what recent repo rate disruptions mean for monetary policy and market liquidity during this on-demand webinar.

Bob Eisenbeis, Vice Chairman & Chief Monetary Economist of Cumberland Advisors, was formerly Executive Vice-President and Director of Research at the Federal Reserve Bank of Atlanta, where he advised the bank’s president on monetary policy for FOMC deliberations and was in charge of basic research and policy analysis.

Chris Whalen, Chairman of Whalen Global Advisors LLC, is a member of the Economic Advisory Committee of FINRA and has testified before Congress, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation on a range of financial, economic and political issues.

Together, they will present on recent developments in the repo market and answer audience questions to close out the discussion. The discussion was moderated by Bill Kennedy, Chief Investment Officer of Fieldpoint Private and GIC Board Member.

This virtual event was conducted on Thursday, October 10th via the web and telephone dial-in. Participants may view PowerPoint presentations online while listening to the speakers and the links are available from within the GoToMeeting player or separately here:

To view this informative on-demand webinar, visit the GIC website: https://www.interdependence.org/events/browse/repo-market-virtual-event/

For more context and insight around the Repo Market, Monetary Policy, & Liquidity, read recent works written by Bob Eisenbeis and Chris Whalen linked below:

The Market Knows” by Robert Eisenbeis, Ph.D.

Repo Market, Liquidity & QE 4” by R. Christopher Whalen


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.