Central Bank’s Sway Stock, Market Commentary by Joe Preisser

Aided by a broad based reassessment of comments issued by European Central Bank President, Mario Draghi on Thursday, and the release of better than anticipated employment figures for the month of July in the United States, stocks rallied strongly on Friday to reverse the losses suffered earlier in the week and reclaim their upward trajectory.

Following a meeting of the American Central Bank’s policy making committee this week, the decision to forbear enacting any additionally accommodative monetary policy at present was announced in tandem with indications that measures designed to stimulate the world’s largest economy may be forthcoming.  The Federal Open Market Committee said in its official statement that they, “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions.”  As the recovery in the world’s largest economy has continued at a frustratingly slow pace, hope has pervaded the marketplace that increased liquidity will be provided by policy makers in order to encourage growth should they deem it necessary.  In its most recent communiqué, the Federal Reserve has reinforced this belief thus offering support for risk based assets.  Brian Jacobsen, the Chief Portfolio Strategist for Wells Fargo Funds Management was quoted in the Wall Street Journal as saying, “They probably are closer to providing, as they say, ‘additional accommodation as needed’, but I still think that they want more data before they actually pull the trigger.”

Investors across the globe registered their disappointment on Thursday with the decision rendered by the European Central Bank, to refrain from immediately employing any additional measures to support the Eurozone’s economy, by selling shares of companies listed around the world.  Hope for the announcement of the commencement of an aggressive sovereign bond buying program, designed to lower borrowing costs for the heavily indebted members of the currency union, which blossomed in the wake of comments made by Central Bank President Mario Draghi last week were temporarily dashed during Thursday’s press conference.  Although Mr. Draghi pledged to defend the euro, and stated that the common currency is, “irreversible” (New York Times), the absence of a substantive plan to aid the ailing nations of the monetary union was disparaged by the marketplace and precipitated a steep decline in international indices.

Friday morning brought with it a large scale reinterpretation of the message conveyed by European Central Bank President, Mario Draghi the day before, as investors parsed the meaning of his words and concluded that the E.C.B. is in fact moving closer to employing the debt purchasing program the market has been clamoring for.  The release of better than expected news from the labor market in the United States combined with the improvement in sentiment on the Continent to send shares markedly higher across the globe.  According to the New York Times, “on Friday, stocks on Wall Street and in Europe advanced as investors digested the announcement alongside data showing the U.S. added 163,000 jobs.”  Although the absence of immediate action served to initially unnerve traders, further reflection upon the President’s comments revealed the resolve of the Central Bank to support the currency union and fostered optimism for its maintenance. A statement released by French bank Credit Agricole on Friday captured the marked change in market sentiment, “Mr. Draghi’s strong words should not be understated, in our view.  The ECB President made it perfectly clear that the governing council was ready to address rising sovereign yields…Overall, notwithstanding the lack of detail at this stage, we believe the ECB will deliver a bold policy response in due time”(Wall Street Journal).

Potential for ECB Action Incites Strong Rally by Joe Preisser

Emphatic declarations of support for the Continent’s common currency, issued by The President of the European Central Bank, Mario Draghi on Thursday, and echoed by German Chancellor Angela Merkel and French President Francoise Hollande on Friday served to bolster investor sentiment and ignited a strong rally across global equities. The display of solidarity in defense of the euro project from the Union’s leadership seen this week came in response to the reemergence of fears of its possible dissolution as funding costs for the Spanish government soared to dangerous heights.

Trading for the week commenced as speculation that Spain would be the next member of the currency union to require emergency funding, swept through the marketplace, putting downward pressure on share prices around the world.  A decision by Madrid to offer financial support to the country’s struggling regional governments caused concern that the additional obligations would create an unsustainable situation for the heavily indebted nation. The yield on Spanish 10 year bonds rose above the record height of 7.5% on Tuesday, while Spain’s IBEX-35 stock index sank nearly 10% over the course of three trading sessions, reflecting the depth of trepidation with which the credit and equities markets view the difficulties currently facing the government.  According to Bloomberg News, “After taking on as much as 100 billion euros of bailout loans to aid banks, the risk…is that the additional burden of helping regions pushes bond yields to unaffordable levels.”

As the nations of the European Union continue to struggle to address the soaring borrowing costs faced by several of their member states, the trepidation this has created among investors around the globe revealed itself in several of the quarterly earnings releases issued this week.  The current situation on the Continent has deeply affected markets in the eurozone, reverberated across Asia, and is now being reflected in the profitability of corporations in the United States highlighting the global implications of the current crisis.  United Parcel Service, which delivers more packages than any company in the world, and Whirlpool Corp., the globe’s largest manufacturer of appliances both saw their shares fall after reporting earnings which failed to meet expectations (Bloomberg News). In its earnings release statement, Scott Davis, the Chief Executive Officer of UPS said, “Increasing uncertainty in the United States, continuing weakness in Asia exports and the debt crisis in Europe are impacting projections of economic expansion.”  

In an effort to hold down borrowing costs and to thwart contagion, the President of the European Central Bank, Mario Draghi, stated on Thursday that steps would be taken to halt the precipitous rise in the sovereign yields of several of the most heavily indebted members of the currency union.  Mr. Draghi was quoted by Bloomberg News as saying, “within our mandate, the ECB is ready to do whatever it takes to preserve the euro.  And believe me, it will be enough.”  The marketplace found solace in this statement, as the prevalent feeling among investors currently is that a direct sovereign bond buying by the ECB will be forthcoming, thus easing a measure of the acute effects of the crisis. With unlimited capacity on its balance sheet, the Central Bank is widely considered to be the only institution on the Continent capable of successfully intervening in the debt market to drive funding costs lower.  Bloomberg News quoted Bernd Berg, a foreign-exchange strategist at Credit Suisse, “Draghi’s comments that the ECB would do everything to preserve the euro currency gave some relief to markets and lifted asset prices after renewed euro-zone collapse fears.”

A joint statement issued by German Chancellor Angela Merkel and French President Francoise Hollande that their nations are, “bound by the deepest duty”(Bloomberg News), to maintain the currency union in its current iteration served to further ease investor concerns, as it reinforced the commitment of the Continent’s two largest economies to the euro project.  With a multitude of challenges facing the global economy it will be vitally important that the leaders of the European Union follow through in short order on the pledges made this week and work to drive sovereign yields back to sustainable levels, thus restoring a measure of stability to the marketplace.

Understanding Behavioral Style in Developing New Business – Part 1 by Bev Flaxington

Have you ever been taken completely by surprise by a client or prospect? Or have you ever been unable to close a sale because you just couldn’t “get through” to them? Today, investors are being bombarded by so many advisors and business development people – all trying to connect and persuade them to become clients. However, one of the most fundamental ways to connect with prospects is often overlooked by those in a selling role: understanding behavioral styles and adapting one’s communication approach to the people s/he’s trying to persuade.

You may have at one time taken a training course on relationship-building, face-to-face selling skills, or something similar, but the key to understanding the buyer’s perspective necessarily begins with an understanding of behavioral style. This is because behavioral style is the crux of understanding communication style – and true communication is the key to developing great relationships in both your personal and professional life.
So, is it really true that your likelihood of signing new clients could come down to your behavioral style? Research conducted in 1984 and validated again every year since has proven three things: 1) people buy from people with similar behavioral styles to their own, 2) people in a selling type of role tend to gravitate towards people with behavioral styles similar to their own, and 3) if people in a selling or business development type role adapt their behavioral style to that of the prospect, sales increase.

Many advisors, business development and client service personnel have excellent communication skills, but have difficulty in relationships with prospects and clients – and don’t understand why. Something just doesn’t feel right, but they’re not sure how to diagnose the problem or modify their behavior for greater success. Often times, it’s not technique (i.e. the questions asked, presentation or negotiating skills, etc.) but rather a lack of understanding of one’s own behavioral style and motivators, and of knowing that behavioral differences can cause significant communication difficulties that hamstring closing a prospect or an ongoing relationship with clients.
One scientific way to understand behavioral style is through an assessment called DISC (Dominance, Influencing, Steadiness, Compliance). Based upon the work of Carl Jung, the DISC approach was invented by William Moulton Marston, inventor of the lie detector and holder of a Harvard MBA, over 80 years ago. The statistically based profiles show a person’s preferred styles on four scales of behavior – Problems, People, Pace and Procedures:

• Dominance (“D” factor) How one handles problems and challenges
• Influence (“I” factor) How one handles people and influences others
• Steadiness (“S” factor) How one handles work environment, change and pace
• Compliance (“C” factor) How one handles rules and procedures set by others

Depending on our differences in style and approach, we can either get along very easily together (because we’re so much alike!) or we can have significant clashes in our relationship.

A person’s behavioral preferences have everything to do with their communication approach and style. People who operate with very different styles have a difficult time “hearing” one another and communicating effectively. For instance, if I communicate only within my own behavioral comfort zone, I will only be effective with people who are just like me. However, in the corporate environment we are dealing every day with colleagues, prospects, clients and management – all of whom can be very different behaviorally. Not only is communication difficult where there are differences, but often individuals become hostile and conflict-oriented toward one another. Significant time, effort and corporate money is wasted because people are unable to “get along” and work together effectively toward common corporate goals. (Refer to the Brinker blog “Dealing with Difficult Clients” for a complementary discussion of this topic.)

In the next blog, we’ll take a “deeper dive” into behavior style – how you can identify it in your prospects and use this knowledge to improve your selling effectiveness.

Brinker Capital Market Commentary –July 5, 2012 by Amy Magnotta

After the “risk on” environment to start the year pushed risk assets sharply higher, we experienced a pull-back in the second quarter. The deepening crisis in the Eurozone and evidence of slower global growth weighed on the global financial markets and drove investors to the relative safety of the U.S. government bond markets.

Some positive factors remain, but the macro risks continue to dominate. We expect
continued sluggish growth in the U.S. because of ongoing deleveraging, regulatory
uncertainty and the looming fiscal cliff in 2013. While U.S. corporations are in good
shape with strong earnings and high levels of cash on their balance sheets, they are hesitant to put it to work because of the uncertain environment. We still lack sustained growth in real personal incomes, which is key to greater levels of consumption and stronger economic growth going forward. While the Federal Reserve remains accommodative and stands ready to act further, the effectiveness of their monetary policy tools is diminishing.

The Eurozone has begun to take steps toward addressing their sovereign debt crisis, but more needs to be done. Policymakers must also contend with a deepening recession in the region, which will send debt/GDP ratios even higher. The need for a bailout of Spanish banks prompted leaders to announce somewhat more aggressive measures at their recent summit. It remains unclear whether these policy options will actually be put into place; however, it appears that Europe is beginning to lay out a path forward, which is a positive.

While growth in developed markets is weak, growth in emerging markets has also slowed. Investors continue to watch China’s actions to see whether a hard landing can be averted. One positive corollary of a slowdown in global growth is receding inflationary pressures and lower commodity prices. Lower retail gas prices are a boost to the disposable incomes of consumers.

The unresolved macro risks will keep the markets susceptible to bouts of volatility as we enter the second half of the year. The U.S. Presidential election will likely add to that volatility. Because of massive government intervention in the global financial markets, we will continue to be susceptible to event risk.
Amy Magnotta, Portfolio Manager
Brinker Capital Inc., a Registered Investment Advisor

Investment Commentary From Brinker’s Joe Preisser 6-11-12

As investors across the globe continued to grapple with the uncertainty on the European continent, the prospect of additional, accommodative monetary policies being enacted by several of the world’s major Central Banks sent share prices higher across indices this week.  In Europe, on Wednesday, stocks rallied to their best single day performance in more than seven months following a meeting of the European Central Bank(ECB).  Although the rate setting committee elected to maintain the current level, the President of the ECB, Mario Draghi signaled that measures designed to stimulate the euro-zone’s economy would be forthcoming if growth were to falter.  According to Bloomberg News, “Global stocks rallied the most this year, the euro strengthened and commodities jumped on speculation policy makers will take steps to revive the slowing economy.” Mr. Draghi’s sentiments were echoed on this side of the proverbial ‘pond’ by Federal Reserve Chairman Ben Bernanke in an appearance before a Congressional budget committee in which he reiterated that the Central Bank, “remains prepared to take action as needed to protect the U.S. financial system and economy” (New York Times).

Stocks rose across continent’s in the wake of an unexpected decision by the Central Bank of China on Thursday, to cut interest rates for the first time since 2008, in an attempt to stimulate growth in what has been a slowing economy.  According to the New York Times, “China cut its benchmark lending rate Thursday, for the first time in nearly four years, adding to efforts to reverse a sharp economic downturn.” The nation’s policy makers are once again demonstrating their continued resolve to act in an effort to thwart the negative effects of Europe’s sovereign debt crisis, which have rippled through the global economy. Dariusz Kowalczyk, an economist at Credit Agricole was quoted by the New York Times as saying, “The biggest impact of the move is likely to be on sentiment, both among businesses and consumers domestically by showing Beijing is bringing out the big guns to support growth…investors know that they have more ammunition if need be and a good track record in using it.”

Through the confusion the nations of the European Union face as a result of the precarious state of affairs in the nation of Greece, where the rapidly approaching national elections to be held on June 17th will serve as a referendum on the country’s membership in the euro zone, the Continent’s leaders have drawn closer to an accord on a rescue package for embattled Spanish financial institutions.  In an effort to halt the flight of capital still rattling the country and mitigate the dangers facing what is the fourth largest economy in Europe, the possibility that emergency funding could be made available to the banks themselves has come to the fore.   Throughout the current crisis Spain has strongly resisted attempts by its European partners to encourage the country to accept a rescue package, as the disbursement of these funds in the past has come laden with broad conditionality that has meant the need for additional austerity.  The most recent proposals, to lend directly to the troubled institutions themselves, have been designed with terms limited to the financial sector in an effort to make them more palatable to the government, thus displaying the resolve of Europe’s leaders to combat the current crisis and offering hope for a successful resolution.