Next month will mark the fourth anniversary of my raising my hand to accept a “package” at Citigroup. As such, it also marks the fourth anniversary of the end of my Citi/Smith Barney “Making Sense” reports. Leaving Citigroup was a very difficult decision for me. I had spent more than two decades with the firm and its predecessors. At the time I left Citi, my daily fixed income market commentary had more than 9,000 internal financial advisor subscribers. Not bad for a firm with just under 12,000 financial advisors at the time.

Why did I decide to leave Citigroup at that time? My departure was partially due to health reasons, but there was also a business aspect. I was told that come June 2012, Morgan Stanley (which was in the process of purchasing Smith Barney) did not want Citigroup market commentary going out to Smith Barney advisors. This was completely understandable. Morgan Stanley was going to gain full control of Smith Barney at that time. Why would it want commentary from, what would be, a competing firm sent to its advisors. At one point during the joint venture period, Morgan Stanley expressed interest in bringing over my department, but that is another story for another time.

I knew there was still demand for my Making Sense reports. So with package in hand, I set out to create a fixed income commentary, strategy and advisory firm, one which would provide fixed income strategy, investment ideas and analysis which was free about the conflicts (perceived or real) associated with fixed income market and product commentary published by trading/sales desks, mutual fund companies, etc. My goal was to provide, to the best of my ability, an accurate picture of the fixed income markets (capital markets as a whole) and provide guidance of where the markets were going. Key to my outlook is understanding and explaining why markets and assets/asset classes behave the way they do, beyond the naïve practice of reviewing historical charts without considering the context of past events (something which is all too prevalent in the financial industry). For the most part my venture, known as Bond Squad, has been successful, even though I can only count a fraction of my former readers as subscribers. 

Why has subscribership been lower than it was when I was publishing at Citi? I attribute it to the following.

• Many firms have discouraged the use outside commentary.

• Many advisors have (with the encouragement of their firms) to become relationship managers rather than financial advisors, in the traditional sense.

• Six years of nearly all asset classes rising has made advisors (and investors) complacent.

• An increasing reliance on mean reversion to justify nearly any strategy.

• Cost. An annual Bond Squad subscription costs $299.

By now, readers are probably nodding their heads and are saying: “No kidding, these are all valid reasons for not subscribing.” I believe this viewpoint is both myopic and pennywise/pound-foolish. Allow me to address these points.

Outside Commentary: I understand why firms would discourage external commentary. For one, their legal departments probably cringe at the idea that advisors might utilize information and ideas that the firm cannot filter. Secondly, outside commentary might express differing opinions and outlooks from those of the firm. To be honest, no source of market commentary of strategy should automatically be considered unbiased or altruistic. This is true even of external commentary. I have read much independent strategy which is based upon or tinged with political ideology and worldview. I have also read much firm commentary which is constructed around various product area concerns (politics) within firm investment committees. I have tried my best to provide independent commentary, using much historical data and context reviews in the process

Relationship Managers: About a decade ago, large wealth management firms (wire houses) decided to take the capital markets and, in some ways, investment decisions, out of the hands of financial advisors. Instead, firm investment committees would design models into which financial advisors would allocate client capital. Some firms pushed the idea of outside managers based upon the idea that if a manager underperformed or took a strategy path the client of firm thought unwise, the outside manager, rather than the wealth management firm or advisor, could be blamed. However, if the manager performed well, the firm and advisors could take credit for choosing the right manager. There is even a firm which today advertises itself as a manager of managers. As someone who manages fixed income money on a third-party SMA basis, I can say that this approach is disingenuous (and I am being kind). It has been my experience that few wealth management strategists and financial advisors have deep knowledge of the capital markets. This would appear to support the case for outside managers. However, how can one select the “correct” manager when one does not understand that markets/products/ strategy in which the manager is engaged? One must know their clients and the assets/markets/strategies to which their clients are exposed. At a recent compliance meeting which I attended, it was stressed that FINRA is enforcing a “know your product/manager” standard.

Six Years of Bliss: Face it, during the past six years, one could have gained exposure to nearly any asset class and made money. This has caused many advisors and even more investors to consider themselves investment geniuses. Folks, much of your success has been driven by the Fed and (until 2014) and emerging markets/commodities boom. Both of these positive forces are fading. What we have seen since late last year is a mainly sideways equity market, lower U.S. Treasury and developed sovereign debt yields, and a bursting of a (in my opinion) junk debt market (including loans). This was precisely the opposite of what many investment product marketers and investment committees had predicted.

Mean Reversion: With strategies crumbling, advisors and investors are being told not to panic and that asset/market/economic performance will return to the mean. However, study after study regarding the markets and global economy indicate that it might be impossible to revert to anything resembling the post-WWII mean. However, with little economic/market/ product knowledge (and the alternatives too frightening to contemplate), the wealth management industry clings to mean reversion, much as driver whose car (without ABS) is sliding on ice presses the brake pedal to the floor, knowing all the while that lifting his or her foot and pumping the brakes would probably be a better idea. Human beings stick to what they know in the face of uncertainty, even when logic tells them otherwise.

Free can be Costly: With so many free information sources available (both within firms and externally), financial advisors and investors have become reluctant to pay for anything. In my opinion, most things which are free are fairly priced from a quality/usefulness perspective. There are exceptions, but most free market/investment commentary is not worth the time to read. Unless one already has a decent understanding of the capital markets, the economy and how they interact, it is difficult form the layperson to separate the commentary wheat from the chaff. Thus, many investors and advisors gravitate to commentary which most agrees with their political ideology and worldview. In my opinion, this is no way to make investment decisions. I do not include investment product strategists (fixed income, equity, etc.) employed by wealth management firms in the “free” category. These professionals are well compensated and are paid for, at least partially, by the revenues generated from customer activities. Advisors and clients are paying for these services. Although their opinions are often diluted by investment committees, their commentary is usually well-founded and devoid of political ideology.

The Bond Squad Difference: In the case of Bond Squad, my subscribers pay my bills. I work for my subscribers and only for my subscribers. I have no book or platform to “talk.” I have no investment committee or internal politics diluting my views. Each portfolio I construct is done for the benefit of each investors. No two portfolios are identical. Portfolios tend to be as unique as the investor for whom it is built.

Some believe that $299 is a bit expensive for fixed income commentary. I would disagree, even if the $299 just provided a newsletter. The resources necessary to provide useful market commentary do not come cheaply (my Bloomberg terminal costs $24,000 per year alone). All Bond Squad strategy is based upon research, deep contemplation and consultation with market participants from around the industry. However, Bond Squad is much more than a newsletter. My firm provides individual investor and advisor consultation. We will review existing portfolios and make suggestions. We will review and analyze individual securities and strategies. Bond Squad will even review mutual fund holdings and robo-advisor portfolios to ensure that they meet the needs of individual investors. For institutions, such as bank trust departments, credit unions, etc., Bond Squad will review fixed income investment ideas put forth by firms who service them. For $299 per year, Bond Squad becomes a kind of a pre-paid investment consultation service.

Bond Squad is not for everyone, but for investors and advisors who want another opinion of their investments/investment strategies, Bond Squad can provide piece of mind. For some, this can be priceless.

As we are now in the holiday season, I am offering investors and advisors a free trial of Bond Squad services (not just the commentary newsletters) from now through year-end. Those who subscribe between now and the end of the year will receive the holiday special price of $250 per year. We do offer monthly payment plans of $24.99 per month. There is no obligation to sign up for a free-trial and no payment information will be taken. Monthly subscribers can cancel at any time.

To sign up for a free trial or to subscribe at the discounted price of $250, contact me via the information below.

Happy Holidays,

Thomas Byrne

Director of Fixed Income

Wealth Strategies & Management LLC

570-424-1555 Office

570-234-6350 Cell

Twitter: @Bond_Squad

E-mail: thomas.byrne@wsandm.com

www.bond-squad.com