CFALA e-Newsletter: February 2014

Welcome to the CFALA e-newsletter, a periodic publication with stories about noteworthy events and programs sponsored or hosted by the society, guest articles by members, book reviews, and other items of interest to CFALA members. Click on the headlines below to read the full stories. And if you’d like to contribute a story suggestion or, even better, write an article, we’d love to hear from you. Please email Executive Director Laura Carney at

*Please note that the content of this e-newsletter should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of  CFA Society Los Angeles.

In this issue ...

CFALA Career Development Committee Provides Resources For Both Employees And Employers

Whether you are a seasoned finance professional, someone with little to no experience, or are an employer looking for the right candidate, the CFALA Career Development Committee can be a tremendous resource. Our Committee’s theme for 2014 is to continue to offer excellent programing and networking opportunity events while also deliberately helping our members get more jobs!

We are pursuing two primary approaches to achieve this goal: 1) to increase the number of job postings available at all times on CFALA’s Job Board; and 2) to secure actively hiring employers  and recruiters to attend the Job Fair portion of our Career Expo on April 23rd at the Millennium Biltmore hotel. On top of the outreach efforts our committee is making towards these ends, we encourage all CFALA members to consider helping. For instance, please forward this article, or write a special note to any hiring managers or recruiters. A conversation with a  management team member of any local investment firm could be a big win for both employer and candidate. They can contact our team at  

The CFALA Job Board is a great resource for both employers and potential employees. Unlike many job boards, the CFALA Job Board is free to post, and no other job board’s applicant pool is loaded with CFA Charterholders or those pursuing the CFA designation.  Scott Larson, CFA, Chief Investment Officer of Bernzott Capital, a $500 million manager in Camarillo said, “The CFA Job Board is the first place we go when looking to hire.  Our last recruiting effort produced many qualified candidates, and we ended up hiring a very qualified person. ”  

The Career Expo will also be free to attend this year for hiring firms and recruiters.  The Career Expo is the biggest Career Development Committee event of the year. The event will start at 3:00 p.m. and will feature speakers and panelists who will share their diverse experiences and speak to the value of the charter. Additionally, we expect to enlist an expert speaker to share the benefits and best practices of harnessing social media in today’s professional environment. Following the presentation portion of the Expo, we will launch the interactive portion during which attendees will have the opportunity to meet with CFALA members we will have on hand to answer any questions, offer advice and share experiences. Additionally, we will be holding the Job Fair during the interactive portion. Hiring employers and recruiters will be on hand to meet attendees and share their current opportunities.

Beyond the Career Expo, for networking opportunities pay close attention to the Career Development Committee’s happy hour chat series event announcements. These have a very popular format. You show up, get a drink ticket and access to delicious hosted appetizers.  After 45 minutes of general networking, we have a speaker share their experiences, their thoughts on career development, and their view regarding the benefits of the CFA program. Following the speaker, folks tend to network quite a while longer. We also hold other programing from time to time, and hold joint networking events with CalCPA, the Young Tax Lawyers, and NAIFA.

Upcoming events include a happy hour chat event in Pasadena on March 5th, an event on March 26th in Santa Monica titled “Ten Things Every Woman Should Know Before Talking Salary” co-sponsored with the CFALA Women’s Group, and the Career Expo on April 23rd.

If you believe an employer or recruiter in your personal network will benefit from posting on our Job Board or attending our Career Expo, please reach out. And if you would like to speak at a happy hour chat event, have other programing ideas, or would like to get involved as a Career Development Committee member, please email 

By David Bradley, CFA 

Jeffrey E. Gundlach Presentation: Is Quantitative Easing at a Turning Point?

When CFALA membership was polled about who they would like to speak at an event, the big winner was Jeffrey Gundlach, Chief Executive Officer and Chief Investment Officer of DoubleLine Capital.  Fortunately for CFALA members, Gundlach shared his thoughts at a luncheon on February 19. And whether you agree with him on any of the topics he covered, one cannot argue with one of his last statements:  “I covered a lot of ground.”

Los Angeles-based Gundlach said he was happy to talk to the “home team” after making numerous presentations from Toronto to Vancouver.

Often the contrarian, which he described as sometimes dangerous, Gundlach noted the lopsided view is often proved to be incorrect.  Gundlach discussed his contrarian view he had about interest rates.  Currently, you are likely to come up empty if you go looking for an economist or market pundit who doesn’t think interest rates are heading up. Gundlach made a convincing argument about why there was a good possibility that long Treasury rates could actually fall further as prices “melt up” from a short covering of treasuries.

“In July 2012, I made the statement–which had been for a couple of decades one of the most dangerous statements in the financial markets–that we were at the on low interest rates for the 10-year Treasury.  But I’m less convinced today that it was the low, than I was then.”

Continuing along that theme, Gundlach discussed some behavioral finance.  “People say that fear is stronger than greed. But there is one more thing that drives behavior, which I think is the most powerful.  And that is need. When you need to do something, it means you don’t have a choice.”  Banks have balance sheets that need to appear a certain way.  Pension plans have liabilities that need to be immunized.  Investors need high-quality collateral.   These needs may drive investors to treasuries and lower yields.

Regarding tapering, Fed Chairman Janet Yellen appears to be sticking to the script, and indicated the bar is quite high for any change to the Fed’s plan to reduce stimulus.  Gundlach is not convinced.   He said he suspects the quantitative easing will not end in 2014.

The presentation was certainly not limited to addressing quantitative easing.  Gundlach presented dozens of slides with topics ranging from commodities to bitcoin, fund flows, public opinion polls and gold prices, market volatility (or lack of it) and standard deviation.  Many of the slides included charts that showed items going from “epic cheapness to epic richness.  It’s not a coincidence that Mt. Whitney is right next to Death Valley.”

Speaking about the equity market, Gundlach noted that margin debt is approaching record levels which very likely have fueled the recent equity market performance.  “If the market starts to hook down, forced liquidation could cause trouble.”  Additionally, he noted the slow start in 2014 for equities is largely due to pension plan rebalancing and individuals taking taxable gains that they deferred from 2013.  Of course, he said, due to the low interest rates, the time value of money calculation on the tax deferral makes it a curious strategy.

Gundlach is a serious person, but a little humor did sneak into his presentation, although it is not clear whether it was meant to be funny.  Talking about tax rates and the extent to which the upper echelons of society have enjoyed a “good deal” with the returns of the market and government policies that allow a few to have quite a lot.  “If you have a good deal, someone will try to come and take it away from you. I know that personally.”  He was alluding to his residence being burglarized in 2012 and approximately $10 million of artwork being stolen, along with his Porsche Carrera and cash.  The artwork was subsequently recovered.

The presentation went a bit long, but it didn’t appear that anyone was complaining.  It is clear why Gundlach is often on top of the list of sought-after speakers.

By Tom Derse, CFA

California Specific Data Is Included In 2014 CFA Institute Global Market Sentiment Survey

The 2014 CFA Institute Global Market Sentiment Survey (GMSS) results include region specific data this year.  Apropos to our market, California is specifically broken out.  Some highlights below.

Generally, the mood in California and throughout the world is that the global economy is on an expansionary path.  This includes a turnaround in Europe and a generally bullish view toward equities.  One area where California deviates from the national average is in its view toward real estate.  Eighteen percent of Californians cite real estate as being in a potential bubble as compared to only 9% nationwide. 

Californians are less concerned with political instability (24%) than the national average (37%) and they are less concerned about quantitative easing (63%) than the national average (68%). 

On the regulatory front, we are not as concerned with increasing regulation to build investor trust (23%) versus (29%).  But we would like to see improved transparency in financial reporting and other corporate disclosures (31%) versus (21%). 

And finally on the ethics front, Californians are the least likely to point to a lack of ethical culture within financial firms as the primary cause of mistrust in our industry, 48%.   This compares to 54% overall, 61% in Europe and 56% in the Asia Pacific Region. 

The full GMSS is available on the CFALA home page.   

By Dan Pomerantz, CFA


Sustained Economic Growth, Bifurcated Economy, Positive Surprise on Deficit Among Predictions at CFALA’s 2014 Economic and Investments Forecast Dinner

Differing outlooks on economic growth and a prediction that an improving federal deficit may boost business optimism later this year were among the views shared by panelists at CFA Society Los Angeles’ 2014 Economic and Investments Forecast Dinner.

The U.S. economy is in the midst of an expansion that may last another three to five years, Nancy R. Lazar, co-founder of Cornerstone Macro and leader of the firm’s Economic Research team, told attendees Thursday at the dinner, which was moderated by Los Angeles-based CNBC business news reporter Jane Wells.

“We think the U.S. economy has entered a self-sustaining expansion, and no longer needs the crisis-related monetary stimulus we have had,” Lazar said. “We believe the Fed also sees a solid expansion, and we expect the Fed to continue to taper.  U.S. domestic growth is likely to be driven by the private sector, and we’ve raised our forecast for real GDP growth in 2014 from 3% to 3.5%. Growth in capital spending, which slowed in 2013, is likely to accelerate in 2014, and consumer spending is also likely to accelerate from 2.5% year over year in 4Q of 2013 to 3% in 2014.”

“The housing, energy and manufacturing sectors are all doing well,” said Lazar, who has been an Institutional Investor-ranked economist for the past 12 years, and ranked #2 for the past four years.

“Housing is experiencing a recovery that could continue for three to five years, fortified by pent-up demand,” she said. “Housing growth may be a little slower this year, primarily due to the increase in mortgage rates and sharply higher house prices relative to income, and also because lending standards may get a little tighter given all of the rules and regulations coming out of Washington.

“The U.S. is probably the leader in global economic growth, and we’re seeing a decoupling between U.S. economic activity and emerging economies, such as China, India, and Brazil, where growth is slowing significantly. My favorite emerging market is ‘Middle America’, where the renaissance in the energy and manufacturing sectors are giving a big boost to the middle part of the country. We have identified 15 states that are really leading the recovery, including energy states such as Texas, and manufacturing states like Michigan.”

Small businesses, which account for about half of private GDP and employ more than half of the private workforce, are not doing well, said Dr. William C. Dunkelberg, Chief Economist for the 350,000-member National Federation of Independent Business.

“I focus my analysis of the economy by looking at small business, which the SBA defines as companies with fewer than 500 employees – that’s 99% of all employer firms,” Dunkelberg said. “In the recovery, we have seen a bifurcated economy. Big firms are doing well, mostly because they can export and make money overseas, and the stock market reflects that success. By contrast, small firms are doing very poorly.  This produces an average growth of 2%.

“Small business owners remain pessimistic about the future, with more expecting the economy to deteriorate over the next six months than those think business conditions will improve. The NFIB Small Business Optimism Index is still in the doldrums, at 93.9 in December, well below the pre-recession average of 100 and atypical of recoveries in the past, where the Index is well above 100.”

Dunkelberg expects sub-par economic growth, with much of the blame going to Washington.

“A huge source of uncertainty emanates from Washington,” he said. “Two-thirds of small business owners say this is a bad time to expand, and 30% of them blame the political climate. Only 10% think this is a good time to expand, well below average. Obamacare is a big part of that. Taxes and regulations and red tape are top concerns, and the President keeps promoting higher taxes.  Regulations are hitting the Congressional Record at a record pace, and the President is running the economy by fiat.

“Consumers are not happy and if they don't spend, businesses don't hire or order new inventory.  Only 1 in 10 in the Michigan surveys think government is doing a good job, and that’s not an environment that is supportive of a lot of growth.  Employment is still below its 2008 peak. So all in all, I’m expecting growth in the mid-2% range, not much inflation, and not much job creation.”

Perhaps surprisingly, the environment in Washington remains positive for the economy and the market, said Greg Valliere, Chief Political Strategist for the Potomac Research Group and a 30-year observer of Washington politics.

“One of the big surprises I expect later this year is a sharply revised estimate on the budget deficit,” Valliere said. “The deficit is coming down dramatically, and while that is not widely appreciated in Washington it will become apparent later this year. At the same time, I don’t see another big crisis – a debt crisis, a default crisis or a government shutdown. That said, I also don’t see things getting a lot better in terms of getting much legislation passed on tax reform or immigration reform, largely because it’s an election year and partisan passions are even stronger.”

The economy continues to benefit from both monetary and fiscal policies, Valliere noted.

“We have a very accommodative Fed, along with fiscal restraint, which will persist as long as Republicans control the House,” he said. “As far as the elections, Republicans are in some disarray. The Democrats are more united, but the stars are not aligned for them to do well in the fall. The House will stay Republican, partly because of the way the districts are drawn, but also because of public antipathy towards Obamacare. In the Senate, if the Republicans gain six seats, they would regain control, and I think it’s quite likely they will gain at least four or five seats because those races are in states that Romney carried.

“So, the election will result in Congress staying conservative or possibly becoming more conservative. That means more fiscal restraint and flat budgets in the future. If budgets are not growing and revenues are rising, you’re getting closer and closer to a balanced budget. Fiscal restraint has produced the desired results, the deficit is plunging and economy is getting better. However, neither party wants to acknowledge that the economy is improving – the Republicans because that would give Obama credit and the Democrats because they want to spend more money on various programs. The press is partly to blame too, since they focus more on bad news than good.”

CFALA’s annual forecast dinner benefits the California Council on Economic Education, which provides economic and financial literacy education to K–12 teachers and students to help them make better personal and financial decisions, improving students’ ability to succeed and compete in the global economy.

Founded in 1931, CFA Society Los Angeles (CFALA) is a network of investment management professionals that works to disseminate useful financial information and increase awareness of the value of the Chartered Financial Analyst (CFA®) designation, which is intended to lead the investment profession by setting the highest standards of ethics, education, and professional excellence. Additional information is available at

By Steve Fox

Cyber Criminals Steal via Wealth Managers

Our thank you to Cynthia Harrington for providing the initial links for this month's small collection of ethics/fraud awareness-related items. In this first article, the Financial Times' Steve Johnson examines the targeting of wealth managers by WiFi-enabled cyber criminals. Though the incidents Johnson describes all occurred in the UK, they seem to be focused in hotels and airports -- locations familiar to most business travelers.  Read more (registration required)...

Cheaters … Win? Why Systems to Prevent Deception Don’t Work

Knowledge@Wharton reports the main findings of a recently published study which finds that engaging in some unethical behavior can actually feel good, triggering positive affect, or, in less technical terms, a "cheater's high." We've provided a link to the original academic paper for those interested in taking a closer look at the research.   Read more....    And more...

The Case of the Evil Genius

It turns out that Francesca Gino, one of the authors of the "cheater's high" study, is also the author of a highly anticipated paper on the link between cheating and creativity. Psychological Science's Wray Herbert provides a preview of the study and its findings. Read more...

The Rising Cost of Not Going to College

The Pew Research Center recently published a survey-based study focusing on the incremental benefits of a college education.  This research may provide some supplemental insights to those working with student loans.
Read more...   And more...

Economist MOOC Article & Robert Shiller Coursera/Yale Financial Markets Course

MOOCs (Massive Open Online Courses) are continuing to capture media attention as alternatives to traditional higher education. The Economist's Free Exchange column discusses the potentially disruptive effects of MOOCs on the economics of higher education. For those who are interested in participating in a MOOC firsthand, Nobel Laureate Robert Shiller's Coursera/Yale annual undergraduate course on financial markets will be starting on February 17th.

Economist MOOC Article

Yale Financial Markets Course































































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