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Schwab's Deep Impact

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If you want sound bites, Schwab Impact 2011 in San Francisco had them. Chuck Schwab called Fed Chairman Ben Bernanke’s take on the economy “BS” and implied President Obama lacked the necessary strength to turn the ailing economy.

PIMCO head Bill Gross stuck to his usual no-nonsense style, saying that “for 20 years we’ve been making paper rather than things, and in the process we created a number of liabilities. We’ve been like bad squirrels, not putting enough away.”

Former U.K. Prime Minister Tony Blair lectured attendees on our geopolitical and economic situation, calling it unproductive to focus on who caused the financial crisis and how to prevent a recurrence.

“These are not dominant issues,” Blair said. “The key is how to get the economy moving and create jobs. All else should be subordinated to that.”

But aside from the headlines, advisor attendees of the conference, held Nov. 1 through Nov. 4, went deeper (pun intended), with educational offerings that included sessions on ETFs, alternative investments, retirement income, practice management and more.

Exhibiting firms also took advantage of the media attention surrounding the conference to make announcements of their own. Altegris Advisors, the alternative private fund and mutual fund shop, chose the show to announce the launch of the Altegris Futures Evolution Strategy Fund (EVOAX). The fund is a ‘40 Act mutual fund that combines the investing expertise of Jeffrey Gundlach’s DoubleLine Capital in fixed income with a managed futures strategy led by London-based Winton Capital Management.

Impact Awards

Not forgetting to include advisors in the program, Schwab executives presented “Impact Awards” to three advisor firms and their leaders on the third day of the conference. The company also donated $45,000 to charity on behalf of the recognized advisors.

“This year’s Impact Award winners raise the bar for excellence in client service and exemplary business practices for the independent RIA industry,” said Bernie Clark, executive vice president and head of Schwab Advisor Services, at the event. “We commend them for their dedication to investors, the industry and their communities, and we thank them for providing a learning opportunity for other advisors by sharing their best practices and achievements.”

Richard Stone, CEO of San Rafael, Calif.-based Private Ocean received the Leadership Award for his role in helping the International Association of Financial Planners draft a code of ethics for the industry. Walt Bettinger, CEO and president of Schwab, joined Clark to hand out the award. Stone’s firm has $700 million in assets under management.

Schwab presented its Best in Business Award to Budros, Ruhlin & Roe of Columbus, Ohio, for its excellence in business management. The firm, founded by Jim Budros and Peggy Ruhlin and dedicated to the concept of fee-only financial advisory work, manages more than $1.5 billion in assets.

Lastly, Schwab presented its Pacesetter Award to Green Square Capital of Memphis, Tenn., which manages more than $1 billion. The team grew 30% last year and has instituted a policy of “client delight.”

Gross Out

In the conference’s opening session, both Bill Gross and LizAnn Sonders, Charles Schwab’s chief investment strategist, spoke bluntly about the global markets and the economy, with Sonders a bit more optimistic than Gross.

Gross, who in his latest monthly commentary lamented the shortfalls of policymakers in both Europe and the United States as failing to encourage growth and said that more debt was not the way to get us out of our current debt mess, handled the first question from moderator Tyler Mathisen of CNBC.

Mathisen wondered whether, as an investor, he should be worried that “my money seems hostage to a Greek prime minister?”

“You should be very worried,” Gross responded, in reference to Greek Prime Minister George Papandreou’s suggestion that the latest eurozone bailout plan should be put to a referendum by Greek voters. “At this point,” Gross continued, “it’s a question of when rather than if Greece will default.”

When Mathisen followed up by asking if Greece will remain in the eurozone, Gross argued that “they would do better to drop out and then come back.”

Ever the blunt speaker, Gross then said that “Iceland is the only country that did it right; they basically told the banks to stuff it.” He suggested that if Greece doesn’t accept its bailout medicine, “it will be in trouble for the next 10–15 years.”

Talk to Chuck

In an interview led by CNBC anchor Maria Bartiromo from the keynote stage before roughly 2,100 advisors and other guests, the founder and chairman of the investment company that bears his name reiterated his critical views of both Federal Reserve Chief Ben Bernanke and President Barack Obama’s economic leadership.

Schwab echoed some themes he raised in an opinion piece in The Wall Street Journal in late September. He views significant change in Washington as critical to a turnaround in the U.S. economy.

On Nov. 2, Bernanke expressed support for the Federal Reserve’s Operation Twist program, which, as part of its overall accommodative policies, will keep the target range for the Fed funds rate at zero to 0.25%.

“What Bernanke is saying is a bit of BS,” Schwab said in response. “The U.S. does not have full control of prices and inflation, which can come from China or could be from oil or another commodity on which we are interdependent as a country.”

“I should say that I am generally more positive than what I see on CNBC,” added Schwab. “From a 39,000-foot view, the economy doesn’t look so bad. We have 139 million or 90% of the workforce employed, liquidity is incredible, we’ve deleveraged the economy … many things are highly positive.”

As for Republican leadership, the party has to have “someone electable,” Schwab said, noting that he sees Dodd-Frank as a “disaster.”

In terms of the Wall Street and other protests over economic inequality, he wants free-market mechanisms to lead the way: “Let’s reward success and not suppress it, and yes, we need tax reforms,” Schwab shared. “To level the playing field, we have to have a robust economic expansion. There’s no other solution. Occupy Wall Street doesn’t get how free enterprise works.”

Tony’s Take

Despite its challenges, Tony Blair was upbeat on the prospects of U.S. economic and political leadership moving forward.

Blair said on the morning of the second day of the conference that the resolution of today’s global economic and financial challenges could get derailed by short-term political thinking, though he remains optimistic that leaders can address long-term issues.

“The best short-term politics do not make the best long-term policy,” said Blair, who was prime minister from 1997 to 2007. “Right now is a moment of big decisions and key decision makers. And there is a danger that short-term politics get in the way of the best long-term policies.”

He described the challenges and changes affecting the world as similar to those affecting the financial services industry. “The speed, scope and scale of change and the challenges themselves are immense. Challenges come together, though—when I was in office—I had hoped they would be sequential,” Blair explained. “And if you think the [financial] markets are tough, try the Middle East,” he added.

Speaking of foreign affairs, Blair acknowledged that there was some “wariness with our continued engagement overseas” in the minds of the American and British public. He urged those in the West and elsewhere to look at the security threats from terrorism as the direct result of extremism. “This is not a conventional battle, and we are unlikely to see a clash of the conventional kind between any of the larger powers,” Blair said.

To defeat the extremist ideology, “You have to win not just with arms, but with ideas,” Blair said, pointing to the continued spread of instability to countries like Kenya and Nigeria.

A Tiger Hug

The show closed with a presentation from Joshua Cooper Ramo of Kissinger Associates. Ramo told the assembled advisors and other guests that in order to meet the challenges of the 21st Century, they need to come to grips with the abundance of shifts happening globally—especially in China.

“The rise of China is one of the most important changes of our lifetime, and the outcome remains uncertain,” said Ramo, author of “The Age of the Unthinkable.” “For the U.S., it involves the challenge of ideas, economics and values and also the opportunity for cooperation,” he said.

The Chinese, explained Ramo, see the major U.S. events of Sept. 11, 2001, and Sept. 14, 2008 (when Lehman Brothers went under) as related. “They are markers of big, powerful events,” he said. Like the Arab Spring, the Chinese work to stay abreast and to understand the connections between events that cause organizations to change or collapse under new and different pressures.

“How do the Chinese look at this? It’s the nature of the age. Looked at from their worldview, they are looking for instability. This is one of the fundamental cultural differences between the United States and China,” Ramo explained.

Ramo described “the unthinkable” as trends such as the loss of U.S. jobs and the increase in Chinese ownership of U.S. debt.


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