Everyone keeps saying that advisor fees are on the decline. Hogwash!

In a new quarterly letter to GMO's institutional clients, head of asset allocation Ben Inker reflects on a change in the investment environment in the first quarter, characterized by a rise in volatility and a significant shift in the correlation between stock returns and bond returns ("Is Investing Starting to Get Difficult Again? I Hope So").

First Eagle’s Global Fund (SGENX) is its flagship fund, with over $55 billion in assets. As of April 30, 2018, since inception (1/1/79), the Fund has returned 13.15% annually, versus 9.67% for the MSCI World Index. Over the last 15 years, it has been in the top 2% of its peer group. I spoke with its managers, Matthew B. McLennan and Kimball Brooker, Jr., on May 1.

Investors often say they’re worried about having too much high-yield bond exposure so late in the credit cycle. But many are still chasing returns in equities and other assets with even higher risk. We’ve got a better idea.

I’ve been saying for some time that the next financial crisis will bring a major debt crisis. But as you’ll see today, it is a small part, maybe the opening event, of a rapidly-approaching train wreck. We’ll need several weeks to tease out all the causes and consequences, so this letter will be the first in a series.

This week I had the opportunity to sit down with Marco Streng, the wunderkind bitcoin visionary behind Genesis Mining. Genesis, as many of you reading this might know, is the world’s largest cloud bitcoin mining company, with over 2 million customers worldwide. It calls Iceland home, whose cool climate and affordable green energy are ideal for mining newly minted virgin cryptocurrencies. Last year, Genesis helped connect the blockchain sector and traditional capital markets by partnering with HIVE Blockchain Technologies, the first publicly traded digital currency mining firm.

The overall profile of market conditions continues to feature: 1) hypervaluation on the measures we find best-correlated with actual subsequent S&P 500 total returns, coupled with 2) continued deterioration in our measures of market internals, which are the most reliable tools we’ve found to gauge the psychological inclination of investors toward speculation or risk-aversion.

When the Fed instituted ZIRP, investors were overenthusiastic to invest in the next great Unicorn. Now that rates are rising and money is no longer free, investors are beginning to realize that rational investing and positive cash flows trump hype and speculation.

New developments in fiscal policy, the labor market, and the neutral interest rate suggest that the expansion could extend into the latter half of our recession range.

The U.S. bond market is one of the largest in the world, with managers controlling more than $2 trillion in assets. Given its size, an important question is identifying active bond fund managers that add value.

Fear that the multi-decade bull market in bonds will end has centered on the benchmark 10-year Treasury yield breaching 3%. But Jeffrey Gundlach said that is the wrong focus.

With volatility rising, many equity investors are thinking proactively about downside protection. But traditional safe havens may not do the job. Defensive equity positions can be found today in surprising places—like the energy sector.

The economic calendar is normal, with an emphasis on inflation data. The week will begin with analysis of the annual Berkshire Hathaway meeting, the wisdom of Buffett and Munger, and a multi-hour CNBC program including Warren Buffett, Charlie Munger, and Bill Gates.

The traditional 60/40 model no longer can be expected to deliver the same type of results. A new model is for investors to move toward more of a risk-parity portfolio, with assets more equally divided among stocks, bonds and these new alternatives.

Christopher Mack is a co-manager of the Harding Loevner Global Equity Fund (HLMGX). Over the 15-year period ending 4/20/18, its annual return has been 10.46%, outperforming its benchmark by 160 basis points. Over that 15-year period, it ranks in the 15th percentile of its Morningstar peer group. I interviewed Chris last week.

Equity volatility, the prospect of rising interest rates and an uptick in issuance may bode well for the asset class.

This morning's employment report for April showed a 164K increase in total nonfarm payrolls, which was worse than forecasts. The unemployment rate dropped to 3.9%. The Investing.com consensus was for 189K new jobs and the unemployment rate to drop to 4.0%.

Spring is taking its sweet time arriving on the East Coast of the US – much of April was cold and wet. There were several “head fakes” – days when the temperatures rose and the rains dried up. But just when it seemed safe to put away the winter coat, another cold front would blow through and the cycle would start again.

The economic calendar is huge, including the most important monthly data and plenty of earnings reports. With a Fed meeting on the calendar and Tuesday’s decline attributed to the ten-year note touching 3%, the punditry will be asking: Will economic data drive interest rates higher?

Commodity prices have picked up steam recently, particularly in energy and metals. How long could the surge last?

Spikes in volatility levels can impact returns on a fund’s portfolio. The relatively low leverage point (1.25X) for Portfolio+ ETFs provide less impact of negative compounding over time for long-term investors.

We believe The New Neutral of lower-for-longer equilibrium policy rates remains a valid anchor over the medium term. The key drivers of low equilibrium rates – including demographic trends and the high level of leverage in the global economy – have not substantially changed since the financial crisis.

As the Federal Reserve (Fed) tightens monetary policy further, we expect to see default rates higher next year. Loan recovery rates averaged 70 percent between 1990 and 2017 as a result of their secured status and seniority in the capital structure. Senior secured bond recovery rates averaged 58 percent over the same period, while senior unsecured bond recovery rates averaged 43 percent. We are concerned about distressed exchanges as the risk of re-default is high. About 7 percent of high-yield corporate bond issuers have defaulted in the past.

While novice investors typically stumble onto the concept of trend following in the context of stock-market timing, professionals know that trend following is not about using trends to time one or two individual markets. Modern professional trend followers often trade dozens of futures markets across equities, bonds, currencies, commodities and more obscure markets like carbon offsets.

I’m bullish, but I don’t expect bitcoin to test $20,000 again in the short term, especially before July. That’s when G20 finance ministers are scheduled to present their recommendations on how cryptocurrencies should be regulated.

The accompanying chart is a way to visualize real GDP change since 2007. It uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics.

As his 60-year tenure attests, Dan Fuss is one of the most respected bond investors. In my interview with Fuss last week, he explained why it would take either a geopolitical crisis or an economic collapse to drive rates lower. Fuss also said investors should exercise caution in bond ETF markets that are exposed to liquidity shocks.

In their second-quarter (Q2) 2018 outlook, K2 Advisors’ Research and Portfolio Construction teams share their views on why investors should not fear the return of market volatility—and why it may unlock opportunities for active managers. We believe offering these insights will help investors better understand the rationale for owning retail mutual funds that invest in hedge strategies.

With sky-high valuations in the US stock market, and what we believe is a tech bubble that has dangerous implications for other areas of the market, we suggest four actions investors can take now to avoid the inevitable bursting of the bubble, and which will likely benefit their portfolios’ long-term performance potential.

The yield curve has flattened significantly recently and has elicited headlines of impending doom, heightened recession risk and investor consternation…is the worry overdone?