In the meantime, however, the Schwab asset-gathering machine just hums along, bringing in billions every month. So you have a company that is growing, but you're not seeing the revenues drop to the bottom line because of the interest rate environment. It's our belief that 0% rates won't last forever, and when there are signs that they may increase, the stock should do very well, as investors look ahead to the spike in earnings.
What stocks or sector would your sell or avoid right now?
: We would avoid the defensive sectors, such as staples and utilities. Investors are frustrated with low bond yields, so they're seeking income by venturing into high-yielding areas of the stock market, which has pushed relative valuations to high levels. The general concern about the macro picture and the memory of the 2008 financial crisis are also contributing to the skewed valuations in these sectors.
What is your outlook for 2013?
: Everyone is focused on the fiscal cliff, but generally when everyone is focused on something for this long, its impact is less than what was feared. That could be the case again this time. We expect housing and employment to continue to improve, but it will be important to watch inflation given the global easing cycle.
Written by Gregg Greenberg in New York