More on Related Themes
2013-11-25 Solving the Income Puzzle by Christopher Remington, Michael Cirami, Kathleen Gaffney, Scott Page of Eaton Vance
Income needs may be as high as they’ve ever been, while the yield potential from many traditional investment classes has dwindled to generational lows. Investors who remain in high-priced, low-yielding core bond strategies could experience loss of principal (and mounting retirement shortfalls) if interest rates revert toward their mean. We advocate creating an integrated, multi-pronged income plan that may offer yield potential that meets investor needs, while managing key risks found in the typical core fixed-income allocation.
2013-11-18 The Muddle-Through Economy and Grind-Higher Equity Market Continue by Bob Doll of Nuveen Asset Management
U.S. equities finished higher last week as the S&P 500 and Dow Jones Industrial Average closed at record highs, marking the sixth straight week of advances.1 Several macroeconomic themes are important as third quarter earnings season comes to an end. Fed Chairman nominee Janet Yellen spoke before the Senate in support of current monetary policy and suggested a similar path under her leadership. Economic data was mixed for the week, and any economic weakness continues to be perceived as supporting a delay in tapering. In turn, this can be seen as positive for equities.
2013-11-18 Are You Managing Volatility or Is It Managing You? by Timothy Atwill, Richard Bernstein, Eric Stein, Bradford Godfrey, Chris Sunderland of Eaton Vance
Market volatility has caused investors to make emotional decisions, resulting in performance that may have hindered their ability to reach investment goals. Eaton Vance believes that sound investment strategy should provide investors with tools for managing volatility, so the market’s inevitable fluctuations may work on their behalf. We discuss four approaches to managing volatility: reducing, navigating, harnessing and monetizing.
2013-11-15 DC Plan Design for the Bumpy Road Ahead by Mohamed El Erian of PIMCO
In late October, PIMCO’s CEO and Co-CIO Mohamed A. El-Erian presented the keynote speech at Pensions & Investments’ West Coast Defined Contribution Conference. He also spoke with P&I about top-of-mind concerns for retirement plan providers and sponsors. The Q&A below is based on that conversation.
2013-11-07 Absolute Return Letter: Euthanasia of the economy? by Niels Jensen, Nick Rees, Tricia Ward of Absolute Return Partners
QE has had two noticeable and positive effects. It has saved the world from a financial meltdown not once, but twice, and it has had an overwhelmingly positive impact on asset prices, so in that respect QE has been a success. However, there are growing signs that QE may be beginning to impair economic growth and it may even cause dis-inflation, precisely the opposite of what was widely expected. For these reasons we believe it is time to call it quits and begin to tackle the root problem a banking industry still suffocating from bad loans.
2013-10-25 The Deserted Island Portfolio by John West of Research Affiliates
What would a Deserted Island investment portfolio look like, managed without the distractions of cable news and short-term benchmark comparisons?
2013-10-22 Venerated Voices™ by Various (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, has announced its Venerated Voices™ awards for articles published in Q3 2013.
2013-10-17 Huey Lewis and the News! by Jeffrey Saut of Raymond James
Thirty years ago Huey Lewis and the News released their smash hit album titled Sports. It was an instant hit with every song on the album a winner. And last week Huey was playing on the Street of Dreams as participants danced to his hit tune “This Is It.” Of course, the “It” in question is a potential deal between the House of Representatives and the President on the debt ceiling and the government shutdown.
2013-10-15 Bond Market Review & Outlook by Thomas Fahey of Loomis Sayles
Flip-flopping Federal Reserve (Fed) policy defined the third quarter. Last quarter, the Fed threw the markets a curve ball by announcing possible tapering of its large-scale asset purchases beginning this year. That “taper talk” set off a mini-riot in global bond markets. Many emerging market (EM) countries, like Brazil, India, Indonesia and South Africa, were the biggest victims, as their bond yields rose and their currencies crashed.
2013-10-08 Absolute Return Letter: Heads or tails? by Niels Jensen, Nick Rees, Tricia Ward of Absolute Return Partners
Demographics captivate me. There are around 7.1 billion of us occupying planet earth today, going to 10 billion by 2050. I often think about how good old mother earth will cope with the additional 3 billion people we are projected to produce between now and 2050. More people translate into increased pressure on already scarce resources, but that is only part of the story and a story well covered by now.
2013-09-20 U.S. Commercial Real Estate: Will the Good Times Last? by Devin Chen of PIMCO
The CRE market has experienced a gradual recovery in asset pricing since the 2008 financial crisis. Despite the duration of the recovery, there continues to be dislocation in the CRE market that astute investors can capitalize on. We believe certain properties in non-major markets look attractive for acquisition, and have been acquiring residential land on an opportunistic basis.
2013-09-14 Nothing But Bad Choices by John Mauldin of Mauldin Economics
Crises in government funding don’t simply arrive on the doorstep unannounced. Their progress toward the eventual Bang! moment is there for all the world to see. The root cause is almost always the same: debt. And whether that debt is actually borrowed or is merely promised to the populace, when the market becomes worried that the ability of the government to fund its promises is suspect, then the end is near. Last week we began a series on what I think is an impending crisis in the unfunded pension liabilities of state and local governments in the United States.
2013-09-12 Brave New World by Christine Hurtsellers, Matt Toms of ING Investment Management
If the monotony of high school lulled you into a catatonic state the semester you were supposed to read Brave New World, here’s the CliffsNotes summary of what you missed. Aldous Huxley imagined a futuristic utopia in which the government promotes economic and emotional stability through the plentiful use of a soporific opiate called “soma”. Soma allows the mind to take a holiday from worldly problems via a gram, or two or three. Imagine the chaos into which this fictional world would descend were the government to abandon its role as pharmacist to the masses.
2013-09-11 Absolute Return Letter: A Case of Broken BRICS? by Niels Jensen, Nick Rees, Tricia Ward of Absolute Return Partners
EM currencies, stocks and bonds have struggled since the Fed signalled its intent to change course in late May. This has seemingly triggered an exodus of speculative capital from emerging markets but, as is always the case, there is more to the story than that. EM countries (ex. China) no longer run a current account surplus with the rest of the world, and this hurts global liquidity. It is not yet a re-run of the 1997-98 Asian crisis, but it has the potential to become one with all sorts of consequences for bond yields in developed markets, currency wars, etc.
2013-09-10 Taper Vs. No Taper - Let\'s Meet Somewhere In The Middle by John Rothe of Riverbend Investment Management
Volatility in the US equity and bond markets has risen since Ben Bernanke and the rest of the Federal Reserve Board mentioned the possibility of tapering its bond purchase program - in other words, a potential end to the "free ride" the Fed has been giving investors. However, economic data is still weak and a reduction in economic stimulus by the Fed may harm the US economy.
2013-09-04 Fixed Income - Where to Now? by Chris Maxey, Ryan Davis of Fortigent
Since the end of the Global Financial Crisis (GFC), investors moved aggressively into fixed income asset classes. They were quickly rewarded in the years following the crisis with a combination of falling interest rates and tighter credit spreads, which led to positive absolute returns. The easy money in fixed income is gone, however, and now is the time for careful asset class selection.
2013-08-15 To Manage Rising Rates, Consider Benching Your Benchmark by Douglas Peebles, Michael Mon of AllianceBernstein
As we enter a period of rising rates, many bond investors are growing more aware of the risks of benchmark-oriented bond portfolios. It may be time to sit the benchmark down and consider more flexible, unconstrained approaches to fixed income.
2013-08-14 How to Invest in Emerging Markets 3.0 by Sammy Suzuki of AllianceBernstein
It’s been 25 years since the emerging-market equities index was created, and much has changed. Today, we believe that emerging markets are on the cusp of a third phase that might compel investors to shift away from benchmarks and focus on absolute risk.
2013-08-08 Bond Wars by William Gross of PIMCO
Adaptation is tantamount to survival in the physical world. So argued Darwin, at least, and I am not one to argue with most science and its interpretation of natural laws. Adaptation has been critical as well for the survival of countries during wartime, incidents of which I am drawn to like a bear to honey, especially when they concern WWI. Stick with me for a few paragraphs on this the following is not likely to be boring and almost certainly should be instructive.
2013-08-01 Alternatives for Today's and Tomorrow's Market Challenges by Jennifer Bridwell, Sabrina Callin of PIMCO
Investors should consider alternative investment strategies, which could enhance diversification and the potential for alpha, or risk-adjusted returns, because returns from traditional asset classes in coming years may be lower and more volatile than those realized historically.
2013-07-31 Financial Markets Review and Outlook Second Quarter 2013 by Team of Managers Investment Group
The dominant story during the quarter was the reaction of investors to the Federal Reserve’s (the Fed) hints of “tapering” the third round of their quantitative easing program. Such talk spooked both equity and fixed income markets in the U.S. and abroad, causing correlations across asset classes to move closer to one during the last half of the second quarter.
2013-07-26 Attention 3-D Shoppers by John West of Research Affiliates
Why do retail shoppers love a sale while capital markets flee from falling prices? Investors should consider starting to fill their shopping carts while inflation hedges are cheap....
2013-07-23 Dear Bernanke - You Can\'t Have Your Cake And Eat It Too by John Rothe of Riverbend Investment Management
The U.S. stock market continues its euphoric rise into record territory despite continuing weakness in economic data. Recent comments from Federal Reserve Board Chair, Ben Bernanke, indicating that the Fed does not have a predetermined plan to stop its stimulus plan has investors increasing their allocations to equities.
2013-07-16 Venerated Voices™ Awards for the Second Quarter of 2013 by Advisor Perspectives (Article)
We announce our Venerated Voices awards for commentaries published in Q2 2013. Rankings were issued in three categories: The Top 25 Venerated Voices by Firm, The Top 25 Venerated Voices by Author and The Top 10 Venerated Voices by Commentary.
2013-07-08 Absolute Return Letter: Much Ado about Nothing by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
A 300 bps rise in bond yields across the term structure would, according to their calculations, do substantial damage to financial institutions’ balance sheets. Holders of U.S. Treasuries alone would lose in excess of $1 trillion on such a move in rates, equal to 8% of U.S. GDP. Other countries would fare even worse. Losses on JGBs would equal 35% of the Japanese GDP, effectively wiping out its banking industry in the process. Holders of U.K. bonds wouldn’t do much better, losing the equivalent of 25% of U.K. GDP.
2013-07-01 \"This Country is Different\" by John Mauldin of Millennium Wave Advisors
Cyprus is a very small country, some 800,000 people. Among the leadership, everyone knows everyone. There is much to admire, as we will see. But Cyprus has had a gut-wrenching crisis, proportionately more dire than any in other European countries recently; and precedents are being established here for how future problems will be dealt with in the Eurozone and elsewhere.
2013-06-26 The Fed\'s Dirty Little Secret: QE Does Not Work by Gary Halbert of Halbert Wealth Management
Today I hope to dispel the myth that the Fed’s massive quantitative easing (QE) policy has driven long-term interest rates lower. I will argue that the opposite is true and demonstrate that the yield on the 10-year Treasury note has actually risen during QE-1, QE-2 and QE-3. This flies in the face of most market commentators.
2013-06-19 Efficient Pension Investing by Jared Gross of PIMCO
Adapting the Sharpe ratio to pension portfolios can help plan sponsors choose among a multitude of investment options designed to achieve the same goal. In our experience, the most significant efficiency gains have come from shifting from intermediate bonds to long-term bonds and introducing lower-volatility substitutes to equities.
2013-06-18 Unconstrained Bond Funds Fail to Deliver by Chris Maxey, Ryan Davis of Fortigent
There have been an incessant number of articles in the past year addressing a “Great Rotation” by investors the seismic shift in asset allocation predicted to result from a transition to a rising rate environment. Individual investors “spoiled” by a 30-year secular decline in interest rates, it is thought, will run to new alternatives in the face of this structural headwind for a significant chunk of their portfolios.
2013-06-12 What the NHL Playoffs Can Teach Investors by Jeff Knight of Columbia Management
The National Hockey League playoffs are marvelous to watch. The league’s best teams play their best hockey with every game more meaningful than those played during the regular season. Playoff games feel much more strategic, and one key aspect of playoff strategy is the importance of playing with the lead. In fact, of the 53 playoff games this season that went to the third period with one team ahead, 43 of those, or 81%, finished in favor of the team that was winning after two periods*. NHL playoff teams know how to protect a lead once they have it.
2013-06-12 Bond Realities: The Changing Landscape for Fixed Income and the Death of the Agg' by Andrew Johnson of Neuberger Berman
Earlier this year Andrew A. Johnson, Neuberger Berman’s Chief Investment Officer for Investment Grade Fixed Income, led a series of discussions with institutional clients about the state of the fixed income market and key ideas in approaching opportunistic fixed income investing in the current environment. Here, Mr. Johnson has adapted, and elaborated on, the concepts described at those meetings.
2013-06-10 Emerging Market Opportunities by Patrick OShaughnessy, Ashvin Viswanathan of OShaughnessy Asset Management
Emerging market equities present both unique opportunities and also unique risks. Unlike more mature economies, emerging markets’ economies have the potential for impressive growth rates. But emerging markets also have the potential for damaging socio-economic and political instability. Equity returns in these countries are often impressive, but to earn these returns investors must deal with considerably higher volatility than in the developed equity markets.
2013-06-06 The Wisdom of Crowds by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
Are markets efficient? This is a debate that has been on-going for decades. In one corner you have the proponents of the Efficient Markets Hypothesis. In their world alpha does not exist, or at the very least it is not sustainable. In the other corner you have the supporters of behavioural finance who see investors as being mostly irrational and suffering from all sorts of behavioural biases which create alpha opportunities galore. Out of this long lasting stand-off a new paradigm is emerging called the Adaptive Markets Hypothesis which aims to reconcile the two.
2013-05-31 In an Era of Uncertainty and Lower Returns, It\'s Time for Alternatives by Sabrina Callin, John Cavalieri of PIMCO
The initial economic and capital market conditions of the 1980s set the stage for a multi-decade bull market for stocks and bonds. Times have changed, however, and traditional investment portfolios are unlikely to deliver returns as healthy as those enjoyed for much of the last 30 years. It’s time to think alternatively about asset allocation and index construction, sources of alpha and beta, and risk and return objectives to increase the probability of success in what we believe is a new era for investors and financial markets.
2013-05-28 Europe's Crossroads: The End of the Muddle Through? by Andrew Balls of PIMCO
The eurozone may be nearing a critical junction, owing to its weak growth, weak institutions, debt dynamics and domestic and cross-border political challenges. The German government may take a more active leadership role after its national election, but it is more likely it will continue with piecemeal measures. Considering the current low yield environment and ample central bank liquidity, it is important to focus on absolute yield levels and returns, and consider global alternatives such as emerging market securities and currency exposure.
2013-05-08 Absolute Return Letter: In the Long Run We Are All in Trouble by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
In the long run we are all dead, said Keynes. Maybe so, but we could be in trouble long before then. Investors appear preoccupied with central bank policy. We argue that investors are quite right in keeping their eye on the ball but, to us, it looks as if they are focusing on the wrong ball. The real worries for the long term are demographics and negative real interest rates and the effect these factors may have on equity returns.
2013-05-01 Looking at Leverage Outside the Box by Team of Franklin Templeton Investments
Yield-seeking investors have been boxed in by the near-zero US rate environment, and it seems like there are few ways out. But for those willing to set aside preconceived ideas about the word “leverage,” the lesser-known leveraged loans category may be an alternative to consider in the credit space. Mark Boyadjian, senior vice president and director of our Franklin Floating Rate Debt Group, spoke to us recently about what these often-misunderstood vehicles are and what yield-seeking investors need to know before they take the plunge.
2013-04-30 The Best Solution for Protecting Retirement Portfolios: Put and Call Options versus GLWBs by Joe Tomlinson (Article)
Retirees cannot be exposed to severe – or even modest – market losses. They need to protect their savings in a cost-effective manner. I will compare the projected outcomes for two types of strategies: options, which can reduce volatility, and products that guarantee lifetime income, such as variable annuities with guaranteed lifetime withdrawal benefits.
2013-04-23 Venerated Voices™ Q1 2013 by Advisor Perspectives (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, has published its Venerated Voices awards for articles published in Q1 2013.
2013-04-18 The Lure of Hedge Funds by John West of Research Affiliates
Investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. We see this today where we witness the continued explosive growth of hedge funds. But, a careful examination of the data reveals that these fancy lures fail to hook as much in excess, after-fee returns as more time tested strategies.
2013-04-10 Time to Flee Equities for Bonds...and Japan? by John Rothe of Riverbend Investment Management
Last week’s string of bad economic data may finally be the tipping point we have been waiting for. For the past few weeks, I have become more and more bearish on the US economy and stock market. Payroll tax hikes, sequestration, and slowing global growth mixed with a euphoria for a rising stock market have pushed the markets into a high risk environment.
2013-04-10 The Road To Omaha: Being a Business Owner by Bill Smead of Smead Capital Management
In this five-part series leading up to the Berkshire Hathaway Annual Meeting, we discuss the keys to Warren Buffett’s investment success. We believe these keys are available to all of us and are a part of the discipline of stock-picking at Smead Capital Management.
2013-04-04 Absolute Return Letter: The Need for Wholesale Change by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
The seeds of the next crisis have probably already been sown as a consequence of the lax monetary policy currently being pursued. Frustrated with the lack of direction from political leaders, most recently witnessed in the handling of the crisis in Cyprus which was a complete farce, central bankers from around the world are likely to demand change, but politicians will have to be pushed into a corner before they will respond to any such pressure. Hence nothing decisive will happen before the next major crisis erupts.
2013-04-03 First Quarter Recap by Bob Doll of Nuveen Asset Management
This past month marked the fourth anniversary of the global equity market bottom on March 9, 2009. U.S. stocks have clawed back all of the losses from the Great Recession and are near historical highs. Most other major markets are still well below their 2007 peaks, but have rebounded sharply since last June and look increasingly resilient. However, there is tremendous anxiety about the economic outlook, and many investors fear equities and other risk assets are floating on a sea of liquidity rather than solid fundamentals. We are more constructive and maintain a pro-growth investment stance.
2013-04-02 Chuck Royce on 1Q 2013: Conditions Remain Favorable for Equities by Team of The Royce Funds
In stark contrast to what we saw in 2010, 2011, and most of the first half of 2012, the market tuned out a lot of seemingly ominous political news and enjoyed a strong first quarter.
2013-03-20 Investors Need to Pivot by William Benz of PIMCO
Fixed income investors need to think differently in the current environment. Investors may want to consider pivoting to strategies that are less focused on traditional benchmarks and more oriented to generating income and providing greater flexibility to hedge against rising rates, widening credit spreads or higher inflation.
2013-03-19 The Outlook for Equities by Howard Marks of Oaktree Capital Management
It doesn’t take much to get me started on a memo. In this case one sentence was enough, in an article from the February 4 online edition of Pensions & Investments, as described by FierceFinance on February 28: “The long-term equity risk premium is typically between 4.5% and 5%.”
2013-03-05 Absolute Return Letter: Expect the Unexpected by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
With real interest rates being negative in many countries we expect low returns on both equities and bonds going forward. Many investors have responded to that by allocating more and more of their assets to passive strategies such as ETFs. We believe it is the wrong approach for this type of environment.
2013-02-22 Uncovering 'Diamonds in the Rough' in Today's Credit Markets by Mark Kiesel of PIMCO
There are still good opportunities for yield and total return in the credit markets, but there has been a shift in where and how investors can find them. A "diamond in the rough" is a credit that is under-covered, or not actively followed or researched by many investors. At PIMCO, we identify these opportunities through our top-down and bottom-up investment process. We've identified a number of sectors that appear poised for above-average growth.
2013-02-19 A Technical Look At The Current Market by John Rothe of Riverbend Investment Management
The S&P 500 Index has been rising consistently this year, leading many to wonder if this is the start of a new long-term bull market. Volatility has been low and market commentary from the financial media continues to be positive. Everything looks great right? Unfortunately, when we dig deeper into the underlying components of the market, we are actually in a high risk environment that may potentially harm investors who are too bullish.
2013-02-13 It's Time To Take Advantage Of Rising Energy Prices by John Rothe of Riverbend Investment Management
Oil prices have been on the rise again as we enter a period of the year that is historically strong for the energy sector. While markets continue to be a bit overbought, investors should not yet panic at rising oil prices. Since last summer, oil prices and the market have been closely correlated. What had been viewed by consumers as a "tax" in the past, is now viewed as a sign of increasing demand for gas due to economic expansion.
2013-02-05 Comparing Advisors to Jim Cramer: Measuring your Professional Alpha by Bob Veres (Article)
Jim Cramer, Suze Orman and other so-called investment pundits and gurus are constantly telling consumers that they can do a great job of managing their portfolios on their own. Let's look at what the research has to say about the various investment performance benefits that advisors should be able to give their clients during the accumulation phase of their lives – excess returns above what do-it-yourself investors could obtain on their own. I call those excess returns 'professional alpha.'
2013-02-05 Currency War or Something Altogether Different? by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
"Who is afraid of currency wars?" asks Gavyn Davies in the FT. I have known Gavyn for 25 years and have to confess that he is way out of my league intellectually. He is one of the smartest people I have ever met and, thankfully, also one of the humblest. He rarely gets things wrong so, when I occasionally disagree with him, it always makes me slightly uneasy.
2013-02-05 Ditto by Howard Marks of Oaktree Capital Management
Anyone who reads my memos of the last 23 years will see I return often to a few topics. This is due to the frequency with which themes tend to recur in the investment world. Humans often fail to learn. They forget the lessons of history, repeat patterns of behavior and make the same mistakes. As a result, certain themes arise over and over. Mark Twain had it right: "History doesn't repeat itself, but it does rhyme." The details of the events may vary greatly from occurrence to occurrence, but the themes giving rise to the events tend not to change.
2013-01-22 Venerated Voices by Ranks Economic and Market Commentaries Most Read by Financial Advisors (Article)
Here are the winners of our 2012 Venerated Voices awards: the top commentaries, authors and firms for the past year, based on readership.
2013-01-22 Invesco Fixed Income 2013 Outlook by Greg McGreevey of Invesco
While the Great Financial Crisis of 2008 is long behind us, the ensuing consequence of ongoing systemic deleveraging remains a dominant force in global financial markets. Central banks continue to respond with monetary stimulus to support regional economies and counterbalance the impact of deleveraging relative to growth and asset valuations. Such activity was especially evident in the eurozone and the US throughout the entirety of 2012.
2013-01-15 Forecast 2013: Unsustainability and Transition by John Mauldin of Millennium Wave Advisors
As we begin a new year, we again indulge ourselves in the annual rite of forecasting the year ahead. This year I want to look out a little further than just one year in order to think about the changes that are soon going to be forced on the developed world. We are all going to have to make a very agile adaptation to a new economic environment (and it is one that I will welcome). The transition will offer both crisis and loss for those mired in the current system, which must evolve or perish, and opportunity for those who can see the necessity for change and take advantage of the evolution.
2013-01-07 An Unconstrained Approach to Bond Market Investing by Sabrina Callin, Lisa Kim of PIMCO
Investors are increasingly focused on alternatives to traditional investment strategies. Unconstrained bond portfolio construction should be driven by an outcome-oriented goal, with strategies assessed on an individual risk/reward and correlation basis, and each investment in the portfolio evaluated rigorously for the expected risk and return as well as the potential impact of the correlation to other investments in the portfolio.
2012-12-04 In Search of the Holy Grail by Niels Clemen Jensen of Absolute Return Partners
This month's letter focuses on the short to medium term factors that drive our asset allocation and portfolio construction. All research suggests that financial markets are not driven by economic fundamentals in the short to medium term, so why should the investment process be?
2012-11-20 President Obama’s Re-Election and the Impact on the U.S. Economy by Eaton Vance Distributors, Inc. (Article)
President Obama’s re-election resolves a major element of uncertainty that has hung over the political landscape. But what kind of impact will his victory have on the economy and the markets, especially with the House still in Republican control? We posed that question to a roundtable of five investment professionals from Eaton Vance Management, Hexavest and Richard Bernstein Advisors.
2012-11-08 Alternative Thoughts - All That Volatility For Nothing? by Lawrence Epstein, Josh Rowe of Orinda Asset Management
In 2011, the S&P 500 had one of the smallest price changes in its history, but investors experienced significant daily volatility. Stock investors experienced an extraordinarily tumultuous 2011 marked by the collapse of governments, standoffs over raising the national debt ceiling, and an escalation of the sovereign credit crisis in Europe. Markets rose and fell several percentage points in minutes on the barest of rumors from Washington and Brussels and frequent surprises in economic data around the globe.
2012-11-06 The Absolute Return Letter: The Era of Kakistocracy by Neils Jensen of Absolute Return Partners
We are now five years into a crisis that just doesn't want to go away. Paraphrasing Charles Gave of GaveKal who wrote a supremely succinct paper on this topic only last week, policy makers continue to tamper with interest rates, foreign exchange rates and asset prices in general. They continue to permit deposit-taking banks to operate like casinos. They issue new debt to pay for expenditures when we are already drowning in debt. They just don't seem to get it. Albert Einstein once defined insanity as doing the same experiment over and over again, expecting a different result.
2012-11-05 Three Men Make a Tiger by John Mauldin of Millennium Wave Advisors
In a few hours we will know the outcome of the US elections (hopefully without a repeat of 2000!). So, given that eventuality, why should we bother to explore the rather significant disparity in the models being used to create the polls to predict the outcome of the elections? Because doing so will help us understand why the models we use to predict the effects on our investments of market behavior and macroeconomics so often fail us, and why we should approach the use of such models with a full measure of wariness and skepticism.
2012-10-15 Economic Singularity by John Mauldin of Millennium Wave Advisors
There is considerable disagreement throughout the world on what policies to pursue in the face of rising deficits and economies that are barely growing or at stall speed. Both sides look at the same set of realities and yet draw drastically different conclusions. Both sides marshal arguments based on rigorous mathematical models "proving" the correctness of their favorite solution, and both sides can point to counterfactuals that show the other side to be insincere or just plain wrong.
2012-10-11 Alternative Investments Offer Strategies to Avoid Fed-Inflated Bond Bubble by Team of Emerald Asset Advisors
Over the past several years, investors have shifted hundreds of billions of dollars out of stocks and into investment grade corporate bonds and U.S. Treasuries. To date, this strategy has delivered solid results for many investors, as bond prices have generally continued to rally while bond yields have continued to fall.
2012-10-08 3Q Financial Markets Review and Outlook by Team of Managers Investment Group
The summer months were dominated by the anticipation of a Federal Reserve (the Fed) action in the form of another round of quantitative easing in response to muted economic growth and a sluggish domestic job market. Investors' expectations were met when the Fed announced their third round of quantitative easing (QE3) in September with a promise of increased purchases of agency mortgage-backed securities and an extension of the promise to keep short-term interest rates at "exceptionally low levels" until mid-2015.
2012-10-04 When Career Risk Reigns by Neils Jensen of Absolute Return Partners
In this month's Absolute Return Letter we pick up the baton from last month. How does the current crisis actually affect financial markets? How do you overcome the low returns? What can you do to protect the downside risk in a high correlation environment? We argue that career concerns often lead to irrational decisions by professional money managers and that this provides opportunities for those who can afford to deviate from the norm.
2012-09-29 Uncertainty and Risk in the Suicide Pool by John Mauldin of Millennium Wave
Investors in the stock market, especially professionals, are obsessed with risk, your humble analyst included. We try to measure risk in any number of ways, looking for an edge to improve our returns. Not only do we try to determine probable outcomes, we also look for the 'fat tail' events, those things that can happen which are low in probability but will have a large impact on our returns.
2012-09-28 The Permanent Portfolio Turns Japanese by Adam Butler, Mike Philbrick of Butler|Philbrick|Gordillo & Associates
Our last few articles dealt with the Permanent Portfolio, a widely embraced static asset allocation concept proposed by Harry Browne in 1982. To review, the simple Permanent Portfolio consists of equal weight allocations to cash (T-bills), Treasuries, stocks and gold to ward against the four major financial states of the world.
2012-09-28 Alternative Thoughts: Macro Investing - What is macro investing and investing in a macro strategy? by Lawrence Epstein, Josh Rowe of Orinda Asset Management
Macro investing has long been the focus of investors in search of non-correlated investment strategies. Orinda Asset Management believes that macro strategies have the potential to produce positive absolute returns across market cycles. In addition, the strategy has historically exhibited low correlation to traditional equity and fixed income indices, and has provided effective diversification benefits when incorporated as part of a long-term investment plan.
2012-09-22 QE Infinity: Unintended Consequences by John Mauldin of Millennium Wave
Last Monday an op-ed in the Wall Street Journal, penned by five PhDs in economics, among them a former Secretary of the Treasury and an almost-guaranteed Nobel laureate (and most of them former members of the President's Council of Economic Advisors) minced no words in excoriating the current QE policy. We will look at that op-ed in detail below. The point is that there are grave reservations about the current policy among some very serious policy makers.
2012-09-21 Growth for the Long Run by Jonathan Coleman, Brian Demain, Nick Thompson of Janus Capital Group
"I skate to where the puck is going, not where its been." Wayne Gretzky. Many investors would love to be as successful as The Great One when it comes to their portfolios. Yet investors are often heavily influenced by the past, losing sight of where they need to be going. This seems to be especially true today: mistrust of equities is running high after a decade of disappointing returns and excessive volatility.
2012-09-15 The Direction of the Compromise by John Mauldin of Millennium Wave
I think this election has the potential to be one of those rare times, at least in terms of economic outcomes. In Thoughts from the Frontline we cover economics and investments, money and finance. We only rarely stray into the political world, and then only glancingly. Today, we cross that gray line, but at a somewhat different angle, as we look at the economic consequences of the political decision that will come with the choices we make in November in the US.
2012-09-08 Debt Be Not Proud by John Mauldin of Millennium Wave
The unemployment numbers came out yesterday, and the drums for more quantitative easing are beating ever louder. The numbers were not all that good, but certainly not disastrous. But any reason will do, if what you want is more stimulus to boost the markets ever higher. Today we will look first at the employment numbers, because deeper within the data is a real story. Then we look at how effective any monetary stimulus is likely to be.
2012-09-06 How to Unscramble an Egg by Niels Jensen, Nick Rees,Tricia Ward, Thomas Wittenborg of Absolute Return Partners
This month we take a closer look at the root problems behind the current crisis. Too often root problems are confused with symptoms and the wrong medicine is prescribed as a result. We identify five root problems, all of which must be addressed before we can, once and for all, leave the problems of the past few years behind us.
2012-08-30 Fixed Income Investing - the Dangers of Complacency by Bill Woodruff of Bandon Capital Management
The paper points out the US has been in a declining interest rate environment for 30 years, producing a tailwind for fixed income investors but one with little room left for further decline. At these interest rate levels - the yield on the 10 year US Treasury recently hit an all-time month end low of 1.49% - fixed income investors face unique risks which are predominantly unfamiliar.
2012-08-28 Who’s Fooling Whom? by Michael Lewitt (Article)
Equity markets are exhibiting a remarkable degree of complacency. The VIX is currently at extremely low levels and it can maintain those levels for a long period of time. The worse things get in terms of the economic data, the higher the market goes on hopes of central bank stimulus. At this rate, the Dow will peak just as the world is coming to an end!
2012-08-25 Boomers are Breaking the Deal by John Mauldin of Millennium Wave
We look at the trends in employment as well as take note of a signpost we passed on the way to finding out that we cant pay for all the future entitlements we have been promised.
2012-08-17 How Change Happens by John Mauldin of Millennium Wave
This is an encore appearance of the letter that is clearly the most popular one I have ever written, updated with a few thoughts from recent times (it was also part of a chapter in Endgame). Numerous reviewers have stated that this one letter should be read every year. As you read, or reread, Ill be enjoying a week off.
2012-08-14 This Is What Bull Markets Are All About by Richard Bernstein of Richard Bernstein Advisors
Investors have the impression that bull markets are days of wines and roses. However, nothing could be farther from the truth. Bull markets are periods of fear. This becomes quite obvious when one examines the valuation and sentiment data associated with the 1982, 1990, 1995, and 2003 bull markets.
2012-08-11 And Then There Is Disaster C by John Mauldin of Millennium Wave
I have contended for some time that Europe is faced with two choices: Disaster A, which is the break-up of the eurozone, or Disaster B, which is the creation of a fiscal union, which keeps the euro more or less intact. Over the last few months I have come to realize that there is indeed a third option, which now looks increasingly possible. European leaders might do nothing more than deal with the problem immediately in front of them, moving from crisis to crisis in a slow-motion drift toward fiscal union.
2012-08-03 2nd Quarter Small Cap Newsletter by Team of 1492 Capital Management
The stock market posted a strong start for the year but quickly surrendered most of its gains as the macro environment (European debt concerns and China’s slowing economy) caused near-panic selling pressure until the last week of the quarter.
2012-08-03 Time to Row, or Sail? by John Mauldin of Millennium Wave Advisors
Earnings are a topic of great debate. At any given time, you can hear someone on TV talking about how "cheap" the market is, while the person on the next channel goes on about how expensive the market is. Today we look at the cycle of earnings, rather than a specific point in time. Let me give you a little preview. In terms of time, this earnings cycle is already longer than average, and in terms of magnitude it is projected to go to all-time highs.
2012-07-31 Beyond the Ultimate Death Cross by Georg Vrba, P.E. (Article)
Last week, I showed why the 'ultimate death cross' is not a bearish signal. But the methodology behind that signal - what's known as a 'golden-cross trigger' - can indeed offer a reliable guide to investors. And one can do even better with a simple improvement to the trigger that I have devised.
2012-07-31 Venerated Voices by Venerated Voices (Article)
We published our quarterly update for the Venerated Voices awards. Rankings were issued in three categories: The Top 25 Venerated Voices by Firm, The Top 25 Venerated Voices by Advisor and The Top 10 Venerated Voices by Commentary.
2012-07-28 Gambling in the House? by John Mauldin of Millennium Wave
The problem that gave rise to the LIBOR scandal is the lack of transparency. Why would banks want to reveal how much profit they are making? The last thing banks want is transparency. This week I offer a different take on LIBOR, one which may annoy a few readers, but which I hope provokes some thinking about how we should organize our financial world.
2012-07-27 Secular Outlook: Implications for Investors by William Benz of PIMCO
For investors, the biggest challenge now is moving from a world of normal distributions, with expected occurrences around the mean, to one of bi-modal distributions where more extreme scenarios prevail. Key institutions, including governments and central banks, were previously stabilizing forces but are now helping to accelerate underlying, destabilizing trends in the global economy and financial markets.
2012-07-24 Litman Gregory Mid-Year Commentary by Team of Litman Gregory
High debt levels in developed countries create headwinds that are likely to hamper global economic growth in the years ahead. Europe's debt woes raise the risk of a damaging financial crisis, and global stock markets reflected these concerns in the second quarter. Why are we discussing this now? It is partly a reflection on having reached a quarter of a century in business and thinking about how we have conducted our business.
2012-07-21 The Lion in the Grass by John Mauldin of Millennium Wave
Today we'll explore a few things we can see and then try to foresee a few things that are not so obvious. This is a condensation of a speech I gave earlier this afternoon in Singapore for OCBC Bank, called "The Lion in the Grass." The simple premise is that it is not the lions we can see that are the problem; but rather, in trying to avoid them, it is often the lions hidden in the grass that we stumble upon that become the unwelcome surprise.
2012-07-14 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
For the last year I have been writing that it is not clear that Europe (with the probable exception of Greece) will in fact break up. The forces that would see a strong fiscal union are quite powerful. In today's letter, I will try to bring you up to date on some insights I have had in the 18 months since Jonathan Tepper and I did the final edits on our book, The Endgame.
2012-07-07 Into the Matrix by John Mauldin of Millennium Wave Advisors
What does the current environment of earnings and valuations tell us about the prospects for the US stock markets in general over the next 3-5-7-10 years? This week we have part two of "Bull's Eye Investing Ten Years Later," which we started last week. These two letters have been co-authored with Ed Easterling of Crestmont Research. We take a look at research we did almost ten years ago as part of my book Bull's Eye Investing, updating the data and asking,"Are we there yet? When will we get to the end of the secular bear market?"
2012-07-05 Looking for Bubbles by Niels Jensen, Nick Rees, Tricia Ward, Thomas Wittenborg of Absolute Return Partners
This month's Absolute Return Letter picks up on the question we left hanging in the air back in May - is Asia a potential re-run of Europe? Although policy rates appear to be dangerously low, and thus encouraging further borrowing, Asia has come a long way since 1997 and there is no immediate risk of a financial meltdown. Australian property prices and commodity prices - in particular crude oil prices - are more likely 'credit event' candidates in our opinion.
2012-06-30 Bull's Eye Investing (Almost) Ten Years Later by John Mauldin of Millennium Wave Advisors
The current valuation of the stock market is relatively high, but it is not overvalued, considering today's conditions. Low inflation-rate conditions should be accompanied by relatively high P/Es. But if deflation or high inflation (or both) are likely upcoming, the market is very expensive. On the other hand, if the inflation rate happens to remain near price stability, then this secular bear could remain active a while longer but how likely is that?
2012-06-28 Focusing on Capital Preservation: Stable Value and Possible Alternatives by Brett Gorman, Henry Kao, Stacy Schaus of PIMCO
Stable value, which combines an actively managed fixed income portfolio with a contract to help assure principal and income, offers capital preservation potential and historically higher risk-adjusted returns than money market and low duration strategies.
2012-06-25 Let's Twist Again by Kristina Hooper of Allianz Global Investors
It looks like the Fed is finally facing up to the facts. The U.S. economic recovery has stalled and policymakers have realized that they need to step in. Despite a favorable election outcome in Greece, a renewed commitment to austerity and staying in the euro zone, the Fed has lowered its outlook for growth and extended Operation Twist.
2012-06-23 Daddy's Home by John Mauldin of Millennium Wave Advisors
This week we will look at the recent action of the Fed and use that as a springboard to think about how effective Fed policy can be in an age of deleveraging. And we simply must look at Europe.
2012-06-16 The Bang! Moment is Here by John Mauldin of Millennium Wave Advisors
We know that money is simply flying out of Greek banks. A number of them are clearly insolvent, yet they are meeting demands for withdrawals. Where is the cash coming from? The answer is in the form of yet another acronym from Europe, called the ELA.
2012-06-12 The Problems with Trying to Benchmark Unconstrained Portfolios by Ken Solow (Article)
Benchmarking unconstrained, 'go-anywhere' managers is difficult. Common methods to determine an appropriate benchmark - such as an ex-post regression of how the fund was invested - can obscure the actions of the manager. Is the only solution to simply select an arbitrary benchmark and proceed accordingly?
2012-06-09 A Dysfunctional Nation by John Mauldin of Millennium Wave Advisors
European leaders launched the euro project in the last century as an experiment to see whether political hope could become economic reality. What they have done is create one of the most dysfunctional economic systems in history. And the distortions inherent in that system are now playing out in an increasingly dysfunctional social order. Today we look at some rather disturbing recent events and wonder about the actual costs of that experiment. What type of "therapy" will be needed to treat the dysfunctional family that Europe has become?
2012-06-07 The Absolute Return Letter - First Mover Advantage by Niels C. Jensen of Absolute Investment Advisers
Contrary to conventional wisdom, the eurozone crisis has always been a banking crisis. It only morphed into a sovereign crisis because of political incompetence. Given the rather stubborn approach of the German government to its beleaguered eurozone partners, the crisis is rapidly moving towards some sort of crescendo. It is only a question of time before one of the Southern European countries come to realise that they might be better off outside the eurozone, particularly if they are the first mover.
2012-06-04 Alternative Mutual Funds See Continued Growth by Chris Maxey and Ryan Davis of Fortigent
During an especially difficult week, global equity markets were deep in the red, as the S&P 500 Index lost 3.2% and the Dow Jones Industrial Average fell 3.3%. There was no shortage of disappointing data during the course of the past week, ranging from weakness in the ISM manufacturing survey to an underwhelming May labor market report. It was such a bad week, in fact, that Bespoke Investment Group found that 18 of the 21 economic indicators released in the U.S. fell short of expectations.
2012-05-19 Dr. Frankensteins Europe by John Mauldin of Millennium Wave Advisors
We explore the options that the eurozone faces in order to stay together, and what it all means for some of the countries involved. While I have written for a very long time about the probability of Greece exiting the eurozone, the actuality is fraught with risk, not just for Europe but for the world economy. What happens in the next few months will impact us all for a very long time. Indeed, this is one of those years, as Lenin noted, when decades happen.
2012-05-16 Core Alternatives Fund Quarterly Review by Josh Parrott of Hatteras Funds
A balanced position seems prudent given liquidity is slowing, credit spreads have tightened considerably and equity valuations have jumped. The destabilizing market force of deleveraging still exists and many economist have predicted that the coming months might produce some drawbacks in the markets like last summer, but also new entry points for growth areas such as Emerging Markets, Technology, Mortgage Backed Securities and possibly European distressed debt.
2012-05-15 Equity Investing: From Style Box to Global Unconstrained by Andrew Pyne of PIMCO
PIMCO sees greater potential benefit to global portfolios in strategies that are unconstrained by a benchmark, and with managers who think about absolute return at least as much as they think about relative return. We believe the style box approach resulted in too great a focus on returns relative to a very narrow index and led investors to have too short of an investment time horizon in which to evaluate their managers, and that the cycles of style performance and the narrow benchmarks in the style box world encourages manager turnover and undermines long-term portfolio return potential.
2012-05-12 Waving the White Flag by John Mauldin of Millennium Wave Advisors
Europe has embarked on a program that will require multiple trillions of euros of freshly minted money in order to maintain the eurozone. But the alternative, European leaders agree, is even worse. Today we will look at the recent German shift in policy, why it was so predictable, and what it means. This is a Ponzi scheme that makes Madoff look like a small-time street hustler.
2012-05-10 Diversification 301: Tailored Solutions for Your Portfolio by Team of American Century Investments
We continue our discussion of diversification and its application to investor portfolios. We explain how there is no single universal diversified portfolio suited to all investors and occasions. Instead, diversification is a highly customizable framework that can and should be uniquely tailored to suit each individual investors goals and risk tolerances. Earlier articles in the series discussed the basic benefits and rationale for diversification and a discussion of alternative investments that can be used to diversify a traditional balanced portfolio of stocks and bonds.
2012-05-08 The Adjusted Gold/XAU Ratio as an Indicator of Forward Returns for Gold Stocks - An Update by Georg Vrba, P.E. (Article)
The latest data have a clear message for investors: gold stocks are attractively priced.
2012-05-08 Dont Fight the Last War Lessons from the Battlefields of Risk Management by Niels C. Jensen of Absolute Return Partners
Investors often behave as if they operate in a world of logic and certainty even when that is not the case. For that reason, history is littered with investors who have failed miserably. In this month's Absolute Return Letter we look at many of the pitfalls facing risk managers and we take a stab at where the next big crisis is going to surface. Our conclusion may surprise a few readers.
2012-05-05 A Graphic Presentation by John Mauldin of Millennium Wave Advisors
The job market is still in a deep hole. At April's rate of job gains, it would take well over three years to return to December 2007's employment level, without adjusting for population growth; at the average rate of the last six months, it would take about two years. Earnings are weak, and the strongest sectors aren't those of which economic miracles are spun. QE3 looks like more of a possibility than it did a few days ago.
2012-05-04 Bullish on America by Andrew J. Redleaf of Whitebox Advisors
Todays crisis has nothing to do with the shadow banking system or any other sort of shadow. Todays crisis is all out in the bright sunshine and remarkably straightforward. The supposed danger is that some major economic power (i.e., not Greece) will become unable to access credit markets. Spanish or Italian or French bonds will decline so steeply as to imperil the banks that own them or appear to do so, causing a run on global financial institutions as severe as 2008s.
2012-05-01 Another Story of Too Much Debt: Investing During Unsustainable Economic Conditions by Brian McAuley (Article)
US-based investors cannot ignore the macro environment, and therefore must consider the consequences of our increasing indebtedness and its impact on capital markets. We can gain valuable insights into our fiscal problems from the housing bubble and the European sovereign debt crisis - lessons which every value investor should heed.
2012-04-28 A Gold Standard? by John Mauldin of Millennium Wave Advisors
Here is a speech by Jim Grant to the New York Federal Reserve. The always erudite Grant takes us back in time to the very beginnings of the Federal Reserve, to show us how far we have strayed from the original intent. Grant argued for a return to the gold standard in the very halls of fiat money! It seems the New York Fed is asking some of its critics to come and speak.
2012-04-26 Shareholder Letter and Commentaries by Robert Horrocks of Matthews Asia
How the markets behave in the near future, including the size and duration of any pullback, is unknowable. However, we remain confident in the long-term growth and prosperity of Asia. Therefore, our approach, in the midst of what are admittedly absorbing macro discussions, has been to focus on finding good businesses, rather than try to speculate on events. As much as we all like to discuss the big issues of the day, the real excitement and challenge comes in discovering businesses whose future prospects are underappreciated by the average view of the investment community.
2012-04-21 A Little Bull's Eye Investing by John Mauldin of Millennium Wave Advisors
Bull's Eye Investing was the book that really helped establish this letter. It dealt with a host of investing ideas, secular market cycles, value investing, alternative investing, and more. I have taken that material, updated it, and written a new book, part of the Little Book series done by Wiley, called The Little Book of Bull's Eye Investing Finding Value, Generating Absolute Returns, and Controlling Risk in Turbulent Markets. I have waited to announce this one until it is off the presses and being shipped. Here is the introduction and part of the first chapter of the book.
2012-04-20 Venerated Voices Q1 2012 Awards by Advisor Perspectives (Article)
We published our quarterly update for the Venerated Voices awards. Rankings were issued in three categories: The Top 25 Venerated Voices by Firm, The Top 25 Venerated Voices by Author and The Top 10 Venerated Voices by Commentary.
2012-04-19 New Breed of Managed Futures Funds May Offer Downside Protection...and Upside Opportunity by Team of Emerald Asset Advisors
The search is on for strategies and portfolio managers that can generate return streams uncorrelated to traditional equities and fixed income. Whether it's due to the low return and high volatility equity markets of 2011 or the historically low government bond yields that persist even today, investors are scratching their heads wondering where to turn. A variety of alternative investment styles are available, many of which take an absolute return approach and aim to generate low market correlation, or at least, relatively low correlation to the broad equity markets.
2012-04-18 Forget about Spring, it Feels Like Summer by Philip Tasho of TAMRO Capital
Stocks sizzled in the first three months of 2012, delivering the best first quarter return since 1998, as measured by the S&P 500. Last month we suggested that perhaps we have seen this movie before; a strong first quarter in the markets followed by a sharp correction as fundamentals weakened. Is it different this time? We are optimistic the economic expansion will follow through. Why? We see consumers slowly waking up from their four-year slumber. Looking at retail sales growth, consumer spending has improved, while U.S. unemployment has receded to 8.2% as of March.
2012-04-14 The War for Spain by John Mauldin of Millennium Wave Advisors
The inflection point that I thought the ECB had pushed down the road for at least a year with their recent 1 trillion LTRO is now rushing toward us much faster than Draghi had in mind when he launched his massive funding operation. So, we must pay attention to what Spain has done this week which, to my surprise, seems to have escaped the attention of the major media. It may be considered a tipping point when the crisis is analyzed by some future historian. And then we'll get back to some additional details on the US employment situation, starting with a few rather shocking data points.
2012-04-07 It's All About Jobs by John Mauldin of Millennium Wave Advisors
Friday's employment numbers were decidedly soft, but the unemployment rate went down anyway, and that is about the best you can say. And this being a holiday weekend, it provides us an opportunity to look deep into the employment numbers, while we put off thinking about Spain for at least a week. And who knew that being an unmarried Asian-American in the US was a risk for unemployment? Plus a few other interesting items will make for an interesting letter.
2012-04-05 NewsLetter - April 2012 by Harold Evensky of Evensky & Katz
Although we continue to believe in the tenets of Modern Portfolio Theory, the concept is Buy-and-Manage not Buy-and-Forget. As a consequence, we made numerous adjustments to our strategic allocations over the years. And, consistent with our buy-and-manage philosophy, for the last few years weve been studying investment markets and have come to believe that long-term future returns are likely to be even lower then we estimated in 2002, market risk will be higher and the benefits from diversification less (i.e., correlations will be higher).
2012-04-05 You Cant Handle the Truth by Niels C. Jensen of Absolute Return Partners
The UK may not be facing the same set of challenges as many other European countries but that does not mean that the next few years will be plain sailing for the British. Households are overextended, banks are highly leveraged and the pension model is deeply flawed. Meanwhile, the British government, obsessed with keeping the coveted AAA rating, is pursuing a fiscal policy which is well intended but entirely inappropriate.
2012-04-03 Beyond Bonds: The Role of Risk Assets in Liability-Driven Investing by Sebastien Page of PIMCO
In liability-driven investing, unless the plan is fully immunized or significant leverage is employed, the bond portfolio only hedges part of the liabilities. Overall, when diversifying across risk assets, there are choices that may be more attractive to pension plans than they are to liability-agnostic investors, such as risk assets with exposure to duration. Plan sponsors who choose to maintain a short duration stance on a total portfolio basis should consider alternative sources of diversification beyond equities.
2012-04-02 1Q 2012: Why The Rally Can Last by Chuck Royce of The Royce Funds
We're seeing one of those rare occasions when one of our predictions for the market as a whole worked out almost exactly the way we thought it would. For a while now, we have been noting the disjunct between the very negative and alarmist headlines and the more optimistic view our own analyses and contacts with managements were revealing. It seemed to us as early as last September that the economy was in better shape than the conventional wisdom was suggesting.
2012-03-31 All Spain All the Time by John Mauldin of Millennium Wave Advisors
The events of the last 24 hours compel me to once again look "across the pond" at the problems that not only plague Europe but will be a drag on world growth as well, as Europe goes through its continued painful adjustment as a consequence of trying to adopt a single currency. Since Spain is going to be on the front page for some time, it will be useful to look at some of the problems it is facing, to put it all into context. And what I heard while in Europe in private meetings is troubling.
2012-03-27 GMO: Two Questions We Can't Answer by Robert Huebscher (Article)
Its reputation was built on stellar returns achieved with long-term bets on undervalued asset classes. Current market conditions, however, pose two unanswerable questions for GMO – leaving the firm with an uncertain strategy for its equities and fixed-income allocations.
2012-03-27 Bernanke's Problem with the Gold Standard by Axel Merk of Merk Funds
In his new lecture series, Federal Reserve (Fed) Chairman Ben Bernanke is going out of his way to discuss the "problems with the gold standard." To a central banker, the gold standard may be considered "competition," as their power would likely be greatly diminished if the U.S. were on a gold standard. The Fed, Bernanke argues, is the answer to the problems of the gold standard. We respectfully disagree. We disagree because the Fed ought to look at a different problem.
2012-03-23 A Random Walk Through the Data Minefields by John Mauldin of Millennium Wave Advisors
We are once again to a point in Europe where there are no good choices, only very bad ones. But this time it is with a country that actually makes a difference. (No slight intended to Greece, but you are just small.) Spain has no good way to cut its deficit without things getting worse. But Europe must be willing to then fund Spanish debt, even if "only" through more LTRO actions by the ECB.
2012-03-23 Preferred Securities - February 2012 Review and Outlook by Team of Cohen & Steers
We are encouraged by the trajectory of U.S. economic data and credit trends, as well as positive developments in Europe that have somewhat brightened the outlook for risk assets. However, we are closely monitoring various macro risks that could weigh on the global economic recovery, including a recession in Europe, high oil prices and slowing growth in China. Our portfolio remains more heavily weighted towards domestic issuers and is somewhat conservative relative to credit. That said, we continue to add to certain European issues and other higher-beta securities.
2012-03-21 Falling Treasuries: A Currency Perspective by Axel Merk of Merk Funds
What are the implications for the U.S. dollar and investors portfolios if bond prices continue to fall, as they have of late? Within that context, should investors care whether the U.S. retains its status as a reserve currency? Should it effect the way investors think about their own cash reserves?
2012-03-21 Why Convertible Bonds Should Be Part of Your Asset Allocation by Gary D. Halbert of Halbert Wealth Management
Im going to let you hear from Greg Miller about convertible bonds. Not only will Greg tell you how they work, but also why they can be an important diversification technique in your portfolio even now when other types of bonds are falling out of favor. I believe that many of you will want to have convertible bonds in your portfolio before long. The interest rate increases weve seen over the last couple of weeks may be a sign that the long bull market in traditional bonds is rolling over to the downside. Convertible bonds offer opportunity even during periods of rising interest rates!
2012-03-17 Where Will the Jobs Come From? by John Mauldin of Millennium Wave Advisors
We will look at why employment is so critical. How are jobs created and what policies can be adopted to help foster more jobs? Should the US try and keep jobs that are going overseas, or develop whole new industries? Who exactly is the competition globally for jobs?
2012-03-03 Unintended Consequence by John Mauldin of Millennium Wave Advisors
This week we wonder about the consequences of the European Central Bank (ECB) issuing over 1 trillion in short-term loans to try and postpone a banking credit crisis and lower sovereign debt costs for certain peripheral countries in Europe. What if, instead of holding the European Monetary Union (EMU or Eurozone) together, that actually makes a breakup more likely? That would certainly fall under the rubric of unintended consequences, and be worth our time to contemplate in this week's letter.
2012-03-02 The Protein Bomb by Niels C. Jensen of Absolute Return Partners
Population will grow from 7-8.3 billion people over the next decade. Meanwhile, arable land across the world will shrink and living standards will continue to rise, with the OECD projecting 3 billion new middle class consumers over the next 20 years. Many of these people will change their diets in favor of more animal protein. Livestock is quite inefficient in terms of converting grain to energy, so the pressure on farmers to deliver more will be immense. We conclude that agriculture should be represented in every long-term portfolio, but farm land has already risen a lot in value.
2012-02-25 Tax That Other Guy by John Mauldin of Millennium Wave Advisors
Last week's letter on taxes drew more response than any letter I have written in years. Questions that were raised simply beg for an answer, and some of the replies were very thoughtful, well-written suggestions for alternatives. This week I am going to do something I can't ever remember doing, and that is to use the entire letter to involve and respond to my readers.
2012-02-23 PIMCO by Ed Devlin of PIMCO
Given the bimodal nature of the expected distribution of outcomes, it is important for investors to remain nimble so they can respond to high frequency data and global public policy developments. We expect the Bank of Canada to remain in wait-and-see mode until it is clear which way the economy is tipping. In our base case scenario, we estimate Canadian bond market returns in the range of 2%-4%, and if we tip into a virtuous cycle of economic recovery, we anticipate the possibility of negative absolute returns.
2012-02-18 The Cancer of Debt and Deficits by John Mauldin of Millennium Wave Advisors
We will explore some options to actually resolve the deficit and debt crisis. Cutting spending or raising taxes have consequences, but not all cuts and not all taxes are the same. For those who have been wanting more specific solutions from me, I am going to address the issues surrounding taxation and offer my thoughts as to what we should do.
2012-02-16 Weekly Market Update: Introduction to Alternative Investments by Team of American Century Investments
Alternative investments (or alts as they are commonly known) have exploded in popularity in recent years. What began as specialty investment strategies utilized by only the most sophisticated institutional investorssuch as pension plans and university endowmentsare now readily available to retail investors through a number of mutual funds and exchange-traded funds. Here we try to explain alts appeal in broad terms, discussing how these strategies are used and what role alts may play in an individual investors portfolio.
2012-02-11 The Answer We Dont Want to Know by John Mauldin of Millennium Wave Advisors
This election is ultimately about dealing (or not dealing) with the deficit, and putting the country on a path to a sustainable budget deficit, one that is less than the growth rate of the country. As I have argued elsewhere, and will argue in future letters, that is the paramount issue. Not dealing with the deficit runs the very real risk of the bond market treating us just as it is treating Italy and any other country that gets to the point where its debt is unsustainable.
2012-02-04 Who Took My Easy Button? by John Mauldin of Millennium Wave Advisors
There is no way enough money can be found to fund our entitlement programs, given the current system, even under the best of assumptions. Things must change. Either we will make the difficult choices or those changes will be forced by the market. The longer we put off the difficult choices, the more painful the consequences. This week we begin a series on the choices facing the US. We need to understand the consequences of the choices we make. Cut spending, say some. Tax the rich, say others. Cut out waste and corruption is always a popular choice. Do all of the above, intone others.
2012-02-03 The Unlikely Bull Market by Niels C. Jensen of Absolute Return Partners
Europe is going from crisis to crisis at the same time as stock markets climb higher. Meanwhile, investors are left confused. The key to understanding the apparent disconnect between stock market behavior and economic fundamentals is the aggressive policy being pursued by the ECB which has eased credit conditions in the crisis-stricken European banking industry. With more QE from the ECB in the pipeline, we expect equity prices to benefit.
2012-01-28 The Transparency Trap by John Mauldin of Millennium Wave Advisors
We look at the shift in Fed policy, and at the balance sheets of central banks, US GDP, Portugal and the ECB, the LTRO policy, and yes, theres even a tidbit on Greece. Unemployment will be higher than we are comfortable with; it is just a product of the current environment and simple math. The US economy is in a Muddle Through range of around 2%. If not for a potential shock coming from a serious European crisis and real recession, the US should not slip into outright recession this year.
2012-01-21 Staring into the Abyss by John Mauldin of Millennium Wave Advisors
Europe's leaders are committed to keeping both the euro and the eurozone as it is. But for it to do so, everything must change, as the wonderful quote from the 1958 Italian novel suggests. This is no easy task, as no one wants a change that will impact them negatively; and there is no change that will allow things to stay the same that does not impact all severely, as we will see. In the third part of a continuing series, we look at the actual options that are available on the menu of choices, or as one group called it, the menu of pain.
2012-01-20 U.S. Domestic Stocks Time for a Close-Up by Philip Tasho of TAMRO Capital
For 2012 we believe U.S. stocks should provide investors good to average returns for the year. Large cap stocks should have an edge over small and midcap stocks due to superior valuation and improving fundamentals. The domestic economy will likely register continued subpar economic growth and global markets should also remain subdued due to credit issues in Europe and softness in export markets. As this is an election year, we believe there will continue to be volatility in the U.S. market. We hope to take advantage of near-term downward volatility.
2012-01-14 The End of Europe? by John Mauldin of Millennium Wave Advisors
The peripheral countries have no choices that allow them to grow and prosper without first suffering (for perhaps a long time) some very real economic pain. Leaving the eurozone has severe consequences; but the economic pain of leaving would go away sooner and allow for quicker adjustments, than if they stayed. However, the initial pain would be worse than the slow pain they'd suffer by staying in the euro. Their choice is, simply, which pain do they want or maybe, which pain do they think they want? Because whatever they choose, they are not going to like it.
2012-01-07 2012: A Year of Choices by John Mauldin of Millennium Wave Advisors
2012 will the year that the consequences of the choices made by the developed world will begin to manifest themselves in the economic realm. We are in the closing chapters of the current Debt Supercycle, with different countries strewn out along the path, and all headed for a destination that will force major decisions if politically painful actions are not taken. Some countries (e.g., Greece) have a choice between the dire and the disastrous. The option for merely difficult choices was long ago, and there is no going back to where you started without a different but equally painful outcome.
2011-12-31 Collateral Damage by John Mauldin of Millennium Wave Advisors
The economic travails of much of the West are reaching a decisive stage as the year ends. In 2008, we predicted sluggish recovery and a long period of low growth for the West in a two-speed world. This picture does not now properly reflect the downside risks. The policy of "kicking the can down the road" is failing, as the intensifying crisis in the euro zone and the failure of the G20 summit in late October clearly demonstrate. As to December's European summit, we describe its impact later in this paper.
2011-12-24 Your Three Investing Opponents by John Mauldin of Millennium Wave Advisors
Recently I have been having a running conversation with Barry Ritholtz on the psychology of investing (something we both enjoy discussing and writing about). Since I am busily researching my annual forecast issue (and taking the day off), I asked Barry to share a few of his thoughts on why we do the things we do. He gives us even more, exploring the three main opponents we face when we enter the arena of investing.
2011-12-23 Rebalancing Resurrected, Part 3 by Adam Butler and Mike Philbrick of Butler Philbrick & Associates
This is a 'Canadian-ized' version of anarticlewe published on Monday, December 19, 2011, which featured a study of US equity and fixed-income markets. As we are located in Canada, we were motivated to see how well the same techniques work in our home market using the S&P/TSX Composite. As expected, it turns out that they work quite well.
2011-12-21 Seeking Absolute Return: Finding Opportunity in Overly Hyped Alternatives by Team of Litman Gregory
This commentary references and updates views originally shared in our 2003 whitepaper on hedge-fund strategies. Today, we have similar concerns about a low-return environment for stocks in the years ahead. As we concluded eight years ago, hedge-fund strategies do have the potential to add value to a portfolio. However, finding funds that are skillfully managed and offered at a reasonable cost remains a difficult challenge.
2011-12-21 Rebalancing Resurrected, Part 2 by Adam Butler and Mike Philbrick of Butler Philbrick & Associates
This is a 'Japan-amized' version of an article we published on 12/19, which featured a study of US equity and fixed-income markets. The Japanese experience since 1993 was dramatically different than the U.S. Japanese investors endured a seemingly endless series of intermediate term extremes of hope and despair as markets oscillated wildly above and below their long-term negative trend. Japans multi-decade crash and stagnation is unique among modern market economies (so far), so we wanted to see how well our volatility adjusted rebalancing framework worked in this difficult environment.
2011-12-20 Concussed, The Year in Review by Doug MacKay and Bill Hoover of Broadleaf Partners
We remain biased to a slow growth environment for as far as the eyes can see, an environment which continues to favor innovators. At the same time, with concerns about a slowdown in China emerging and Europe likely already in recession, the Economic Cycle may deserve some increased attention as a driver of alpha in the portfolio, particularly with a global monetary policy bias towards easing and leading economic indicators in the United State now improving.
2011-12-20 Does the Trend Matter? by Kay Conheady of Apropos Financial Planning
More research into making asset allocation decisions based on the trend of the P/E10 ratio might prove worthwhile. Such future research might include statistical significance testing, calculating up and down trend Sortino ratios, measuring the Sharpe and Sortino ratios for tactically allocated stock+bond portfolios and studying how trend-sensitive asset allocation strategies would have fared in the past. Finally, Kitces recent JFP article also suggests that studying the P/E5 ratio may also have some value.
2011-12-19 Rebalancing Resurrected by Adam Butler and Mike Philbrick of Advisor Perspectives (dshort.com)
This is part 1 of a 3 part series that explores optimal methods of dynamic rebalancing between stocks and bonds. This study examines these methods in the context of a US equity / Treasury basket. The next 2 posts will explore the impact of our proposed techniques on Japanese and Canadian equity / bond baskets. The investment community is in the midst of an identity crisis, though admittedly many in the industry don't know it yet. At the heart of the matter is the following misconception: Investors perceive that investment professionals add value via security selection and market timing.
2011-12-17 The Center Cannot Hold by John Mauldin of Millennium Wave Advisors
We'll leave aside the politics of the payroll tax extension and look at the economic implications, and then go on to examine the deficit in the US. That will give rise to some thoughts about Europe and what would have to happen for a country to leave the euro. We'll finally close with some thoughts and graphs about the more controversial part of the tax cut extension, the Keystone XL Pipeline. Just how radical is it to build such a pipeline in the US? And what are the implications for the deficit?
2011-12-12 Rethinking Asset Allocation: PIMCOs Strategy for a Changing World by Mohamed A. El-Erian, Vineer Bhansali and Curtis Mewbourne of PIMCO
Alpha generation is a distinct component of the strategy because it is critical to actively seek opportunities in all global markets in this challenging environment. Explicit tail risk hedging is essential to prepare for more frequent significant downturns, both to mitigate their effects and to potentially benefit from them. The strategy is positioned to navigate a world of muted growth in the Western economies, significant market volatility, recurring balance sheet issues and continued income and wealth convergence of the emerging world with the developed world.
2011-12-10 A Player to Be Named Later by John Mauldin of Millennium Wave Advisors
There are two main points to be taken away from this week's European summit. First, the Germans really took control. This has been coming for a long time, and it's not like we haven't discussed it in these letters. Second, Britain either opted out or was shown the door, depending on your point of view. That is the real game-changer, long-term, for more than the obvious reasons.
2011-12-06 The Quality Conundrum by J.J. Abodeely, CFA, CAIA (Article)
We are witnessing the end of a remarkable and confounding era for stocks, best described by the 'quality conundrum' investors faced for much of the last two years. During that time the combined outperformance of low-quality stocks alongside the underperformance of high-quality stocks was unprecedented in the last 30 years. Now, we are embarking on an era where high-quality stocks will likely significantly outperform low-quality stocks, resolving this conundrum.
2011-12-06 Treasury Inflation Protected Securities: Whats Next? by Vishal Khanduja of Columbia Management
TIPS have performed relatively well in 2011. Over the next 12 months we expect TIPS to outperform equivalent maturity U.S. Treasuries, However, given the current historic low level of real interest rates, we believe that absolute returns for the asset class will be only slightly positive. Our view is based on three factors: U.S. economic and policy outlook, recent trends in the components of consumer inflation and current valuations versus our base case assumptions.
2011-12-05 The Facts They Dont Want You to Know by Niels C. Jensen of Absolute Return Partners
Our industry needs a good old fashioned kick up its backside. Far too much mediocrity is rewarded for nothing other than destroying value.
2011-12-03 Time to Bring Out the Howitzers by John Mauldin of Millennium Wave Advisors
It is now common to use the term bazooka when referring the actions of governments and central banks as they try to avert a credit crisis. And this week we saw a coordinated effort by central banks to use their bazookas to head off another 2008-style credit disaster. The market reacted as if the crisis is now over and we can get on to the next bull run. Yet, we will see that it wasn't enough. Something more along the lines of a howitzer is needed (keeping with our WW2-era military arsenal theme). And of course I need to briefly comment on today's employment numbers.
2011-12-02 What Does Risk Mean in Today's Market? by Francis of The Royce Funds
While many investors continue to focus on daily volatility, seizing on every piece of macroeconomic or political news to gain a sense of the overall shape of the economic futureand position their portfolio accordinglywe remain focused on individual companies and the opportunity each presents. From our perspective, the small-cap environment is fraught with opportunities. Today's attractive absolute valuations are an opening to find bargains that will drive results for the next three to five years.
2011-11-25 Changing the Rules in the Middle of the Game by John Mauldin of Millennium Wave Advisors
Angela Merkel is leading the call for a rule change, a rewiring of the basic treaty that binds the EU. But is it both too much and too late? The market action suggests that time is indeed running out, and so well look at the likely consequences. Then I glance over the other way and take notice of news out of China that may be of import.
2011-11-19 Print or Perish by John Mauldin of Millennium Wave Advisors
I do not think the euro will survive with the current mix of countries, nor do I think that Germany thinks so either. Greece is likely to go, as is Portugal. Can Spain really get its deficit under control in time? Do we see a two-euro world, one in the northern states and one in the southern? And to which one does France go? Looking at the politics, one might think the answer is obvious, but if you just look at the numbers, it is clearly not. France is in many respects a Mediterranean country. So many choices and none of them good.
2011-11-16 As Alternative Investments Move into the Mainstream, Advisors and Investors Need to Choose Wisely by Team of Emerald Asset Advisors
We believe that having a piece of an overall portfolio that is committed to liquid alternatives is a critical component to long-term portfolio stability, capital preservation and growth. No one wants a repeat of 2008, or anything close to it. There are an abundance of liquid alternative choices available, some of which have proven themselves through various market cycles and environments. They have gone from Wall Street to Main Street for good reason. Embrace the opportunity, and you and your clients may just sleep a bit better at night during these volatile times.
2011-11-15 Michael Aronstein on Today's Key Macro Trends by Robert Huebscher (Article)
Michael Aronstein is the president and chief executive officer of Marketfield Asset Management. Since its inception in 2008, his fund has returned 31% while the S&P has been down 15%. I spoke with him about the key macroeconomic and strategic issues facing investors today.
2011-11-12 Where is the ECB Printing Press? by John Mauldin of Millennium Wave Advisors
There is too much debt in many southern countries; France is not far from having its own crisis if they do not get back into balance. And if they lose their AAA rating, then any EFSF solution is just so much bad paper. The path of least resistance, and I use that term guardedly, is for the ECB to find its printing press. Perhaps they can borrow one from Bernanke.
2011-11-10 Alternative Investments in Focus by Team of American Century Investments
We recently conducted a survey of financial professionals to better understand their view and use of alternative investments. Alternative investments are defined as those outside the traditional big three of cash, bonds, and stocks. These alternatives include commodities, real estate, and inflation-linked securities, among many others. Alternatives have surged in popularity in recent years, as investors and their advisors seek out new and potentially more effective ways to diversify and reduce risk in traditional balanced stock, bond, and cash portfolios.
2011-11-08 Ignore Egan-Jones at Your Peril by Niels C. Jensen of Absolute Return Partners
The ink on the Greek rescue agreement has barely dried, and the feeling in financial markets is sombre yet again. However, investors have changed their focus away from Greece towards Italy - a change which could prove disastrous for the eurozone given the size of the Italian bond market. In this edition of The Absolute Return Letter we take a closer look at Italy's refinancing needs and suggest corporate bonds as an alternative to government bonds.
2011-11-05 Where Will the Jobs Come From? by John Mauldin of Millennium Wave Advisors
What is the role of government in creating jobs? To answer that, let's look at the data that shows us where jobs come from. And we find that net new jobs for the last 15 years came from new business start-ups. Big business is a net drag on job creation, and small businesses are a wash. Governments have seen job growth, but where does the money come to pay government employees?
2011-11-01 Follow the Cycle by Richard Bernstein of Richard Bernstein Advisors
It remains a mystery to us as to why investors believe each cycle is different from other cycles. The title of a very popular book right now is "This Time is Different" Some cycles are stronger and some are weaker, and some cycles last longer than others. However the investment implications at different points in the cycle remain remarkably consistent. With the exception of bubbles, we have yet to come across a truly 'different' investment cycle. Most important, the typical rotations within the global financial markets are following their normal pattern even during the current cycle.
2011-10-29 European Summit: A Plan with No Details by John Mauldin of Millennium Wave Advisors
The market reacted like yesterdays announcement was the Second Coming of the Solution to End All Solutions. But if you look deeply there is more to the market "melt-up" than simple euphoria and relief. What you find is a very disturbing unintended consequence that will come back to haunt us. The finger points to derivatives and credit default swaps. This week, we look at gamma and delta and other odd entities that may be behind the real reason for the market response, as we march inexorably toward the final chapters of the Endgame.
2011-10-25 On Market Timing and Whiskey by J.J. Abodeely (Article)
Noah S. 'Soggy' Sweat, Jr. a Mississippi legislator, gave a famous speech addressing the controversial subject of prohibition. The consummate politician, Soggy tried to appeal to advocates on both sides of the issue, illustrating a lesson that advisors today will surely appreciate: In order to get at the substance of a contentious issue, sometimes you have reframe the question.
2011-10-15 Can 'It' Happen Here? by John Mauldin of Millennium Wave Advisors
The beginning of the end of the Weimar Republic was some 89 years ago this week. There is a stream of opinion that the US is headed for the same type of end. How else can it be, given that we owe some $75-80 trillion dollars in the coming years, over 5 times current GDP and growing every year? Remember the good old days of about 5-6 years ago (if memory serves me correctly) when it was only $50 trillion? With a nod to Bernankes helicopter speech, where he detailed how the Fed could prevent deflation, I ask the opposite question, Can it (hyperinflation) really happen here?
2011-10-08 An Irish Haircut by John Mauldin of Millennium Wave Advisors
But here is the issue for Europe. The amount of money needed for Ireland is going to be a lot more than they now think, or at least are willing to admit. When Eurozone politicians worry about 'contagion,' or one country wanting the debt relief that another country gets, it is a very real worry. And rightfully so, as voters in Portugal or Spain or (gasp) Italy who are burdened by debt that is seemingly intractable will also want relief. It is not just an Irish condition, it is a human trait.
2011-10-07 Point of Maximum Pessimism? by Niels C. Jensen of Absolute Return Partners
The current level of pessimism is quite overwhelming, in particular in Europe where the eurozone crisis has taken its toll on investor confidence. This has led to valuation levels we haven't seen since the dark days of 1981-82, just before we embarked on the 1982-2000 bull market - the biggest of all time. It is our view that investors will be amply rewarded if they begin to buy European equities at current levels, although it is a strategy that shall require both a solid stomach and some patience.
2011-10-01 Tough Choices, Big Opportunities by John Mauldin of Millennium Wave Advisors
There is a pattern, and the United States is no different than Greece or Ireland or Italy or Japan or any other country in history. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang! confidence collapses, lenders disappear, and a crisis hits. There's a limit to how much the bond market is going to let us borrow. As we approach that limit and we're not there yet, we have time, thank God we can make choices about how we want to deal with the problem. But the problem is too much debt and too high a deficit.
2011-09-24 Catastrophic Success by John Mauldin of Millennium Wave Advisors
Rick Perry touched the third rail of Social Security and called it a Ponzi scheme, which of course immediately made him the leading candidate in the shoot the messenger category. Behind the rhetoric, I look at some actual numbers. Not the unfunded liabilities, thats too easy. Lets look at what a heartless, uncompassionate man President Roosevelt was when he started Social Security. And of course, we must start off with the results of the FOMC meeting, which has me feeling not at all amused. What are they thinking? Apparently, they are seeing the results from another, alternative universe.
2011-09-21 Liquidity Crisis? A Currency Perspective by Axel Merk of Merk Funds
In 2008, the global financial system faced a potential meltdown when funding seized up for investment banks, ultimately leading to the failure of Lehmann Brothers. Three years on, we have got plenty of problems, but as we shall argue - investors may want to differentiate between a financial meltdown and insolvency. While complaining about policy makers and bankers may generate animated water cooler discussions, lets take their human (and fallible) nature as a given, and discuss implications for investors. In this context, we assess the U.S. dollar, currencies and equities.
2011-09-17 Twist and Shout? by John Mauldin of Millennium Wave Advisors
What in the wide, wild world of monetary policy is the Fed doing, giving essentially unlimited funds to European banks? What are they seeing that we do not? And is this a precursor to even more monetary easing at this next weeks extraordinary FOMC meeting, expanded to a two-day session by Bernanke? Can we say 'Operation Twist?' Or maybe 'Twist and Shout?'
2011-09-13 The Handicap of Experienced Investors by J.J. Abodeely, CFA, CAIA (Article)
In the investment business, assets under management are concentrated with the largest and most established firms. Understandably, investors tend to allocate capital to managers after they've established a good track record. Unfortunately, for many, the analysis stops there. By failing to separate good results from identification of what makes a great investment manager, investors are primed for disappointment.
2011-09-10 Preparing for a Credit Crisis by John Mauldin of Millennium Wave Advisors
This week we turn our eyes first to Europe and then the US, and ask about the possibility of a yet another credit crisis along the lines of late 2008. I then outline a few steps you might want to consider now rather than waiting until the middle of a crisis. It is possible we can avoid one but whether we do depends on the political leaders of the developed world making the difficult choices and doing what is necessary. And in either case, there are some areas of investing you clearly want to avoid. Finally, I turn to the weather and offer you a window into the coming seasons.
2011-09-08 Bleak Outlook? MLPs May Help Cushion Against Market Volatility by Team of Emerald Asset Advisors
Professional investors spend a lot of time studying probabilities. That is because, just as the direction of the recent Hurricane Irene featured a "cone of uncertainty," the financial markets often change course without warning and can wreak havoc on investor portfolios. Alternative investments, including Master Limited Partnerships, may help limit damage from the inevitable financial storms that investors may face. In today's uncertain economy and volatile markets, MLPs - while not immune - can provide attractive yields and relatively low correlation to the stock and bond markets.
2011-09-02 If Carlsberg Did Mortgages by Niels C. Jensen of Absolute Return Partners
The old world is drowning in debt. Governments are responding with austerity programmes and near zero interest rates but neither will work. Economic growth will be required to get the escalating debt under control, but policy makers need to dig deep into the tool box for different ideas as to how to create this growth. In this month's Absolute Return Letter we focus on one particular idea which will greatly benefit economic growth at no cost to the tax payer - reform the mortgage finance system across the world, using the model developed by the Danes over the past 200 years.
2011-09-01 Updated Ideas for Fixed Income Positions by Team of American Century Investments
The current environment and related factorsincluding double-dip recession concerns, equity and high-yield corporate bond market volatility, moderate inflation expectations in the near term, and premium pricing for U.S. Treasury securitieshave raised questions for investors as they return from summer activities and re-examine fixed income investment positions. It is difficult to address all investor situations and scenarios. So for our hypothetical allocations in this piece, we will focus on fixed income positioning within employer-sponsored retirement plans, both qualified and non-qualified.
2011-08-27 The End of the World, Part 1 by John Mauldin of Millennium Wave Advisors
It is only a matter of time until Europe has a true crisis, which will happen faster BANG! than any of us can now imagine. Think Lehman on steroids. The US gave Europe our subprime woes. Europe gets to repay the favor with an even more severe banking crisis that, given that the US is at best at stall speed, will tip us into a long and serious recession. Stay tuned.
2011-08-24 Much Ado About Debt: Dollar vs. Euro by Axel Merk of Merk Funds
A key reason for recent market turmoil may be the long overdue untangling of important debt-driven interdependencies between the U.S. and Europe. Not only has the Feds ultra-low monetary policy taken away any incentive to engage in meaningful reform in the U.S., but the easy money also spilled far beyond U.S. shores, providing European banks with hundreds of billions of reasons not to shore up their capital bases. With volatility riding high, investors appear to be chasing emotions rather than facts.
2011-08-23 Strategies for a Rising Rate Environment by Jayant Kumar of Fisher Francis Trees & Watts (Article)
Shortening the duration of a fixed-income portfolio is often considered the default option, but it is not the only way to hedge against a potential rise in interest rates. This article provides investors with a framework to analyze and implement a range of fixed-income strategies, and highlights various investment considerations that should carefully be taken into account.
2011-08-20 The Recession of 2011? by John Mauldin of Millennium Wave Advisors
If we are headed into recession, and I think we are, then the stock market has a long way to go to reach its next bottom, as do many risk assets. Income is going to be king, as well as cash. Well know several things. Recessions are by definition deflationary. Yields on bonds will go down, much further than the market thinks today. And while the Fed may decide to invoke QE3 to fight a deflation scare, the problem is not one of liquidity; it is a debt problem.
2011-08-13 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
In short, there are no easy solutions. We have just about used up all our rabbits in the hat as far as fiscal and monetary policy are concerned. We now need to focus on what we can do to get out of the way of the private sector, so it can find ways to create new businesses and jobs. And that means figuring out how to get money to new businesses, because that is where net new jobs come from. But that takes time...
2011-08-09 New Insights on the Role of Alternative Investments in High-Net-Worth Portfolios by Scott Welch, CIMA (Article)
Trends and developments over the past five years allow greater access to alternative strategies and dictate a different conversation with investors about the purpose and trade-offs of such strategies, as well as appropriate ways to incorporate them into well-diversified portfolios.
2011-08-08 Why US of AA Matters by Niels C. Jensen of Absolute Return Partners
So what does it mean? Near term, other U.S. financial institutions (Fannie Mae? Freddie Mac? JP Morgan?) will be downgraded as a result - perhaps as early as today or tomorrow. Following that, if Standard & Poors wants to maintain whatever credibility it has left, it will probably have to downgrade a few sovereigns as well. France springs to mind; it is not far behind the US as far as profligacy is concerned, and it may prove difficult for Standard and Poors to justify the AAA rating it currently assigns to France.
2011-08-06 The Case for Going Global Is Stronger Than Ever by John Mauldin of Millennium Wave Advisors
If we have learned anything from the current financial mess, its that building wealth is dependent on rational analysis, careful decision making, and risk management. Thats why sticking close to home at a time when our markets are more uncertain than ever is a recipe for disaster and absolutely the wrong thing to do. Not only will you miss out on the worlds fastest-growing markets, but the odds are exceptionally high that you will miss as much as 50% or more in potential returns over the next decade.
2011-08-05 Denominators Matter! What the Price of Gold Tells Us About the Value of Other Assets by JJ Abodeely of Sitka Pacific Capital Management
In an environment where holding either U.S. dollar cash or a broad market portfolio may be detrimental to real wealth preservation, more active asset allocation is required. Portfolio managers who have a broad toolbox of assets to choose from, nimbleness and flexibility, and an eye on the denominators that show us real value, will be in an enviable position to capitalize on the next great bull market in stocks.
2011-08-03 The Trouble with Quants by Chris Brightman of Research Affiliates
Quant managers often over-engineer their products. When these products collapse, they leave investors confused and upset. On this fourth anniversary of the August 2007 Quant Meltdown, we look at what lessons can be learned from the past and how they may apply to some current investment strategies.
2011-07-30 An Economy at Stall Speed by John Mauldin of Millennium Wave Advisors
The economy is at stall speed, it is quite possible well see further downward revisions to the already anemic growth numbers, and Congress and the President are dithering over the debt ceiling. It will not take much to push us into an outright recession. We can go a few days, I think, with the latter problem, but not too long or the markets will throw up.
2011-07-26 Comfort is Rarely Rewarded; Maverick Risk and False Benchmarks by J.J. Abodeely, CFA, CAIA (Article)
Conventional investment strategies, while affording the investor at least a temporary degree of comfort, are destined to produce mediocre results. Only by distancing themselves from the ordinary approach – as Jeremy Grantham and Seth Klarman have – can asset managers achieve superior performance and truly fulfill their fiduciary duties by acting as proper stewards of their clients’ capital.
2011-07-23 Kicking the Can Down the Road One More Time by John Mauldin of Millennium Wave Advisors
I hope Europe pulls it off. I really do. They have done the US a huge favor by adopting this latest plan, as it keeps their banking system from imploding; because their banks are essentially insolvent with all the sovereign debt on their books. Such a banking crisis, which would be worse than 2008, in my opinion, would no doubt plunge a world already slowing down back into recession and pull our own slow-growth economy down into recession with them. How long can they kick the can down the road? My guess is that it will be longer than we suspect.
2011-07-21 Making the U.S. Dollar Safer: Return ON Your Money by Axel Merk of Merk Funds
Todays debate may be focused on whether the debt ceiling will be raised, but its tomorrows debate that really concerns us. Last week, Standard & Poors made it clear that raising the debt ceiling would be one thing, but in order to withhold a downgrade to the U.S. credit rating, the U.S. must show that it is not maxed out. In other words, show that it would be able to manage another crisis, or a potential war. What would be the implications of a credit downgrade? And what policies would need to be engaged in, in order to avert a downgrade and strengthen the U.S. dollar over the long-term?
2011-07-20 Secular Outlook: Implications for Investors by Bill Benz of PIMCO
As the economy undergoes important realignments, investors will need to rethink their traditional approaches to managing their portfolios. As the lines between interest rate and credit risk become blurred, finding sources of safe spread becomes even more critical. More, not less, discretion is warranted when navigating volatile global markets, avoid sectors affected by financial repression and hedge against inflation and/or adverse tail events. We believe investors need to look at risk factors rather than traditional asset classes when making asset allocation decisions.
2011-07-16 Back to the Basics by John Mauldin of Millennium Wave Advisors
This week we are going to revisit some themes concerning the problems of the debt and the deficit. I am getting a number of questions, so while long-time readers may have read most of this in one letter or another, it is clearly time for a review, especially given the deficit/debt-ceiling debate. I will probably offend some cherished beliefs of most readers, but that is the nature of the times we live in. It is the time of the Endgame, where things are not as black and white as they have been in the past.
2011-07-09 What Happened to the Jobs? by John Mauldin of Millennium Wave Advisors
The economy will be slowing down. A recession in 2012 is a real possibility if there is any type of shock coming from Europe. Most European leaders are basing their thinking more on hope than on reality. When Greece defaults there will be a domino effect. And you could actually see a banking crisis before we get actual sovereign defaults. The market does not get it. Neither in Europe nor in the US. When someone says the market has already priced in a default, go back and ask them how well the market priced in a crisis in the spring of 2008. The market doesn’t know jack.
2011-07-08 What Happens Next? by Niels C. Jensen of Absolute Return Partners
If Portugal and Ireland, and eventually also Spain and Italy, increasingly get dragged into this crisis – and everything I see on the horizon suggest they will – the €400 billion the ECB has pumped into the banking sector in those countries so far will be pocket money compared to what will be required going forward. At some point the creditor countries will say enough is enough. And if the politicians don’t know when to say no, the electorate will do the job for them. The ECB’s strategy for now seems to be one of buying time.
2011-07-02 My View on the Last Half of the Year by John Mauldin of Millennium Wave Advisors
The economy should be in Muddle Through range (around 2% growth), absent any shocks. For instance, today we had the June ISM number, which was stronger than most analysts expected, at 55.3. There was a lot of whispering that it could dip below 50. Some of the internal components were a little soft, though. New Orders were barely above 50. And Backlogs fell below 50. Exports fell to the lowest level in two years (more on that below). Of the 18 industries surveyed, only 12 reported growth. But Muddle Through is not going to allow us to really cut into the unemployment problem.
2011-06-25 The Contagion Risk of Europe by John Mauldin of Millennium Wave Advisors
Europe would be better off just taking the money they are giving to Greece and using it to recapitalize their banks. Let Greece go. Give it up. Let them enter a 12-step program or whatever it is that insolvent nations do. That is harsh, but it is also the truth.
2011-06-21 Investing Based on Jeremy Grantham's Forecast for Diminishing Resources by Robert Huebscher (Article)
In his most recent commentary, Jeremy Grantham became one of the first mainstream investment professionals to publicly forecast a world economy threatened by diminishing natural resources. A survey of our readers showed that an overwhelming majority agree with Grantham's views. But constructing a portfolio positioned to capitalize on those themes is exceedingly difficult.
2011-06-21 Euro: Safer than the U.S. Dollar? by Axel Merk of Merk Funds
Which one is safer: the euro or the U.S. dollar? Before jumping to a conclusion one way or the other, let’s look at different sides of the respective coins. We have been warning for years that there may be no such thing anymore as a safe asset and investors may want to take a diversified approach to something as mundane as cash. We believe Greece has rather serious issues, but concerned investors may want to take a closer look at their dollar holdings for potential “contagion” risks.
2011-06-10 Time to Get Outraged by John Mauldin of Millennium Wave Advisors
This week we look at data from the Bank of International Settlements, by which (if someone does a lot of work) you can figure out how much US banks have written in credit default swaps to banks in Europe on Greek, Irish, and Portuguese debt. The details should not make you happy. I meditate on whether one should buy a house now, and then discuss “the way out” of all this mess and why we will Muddle Through.
2011-06-07 Modern Portfolio Theory IS Harming Your Portfolio by JJ Abodeely of Sitka Pacific Capital Management
In a recent paper, Scott Vincent argues that the flawed foundation of MPT has allowed its advocates to control the language of the debate and set the stage for the obvious conclusion that passive index-based investing is inherently superior. And don’t think for a second that this debate is simply theoretical, academic, or unimportant– the basic tenets of MPT shape the decisions of nearly all investors in profound and often disturbing ways. YOUR money is almost certainly being managed with these ideas at the core. The traditional approach to asset allocation is built on false axioms.
2011-06-03 Five Misconceptions Squashed by Niels C. Jensen of Absolute Return Partners
DSK is not the only one in need of a bailout! As the sovereign crisis intensifies - and it will - bond yields in some countries will go higher. But they won’t go higher everywhere. Demographic as well as technical factors (e.g. Solvency II) will drive ever more money towards bonds, and that money will have to go somewhere. Germany, Switzerland and Scandinavia are probably the safest bets in terms of where sovereign bond yields could fall further. You should also expect high quality corporate bond yields to trade through sovereign yields in many countries. The trend has already begun.
2011-06-03 Economic Whiplash by John Mauldin of Millennium Wave Advisors
The political winds in Europe are shifting. The crowd that runs the various member countries today will not long survive the changes. There will be new politicians with different mandates as it becomes clear that the costs of the bailout are going to fall on the backs of the solvent countries and that austerity is going to mean hellishly bad deflation, high and rising employment, and depression in the indebted countries. And with the US economy slowing down, it might not take much to push us over the edge.
2011-05-31 Letter to the Editor On Absolute Return, Market Neutral and Long-Short Funds by Todd Huster (Article)
A reader responds to a market commentary, What is conservative about Absolute Return, Market Neutral, or Long/Short Mutual Funds?, by Kendall Anderson of Anderson Griggs, which appeared on May 23, 2011.
2011-05-31 Weekly Commentary & Outlook by Scotty George of du Pasquier Asset Management
So what is the state of the economy and the financial markets? Poor. Whether it’s drought, weather disasters, human disasters, or economic uncertainty, the markets seem to be going nowhere. The most potent markets are driven by cash, confidence, and confluence. But with two bear markets in the last decade, behavior and attitudes have changed. There has been a drastic decline in consumer confidence brought on by the dot.com bubble and by the horrific events of 9/11 and their reverberations. No matter how accessible cash became, it only seemed to lead to some kind of disaster.
2011-05-28 A Random Walk Through the Minefield by John Mauldin of Millennium Wave Advisors
In the last 48 hours, so much news has come out of Europe that has me frankly shaking my head. It is a strange game of brinksmanship they are playing, and it is one we should be paying attention to (as if the brinkmanship played by US politicians over the debt ceiling is not enough). This week we look at what seems to be European leaders taking random walks through the minefield at the very heart of the European Experiment. As Paul Simon wrote, “A man sees what he wants to see and disregards the rest.”
2011-05-26 How Quickly They Forget by Howard Marks of Oaktree Capital
Asset prices fluctuate much more than fundamentals. Rather than applying moderation and balancing greed against fear, euphoria against depression, and risk tolerance against risk aversion, investors tend to oscillate wildly between the extremes. They apply optimism when things are going well in the world (elevating prices beyond reason) and pessimism when things are going poorly (depressing prices unreasonably). If investors remembered past bubbles and busts and their causes, and learned from them, the swings would moderate. But, in short, they don’t. And they may be forgetting again.
2011-05-24 Debt Ceiling Jeopardizes Dollar’s Reserve Status by Axel Merk of Merk Funds
While borrowing costs for the U.S. government have not yet risen, irreparable harm may have already been done to the U.S. dollar and its status as a reserve currency. Ironically, it’s not a plunging, but a rallying bond market that is a symptom of the problem. Most observers believe that a) the Treasury has a big bag of tricks to continue servicing the debt; and b) politicians will play a game of chicken, but eventually do what they always do: agree to spend more money. We don’t know how the bond market will react; but we do know that policy makers are playing with fire.
2011-05-24 What is conservative about Absolute Return, Market Neutral or Long/Short Mutual Funds? by Kendall J. Anderson of Anderson Griggs
The machine of Wall Street has convinced many individuals who believe they are prudent, conservative, investors that a mutual fund whose name or objective includes the terms Absolute Return, Market Neutral, Long/Short or hedged, will never lose your money. An individual whose fear of losing again from common stocks just can’t bear sitting on cash and earning a nickel of interest every three months 1k. The desire to increase returns is just too great. Before you fall for the hype there are a few things you should know. The most important item you should remember is that there is no guarantee.
2011-05-14 Kicking the Can to the End of the Road by John Mauldin of Millennium Wave Advisors
A crisis is brewing in the US and one is coming to a slow boil in Europe. We visit Greece and Ireland and ponder how this will end. It is all well and good to kick the can down the road, but what happens when you come to the end of the road? The European answer seems to be to haul in the heavy equipment and extend the road. In short, we are watching the biggest bubble of all time, the bubble of government debt, try to keep from popping. My bet is that it can’t. And while the ride will be bumpy, the world our kids get will be better off at the end of the process.
2011-05-07 Muddle Through, or Crisis? by John Mauldin of Millennium Wave Advisors
This week I finish the two-part letter on the Endgame and give you my thoughts on the economy over the next five years. This is the second part of a speech I gave last week at the Strategic Investment Conference in La Jolla. It is a rather bold forecast, and fraught with peril and likely errors, but that is my job here. I must offer one large caveat! If the facts change so will my forecast, but this is the view into my very cloudy crystal ball as I see it today. As always, remember that those of us in the forecasting world are often wrong but seldom in doubt. Read accordingly.
2011-05-03 Profiting From the Urge to Merge by Team of Emerald Asset Advisors
If it seems there has been a significant uptick in mergers & acquisitions ("M&A") lately, it's not your imagination. In the first quarter of 2011, worldwide M&A activity rose 55% from the comparable period in 2010. More than 9,600 deals with a value of nearly $800 billion were announced, the highest levels since the second quarter of 2008. We believe the recent pick-up in M&A activity is more than a simple rebound off the lows of the Great Recession and is likely part of a broader, longer-term trend. A confluence of factors supports this hypothesis.
2011-05-03 The Dollar: It’s Payback Time! by Axel Merk of Merk Funds
It’s payback time for Ben Bernanke. In some ways, this should neither surprise, nor scare anyone. Unfortunately, it might do both. In any open market, information is absorbed into asset prices, including exchange rates. Indeed, exchange rates may be the best pricing source to assess the impact of the relentless involvement of policy makers’ “print and spend” mentality in the markets. When trillions are spent, markets are likely to move. However, an unintended consequence has been that a broad range of assets are now moving more and more in tandem, giving investors fewer options to diversify.
2011-05-03 The Case for Human Ingenuity by Niels C. Jensen, Nick Rees and Tricia Ward of Absolute Return Partners
This month we take a closer look at oil and reach what many of our readers will probabaly find a surprising conclusion: We believe that we are approaching the end of the oil era and that oil prices will undergo a substantial correction over the next several years. But we cannot be very precise on timing, as there are too many variables at this stage. Our conclusion is based on 3 observations.
2011-04-29 The Endgame Headwinds by John Mauldin of Millennium Wave Advisors
By Endgame I mean the period of time in which many of the developed economies of the world will either willingly deleverage or be forced to do so. This age of deleveraging will produce a fundamentally different economic environment lasting anywhere from 4-6 years. Now, whether this deleveraging is orderly, as now appears to be the case in Britain, or more resembles what I have long predicted will be a violent default in Greece, it will create a profoundly different economic world from the one we have lived in for 60 years.
2011-04-28 Venerated Voices™ Update for the First Quarter of 2011 by Advisor Perspectives (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, has published a quarterly update to its 2011 Venerated Voices awards. Final results will be tallied at the end of the year. Rankings were issued in three categories: The Top 25 Venerated Voices™ by Firm, The Top 25 Venerated Voices™ by Author and The Top 10 Venerated Voices™ by Commentary.
2011-04-26 Cerulli Survey Results: Advisor Use of Tactical Allocation by Tyler Cloherty (Article)
Advisors have increasingly turned to tactical allocation to manage client risk. While there has been abundant discussion on how this approach should be executed in theory, our survey results show what advisors are doing today in their practices.
2011-04-23 The 'Miracle' of Compound Inflation by John Mauldin of Millennium Wave Advisors
Investors will face the “zero bound” in interest rates for a while longer. They can sit on their cash and earn nothing. They can fret and wring their hands about a ramp-up in inflation, but the evidence so far does not support it. They can stay in the US dollar, in which case they can watch their dollars weaken relative to the rest of the world. Travelling in Sicily or Rome validates how strong the euro is relative to the dollar. All you have to do is buy a dinner or hotel room.
2011-04-16 The Cure for High Prices by John Mauldin of Millennium Wave Advisors
Today we once again think about the inflation/deflation debate, turn our eyes to Europe and the very interesting election happening there this Sunday, and speculate a little about what could derail the US economy. The old line is that the cure for high prices is high prices. When prices rise, businesses tend to respond by producing more. If the price of something gets too high, then people buy less, which then leads to too much supply, which lowers prices. Rinse and repeat. Last week I wrote about what I think is the potential for inflation in the US to rise to uncomfortable levels (4-5%)
2011-04-14 U.S. Dollar – Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
We believe that continued U.S. dollar weakness may be a consequence of the diverging monetary approaches central banks are taking around the globe. While many international central banks have been on a tightening path, raising rates (i.e. Australia, Brazil, Canada, China, India, Norway, Sweden, to name a few), the U.S. Federal Reserve has been conspicuous in its continued easing monetary policy stance. Indeed, while other central banks have been shrinking the size of their balance sheets, the U.S. Fed’s balance sheet continues to expand on the back of ongoing quantitative easing policies.
2011-04-11 Bond Market Review & Outlook by Thomas Fahey, Teri L. Mason and David W. Rolley of Loomis Sayles
The power of easy money policy to dampen volatility is evident in the global bond markets. There has not been any systemic credit spread widening or major jump in risk aversion on the back of the significant political upheaval or natural disaster. The collective investor conclusion seems to be that the impact of the losses will not derail global growth, and Japanese reconstruction may even contribute to it later this year. Specifically, Chinese growth still looks on track for a strong year, and labor markets in the US have at last begun to show something like a normal recovery.
2011-04-09 The Curve in the Road by John Mauldin of Millennium Wave Advisors
We have chosen deliberately to take the inflation road. We have not traveled that road for some time. The Fed may think they know what is around the curve and what to do if inflation comes back, but no two crises are the same. I worry about these things. If the Fed and the US government wanted a weaker dollar, the return of inflation, and the potential for yet another boom-bust, they could not have designed better policies than the ones they’re pursuing.
2011-04-05 Is Alpha Dead? by Andreas Steiner (Article)
While beta has been declared dead several times in the past, alpha is a survivor. My diagnosis is that alpha, however, is in very critical condition itself, even under the most optimistic interpretation. A more realistic assessment is that alpha is dead.
2011-04-05 Does a Weak Dollar Cause Inflation? by Axel Merk of Merk Funds
Should investors be concerned that a weaker U.S. dollar causes inflation? The price at the gas pump should be a stark reminder that a weaker dollar may contribute to higher prices. Yet, economists tell us that food and energy inflation does not count. Why do economists have such a baffling sense of logic? Are economists really aliens in disguise, locked up in ivory towers? Let’s shed some light on the logic and why it may not merely be strange, but wrong.
2011-04-04 Confessions of an Investor by Niels C. Jensen of Absolute Return Partners
Woody Brock is advocating a regime change. Throw away the generally accepted approach of two generations of investment ‘experts’ and start again, is Woody’s recommendation. As a practitioner, I certainly recognise the limitations of MPT and I agree that, in the wrong hands, it can be a dangerous tool, but there is also a discipline embedded in MPT which carries a great deal of value. And, in fairness to Woody, he does in fact agree that you can take the best from MPT and mix it with a good dose of ‘common sense’ and actually end up with a pretty robust investment methodology.
2011-04-02 The Plight of the Working Class by John Mauldin of Millennium Wave Advisors
Although the headline unemployment number went down to 8.8%, the only way you can get to that number is by not counting the millions who have dropped out of the employment pool, too discouraged to look, but who will take a job if they can get one. If you go back and take the number of people in the labor force just two years ago, the unemployment picture is back over 10% (back-of-my-napkin math).
2011-03-29 GMO's Market Outlook: 'Disappointingly Overvalued' by Robert Huebscher (Article)
Opportunities across US and foreign assets classes are unattractive, according to Ben Inker, the head of asset allocation at the Boston-based global money manager Grantham, Mayo, van Otterloo & Co. (GMO). Neither the equity nor fixed income markets hold the potential for investors to earn acceptable inflation-adjusted returns, Inker said.
2011-03-26 Unintended Consequences by John Mauldin of Millennium Wave Advisors
Governments around the world need to be alert and make difficult choices to deal with a world excess liquidity. From an investor’s point of view, enjoy the current ride in emerging markets but recognize that they are high beta to the U.S. economy and stock markets. The next time the United States goes into recession—and there will be a next time—it is likely that emerging markets will suffer significant losses. So, emerging markets are a trade and not a long-term investment.
2011-03-22 Consensus: Groundhog Decade for Stocks by Ed Easterling (Article)
Just as Bill Murray woke up to the same thing day after day in the movie 'Groundhog Day,' it's likely that your outlook foretells a groundhog decade for the stock market that will repeat its near-breakeven returns from the past decade.
2011-03-19 The End of QE2? by John Mauldin of Millennium Wave Advisors
The Fed committed to buying $600 billion of Treasuries between the beginning of QE2 in November and the end of June. June is 3 months away. What will happen when that buying goes away? The hope when QE2 kicked off was that it would be enough to get the economy rolling, so that further stimulus would not be deemed necessary. We’ll survey how that is working out, with a quick look at some recent data, and then we go back and see what happened the last time the Fed stopped quantitative easing.
2011-03-15 U.S. Government: Evermore Reliant on Foreign Investors by Kieran Osborne of Merk Funds
Despite the Fed recently surpassing China as the largest owner of U.S. government debt, the U.S. remains heavily reliant on foreigners to fund the government’s ongoing fiscal largess. Geithner’s Treasury Department has firmly focused new issues at the mid to longer end of the yield curve. Despite the Treasury taking advantage of the ultra-low interest rate and funding environment, there are substantial refinancing issues over the near term; moreover, many of these maturing issues are foreign owned.
2011-03-12 Inflation and Hyperinflation by John Mauldin of Millennium Wave Advisors
Companies and households typically deal with excessive debt by defaulting; countries overwhelmingly usually deal with excessive debt by inflating it away. While debt is fixed, prices and wages can go up, making the total debt burden smaller. People can’t increase prices and wages through inflation, but governments can create inflation, and they’ve been pretty good at it over the years. Inflation, debt monetization, and currency debasement are not new. They have been used for the past few thousand years as means to get rid of debt. In fact, they work pretty well.
2011-03-01 The Absolute Return Letter by Niels C. Jensen of Absolute Return Partners
Two remarkable events unfolded during the month of February. One cleared the front pages all over the world. The other one barely got a mention - outside of its home country that is. Both have the ability to derail the economic recovery currently unfolding. The first one is not surprisingly the uprising in the Middle East and North Africa. The other one is perhaps less obvious; we are referring to the Irish elections. We take a closer look at both of those events and what the implications may be for financial markets.
2011-03-01 The 10% Problem by Nathan Rowader of Forward Management
Many investors continue to expect 10% returns — but these days, are doing well if they earn 5%. They need to understand why major shifts in the global investment climate are challenging them to reset return expectations and reboot their plans. After six decades of double-digit average U.S. stock market returns, many American investors may have come to expect that they will earn similar returns going forward. And why wouldn’t they? From 1948 to 1978, for example, the U.S. stock market generated an average annualized total return of 10.7%.
2011-02-28 Oil that is by Jeffrey Saut of Raymond James Equity Research
“Oil that is, black gold, Texas tea,” Jed Clampett (Buddy Ebsen) got rich in the hit series The Beverly Hillbillies by discovering oil on his property. Similarly, investors have become enriched recently by owning oil stocks. Verily, crude oil has surged from ~$84 per barrel in mid-February into last week’s peak of $103.41 with an ascent for most oil stocks. As stated in Friday’s verbal strategy comments, “Libya is particularly troubling because I think there is a fifty-fifty chance that Gaddafi, rather than cede power, will begin blowing up Libyan oil pipelines – it’s either me or chaos.”
2011-02-26 When Irish Eyes Are Voting by John Mauldin of Millennium Wave Advisors
Mauldin reviews the Irish economy, citing a recent Vanity Fair article by Michael Lewis. Ireland's housing bubble caused prices to rise approximately 500%. More than 20% of the Irish workforce was employed in construction. Irish banks financed this, using selling bonds to other European banks. The Irish government made good on those debts, burdening its taxpayers. The end results is excessive debt for the EU, which appears to be unsupportable. On the crisis in the Middle East, Bahrain is the key country to watch out for.
2011-02-24 The Secular Case for Convertible Securities by David King of Columbia Management
The most common question from potential investors in convertible mutual funds goes something like this: “Is now a good time to get into convertibles?” The question is sincere and seems very relevant. The usual answer is: “It’s a pretty good time.” In the end, the usual result of this usual exchange is that most investors think about convertibles for a moment, and take no action. Behind any timing question about convertibles is the assumption that equities and traditional fixed income instruments are the core of a good portfolio and everything else is alternative.
2011-02-20 December 2010 Semi-Annual Report by John P. Hussman of Hussman Funds
For the third time in a decade, the Federal Reserve has embarked on a policy that addresses structural economic problems by provoking speculation in asset prices. The first two attempts were ultimately followed by stock market declines greater than 50% each. As we enter 2011, the stock market remains in what we view as an already strenuously overvalued advance, which has driven our estimates for S&P 500 Index total returns to less than 3.2% annually over the coming decade. My expectation is that this attempt to create “illusory prosperity” will end no better than it has in the past.
2011-02-16 The Case for Mid-cap Equities by Eagle portfolio managers of Eagle Asset Management
Mid-cap stocks have been a “sweet spot” in the U.S. equity markets given their risk/return characteristics. These stocks have produced excellent relative performance in both up and down markets, capturing more of the market in up periods and less of the market in down episodes over the same time period than their large-cap or small-cap counterparts.
2011-02-16 Politics of Inflation by Axel Merk of Merk Funds
In arguing food inflation is not the Federal Reserve’s (Fed’s) fault, Fed Chairman Bernanke points the finger at everyone but him. Just as with a lot of Bernanke’s policies, his argument may hold in an academic setting, but the real world is a bit more complicated.
2011-02-12 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin looks at an important paper from the Bank of International Settlements on “The Future of Public Debt.” While the debt supercycle is still growing on the back of increasing government debt, there is an end to that process, and we are fast approaching it. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. This leads the BIS to conclude that the question is when markets will start putting pressure on governments, not if.
2011-02-04 An Excerpt from Endgame by John Mauldin of Millennium Wave Advisors
Growth does not look that great, and people don’t feel the recovery. This is unlikely to change. The U.S. and most developed economies are currently facing many major headwinds that will mean that going forward, we’ll have slower economic growth, more recessions, and higher unemployment. Three large structural changes have happened slowly over time that we expect to continue going forward. The U.S. economy will have higher volatility,lower trend growth, and higher structural levels of unemployment (The United States here is a proxy for many developed countries with similar problems.)
2011-02-03 Feb 2011 Absolute Return Letter by Niels C. Jensen of Absolute Return Partners
We celebrate the Chinese New Year - the year of the rabbit - by taking a closer look at what is now the second largest economy in the world. We embrace the longer-term opportunities which present themselves, but we also discuss some of the near term challenges, which include uncomfortably high inflation combined with surprisingly weak economic growth towards the end of 2010. Enjoy the read!
2011-02-01 Fourth Quarter Letter by Team of Grey Owl Capital Management
In spite of Bernanke’s objective to put a floor on asset prices, including equities, we remain conservatively positioned. Equity and credit markets appear overvalued. In addition, with the U.S. and most developed-market economies significantly more leveraged than in the last 50 years, economic growth will likely be more volatile. Further, many potential exogenous forces could negatively influence public markets: over-leveraged municipalities, the PIIGS, and continued issues in the US housing market to name a few. Finally, there is no evidence that monetary policy can create real growth.
2011-01-29 A Bubble in Complacency by John Mauldin of Millennium Wave Advisors
The just released Q4 GDP of 3.2% may be overstated by 0.5% to 1.0% as a result of statistical adjustments. Consumer spending advanced, but that must be tempered by the support from fiscal and monetary policies. The growth in the deficit poses imminent danger of another recession, and the political landscape makes it unlikely a solution will emerge. Mauldin would like to see 'thought leadership' in the upcoming presidential election cycle, in order to build support for viable policies to revive the economy.
2011-01-25 Advisor Perspectives Announces First Venerated Voices Awards by Advisor Perspectives (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, today announced its first Venerated Voices™ awards, recognizing the market commentators who were most frequently read by advisors during 2010. Awards were issued in three categories: The Top 25 Venerated Voices™ by Firm, The Top 25 Venerated Voices™ by Author and The Top 10 Venerated Voices™ by Commentary.
2011-01-22 The Unsustainable Meets the Irresistible by John Mauldin of Millennium Wave Advisors
States are the largest component of US GDP, and states' revenues have declined 10% from their peak. On top of that, federal stimulus support for states is running out. Congress should allow states to declare bankruptcy and force unions to come to the bargaining table. The US is on an unsustainable path. Absent very serious fiscal remedies, long before we get to 2019 the bond markets will have taken away our ability to finance our debt at low rates.
2011-01-15 Thinking the Unthinkable by John Mauldin of Millennium Wave Advisors
Mauldin criticizes Bernanke's comment that a benefit of QE2 has been rising equity prices, arguing that this would amount to a third mandate for the Fed. He commends Richard Fisher of the Dallas Fed for his comments that monetary policy is not a tool to solve the country's fiscal problems. Mauldin then says that a big treat to his growth forecast is continued sovereign debt problems in Europe. Lastly, he questions whether China can engineer a soft landing for its economy, given rising inflation.
2011-01-11 Tactical Asset Allocation and Market Timing: What's the Difference? by Nancy Opiela (Article)
Why is it that the industry dismisses significant changes to portfolio allocations as "market timing" transactions but embraces the subtler "tactical shifts" many advisors are making in the current, transitional market? As advisors debate the nuances of that question, the more relevant question may be: How would you respond if a client asked you to explain the difference between market timing and tactical asset allocation?
2011-01-10 "Illusory Prosperity" - Ludwig von Mises on Monetary Policy by John P. Hussman of Hussman Funds
Perhaps more than any other economist, Ludwig von Mises got the theory of money and credit right, because he made distinctions between various forms of money and credit that are often conflated by other theorists. The amount of real physical investment in the economy is, and must be, precisely equal to the amount of output not allocated to consumption but instead to savings. Unlike many other economists, Von Mises not only recognized this identity, but carried it through to what it implied for monetary policy.
2011-01-03 Setup and Resolution by John P. Hussman of Hussman Funds
One of the striking features of the market here is the extent to which large-cap, high-quality has underperformed speculative sectors of the market, creating what we view as a multi-year "setup" in favor of high quality issues.
2010-12-23 Some Thoughts on Market Timing by John Mauldin of Millennium Wave Advisors
I have real doubts that there will be “hundreds of billions” of losses in the municipal bond market. It would take a default by almost every major municipal issuer, and a lot of small ones, to create a hundred billion in defaults, something not likely to happen. States will be forced to make spending cuts. Mauldin also cites three sources who he "highly respects" who advise to hedge US equity portfolios going into 2011.
2010-12-11 Unintended Consequences by John Mauldin of Millennium Wave Advisors
The recent rise in interest rates is due to the reallocation of globally indexed funds away from sovereign debt and into something else. The may be a prelude to a sovereign default or a more rapid rise in rates, which could unfold very quickly. Global deleveraging is not over. QE2 and the nervousness of investors around the world are pushing up interest rates.
2010-12-03 The Dirty Dozen by Niels C. Jensen of Absolute Return Partners
In the following I list a number of risk factors which I believe investors should give serious consideration, but I do not for one second pretend for that list to be exhaustive. Neither should you read anything into the order of which those risk factors are listed. If you want my assessment of how to rank the various factors, you need to take a look at the risk scatter chart at the end of the letter.
2010-11-09 New Strategies in Alternative Investments by Robert Huebscher (Article)
Alternative investments, broadly speaking, and hedge funds, more specifically, have performed as intended over the last 20 years, modestly increasing returns and significantly reducing risk when added to a traditional stock-bond portfolio. Selecting the appropriate vehicle is the challenge, and that task has been made easier by the introduction of new exchange-traded strategies.
2010-11-07 Bubble, Crash, Bubble, Crash, Bubble... by John P. Hussman of Hussman Funds
Given that interest rates are already quite depressed, Bernanke seems to be grasping at straws in justifying QE2 on the basis further slight reductions in yields. By irresponsibly promoting reckless speculation and illusory "wealth effects," the Fed has become the disease. The economic impact of QE2 is likely to be weak or even counterproductive. Even though the S&P 500 is substantially below its 2007 peak, it is also strenuously overvalued once again.
2010-11-03 Four Rather Sick Patients by Niels C. Jensen of Absolute Return Partners
The world is in an unprecedented situation in which all four major trading currencies (EUR, GBP, JPY and USD) face serious challenges. Not all four major currencies, however, can fall at the same time. Currencies are unique in the sense that they are relative as opposed to absolute trading objects. You don't just buy dollars. You buy dollars against some other currency. The scaremongers may have their day in the sun, but ultimately common sense will prevail and currency traders will have to go back to focus on housing starts again.
2010-10-24 The Subprime Debacle: Act 2, Part 2 by John Mauldin of Millennium Wave Advisors
Buyers of mortgage-backed securities may be able to join together and force issuers to buy back those securities, if the loans they contain are defective. This is further complicated by the fact that some of those buyers were non-US entities. Bank of America is badly exposed through its acquisition of Countrywide, as are "dozens" of other banks.
2010-10-14 Baggage and Investing by Richard Bregman of MJB Asset Management
Many investors – still fearful of anything that carries risk – have piled into Treasury bonds, stunningly willing to accept paltry rates of interest in exchange for safety of principal. The strongest potential for gains right now, however, is in the common stocks of large, dividend paying multinational corporations that have repaired their balance sheets and have substantial cash on hand. Investors fearful of the stock market are leaving the prices of many of these companies at attractive levels, creating an opportunity for investors who are not as baggage-laden.
2010-10-05 Challenges and Solutions for Income-Seeking Investors by Team of American Century Investments
The Fed's prediction that it will keep its short-term interest rate target at 0-0.25 percent for 'an extended period' continues to affect the near-term game plan for risk-averse investors and savers. A period of potentially heightened uncertainty and low absolute returns means that maximizing risk-adjusted returns is crucial to investment success over time. An optimized mix of fixed income holdings with a variety of different risk levels can add value to investor portfolios in this low-yield and low interest rate environment.
2010-10-01 Insolvency Too by Niels C. Jensen, Nick Rees and Patricia Ward of Absolute Return Partners
On 1st January 2013, Solvency II, a new directive governing capital adequacy rules in the European insurance and life insurance industry, will come into effect. Going forward, European insurers will have to be able to pass a 1-in-200 years' event stress test, which has been designed to give the industry enough of a cushion to withstand even the most severe of bear markets without being forced to sell. Risky asset classes such as equities, commodities and other alternative investments will be assigned much higher reserve requirements than less risky asset classes such as bonds.
2010-09-27 Are 401(K) Investors Fighting Yesterday's War? by Rob Arnott of Research Affiliates
It is time for investors and their advisors to look forward, not backward, in their 401(k) investment planning. Inflation is the biggest single enemy to long-term investors. A portfolio of real return assets balanced with a stock- and bond-heavy 401(k) fund menu is the best way to build a portfolio for an uncertain future. To do this, one needs to include inflation hedges before inflation strikes and when they are least costly.
2010-09-25 Pushing on a String by John Mauldin of Millennium Wave Advisors
The Fed will move forward with aggressive quantitative easing (QE), unless economic growth reaches 1.5 percent to 2.0 percent. The Fed's QE efforts thus far have been ineffective, because funds remain on banks' balance sheets. Future efforts would likely lower interest rates or possibly devalue the dollar, but it is unlikely it will stimulate growth.
2010-09-04 The Last Chapter by John Mauldin of Millennium Wave Advisors
Mauldin presents content from his forthcoming book. He reviews some fundamental precepts of economics, focusing on the Keynesian approach the US is taking to revive the economy. He presents data from Woody Brock showing that the US debt may rise by as much as $1.5 trillion per year. Ultimately, he says, the bond market will revolt and interest rates will rise and the results will be very unpleasant. Using taxes or savings to handle a large fiscal deficit reduces the amount of money available to private investment.
2010-09-02 Beggar Thy Neighbor by Niels C. Jensen, Nick Rees and Patricia Ward of Absolute Return Partners
Austerity hurts domestic economic growth, and all those countries facing harsh austerity programs over the next several years will thus realize that the only way out of the current predicament is through higher exports and/or lower imports. We cannot all export our way out of our problems, however. Somebody will have to do the imports. Lower economic activity will again lead to lower tax revenues for the public sector; it is a very unfortunate and rather vicious spiral which is also very deflationary.
2010-08-31 Why Mid-Cap? by RidgeWorth Investments (Article)
RidgeWorth Investments has published research detailing six distinct reasons why investors should consider a specific allocation to mid-caps. Specifically, it explores historical performance, evaluates current conditions that favor mid-caps as well as examines how mid-caps have performed during different points in market and economic cycles. Finally, the research looks at the incremental benefit of adding an allocation of up to 40% of mid-cap stocks to a portfolio of solely large and small cap stocks. We thank RidgeWorth Investments for their sponsorship.
2010-08-17 Cerulli Survey Results: New Themes in Advisors’ Portfolio Strategies by Bing Waldert (Article)
New ideas, such as tactical asset allocation and the use of alternatives, have seen some uptake even before the market crisis, particularly within large institutions, but they are receiving increased attention as solutions for risk-averse clients. This article examines some of the evolutions, using data from a Cerulli Associates survey of Advisor Perspectives readers conducted in June and July of 2010.
2010-08-03 Fear and Trembling Marked the Year's First Six Months by Whitney George of The Royce Funds
In roughly two years, we have moved from a market collapse to a market malaise driven by heightened fears concerning Greek debt. A slow-growth economy could lead investors to focus on two areas - high-quality companies and fast-growing companies. Any business that looks to be capable of swimming ahead of the pace of the economy as a whole is going to be in high demand, and this could benefit small-caps that boast strong balance sheets, high returns on invested capital and the ability to generate free cash flow.
2010-07-30 Core|Satellite Investing with First Eagle Funds by Team of First Eagle Funds
Many practitioners of core/satellite investing use the core of their clients’ portfolios to generate market-like returns with market-level risk exposure, or beta, and use satellite investments to produce excess returns, or alpha. Within this framework, passive investment vehicles — index funds and ETFs — have become standard core investments. First Eagle questions this approach, and believes an actively managed global portfolio should be the core.
2010-07-20 Martin Leibowitz’ Failed Defense of the Endowment Model by Michael Edesess (Article)
The latest book from Martin Leibowitz, one of the most respected thinkers in the investment industry, attempts to justify the endowment model of investing. As Michael Edesess writes in this review, Leibowitz's defense is highly problematic, and that should concern any advisor utilizing a Yale-like strategy.
2010-07-09 July 2010 Newsletter by Harold Evensky of Evensky & Katz
Evensky & Katz president Harold Evensky doesn't know about you, but he's getting tired of living in interesting times. Unfortunately the market gods don't much care for his opinion. So, given the reality that the markets have been a tad exciting lately, in addition to his regular meandering tidbits, he's included a number of items that he thought might provide a little perspective on the ranting of the financial talking heads.
2010-07-03 The Dismal Science Really Is by John Mauldin of Millennium Wave Advisors
Yesterday's unemployment numbers were very bad, and Mauldin explains how they were calculated and the implications of adjustments, such as the birth/death model. Personal income was also down, which is a very rare occurrence. Other indicators, including the money supply, are not indicative of economic growth. The Fed will act aggressively to thwart deflation.
2010-07-02 The Art of Outperformance by Niels C. Jensen of Absolute Return Partners
This month's letter is different. Our usual ramblings about the dire outlook for the global economy have been put aside for a while. Instead we focus on a couple of ideas for equity investors who have grown frustrated trying to beat the market - which is very difficult indeed. We do make some rather unflattering comments about active managers, but please note that these are specific to the equity space. In other, less efficient, asset classes, active managers often do much better than is the case in the equity world.
2010-06-07 The European Disease by Niels C. Jensen of Absolute Return Partners
It should be blatantly clear that Greece is by no means the only country at risk of falling into the much dreaded debt trap. The United Kingdom, the United States, New Zealand, Spain, France, Portugal and Australia are all in dangerous territory and Ireland is in very deep trouble on this account. This cross-European contagion risk threatens the very existence of our banking system, and it is this risk that French and German leaders are thinking about when they say that Greece will not be allowed to go down.
2010-06-05 There's a Slow Train Coming by John Mauldin of Millennium Wave Advisors
The question before the jury is a simple one, but the answer is complex. Is the US in a "V"-shaped recovery? Are we returning to the old normal? Mauldin concludes that the fundamentals are too weak to support robust growth, as typically follows a recession. He cites data from the Consumer Metrics Institute Growth Index, which suggests there will be a 2% GDP contraction in the third quarter, which he doubts will happen, but says the consensus 3% seems quite possible. He warns that if we go back into recession, the market on average drops 40%.
2010-05-11 Why Some Hedge Funds Made Money in 2008 by Robert Huebscher (Article)
Steven Drobny is the co-founder of Drobny Global, an international macroeconomic research and advisory firm that counts many of the leading global hedge funds and money managers as clients. He is also author of a recently released book that identifies why some hedge funds made money in the 2008 crisis, while the majority did not. In this interview, he discusses the common themes among successful strategies.
2010-05-08 The Center Cannot Hold by John Mauldin of Millennium Wave Advisors
Citing a paper from the Bank for International Settlements, Mauldin says increasing sovereign debt has two consequences - higher interest rates for that debt and lower growth rates for the underlying economies. Growth in sovereign debt at its current rate is unsustainable and poses systemic risks for the global economy. Fiscal austerity is the only solution, and that seems unlikely, particularly in the case of Greece.
2010-05-07 The Right Page of the Right Book by Team of Beacon Pointe
The beginning of 2010 saw a continuation of the 2009 rally. Most stock exchanges around the world, with the notable exception of China, posted positive returns for the quarter and added to their gains off the March 9, 2009 trough. The major indices, however, remain well below their previous highs. The post-bear rally has been fast and furious and at this time, a pause seems justified. The exact timing and nature of this pause, however, are highly uncertain.
2010-05-07 The Big Picture, the Investment Landscape, and Our Portfolio Strategy by Team of Litman Gregory
Debt reached binge levels during the past decade. Money to reduce the debt will have to come from somewhere, and much of it will come from reduced spending. Spending cuts could produce a sluggish economy, possibly for many years to come. There are some positives that could contribute to a better outcome, however, including continued strength from emerging economies. Domestically, we could see stimulus spending, low rates, and inventory rebuilding create a virtuous circle in which businesses with strong balance sheets add jobs, and consumer and business confidence builds and feeds on itself.
2010-05-05 The Commodities Con by Niels C. Jensen of Absolute Return Partners
Investor allocation to commodities has grown dramatically in recent years - to the point where commodities have become a mainstream asset class. Commodity prices have thus at least partly been driven not by fundamental demand but by demand from financial investors eager to diversify their equity risk and attracted to the seemingly high probability of generating uncorrelated returns. What these investors do not seem to understand, however, is that now that traders themselves determine market prices, the promised land of uncorrelated returns is little more than wishful thinking.
2010-04-20 Lessons from Yale’s Endowment Model and the Financial Crisis by Geoff Considine, Ph.D. (Article)
The Yale endowment's performance during the financial crisis was worse than what would be mathematically expected, but not significantly enough to question the endowment model's tenets. Moreover, Yale's performance and philosophy suggest two very important lessons for advisors and investors- to diversify beyond equities and fixed income, and that some illiquid asset classes can be an important source of alpha.
2010-04-17 First, Let’s Kill the Angels by John Mauldin of Millennium Wave Advisors
Provisions in the Dodd financial reform bill will impede angel investing in new ventures. Those provisions are the 120-day waiting period following SEC filing and the increase in minimum wealth requirements for accredited investors. Separately, the problems that Goldman now faces are "the tip of the iceberg," and at least eight other banks will face similar problems.
2010-04-09 Reform We Can Believe In by John Mauldin of Millennium Wave Advisors
Appointments to positions of power in the Federal Reserve system should be independent of the political process and party politics. Credit default swaps should be regulated by requiring that they be traded on an exchange. Commercial and investment banking should be separated, so that commercial banks cannot engage in speculative activity such as running hedge funds. Leverage use by large banks should be restricted. "Fix the big things. Credit default swaps. Too big to fail. Leverage. Then worry about the details. And leave the Fed alone."
2010-04-07 When the Facts Change by Niels C. Jensen of Absolute Return Partners
An echo bubble is upon us. Echo bubbles are the children of primary asset bubbles, and emerge when monetary authorities respond to the bursting of a primary asset bubble by slashing policy rates. Extraordinarily low interest rates are currently encouraging another bout of excessive risk taking. If policymakers raised rates now, however, they would almost certainly kill the fledgling recovery. The pressure is therefore on monetary authorities to keep rates low and feed the new bubble. Investors should steer toward assets that benefit from high volatility.
2010-04-03 Is This a Recovery? by John Mauldin of Millennium Wave Advisors
"We will likely see a reduction in government spending (from all levels) over the next few years, a really nasty set of tax increases, which will hit small businessmen the hardest, and continued high unemployment, and all of it coming in a weakening economy by the end of the year," says John Mauldin. "I put the odds of a double-dip recession in 2011 at better than 50-50." Mauldin also offers asset allocation advice over a 10-year time frame.
2010-03-30 Multisector Strategies in a Rising Rate Environment by Dan Fuss, Kathleen Gaffney, Matt Eagan and Elaine Stokes of Loomis Sayles
For three decades, the prevailing direction for interest rates was down. This made life easy for bond investors, since principal held up well and even grew for the most part. The cost of these falling rates, however, was steadily lower coupons. One of the best defenses against this reinvestment risk is to maintain a long duration in a bond portfolio with good call protection. The good news is that reinvestment risk appears to be waning as declining interest rates possibly prepare to reverse, and this could create potential for better yields.
2010-03-27 What Does Greece Mean to You? by John Mauldin of Millennium Wave Advisors
The potential consequences of the Greece debt crisis can be explained by chaos theory, where a small perturbation in one place (the Greek economy) can cause bigger ripples in the global economy. Greek debt is held by European banks, and a Greek default would weaken the European economy. The real crisis, though, is the impending end of a "60-year debt supercycle," which implies many years of deleveraging and a weak global economy.
2010-03-20 The Threat to Muddle Through by John Mauldin of Millennium Wave Advisors
Mauldin criticizes Krugman's call for a 25% tariff on Chinese imports, and instead predicts that China will allow its currency to appreciate 5-7% per year for the next several years. Protectionism, he says, is the biggest threat to global recovery. In defense of his argument, Mauldin says similar tariffs could be imposed if the euro, Yen and the Canadian dollar continue their current trends. The larger problem is the growing US deficit, which must be dealt with in the medium term, or there will be no long term.
2010-03-13 The Implications of Velocity by John Mauldin of Millennium Wave Advisors
Mauldin examines the relationship between the velocity of money, economic growth and inflation. After reviewing the economic theory, he shows that the velocity of money in the US has decreased since the onset of the financial crisis, and attributes this to deleveraging and the pullback from the financial innovations that accelerated the velocity of money, particularly in the 1990s. The Fed has compensated for the slowdown in velocity by increasing the money supply, and Mauldin questions whether the Fed can effectively reduce the money supply once velocity increases.
2010-03-06 Welcome to the Future by John Mauldin of Millennium Wave Advisors
Mauldin reflects on an executive program held by the Singularity University that he recently attended. He discusses the potential for new advancements in robotics, artificial intelligence, nanotechnology, water purification, biotechnology, and several other areas.
2010-03-04 The Retirement Lottery by Niels C. Jensen of Absolute Return Partners
Aggressive advertising feeds us the fallacy that as long as we invest for the long term, equities will always provide us with solid returns. This may be true if your investment horizon is 30 or 40 years, but most people do not start saving for retirement until they are in their 40s. Hundreds of millions of baby boomers are now chasing whatever returns they can to ensure that they can retire in relative comfort. Jensen also examines the relationship between net private savings, foreign capital inflows and government debt.
2010-02-26 The Multiplication of Money by John Mauldin of Millennium Wave Advisors
Mauldin begins with a review of the situation in Greece, highlighting recent social unrest, and concluding that the most likely resolution will be relief from the IMF. Next, he rejects recent reports that hedge funds will short the euro and cause it to decline relative to the dollar. He then argues that the reported expansion of M0, M1 and M2 money supply is inconsequential (for inflation), because it is more than offset by a decrease in the velocity of money.
2010-02-20 The Pain in Spain by John Mauldin of Millennium Wave Advisors
Mauldin examine the Greek crisis the the potential direction of the euro. Spain, he says, is a more threatening crisis because its debt is much greater than Greece's. "Pay attention to Greece and Spain and especially Japan over the next few years," he says. "Unless the US gets its fiscal house in order, we will be next."
2010-02-13 Between Dire and Disastrous by John Mauldin of Millennium Wave Advisors
Mauldin discusses the Greek debt crisis and the options for resolving it. A Greek default "would bankrupt the bulk of the European banking system," but that is unlikely, he says. He cites Niall Ferguson's recent article in the FT and argues that the Greek crisis is a precursor to other countries facing similar sovereign debt problems.
2010-02-06 A Bubble in Search of a Pin by John Mauldin of Millennium Wave Advisors
Mauldin covers three topics. He digs into the employment numbers and concludes that it is a "mixed bag" - the numbers of unemployed rose but the unemployment rate declined. Looking at the Reinhart-Rogoff book, he argues that Fed policy makers were at fault for failing to recognize the housing bubble. Last, he discusses Greece's fiscal problems in a historical context.
2010-02-02 Good Day Sunshine by James A. Skinner of The Royce Funds
This is a review of 2009 market performance, with a focus on small-cap stocks. Historically, the authors argue, small-cap stocks are likely to lead in the decade that follows a decade of sub-par performance.
2010-01-30 This Time is Different by John Mauldin of Millennium Wave Advisors
Mauldin begins with an analysis of the reported Q4 GDP numbers, saying that it is not indicative of underlying growth in the economy. He then comments on the Reinhart-Rogoff book "This Time is Different," focusing on the point that governments can survive debt-fueled growth until confidence in them evaporates. He is discusses Greece's fiscal problems.
2010-01-28 Monthly Investment Commentary by Team of Litman Gregory
When the dust settled on one of the most eventful and upended years in memory, investors had generous gains in stocks and certain segments of the bond market to salve the wounds of a disastrous 2008 a
2010-01-23 Annual Report Letter to Shareholders by Hawkins and Cates of Longleaf Partners
Interestingly we have not been asked about the \'lessons of 2009.\' The first answer to that unasked question is that bottoms-up fundamental company analysis matters quite a bit. If it wer
2010-01-22 Thoughts on the End Game by John Mauldin of Millennium Wave Advisors
"As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubbl
2010-01-16 When the Fed Stops the Music by John Mauldin of Millennium Wave Advisors
Some time in the coming few years the bond markets of the world will be tested. Normally a deleveraging cycle would be deflationary and lower interest rates would be the outcome. But in the face of su
2010-01-09 2010 Forecast: The Year of Uncertainty by John Mauldin of Millennium Wave Advisors
"This will be my tenth annual forecast issue. Time has flown by, and I enter a new decade of writing Thoughts from the Frontline. And even as I write about the high level of uncertainty of the curr
2010-01-08 4th Quarter Commentary - Investing Proactively Without Predictions by Team of Partnervest Advisory Services
\"\'If you’re going to predict,\' an anonymous economist famously quipped, \'predict often.\' 2009 by all accounts was a good year. The S&P500 gained 23.4%. Emerging ma
2009-12-19 The Age of Deleveraging by John Mauldin of Millennium Wave Advisors
2009-11-03 Absolutely … Maybe by Robert Huebscher (Article)
Since Putnam introduced its absolute return funds earlier this year, over 4,200 advisors and $650 million in assets have flocked to the new financial products. Putnam's four funds seek to beat inflation by 100, 300, 500 and 700 basis points, and their performance over their first nine months (3.1%, 6.4%, 8.4% and 12.2%, respectively) was encouraging for their investors. Impressive as those results may be, the question is whether they are sustainable.
2009-07-28 Moving Average: Holy Grail or Fairy Tale - Part 3 by Theodore Wang (Article)
Buy-and-hold remains deeply entrenched in the financial planning community, despite many of the flaws Ted Wong's previous articles have illustrated. Although many financial advisors suffer dearly from their buy-and-hold practices, they are reluctant to change their approach. Who dares to challenge investment sages like Bogle, Siegel, and Malkiel who emphatically support this long-standing investment principle? Academic research studies overwhelmingly endorse buy-and-hold. How can they all be wrong?
2009-06-30 Moving Average: Holy Grail or Fairy Tale - Part 2 by Theodore Wong (Article)
Many renowned financial experts declare that passive investing in a diversified index like the S&P500 is the only sensible way to manage money. In a follow-up to his article two weeks ago, Moving Average: Holy Grail or Fairy Tale - Part 1, Ted Wong says that he respects their opinions but is unable to verify their claims. By examining the evidence, he shows that the Moving Average Crossover (MAC) system offers a superior risk-return profile to a buy-and-hold strategy.
2009-06-16 Moving Average: Holy Grail or Fairy Tale - Part 1 by Theodore Wang (Article)
Buying and holding a diversified portfolio works well during good times, but falls short when supposedly uncorrelated asset classes drop in unison in bear markets. Are there alternative investment strategies that work for all seasons? Ted Wong evaluates strategies using moving averages to determine their effectiveness.
2009-06-02 John Bogle and the Lantern on the Stern by Robert Huebscher (Article)
In his remarks at the Morningstar conference last week, Vanguard founder and index fund pioneer John Bogle criticized many aspects of the mutual fund industry. Bogle, who turned 80 this year, is primed to fight his next battle - reducing investor reliance on past returns - which he likens to a lantern on the stern of a ship.
2009-05-26 What the “Missing Out” Argument Misses by Theodore Wang (Article)
Market timing is discredited by passive investment advisors as a voodoo ritual. Buy-and-hold proponents argue most compellingly by citing the "missing out" scenario - they show a dramatic drop in return, to Treasury Bill levels, if investors are out of the markets for only a few good days. In this guest contribution, Ted Wong debunks the missing out argument, using 137 years of market data.