More on Related Themes
2013-06-18 Three Time Bombs that Threaten Retirement Plans by Dan Richards (Article)
Three poorly understood developments threaten secure retirements – without wishing to be alarmist, I will call them time bombs. These developments will change the retirement dynamic for many Americans: increasing lifespans, escalating medical costs as people age and safe withdrawal rates on savings dropping from historical levels.
2013-06-18 The Snowden Affair by Bill O'Grady of Confluence Investment Management
Over the past two weeks, revelations published in The Guardian and the Washington Post reported on a massive data gathering program that the National Security Agency (NSA) has been operating since 2001. The NSA, created during the Truman administration, mostly monitors signal intelligence and is the primary cryptographer for the U.S. government.
2013-06-17 2013 Midyear Economic Update -- Another False Dawn? by Paul Kasriel of Econtrarian, LLC
We’ve seen this movie before since midyear 2009, haven’t we? The pace of economic activity begins to quicken and it looks as though a full-throated cyclical expansion might finally be at hand, only to have the economy slip back into the doldrums. Nominal private domestic spending on currently-produced goods and services grew in the first quarter at an annualized rate of 5.5% compared to 3.4% in the previous quarter. Consumer spending accelerated, housing sales picked up and business spending on equipment and software continued to grow at a healthy pace.
2013-06-17 Equities: As Companies Reinvest, the Long-Term View Turns Bullish by Ron Sloan of Invesco
This is the third in a three-part series on the economy, earnings and equities. The first two posts examined the US Federal Reserve’s gross domestic product (GDP) goals and how they set the stage for businesses to increase their capital expenditures. This post discusses the US manufacturing resurgence and the outlook for equities.
2013-06-14 Looking for Growth? Go Small and Global by Liliana Castillo Dearth, Bruce Aronow of AllianceBernstein
In the hunt for growth in today’s low-growth world, up-and-coming small- and mid-sized companies are a good place to start. But you need to look everywhere, from Indiana to Indonesia.
2013-06-14 Global Small Cap Investing: Unconstrained Opportunities by Blake Pontius of William Blair
Equity asset allocations have become more global in recent years as investors have sought to reduce the long standing home country bias in their portfolios. Further propelling this trend has been the growing aversion to traditional asset class structures and indeed, conventional asset class definitions, in the aftermath of the 2008-2009 global fi nancial crisis. Against this backdrop, global equity strategies have continued to garner asset fl ows in Europe and have slowly begun to gain traction in the U.S. after years of tepid demand.
2013-06-14 A Sweet Find on an African Adventure by Frank Holmes of U.S. Global Investors
The heart of Africa has been beating strong in recent years due to elevated commodity prices and resilient domestic demand, despite the global economic slowdown. Among the sub-Saharan African countries, Sierra Leone was the fastest growing country last year, according to the World Bank. Its economy experienced growth that is as rare today as Fancy Red diamonds. GDP increased a whopping 18 percent.
2013-06-13 The Instability of Stability by Scott Minerd of Guggenheim Partners
Hyman Minsky’s scholarship holds valuable lessons for the current dynamic in the economy. The Fed, via QE, continues to induce speculative buying in the Treasury market, which is having the effect of destabilizing a number of asset classes.
2013-06-13 Securing a Lasting Economic Recovery by Team of Northern Trust
According to the National Bureau of Economic Research, business expansions have averaged 59 months in the past 11 business cycles. June 2013 marks the fourth birthday of the current U.S. economic recovery, and this one seems very likely to be above average on this score.
2013-06-12 Who Is Your Daddy and What Does He Do? by Cole Smead of Smead Capital Management
In the 1990 movie Kindergarten Cop, Arnold Schwarzenegger portrayed a police officer who goes undercover as John Kimble, a kindergarten teacher in Astoria, OR. Early in the movie, Mr. Kimble tells his class they are going to play a game called “Who is your daddy and what does he do?” After a myriad of answers, one of the children asks him if his ensuing headache is a tumor. Kimble replies “It’s not a tumor.” We at Smead Capital Management believe this was not only one of the more comical moments of Kindergarten Cop, but also a great question to ponder in today&rs
2013-06-11 Gundlach – Don’t Sell Your Bonds by Robert Huebscher (Article)
Don’t sell your bonds just yet, according to Jeffrey Gundlach. Global economic growth is slowing, he said, and the U.S. will be competing for a larger slice of a shrinking worldwide pie. A weaker economy dims the prospects for higher interest rates. The benchmark 10-year Treasury yield – currently 2.08% – will be 1.70% by the end of the year, according to Gundlach, providing profits for holders of long-term bonds.
2013-06-11 How Asia's Growth Transitions and Policy Experiments Are Shaping the Global Outlook by Ramin Toloui, Tomoya Masanao, Robert Mead of PIMCO
Our view is that Chinese GDP growth will downshift, averaging 6%-7.5% for the next five years as net exports and investment are reaching their limits. In Asia, Japan is perhaps the economy closest to the “T-junction” described in PIMCO’s global secular outlook: The destination of Japan’s journey looks increasingly uncertain, with multiple potential outcomes that could stabilize or destabilize the global economy and markets.
2013-06-10 2009 vs. 2013 by John Hussman of Hussman Funds
One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about this is that the last two 50% market declines both the 2001-2002 plunge and the 2008-2009 plunge occurred in environments of aggressive, persistent Federal Reserve easing.
2013-06-10 What\'s Capping Capital Spending? by Milton Ezrati of Lord Abbett
Now that housing has at last begun to make a contribution to the economic recovery, the pace of capital spending seems to have ebbed. To some extent, the slowed pace of such spending reasonably reflects the economy’s still-more-than-ample production capacity. Reasonable as this seems, the slowdown does come as a disappointing change from the unusually strong growth earlier in the recovery. Now, looking forward, the prospect is for this slowed growth to continue, for a while at least.
2013-06-07 As Economy Heats Up, Will Commodities? by Frank Holmes of U.S. Global Investors
Don’t wait for the Fed to officially raise rates, as research shows that investors get the most benefit from materials and energy stocks by getting in now
2013-06-06 The Fed's Dilemma by Scott Minerd of Guggenheim Partners
Market volatility is rising as the Fed continues with its asset purchase program. The economy also appears increasingly vulnerable to a rise in interest rates, which would have an adverse effect on housing in particular.
2013-06-06 The Risk of Government Policies and the Rationing of Retirement by Jason Hsu of Research Affiliates
In late April, a group of leading economists and investment practitioners assembled in La Jolla, California, for Research Affiliates’ 2013 Advisory Panel. Our theme this year touched on two topics that have been front-and-center in recent public debates: the risk of government intervention and the potential rationing of retirement.
2013-06-06 More Than a Feeling by Team of AdvisorShares
Tangible signs of fundamental weakness are appearing everywhere, yet financial market participants are simply choosing to ignore these signs. There remains a significant disconnect between the real economy and financial markets. Read this paper by Peritus Asset Management to learn how to navigate the weak fundamental picture in what they believe to be the beginning of a 15-20 year positive technical backdrop, which will put yield generating assets, such as high yield bonds, in the sweet spot.
2013-06-06 June Economic Update by Justin Anderson of Cambridge Advisors
Stocks sold off on the last day of the month but still managed to finish higher in May with the large-cap S&P 500 index up 2.2% and the small-cap Russell 2000 up 4.0%. International stocks finished the month lower with the MSCI EAFE index down -2.9%. Bond prices came under significant pressure as yields rose after Fed Chairman Ben Bernanke hinted that Quantitative Easing may be tapered off sooner than the market expected. The 10-Year US Treasury Yield rose sharply to end the month at 2.16%.
2013-06-05 Certainty, Rates and the Year Ahead by Peritus Asset Management of AdvisorShares
The government tells us not to worry, as the Federal Reserve comes to rescue with QE-Forever. Certainty with fiscal policy doesn’t seem to change the demand equation and cheapened money doesn’t do anything if demand isn’t present. Treasury rates remain at 0% for the foreseeable future making yield hard to find. Read this position paper by Peritus Asset Management scrutinizing how all this has come to pass and what indicators are foretelling the near future effects on the high yield asset class.
2013-06-05 The Canary in the Coal Mine by Scott Minerd of Guggenheim Partners
Ongoing monetary stimulus is leading to heightened volatility, and the bull market which has been in place since 2009 is becoming overextended. The recent string of surprise downside moves in markets may be the canary in the coal mine for global investors.
2013-06-05 Driving with the Doors Off, Part II by Doug MacKay, Bill Hoover, Mike Czekaj of Broadleaf Partners
About ten months ago, I wrote about my new bulldozer-yellow Jeep Wrangler, comparing the sensation of Driving with the Doors Off to investing in the New Normal, or as I like to call it, a “slow growth for as far as the eyes can see” environment. While the pavement had always been a mere twelve inches beneath my feet, Driving with The Doors Off made the experience far more real, far more alive, and far more aware of the risks that had always been there. In the New Normal it feels like we are always and everywhere just one small pothole away from the next economic disaster.
2013-06-04 Woody Brock’s Challenge to Krugman and the Keynesians by Bob Veres (Article)
A polarizing choice confronts policymakers. Either they side with Paul Krugman and the Keynesians, and advocate for aggressive fiscal measures to stimulate America’s economic growth rate, or they align themselves with the so-called austerians, who argue that budget cutbacks are necessary to eliminate deficits. A third option is rarely discussed. Its most outspoken proponent, Horace “Woody” Brock, says that America should continue to borrow, but spend wisely – and develop new policy instruments that would eliminate asset bubbles and stimulate economic activity.
2013-06-04 Vincent Reinhart on Debt and Growth in the U.S. and Japan by Robert Huebscher (Article)
High debt levels translate to slower growth, according to Vincent Reinhart. That conclusion will be disheartening to those who jumped on the errors several University of Massachusetts scholars found last month in Carmen Reinhart (Vincent’s wife) and Ken Rogoff’s research. But Vincent Reinhart is the author, along with his wife and Rogoff, of a study published in 2012 that documented the degree to which high debt-to-GDP levels correlate with slower economic growth in developed countries.
2013-06-04 Wounded Heart by Bill Gross of PIMCO
Joseph Schumpeter, the originator of the phrase “creative destruction,” authored a less well-known corollary at some point in the 1930s. “Profit,” he wrote, “is temporary by nature: It will vanish in the subsequent process of competition and adaptation.” And so it has, certainly at the micro level for which his remark was obviously intended. Once proud, seemingly indestructible capitalistic giants have seen their profits fall short of “everlasting” and exhibited a far more ephemeral character.
2013-06-04 Finding Healthy Stocks in Europe's Troubled Landscape by Tawhid Ali of AllianceBernstein
European equity markets continue to face severe stress as the continent struggles to contain fallout from the sovereign-debt crisis. Yet this seemingly toxic environment is creating some exceptional investment opportunities in relatively healthy companies that can control their own destinies.
2013-06-04 The REIT Market Today by Team of Managers Investment Group
In early May we interviewed Eric Rothman, of Urdang Securities Management and the portfolio manager for the Managers Real Estate Securities Fund. Below are his responses to our questions about the current state of the REIT market.
2013-06-03 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
And the streak continues. (The monthly winning streak that is.) While stocks have drifted lower each of the past two weeks, the Dow has surged for six straight months and the S&P 500 now stands at seven and counting. In fact, much of the week’s losses came in the final hour(s) of trading as investors took profits for the month and positioned their portfolios for the summer. No news from the Fed yet, but the bond debates continue. Housing remains strong on the economic front, but next week’s data will go a long way toward setting the tone for the future.
2013-06-03 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Recent history has shown us that when investors feel “prosperous” their spending habits become more robust. Sometimes they even throw caution to the wind and splurge on discretionary purchases they previously sought to avoid or postpone. Such is the nature of a rapidly changing landscape that what previously had been a vulnerability now becomes a necessity. The impact of financial decision-making can have a manic effect upon virtually any part of the world. This is why crises become epidemics, and cures become panacea.
2013-06-03 Defense and Selective Offense by Mark Kiesel of PIMCO
Given the market’s newfound risk appetite for credit and less attractive valuations, we are taking advantage of global credit market liquidity in an effort to reduce our overall risk posture. In our selective offense approach, we continue to favor U.S. housing and housing-related areas, in addition to select investments in the energy, pipeline, specialty finance, gaming, hospitals, and airline and auto industries, given the more positive fundamental outlook for these sectors.
2013-06-03 US Balance Sheet Repair: More Difficult This Time by John Greenwood of Invesco
In most developed economies, the post-war years since 1945 saw sustained business cycle expansions alternating with shorter recessions. At the end of each expansion, authorities dealt with inflation by raising interest rates and slowing credit growth. When inflation subsided, interest rates were lowered again.
2013-06-01 Central Bankers Gone Wild by John Mauldin of Millennium Wave Advisors
For the last two weeks we have focused on the problems facing Japan, and such is the importance of Japan to the world economy that this week we will once again turn to the Land of the Rising Sun. I will try to summarize the situation facing the Japanese. This is critical to understand, because they are determined to share their problems with the world, and we will have no choice but to deal with them. Japan is going to affect your economy and your investments, no matter where you live; Japan is that important.
2013-05-31 Into the Woods by Tony Crescenzi, Tadashi Kakuchi, Ben Emons of PIMCO
Excess liquidity, falling net issuance and higher correlations among assets complicate the eventual exit that the Federal Reserve and other central banks must make from their extraordinary policies. The Bank of Japan’s ideology has completely changed to “tackling deflation” from “tolerating deflation.” The key focus in the coming months will be how private sectors react. Investors who depend chiefly upon central bank activism may put themselves at risk. They may need to hedge volatility by ensuring their investments are built more on solid fundamentals and reasona
2013-05-31 What\'s the Answer to Unprecedented Policies and Ultralow Rates? by Frank Holmes of U.S. Global Investors
So what’s the answer to unprecedented central bank policies that have been driving stocks higher and ultralow rates? I believe investors need to stick to a strategy that includes dividend-paying stocks that offer the opportunity for both income and growth.
2013-05-30 And That\\\'s the Week That Was by Ron Brounes of Brounes & Associates
All good things must come to an end (hopefully just temporarily). After a nice month-long weekly winning streak, stocks gave back some ground as investors over-analyzed Fed comments and worried about future monetary policy. (The stimulus will end at some pointthat’s not necessarily a bad thing.) Japan took the over-analysis the hardest as its market suffered a serious setback, though the rally for the year had been significant and some watchers expected a pullback at some point (just not all in one day).
2013-05-30 UK Secular Outlook - Morphing into the Carney Era by Mike Amey of PIMCO
The UK remains in a “stable disequilibrium”, one that needs to either transform into growing economy with narrowing income differentials or risk a more aggressive policy response. Financial repression, protection of real purchasing power, tail risks of accelerated currency weakness and price sensitivity will likely dominate UK markets over the secular horizon. Investors may consider progressively reducing exposure to assets susceptible to tail risks. Higher quality short-dated income-generating, inflation-hedging and non-sterling assets remain attractive.
2013-05-30 Are We There Yet? by Vitaliy Katsenelson of Investment Management Associates
I started writing my first book, Active Value Investing: Making Money in Range-Bound Markets, in 2005; finished it in 2007; and published the second, an abridged version of the first (The Little Book of Sideways Markets), in 2010. In both books I made the case that there is a very high probability that we are in the midst of a secular sideways market a market that goes up and down, with a lot of cyclical volatility, but ends up going nowhere for a long time.
2013-05-30 Reflation in the Balance by Richard Clarida of PIMCO
Four of the world’s major central banks are now “all in” when it comes to ballooning their balance sheets in correlated, if not coordinated, efforts to achieve escape velocity in their economies. In accounting for the impact of quantitative easing on two key balance sheets, we are able to interpret, monitor and calibrate the programs currently in place. This in turn can help us prepare portfolios if or when sentiments and inflation expectations shift.
2013-05-29 Weekly Market Commentary by Team of Tuttle Tactical Management
Last week we talked about the market being overbought in the short term, so the three day selloff (Wednesday-Friday) was to be expected. The media will blame the Fed but they didn’t tell us anything we didn’t already know. Bottom line, when the market gets extremely overbought traders will use anything and everything as an excuse to take profits. Interestingly, last week was the first streak of three down days this year. The S&P 500 seemed to find some support at 1640.
2013-05-28 Is Austerity a Bad Idea? by Michael Edesess (Article)
There are strong arguments for and against both austerity and Keynesianism. However, some recent writings should make us remember to question the terms of the argument itself. While evidence-based economics is important, it can also mislead.
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.
2013-05-28 Watching Risk-Reward Ratios: Economic Data Still PositiveBut Rate Is Slowing by Rob Stein of Astor Asset Management
Risk-reward ratios are on our radar screen these days as we review the most recent economic data against the backdrop of recent market movement. This is not to say that we are in any way suggesting a top, a bear market, or even that a correction is on the horizon, even taking into account this past week’s movement and volatilityalthough each of these scenarios remains a possibility. At this point, though, we do have some minor concerns about risk-reward in the markets going forward, suggesting that a slight adjustment in beta or equity exposure from current levels is prudent.
2013-05-28 You Now Have All of Our Attention by Blaine Rollins of 361 Capital
Mr. Bernanke’s opening statement was just what the market wanted to hear...
"Premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending this economic recovery and causing inflation to fall further".
2013-05-25 The Mother of All Painted-In Corners by John Mauldin of Millennium Wave Advisors
Japan has painted itself into the mother all corners. There will be no clean or easy exit. There is going to be massive economic pain as they the Japanese try and find a way out of their problems, and sadly, the pain will not be confined to Japan. This will be the true test of the theories of neo-Keynesianism writ large. Japan is going to print and monetize and spend more than almost any observer can currently imagine. You like what Paul Krugman prescribes? You think he makes sense? You (we all!) are going to be participants in a real-world experiment on how that works out.
2013-05-24 The Love Trade for Gold is Still On! by Frank Holmes of U.S. Global Investors
The more important demand for gold, in my opinion, comes from the enduring Love Trade, as countries like China and India buy the precious metal out of love and tradition.
2013-05-24 Bifurcation Blues by Herbert and Randall Abramson of Trapeze Asset Management
Bifurcation. A very technical sounding word. It merely means “a division into two parts”, which is what we are witnessing in many areas related to investment, both macro and micro. And it is exhibiting to value investors those areas to avoid and the most attractive to embrace. And giving rise to a wide range of disparate opinions among economic and investment professionals as to what outcomes are likely. Needless to say, we have our own strong views.
2013-05-24 Ten High Yield Market Takeaways by Mark Hudoff of Hotchkis & WIley
Mark Hudoff, portfolio manager of the Hotchkis & Wiley High Yield strategy, shares his thoughts on the current opportunities and challenges in the high yield marketplace.
2013-05-23 The Labor Force Participation Puzzle by David Kelly of J.P. Morgan Funds
Slow growth and mediocre job creation have been common themes used to describe the U.S. economy in recent years, as both the labor market and broader economy failed to produce the snap-back rebound many expected following the deep recession seen in 2008 & 2009. Despite that lackluster growth, the unemployment rate has now fallen to 7.5% after peaking at 10% in October of 2009, a much faster decline than expected, given average employment growth of less than 125,000 per month.
2013-05-22 Cyprus and the Eurozone...Still Stuck in the Middle by Gregory Hahn of Winthrop Capital Management
The debt crisis in the Eurozone turned another chapter as Cyprus finally reached the point of requiring a bailout from the European Union. The wisdom of Gerry Rafferty’s hit song “Stuck in the Middle with You” which was written in 1973, rings true today as we watch the EU and the European Central Bank navigate the mess in Europe. With each attempt at containment, there appears some plot twist, the proposed Cyprus bank bailout is no exception. While the bailout of Cyprus and its banks is not large in size, only 10 billion, relative to the Cyprus economy, it is significant.
2013-05-22 Asia Brief: China's Car Fleet The Largest in the World? by Edmund Harriss, James Weir of Guinness Atkinson Asset Management
Car sales in China have grown rapidly since 2009 and it is on course to outstrip the US in terms of the size of its car fleet by the end of this decade. This presents a major challenge to the Chinese government, which must balance its people’s happiness and political stability with economic development in an environment which has already been compromised. The momentum of demand for new passenger vehicles is likely to make air quality worse and Beijing has introduced emissions and efficiency standards to address the problem.
2013-05-22 Malaysia's Post-Election Investment Outlook by Scott Klimo of Saturna Capital
Earlier this year we identified ASEAN as the most attractive region within the emerging markets universe. That prediction has proved accurate. Market indices (USD returns) year-to-date through April in the Philippines, Thailand, and Indonesia are 23%, 22%, and 16%, respectively. Singapore (which we do not consider an emerging market) gained 6%, while Malaysia rose only 3.9%. So what’s the outlook for Malaysia?
2013-05-21 (Yawn)...As Equities Advance Another 2% by Bob Doll of Nuveen Asset Management
U.S. equities advanced again last week, with the S&P 500 increasing 2.1%. Global stocks are reaching new highs in this cycle and the U.S. market is at an all-time high. Bonds were hurt in the move, dragging credit down, while commodities fell slightly on weaker manufacturing data. The unrelenting equity rally and an environment without positive news about earnings and the economy is making many investors uncomfortable.
2013-05-21 Developed Europe: Regional Economic Review 1Q 2013 by Team of Thomas White International
After withdrawing into the background in late 2012, the Euro-zone sovereign debt crisis resurfaced in the first quarter with the Italian elections and Cyprus’ banking crisis. In late February, Italy’s national elections resulted in a fractured mandate, and Italians voted out the incumbent, the main architect of the country’s austerity and reforms agenda.
2013-05-21 Capitalism and Democracy by Bill O'Grady of Confluence Investment Management
In the Italian elections, the party that showed the strongest results was the Five Star Movement, led by the comedian Beppe Grillo. Despite this strong showing, the party failed to form a government and refused to participate in any coalitions. This decision not to participate in the political process has been exhibited by other protest groups, such as Occupy Wall Street, the Israeli Tent Movement, and the Spanish “Indignant” movement.
2013-05-21 Are Equity Investors Pushing the Gas Pedal Too Hard? by Norman Boersma of Franklin Templeton Investments
Whatever previous reticence investors may have had about equities last year seems to have evaporated and, with remarkable speed, turned into fear over having missed the equity rally. Some major market averages have accelerated at a pace some say is reckless, so as we head toward the mid-point of the year, Norm Boersma, CFA, chief investment officer of Templeton Global Equity Group, takes a look at reasons investors might continue to push the gas pedalor tap the brakes.
2013-05-20 Not in Kansas Anymore by John Hussman of Hussman Funds
Knowing where you are doesn’t mean that you’re leaving, but you should still know where you are.
2013-05-20 The President's Proposed Future Tax Changes and Some Questions About Past Ones by Andy Friedman of The Washington Update
The United States government has once again hit its borrowing limit. The government is permitted to borrow through May 18, after which it can continue to operate without additional borrowing for about three months. By fall, Congress will have to raise the debt limit to prevent the United States defaulting on outstanding debt.
2013-05-18 All Japan, All the Time by John Mauldin of Millennium Wave Advisors
This week we again focus on Japan. Their stock market has been on a tear, and their economy grew 3.5% last quarter. Is Abenomics really the answer to all their problems? Is it just a matter of turning the monetary dial a little higher and voila, there is growth? Why doesn’t everyone try that? And what would happen if they did?
2013-05-17 Making the Most of Equity Allocations by Andrew Pyne, Sabrina Callin of PIMCO
We believe slowing global growth and deleveraging are likely to result in lower long-term returns for equities. Traditional approaches to building equity portfolios may not be enough for investors to meet their return goals. We have found three complementary ways investors can enhance equity return potential: fundamental indexes, index-plus strategies and high active share stock selection approaches.
2013-05-17 Finding Opportunity Far and Near by Frank Holmes of U.S. Global Investors
Would it surprise you to learn that a vast majority of equity valuation models state that stocks should head much higher over the next five years?
2013-05-16 Saving for College: A Family Affair by Team of Franklin Templeton Investments
The language of personal finance isn’t especially racy, but “debt” certainly has taken on the negative tone of other “four-letter words.” Even so, with college costs on the rise and many parents feeling especially pinched in this challenging economic environment, student loans rather than college savings have become the solution for many.
2013-05-16 Hold Your Houses: The Housing Recovery May Take Longer Than You Think To Reach Consumers by Joshua Anderson, Emmanuel S. Sharef, Grover Burthey of PIMCO
New residential construction needs to double from 2012 levels to meet long-run stable demand, and the pace of that increase is critical. Consumer credit growth is hindered by strict lending standards, continued deleveraging and limits to mortgage equity withdrawal. As a result, the balance of mortgage debt is unlikely to meaningfully increase in the next 12-18 months, delaying a return of the virtuous consumer cycle.
2013-05-15 Is Japan\'s Sun Rising Again? by Kenichi Amaki of Matthews Asia
Japan’s stock market continues to rise while its currency heads in the other direction. Its new leaders, now enjoying high approval ratings, are battling deflation and trying to jump-start its economy with a new determination. This month Kenichi Amaki takes a look at what, if anything, is different this time.
2013-05-15 Consumers: The Great Sobriety by Milton Ezrati of Lord Abbett
Americans have cut debt, boosted savings, and held spending in checkall of which should aid the economy.
2013-05-14 Is Kyle Bass Wrong About Japan? by Robert Huebscher (Article)
It’s standard practice for short sellers to kick dirt on their targets, and Kyle Bass is doing just that by asserting that Japan’s economy is on the verge of a financial crisis. In a talk on May 3, he said that Japan’s demise is imminent. So far, though, Bass has been wrong – and he has his detractors, who are far less certain of Japan’s destiny.
2013-05-14 Guide to Working with Monetary Napalm by Scott Colyer of Advisors Asset Management
Napalm is a highly incendiary form of jellied fuel. It was used extensively in the Vietnam War to quickly ignite massive fires over large areas of land. In the world of financial incendiaries, the Fed’s overwhelming monetary stimulus has ignited asset prices in the United States with the force and effectiveness of napalm. Is the fire short lived? Are the gains in asset prices temporary or can they be believed? Are the housing and stock markets on fire just because of the Fed’s quantitative easing (QE) or could there be a much more fundamental reason?
2013-05-14 Cyclical and Emerging Market Strength May Be Pointing to Better Growth by Bob Doll of Nuveen Asset Management
Last week U.S. equities advanced as the S&P 500 increased by 1.3%. We have been amazed bythe market’s ability to continue to rally in an environment in which sales growth has been anemic and earnings gains have been largely based on companies’ abilities to manage margins and utilize financial engineering.
2013-05-13 Closing Arguments: Nothing Further, Your Honor by John Hussman of Hussman Funds
Nothing further, your honor. I am resting my case.
2013-05-13 Tenuous Times? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
US stocks continue to make new highs, yet commodities have struggled and Treasury yields remain low, albeit up from recent near-record lows. Although not the standard playbook, we remain optimistic but acknowledge an equity pullback can occur at any time. Manufacturing data has been soft, the employment picture is mixed, and housing continues to improve. The European Central Bank (ECB) has joined the easing arty, illustrating the continued disappointments coming out of the eurozone.
2013-05-13 The Cash Conundrum by Ric Dillon of Diamond Hill Investments
In an effort to keep interest rates low, the Federal Reserve, along with other global central banks, is flooding the financial markets with liquidity. This additional liquidity is pushing prices for most financial and real assets higher. At some point, the Fed’s policy of easing will end and in some ways will be reversed. Purchases of government-backed securities may end this year (QE3); however, the Fed has signaled that the near zero interest rate policy for Fed Funds is likely to continue into 2015.
2013-05-13 Americas: Regional Economic Review 1Q 2013 by Team of Thomas White International
Weaker global demand and prices for energy and commodities, as well as softer than expected domestic consumption have restricted the growth outlook for most economies in the Americas region during the first three months of the year. Fewer monthly job additions in the U.S. have dented consumer confidence, and growth for the current year is now forecast to be moderately lower than earlier expectations.
2013-05-10 A Tale of Two Markets: Equity Bulls and Bond Bears by Douglas Cote of ING Investment Management
Surging equity markets absent an accompanying rate rally is a red flag, as Treasury yields remain well below “normal”. While investors’ renewed enthusiasm for equities is warranted, they must be careful to avoid the “folly of gaming diversification”. Corporate earnings have impressed, though revenue has struggled due in part to a moribund Europe. Divergent markets mean investors should stay broadly diversified in equities and real bonds not near-cash and ever alert to the fundamentals.
2013-05-10 2013 US Financial Markets: Part 2 - The TINA Hypothesis by Clyde Kendzierski of Financial Solutions Group
Contrary to the “Bernanke Illusion” (money market funds are a zero return investment), history indicates that money market funds are likely to provide investors with returns approximating inflation over the next decade. As I pointed out in our last letter, the markets are pricing in inflation levels significantly higher than the prospective total returns of 10 year TBonds. The small additional return achieved by corporate bonds or US stocks (at current prices) is unlikely to compensate a buy and hold investor with sufficient gains to justify the interim risks.
2013-05-10 Symptoms Don\'t Lie by Peter Schiff of Euro Pacific Capital
A good doctor will not simply make a diagnosis based on measurements. The symptoms and complaints expressed by the patient are at least as important in making a determination as the data provided by diagnostic tools. When the data says one thing and the symptoms continuously say another, it makes sense to question the reliability of the instruments. This would be particularly true if the instruments are furnished by a party with a stake in a favorable diagnosis, say an insurance company on the hook for treatment costs. The same holds true for the U.S. economy.
2013-05-10 The U.S. Economy Stands to Gain from Actions of Central Banks by Team of Northern Trust
Recent central bank meetings have resulted in a reiteration of accommodative monetary policy from the Federal Reserve and new initiatives from its counterparts overseas.
2013-05-09 Make Way for the MIPS by Scott Minerd of Guggenheim Partners
Emerging markets still provide excellent opportunities for outperformance in equities, with Malaysia, Indonesia, the Philippines and Singapore being among the best positioned for the decade ahead.
2013-05-08 Germany Under Pressure To Create Money by John Browne of Euro Pacific Capital
Currently, central banks around the world are walking in lock step down a dangerous path of money creation. Led by the Federal Reserve and the Bank of Japan, economic policy is driven by the idea that printed money can be the true basis of growth. The result is an unprecedented global orgy of currency creation. The only holdout to this open ended commitment has been the hard money bias of the German-dominated European Central Bank. However, growing political pressure from around the world, and growing dissatisfaction among domestic voters have shaken, and perhaps cracked, the German resolve.
2013-05-08 Deflation Is OverPlease Come Out by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
A blooper reel of 20th century history would likely include a feature on Japanese soldier Hiro Onoda. Posted to a small island in the Philippines during the waning days of World War II, when Onoda’s mission proved unsuccessful he was ultimately forced to flee into the woods, where he survived on a steady diet of coconuts and bananasfor almost 30 years after the end of the war.
2013-05-08 Are Investors Breathing a Sigh of Relief? by Bob Doll of Nuveen Asset Management
Last week U.S. equities delivered another gain as the S&P 500 increased by 2.0%.1 On Friday, the U.S. jobs report offered relief from fears of an accelerating weakness caused by prior softness during this time in each of the last three years. However, the full set of economic data for the week supports our view of a slower second quarter in a post-sequestration environment.
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.
2013-05-07 Niall Ferguson: Four Reasons Why the U.S. is Failing by Robert Huebscher (Article)
Niall Ferguson is the champion of anti-Keynesian economists. Last week, he explained why America’s pursuit of Keynesian policies is leading to disastrous consequences.
2013-05-07 Mutual Fund Companies Need to Prepare for a Changing Environment Fund Industry Turbulence Ahead by Paul Franchi (Article)
The mutual fund industry grew explosively from the 1980s on a rare tonic of a low-inflation credit expansion powered indirectly by international trade flows. That run reached a peak in 2008 when the application of quantitative easing (QE) served to prevent industry collapse with a softer form of transition, which continues today but must end when inflation returns.
2013-05-07 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
The trend is your friend (and the current trend is a “friend with benefits” for investors). After a record-setting first quarter for stocks, analysts were skeptical that the “party” would continue. And yet, the Dow Jones enjoyed a fifth straight month of gains in April, while the S&P 500 and Nasdaq one-upped the Blue Chips with six month winning streaks.
2013-05-07 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Financial markets got the news they wanted last week as Europe cut interest rates, while here at home the Federal Reserve hinted they might do even more when it comes to money printing. To top it off, Friday’s employment report showed improvement from March although the details caused most to discount the excitement.
2013-05-07 Central Banks Steal the Spotlight Once Again by Chris Maxey, Brian Payne of Fortigent
Central banks around the world continue to provide increased stimulus to their respective economies. Increased conviction over pro-stimulus policies comes in light of recent flaws found in the Reinhart, Rogoff January 2010 paper, which suggested that government debt of more than 90% of GDP is detrimental to economic growth. The latest week brought another round of news in the world of central banking, although it seems the number of options left on the table is running short. What central bankers hope for now is that economies will finally enter recovery mode.
2013-05-07 Quarterly Letter by Team of Grey Owl Capital Management
In his April 2013 commentary, PIMCO’s Bill Gross wrote, “PIMCO’s epoch1, Berkshire Hathaway’s epoch, Peter Lynch’s epoch, all occurred or have occurred within an epoch of credit expansion What if an epoch changes? What if perpetual credit expansion and its fertilization of asset prices and returns are substantially altered? What if a future epoch favors lower than index carry or continual bouts of 2008 Lehmanesque volatility ?”
2013-05-06 Aligning Market Exposure With the Expected Return/Risk Profile by John Hussman of Hussman Funds
Some risks and market conditions are more rewarding than others. My objectives for this week’s comment are very specific. First, to demonstrate using a very simple model that investment returns do indeed vary systematically with market conditions. Second, to demonstrate that overvalued, overbought, overbullish conditions have historically dominated trend-following measures when they have emerged. Third, to demonstrate the impact of accepting investment exposure in proportion to the return/risk profile that is associated with a given set of market conditions.
2013-05-06 That Was the Week That Was by Jeffrey Saut of Raymond James
Informally the TV show, “That Was The Week That Was,” is referred to as TW3and was a satirical comedy program first aired in the early 1960s. The program was considered a lampooning of the establishment. At the time it was considered a radical departure from legitimate television, but it set the stage for many more such radical departures. I revisit TW3 this morning because I have had so many requests for a formal repartee of a number of last week’s Morning Tacks woven into a more formal strategy letter.
2013-05-03 Job Creation May Be More Robust Than Official Statistics Suggest. by Team of Northern Trust
Job creation may be more robust than official statistics suggest; U.S. employment situation; Central bank meetings
2013-05-02 “Twin Peaks” Target Achieved, What\'s Left? by Doug Ramsey of Leuthold Weeden Capital Management
Pithy sound bites aren’t our forte. So when we came up with the “Twin Peaks” idea (last decade’s S&P 500 highs of 1527 and 1565) a few months back, we hoped we’d stumbled on a market theme that might last a while. That wish was dashed on March 28th, when the S&P 500 exceeded its October 2007 peak of 1565.15.
2013-05-02 Gold Recovers Amidst Uncertainty by John Browne of Euro Pacific Capital
The selloff in gold that captured the world’s attention in mid-April has revealed some truths about how the market trades and the sentiments of many of the investors who have piled into the trade over the past few years. While the correction does highlight a higher degree of uncertainty than many of the most ardent gold advocates had anticipated, it does not represent the historic "end of an era" reversal that the many in the media have so gleefully suggested. In many ways, the market has shown a resiliency that its detractors do not understand.
2013-05-01 Emerging Asia Pacific: Regional Economic Review by Team of Thomas White International
Major emerging Asia Pacific economies, which picked up growth momentum during the latter half of 2012, struggled to carry forward the economic pace during the initial months of 2013. China, India, and Indonesia, some of the most populous countries in the region and in the world, faced significant headwinds to growth as key engines of the economy investment, consumption, and exports came under strain.
2013-05-01 May 2013 Commentary by Team of Sadoff Investment Management
The slow growing economy will cause the Federal Reserve to stay the course with continued stimulus via low interest rates and Quantitative Easing (QE) for some time. This environment continues to be bullish for stocks.
2013-04-30 Stockman to America: Sinners, Repent! by Laurence B. Siegel (Article)
In a massive volume that melds economic history and social criticism, the former Reagan administration budget director David Stockman has documented countless ways in which America went astray over the last century. Most notably, he decried the corruption of free-market capitalism by those seeking effortless profits at the public’s expense. This is the source of his book’s title, The Great Deformation.
2013-04-30 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Stocks rebounded from the previous week. Earnings were not bad, and investors now appear to be focusing on this week’s Federal Reserve and European Central Bank meetings.
2013-04-30 Is May Really the Time to Go Away? by Chris Maxey, Ryan Davis of Fortigent
As investors near the witching hour of May, the oft-asked question once again comes to the foreground is it best to sell in May and walk away? This year could prove the exception to recent history, but a number of trends are beginning to take shape inside the market’s inner workings.
2013-04-29 New Highs Bring New Worries by Richard Golod of Invesco
The sustainability of the rallies in US and Japanese equities this year so far is looking uncertain amid slowing year-over-year earnings growth and mixed global economic signals. European and emerging market shares have traded lower year to date and seem likely to continue lagging in the near term. However, on balance, I remain optimistic about global equities, seeking yield opportunities and investments with an actively managed, more selective approach.
2013-04-29 Developed Asia Pacific: Regional Economic Review by Team of Thomas White International
After facing subdued economic conditions for the most part of 2012, developed Asia Pacific economies started 2013 on a cautious note. While most countries opined that downside risk to GDP growth declined substantially, challenges to growth arose from a recessionary scenario in key developed economies, especially from the European Union.
2013-04-29 Economic Slowdown Has Not Weakened Share Prices by Bob Doll of Nuveen Asset Management
U.S. equities rebounded last week as the S&P 500 increased by nearly 1.8%,1 despite continued weak economic data. We believe recent data is not yet weak enough to change forecasts. The relative stability of data and forecasts - supported by stimulative monetary policies, an improving U.S. housing market and fading political polarization in the U.S. and Europe - sends a message of reasonably low volatility and manageable downside risks.
2013-04-27 The Cashless Society by John Mauldin of Millennium Wave Advisors
A cashless future might be farther off than we either fear or hope. Not only is it farther away than some think, we are actually seeing an increase in the use of cash all over the world (and this is not just a US phenomenon). We will look at some interesting factoids that make for thought-provoking discussions, but when we couple them with research on the rise of the unreported economy (aka the underground economy) and the number of people who get some form of government assistance, we may find problematic consequences resulting from hidden incentives that work in unintended ways.
2013-04-26 An Update on the Global Business Cycle by Investment Strategy Group of Neuberger Berman
Understanding where we are in the an important aspect of investing, as the behavior of asset classes may vary throughout that cycle. Recent data indicate that the U.S. remains in its fourth year of expansion, but payroll and retail numbers have disappointed. Outside the U.S., Europe continues to be mired in recession while China’s growth rebound recently has appeared to sputter. In this edition of Strategic Spotlight, we review what these developments mean for the global business cycle and how to position portfolios accordingly.
2013-04-26 The Race of Our Lives by Jeremy Grantham of GMO
Our global economy, reckless in its use of all resources and natural systems, shows many of the indicators of potential failure that brought down so many civilizations before ours. By sheer luck, though, ours has two features that might just save our bacon: declining fertility rates and progress in alternative energy. Our survival might well depend on doing everything we can to encourage their progress. Vested interests, though, defend the status quo effectively and the majority much prefers optimistic propaganda to uncomfortable truth and wishful thinking rather than tough action.
2013-04-26 The Yin and the Yang of Commodity Price Trends by Team of Northern Trust
In recent weeks, financial press headlines have centered on the sharp drop in the price of gold. Of greater importance, however, are the significant price declines of oil, wheat, corn and copper. The S&P Goldman Sachs Commodity Index is down 6.1% year-to-date after a nearly steady reading in 2012 and gains exceeding 20% in both 2010 and 2011. It is essential to recognize the different nuances buried in these commodities’ price trends. First we will focus on the implications of declining commodity price trends and then discuss gold specifically in more depth.
2013-04-26 No Escape by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Global economic growth has weakened, while the US economy hasn’t reached "escape velocity." US stocks have held up relatively well. With few other attractive alternatives, domestic equities appear to be the best house in a rough neighborhood. With the Fed committed to easing, housing improving, and valuations reasonable, the trend should continue. Risks remain and diversification and some hedging strategies are recommended.
2013-04-26 Why The Fed's Balance Sheet Matters Neosho Capital Takes On Alan Blinder by Chris Richey of Neosho Capital
We anticipate the Fed will begin slowing, but not eliminating, its QE purchases later this year, barring another severe downturn in the intervening period. As such, we expect macro-economic factors such as currency, interest rates, growth, and inflation to continue to be a significant influence on stock market returns and that the long-term benefits of active portfolio management and individual company performance will continue to be masked by these macro influences.
2013-04-26 A Playbook for Investors: How to Shoot, Score, Win by Frank Holmes of U.S. Global Investors
So, in the competitive spirit of the NBA playoff season, I’ve gathered a series of plays that investors can use to shoot, score and win during this year’s market. I’m happy to say they include all the elements of an exciting game, including a comeback kid, an upset and an underdog.
2013-04-26 Financial Repression: Why It Matters by Shane Sheperd of Research Affiliates
Financial repression refers to a set of governmental policies that keep real interest rates low or negative, with the unstated intention of generating cheap funding for government spending. The ramifications of these policies will be measured in decades, not years.
2013-04-26 Like Baseball in the Snow by Doug MacKay, Bill Hoover, Mike Czekaj of Broadleaf Partners
As has occurred in each of the last three years, the economy should continue to plug along, not as we might like it to be, but as we can reasonably expect. Growth scare or not, we suspect that the end of 2013 will show that continued progress lies ahead, but perhaps not exactly in the same pattern as it has thus far.
2013-04-25 Questioning Quantitative Easing by Scott Minerd of Guggenheim Partners
Speculation over the reduction or expansion of quantitative easing largely amounts to market noise.
2013-04-25 The End of “Expansionary Austerity?” by Scott Brown of Raymond James
A few years ago, an economic paper by Harvard professors Carmen Reinhart and Kenneth Rogoff helped fuel the push for austerity. It was met with some criticism from economists, but was widely embraced by the press and by politicians on both sides of the Atlantic. The study has now been demonstrated to have had serious flaws, but will those in power fold? Or will they double down on bad economic policy?
2013-04-24 What's Behind China's Economic Slowdown? by Weili Huang of Columbia Management
China’s economy grew by 7.7% year over year (yoy) in the first quarter of 2013, against the market expectation of 8.0% yoy and a prior quarter’s 7.9% yoy. Gross domestic product (GDP) expanded 1.6% quarter on quarter (qoq), with an annualized growth rate of 6.6%, a step down from the 2.0% qoq and 8.2% annualized growth seen in 4Q 2012.
2013-04-23 The New Challenges to Reinhart and Rogoff by Robert Huebscher (Article)
Advocates for debt reduction and austerity have had no more authoritative sources than Carmen Reinhart and Ken Rogoff. But last week, these two professors had to defend claims that errors in their research – ranging from a typo in a spreadsheet to the failure to include data from New Zealand – invalidated their much-acclaimed findings.
2013-04-23 Looking Back at Peak Oil: The Coming Crisis in Energy Supplies by Richard E Vodra, JD, CFP® (Article)
Peak Oil – the maximum sustainable rate of global oil production – happened in 2012. That’s one of the main conclusions of a new report, Fossil and Nuclear Fuels – The Supply Outlook, released in March 2013 by the Energy Watch Group. This event will have profound long-term implications for how advisors should manage clients’ portfolios, and how clients should plan their future expenses.
2013-04-23 Ugly Week All Around Bombings, Explosions and Selloffs by John Buckingham of AFAM
It was a miserable week, what with the Boston bombings, lockdown and shootout, the horrific fertilizer plant explosion in Texas and the ricin-laden letters sent to elected officials providing vivid reminders that we still live in a dangerous world. True, the week ended about as well as it could as Friday night’s incredible drama in Watertown brought some closure in Boston and the come-from-behind victory for the Red Sox on Saturday was right out of Hollywooda three-run go-ahead home run after Neil Diamond leads Fenway Park in a rendition of Sweet Caroline!
2013-04-23 Q1 Earnings Leave Much To Be Desired by Chris Maxey, Ryan Davis of Fortigent
Following the strongest first quarter in 15 years, it is not surprising to see equity markets faltering in April. Last week’s decline of 2.1%, however, may reflect deeper concerns about corporate fundamentals amid a mixed earnings season.
2013-04-22 Strategy for a Second Gear Economy by David Kelly of J.P. Morgan Funds
American investors could be forgiven for feeling just a little confused. One week after the stock market posted its strongest first-quarter gains since 1998, the Bureau of Labor Statistics announced the weakest monthly job growth in nine months. Real GDP growth was just 0.4% in the fourth quarter but appears to have been much stronger in the first. So is the economy getting stronger or weaker, how is the Federal Reserve likely to react to it and what, if anything, should investors do about it?
2013-04-22 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
The end to another tax season; a hectic week on the earnings calendar; a number of key domestic economic releases; and ongoing developments on the global economic frontand yet, much of the country (and world for that matter) was focused on the events in Boston and the aftermath of the bombing that led to a massive manhunt and a shootout with police. Early in the week, the celebrated Boston Marathon came to an abrupt halt as terror again reigned throughout the country and nearby residents were sent into lockdown mode.
2013-04-22 Weekly Commentary & Outlook by Scotty George of du Pasquier Asset Management
Despite recent gains in portfolio valuations, I question whether we are really “profiting” from the upward surge. To be sure, there is more money in your account, according to your last three monthly statements. And who’s to argue that doesn’t translate to “real” dollars, “real” well-being.
2013-04-22 Emerging Europe: Regional Economic Review by Team of Thomas White International
The European Bank for Reconstruction and Development (EBRD) was established in 1992 to help Russia and former communist states such as Poland, Hungary, and Czech Republic among others in their transition to market-based economies. In its January forecast, the London-headquartered bank sounded optimistic over the economic prospects of most of the countries covered in this review, which also include Turkey.
2013-04-22 Is There a Silver Lining to the Gold Price Plunge? by Jon Ruff of AllianceBernstein
It’s been a volatile week for gold prices, which tumbled by the most in 30 years. Although gold is still not obviously undervalued, we think the recent market moves make stock prices of gold miners look attractive when compared with prices of the precious metal.
2013-04-19 Equity Investment Outlook by Team of Osterweis Capital Management
Every so often we write an Investment Outlook with conclusions that prove to be both accurate and worth repeating. Such is the case with our prior outlook issued in January 2013. In it we stated that “At the risk of sounding complacent, we believe that the fundamental trends that produced such favorable results in 2012 are still in place and should support another good year in 2013. We are not blind to the challenges and uncertainties that still face us, nor do we believe that the year ahead will be devoid of volatility.
2013-04-19 Quarterly Review and Outlook by Van Hoisington, Lacy Hunt of Hoisington Investment Management
“The Federal Reserve is printing money”. No statement could be less truthful. The Federal Reserve is not, and has not been, “printing money” as defined as an acceleration in M2 or money supply. A review of post-war economic history would lead to a logical assumption that the money supply would respond upward to this massive infusion of reserves into the banking system. The reality is just the opposite. Printing money? No.
2013-04-19 F.I.R.S.T.: Bond Market Outlook by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Amid heightened political uncertainty in Europe and subdued global growth expectations, global investors owe Hiroki Kuroda a big domo arigato for his pledge to inject about $1.4 trillion into the moribund Japanese economy by the end of 2014. The newly appointed BOJ governor’s unprecedented plan to buy Japanese government bonds,
2013-04-19 \"America Has Faced the Unknown Since 1776,\" So Says Warren Buffett by Paul Kasriel of Econtrarian, LLC
So wrote Warren Buffett in his March 1, 2013 letter to Berkshire Hathaway Inc. stockholders. In the phrase before this quote, Mr. Buffett wrote: “Of course, the immediate future is uncertain ” And after this quote, he wrote: “It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful).”
2013-04-19 First Quarter Investment Commentary by Team of Litman Gregory
Looking ahead, significant uncertainty surrounds fiscal and monetary policy in terms of what policies will be adopted and their ultimate economic and financial market impacts. More broadly, still-high global debt levels pose an economic headwind. Against this backdrop, our outlook for stocks has not improved. If anything, given the sharp run-up in stock prices, we are getting closer to reducing our U.S. equity exposure further than we are to increasing it.
2013-04-17 Hyperactive Monetary Policy: The Good, the Bad and the Ugly by Lupin Rahman, Mohit Mittal, Josh Thimons of PIMCO
Hyperactive monetary policy (HMP) is in full force as fiscal policy retreats. The benefits of HMP outweigh the costs for now. Despite cyclical growth, we will likely not achieve escape velocity and eventually the costs will likely overtake the benefits.
2013-04-17 In the Category of Sign Spinners by Blaine Rollins of 361 Capital
If you thought the plunge in Gold prices was tough on those long the precious metal, wait until you see the upcoming hit to the April Non-Farm Payrolls in the category of Sign Spinners...
2013-04-17 The Interest Rate Environment: Comparing High Yield Bonds and Bank Loans by Team of Hotchkis & Wiley
In its first quarter 2013 newsletter, "The Interest Rate Environment: Comparing High Yield Bonds and Bank Loans," Hotchkis & Wiley’s high yield team analyzes the behavior of the high yield market and the bank loan market in different interest rate environments to determine whether they can make sensible assumptions about the future.
2013-04-17 Present and Emerging Risks to the Gold Trade by Amit Bhartia, Matt Seto of GMO
The notion of gold as a hedge against systemic risks is flawed. We believe that the concept of gold’s role as an insurance policy needs to be narrowed significantly.
2013-04-17 Signs of a Correction by Scott Minerd of Guggenheim Partners
Although the long-term economic picture remains sanguine, a number of global risks and economic results point to a temporary period of consolidation in equity markets.
2013-04-17 What\'s Driving Emerging Markets? by James McDonald, Daniel Phillips, Phillip Grant of Northern Trust
Emerging market (EM) equities have historically outperformed as the global economy gained momentum, as shown in Exhibit 1. After a great catch-up rally in the second half of 2012, the stocks finished the year as global outperformers only to lose that momentum in the first quarter of 2013. What is behind the recent underperformance, and what does it say about the outlook? Our research points to a number of contributors to the recent weakness.
2013-04-17 Emerging Markets Equity Commentary by Team of Thomas White International
Emerging market equities corrected for the second successive month in March, on concerns that continuing weakness in European demand could hurt export growth for several countries in Asia and Latin America. These economies had seen a revival in their export fortunes during the second half of last year as U.S. consumer demand turned healthier. However, the moderation in U.S. consumer sentiment during March has somewhat dulled the optimism.
2013-04-16 Will Germany Lead the World’s Energy Revolution? by Michael Edesess (Article)
Germany’s energy plans lie between Scylla and Charybdis: fossil fuel-generated carbon dioxide emissions on the one hand and potentially catastrophic nuclear energy on the other. With strong motivation to avoid both, Germany has been left with only one alternative. The direction of energy policy in the U.S. – and the rest of the world – may rest on whether Germany succeeds in its ambitious plan to embrace renewable sources.
2013-04-16 All That Glitters Is Not Gold by Scott Colyer of Advisors Asset Management
This quote from Shakespeare’s Merchant of Venice is apropos given the nosedive in the gold markets today. In our 2013 Best Ideas piece we labeled gold a neutral as gold had not had a significant correction since 2008. Our research indicated a significant slowing of bullion purchases by gold Exchange Traded Funds (ETFs) in 2012 versus 2011. We looked for a correction and now need to contemplate whether we are in the end of the commodity bull market or merely a pause that refreshes.
2013-04-16 Gold in the Crosshairs by Peter Schiff of Euro Pacific Capital
In the opening years of the last decade, most mainstream investors sat on the sidelines while "tin hat" goldbugs rode the bull market from below $300 to just over $1,000 per ounce. But following the 2008 financial crisis, when gold held up better than stocks during the decline and made new record highs long before the Dow Jones fully recovered, Wall Street finally sat up and took notice.
2013-04-15 The (Up) Beat Goes On, Part II by Bob Doll of Nuveen Asset Management
We wrote Part I of this theme on February 11 during the first quarter rally, when the S&P 500 closed the week at 1518. This past week the S&P ended at 1589, after increasing 2.3%. Global stock prices continue to push to new highs and thus provide support for a pro-equity bias. One nuance is that the composition of the equity rally has been abnormally defensive.
2013-04-12 How a Landslide Shifts Copper Supply by Frank Holmes of U.S. Global Investors
The U.S. mining industry was dealt a devastating blow as Kennecott Utah Copper’s Bingham Canyon Mine experienced a pit wall failure causing a massive landslide with rocks and dirt covering the bottom of the mine pit. It’s a miracle no one was hurt due to the vigilance of its owner, Rio Tinto. The landslide is just one example of how quickly and unexpectedly the supply and demand factors facing the red metal can shift, which underscores the need for nimble active management.
2013-04-12 Assume a Perfect World by John Mauldin of Millennium Wave Advisors
Waiting for our forecasts to be wrong before we adopt a yet another “solution” based on a temporary fix of yet another forecast that turned out to be wrong is no way to run a railroad, unless you want your train running off a cliff. I applaud the recent attempts in DC to come to a solution on the deficits and budget, but where are the leaders who want to get real with those forecasts?
2013-04-12 Soft Patch - Part Four? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Stocks continue to trade at all-time highs, but concerns are rising over a possible pullback and downturn in economic growth. A consolidation of gains is likely, but trying to trade around a pullback can be quite difficult. A potential tapering of Fed asset purchases continues to be discussed, but the Fed also appears nervous over the potential for a spring downturn. Cooler heads appear to be gaining traction in Washington and at least some marginal progress is being made. Economic improvement is gaining traction in Japan, raising hopes of sustainable change, while Europe continues to suffer.
2013-04-11 The Ripple Effect of Abenomics by Scott Minerd of Guggenheim Partners
Monetary policy in Japan will continue to drive investors in that country to overseas markets, which will affect global asset prices and bond yields.
2013-04-11 Global Investing in 2013: Policy Dominance, Active Management and a New Paradigm in Currencies by Scott Mather of PIMCO
We expect that the impact of ongoing global policy experimentalism on real economic growth and financial markets will likely vary substantially from country to country, creating both risks and opportunities. With flexible, active global strategies investors can potentially benefit from a broader opportunity set and the ability to go off benchmark in an effort to both avoid risks and tap opportunities.
2013-04-09 John Hussman – Why Prospective Returns Are Low by Robert Huebscher (Article)
Monetary and fiscal policies have driven our economy into an unstable equilibrium, pushing investors into higher-yielding securities, according to John Hussman. But those higher yields are illusory, he said, because corporate profit margins are too high to be sustainable.
2013-04-09 MLPs: Winning Streak Broken, Growth Story Intact by Sponsored Content from Legg Mason ClearBridge
by Chris Eades, Portfolio Manager (Article)
After an off year clouded by investors’ concerns about future tax policy, ClearBridge’s outlook for MLPs is again brightening. Oil and natural gas production are both ahead of estimates and the resulting infrastructure build-out is continuing.
2013-04-09 First Quarter Market Commentary by Mark Oelschlager of Oak Associates
After a strong 2012, the market continued its ascent in the first quarter, shrugging off macro issues like the Sequester and the Cyprus “bail-in.” The S&P 500 rose roughly another 10%, reaching a new all-time high. Normally when stocks are moving higher at a fast rate, it is the economically sensitive sectors that lead and the defensive ones that lag. But the first quarter saw the reverse, as the top three performing sectors were the three traditional defensive ones: healthcare, consumer staples and utilities.
2013-04-09 Labor Markets Stumble in March by Ryan Davis, Chris Maxey of Fortigent
In an unexpected development, labor markets fell flat during March. Following several months of healthy job growth, the economy was only able to muster 88,000 new jobs in March, well below economists’ expectations for nearly 200,000 jobs.
2013-04-09 PIMCO Cyclical Outlook for Asia: How Leadership Changes Are Shaping Asia's Outlook by Q&A with Ramin Toloui, Tomoya Masanao and Robert Mead of PIMCO
For Asia, “slow but not slowing” global growth will likely keep external demand neutral, and policy developments will therefore help shape the economic outlook. In Japan, we see a significant boost to aggregate demand coming from the concerted monetary and fiscal expansion of the new Abe government. In China, concerns about inflation, housing market excesses, and long-term financial stability are prompting policy restraint that should keep growth below 8% this year.
2013-04-09 Bond Market Review & Outlook by Thomas Fahey of Loomis Sayles
The first quarter of 2013 turned out pretty much as expected: a low volatility environment with the level of bond yields and credit spreads relatively stable. At some point, we have to be happy with earning a yield on our fixed income investments. The last several years have been a major bond bull market, particularly 2012, but with yields at low levels, there is not much room left for bond price appreciation and we should be comfortable with earning our yield and carry.
2013-04-09 Morning in Japan by Christian Thwaites of Sentinel Investments
There were two very important central bank meetings last week, one from the Bank of Japan the other the ECB. Bank of Japan press conferences have been soporific affairs for years with a few QE programs not leading to much and no changes to inflation targets. Deflation, a declining workforce and falling aggregate demand have been pretty much the unbroken story for the best part of two decades.
2013-04-08 Taking Distortion at Face Value by John Hussman of Hussman Funds
The U.S. stock market presently reflects two unstable features. One is that extraordinary monetary policy specifically quantitative easing has created an ocean of zero-interest money that someone has to hold at each point in time, and that provokes a speculative reach for yield. The other is that extraordinary fiscal policy, coupled with household savings near record lows, have joined to elevate profit margins more than 70% above their historical norm, as the deficit of one sector has to emerge as the surplus of another.
2013-04-08 Ben Bernanke, the Rodney Dangerfield of Fed Chairmen by Paul Kasriel of Econtrarian, LLC
First it was 2012 presidential candidate Rick Perry, who wanted to deal with Ben Bernanke’s money-printing “Texas style”. Then 2012 presidential candidate Mitt Romney indicated that Ben Bernanke had better have his personal effects packed up and ready to move out of his Fed office by January 21, 2013.
2013-04-05 Could Consumers Change Japan\'s Tide? by Team of Matthews Asia
This year, investor attention has focused on Japan and its macroeconomic policy with hopes that rising inflation expectations might spur businesses to invest and consumers to spend. Since Prime Minister Shinzo Abe and Japan’s ruling Liberal Democratic Party (LDP) regained power late last year and proposed more aggressive monetary policies, including an ambitious inflation target, the yen has weakened more than 20% against the U.S. dollar and more than 15% against the euro.
2013-04-05 Eye of the Beholder: Dissecting the Variety of Price-Earnings Ratios by Liz Ann Sonders of Charles Schwab
There are many ways to value the stock market. Here, a look at several popular metrics, along with my view on the attractiveness of stocks.
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.
2013-04-03 Surprise! 2013 Rally Pales in Comparison to 2012 “Stealth” Rally by Douglas Cote of ING Investment Management
Despite the hoopla over first quarter market performance, it paled in comparison to the first three months of 2012. Driven in part by an extremely accommodative Fed, the U.S. economy is gaining traction, but Europe continues to flounder. After their first negative print in three years during the third quarter, S&P 500 companies returned to positive earnings growth in the fourth. A broad, globally diversified portfolio is the best way to balance the desire for wealth accumulation with an appreciation of volatility.
2013-04-03 F.I.R.S.T.: Made in the U.S.A. by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Not just the preamble for the “machine-wash-in-cold-water-and-eat-celery-only” instructions on the inside of your skinny jeans, “Made in the U.S.A.” is a brand in vogue these days as the Stars and Stripes looks to dawn a manufacturing renaissance to go with that snazzy new housing recovery everyone’s been talking about.
2013-04-03 Why This Economic \"Recovery\" is So Weak by Gary Halbert of Halbert Wealth Management
We start today with an excellent editorial I read last week written by Mort Zuckerman, Editor-In-Chief of U.S. News & World Report. My goal every week is to do a lot of reading and summarize what I’ve learned in these pages week in and week out. But every now and then I run across something so good that it just makes sense to reprint it in its entirety, even if it’s not my own work. Not many of my contemporaries are willing to do that, as they think it makes them look less scholarly. I don’t have that problem.
2013-04-03 A Man in the Mirror by Bill Gross of PIMCO
Am I a great investor? No, not yet. To paraphrase Ernest Hemingway’s “Jake” in The Sun Also Rises, “wouldn’t it be pretty to think so?” But the thinking so and the reality are often miles apart. When looking in the mirror, the average human sees a six-plus or a seven reflection on a scale of one to ten. The big nose or weak chin is masked by brighter eyes or near picture perfect teeth. And when the public is consulted, the vocal compliments as opposed to the near silent/ whispered critiques are taken as a supermajority vote for good looks.
2013-04-02 Bernanke’s Motives Behind Quantitative Easing by Paul Franchi (Article)
We are at a turning point: away from one global monetary standard, to a yet-to-be-determined new form.
2013-04-02 New Market Records, Quarterly Review, And What\'s Next by John Rothe of Riverbend Investment Management
Last week, after gyrating for the past month, the S&P 500 was finally able to close in record territory. However, investors may not be feeling the joy in their pocketbooks just yet; when inflation is factored in, it becomes clear that the US stock market is still in the extended cyclical bear cycle which started in 2000.
2013-04-01 A More Mature Bull Market by Scott Minerd of Guggenheim Partners
One of the characteristics of a more mature bull market, such as the one we are in today, is that asset prices become more susceptible to contractions due to negative news.
2013-04-01 Currency and Emerging Markets: What Can We Expect? by Giordano Lombardo of Pioneer Investments
Currency markets are making headlines again after taking a low profile amid the crises and the turmoil in financial markets of the last five years or so. I asked Greg Saichin, Head of High Yield and Emerging Markets Fixed Income Portfolio Management here at Pioneer, to provide his views about what is going on, and what he sees as the drivers of investment flows into emerging markets.
2013-03-29 China on the Move by Stephen Roach of Project Syndicate
After six years of weighing the options, China is now firmly committed to implementing a new growth strategy. But it will take courage and sheer determination to tackle the biggest obstacle of all deeply entrenched local and provincial power blocs.
2013-03-29 Learnings From the Cyprus Saga by Carl Tannenbaum of Northern Trust
There are important differences between the situation in Cyprus and the challenges other southern European nations face that should limit the transfer of financial trauma. The hope remains that the ECB’s promise to do whatever it takes to solve the sovereign debt crisis will ultimately settle markets. But access to certain types of ECB support requires reaching agreement on restructuring with the same European officials who have handled the situation in Cyprus so maladroitly.
2013-03-29 Market Resilience by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
After a stellar first quarter performance from US stock markets, which showed impressive resilience to continued headwinds, a pullback is certainly possible but we don’t suggest investors who need to add to allocations wait. In a relative world, the US stock market continues to look like an attractive place to invest, although there may also be opportunities in Japan and Europe as well. The upcoming earnings season could tell the story for the market over the next couple of months, but we continue to advocate a long-term point of view and maintaining a diversified portfolio.
2013-03-28 What Maslow and Rand Would Tell Investors Today by Frank Holmes of U.S. Global Investors
While gold’s performance in the short term has been counterintuitive, I plan to stick to my own advice. I simply feel safer with a small weighting in gold as insurance.
2013-03-27 Why Not a Quantitative Target for Quantitative Easing? by Paul Kasriel of Econtrarian, LLC
When I should have been practicing my bass guitar in preparation for my band class Thursday evening, I, instead, watched the first few minutes of Federal Reserve Chairman Bernanke’s post-FOMC press conference. A number of press inquiries were related to adding specificity to the FOMC’s criteria for modifying its current $85 billion per-month purchases of securities. In the short time that I watched the press conference, Chairman Bernanke did not seem to satisfy the press on this issue.
2013-03-26 Smart People's Opinions, The Data Says and Some Looming Deadlines by Gregg Bienstock of Lumesis
Being on the road gives me a lot of time to read the views and opinions of many very smart people (Faber, Mauldin, Hussman, Hunt and Zhao this week citations below as they all are worth a read). An interesting thread runs through much of what I absorbed this week: they don’t believe the hype.
2013-03-25 The Hook by John Hussman of Hussman Funds
At the 2000 peak, Richard Russell observed "Every bull and bear market needs a hook.’ The hook in a bear market is whatever the bear serves to keep investors and traders thinking that everything is going to be all right. There is always a hook."
2013-03-25 Cyprus Reminds Us of Threats and Improving Global Economy by Bob Doll of Nuveen Asset Management
Equity averages sagged slightly last week. Strength later in the week made up for earlier weakness as the equity rally paused for the Cyprus crisis. We (and the consensus) perceive Cyprus as mainly a local problem and believe it supports our view to remain cautious with Eurozone weightings.
2013-03-22 In Gold We Trust by Frank Holmes of U.S. Global Investors
Poorly thought out government policies hurt the formation of capital and destroy people’s trust in paper money. Leaders may have good intentions, but some of their actions show disrespect for private property and individualism. This only reemphasizes gold as an important asset class.
2013-03-21 Goldilocks Roars by Team of Bedlam Asset Management
Equity markets are producing supra-normal returns. To March 18th, the portfolio is up over 15% year-to-date, over 100 basis points ahead of the index. Many investors would be happy with such a gain over a full year rather than a mere twelve weeks, so are puzzled, the more so as respected pundits agree that the data makes for easy stories of rampant inflation, collapsing government credit and a prolonged global recession. Equity markets, however, are stubbornly refusing to follow the script.
2013-03-20 US Equities: Does Valuation Matter? by Mark Ungewitter of Charter Trust Company
With growing talk of a new secular bull market, it’s time to take a look at valuation history. While it’s true that “anything can happen” in financial markets, it seems unlikely that a new secular bull market will lift off from a P/E multiple of 17x.
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%.”
2013-03-19 Why Are Emerging Markets Struggling in 2013? by Ryan Davis of Fortigent
Despite one of the sharpest rallies in US equities in recent memory, emerging market equities have been left curiously behind in 2013. Through last Friday, the market segment was down 1.0%, compared to an S&P 500 index that was up 10.0%. This seems to violate the regime that investors have gotten used to over the past 10 years, whereby the emerging markets equity index served as a high beta proxy for the US equity market.
2013-03-18 Little Hope for the Government Budget by Charles Lieberman of Advisors Capital Management
The President spoke to Republicans this week to see if they could find common ground to overrule the budget sequester and form the basis for a new agreement over the budget, taxes and government spending going forward. Instead, the meeting crystallized how far apart the two sides are in their vision for a deal. Since there is no budget or broader economic crisis looming, there is nothing to force the two sides into an agreement.
2013-03-18 Finding the Sweet Spot by Mark Kiesel of PIMCO
Where is the investment “sweet spot” in today’s global financial markets? The uneven global growth outlook means there are opportunities and risks for both credit and equity investors.
2013-03-18 Outlook for the Yen by Team of Nomura Asset Management
For several quarters ahead, we estimate that the Yen will remain range bound near the level of PPP (purchasing power parity), which is estimated to be between 90 to 95 Yen/USD. Though currency movements will be affected by various factors, we think the monetary policies of both Japan and the U.S. are the most important.
2013-03-18 UK Budget: No Fiscal Consolidation, but Looser Money Ahead by Darren Williams of AllianceBernstein
We expect little change in UK fiscal policy in Wednesday’s budget. Instead the Chancellor George Osborne may try to nudge the Bank of England towards more aggressive monetary easing, putting further pressure on the pound.
2013-03-15 Emerging Markets Equity Commentary by Team of Thomas White International
Emerging market equities saw a moderate correction in February, broadly similar to the rest of the world. Prices reacted negatively to renewed concerns of a worsening European fiscal crisis as the results of the recent Italian elections turned out to be inconclusive.
2013-03-15 The Big Four Economic Indicators: Industrial Production and Real Retail Sales by Doug Short of Advisor Perspectives (dshort.com)
With the exception of Real Personal Income Less Transfer Payments (e.g., Social Security, Supplementary Security Income, workers compensation, etc.), the Big Four continue to show expansion. The seemingly bizarre income data is the result of the end-of-year strategy of early bonuses and moving forward of 2013 income to avoid higher taxes. We’ve seen this situation before in the 1990s. The PI anomaly is the reason the average for the Big Four (the gray line above) has shows contraction for the past two months.
2013-03-15 Global Economic Overview by Team of Thomas White International
Global economic trends largely remained positive during February, though the stalemate after the Italian elections and the failure by policymakers to reach a deal to avoid the U.S. sequester heightened the political and policy risks. The U.S. GDP figure for the last quarter of 2012 was revised higher, showing the world’s largest economy managed to avoid a decline.
2013-03-15 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
Despite exceptionally easy monetary policy, inflation risk remains low. Record stock market levels are boosting consumer spending. U.S. capital spending is poised to be a bright spot this year.
2013-03-15 China\’s Next Stop by Frank Holmes of U.S. Global Investors
Would it surprise you to discover that China is planning to add 800 miles to its subway system over the next two years? That’s the distance equivalent to building a network from Dallas to Chicago in less time than the U.S. Congress can resolve a budget!
2013-03-15 Finally!! Now What? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Surprise! We don’t know what’s going to happen in stocks over the next few weeks. But we are seeing an environment that we believe can foster further gains in the US as economic data remains generally positive, the Fed maintains its accommodative stance, and small progress is being made in the fiscal realm. Investors concerned about a pullback may want to hedge their portfolios, but maintain adequate exposure to equities.
2013-03-14 Global Currency Battles: A Waiting Disaster or a Win for All? by Team of Knowledge @ Wharton
To many, Japan’s recent moves to devalue the yen looked like the spark that could ignite a global currency war -- a series of competitive devaluations that, last century, helped plunge the world into the Great Depression. Until now, central bankers have been resisting the urge to politicize exchange rates. However, while currency skirmishes can be dangerous and require monitoring, they are also necessary for establishing equilibrium in markets and will help in the global economic recovery, some experts say.
2013-03-13 Who Cares if There's a High-Yield Bond Bubble? by Gary Halbert of Halbert Wealth Management
High-yield bonds, or "junk bonds" as they are widely known, have received a lot of attention in recent months. Is there a high-yield bond bubble? Certainly a ton of new money has gone into high-yield bond funds over the last few years. Millions of Americans who would have never considered high-yield bonds have bought in due to near zero returns on traditional savings vehicles.
2013-03-12 Gundlach: Investors are asking the Wrong Question by Robert Huebscher (Article)
If you're trying to assess the Federal Reserve's so-called exit strategy from quantitative easing, then you're asking the wrong question, according to Doubleline's Jeffrey Gundlach. Quantitative easing is a permanent policy tool, he said, and investors should be asking what that means for their investment strategy.
2013-03-12 Finally, a Jobs Report Worth Reading by Chris Maxey, Ryan Davis of Fortigent
Surprisingly, the February employment report showed a labor market growing at a reasonably healthy rate. Concerns that the sequester would spill into the broader economy have yet to materialize and if recent trends hold, the economy may finally be approaching a point of robust and sustainable job growth.
2013-03-12 Pacific Basin Market Overview February 2013 by Team of Nomura Asset Management
Monthly returns for February 2013 were somewhat mixed, but the Pacific Basin regional markets generally ended in positive territory this month. Outside of Asia, political instability in Italy and concerns that the Federal Reserve might begin to scale back its monetary stimulus in the U.S. led to weaker investor sentiment. Economic data from China was weak, largely due to the effect of the Chinese New Year.
2013-03-12 We Made It. Now What? by Christian Thwaites of Sentinel Investments
What looks like a fairly settled policy in Europe is fast becoming a very dangerous situation, according to Christian Thwaites in his latest "Thought of the Week" -- "We Made It. Now What?" -- adding that the outlook for the world's second largest economic bloc is pretty week.
2013-03-12 U.S. Dominates World Markets for the Trifecta by Douglas Cote of ING Investment Management
While large-cap indices get all the headlines, mid and small caps have continued to excel. Frontier markets have picked up the slack as major emerging markets stumble. Global risks persist, though U.S. fundamentals appear solid. The move toward U.S. energy independence should soon result in a trade surplus, boosting GDP.
2013-03-12 The 2030 Increasing Inequality Scenario by Bill O'Grady, Kaisa Stucke of Confluence Investment Management
Last month we started looking at the 2030 alternative world development scenarios as laid out by the National Intelligence Council (NIC). The NIC forecasts the likely paths that are either currently underway or are forecast to occur in the future. In its most recent report, the NIC projects four possible global political and economic states based on expected trends. Last time, we presented the most likely best case scenario. This week, we will explore the third scenario, under which the world gets wealthier as a whole, but inequalities increase.
2013-03-12 After Last Week's US Rally: Proceed with Caution by Russ Koesterich of iShares Blog
While last week's rally was supported by better-than-expected economic data and improving investor sentiment, the magnitude of US stocks' advance is starting to cause some indicators to flash yellow. Russ explains.
2013-03-11 Two Myths and a Legend by John Hussman of Hussman Funds
The present market euphoria appears to be driven by two myths and a legend. Make no mistake. When investors cannot possibly think of any reason why stocks could decline, and are convinced that universally recognized factors are sufficient to drive prices perpetually higher, euphoria is the proper term.
2013-03-08 Flying High by Doug MacKay, Bill Hoover, Mike Czekaj of Broadleaf Partners
The media has made a spectacle out of the Dow Jones Industrial Average reaching new all-time highs. The Dow Jones Industrial Average and the S&P 500 indices do not include the compounding effect of dividends paid by member companies. Any retiree will tell you that dividends represent a return of capital and useful income in the real economy. If you had reinvested those dividends back in the index as they were paid, the old time highs reached in October of 2007 likely would have been passed some time ago.
2013-03-08 Spasmodic Stupidity: The Wile E. Coyote Congress by Cliff Draughn of Excelsia Investment Advisors
I predict the Ides of March will find us in a continued sequestration, and Congress will use the time between now and the debt ceiling deadline on March 27th to debate the merits of true tax reform as opposed to governing by crisis. In the end, though, the reform conversation will revert to governance by crisis, with another stop-gap measure to avoid government shutdown during Holy Week and Easter, which will tide us over to the elections of 2014. Do you expect any different?
2013-03-08 Labor Policy Needs to Help, Not Hinder Employment. by Team of Northern Trust
Labor policy needs to help, not hinder employment. The U.S. employment report surprised on the upside. Watch the shadows behind China's official credit measures
2013-03-08 How to Keep Calm and Invest On by Frank Holmes of U.S. Global Investors
The market noise of today will not be going away. However, investors can gain confidence in the following wisdom of the crowd. As famous investor Benjamin Graham said, "The individual investor should act consistently as an investor and not as a speculator. Keep calm and invest on.
2013-03-07 Gentlemen, Start Your Presses by John Browne of Euro Pacific Capital
In his Congressional testimony last week in Washington, Fed Chairman Ben Bernanke took time to downplay the significance of the few dissenting voices on the Fed's Open Market Committee (FOMC). Those statements, combined with an even more dovish statement by Fed Vice Chairman Janet Yellen earlier this week, clearly reaffirm the Fed's indefinite commitment to $85 billion of monthly quantitative easing.
2013-03-07 When Will the Music Stop? by Scott Minerd of Guggenheim Partners
The investment environment is in transition, with uncertainty around policy moves contributing an increasing amount of uncertainty for asset prices.
2013-03-07 Animal Spirits: F.I.R.S.T. by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Call it what you will a dog-eat-dog world in which you're wearing Milk-Bone underwear or an example of capitalism at its finest an M&A cycle is heating up. This activity may be signaling the rebirth of what British economist John Maynard Keynes originally referred to as "animal spirits", much to the delight of fictional corporate barbarian Gordon Gekko and his real-life analogues, who require little prompting to act on Keynes "spontaneous urge to action".
2013-03-07 Capex Revival by Francis Gannon of The Royce Funds
For some time now, we have been noting the defensive nature of the investment environment, one in which fear and uncertainty continue to be the major forces driving markets. Interestingly, this trend has held true for both investors and corporations alike of late. Even after a powerful move from the low of last November, for example, investors remain fearful about cyclical or economically sensitive sectors while at the same time embracing those very sectors that benefit from easy money, are defensive by nature, and are supposedly riskless.
2013-03-07 A New Chapter for Turkey? by Frank Holmes of U.S. Global Investors
In 2012, Turkey was the best performer among the emerging markets we track on our Periodic Table showing a decade of returns. All developing countries rose last year, but stocks in Turkey climbed an astounding 56 percent.
2013-03-06 U.S. Sequester: How Significant is it for the Global Economy? by Team of Thomas White International
Since the U.S. has been one of the brightest spots in the current global economic environment, any negative development that restricts activity in the U.S. could have a magnified impact on the economic prospects for the rest of the world.
2013-03-05 Is Now the Time to Diversify? by Chris Maxey, Ryan Davis of Fortigent
The use of global diversification in constructing client portfolios has come under fire in recent years due to the underperformance of many risk assets. Traditionalists who stuck to their familiar S&P 500 and BarCap Aggregate Bond index blends generally outperformed their diversified peers in 2011 and 2012, as historic risk premiums failed to materialize and various alternative investment strategies faced headwinds.
2013-03-04 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
The sky is falling. The sky is falling. It's the millennium all over again. (How did those fears work out?) With politicos unable to reach any agreement on the budget (taxes), the "dumb, arbitrary" spending cuts began to take effect to the tune of $85 billion this year. (So much for a military preparedness.) Though the impact on the economy will not be felt overnight, some areas will begin to suffer sooner than others and biz/consumer confidence could become an issue in the near future.
2013-03-04 Living in the Past: Investors Finally Putting Away the Rear-View Mirror? by Liz Ann Sonders of Charles Schwab
With a very strong January in the books for stocks, and hefty inflows into stock mutual funds, are we finally seeing the investor class become believers?
2013-03-04 Out On A Limb - An Investor's Guide to X-treme Monetary and Fiscal Conditions by John Hussman of Hussman Funds
Massive policy responses, directed toward ineffective ends, are scarcely better than no policy response at all. A look at the current monetary and fiscal policy environment, as well as more effective policy initiatives, and why they make sense.
2013-03-04 Health Care Reform: A Q&A With Our Municipal Bond Experts by Shari Sikes, Art Schloss of Invesco
Health care reform took center stage in the last year as the Supreme Court upheld the Patient Protection and Affordable Care Act of 2010 (ACA), affirming the constitutionality of portions of the law. The decision made it possible for major health care reform to proceed. This January, health care spending again was at the forefront during the fiscal cliff debate as a means to reduce government spending. Health care is poised to remain at the center of this discussion until a federal budget deal is reached.
2013-03-01 The Fed's Tightening Pipe Dream by Peter Schiff of Euro Pacific Precious Metals
Testifying before the US Senate this past Tuesday, Fed Chairman Ben Bernanke made an extraordinary claim about its bloated balance sheet: "We could exit without ever selling by letting it run off." What Bernanke means here is that the Fed could simply hold its Treasuries and agency bonds until they mature, at which point the government would then be forced to pay the Fed back the principal amount. Through this process, the Fed's unprecedented and inflationary position will be gradually and placidly unwound.
2013-03-01 ECRI "Recession" Update: Proprietary Indicators Slip Again by Doug Short of Advisor Perspectives (dshort.com)
ECRI adamantly denied that the sharp decline of their indicators in 2010 marked the beginning of a recession. But in 2011, when their proprietary indicators were at levels higher than 2010, they made their recession call with stunning confidence bordering on arrogance.
2013-03-01 Greetings from Istanbul! by Frank Holmes of U.S. Global Investors
As I travel around Turkey, I am reminded how vital good government policies are to the health of a nation. Following a decade of fiscally responsible actions, Turkey is the picture of a growing prosperity. Perhaps Americas elected officials could take a tip from this vibrant country overseas.
2013-02-28 An Ephemeral Swoon by Scott Minerd of Guggenheim Partners
Although volatility is likely to stay relatively high going forward, the recent move in the markets to risk-off mode appears to be a temporary condition.
2013-02-27 Potential Threats to Equity Rally by Chris Maxey, Ryan Davis of Fortigent
Equity markets started a third consecutive year in rather impressive fashion, gaining more than 6% to date. With so much optimism in the investment community, it is always worth keeping an eye open for risks possibly overlooked. By now, it is apparent that investors are increasing their exposure towards equities with arms wide open. Data from the Investment Company Institute (ICI) estimates $39 billion flowed into equity mutual funds this year through February 13. Following outflows of $153 billion in 2012, the sudden reversal has been impressive.
2013-02-27 The Healthcare Blues by John Mauldin of Millennium Wave Advisors
It has been some time since we peeked into my worry closet. A few questions this weekend prompted me to think about things I am paying attention to but have not written about, and one thing that I am not worried about at all, despite the apparent media hysteria.
2013-02-27 ING Fixed Income Perspectives February 2013 by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Despite its diminutive size, February has been a whirlwind. Eat and drink too much on Fat Tuesday, be reminded of our corporeal nature on Ash Wednesday, receive a sappy Hallmark card on Thursday, and cap it all off with a memorial for a bunch of ex-presidents on Monday. Unfortunately, the next several weeks don't appear to offer any relief from this calendar whiplash.
2013-02-27 The Great Migration by Herbert Abramson, Randall Abramson of Trapeze Asset Management
We are value investors dedicated to creating portfolios for clients, whether growth (equities), income or a balanced blend of both, of undervalued securities with meaningful upside potential and a margin of safety to guard against permanent loss. For us, the bottom-up factors are the most compelling, but we are also mindful that we need to take account of the top-down macro factors. We know how the Crash of ꞌ08 and the accompanying recession created havoc for investors, including us, no matter how undervalued stocks were.
2013-02-26 Looking For A Reason To Sell-Off by Christian W. Thwaites of Sentinel Investments
Markets were looking for a reason to correct. Risk assets had outpaced themselves since mid November and in the first seven weeks the S&P[1] had outperformed the US Treasury 10-year note by 12% and the 30-year bond by 15%. The markets will lumber through the sequester and face the next test on the debt ceiling and first quarter results. Below the surface, the outlook is mildly optimistic. Why the qualifier? Because everything, in Europe, US and Japan, must be set in the context of the asset deflation and deleveraging going on and that will go on for some years.
2013-02-26 Sudden Discomfort by Scott J. Brown of Raymond James
Minutes of the January 29-30 meeting of the Federal Open Market Committee showed a growing discomfort with the Feds Large-Scale Asset Purchase program (QE3). Thats not all that surprising. Even those who strongly favor the program arent exactly happy with it. However, thats a far cry from wanting to end the program anytime soon. We should learn more this week as Fed Chairman Bernanke delivers his semiannual monetary policy testimony (Tuesday and Wednesday).
2013-02-25 Dodging the bullets by Team of Bedlam Asset Management
Although the year is barely a month old there are already signs that the long-awaited rotation out of the perceived safety of bonds and into inflation-proofed equities may have begun. Given the dismally low yields on offer it seems likely that, at the very least, it is the beginning of the end of the bond market bubble. Some of the biggest bubbles in the bond market, and thus most at risk from a sell-off, are in high yield and emerging market debt.
2013-02-22 Emerging Markets Outlook: Will Emerging Markets Continue Their Run in 2013? by Scott Klimo of Saturna Capital
A number of times we have been asked whether emerging markets will continue their run in 2013. Our response typically begins with the following clarification: "Emerging markets" may be a handy way to refer to the countries that constitute a generally recognized asset class, but this group is far from monolithic. Widely differing levels of development, economic drivers, opportunities to invest, and returns exist under the emerging markets umbrella. For this reason it's not entirely correct to imply that "emerging markets" had a run in 2012.
2013-02-22 ECRI "Recession" Update: Proprietary Indicators Slip Again by Doug Short of Advisor Perspectives (dshort.com)
ECRI adamantly denied that the sharp decline of their indicators in 2010 marked the beginning of a recession. But in 2011, when their proprietary indicators were at levels higher than 2010, they made their recession call with stunning confidence bordering on arrogance...
2013-02-22 Central Banks Are Factoring Financial Stability into Their Decision Making by Team of Northern Trust
Central banks are factoring financial stability into their decision making. The FOMC is taking a critical look at its asset purchase strategy. Don't look now, but the sequester is coming.
2013-02-22 A Test of Strength for Gold by Frank Holmes of U.S. Global Investors
This week, we saw the gold bears growling louder and gaining strength, as the worlds largest gold-backed ETF, the SPDR Gold Trust, experienced its largest one-day outflows since August 2011. The Fear Trade fled the sector following the Federal Reserves meeting that revealed a growing dissension among some of its members over the central banks bond-buying program.
2013-02-21 Tapping China's Growth via Dividends by Yu Zhang of Matthews Asia
When the long-term historical performance of global equity markets is considered, investors can see that the contribution of dividends to total return is significant. In this regard, China has been no exception. Between 1999 and 2012, 46% of the total return of the MSCI China Index was derived from dividends received and reinvested. This month, Yu Zhang, CFA, explores the ways in which a dividend-investing approach can be an effective investment strategy in China.
2013-02-21 Gold Miners- Back in the Abyss- An Update by JJ Abodeely of Value Restoration Project
Back on May 18th, 2012 I wrote a piece titled Jumping Into The Abyss: A Bull Case for Gold Mining Stocks. The miners had declined 40% from their August 2011 highs and for a variety of fundamental reasons like valuation and the relationship between mining costs and the price of gold and technical reasons, like sentiment, I felt the case to buy was compelling. The stocks subsequently rallied more than 30% over the following 4-5 months.
2013-02-20 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
Tick Tick Tick. The President has plans for improving life in America. Tick Tick Tick. Republicans want to fix the middle class (and restricting taxes on the upper class may help). Tick Tick Tick. Earnings reports look good, but forecasts for the current quarter have been lowered. Tick Tick Tick. Weekly jobless claims keep falling, but major corporations are announcing layoffs. Tick Tick Tick. Sales figures show growth, but Wal-Mart and others are worried. Tick Tick Tick.
2013-02-19 Alan Greenspan on the Market and the Global Economy by Adam Jared Apt (Article)
During his six-decade-long career in financial services, Alan Greenspan was a central figure in seminal events that drove investment markets, from the savings-and-loan crisis to the dot-com bubble to the housing crisis. Now, nearing 87, he rarely speaks in public. But he did so last week, offering his forecasts for the U.S. and European economies.
2013-02-19 Too Great Expectations by Richard Golod of Invesco
Global investors entered the year with newfound enthusiasm. Across the board, global equities traded higher in January, and retail money flows into global equities were the best in 17 years. Media reports about a "Great Rotation" from fixed income into equities are raising expectations about the possibility of a new secular bull market. However, I believe a little perspective is in order.
2013-02-16 Seeing the Forest by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Equity markets continue to be resilient and investor confidence is elevated in various sentiment indices, suggesting a near-term pullback is possible. But there are longer-term trends developing that give us hope that the US economy's expansion and market's rally are sustainable. Federal spending cuts via the "sequestration" appear sure to happen, but there will continue to be debates about the nature and size of the cuts. Similarly, questions are increasing as to the potential unwinding of current Fed policy with regard to timing and rapidity.
2013-02-16 When It Comes to Gold, Stick to the Facts by Frank Holmes of U.S. Global Investors
During short-term gold corrections, its much more important to focus on the facts, including the fact that gold is increasingly viewed as a currency. Rather than buying real estate, lumber or diamonds, central banks around the world are buying gold. According to the World Gold Council (WGC), over 2012, central bank demand totaled 534 tons, a level we have not seen in nearly 50 years.
2013-02-16 The Squeeze: Reassessing the Japan/Korea/China Manufacturing Nexus by John Longhurst of PIMCO
If the yen settles between 95 and 100 to the dollar, it could be a game changer for Japanese companies which have restructured to become profitable at 75 yen to the dollar. Some Korean companies, especially those in heavy industry, may be squeezed by intensified Japanese and Chinese competition. We expect Korean firms to fish in profit pools in businesses related to their core competencies, chiefly to the detriment of Asian and European competitors.
2013-02-16 In the Year of the Snake, Where Will Copper Head? by Frank Holmes of U.S. Global Investors
With an improving global economy and Chinas new leadership ramping up projects, will base metals, such as copper, head higher?
2013-02-15 Latest OECD Data Shows Global Economy in State of Flux by Steve Rumsey of Optimus Advisory Group
According to the OECD ("Organisation for Economic Co-operation and Development"), the US economy managed to stage a leading indicator "rally" into the most favorable northeast quadrant. The red six month lagging tail on the graph clearly shows the economic leading indicators moving from expansion to slowdown, only to move back to the expansion quadrant in late 2012.
2013-02-15 ECRI "Recession" Update: Propietary Indicators Take a Pause by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) slipped fractionally in today's update. It is now at 129.6 versus the previous week's 130.2.The WLI annualized growth indicator (WLIg) also eased, now at 8.3, down from last week's 8.9. WLIg has been in expansion territory since August 10th of last year, but is is fractionally off its interim high set last week.
2013-02-15 Thailand: Land of the Smiles by Mark Mobius of Franklin Templeton Investments
China and India may be Asia's largest economies, but they aren't the only countries with growth potential on the continent. Southeast Asian countries can also offer compelling investment opportunities. Thailand, known as the land of the smiles because of the expression its natural beauty and friendly people inspire, is a country where we believe the economic prospects could give investors reasons to smile too.
2013-02-15 Hyperinflations, Hysteria, and False Memories by James Montier of GMO
In the past, Ive admitted to macroeconomics being one of my dark, guilty pleasures. To some value investors this seems like heresy, as Marty Whitman1 once wrote, Graham and Dodd view macro factors...as crucial to the analysis of a corporate security. Value investors, however, believe that macro factors are irrelevant. I am clearly a Graham and Doddite on this measure (and most others as well).
2013-02-14 When Politics Trump Economics by Scott Minerd of Guggenheim Partners
The U.S. economic expansion continues, but increasing attention to political risks, and currency wars, in particular, indicate a period of heightened volatility could be ahead.
2013-02-14 Emerging Markets Consolidate After Last Year's Gains by Team of Thomas White International
After the strong relative performance towards the end of last year, emerging market equities settled with moderate gains during the month of January as global investor sentiment remained optimistic. Global economic data continue to be mostly positive, sustaining the trend from the second half of last year.
2013-02-13 Concerned by Recent Economic Data? Look Closer by Marco Pirondini of Pioneer Investments
We've seen a lot of GDP data recently that, at first look, may seem a bit concerning. But if we take a moment for analysis, much of the news is actually good for the economy and the markets.
2013-02-13 Trading Secrets: And All Our Yesterdays by Tad Rivelle of TCW Asset Management
Markets work. Not because they are perfect, but because they self-correct. Inherent to their functioning is the ability for buyers and sellers, borrowers and lenders, to freely express their predilection to engage in commercial transactions as proxied by the price mechanism. This is all utterly basic. So, why are the capital markets in general, and the credit markets in particular, not to be trusted to operate without the price and quantity guidance of the Federal Reserve? I
2013-02-13 Global Economic Overview January 2013 by Team of Thomas White International
Global economic trends continued the moderate positive momentum from earlier months and helped sustain investor sentiment in January. The unexpected decline in U.S. economic output for the fourth quarter of last year was mostly due to a sharp fall in government spending and a smaller inventory buildup, while consumer and business spending exceeded forecasts. Also, recent data suggest that U.S. labor market gains during last year were better than earlier estimates.
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.
2013-02-12 The Milton Friedman Centenary: One Hundred Years of Surprisingly Little Solitude by Laurence B. Siegel (Article)
Milton Friedman was once a lonely voice for capitalism in a collectivist era, and seemed doomed to a hundred years of solitude. Instead, he arguably became the preeminent public intellectual of the hundred years that followed his 1912 birth.
2013-02-12 Consumers Less Enthused to Bail Out the Economy by Chris Maxey, Ryan Davis of Fortigent
Following recent recessions, it was commonplace to rely on American consumers to bail out the economy. The reliance on the American consumer was widely understood as the best remedy for an ailing economy. We are not as fortunate this time around and our dependence on consumers is one reason for the sluggish rate of recovery since 2008.
2013-02-11 Solving the Profitability Puzzle by Vadim Zlotnikov of AllianceBernstein
Companies around the world enjoyed especially high profit margins in late 2012. But can this trend be maintained or is profitability poised for a collapse that might threaten stocks this year?
2013-02-11 And That's the Week That Was by Ron Brounes of Brounes & Associates
With folks in the Northeast finally returning to normalcy following Superstorm Sandy's impact in October, a "potentially historic" blizzard threatened the region with predicted disruptions to businesses, schools, travel, etc. Though New England is expected to catch the brunt of the damage, forecasters are calling for up to 20 inches of snow in New York City. For now, NYSE Euronext does not anticipate anything but "business as usual" at the NY Stock Exchange as contingency plans are well in place.
2013-02-08 ECRI "Recession" Update: Leading Index Growth Sets Another Interim High by Doug Short of Advisor Perspectives (dshort.com)
First a flashback for those of us who have followed ECRI's media appearances: we know that the company adamantly denied that the sharp decline of their indicators in 2010 marked the beginning of a recession. But in 2011, when their proprietary indicators were at levels higher than 2010, they made their recession call with stunning confidence bordering on arrogance...
2013-02-07 Commodities: Correlating Trends with Opportunities by Mark Mobius of Franklin Templeton Investments
Commodity price inflation is both a social and an economic issue. In emerging markets in particular, food and energy costs take a deeper slice out of consumers' income, which can lead to the type of unrest that causes governments to topple. In addition to the potential impact of extreme weather on food supplies, central banks around the world are printing a flood of money, which could lead to inflated prices for other goods and services.
2013-02-07 Echoes of 2004 by Scott Minerd of Guggenheim Partners
Rising equities and tightening credit spreads define the near-term investment outlook, but this is not the first time we have seen this cycle play out in recent memory.
2013-02-07 From QE to Queasy: Fiscal Policy and the Risk of Inflation by Jason Hsu of Research Affiliates
Quantitative easing does not directly cause inflation. Rather, by enabling the government to issue low-cost debt, it fosters undisciplined spending, says Jason Hsu, CIO of Research Affiliates, LLC in this commentary. This spending, in turn, generates inflation, transferring wealth from future taxpayers to the current generation. Hsu argues that Americans are more likely to follow the European model of insufficient saving than to imitate the Japanese practices of private sector belt-tightening, high savings rates, and international lending.
2013-02-06 The January Barometer by Jeffrey Saut of Raymond James
It's that time of year again when the media is abuzz with that old stock market saying, "so goes the first week of the new year, so goes the month and so goes the year." With the S&P 500 (SPX/1513.17) better by 2.17% over the first five trading sessions of this year, and up 6.10% for the month of January, it is worth revisiting the January Barometer. Devised by Yale Hirsch in 1972, the January Barometer states that as the S&P 500 goes in January, so goes the year.
2013-02-06 Focus on Fixed Income by Steve Van Order of Calvert Investment Management
Last week Administration officials, including the President, clearly ruled out using extraordinary legal measures to avoid defaulting on Treasurys financial obligations in the absence of a debt ceiling hike by Congress. The two legal measures most discussed, going back to the summer 2011, were invoking the 14th Amendment and minting a trillion dollar platinum coin. The coin idea was dismissed as Fed officials commented that the central bank would not honor the coin as a deposit, and the amendment idea has been shelved a number of times.
2013-02-06 GDP Report Tanks - Is A Recession Looming? by Gary Halbert of Halbert Wealth Management
We will cover a lot of ground today. We begin with a new report from Goldman Sachs which argues that the US economy will remain the strongest in the world for many more years. The report rebuts claims that America is a nation in decline. Quite the contrary, say Goldman analysts who claim that there is a growing"awarenessof the key economic, institutional, human capital and geopolitical advantages the U.S. enjoys over other economies."
2013-02-05 Letters to the Editor by Various (Article)
A reader responds to Joe Tomlinson's article, Predicting Asset Class Returns: Recommendations for Financial Planners, which appeared last week, and another reader responds to Dan Richards' articles.
2013-02-05 In Uncertain Environment, Jobs Grow Tepidly by Chris Maxey, Ryan Davis of Fortigent
For the 35th consecutive month, private payrolls registered positive growth. It was hardly the robust report economists would prefer, but the labor market continues to mend. However, there are still plenty of reasons to be concerned, especially with sequestration on the horizon.
2013-02-05 Fourth Quarter 2012 Equity Market Review by Natalie Trunow of Calvert Investment Management
With the excitement of the QE3 announcement wearing off in the fourth quarter, market participants refocused on the less-than-stellar earnings season in the U.S. and uncertainties surrounding the U.S. presidential election and impending fiscal cliff, while the negative impact of Hurricane Sandy further dampened investor sentiment. Despite a double-dip recession in the eurozone, there was some progress on the European policy front and China's economy continued to show signs of stabilizing, which helped international stocks outperform their U.S. counterparts.
2013-02-04 Our Outlook: Very Bullish for the Stock Market by Team of Sadoff Investment Management
The combined readings of these breakouts, volume strength, significant pivots by a long list of financial stocks and improving commodity prices evidence major trend improvements. Restated, the underpinnings for both the economy and stock market evidence significant strengthening ahead.
2013-02-04 A Gross Underestimate by Jonathan Coleman, Soonyong Park of Janus Capital Group
As we enter 2013, we felt it would be an appropriate time to revisit one of last years most controversial predictions of future equity performance. We acknowledge that equities in general may not continue to deliver the same real rate of return they have over the last century; however, we believe the glum outlook for the asset class forecasted by Bill Gross last year misses the mark. Our estimates of future equity returnsbased on three different approachesall point to a meaningfully higher forecast than Gross' pessimistic prediction.
2013-02-04 Shifting Sentiment? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
Is investor sentiment shifting in favor of equities, which could help to continue the recent rally?
2013-02-04 A Reluctant Bear's Guide to the Universe by John Hussman of Hussman Funds
In recent years, I've gained the reputation of a "perma-bear." The reality is that I'm quite a reluctant bear, in that I would greatly prefer market conditions and prospective returns to be different from what they are. There's no question that conditions and evidence will change, unless the stock market is to be bound for the next decade in what would ultimately be a low-single-digit horserace with near-zero interest rates. For my part, I think the likely shocks are larger, and the potential opportunities will be greater than investors seem to contemplate here.
2013-02-01 Crystallization at Davos by Scott Minerd of Guggenheim Partners
The euphoria among my fellow Davos attendees was palpable, but short and long-term risks for the world's advanced economies, including competitive currency devaluation, remain concerning.
2013-02-01 Feasting in a Time of Famine: The South African Consumer by Maria (Masha) Gordon, Richard Flax of PIMCO
South Africa's consumer sector has been on a strong run for the past several years, but there are signs the consumer is now coming under pressure. For all the challenges that have faced the South African economy, most listed consumer companies have enjoyed a great run since 2008. However, a combination of factors strong growth in retail sales and credit along with the rise in consumer debt levels and weak employment growth suggest the South African consumer sector may have pulled consumption forward in a way that could prove ultimately unsustainable.
2013-02-01 ECRI "Recession" Update: Leading Index Growth Hits Another Interim High by Doug Short of Advisor Perspectives (dshort.com)
ECRI posts its proprietary indicators on one-week delayed basis to the general public, but ECRI's Lakshman Achuthan has switched focus to his company's version of the Big Four Economic Indicators I've been tracking for the past several months. See, for example, this November 29thBloomberg video that ECRI continues to feature on their website. Achuthan pinpoints July as the business cycle peak, thus putting us in at the beginning of the eighth month of a recession.
2013-02-01 2013 Economic & Capital Market Outlook by Gregory Hahn of Winthrop Capital Management
It took our country 229 years to accumulate $8 trillion in federal debt. It only took the next eight years to double it to $16 trillion. History shows that when a country accumulates debt at this rapid pace, economic growth languishes. Not surprisingly, Congress is pursuing policies that attempt to inflate the economy. Five years after the Financial Crisis, we really havent fixed much. Instead, we've issued more debt in order to pay our bills and sustain a quality of life society cannot afford long term.
2013-02-01 The Big Four Economic Indicators: Nonfarm Employment by Doug Short of Advisor Perspectives (dshort.com)
Note from dshort: This commentary has been revised to include the latest Nonfarm Employment data released today.... Nonfarm Employment rose 0.12% in January, following 0.15% and 0.18% gains in December and November, respectively. The Year-over-year increase is 1.52%. Nonfarm employment has been the tortoise of the Big Four, slow and steady. The average MoM change over the past 12 months has been 0.13%, and the range has been 0.07% to 0.20% -- no contractions.
2013-02-01 The Biggest Loser by Peter Schiff of Euro Pacific Capital
For the past few generations Switzerland has enjoyed some of the strongest economic fundamentals in the world. The country boasts a high savings rate, low taxes, strong exports, low debt-to-GDP, balanced government budgets, and prior to a few years ago one of the most responsible monetary policies in the world. These attributes made the Swiss franc one of the world's "safe haven" currencies. But in today's global economy, no good deed goes unpunished.
2013-02-01 Dow To 14,000 and Beyond? by Frank Holmes of U.S. Global Investors
So will the Dow go beyond 14,000? Although you cant predict how hot the weather will be this summer, the clouds appear to be parting to reveal the sun today. Make sure your asset allocation positions your portfolio to shine.
2013-02-01 Weekly Economic Commentary by Team of Northern Trust
Is the world engaged in a currency war? Januarys job report had some pleasant surprises, but more progress is needed. Purchasing managers surveys suggest growth in the US, retreat for Europe
2013-02-01 A Gross Underestimate by Jonathan Coleman and Soonyong Park of Janus Capital Group
The glum outlook for the asset class forecasted by Bill Gross last year misses the mark. Our estimates of future equity returnsbased on three different approachesall point to a meaningfully higher forecast than Gross pessimistic prediction.
2013-02-01 Look at the Bears! Look at the Bears! by Christine Hurtsellers, Matt Toms and Mike Mata of ING Investment Management
Yes, the grumbling of bond bears is reverberating in Treasury yields, but that sound isnt the death knell of a grizzly; at this point, the closest ursine analogue is Boo-Boo Bear.
2013-01-31 China's Market Ups and Downs by Mark Mobius of Franklin Templeton Investments
China's stock market was a roller coaster in 2012, and those investors with a weak stomach for unpredictability probably found the ride unpleasant. Its true that by many measures last year's weak market performance in China's A share market was disappointing, but in a market of this size the story isn't all good or all bad, so unlike the market masses, I remain confident about China's prospects and continue to search for long-term investment opportunities in China.
2013-01-31 Credit Supernova! by Bill Gross of PIMCO
They say that time is money. What they don't say is that money may be running out of time. There may be a natural evolution to our fractionally reserved credit system which characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a "big freeze" trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence.
2013-01-31 Q4 2012 Letter by Team of Grey Owl Capital Management
During the second half of 2012, central banks turned their massive and coordinated monetary intervention "up to eleven." This is the overwhelmingly dominant economic and market force today. Despite the long-term consequences (which are very real), we believe the central bankers commitment is steadfast. It has and will likely continue to mute both real economic and financial market volatility (at the expense of long-term growth). A deeper analysis of what has changed, our assessment of the impact, and our portfolio response follows.
2013-01-31 Elliott's Paul Singer On How Money Is Created ... And How It Dies by Team of TimeCapital
When we launched our series into the US Shadow Banking system in the summer of 2010 we had one simple objective: to demonstrate just how little the process of modern (and by modern we mean circa 2004 not 1981) money creation was understood.
2013-01-30 An Apple's First Worm by Doug MacKay, Bill Hoover, Mike Czekaj of Broadleaf Partners
Writing about Apple is painful. Not because I have lost money in recent months or have no insight to provide, but because the media will likely report on it ad nausea for the next few days. It is perhaps human nature that the news which is most readily produced is also the news that is most easily consumed. If you want to be read, it's best to write words that people will read. While this makes for great entertainment and advertising, it hasn't typically been the best way to get new investment ideas.
2013-01-30 U.S. Debt Crisis End-Game Looms in 3-5 Years by Gary Halbert of Halbert Wealth Management
Last week, one of the most respected research groups in the world predicted that the US likely has only 3-5 years before the wheels fall off and the world is thrust into a major financial crisis, possibly even a depression. We'll talk about all of these things as we go along today. But before we go there, let's take a brief look at the economy before tomorrow's advance (first) estimate of 4Q GDP.
2013-01-29 And That's the Week That Was by Ron Brounes of Brounes & Associates
The trend is your friend...so hopefully it will continue for a little (lot) longer. With the uncertainty of the fiscal cliff on the backburner (for now), investors seem to like what they are seeing from earnings season and in the economy. They continued to take stocks higher as the S&P 500 settled above 1500 for the first time in five years and is currently riding a eight session winning streak.
2013-01-29 Emerging Europe: Regional Economic Review 4Q 2012 by Team of Thomas White International
As the 2012 year closed, the emerging economies of Europe joined their cousins in the developed world for their share of woes, and in particular, were impacted by the debt crisis in the Euro-zone, their primary trading partners. Though Russia, the biggest of these economies, finally managed to become a member of the World Trade Organization, the resource-dependent economy recorded slowing growth during the third quarter as both household consumption and state spending expanded at a slower pace.
2013-01-28 Global Market Commentary: Follow the Money, Again by Richard Golod of Invesco
Global equity market performance in 2012 was driven by accommodative monetary policy around the world, as well as a decline in investor fear after policymakers in Europe reduced the risk of a financial crisis. Global equity markets are likely to respond to the same stimulus this year but maybe not to the same degree. I believe the dominant factor that will drive equity prices in 2013 will likely surprise investors: inflation.
2013-01-28 Conflicted Objectives by Charles Lieberman of Advisors Capital Management
Policymakers in the U.S., Europe, Japan, and elsewhere all seek to weaken their currencies to stimulate exports and domestic growth. It is not possible for all of them to succeed, since some currencies must rise in value, if others decline. Although their individual objectives may be in conflict, their efforts are actually mutually supportive. As each country runs an accommodative monetary policy to weaken its currency, they are also simultaneously promoting stronger domestic growth directly. Indirectly, they are also stimulating demand for their trading partners.
2013-01-28 Is the Fed Doing the Right Thing? by Mark Oelschlager of Oak Associates Funds
After a strong 2012, the stock market is off to a good start in 2013, rising more than 5% so far in January and currently riding an eight-day winning streak (the longest since 2004). Encouraging economic data has a lot to do with this. Unemployment claims are at a 5-year low, home sales and prices are up, and consumer credit and retail sales are growing. Research firm ISI says that the current level of unemployment claims is consistent with 4% real GDP growth for the first quarter, which would be an acceleration from the sluggish growth of recent years.
2013-01-25 Feeding the Dragon: Why China's Credit System Looks Vulnerable by Edward Chancellor, Mike Monnelly of GMO
Edward Chancellor and Mike Monnelly, members of GMO's Asset Allocation team, write to institutional clients in a new white paper about China's credit boom and outlines some worrying recent developments in its financial system. In GMO's view, "China's credit system exhibits a large number of indicators associated with acute financial fragility," including China's debt and real estate bubbles, the belief that the government is underwriting financial risk, the shadow banking system, a proliferation in credit guarantees, among others.
2013-01-25 Americas: Regional Economic Review 4Q 2012 by Team of Thomas White International
The outlook for most economies in the Americas region improved during the fourth quarter as domestic consumption growth was sustained and the anticipated revival in global demand has lifted the prospects for export growth this year. Partly helped by fiscal and monetary policy measures introduced since 2011, consumer demand has held up across most countries in the region.
2013-01-25 ECRI "Recession" Update: Leading Index Growth Hits a New Interim High by Doug Short of Advisor Perspectives (dshort.com)
For a few months, ECRI's indicators cooperated with their forecast, but that has not been the case in the second half of 2012 -- hence, I surmise, their switch to the traditional Big Four recession indicators. ECRI's December 7th article,The Tell-Tale Chart, makes clear their public focus on the Big Four.
2013-01-25 Opine Less, Think More by Francois Sicart of Tocqueville Asset Management
In his latest piece, Francois Sicart, Founder and Chairman of Tocqueville Asset Management, looks at investing from a broad perspective and goes over in detail some of the macro themes he is examining as he tries to help the reader make sense of what 2013 will bring. He discusses potential "black swans" that he has his eye on, the bounceback of American and European stock markets, the sometimes overlooked lack of a correlation between economic growth and stock market performance, what P/E ratios tell us both historically and in the present, and where valuations can go from here.
2013-01-25 Housing Is Off the Floor, But Faces Ceilings. by Team of Northern Trust
Housing is off the floor, but faces ceilings. The cost of housing could be a source of increased inflation. January's FOMC meeting should not break any new ground.
2013-01-25 Resource Investors: Why You Can Expect Sunnier Days Ahead by Frank Holmes of U.S. Global Investors
During the current commodity supercycle, there have been occasionstoo many to countwhen investor psyche has been damaged by reports about slowing U.S. growth, a hard landing in China or a debt crisis in Europe. Yet just behind the gloom, significant and positive trends are taking hold, causing the storms to start dissipating.
2013-01-24 Searching for Growth in a Low-Growth World by Austin Graff of PIMCO
We believe corporate profit growth will fall short of sell-side consensus estimates. But companies with inflation-linked revenues and supply side advantages to drive revenue growth, and those with ample cost levers to improve margins, are positioned for sustained earnings growth in the New Normal.
2013-01-24 Emerging Asia Pacific: Regional Economic Review 4Q 2012 by Team of Thomas White International
Emerging Asia Pacific economies showed strong signals of a rebound in economic activity amidst generally rising exports and stabilizing inflation. While some major economies like China, which had cut interest rates throughout 2012 to stimulate the economy, saw a mild resurgence in inflation, many countries like South Korea, Taiwan, Malaysia and Philippines saw inflation stabilize significantly during the quarter. Still, India, the region's second largest economy, continued to be troubled by rising prices despite high interest rates.
2013-01-24 Get Your Funk Out by Jim Goff of Janus Capital Group
I manage investment professionals for a living. When an analyst gives me the positives on one hand and the negatives on the other hand, but offers no conclusion, I want to cut one of those hands off. The best analysts understand all the issues but come to well-founded views.
2013-01-24 Escape Velocity in the Economy by Scott Minerd of Guggenheim Partners
The broad improvement in U.S. economic data indicates that the economy is likely to continue to expand, supporting earnings growth and pointing to an eventual return of leveraged buy outs.
2013-01-23 The Year of the American Consumer by Philip Tasho of TAMRO Capital
It was an above-average year for stock returns across the domestic market cap spectrum. Ultimately, unconventional and accommodative monetary policy trumped investor concerns over fiscal policy, the Presidential election and weakness overseas. The Federal Reserve (the Fed) entered uncharted waters when it announced open-ended quantitative easing through the ongoing purchasing of government securities. Importantly, other central banks globally waded in by mimicking the Fed in word if not deed and the global liquidity cycle continued apace.
2013-01-23 It's What You Learn After You Know It All That Counts. by Jeffrey Saut of Raymond James
January is the time of year when strategists, economists, gurus, etc. all join in on the annual nonsense of predicting "What's going to happen in the markets for 2013?" For many, this ritual is an ego trip, yet as Benjamin Graham inferred forecasting where the markets will be a year from now is nothing more than rank speculation. Or as I have noted, "You might as well flip a lucky penny."
2013-01-23 Developed Asia Pacific: Regional Economic Review - 4Q 2012 by Team of Thomas White International
Developed Asia Pacific economies witnessed mixed economic fortunes during the fourth quarter of 2012. While the group's largest economy, Japan, suffered from stubborn deflation and slumping trade due to a bitter territorial dispute with China, Singapore and Hong Kong managed to fare better.
2013-01-22 Ten for '13 by Investment Strategy Group of Neuberger Berman
Last year, despite the noise surrounding the U.S. elections and the ongoing European debt crisis, the main drivers of asset prices arguably were the large-scale bond-buying programs put in place by global central banks to alleviate systemic pressures. In 2013, we anticipate fewer aggressive central bank actions as the pace of global growth gradually picks up. We believe the largest influential factors to our outlook are premature fiscal tightening in the U.S. and a potential resurgence of eurozone problems.
2013-01-22 Keep Your Eye On The Ball - 2012 Year End Letter by Team of Sloan Wealth Management
The members of the Portfolio Management Team at Sloan Wealth Management (SWM) coach two baseball teams, two soccer teams, one T-ball team and one basketball team for our collective young children. Thus, we find ourselves stressing the basics. Learning the fundamentals of how to catch a pop-up will eliminate some of the fear of getting hit in the face. In 2012, we found many parallels to the capital markets as our portfolios posted high double digit returns in the face of fear.
2013-01-18 Middle East/Africa: Regional Economic Review 4Q 2012 by Team of Thomas White International
According to the International Monetary Fund's Regional Economic Outlook report, countries in the Middle East and North Africa region are expected to grow at different rates. Oil exporting nations are cashing in on high energy prices and production, and are projected to expand 6.6 percent in 2012 before tempering in 2013. On the other hand, oil importers such as Jordan, Morocco and Tunisia among others are expected to clock growth just over 2 percent as the slowdown in the world economy and political tensions continue to hinder expansion for some of these countries in transition.
2013-01-18 Quarterly Review and Outlook by Van Hoisington, Lacy Hunt of Hoisington Investment Management
The American Taxpayer Relief Act has lifted the immediate uncertainty of the fiscal cliff. Nevertheless, tax increases that are already in effect from this act, as well as the Affordable Care Act, impose a major obstacle to growth for the U.S. economy in the first half of 2013. The result of these taxes is considerable, especially in light of the poor trend in household income. In addition, these tax increases will continue to act as a drag on economic growth until late in 2015 and are unlikely to produce the revenue gains advertised.
2013-01-18 ECRI's Public Indicators Continue to Undermine Their Insistance That We're in a Recession by Doug Short of Advisor Perspectives (dshort.com)
For a few months, ECRI's indicators cooperated with their forecast, but that has not been the case in the second half of 2012 -- hence, I surmise, their switch to the traditional Big Four recession indicators. ECRI's December 7th article, The Tell-Tale Chart, makes clear their public focus on the Big Four.
2013-01-18 Are Central Banks Easing Off Prematurely? by Team of Northern Trust
Are central banks easing off prematurely? Washington is girding for another budget imbroglio; Inflation is contained, for now.
2013-01-17 International Equity Commentary December 2012 by Team of Thomas White International
International equity prices made robust gains in December, as further improvement in economic trends across most regions lifted the outlook for 2013. Policymakers in the U.S. managed to put together an agreement at the last minute and averted the 'fiscal cliff', one of the major risks that had restricted investor sentiment during earlier months. In Europe, though economic signals remain largely weak, the further fall in bond yields of the troubled countries has helped sustain optimism about resolving the region's fiscal crisis this year.
2013-01-16 The Rise of Asia's REITs by Sherwood Zhang of Matthews Asia
Real estate investment trusts (REITs) in Asia are following in the footsteps of their U.S. counterparts as they become an increasingly important asset class attracting investors looking to gain exposure to a diversified pool of real assets and relatively high yields. In the past decade, REITs have become a growing force in the regions investment universe. This month Sherwood Zhang, CFA, takes a look at just how far Asia's REIT markets have come, and what new opportunities as well as risks may still exist.
2013-01-16 The Big Four Economic Indicators: Real Retail Sales and Industrial Production Both Rise by Doug Short of Advisor Perspectives (dshort.com)
The charts don't all show us the individual behavior of the Big Four leading up to the 2007 recession. To achieve that goal, I've plotted the same data using a "percent off high" technique. In other words, I show successive new highs as zero and the cumulative percent declines of months that aren't new highs. The advantage of this approach is that it helps us visualize declines more clearly and to compare the depth of declines for each indicator and across time (e.g., the short 2001 recession versus the Great Recession). Here is my own four-pack showing the indicators with this technique.
2013-01-16 UK Economic Quagmire Adds Pressure for Monetary Policy Change by Darren Williams of AllianceBernstein
Bank of England governor-elect, Mark Carney, has raised hopes that the central bank may soon switch to a nominal GDP target. In our view, the costs outweigh the benefits, but the attractions of a radical new approach will grow if the economy remains stuck in the doldrums.
2013-01-15 Demographics and the Decline of Equity Mutual Funds by Paul Franchi (Article)
Until the last few years, mutual fund flows followed performance. Recently, however, money has flowed disproportionately into bond funds and out of US equity funds despite a strong rally in the equity markets. Changing demographics explain this shift, which has important implications for advisors and the mutual fund industry.
2013-01-15 Land of the Rising Dead by Christian Thwaites of Sentinel Investments
Yes, you knew we were going to talk about Japan. It's all the rage and the big standout in market performance in the last few weeks. Since November the broad Nikkei-225 average has risen 24% because there's new thinking in town. It's hard to describe Japan's 20 year malaise. Once proud companies shaken, the shattering of a property market and total collapse of stocks. Even if the market rises at the same level of the last few months, it will take six years to re-reach its peak. A more reasonable 10% growth rate will take 14 years. Weird things happen when economies enter deflation.
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.
2013-01-15 What's Behind the Buyback Binge? by Milton Ezrati of Lord Abbett
The pace of stock repurchases says much about equity valuationsand companies' expectations for economic growth.
2013-01-14 The More Things Change... by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
One crisis averted...another one on the way? Of course, but we're still positive on the US economy and stock market.
2013-01-14 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
While the S&P 500 Index posted a slightly negative fourth-quarter return, the Index's 16.0% return for all of 2012 was notable in the face of a long list of global fundamental concerns. Midcap and small cap stocks performed better during the final three months of the year, posting gains of roughly 2.0%-3.0%. The fourth quarter outperformance of smaller stocks was enough to overtake the S&P 500 for the year, but just fractionally.
2013-01-14 The 'Dark Continent' is Shining Bright by Team of Thomas White International
From a recipient of aid, Africa has transformed itself into a magnet attracting capital and investment.
2013-01-11 Thanks, Everybody...We'll be Right Back! by Colin Moore of Columbia Management
The Washington Comedy Club has taken a brief intermission and will be back in session shortly to resume the show. Please enjoy the facilities of this great country, free of charge, while you wait. Ignore the "Nero" character in the far corner playing the fiddle. Apparently, he isn't part of the show. Economic uncertainty emanating from fears of the U.S. fiscal cliff has been deferred but not avoided.
2013-01-11 Abe's Return May Prod Japan Forward by Kenichi Amaki of Matthews Asia
Japan's politics have entered 2013 with a mixed freshness. Former Prime Minister Shinzo Abe has clinched a rare second shot at the prime minister's post. His first term, which began in late 2006, lasted only about a year and ended with his sudden resignation. But following its landslide victory last month, his Liberal Democratic Party (LDP) has secured a two-thirds majority in the 480-seat Lower House, giving it the constitutional power to override Upper House opposition, where no single party holds a majority, on almost all issues.
2013-01-11 ECRI's Imaginary Recession: Now in Its Seventh Month by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose in the latest public data. It is now at 128.3 versus the previous week's 126.6 (which is an upward revision from 126.4). Likewise the WLI annualized growth indicator (WLIg) rose, now at 5.1, up from last week's 5.0. WLIg has been in expansion territory since August 24th, although it is off its 6.0 interim high on October 12th.
2013-01-11 Winter Quarterly Commentary by John Prichard of Knightsbridge Asset Management
While a last minute compromise may have been reached on taxes, it represents only a brief rest stop on a required road of repair. On the positive side, we should see less annual wrangling with tax rates having been made permanent, meaning they will not automatically change at some future date (but rather only when Congress feels like changing them), with many areas also sensibly indexed for inflation.
2013-01-11 Fed Policy Update: Waiting for Clearer Criteria for Open-Ended Asset Purchases by Alan Levenson of T. Rowe Price
The FOMC's shift from dates to economic conditions as the basis for policy rate guidance clarified the criteria for beginning rate hikes. The criteria for ceasing open-ended asset purchases are not clear, and may reflect not only the evolution of the labor market recovery but also concerns about financial stability and the size of the Fed's balance sheet. We expect the Fed to try to clarify these criteria in the months ahead. Asset purchases will end a "considerable time" before policy rate hikes commence, and rate hikes will commence before asset sales.
2013-01-11 Special Edition: The Outlook for 2013 by Team of Northern Trust
At this time of the year we typically get warm and generous wishes for the New Year and, of course, numerous questions about what our crystal ball has in store for 2013. While many economists publish their perspectives prior to January 1, we opted to wait in the hope of having a clear fiscal picture for the United States. A lot of good that did us...
2013-01-11 Invest In Equities: Your Future Self May Thank You by Frank Holmes of U.S. Global Investors
Investors have had an illusion about the stock market since the financial crisis. With the barrage of negative headlines and abhorrence toward risk, investors seemed to feel that equities would not improve going forward. This turned out to be a mistaken belief.
2013-01-10 A Brighter Picture for Jobs and the Economy by Scott Minerd of Guggenheim Partners
Promising fundamental developments suggest that U.S. economic expansion is likely to continue and equities will rise in the first quarter.
2013-01-10 Defense as a Good Offense by Brian Frank of Frank Capital Partners
Oddly, defensive names that ordinarily trade at premiums to the market are trading at big value discounts. These companies that have the ability to grow in any economic environment are a part of the portfolio, as well as companies riding pockets of growth around the globe. There is a lot to be excited about in 2013 for value stocks.
2013-01-10 Will Emerging Market Earnings Rebound in 2013? by Morgan Harting of AllianceBernstein
For two years, emerging markets companies have delivered inferior earnings growth and investment returns compared to peers in sluggish developed market economies. Now, the consensus is that earnings growth will catapult from near-zero in 2012 to 13 per cent in 2013. Hopes were high at the end of 2010 and 2011, too, yet analysts were then forced to revise down their earnings estimates. Will 2013 represent another triumph of hope over experience? To answer that question, let's look at what investors got wrong about emerging markets in recent years.
2013-01-08 Crystal Ball Gazing by Team of Bedlam Asset Management
Several recent government announcements are likely to impact the global economy and equity markets over the medium term. In order of importance these are: the Federal Open Market Committee pledge to target zero interest rates until unemployment reaches 6.5%; the new government in Japan, under an increasingly monetarist LDP leadership; commitments by the new Chinese leadership to boost domestic infrastructure and consumption; and finally, the softening line of the Republicans on the fiscal cliff.
2013-01-08 Why China Won't Crack by Milton Ezrati of Lord Abbett
For the world's second largest economy, a hard landing scenario looks increasingly remote.
2013-01-07 Restricted Room for Higher Rates by Scott Minerd of Guggenheim Partners
Interest rates should rise through 2013, however, the level to which they can increase will be limited by the Federal Reserve's ongoing attempt to stimulate activity in the housing market.
2013-01-07 It's the Bond Vigilantes Stupid by Martin Pring of Pring Turner Capital Group
Most people are looking to the politicians in Washington to reign in the deficit by bringing spending under control. Based on their record this optimism seems severely misplaced. Nevertheless, the technical position of the bond market is suggesting that a more disciplined and powerful force is waiting in the wings. After a long 31-year vacation it may be time for the bond vigilantes (skeptical global bond investors who vote with their money) to return to town. The President has said a deal over the debt ceiling is non- negotiable but the non-partisan bond vigilantes may have a different view.
2013-01-06 And That's the Week That Was by Ron Brounes of Brounes & Associates
Welcome to a new beginning, a new yeara new optimistic investor, a new bipartisan Congress, (well, maybe not). The more things change, the more they stay the same. While investors embraced the budget deal (that is less of a deal than a procrastination), the pragmatists realize that very little has changed other than the "fiscal can" has been kicked down the road for two months. Stocks skyrocketed; bonds plunged; politicos bickered. Welcome to 2013.
2013-01-04 In 2013, Resolve to Follow the Money by Frank Holmes of U.S. Global Investors
During these first days of January, many adopt an out with the old, in with the new, approach to shed bad habits or extra pounds. Washington opted for its same ol strategy when averting the fiscal cliff, as the addictive nature of can-kicking is a transatlantic sport, according to The Economist. The short-term fix did nothing to control the unsustainable path of entitlement spending on pensions and health care nothing to rationalize Americas hideously complex and distorted tax code... and virtually nothing to close Americas big structural budget deficit.
2013-01-03 Another Look at Small-Cap Myths by Francis Gannon of The Royce Funds
A few years ago we wrote about several small-cap myths. As we begin the New Year, we thought it might be helpful to revisit some of the more prominent misconceptions about our chosen asset class and to examine how they have factored into recent performance.
2013-01-03 A Year on the Brink by Joseph Stiglitz of Project Syndicate
The two main surprises in 2012 were the slowdown in emerging markets, which was slightly sharper and more widespread than anticipated, and Europe's embrace of some truly remarkable reforms though still far short of what is needed. Looking to 2013, the biggest global economic risks are there and in the US.
2013-01-03 Grin and Bear It. by Scotty George of du Pasquier Asset Management
Without question, the financial markets yielded better in 2012 than what most had believed possible at the beginning of the calendar year. At that time, embroiled in a U.S. Presidential election and ongoing turmoil in the Middle East, many analysts would have been happy if we simply avoided catastrophe.
2013-01-03 2013 Forecast: Good Economy, Challenged Markets by Douglas Cote, Karyn Cavanaugh of ING Investment Management
We enter 2013 bombarded by conflicting signals. While fundamentals have been mixed of late, longer-term themes our "tectonic shifts" like the energy revolution are gaining momentum and promising to make positive contributions sooner rather than later. And while salutary measures taken by policymakers have eased global risks and lessened fears of Armageddon, there is considerable work yet to be done.
2013-01-02 Somewhere Over the Rainbow by John Mauldin of Millennium Wave Advisors
We are 13 years into a secular bear market in the United States. The Nasdaq is still down 40% from its high, and the Dow and S&P 500 are essentially flat. European and Japanese equities have generally fared worse. The average secular bear market in the US has been about 11 years, with the shortest to date being four years and the longest 20. Are we at the beginning of a new bull market or another seven years of famine? What sorts of returns should we expect over the coming years from US equities?
2012-12-28 Capitol "Cliffhanger": Thriller or Chiller? by Milton Ezrati of Lord Abbett
Whatever the outcome of the last-minute jockeying in Washington, meaningful fiscal reform remains unlikely.
2012-12-28 ECRI Update: Flunking Recession 101 by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose in the latest public data. It is now at 128.3 versus the previous week's 127.2. Likewise the WLI annualized growth indicator (WLIg) rose, now at 5.4, up from last week's 4.6. WLIg has been in expansion territory since August 24th, although it is off its 6.0 interim high on October 12th.
2012-12-28 Readers' Golden Nuggets Focused on Gold, Resources and Overcoming Negativity by Frank Holmes of U.S. Global Investors
The past few days Ive been counting down the most popular commentaries over the past year. China, commodities and bond fund popularity were big hits; so were the Surprises in Gasoline, Oil and Resources Stock Prices. Here are the top four.
2012-12-26 Gundlach's High-Conviction Investment Idea by Robert Huebscher (Article)
Count Jeffrey Gundlach among those who expect Japan's currency to collapse because it can't service its debt. Japan's challenges may parallel those that the US faces, and Gundlach feels strongly that they have created a compelling investment opportunity.
2012-12-24 Emerging Markets Equity - Monthly Product Commentary: November 2012 by Team of Thomas White International
Sustained domestic demand growth and a revival in export demand are anticipated to drive expansion next year.
2012-12-21 Year-End Capital Markets Forecast by Jason Hsu of Research Affiliates
What looks best for 2013? Given financial repression in developed marketspolicies that prolong negative real interest ratesemerging market local currency sovereign bonds are likely to outperform their developed market counterparts. For equities, both developed (ex-U.S.) and emerging markets offer more attractive valuations and better dividend yields than U.S. stocks.
2012-12-21 Egypt's Arab Winter by Mark Mobius of Franklin Templeton Investments
It's been almost two years since the "Arab Spring" swept North Africa and the Middle East, and with it, grand hopes for change. Sometimes, change doesn't happen as quickly as the people would like, and oftentimes it can be a messy process. That is certainly true in Egypt right now, a country that is still in the throes of shaping its future. The ousting of Hosni Mubarak in 2011 didn't instantly transform the nation into a model of democracy, and the country is currently deliberating the best way forward via public debates, protests and the election process.
2012-12-21 ECRI Update: The Recession Call Is Further Undermined by Doug Short of Advisor Perspectives (dshort.com)
TheWeekly Leading Index(WLI) of the Economic Cycle Research Institute (ECRI) slipped fractionally in the latest public data. It is now at 127.2 versus the previous week's 127.4. However, the WLI annualized growth indicator (WLIg) rose, now at 4.6, up from last week's 3.9. WLIg has been in expansion territory since August 24th, although it is off its high at 6.0 on October 12th.
2012-12-21 The Big Four Economic Indicators: Real Personal Incomes Improve Significantly By Doug Short by Doug Short of Advisor Perspectives (dshort.com)
The weight of these four in the decision process is sufficient rationale for the St. Louis FRED repository to feature achart four-packof these indicators along with the statement that "the charts plot four main economic indicators tracked by the NBER dating committee." Here are the four as identified in the Federal Reserve Economic Data repository. See the data specifics in the linkedPDF filewith details on the calculation of two of the indicators.
2012-12-21 Light at the End of the Tunnel for Gold by Frank Holmes of U.S. Global Investors
Intuition was telling me something was going on these past few days in the gold market. Our investment team was watching gold and gold stocks take a tumble for no obvious reason. It wasnt only us who felt this way: many analysts were caught off-guard. One comment from Barclays Research indicated that the week was unusually brutal with quite a few confused participants with some seemingly positive aspects of the market not having an impact.
2012-12-20 Don't Confuse Market Hiccups for Economic Heart Attacks by Matt Lloyd of Advisors Asset Management
The daily bombardment of moving toward an agreement on the fiscal cliff only to see a hesitation on the advancement is symptomatic of the tango that we have been bombarded with over the last several years. It does appear though that we are becoming a bit desensitized to the two-steps forward to two-steps back pattern we have been accustomed to in similar debt ceiling deadlines or budgetary standoffs. In looking at the markets move and comparing statements from the two parties involved, it does appear we are at least in the same ball field for negotiations.
2012-12-20 The Limits of Monetary Policy by Scott Minerd of Guggenheim Partners
With unemployment levels remaining stubbornly elevated, investors should not expect a reversal of quantitative easing by the Federal Reserve in 2013.
2012-12-19 PIMCO's Cyclical Outlook for Asia: Awaiting the Policy Breakthrough by Tomoya Masanao, Robert Mead, Ramin Toloui of PIMCO
Our base case for China includes incremental policy reform, but we also see an increased chance of a potential positive surprise on reform, resulting from the recent changes in leadership. Japan's new government will likely focus on reflating the structurally impaired economy, but policy effectiveness will remain questionable. Australia is being burdened by the unintended consequences of the policy responses of others, accompanied by the impending rebalancing of the Chinese economy.
2012-12-18 Jeremy Siegel on 'Dow 15,000' by Robert Huebscher (Article)
Jeremy Siegel was one of very few individuals to have correctly predicted the strong performance of the equity markets over the last year. The Wharton professor and author of the renowned book, Stocks for the Long Run, forecasts continued strong performance for the year ahead.
2012-12-18 The Fed's Giant Stride by Christian Thwaites of Sentinel Investments
FOMC: The news from this meeting was widely telegraphed (see Yellen, Evans, etc. last month) but produced some real and welcome developments. Here's the quick summary.
2012-12-18 The 2013 Geopolitical Outlook by Bill O'Grady of Confluence Investment Management
As is our custom, in mid-December, we publish our geopolitical outlook for the coming year. This list is not designed to be exhaustive. As is often the case, a myriad of potential problems in the world could become issues in the coming year. The lineup listed below details, in our opinion, the issues most likely to have the greatest impact on the world. However, we do recognize the potential for surprises which we will discuss throughout the year in the weekly reports.
2012-12-18 Energy Face-Off: North American Energy Independence vs. Canada's Export Plans by John Devir of PIMCO
President Obama's November 2011 postponement of a decision on whether to permit an oil pipeline from Canada's oil sands to the U.S. Gulf Coast caused a barrage of protests and negative press in Canada. Canada's new focus on building capacity to sell to Asia-Pacific could hinder U.S. ambitions of energy independence from overseas oil, since the U.S. imports roughly 30% of its crude oil from Canada. We see investor opportunities in rail transportation and pipeline systems that possess excess capacity.
2012-12-17 Fed Talks Louder, To Little Avail by Brian Wesbury, Bob Stein of First Trust Advisors
When someone doesn't speak your language, yet you must communicate, funny things can happen. At first, most just talk normally, hoping the message somehow gets through with a hand gesture or two. If that doesn't work, some people start talking really slowly. And if all else fails, how about saying it REALLY LOUDLY, and emphatically, to finally get our point across. That's where the Federal Reserve is today. In its own collective mind, it has a very important message to convey: that monetary policy is going to be as expansionary as necessary to get this economic recovery off the ground.
2012-12-15 Looking Back to Look Ahead by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Markets have been more focused on short-term forces; not least being Washington and the fiscal cliff negotiations. But taking a step back and gaining some longer-term perspective can help investors better weather short-term volatility. Even beyond the fiscal cliff, Washington and fiscal policy will likely remain in focus next year. Monetary policy is also front-and-center with the Fed maintaining its extremely accommodative policy and targeting specific economic conditions instead of providing calendar guidance. Europe managed to make it through the year, but challenges and risks remain.
2012-12-15 A Face-Off Between Passive and Active Investing by Frank Holmes of U.S. Global Investors
Exchange-traded funds continued to attract assets in 2012 while money has been exiting mutual funds. Still a majority of assets continue to be invested in actively managed products: As of the end of 2011, of the nearly $13 trillion invested in funds, index and exchange-traded funds comprise only about 8 percent, according to the Investment Company Institute.
2012-12-15 ProVise Bullets by Ray Ferrara of ProVise Management Group
So help us understandwhere did 2012 go? While we know time really fly, it sure feels like it does when we think that 12 months have almost passed. We want to wish you and your family the happiest of holidays! Please remember the women and men serving in our Armed Forces, especially those overseas.
2012-12-14 ECRI Weekly Update: Walking the Recession Plank by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose in the latest public data to its highest level since early August of 2011. It is now at 127.7, up from a downwardly revised 126.7 in the previous week. See the WLI chart. The WLI annualized growth indicator (WLIg) also rose, now at 4.4 from last week's 3.5. WLIg has been in expansion territory since August 24th, although it is off its high at 6.0 on October 12th.
2012-12-14 The Big Four Economic Indicators: Industrial Product and Retail Sales Brighten the Picture by Doug Short of Advisor Perspectives (dshort.com)
This morning I've added two more of the Big Four for November: Industrial Production from the Federal Reserve, the purple line in the chart below and Real Retail Sales, the green line.
2012-12-14 No Way Out by Peter Schiff of Euro Pacific Capital
By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve's Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford. At his press conference this week, Fed Chairman Bernanke explained how the easiest policy stance in Fed history has just gotten that much easier. First it gave us zero interest rates, then QEs I and II, Operation Twist, and finally "unlimited" QE3.
2012-12-13 Decoupling From the Eurozone by Scott Minerd of Guggenheim Partners
Recent positive data releases from the U.S. and Asia seem to indicate that global investors should not expect to be severely affected by the ongoing problems in the eurozone.
2012-12-12 Low Volatility, Attention & Asset Growth by Matt Malgari of Knight Capital Group
Infused with the vicissitudes of quarreling politicians, growing mountains of debt and stagnant economies in much of the developed world, investors have been faced with a virtual bull market in "worry" and, oddly, an actual bull market in U.S. equities over the last couple of years. Chief among the beneficiaries of the newfound obsession with geometric returns appears to be "low-volatility" products which have begun showing up in force across the investment universe.
2012-12-12 To QE Infinity, and Beyond! by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve made two big changes today, but changes that were mostly anticipated by the markets.
2012-12-11 Shared Sacrifice by David Rosenberg (Article)
Now that everyone is focused like a laser beam on Fiscal Armageddon, it may be more appropriate to look at what is happening on Main Street rather than Washington. Looking ahead, it is going to be more about the economy, and taking it a step further, at times like these, it is important to understand where the real economic power resides, and this is with the people.
2012-12-11 Loomis Sayles' Matt Eagan on the Macro and Fixed Income Outlook by David Schawel, CFA (Article)
In this interview, Loomis Sayles' Matt Eagan discusses the fixed income universe, Fed policy and issues facing the global macro economy. Eagan is the co-manager, along with Dan Fuss, of the Loomis Sayles Bond Fund and he manages the Loomis Sayles Strategic Alpha Bond Fund.
2012-12-11 The Death of Managed Futures? by Chris Maxey, Ryan Davis of Fortigent
Managed futures strategies, or systematic trend followers, have long been an important component of diversified high net worth portfolios. Because of their ability to go both long and short in more than 100 global futures markets spanning equities, currencies, commodities, rates, and bonds managed futures have historically generated very uncorrelated performance to traditional investments.
2012-12-11 PIMCO Cyclical Outlook: At Policy Crossroads by Saumil Parikh of PIMCO
The maturation of the global cyclical growth phase suggests we look to a handoff to more secular drivers of growth. But strong secular drivers remain elusive due to the continuation of New Normal headwinds.Policies are at important crossroads in every major economy. 2013 will be the year of policy change, with policymakers in major economies challenged to enact structural changes that spur private sector growth before government-balance-sheet-led growth is exhausted.
2012-12-10 Is QE4 Really Coming? by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve meets this week. Analysts are supposing and predicting what the statement will say and if the Fed will change its economic projections.
2012-12-08 Weekly Economic Commentary by Team of Northern Trust
What are the margins of monetary policy? The November job report showed only modest improvement. Japan continues to struggle, with a change of government on the horizon.
2012-12-07 ECRI Weekly Update: More Recession Flag Waving by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose slightly in the latest public data. It is now at 126.8, up from an upwardly revised 126.2 in the previous week. See the WLI chart in the Appendix below. The WLI annualized growth indicator (WLIg) also rose, now at 3.5 from last week's 3.4. WLIg has been in expansion territory since August 24th, althout it is off its high at 6.0 on October 12th.
2012-12-07 3 Implications of a Fiscal Cliff Tax Hike by Russ Koesterich of iShares Blog
From the outside, its hard to find much evidence that Washington is getting closer to a fiscal cliff deal. Perhaps there is more going on behind the scenes than the headlines suggest, but as of today it is hard to find much evidence that the odds of a deal have risen. As the potential for fiscal drag rises, it is worth reiterating why this is so dangerous. From my perspective, the biggest risk to the economy, and to financial markets, comes from the tax side of the equation.
2012-12-06 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Now that the election is over, and the markets are oversold, the Mideast is again volatile, and the fiscal cliff is fast approaching, most market concern rests with whos going to be the first one in the pool? Interestingly, although the stars are aligned once again to make money in the equities markets, it is still a psychological, not financial, component that governs peoples capital deployment considerations.
2012-12-05 Market at Mercy of Fiscal Cliff Until Resolution by Liz Ann Sonders of Charles Schwab
Politics and the fiscal cliff are dominating market action and adding to the uncertainty factor.
Sentiment is better, technicals are mixed and valuation is reasonable, but until we get past the cliff, fundamentals won't matter a lot.
There are some coiled springs forming that could help offset any fiscal-cliff related contraction next year.
2012-12-05 Resilient Markets Mask Greater Concerns in Real Economy by Douglas Cote of ING Investment Management
Though equity markets have been calm, the real economy tells a different story.
If our leaders in Washington arent able to arrive at a compromise, January 1 will mark the beginning of the countrys first scheduled recession, though third quarter corporate earnings suggest a global slowdown is evident.
Dont be surprised to see a Christmas rally should Congress kick the fiscal can down the road and the Fed extend Operation Twist.
2012-12-04 The Big Picture by David Rosenberg (Article)
Our crystal ball says to stick with what works in an uncertain financial and economic climate - in other words, maintain a defensive and income-oriented investment strategy.
2012-12-04 High Uncertainty, Low Optimism by Francis Gannon of Royce Funds
In these uncertain times, we continue to follow our discipline and to identify those ideas that we believe will be the beneficiaries of potentially better economic times ahead. Many of the economic events that the markets feared would pull the U.S. economy into recession have already occurred, including the rapid slowdown in China and the recession in Europe. As the saying goes, bull markets climb a wall of worrysurprisingly , the Russell 2000 gained 12.35% year-to-date, 13.09% over the one-year, 13.85% over the past three years, and 8.71% over the past 10 years through the end of November.
2012-12-01 The Significant Impact of U.S. Oil Production by Frank Holmes of U.S. Global Investors
The Eagle Ford shale formation lies south of our headquarters in San Antonio, Texas, giving the U.S. Global investment team a firsthand, tacit perspective on the oil and gas industrys growing natural resources phenomenon. Weve witnessed how the oil activity is boosting the local economy with solid-paying jobs, a healthy housing market and strong consumer sentiment, as oil giants such as Schlumberger and Halliburton take a bigger stake in the area.
2012-12-01 Weekly Economic Commentary by Team of Northern Trust
Many nations are being reminded that when times are tough, so is budgeting. Americas energy picture is changing for the better. The EU took an "extend and pretend" strategy with Greece.
2012-11-30 ECRI Weekly Update: Beating the Recession Drum by Doug Short of Advisor Perspectives (dshort.com)
TheWeekly Leading Index(WLI) of the Economic Cycle Research Institute (ECRI) rose slightly in the latest public data. It is now at 126.3, up from 125.4 in the previous week. The WLI annualized growth indicator (WLIg) declined to 3.4, down from last week's 3.6. WLIg has been in expansion territory since August 17th, although it is now at a six-week low, with the high at 6.0 on October 12th.
2012-11-28 A Turn in the Credit Cycle by Scott Minerd of Guggenheim Partners
Investors should understand the recent transition in the credit market and the implications it could have for the trajectory of asset prices over the long-term.
2012-11-27 Fixed Income Perspectives by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
A wise American once said "Life is hard; it's harder if you're stupid." A good example is when your pals in Washington are so busy pushing their partisan agendas that they lose sight of what could happen to the American economic Thunderbird if it goes all Thelma and Louise over the fiscal cliff. With the latest elections in the books, it remains to be seen if a Democratic president and acrimonious Republican House can put on their thinking caps to devise a way to delicately pump the brakes of fiscal restraint.
2012-11-26 Fiscal Cliff: An Emerging Markets' View by Mark Mobius of Franklin Templeton Investments
Now that the U.S. presidential election is over and President Barack Obama has been re-elected to serve a second four-year term, we're able to do what we always do after a major election or regime change, and that's examine the potential implications of policy changes on our investments. As our team sees it, there are two main factors for global investors to consider: the U.S. economy's future health, and President Obama's foreign policy stance toward key countries, particularly China.
2012-11-26 Overlooking Overvaluation by John Hussman of Hussman Funds
Presently, on the basis of smooth fundamentals such as revenues, book values, dividends and cyclically-adjusted earnings, the S&P 500 is somewhere between 40-70% above pre-bubble valuation norms, depending on the measure. That's about the same point they reached at the beginning of the 1965-1982 secular bear period, as well as the 1987 peak.
2012-11-26 Japan: After the Quake, After the Floods by Richard Mattione of GMO
Japan's recovery from the Tohoku earthquake and tsunami of March 11, 2011 has been so astounding that people rarely even think about the tsunami anymore. Even fewer remember that heavy rains in Thailand further disrupted the global production chain at the end of 2011. With so much accomplished, why do so few Japanese companies see bright days ahead?
2012-11-23 Five Amazing Global Consumer Trends by Frank Holmes of U.S. Global Investors
Fifth Avenue no longer the worlds most expensive retail location. China set to be the second largest luxury market by 2017. Viva Macau is gaming capital of the world. Inexpensive Indian Aakash 2 could revolutionize tablet industry. Emerging market residents don't need a bank account to pay with their mobile wallet.
2012-11-23 ECRI Weekly Leading Index: Index Rises, Growth Diminishes by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose slightly in the latest public data (released Wednesday in advance of the Thanksgiving holiday). It is now at 125.7, up from 125.4 in the previous week. See the WLI chart in the Appendix below. The WLI annualized growth indicator (WLIg) declined to 3.8, down from last week's 4.3. WLIg has been in expansion territory for thirteen weeks, although it is now at a seven-week low, with the high at 6.0 on October 12th.
2012-11-22 Emerging Asias Rising Productivity by Robert Horrocks of Matthews Asia
Per capita GDP in China has tripled in purchasing power parity terms in the last decade yet Chinese workers still likely have their most productive years ahead of them. Asia as a whole has seen consumption increase by a third since the global financial crisis, even as the West has languished. This month, Robert Horrocks, writes about what is key to the emerging opportunities in Asia: Productivity.
2012-11-20 Emerging Markets Equity -- Monthly Product Commentary: October 2012 by Team of Thomas White International
Economic data from major emerging markets suggested a moderate reversal from the weak trends of recent months.
2012-11-19 4 Reasons Not to Taiwan On by Russ Koesterich of iShares Blog
Russ K shares four reasons hes downgrading his view of Taiwan from overweight to neutral and shares potential single country solutions he prefers instead.
2012-11-19 Waiting for Godot by Charles Lieberman of Advisors Capital Management
Democratic and republican policymakers are actively negotiating over the fiscal cliff, as investors watch and wait with baited breath. They seem to be making progress, or so they suggest in their public comments. But until the situation is resolved, markets are likely to remain volatile. Other issues do seem to be moving towards resolution.
2012-11-19 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Stocks continued their post-election selloff. The usual concerns about future tax increases and retrenchment by both consumers and business weighed heavily upon investor sentiment.
2012-11-19 The Seeds of Higher Market Volatility Were Sown by Mike Temple of Pioneer Investments
A paradigm shift in financial markets has taken place since 2008 into a more volatile investment environment that will demand different ways of managing risk. In an ironic twist of intention, today's higher volatility is the consequence of attempts by central banks to engineer a less volatile economic environment.
2012-11-17 Three Events That Sum Up the Week by Frank Holmes of U.S. Global Investors
India regained its title as the strongest performing market, overtaking the greater China area, as the country experienced a bounceback in demand due to improved sentiment during the festival season. The Federal Housing Administration reported that it has exhausted its reserves, possibly requiring a bailout from U.S. taxpayers for the first time ever in its nearly 80-year history. The global economic picture came into focus a little more this week with the announcement of Chinas new leadership.
2012-11-16 Obstacles to a Lasting Recovery: The Liquidity, Hesitancy & Solvency Traps by Thomas Fahey of Loomis Sayles
Those familiar symptoms are back again to start the summer: risk aversion; falling equity prices; rising volatility; record-low German and US government bond yields; wider credit spreads; a European country getting picked on; and a stronger US dollar. We have seen this bad movie twice before, during the summers of 2010 and 2011.
2012-11-16 ECRI Weekly Leading Index: The Slippage Continues by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) declined again in the numbers released today. It is now at 125.4, down from its interim high of 127.6 set five weeks earlier. The WLI annualized growth indicator (WLIg) also declined, now at 4.4, down from last week's downard revision to 5.0. WLIg has been in expansion territory for twelve weeks, although it is now at a five-week low, with the revised high at 6.0 on October 12th.
2012-11-16 The Big Four Economic Indicators: Real Retail Sales and Industrial Production by Doug Short of Advisor Perspectives (dshort.com)
Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.
2012-11-13 Bank Loans: Looking Beyond Interest Rate Expectations by John Bell and Kevin Perry (Article)
Portfolio managers of Bank Loan Strategies, John Bell and Kevin Perry, outline the major advantages and risks of bank loan investing and the roles that a bank loan allocation can play in a fixed income portfolio.
2012-11-13 Quarterly Letter by Team of Grey Owl Capital Management
The multiple hurricanes of fiscal deficits and monetary malfeasance are headed our way. Unfortunately, financial market models that seek to assess the magnitude, direction, and timing of economic tempests are far less precise than those of our scientific brethren. So, we prepare for the worst, but we dont immediately evacuate. There are still plenty of opportunities for solid investment returns and we will describe two new investments in the pages that follow. Yet, the risks are real, as we have discussed frequently in these letters, so our overall portfolio structure remains conservative.
2012-11-13 China's Transition Occurring at a Critical Time by Chris Maxey, Ryan Davis of Fortigent
While the presidential election in the U.S. was on the forefront of most investors' minds, current events in China could be equally important to the global economy. China is going through a political transition at the same time as it seeks to re-balance its economy. Whether those efforts will be successful remains a great unknown.
2012-11-13 Scotland: The Same, Only Better? by Bill O'Grady, Kaisa Stucke of Confluence Investment Management
As the Eurozone countries are trying to find the functional balance between national sovereignty and Eurozone-wide central control on the national level, fractures are also appearing within the nation states themselves. Additionally, the Northern European countries are questioning the extent to which they should be expected to bail out the Southern countries, while the wealthier regions of the nation states reason that they would be more efficient in managing their internal fiscal budgets.
2012-11-13 A Portrait of Two Presidents by Frank Holmes of U.S. Global Investors
Last Friday, President Obama addressed the two topics that have been on many equity investors' minds since election night: the economy and the dreaded "fiscal cliff." In his speech, he delivered his familiar plan to combine spending cuts with increasing revenue by raising taxes on the wealthiest Americans. That's "how we did it in the 1990s, when Bill Clinton was president," says the president.
2012-11-12 And That's the Week That Was by Ron Brounes of Brounes & Associates
"Four more years...Four more years." While those words may be music to the ears of Obama supporters worldwide, investors seemed less than impressed (at least initially). A second Obama administration brings plenty of question marks about the global economy, the tax code, the regulatory environment, Corporate America, and, of course, the financial markets. Stocks plunged on the first day post-election, but many analysts believe that is less a statement about the Obama victory and more a concern that the "fiscal cliff" is now clearly atop the news headlines.
2012-11-12 Surveying the Post-Election Landscape by Team of Lord Abbett
Of all the uncertainties facing investors over the past few years, the U.S. presidential election was among the most significant. And now that the election is over, asset managers are assessing the opportunities and riskssuch as the looming fiscal cliffwithin their respective markets.
Indeed, the direction of fiscal policy remains investors' foremost concern, according to a recent survey of nearly 600 financial advisors conducted on Lord Abbett's postelection Web conference.
2012-11-09 Americas: Economic Review 3rd Quarter 2012 by Team of Thomas White International
Economic trends in most countries across the Americas region saw a moderate recovery during the third quarter, though the pace of growth remains subdued. Slower global demand due to the ongoing European recession and the slower expansion in Asia continues to restrict exports from the Americas. At the same time, domestic consumption growth has been relatively more robust than expected and has helped most regional economies prevent a deeper slowdown.
2012-11-09 ECRI Weekly Leading Index: Off Its Interim High by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) declined in the numbers released today. It is now at 126.2, down from its interim high of 127.6 set four weeks earlier. The WLI annualized growth indicator (WLIg) also declined, now at 5.1, down from last week's 5.9. WLIg has now spent eleven consecutive weeks in expansion territory, although it is now at a five-week low.
2012-11-09 Looking Past the Election by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
The election results are in, removing at least one area of uncertainty from the equation. For the near term, economic data in the United States may take a back seat. Growth around the world appears soft, but some pockets are more encouraging than others.
2012-11-09 A Portrait of Two Presidents by Frank Holmes of U.S. Global Investors
On Friday, President Obama addressed the two topics that have been on many equity investors minds since election night: the economy and the dreaded fiscal cliff. In his speech, he delivered his familiar plan to combine spending cuts with increasing revenue by raising taxes on the wealthiest Americans. Thats how we did it in the 1990s, when Bill Clinton was president, says the president.
2012-11-08 Make Way for Debt Mutualization in Europe by Scott Minerd of Guggenheim Partners
Hurdles and hold-ups are inevitable but recent policy developments in Europe indicate that the ECB and the Bundesbank are cooperating and greater federalization is likely.
2012-11-08 Emerging Asia Pacific: Economic Review 3rd Quarter 2012 by Team of Thomas White International
Emerging Asia Pacific economies faced a challenging third quarter in 2012 as exports to key developed markets such as the Euro-zone came under pressure. As the austerity policies implemented by many of the countries in the Euro-zone caused a significant slump in demand, emerging market economies, which serve as the workshop of the world faced significant difficulties. Almost all major export-dependent nations like China, South Korea, Taiwan and Malaysia faced pressure to export growth. Still, most of the economies possessed both monetary and fiscal ammo to overcome the slowdown.
2012-11-08 Developed Europe: Economic Review 3rd Quarter 2012 by Team of Thomas White International
Amid signs of a deepening economic slowdown in Developed Europe, three key events brought some cheer to the beleaguered region, raising hopes of a lasting solution to its debt crisis. In early September, the European Central Bank (ECB) announced its new Outright Monetary Transactions scheme, which is in effect a commitment by the ECB to buy unlimited quantities of sovereign bonds with up to three years in maturity, providing the bond-issuing member country agrees to a reform agenda.
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 And That's the Week That Was by Ron Brounes of Brounes & Associates
Superstorm Sandy overshadowed most all newsworthy stories during the week as much of the East Coast (and beyond) suffered some ill-effects and many will be fighting to overcome challenges for many days (weeks, months) to come. The stock market closed over consecutive days to start the week and uncertainty (volatility) ensued with investors enjoying the best single day performance in a month-and-a-half, only to give up those gains a day later as many set portfolios in advance of the election. Soon the campaign will be a distant memory (but the "fiscal cliff" will become a near-reality).
2012-11-05 Commentary and Statistics by Team of ING Investment Management
U.S. equity markets were mixed during an abbreviated trading week in which Hurricane Sandy forced the longest weather-related shutdown of U.S. stock trading since 1888. While the S&P 500 eked out a small gain, the DJIA and Nasdaq closed slightly lower.
2012-11-05 Election's Impact on Investors by Chris Maxey, Ryan Davis of Fortigent
Next Tuesday's election will bring some clarity to the types of policies that will shape the fiscal and economic future of America. President Obama and Mitt Romney certainly share different visions on how the US should tackle middling growth, while addressing the longer-term issues of the US fiscal deficit and seemingly unsustainable entitlement programs.
2012-11-05 Day of Reckoning by Charles Lieberman of Advisors Capital Management
Tomorrow's election is too close to call according to the polls, while Friday's jobs report was decent, blemishes notwithstanding. Super storm Sandy was and remains a severely disruptive force to the Northeast, particularly New Jersey. A few thoughts on these issues follow.
2012-11-02 What's Troubling India? by Kenneth Rogoff of Project Syndicate
Just a couple of years ago, India was developing a reputation as an attractive investment location, with heads of state virtually tripping over one another to meet business leaders in Mumbai and pave the way for further trade and investment. Now their interest has faded, along with India's macroeconomic numbers.
2012-11-02 ECRI Weekly Leading Index: Still Jogging in Place by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) slipped fractionally in the numbers released today. It is now at 126.6, down from last week's 126.7 (revised from 126.8). Likewise, the WLI growth indicator (WLIg) slipped slightly, now at 5.9, down from last week's 6.0. WLIg has now spent ten consecutive weeks in expansion territory, although it is off its interim high of 6.1. But for the past six weeks the WLI has been jogging in place in a narrow range (126.2 to 126.7).
2012-11-02 Weekly Economic Commentary by Carl Tannenbaum, Asha Bangalore of Northern Trust
The October employment report paints a favorable picture of the labor market.
2012-11-02 Who Will Lead America Over the Next Four Years? by Frank Holmes of U.S. Global Investors
If President Obama is reelected, it could be a negative for certain energy companies involved in natural gas fracking, says International Strategy & Investment (ISI). Conversely, a Governor Mitt Romney win could be significant for energy companies. In its Romney Portfolio ISIs rationale is that Romney and the GOP will try to do more to promote traditional forms of energy, including offshore drilling, approving the Keystone pipeline, and exploiting the nations coal resources.
2012-10-30 Weekly Update: Commentary and Statistics by Team of ING Investment Management
U.S. equity markets fell back into decline during the week, as earnings reports and more specifically, forward outlooks inspired investor caution. Meanwhile, a potential "Frankenstorm" has the East Coast on edge for the coming week.
2012-10-26 ECRI Weekly Leading Index: Running in Place by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose fractionally in the numbers released today. It is now at 126.8, up from last week's 126.6 (revised from 126.7). However, the WLI growth indicator (WLIg) slipped slightly in expansion territory, not at 6.0, down from last week's 6.1. WLIg has now spent nine consecutive weeks of in expansion territory. But essentially the WLI has been running in place for the past five weeks.
2012-10-26 Don't Fear a Normal Gold Correction by Frank Holmes of U.S. Global Investors
Dont let the short-term correction fool you into selling your gold and gold stocks. The dramatic increase in money suggests that monetary debasement will continue, and in addition to all the above drivers, these are the positive dynamics driving higher prices for gold and gold stocks.
2012-10-26 What Now? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
The market appears to be in a "wait-and-see" mode in advance of the elections, but looking beyond November 6th is important for investors. The election is only one piece of the puzzle, and certain aspects of the political landscape likely won't be much clearer after Election Day. Earnings season has been somewhat disappointing, even though there was a relatively low bar to hurdle. We see more signs that the slowdown in the United States may be ending, however, with strength in housing particularly noteworthy.
2012-10-26 Weekly Economic Commentary by Carl Tannenbaum, Asha Bangalore and James Pressler of Northern Trust
Fiscal policy is a matter of multiplication. US GDP growth accelerated in the third quarter, but remains less than ideal. Recent reports out of China reassured the markets, but underlying trends are not so promising.
2012-10-25 Cheap Debt is Good News for Stocks by Scott Minerd of Guggenheim Partners
The eventual return of leveraged buy-outs (LBOs) and an uptick in mergers and acquisitions (M&A) should give investors further reason to be bullish on stocks.
2012-10-25 October 2012 Newsletter by Harold Evensky of Evensky & Katz Wealth Management
Oh the joys of driving to a baseball game; sitting in endless traffic four miles from the stadium, inching past full lot after full lot, or not finding your car when it's time to go home (was it D-4 or 404 Green?). Now you can streamline your parking experience with ParkWhiz, a Chicago-based company that's recently gone national. This and other missives from Harold Evensky.
2012-10-24 Policy at a Crossroads by Investment Strategy Group of Neuberger Berman
On September 13, the Federal Reserve announced a third round of quantitative easing, dubbed QE3, in the hope of providing an additional boost to the slow U.S. economic recovery. Although this latest policy action reinforces the notion that the U.S. is prepared to support its economy for as long as needed, some economists question whether the stimulus can really make a difference. In this issue of Strategic Spotlight, we consider the recent effects of loose monetary policy and whether the Fed has "reached its limit."
2012-10-24 Emerging Markets Local Currency Bonds: Reducing Risk and Improving Returns in a Global Fixed Income by Marcela Meirelles, Blaise Antin of TCW Asset Management
Emerging market (EM) local currency bonds broaden the scope for income generation and risk diversification in a global fixed income portfolio. The asset class offers a unique opportunity to access higher income and potential for capital appreciation through a basket comprised of mostly investment grade credits with an average yield spread of 475 basis points over US Treasuries.
2012-10-23 The Perils of the Fiscal Cliff by John Mauldin of Millennium Wave Advisors
In today's letter we'll peek over the Fiscal Cliff and see what economic models can tell us about government spending. And if we have time we'll quickly look at an interesting study that uses economics to predict the outcome of this US presidential election.
2012-10-22 Eggs Are Not Enough: The Truth About Diversification by Feifei Li of Research Affiliates
We learn in finance theory that diversification simply means not putting all your eggs in one basket. Simple as the idea is, most investors do not hold portfolios that are even close to being truly diversified. Two reasons make this sensible objective difficult to achieve. First, most investors are not disciplined enough to implement diversification. To illustrate my point, pause and check whether you are willing to reduce equities when the trailing 12-month return on stocks is 20+ percentage points higher than bonds?
2012-10-22 More traction...Just Look Through the Earnings by Christian Thwaites of Sentinel Investments
Last week saw an important debate on how the US has fared in the post recession recovery. The short answer is, "not well" if measured by a return to GDP growth trends or per capita income. But the counter, as explained by Reinhart and Rogoff, is "faster than you would expect." We're in the second camp.
2012-10-22 The Little Country That Could by Bill O'Grady, Kaisa Stucke of Confluence Investment Management
In this geopolitical report we will take a brief look at Estonia's history, its economy after the break-up of the Soviet Union, its remarkable economic growth in the 1990s and early 2000s, and the ensuing downturn in 2008. The country stands out for choosing a different path to deal with the recession than many other European countries.
2012-10-22 Lessons from Black Monday by Peter Schiff of Euro Pacific Capital
25 years ago, on another Monday in late October, the financial world seemed to disintegrate in a heartbeat. Though the 205 point drop in the Dow last Friday (the technical anniversary of the '87 Crash) was somewhat reminiscent of its 108-point drop on Friday, October 16, 1987, the real action in '87 was on the Monday that followed. And while this Monday is not nearly as black, it is important that we use the opportunity to recall the circumstances that nearly sent the stock market into cardiac arrest.
2012-10-19 ECRI Weekly Leading Index: Index Slips, But Growth Rises by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index of the Economic Cycle Research Institute declined in the numbers released today. It is now at 126.7, down from last week's 127.6 (revised from 127.7). However, the WLI growth indicator rose further in expansion territory to 6.1, up from last week's 5.7. WLIg has now posted sixteen consecutive weeks of improvement and is at its highest level since May 20, 2011. The divergence between the WLI and its growth derivative is probably attributable to apparent anomaly in the BLS's weekly unemployment data over the past two weeks.
2012-10-19 Not by Housing Recovery Alone by Team of T. Rowe Price
Strong August-September housing starts are a clear bricks-and-mortar response to reports of rising buyer traffic, confirming a broad-based cyclical recovery in new housing construction. This trend will contribute 0.4 percentage points (pp) to real GDP growth directly through in construction activity, and perhaps another 0.2 pp indirectly through the consumer purchases of those newly employed in housing-related industries and via wealth effects related to the nascent recovery in house prices.
2012-10-19 ECB Needs to Rescue German and French Banks More than European Periphery: Global Macro View by George Bijak of GB Capital
Whenever we talk about rescuing overleveraged Europe it is always about Spain, Italy, Portugal, Ireland, and Greece the European periphery loaded with debt that they cannot possibly repay. But a closer look at the recent IMF data reveals that German and French banks need rescue more than anybody
2012-10-18 Quarterly Review and Outlook - Third Quarter 2012 by Hoisington and Hunt of Hoisington Investment Management
Entering the final quarter of the year, domestic and global economic conditions are extremely fragile. Across the globe, countries are in outright recession, and in some instances where aggregate growth is holding above the zero line, manufacturing sectors are contracting. The only issue left to determine is the degree of the downturn underway.
2012-10-18 Investment Outlook 2013: "ABCD" Investing: Anything Bernanke Cannot Destroy by Cliff Draughn of Excelsia Investment Advisors
The Ben Bernanke and Mario Draghi concert gave the markets a double shot of their love in the month of September by promising to print as much money as needed to finance the debts of their respective countries. Ever since the financial fraternity party ended in 2008 and the world began deleveraging its massive credit hangover, the global markets have been hooked on the next shot of love from the central bankers.
2012-10-17 Fuzzy Math from the Continent of Peace by Christian Thwaites of Sentinel Investments
Whoops! The IMF made two announcements last week that caught our attention. But to set up the joke in all this, it's worth remembering that for decades the IMF preached austerity economics to any country that needed balance of payments assistance.
2012-10-17 Emerging Europe: Third Quarter 2012 Economic Review by Team of Thomas White International
In its recent economic assessment, the European Bank for Reconstruction and Development (EBRD) said it expects growth to slow down during the year in member countries such as Russia, Poland, Hungary, and Turkey as the effects of the Euro-zone crisis spills over. The bank said many of these countries have already seen lower growth, but Russia especially is affected by falling commodity prices. Striking a similar note, the International Monetary Fund in its World Economic Outlook said emerging economies of the world are at risk should the developed economies experience a continued slowdown.
2012-10-17 Rise Up: US Soft Patch Appears to be Ending by Liz Ann Sonders of Charles Schwab
By definition, inflection points are characterized by maximum weakness. Many US economic readings are again suggesting notable signs of life. Will the improvement be enough to offset the "fiscal cliff"?
2012-10-16 Will Bonds Be ‘Burnt to a Crisp?’ by David Schawel, CFA (Article)
Bill Gross's recent monthly commentary painted a disturbing picture for investors - he foresees bonds being “burnt to a crisp.” This isn't just hot air. Such a conflagration is possible, and investors in bond funds, especially those that are constructed similar to the widely followed Barclays bond index, need to heed risks inherent in today''s market.
2012-10-16 China's Pyramid of Power by Frank Holmes of U.S. Global Investors
China celebrated another achievement last week, as Mo Yan became the first Chinese citizen to win a Nobel Prize for literature. The selection of Mo was praised by a Chinese nationalist tabloid as a sign that mainstream China could "no longer be refused by the West for long."
2012-10-16 The Big Four Economic Indicators: Updated Real Retail Sales and Industrial Production by Doug Short of Advisor Perspectives (dshort.com)
The latest updates to the Big Four was today's release of the September Industrial Production, which rose 0.4 percent over the previous month following a 1.4 percent decline the month before. Yesterday the Census Bureau's Retail Sales number was released, and with today's release of the Consumer Price Index we can calculate Real Retail Sales. The latest 0.6% increase gives us a strong three-month upward trend after four months of flat or contracting data. Both indicators beat analysts' expectations.
2012-10-16 Bank of England Still Aiming at the Wrong Target by Darren Williams of AllianceBernstein
The UK is celebrating a near three-year low in consumer price inflation, but we think the Bank of England (BOE) should be more worried about the role that money and credit play in the inflation process.
2012-10-15 The United States: Stability or Complacency? by Alan Levenson of T. Rowe Price
The International Monetary Fund's updated World Economic Outlook foresees a modest pace of U.S. economic expansion in 2012-2013, emphasizing significant downside risks emanating from the euro area crisis and from the domestic fiscal cliff. Weakness in the euro area and slower growth in a secularly-restructuring Chinese economy are weighing on U.S. export trends, but sturdier growth in Canada and Mexico is providing an important offset.
2012-10-15 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
Global equity markets performed well in the third quarter after posting modest losses in the second quarter. The soft second quarter, which followed back-to-back double-digit quarterly gains, proved to be a pause rather than a signal that the equity bull market was ending. Though defensive sectors garnered favor in the second quarter, economically sensitive sectors have generally led performance this year, with technology, financials and consumer discretionary topping the list year to date.
2012-10-15 QE3Back to the Future by Milton Ezrati of Lord Abbett
The broad scope and open-ended nature of the Federal Reserve's third round of quantitative easing raises questions about what exactly Fed chairman Ben Bernanke has in mind. Some insight, remarkably, emerges from a speech he gave in November 2002 to the National Economists Club in Washington, D.C., when he was simply a Fed board member. Taking his cue then from fears of a Japanese-style deflation, he laid out a path for monetary stimulus in an extreme situation, outlining nontraditional policy tools that have since become common.
2012-10-15 High Yield and Bank Loan Outlook by Scott Minerd of Guggenheim Partners
The leveraged credit market turned in an impressive Q3 with high yield bonds and bank loans returning 4.3 and 3.1 percent, respectively. Unprecedented accommodation from central bankers across the globe has alleviated much of the macroeconomic tail risk that we highlighted in last quarters publication. Presented with a seemingly insatiable demand for new issue bonds, issuers returned to the torrid pace of issuance that characterized the start of 2012 by raising a record $99 billion during the third quarter.
2012-10-15 The New Investment World is Not Near, It's Here by Russ Koesterich of iShares Blog
The recent pace and magnitude of economic change has left many investors disoriented, to say the least. Russ K explains why this new environment is unlikely to change any time soon, which may have implications for investors' current and long-term strategies.
2012-10-12 ECRI Weekly Leading Indicators: Time to Recant the Recession Call? by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) made a strong advance in the numbers released today. It is now at 127.7, up from last week's 126.2 (revised from 126.3). See the WLI chart below. The WLI growth indicator (WLIg) now marks its eighth week in expansion territory at 5.7, up from last week's 4.6. WLIg has now posted fifteenth consecutive weeks of improvement and is at its highest level since May 27, 2011.
2012-10-12 Teetering on the Edge? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
Concerns about a possible US recession remain elevated in light of the pending "fiscal cliff," resulting in some lackluster stock market action. The fiscal cliff and uncertainty around tax and regulatory policy appear to be influencing business decisions to the detriment of economic growth. While worst-case scenarios for Europe may have been taken off the table by the ECB, Spain's reluctance to ask for aid is causing consternation. And although we see continued weak growth in China, signs indicate the global slowdown may be turning around.
2012-10-12 Chinas Pyramid of Power by Frank Holmes of U.S. Global Investors
We've been able to witness Chinas incredible growth, with GDP averaging 10 percent per year and more than 500 million people moving out of poverty over the past 30 years. Now after three decades of tremendous expansion, this new generation of leaders will have to carefully maneuver the country into the next decade, towing the line between maintaining the stability created during the previous Hu-Wen administration and continuing the political and economic reform necessary to adjust to the countrys slowing growth.
2012-10-12 U.S. Economic and Interest Rate Outlook - October 2012 by By Carl Tannenbaum and Asha Bangalore of Northern Trust
Budget negotiations in the US and Europe are attempting to balance austerity, prosperity, and posterity. US exports and imports are showing the strains of sluggish conditions overseas. Our updated economic forecast reflects some "cliff" effects, but not a renewed recession.
2012-10-12 The Golub Group Commentary by Team of The Golub Group
High-quality businesses that have the ability to pay and increase their dividends are even more attractive in this low yield environment and the valuations of these businesses are cheap on an historic basis and relative basis to the alternatives.
2012-10-10 Pacific Basin Market Overview by Team of Nomura Asset Management
Regional equity markets remained largely directionless and volatile during the third quarter amid the summer trading lull. Government policy action towards the end of the quarter triggered the biggest market moves. However, the euphoria was short lived following the announcements of the European Central Bank's Outright Monetary Transactions and the Federal Reserve Board's third round of quantitative easing.
2012-10-10 And That's the Week That Was by Ron Brounes of Brounes & Associates
Don't bury Candidate Romney quite yet. The man looks to be in come-back mode and he has some experience in this area. Remember when Republicans preferred anyone but Mitt (Perry, Bachmann, Cain, Gingrich, Santorum) and yet he emerged victorious from the primary season.
2012-10-10 Third Quarter Surge Caps 12-Month Relentless Risk Rally by Douglas Cote of ING Investment Management
Despite the rally of the past year, equity markets still look cheap. Weakening manufacturing data suggest the 12-quarter streak of positive earnings growth may come to an end in the third quarter.
Housing has turned the corner, providing consumers with cause for confidence. Though fundamentals have wavered a bit, we are constructively bullish on risky assets, as "successful investing demands a choice between prudent risk control and outright risk avoidance".
2012-10-09 A Small Business Complex by Chris Maxey, Ryan Davis of Fortigent
Despite the release of the September labor report on Friday, small business owners seemed to take the biggest proportion of the spotlight last week. According to the Huffington Post, Romney and Obama mentioned the phrase "small business" a total of 29 times throughout the Presidential debate. The issues and importance placed on small business are unlikely to be as cut and dry as both candidates made them seem.
2012-10-09 Bibi Blinks by Bill O'Grady of Confluence Investment Management
On September 27th, Israeli PM Benjamin Netanyahu gave a speech before the U.N. General Assembly. Although it will be best remembered for his "looney toons" prop of a cardboard bomb which he used to describe when Iran crosses the "red line" (which, appropriately enough, was drawn on the bomb with a red marker), the real story of the speech was his apparent climb down from pressing for an attack on Iran.
2012-10-09 This Fortress built by Nature for Herself by Dennis Gibb of Sweetwater Investments
It has been some time since I have taken keyboard in hand in any attempt to inform anyone of my thoughts on the world of investing. I am taking the time to write now because we are embarked on some events that are, in my humble opinion, truly historic. As these events play out the United States may not be a fortress built by nature for herself. So hang on this could get rough and as usual it will be opinionated with a different perspective.
2012-10-08 Pliable Statistics by John Buckingham of AFAM
As Mark Twain once said, Facts are stubborn, but statistics are more pliable. More examples emerged last week in support of that center box quotation from this months edition of The Prudent Speculator. Indeed, Fridays monthly jobs report provided plenty of fodder for both the Obama & Romney election campaigns as the former was able to trumpet the eyebrow-raising dip in the unemployment rate to 7.8% (calculated from a survey of 60,000 individual households) while the latter could point to the less-than-stellar creation of only 114,000 jobs during September.
2012-10-05 ECRI Weekly Leading Indicators: Mixed Signals in Latest Data by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) slipped fractionally after eight consecutive weeks of growth. It is now at 126.3, down from last week's 126.6 (revised from 126.7). See the WLI chart below. However, the WLI growth indicator (WLIg) now marks its seventh week in expansion territory at 4.7, up from last week's 3.8. WLIg has now posted fourteen consecutive weeks of improvement and is at its highest level since June 3, 2011.
2012-10-05 How Helicopter Ben Helps Jobs and, Inadvertently, Gold by Frank Holmes of U.S. Global Investors
The world's central bank leaders continue to spike the monetary punch bowl, with investors imbibing on gold once again. This flurry of gold buying prompts many curious investors and doubting media to ask me two questions: 1) How can demand for gold and gold stocks continue; and 2) How high can the precious metal go? To answer these questions, we need to look at the intentions behind the economic and political decision-making across several developed countries, analyze the causes, the effects, and the possible ramifications.
2012-10-04 Monetary Mystification by Joseph Stiglitz of Project Syndicate
Central banks on both sides of the Atlantic took extraordinary monetary-policy measures in September, sending stock markets soaring. But politicians and markets in both Europe and America are mistaken if they believe that monetary policy can restore economic growth and boost employment.
2012-10-03 Understanding How "Debt Deleveraging" Works by Gary Halbert of Halbert Wealth Management
For many years, I have warned that our massive explosion in federal debt (up 50% just since Obama took office) would one day stifle economic growth. Obviously economic growth is currently stifled, what with the weakest post-recession recovery in decades. But the question remains as to whether our massive national debt and trillion-dollar budget deficits are the main reason for the disappointing recovery.
2012-10-02 Lessons from Scandinavia by Kaisa Stucke, Bill OGrady of Confluence Investment Management
During the late 1980s and early 1990s, Scandinavian nations suffered through balance sheet recessions. Commentators have suggested that U.S. policymakers could use the Scandinavian response to their crises as a roadmap for resolving the current U.S. situation. As part of our own analysis, we have studied several earlier events to understand the underlying similarities and differences to develop insights into the current event.
2012-10-02 QE and the Equity Market: Is the Fed Driving or Along For the Ride? by Patrick Lawler of PIMCO
Federal Reserve officials have said several times that among other benefits, its quantitative easing (QE) programs have helped boost U.S. equity prices. Based on our analysis, QE has not been the driving force behind rising equity prices in recent years. How does the Federal Reserve measure the success of its asset purchase programs, or quantitative easing (QE), since the 2008 financial crisis QE1, QE2, Operation Twist (OT) and QE3?
2012-10-01 U.S. Economy Prints 32-month Low: Recession Risks Escalate by Dwaine van Vuuren of RecessionALERT.com
It's been 4 months since the 3rd "Summer Swoon" in this expansion when many commentators were trotting out recession scares and imminent collapses in the stock market. Since then the SP-500 has risen over 9%, peaking at 12% gains some weeks back. There is now an interesting divergence developing between the leading data (stock market, money supply, credit spreads etc.) that is implying positive expansion ahead and the co-incident data that is implying a drift toward possible recession.
2012-10-01 And That's the Week That Was by Ron Brounes of Brounes & Associates
Bad news from Spain (no good news, no bad news.) Investors spent the week trying to make heads or tails about the headlines out of Europe, while analyzing the news from a suddenly resurging housing sector and a suddenly ailing manufacturing sector. For the most part, however, many were booking profits from a successful third quarter, while reallocating positions for the final stretch of the year. (Surely the Prez election and the "fiscal cliff" must enter into their decision-making moving forward).
2012-10-01 Moral Hazard. by Scotty George of du Pasquier Asset Management
Overall, equity market risk is dissipating. There appears to be a stronger momentum ameliorating a global tapestry of "ills." What may have been a domino effect when the credit crisis began has stopped short of a cataclysm and turned closer to equilibrium. As a result, equities might be poised to perform. The question is when?
2012-10-01 Quantitative EasingBernanke Sizes Up the Risks by Milton Ezrati of Lord Abbett
Bernanke acknowledged four potential pitfalls in policywith a fifth lurking in the shadows.
2012-10-01 If Its All About Macro These Days, Why Havent EM Stocks Done Well? by Morgan Harting of AllianceBernstein
It doesn't seem to make sense. Superior macroeconomic fundamentals in emerging countries have not led to stronger-or even positive-equity returns over the last two years. Since the beginning of 2011, the unhedged return in US dollars of the MSCI Emerging Markets (EM) Index has been (10)%, while the MSCI World Index has delivered 6.5%. What's going on?
2012-09-28 The Big Four Economic Indicators: Updated Real Personal Income Less Transfer Payments by Doug Short of Advisor Perspectives (dshort.com)
Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method. There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process.
2012-09-28 ECRI Weekly Leading Index Growth at Highest Level Since June 2011 by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose for the eighth consecutive week, now at 126.7, up from last week's 125.3 (revised from 124.7). See the WLI chart below. The WLI growth indicator (WLIg) now marks its sixth week in expansion territory at 3.8 (up from last week's 2.7). It has now posted thirteen consecutive weeks of improvement and is at its highest level since June 10, 2011.
2012-09-28 The Housing Market: For Real or Fakeout? by Jeffrey Dow Jones of Jones & Company
Most of you guys know that I bought a new house last summer. I spent two years looking at properties with the lovely (and patient!) Mrs. Concord, and eventually we found one that had what we each were looking for. My #1 criteria was value. Not price, but value.
2012-09-28 Schwab Market Perspective: Disrespected RallyCan It Continue? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
US equities are trading near five-year highs but numerous measures show investors remain skeptical. The enthusiasm following the Fed's announcement of more quantitative easing was short-lived, although the summer rally in stocks could be at least partially attributed to anticipation of more stimulus. The enthusiasm following the Fed's announcement of more quantitative easing was short-lived, although the summer rally in stocks could be at least partially attributed to anticipation of more stimulus.
2012-09-27 How Can Balanced Investors Mitigate Their Equity Risk? by Daniel Loewy of AllianceBernstein
Over the past three decades, bonds have provided balanced investors with the best of both worlds. As 10-year Treasury yields fell from a high of 13.7% in 1980 to less than 2% today, bonds provided both strong returns and a great cushion in times when equities were weak. Bonds are still important, but investors shouldn't expect more of the same.
2012-09-27 PIMCO'S Cyclical Outlook for Asia: Structural Slowdown Shaping Near-Term Growth Dynamics by Tomoya Masanao, Robert Mead, Ramin Toloui of PIMCO
Rather than a hard landing for China, we foresee a structural downshift that could be called a "New Normal with Chinese characteristics." Australia has considerable scope for additional rate cuts and more expansionary fiscal policy to address regional weaknesses. The Japanese economy will be affected by weak economic growth in China, which will add more pressure for the Bank of Japan to respond.
2012-09-27 Going Private in China by Henry Zhang of Matthews Asia
Over the last three decades, China's embrace of capitalism has benefited its socialist society. The country's foundation for capitalism has been based on private ownership, as it has been in other capitalist economies. For China, this privatization occurred in two stages: the first being the privatization of agriculture in rural areas as the government implemented a "household responsibility system" to align the economic interests of farmers directly with the output of their own plots of land.
2012-09-24 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Certain studies commissioned by the securities industries governing bodies have recently concluded that terrible things happen to people who are too ignorant to know better. It's amazing that your confidence and trust could be so obfuscated as to propose that an economic tailspin was your fault.
2012-09-24 Trade Winds Shifting in America's Favor by Milton Ezrati of Lord Abbett
The improvement in the U.S. trade balance can be traced to the dollar's relative weakness and increasing domestic energy production.
2012-09-24 Some Parting of the Clouds by Charles Lieberman of Advisors Capital Management
The ongoing rally in the equity market and corresponding rise in Treasury yields mirror the slow improvement in financial market conditions in Europe and moderate gains in domestic economic data. This still leaves more progress to be made on both fronts, but uncertainty remains elevated over the fiscal cliff, the threat of military conflict in the Middle East, the upcoming election, and tax policy.
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.
2012-09-21 ECRI Weekly Leading Index Growth at Highest Level Since July 2011 by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose for the seventh consecutive week, now at 125.4, up from last week's 124.7 (revised from 124.9). See the WLI chart below. The WLI growth indicator (WLIg) now marks its fifth week in expansion territory at 2.7 (up from last week's 1.9). It has now posted twelve consecutive weeks of improvement and is at its highest level since July 29, 2011.
2012-09-21 About That Swiss Neutrality by Russ Koesterich of iShares Blog
Swiss stocks still merit a positive long-term outlook but on a short term basis, Russ is changing his allocation to underweight from neutral.
2012-09-20 QE n+1 What The Fed Is Really Up To by JJ Abodeely of Sitka Pacific Capital Management
As I survey the news stories and other analysis on the Feds recent announcement, most fall short of describing what the Fed is really up to. Here is a hint: it's not really about employment. It's not really about "price stability" or really about growth either.
2012-09-19 Farmland: The New Gold? by Randy Bateman of Huntington National Bank
Yes, it's just 'dirt', but life on this planet wouldn't exist as it does today unless it didn't comprise a third of the world's surface. Unfortunately much of that 'dirt' is in areas too wet, dry, rocky, salty, devoid of nutrients, or covered by snow for agricultural production. With only 14 percent of the world's landmass considered fertile, and that shrinking at a significant pace, there's a realization that increased farm production is essential to satisfy the increasing demand for food products.
2012-09-18 Still Broken After All These Years by Martin Weil (Article)
Four years ago this week, the financial crisis took the world's economies to the brink of collapse. September 15, 2008, the day Lehman Brothers failed and sent global financial markets into cardiac arrest, was my wedding anniversary. My wife and I were celebrating at the time on the Mediterranean coast of Turkey – a memorable trip, to be sure. Reflecting back on that moment now, I’m struck by how little distance our nation has traveled since.
2012-09-18 Campaign Rhetoric and Our Energy Future by Michael Edesess (Article)
At their respective conventions, both President Obama and Mitt Romney spoke to a centrally important topic for America and the world: energy. Their positions – political posturing aside – are broadly similar. But rather than a coherent, sustainable vision for the energy future of the United States, both men's rhetoric reflected the usual exercise in political base-touching, apple pie-polishing, and third-rail avoidance. And two important, perhaps crucial, pieces of the energy puzzle were hardly mentioned at all.
2012-09-18 $4 Gas Could Put Brakes on Growth by Milton Ezrati of Lord Abbett
Reaction to the recent climb in gasoline prices appears surprisingly muted, but a sustained rise could result in a significant drag on U.S. growth.
2012-09-18 Fed Delivers another Big Dose of QE by Scott Colyer of Advisors Asset Management
Yesterday, the Fed delivered the much anticipated dose of Quantitative Easing (QE) announcing that it would continue to buy U.S. Agency Mortgage Backed Securities (MBS) in an effort to further drive growth in the U.S. economy and decrease the ranks of the unemployed. The monthly purchase rate of $40 billion will be in addition to the already $10 billion that is being reinvested from QE 1&2 in mortgage-backed securities. This new money balance sheet expansion by the Fed accompanies additional guidance that the Fed would stay low on interest rates likely until mid-year 2015.
2012-09-17 Global Overview: August 2012 by Team of Thomas White International
Signs of emerging political consensus in Europe over supporting further action by the European Central Bank (ECB) and a closer banking union helped sustain investor sentiment during the month of August. Germany and select other countries that were skeptical of open ended policy measures by the ECB now appear to be scaling down their opposition.
2012-09-14 The Cure for Baldness by Neel Kashkari of PIMCO
Rarely does one find market commentators offering moderate, balanced investment advice these days. More likely one will find extreme headlines designed to capture maximum attention.
We believe it is worthwhile to take time to craft an investment strategy that can withstand a range of market outcomes.
In a lower-return world, we look to buy companies that are attractively priced and that can grow faster than the market as a whole, and we actively manage downside risks.
2012-09-14 Surviving a Downturn by Michael Han of Matthews Asia
During my recent trip to Northeast Asia, many managers I met were concerned about the gloomy macroeconomic news still coming out of Europe and were curious to hear from me about the state of the U.S. economy. Given their concerns, companies were preparing for a worst-case scenario and continuing to leverage their competitive advantage as they have done during past downturns. Surprisingly, some companies I met with in more developed parts of Asia seemed to welcome this downturn.
2012-09-14 ECRI Defends Its Recession Call by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index of the Economic Cycle Research Institute rose for the 6th consecutive week, now at 124.9 from last week's 124.1. The WLI growth indicator now marks its fourth week in expansion territory at 2.1. It has now posted eleven consecutive weeks of improvement. The big news is yesterday's Bloomberg TV interview, in which Lakshman Achuthan, ECRI's COO, reasserted his company's recession call made a year ago on September 21st and his belief that the recession has already begun.
2012-09-14 The Big Four Economic Indicators: Updated Industrial Production and Real Retail Sales by Doug Short of Advisor Perspectives (dshort.com)
Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method. There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:
Industrial Production, Real Income, Employment and Real Retail Sales.
2012-09-12 On Uncertain Ground by Howard Marks of Oaktree Capital
I'm going to devote this memo to the uncertainty in the world and the investment environment and then offer my take on the appropriate strategy response. This will require me to touch on a large number of topics, but I will try to dwell less than usual on each of them.
2012-09-12 Will America Be Greece in Four Years? by Gary Halbert of Halbert Wealth Management
The US national debt topped $16 trillion last week, and it was almost as if no one paid attention. At the rate we are going, the national debt will top $20 trillion just four years from now in 2016. In my August 21 E-Letter, I pointed out just how mind-boggling a trillion dollars is. Lets revisit that analogy of a trillion in terms of time.
2012-09-11 The Winds of Market Change by Mark Mobius, Michael Hasenstab of Franklin Templeton Investments
As we cross the mid-way point of the year, you might say the equity and fixed income markets have been a lot like the recent weather in much of the world: uncertain, and tending toward extremes. The perception of a stormy economic climate has driven some equity valuations to extremely low levels, particularly in Europe, and investors have been pouring into fixed income despite extremely low yields.
2012-09-10 The Siren Song of Growth: Why Investors Willfully Set Sail for the Rocks by Matt Malgari of Knight Capital Group
Gaining an informational edge through more efficient and effective tools of fundamental company financial analysis and relative valuation is still a crucial goal for active equity managers. This should be even truer in a lower return world, particularly when investment returns may be under transition, driven in part by difficulties in maintaining long-term growth opportunities of a given company's own capital investments.
2012-09-10 As the Euro Tumbles, Spaniards Look to Gold by Peter Schiff of Euro Pacific Precious Metals
The unremitting deterioration of the eurozone's sovereign debt landscape continues to fuel uncertainties about the longevity of the euro as a strong currency. Such uncertainties are not only leading to capital flight from the EMU's periphery to the core and destabilizing markets worldwide, but they are also beginning to frighten southern European savers into seeking refuge outside their 10-year-old currency.
2012-09-10 The Case for Real Estate by Jeff Kolitch, David Baron, David Kirshenbaum of Baron Funds
We believe we are in the early stages of a multi-year real estate recovery fueled by improving cash flows, rising demand, a scarcity of new development projects, improving credit availability, and generationally low interest rates. We believe the outlook is promising for both residential and commercial real estate.
2012-09-10 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Does a powerful upcycle necessarily have to be followed by a downcycle? Well, yes, if one believes in the notion of parabolic quantitative market theory. Given that you can't fill up a phenomenon greater than 100%, nor empty it more than zero, what happens when you reach a statistical "saturation point", when the laws of probability no longer engender positive outcomes?
2012-09-10 Back to School: Summer Vacation Ends for Central Bankers by Andrew Boczek of Sentinel Investments
The heady days of "Maestro" Alan Greenspan may be long gone. Nonetheless, most of us still take for granted that similarly wise men and women, aloof from the pressures of politics and short term market fluctuations, have the capacity to set the proper price of our most precious commodity: time. Or said another way, to set an effective interest rate policy that encourages either savings or spending, today or in the future, to help manage long term economic stability.
2012-09-10 Are Labor Markets the Key to Fed Easing? by Chris Maxey of Fortigent
Widely reported last week was anemic labor market growth in August. Some talking heads took this news in stride, assuming this would guarantee further market intervention by the Fed, but there is a danger in assuming any form of quantitative easing will alleviate the intermediate-term concerns of the market.
2012-09-07 Economic Data Continues to Undermine ECRI's Recession Call by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose for the fifth consecutive week, now at 123.7 from last week's 123.5 (revised from 123.6). See the WLI chart below. The WLI growth indicator (WLIg) is in its second week in expansion territory at 1.0 (up from last week's 0.5). It has now posted ten consecutive weeks of improvement.
2012-09-07 The Fed's Campaign by Peter Schiff of Euro Pacific Precious Metals
This past Friday, as Fed Chairman Ben Bernanke delivered his annual address from Jackson Hole - the State of the Dollar, if you will - I couldn't help but hear it as an incumbent's campaign speech. While Wall Street was hoping for some concrete announcement, what we got was a mushy appraisal of the Fed's handling of the financial crisis so far and a suggestion that more 'help' is on the way.
2012-09-07 Chinas Next Act by Frank Holmes of U.S. Global Investors
World markets may not have to wait much longer for Chinese policymakers to act, as the government recently announced new infrastructure projects. According to Bloomberg, China approved 25 new subway construction projects, with related investments estimated to be more than 840 billion yuan. Railway, subway and construction stocks in China increased on the news. China is in much better shape than the rest of the world. A powerful rebalancing strategy offers the structural and cyclical support that will allow it to avoid a hard landing.
2012-09-07 Recent Speech Given by Lacy Hunt, Ph.D. by Lacy H. Hunt of Hoisington Investment Management
The most sensible recognition of budget policy came from David Hume, one of the greatest minds of mankind. In his 1752 paper Of Public Finance, Hume advocated running budget surpluses in good times so that they could be used in time of war or other emergencies. Such a recommendation would, of course, prevent policies that would send countries barreling toward the bang point. Countries would have to live inside their means most of the time, but in emergency situations would have the resources to respond.
2012-09-05 The Lending Lindy by Bill Gross of PIMCO
Our entire finance-based monetary system led by banks but typified by insurance companies, investment management firms and hedge funds as well is based on an acceptable level of carry and the expectation of earning it. In a New Normal economy where lenders dance to the Blue Danube instead of the Lindy, how should we move our own feet? Carefully, I suppose, and with recognition that historic returns are just that historic.
2012-09-05 Profit Motive: If Earnings/Margins Are Peaking, What About Stocks? by Liz Ann Sonders of Charles Schwab
Earnings growth has peaked, but don't necessarily assume the same about margins. Present pace of earnings growth has historically been accompanied by decent market performance. Margins are increasingly driven by domestic and foreign earnings, but peaking margins have historically been accompanied by strong market performance.
2012-09-04 All QE, All the Time by Chris Maxey of Fortigent
In a week of relatively light trading to wrap up the summer, equity markets trickled lower, as the Dow Jones Industrial Average lost 0.5% and the S&P 500 Index fell 0.3%. It was a mixed week of economic data in the U.S., but markets were clearly locked in on Ben Bernanke's speech in Jackson Hole, Wyoming. News on housing seems to confirm that a bottom is in place, while manufacturing data continues to move in all different directions.
2012-09-01 Schwab Market Perspective: Back to Work by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
As summer winds down, we expect things to heat up as policymakers get back to work, resulting in a challenging investment environment.
2012-09-01 And That's the Week That Was by Ron Brounes of Brounes & Associates
Isaac vs. Romney vs. Bernanke. Each took their turn in the limelight this week. While the Hurricane dropped plenty of rain and brought damaging winds into Louisiana, the devastation didnt compare to Katrina. Romney humbly accepted his party's nomination, while still trying to prove to T-Partiers (and women) that he should be their guy (and he can bash his opponents with the best of them.
2012-09-01 The Consequences of Easy Monetary Policy by John Mauldin of Millennium Wave Advisors
We heard from Bernanke today with his Jackson Hole speech. Not quite the fireworks of his speech ten years ago, but it does offer us a chance to contrast his thinking with that of another Federal Reserve official who just published a paper on the Dallas Federal Reserve website. Bernanke laid out the rationalization for his policy of ever more quantitative easing. But how effective is it?
2012-08-31 ECRI's Embarrassing Recession Call by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose for the fourth consecutive week, now at 123.6 from last week's 123.3. See the WLI chart below. The WLI growth indicator (WLIg) has risen into expansion territory at 0.6 after nine consecutive weeks of improvement.
2012-08-29 Is Inflation Returning? by Martin Feldstein of Project Syndicate
Inflation is now low in every industrial country, and the combination of high unemployment and slow GDP growth removes the usual sources of upward pressure on prices. Nevertheless, financial investors are increasingly worried that inflation will eventually begin to rise, owing to the large expansion of commercial bank reserves engineered by the United States Federal Reserve and the European Central Bank (ECB).
2012-08-28 Policymakers Hold the Key to Confidence by Bob Doll of BlackRock Investment Management
The Dow Jones Industrial Average fell 0.9% to 13,158, the S&P 500 Index slid 0.5% to 1,411 and the Nasdaq Composite lost 0.2% to close the week at 3,070. As August draws toward a close, US equities have hit four-year highs, corporate bond yields touched multi-year lows and many risk assets can look back on a pretty good summer. But despite plenty of investment and central bank activity, we continue to see a shortage of economic and financial market confidence.
2012-08-24 Gold: First Mover Advantage by Frank Holmes of U.S. Global Investors
This week, gold bugs were rewarded with the long-awaited positive momentum in the yellow metal, and on Friday, bullion rose to about $1,670. After falling below the 200-day moving average, gold had been stuck in quicksand for several months. With the jumps in the price this week, bullion swiftly rose above this critically important long-term moving average.
2012-08-23 No Recession Now - But When? by Lance Roberts of Streettalk Live
There have been a few calls as of late (Hussman, ECRI, Shilling) stating that we are currently in the next recession. Then there is everyone else. While the "optimistic" outlook is always more enjoyable to listen to - the problem is that the current "no recession" view is primarily predicated on current quarter growth rates looked at in isolation. These data points are then extrapolated into continuous future economic expansion.
2012-08-22 The Faustian Bargain by Scott Minerd of Guggenheim Partners
In Goethe's 1831 drama Faust, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country's fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos. Today, governments that have relied upon quantitative easing (QE) instead of undertaking necessary structural reforms have arguably entered into the grandest Faustian bargain in financial history.
2012-08-21 U.S. Equities After the Earnings Season: Is There Still an Opportunity? by Joseph Tanious of J.P. Morgan Funds
Now in its fourth year of recovery following the financial crisis, the S&P 500 is once again testing the 1400 level, having rallied over 100% from its March 2009 lows. Meanwhile, earnings have hit an all-time high, but it is becoming clear that earnings growth is slowing. All of this has occurred against a backdrop of global economic uncertainty, unprecedented central bank action, and the most polarized U.S. political landscape we have ever seen.
2012-08-20 QE3: Tackling the Big Questions by Milton Ezrati of Lord Abbett
Will the Fed launch another round of quantitative easing? If so, when? Here are the factors that could influence the central bank's decision.
2012-08-20 The Basis For Fear by Charles Lieberman of Advisors Capital Management
Last week, I wrote about how stocks are cheap historically and also with respect to other asset classes, such as bonds. This week, I want to focus on the reasons for this. Stocks are not cheap by accident. Investor concerns over Europe, renewed recession in the U.S., the fiscal cliff and the huge budget deficits provide ample reason for caution. However, not all of these concerns are well placed and some of the issues can be resolved favorably.
2012-08-17 Fiscal Cliffhanger by Brian Horrigan of Loomis Sayles
In the famous 1955 movie Rebel Without a Cause, troubled high school student Jim Stark (played by James Dean) winds up playing a game of chicken with his classmates. The US economy is at risk of driving, so to speak, over a "fiscal cliff" starting January 1, 2013, an event that threatens to wreck the economy. There are fewer than five months to avoid going over this cliff.
2012-08-16 The ECB Is Too Tight Absolutely and Relatively by Scott Mather, Dirk Jeschke of PIMCO
Looking at measures of the quantity of money and its transmission into the real economy reveals that ECB policy is quite tight. Growth hardly stands a chance under this scenario. Relatively tight monetary policy would perhaps be understandable if the eurozone were threatened by inflation. However, inflation is low and falling in the Eurozone. The ECB may be playing a game of chicken with European policymakers. If true, this is a dangerous strategy.
2012-08-16 The Chinese Hangover: As Infrastructure Spending Drops, So Does Demand for Chinese Steel by Raja Mukherji of PIMCO
The Chinese steel industry today shows many signs of serious economic difficulties brought about by the unprecedented size and speed of industry expansion. However, as the country's focus shifts away from public investments and toward tax cuts, it will be difficult for China to absorb this overabundance of domestically produced steel. Ripple effects of this oversupply may include softening iron ore prices, a possible drop in the Australian dollar, and potentially weaker global steel prices.
2012-08-14 The Eurozone Drama Continues by Bill O'Grady of Confluence Investment Management
In this report, we will review the political and economic structure of the Eurozone. From there, we will discuss the critical event that caused the reversal in safety assets and what this reversal likely means for the geopolitics of the Eurozone. As always, we will conclude with potential market ramifications.
2012-08-14 India: Good Growth, Bad Growth by Sunil Asnani of Matthews Asia
It goes without saying that areas of growth attract investors. But in a blind chase for growth, it is easy to forget that only growth accompanied by economic profits creates value. This month Sunil Asnani takes a look at some of the once-celebrated, top-down investment ideas that did not live up to expectations, comparing them to some less exciting ideas that actually did deliver.
2012-08-13 Double Dip? Doubtful by Milton Ezrati of Lord Abbett
The flow of economic news is hardly encouraging. Jobs growth remains disappointing. Recent readings on consumer spending and business activity show weakness as well. If the picture of the housing market has improved a bit, it still hardly portrays strength. Talk of an imminent recessionary dip has become common, for the third time now in as many years. While some recent economic reports have been discouraging, underlying fundamentals do not point to a return to recession.
2012-08-13 Commodities to Power Emerging Markets Higher by Dawn Bennett of Bennett Funds
In Latin America, Brazil leads as a natural supplier of copper and crude oil, which it is now able to extract and export on competitive terms. Nations rich with natural resources perform well during times of global economic expansion. In particular, countries rich with industrial commodities tend to outperform those without.
2012-08-13 The Fundamental Case for the 20,000 Dow by Seth Masters of AllianceBernstein
While some people deem stocks expensive relative to 10-year trailing earnings, we take a forward-looking approach. It starts with the premise that the stock market is not a casino and stock prices are not pulled out of thin air: they reflect the intrinsic value of companies' future earnings.
2012-08-13 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The rally in stocks which no one seems to believe in continued again last week. With Europe on vacation or celebrating the Olympic Games the macro background remained quiet and allowed stock prices to advance even as investor pessimism continues to grow.
2012-08-10 Schwab Sector Views: Cautiously Cautious by Brad Sorensen of Charles Schwab
We remain slightly defensive with our sector recommendations but admit that we're a bit concerned over doing so. While we certainly believe this is the appropriate positioning given the continued elevated uncertainty in the market, combined with sluggish economic data, we also acknowledge that some defensive areas appear extended and the possibility of a near-term cyclically-based rally exists.
2012-08-10 2012 2Q Economic - Capital Market Summary by Greg Hahn of Winthrop Capital Management
The single biggest driver for the economy and investment returns is the deleveraging process which we are currently struggling through. Arguably, we have successfully transferred debt from the financial sector to the U.S. government through the Fed's QE programs. As we move through the long process of reducing debt, economic growth inevitably moderates as resources are applied to debt reduction rather than fixed investment and consumption within the economy. As a result, expected returns on financial assets are lower.
2012-08-10 Dog Days by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
We now appear to be firmly in the dog days of summer. Low volume and little conviction may dominate but investors need to stay vigilant and now is a good time to prepare for the fall. The recent Fed meeting yielded no new action, but policy makers reiterated that they will act if necessary. We are skeptical that more stimulus measures will have a lasting impact. A waiting game has ensued in Europe as investors look for action following hopeful comments from various officials. But despite concerns over corn prices, central banks will continue to ease, helping to support global growth.
2012-08-09 Market Surge is Amplified by Low ExpectationsAs Expected by Matt Lloyd of Advisors Asset Management
European fears have subsided a bit as the European Central Bank's (ECB) president continued to offer words of support for a more comprehensive solutionthough he appeared to dampen the statements with concessions about the ECB's ultimate subservient role to the governments.
2012-08-08 Emerging Markets Equity Monthly Product Commentary: July 2012 by Team of Thomas White International
Emerging market equities made modest gains during the month of July, as global markets sustained the optimism from the last week of the previous month. Select markets in Asia, such as Indonesia, Korea, and Malaysia, as well as Turkey and South Africa outperformed during the month. Repeated assurances by European policymakers over further policy action helped assuage market concerns about the region's fiscal crisis worsening, though economic data continues to be relatively weak.
2012-08-08 Monthly Product Commentary: International Equity - July 2012 by Team of Thomas White International
International equities made modest gains during the month of July on repeated assurances from European policymakers that they will explore all possible steps to prevent a collapse of the monetary union and arrest further economic decline. Developed markets in Europe's Nordic region and the Asia Pacific, excluding Japan, as well as select emerging markets in Asia ended with healthy gains for the month.
2012-08-08 ECB Policy: Over-Promise and Under-Deliver, Investor Behavior: Over-Anticipate and Over-React by Colin Moore of Columbia Management
Last week was a good example. Investors anticipated a major announcement from Mario Draghi, President of the ECB on Thursday because of remarks he had made the previous week at a conference in London. When he did not announce any immediate monetary policy changes following the regular meeting of the ECB, the markets demonstrated considerable volatility, declining on Thursday and rising on Friday.
2012-08-07 Investing in Central Utility Stocks - Do Todays Valuations Make Sense? Part 3 by Team of F.A.S.T. Graphs
This is the third in my series on investing in utility stocks based on the sector's current valuation levels. The series was initially inspired by concerns that utility stocks may be overvalued because they had recently performed very well. When the series first started with Part 1, utility ETFs were showing the best one-year performance of any sector. By the second installment Part 2, the utility sector had fallen into second place (Utility Sector Performance July 31, 2012).
2012-08-06 And That's The Week That Was by Ron Brounes of Brounes & Associates
Action speaks louder than words. While the positive rhetoric coming from the mouths of center bankers brought optimism to the markets, their actions (or lack thereof) sent the indexes into a four day losing streak. Only a strong non-farm payroll release late in the week salvaged the market and a solid rebound left the major indexes in positive territory for the week (though the eternal pessimists believed the data was an aberration). Maybe Bernanke has more words of wisdom for them?
2012-08-06 Diamonds in the Rough by Mark Kiesel of PIMCO
The demand for most high-quality, income-producing assets continues to exceed supply due to a weaker growth outlook and aggressive policy action by global central banks. Yet we are still finding numerous opportunities globally through our bottom-up research that targets areas around the world where fundamentals are supportive and the outlook remains constructive.
2012-08-03 Real Assets Replication: Solving the Capital Call Conundrum by Andrew Hoffmann, Niels Pedersen, Mihir Worah of PIMCO
Risk factors help to identify the fundamental value drivers of real assets and explain differences in the reported returns of public and private equity investments that hold substantially similar assets. By combining the fundamentals of real asset valuations with the statistical tools required to unlock the component risk factors of asset classes, it is possible to replicate the returns of private real asset investments using liquid publicly traded instruments.
2012-08-03 Postcard from Japan by Yu Zhang of Matthews Asia
After spending a week crisscrossing Tokyo earlier this summer to meet with various companies, my general take-away was that the country, as a whole, has managed a rather swift recovery from last year's devastating earthquake. Japan seems to have been able to rebound from its nuclear crisis, showing great resilience. Most of the firms I met with were already plowing ahead to try to make up for last year's losses.
2012-08-01 Real Estate Portfolio Construction for Individual Investors by Casey Frazier of Versus Capital Management
Commercial real estate is an asset class that includes many different strategies and approaches. Investors segment real estate investments into a few categories. This segmentation is done by several key factors including income profile, leverage, operational risk and potential returns. The most important segmentation is core versus non-core, or properties with stable income versus properties that have unstable or no income.
2012-08-01 Italy - The Next Chapter in the Eurozone Debt Crisis by Greg Hahn of Winthrop Capital Management
After recently returning from Italy and France and analyzing the economic data coming out of Italy, we have a higher conviction that Italy will be stuck in a severe recession and has an elevated probability of requiring a bailout. Our main theme, which is similar to our view of the United States, is that Italy has too much public debt and is lacking the political will to make the necessary expense cuts and stimulate its economy to successfully navigate the deleveraging that is required.
2012-07-31 Expect Headwinds for Stocks If Hoisington is Right about Bonds by Keith C. Goddard, CFA (Article)
Might today's historically low interest rates in the U.S. persist for years to come? The latest Quarterly Review and Outlook from Hoisington Investment Management forces readers to consider that possibility, refuting the reversion-to-the-mean mindset that causes many people to expect higher interest rates in the not-too-distant future. If the Hoisington model for the economy turns out to be right, the implications for the stock market are unfavorable.
2012-07-31 The Young General Emerges by Bill O'Grady of Confluence Investment Management
On July 16th, the official North Korean media reported that General Ri Yong Ho, the militarys Chief of the General Staff, had been dismissed of all duties. Reports suggested that the general had been removed due to illness. General Ri was a close confidant of the late Kim Jong Il and was thought to be tasked with smoothing the transition of the new leader of North Korea, Kim Jong-un, the Young General. Ri's exit, along with other events, suggests changes in the Hermit Kingdom.
2012-07-30 Turkey: 'Sick Man of Europe' No Longer by Team of Thomas White International
Despite the invasion of modern retail formats such as supermarkets, corner stores still account for 40 percent of retail sales in Turkey. Since the mid-19th century, Turkey has carried the unfortunate moniker 'Sick man of Europe'. Though still not considered in the same league as the BRICS countries, Turkey has enjoyed healthy economic growth over the last decade.
2012-07-27 Equity Implications for a Modest-Return World by Andrew Pyne of PIMCO
With equities likely to see modest returns over the secular horizon, we believe that capturing alpha will be critical for investors seeking to meet target portfolio returns. Equity valuations appear reasonable, but volatility is likely to remain elevated amid slowing global economic growth and macroeconomic risks. As macro events drive markets, the probability of fundamental mispricing increases, providing opportunity for active managers to add value.
2012-07-27 Challenging the Paradigms of Investing by Frank Holmes of U.S. Global Investors
Global investors constantly need to be watchful of individual biases, impaired thinking and emotional reactions that can have an adverse effect on a portfolio. One of our values at U.S. Global Investors is to always be curious to learn and improve, and the Investor Alert was borne from a belief that shareholders want to understand the very subtle nuances of biases and misconceptions. I have selected a few that I believe challenge the paradigms of investing.
2012-07-25 An Excess of Reserve by Carl Tannenbaum of Northern Trust
Bank credit has expanded nicely over the past two years, yet financial institutions continue to hold substantial pools of excess reserves with the Fed. Some suggest that this extended conservatism is hindering the economic expansion, and are calling on the Fed to lower the rate it pays on excess reserves. The ECB has already taken this step. We think that a cut in the interest rate on excess reserves is unlikely.
2012-07-25 Top Line Growth Stalling Amid Global Weakness by Chris Maxey, Ryan Davis of Fortigent
At this juncture, positive catalysts seem few and far between. According to FactSet, 18 of 22 companies have already guided lower for the third quarter. Analysts are also ratcheting down forecasts quickly, with flat earnings growth expected in Q3. While growth is expected to pick back up in the fourth quarter, analysts have not cut those estimates aggressively yet. If the economic picture does not improve in the next few months, expect a pattern of downgrades to follow suit.
2012-07-25 Economic Review: Americas - 2Q 2012 by Team of Thomas White International
Among the developed economies in the region, growth forecasts for both the U.S. and Canada have been revised lower. Though the U.S. outlook has weakened, the Mexican economy has so far remained unaffected, as manufactured goods from the country remain competitive in export markets. Brazil is yet to see a recovery even after a series of monetary and fiscal measures taken since the second half of last year to support the economy.
2012-07-25 If You Own Utility Stocks, Consider Selling The Overvalued Ones - Part 1 by Team of F.A.S.T. Graphs
Recently, I've come across several discussions by dividend growth investors as to whether the utility sector is overvalued or not today. Therefore, I decided to look into the sectors relative valuation as a whole to see what I could find. The only way to efficiently conduct this kind of research is to rely on a broad statistical array utilizing traditional valuation metrics. However, before I report my findings there are some caveats and clarifications that I feel are very appropriate.
2012-07-25 One More Dance by Neel Kashkari of PIMCO
We are witnessing a synchronized slowdown worldwide that is beginning to affect corporate profits. The most likely right-tail event is the Federal Reserve launching another round of quantitative easing. We dont believe liquidity alone can engineer sustainable, real economic growth in the context of a secular deleveraging cycle. But we acknowledge that equity portfolios would likely benefit should the Fed keep the music playing a little longer.
2012-07-24 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
I want to dispel the notion that I am an investment bear. There is nothing wrong with expressing an opinion, bullish or bearish, particularly when the consensus says its alright. Proof of one's courage, though, lies at the margins, during undetectable inflection points, before the consensus has arrived. My track record versus the benchmarks demonstrates a successful delineation between bearishness and being opportunistic.
2012-07-24 Fed Outlook: An Itchy Trigger Finger by Scott Brown of Raymond James
Fed Chairman Bernanke's monetary policy testimony to Congress was not expected to be a big deal. The economic projections of senior Fed officials were already published and the minutes of the June 19-20 policy meeting showed the Fed in a wait-and-see attitude However, most of the economic data released since the Fed policy meeting were weaker than expected. While Bernanke did not signal that policy action was imminent, the tone of his testimony was clearly concerned.
2012-07-24 Investment Review & Outlook by Team of Cohen & Steers
The headlines in Europe were dominated by political uncertainty and prospects for a prolonged recession, amid signs of deteriorating economic conditions around the globe. The U.S. economy decelerated, as the positive effects of the mild winter wore off and both hiring and spending slowed. Treasury yields fell to all-time lows and oil prices plummeted roughly 30% from their February peak.
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.
2012-07-23 Emerging Asia Pacific: Economic Review 2nd Quarter 2012 by Team of Thomas White International
Emerging Asia, which posted strong results during the first quarter of 2012 on optimism that Europe's sovereign debt problems would be solved quickly, returned to struggling ways during the second quarter of 2012 as prospects for Europe continued to wobble throughout the period. The uncertainty about Greece's fate in the European Union and the destiny of the single market itself kept industrial firms in Europe guessing for the most part of the second quarter.
2012-07-23 Economic Review: Developed Europe Second Quarter 2012 by Team of Thomas White International
Developed Europe remained on tenterhooks for the greater part of the April-June quarter, but ended the period on a high note. At their Brussels summit on June 28-29, European leaders chalked out two crucial policies. They decided that the monetary unions permanent bailout fund or European Stability Mechanism (ESM) would be allowed to provide capital to ailing banks directly rather than through the governments of the countries in which they are located.
2012-07-23 China's Economy - A Great Wall of Worry? by Milton Ezrati of Lord Abbett
The population of China bears seems to keep growing. This already large colony of doomsayers can point to any number of legitimate troubles facing China today, and they glibly do so, from slowing exports growth to an aging population, from real estate excesses to a moribund consumer sector. Bears think China is in for a "hard landing," but their pessimism is overdone. Here's why.
2012-07-20 Long Journey, Map Provided by John Gilbert of GR-NEAM
It is almost four years since the Lehman bankruptcy. In the periods of economic contraction that were typical of the postwar period, the clouds would be parting by now. Income growth would have resumed and necessary balance sheet repair would be more or less complete. By any standard, the current episode is a balance sheet recession of historic proportion. Previous downturns were initiated by central bank rate increases, which occurred this time as well.
2012-07-19 Quarterly Review and Outlook by Hoisington and Hunt of Hoisington Investment Management
Long-term Treasury bond yields are an excellent barometer of economic activity. If business conditions are better than normal and improving, exerting upward pressure on inflation, long-term interest rates will be high and rising. In contrary situations, long yields are likely to be low and falling.
2012-07-19 Equity Investment Outlook by Team of Osterweis Capital Management
In the politically correct atmosphere that permeates many of our college campuses, the euro-centric view of world history is regarded as hopelessly anachronistic, small-minded and possibly even racist. In the last year, they have become hopelessly euro-centric, rising or falling in concert with the news coming from the eurozone. A few years ago the markets focused on growth in emerging markets. Today, they focus on problems in the developed world.
2012-07-19 Developed Asia Pacific: Economic Review 2nd Quarter 2012 by Team of Thomas White International
Developed Asia Pacific economies experienced significant headwinds during the second quarter of 2012. While optimism about business conditions in the Euro-zone helped sustain export growth during the first quarter of 2012, significant challenges from the Euro-zone hampered both investor and consumer sentiment in most developed Asian economies during the second quarter.
2012-07-18 Global Overview by Team of Thomas White International
The new agreement reached by European policymakers during the last week of June has helped ease some of the fears over a breakup of the monetary union and more bank failures. It has been agreed that the regions financial crisis fund may be used to provide capital support to the troubled banks and also to try and lower the bond yields of countries such as Spain and Italy.
2012-07-18 Peaks and Valleys by Carl Tannenbaum of Northern Trust
Second quarter economic activity disappointed on many fronts. The drama in Europe has taken its toll on exports, markets, and confidence. The 2012 election is starting to take shape, amid the approach of a huge fiscal "cliff" at the national and local level. The negativity and uncertainty which often surround Presidential campaigns may hinder economic and market performance. This months special focus is on the Fed's recent Survey of Consumer Finances, and what it means for our economy.
2012-07-17 How to Forecast Future Stock Returns: Part 3 by Chuck Carnevale of F.A.S.T. Graphs
A lot of what Part 1 & Part 2 attempted to convey is the logical and common sense nature of valuation in regards to sensible stock investing. Once you have determined that fair valuation, plus or minus, exists, then the prudent investor should look to future earnings growth as the likely source of future long-term returns. By applying the same principles that we presented and discussed in Parts 1 & 2, we can calculate within a reasonable range of predictability what our future returns might be.
2012-07-17 Obstacles to a Lasting Recovery: The Liquidity, Hesitancy & Solvency Traps by Thomas Fahey of Loomis Sayles
Those familiar symptoms are back again to start the summer: risk aversion; falling equity prices; rising volatility; record-low German and US government bond yields; wider credit spreads; a European country getting picked on; and a stronger US dollar. We have seen this bad movie twice before. If this is indeed another rerun, we should expect central bank and other policy responses to help limit the fallout. As we see it, hesitancy and solvency traps are the main obstacles to recovery.
2012-07-17 Game of Thrones by Cliff Draughn of Excelsia Investment Advisors
An economy consists of a gazillion simple transactions, all working together; and our economy used to be grounded is such factors such as supply and demand, growth, and imports and exports. But today the economy is driven by the political rhetoric of our elected officials as it relates to regulations, taxes, and anticipation of QE3. We are in global slowdown mode, and to understand how we should invest we need to better understand what deleveraging will mean over the coming couple years.
2012-07-17 The Mystery of Chinese Capital Flight by Bill OGrady of Confluence Investment Management
Capital flight is defined as the rapid withdrawal of assets out of a country for political, economic or geopolitical reasons. Since late last year, there have been steady reports indicating that capital flight has been occurring in China. China restricts its capital account; inflows of foreign capital are carefully regulated and private outflows face significant restrictions. Chinese citizens can legally transfer only $50k per year out of the country.
2012-07-16 High Yield and Bank Loan Outlook - July 2012 Sector Report by Team of Guggenheim Partners
After a strong first quarter for high yield bonds and bank loans, the mixed performance of the second quarter has conjured up memories of 2011s volatility. While the lack of clarity in Europe and the looming U.S. fiscal cliff will continue to weigh on the economy, the current macro-induced price dislocations present attractive long-term opportunities for investors with patient capital.
2012-07-12 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
Following back-to-back double-digit quarterly gains, US stocks took a breather in the second quarter, with the S&P 500 Index declining 2.8%. It could have been worse. At the quarters low point in early June, the Index had declined 10.0% from the first-quarter close. June was a strong month for stock performance, leading to a welcome recovery from the early quarter decline. However, positive returns from the first quarter prevented the Index from becoming negative on a year-to-date basis.
2012-07-12 Bond Market Review & Outlook by James Balfour of Loomis Sayles
The liquidity-driven rush into riskier assets that dominated the first quarter faded during the second quarter. The European sovereign debt and banking crisis was once again the primary catalyst, but softer economic data in the US and China also fed negative investor sentiment. Global liquidity suffered following the end of the European Central Banks (ECBs) long-term refinancing operation (LTRO).
2012-07-12 The Intersection of Monetary Policy and Volatility Markets by Josh Thimons of PIMCO
When the Fed exhausted the power of its traditional monetary policy tools, it turned to increasingly creative and innovative policy measures. During periods of Fed balance sheet expansion, both interest rate and equity implied volatility experienced significant declines. The opportunities presented by the intersection of monetary policy and volatility markets are often compelling, because most options market participants are not looking at the world through a policy lens.
2012-07-11 The Ascent of South Korea by Michael Oh of Matthews Asia
One country in Asia that seems to attract less attention than it might deserve, considering its modern-day achievements, is South Korea. While index provider MSCI this year (once again) left South Korea classified as an emerging market, both FTSE and Standard & Poors have placed Korea in the developed market camp for several years now.
2012-07-11 China Fueling Auto Sales by Mark Mobius of Franklin Templeton
The picture postcard image many western travelers may have of Chinas city streets is one besieged with bicycles and empty of cars, but China is no longer pedaling its way into the futureits firmly in the drivers seat as autos rapidly replace human-powered transit. Motor vehicle sales have been booming in China, a reflection of the growing middle class. In 2009, car sales in China exceeded those in the United States, and in 2011, China led world auto production at 18.4 million units.
2012-07-10 Recession is Not Imminent by Dwaine van Vuuren (Article)
Perma-bears are bombarding us with alarm bells, sounding the doom of the US economy. We find ourselves in yet another 'summer slowdown scare,' for the third year running. In 2010 and 2011, the purported slowdowns turned out to be soft landings. Investors who ran to the sidelines stared in disbelief as the stock market roared ahead, leaving them behind. We are likely in the same position now.
2012-07-10 No Jobs Rebound in June by Ryan Davis of Fortigent
Equity markets started the third quarter in negative fashion, with a poor government jobs report sparking the decline. Following an astoundingly poor May jobs report, market participants were hopeful that June would bring about at least a normalization of labor data. Thursdays ADP employment report increased optimism that May was an anomalous reading.
2012-07-09 What if the Fed Throws a QE3 and Nobody Comes? by John P. Hussman of Hussman Funds
When we look around the globe, we find that the impact of quantitative easing is rarely much greater than the market decline that preceded it. Investors seem to be putting an enormous amount of faith in a policy that does little but help stocks recover the losses of the prior 6 month period, with scant evidence of any durable effects on the real economy.
2012-07-09 Economic Insights: U.S. Exports: A Lower Gear, but Still Cruising by Milton Ezrati of Lord Abbett
The growth of exports at times has added as much as two percentage points to the overall pace of the economys expansion and is a major reason why American manufacturing has staged a comeback in recent years - a renaissance some have called it. But of late, with the dollar rising against both the euro and the yen, and with growth overseas slowing or, in Europes case, falling, questions have arisen about the sustainability of U.S. export strength.
2012-07-09 Equity Investing in a Lower-Return, Volatile World by Charles Lahr, Brad Kinkelaar, Maria (Masha) Gordon of PIMCO
Company balance sheets in developed markets are generally in good health and many are well positioned to generate growth even in difficult times.
We expect growth to moderate in emerging markets, although still outpace the trajectory in the developed world. Certain companies may temporarily face lower capacity utilization.
A focus on quality is invaluable. We define quality by clean balance sheets, high operating margins and access to high-growth markets with barriers to entry.
2012-07-09 Mixed Picture for the Consumer, ISM Numbers Weak Data on Factory and Service Sectors by John Buckingham of AFAM
While the major market averages ended in the red, though only modestly so, there was plenty of volatility in a holiday-shortened trading week that was replete with the release of quite a few economic statistics.
2012-07-09 The Supreme Court Rules on Health Care Reform: What It Means For Investors by Andy Friedman of Washington Update
The Supreme Court has now upheld the individual mandate, the controversial part of the health care reform law (The Patient Protection and Affordable Care Act) that requires individuals to carry health insurance. At the same time, the Court struck down the requirement that states expand their Medicaid coverage to include more low-income families. These rulings will have significant implications on the countrys fiscal situation.
2012-07-06 Are You Limited by Linear Thinking? by Frank Holmes of U.S. Global Investors
Dont be limited by linear thinking in your portfolio. As an alternative to low yielding Treasury bonds, consider resources stocks that pay dividends. Weve found that most materials, utilities and energy stocks in the S&P 500 Index pay a dividend higher than the 10-year Treasury: Materials and utilities companies yield an average of 2.3 percent and 4.1 percent, respectively, while energy stocks pay an average yield of 2.2 percent. Nonlinear thinkers have historically benefited from the inclusion of natural resources as part of a balanced portfolio.
2012-07-05 Reconnaissance: Strategy Notes by Douglas Clark Johnson of Codexa Capital
Investors focused on emerging markets may be well positioned to benefit from a "barbell" strategy, favoring sukuk and Southeast Asian equities. While in Afghanistan, were more inclined to tilt toward optimism than despair in the wake of military right-sizing. Both India and some Middle East countries are set to be active there. We offer other comments on high dividend yields in GCC stock markets and emerging trends in Ghanas timber industry.
2012-07-02 This film is rated "R" by Scotty George of du Pasquier Asset Management
This is not your fathers stock market. Nor really is it yours, the one you envisioned two decades ago. Instead we may have leveraged, in a literal sense, all the financial details to our heirs. The bad news is that we have become marginalized. Our goals and expectations have been sequestered, postponed, for another time.
2012-07-02 Economic Insights: U.S. Exports - A Lower Gear, but Still Cruising by Milton Ezrati of Lord Abbett
Amid a rising dollar and sluggish global economies, exports should continue to bolster U.S. growth, although the pace will slow. Exports have remained one of the few consistent bright spots in this otherwise subpar economic recovery. The growth of exports at times has added as much as two percentage points to the overall pace of the economys expansion and is a major reason why American manufacturing has staged a comeback in recent yearsa renaissance some have called it.
2012-07-02 The Virtue of Necessity by Jeffrey Saut of Raymond James Equity Research
The call for this week: In my opinion, last week the Commodity Index bottomed and the Dollar Index topped. If so, recession fears should abate in the months ahead. Moreover, if a recession was really on the horizon "junk" bond yields would be rising on worries of increased defaults and that is not happening with the iShare High Yield Fund (HYG/$91.29) attempting to make a new reaction high (i.e., lower yields).
2012-06-29 A Strategy to Navigate the Housing Cycle by John Burns of John Burns Real Estate
The memories of 2007 through 2011 are clouding too many people's vision. There are plenty of legacy problems from the housing boom that have yet to clear, and plenty of risk to the downside, but the demand, supply and affordability measures are in place to help us put the housing downturn behind us and move forward. We are leaving stage one of the recovery and moving into stage two. Don't miss the ride.
2012-06-29 Step Two - Going Backward - Election More Important Than Ever by Brian S. Wesbury and Robert Stein of First Trust Advisors
In one of the least likely outcomes in Supreme Court history, Chief Justice Roberts, who was widely considered a conservative voice on the Court, proved to be the swing vote in one of the largest expansions of US government involvement in the economy ever.
2012-06-29 Unmasking the Asian Giant by Frank Holmes of U.S. Global Investors
China is far from perfect: While actors can perfect their lines and use masks to captivate an audience, smart investors know better to use a wealth of information across numerous sources to guide investment decisions. Weigh the evidence and judge for yourself. As my friend, Investment Strategist Keith Fitz-Gerald recently said in an interview, A powerful China is coming, and we have two choices. Either we're at the table, or we're on the menu. To him this means, Good news from China is good news for the U.S.; bad news from the Chinese economy is bad news here.
2012-06-26 Running on Empty by Marie Schofield of Columbia Management
In a move that was more anti-climax than comforting, the Federal Reserve (Fed) satisfied the minimum expectation of the markets and extended Operation Twist, or the MEP (Maturity Extension Program), through the end of the year thankfully taking us beyond the election period.
2012-06-25 And That's the Week That Was by Ron Brounes of Brounes & Associates
Ahthe doldrums of summer. Sure Greece just completed crucial elections that could have dramatic impact on the euro-zone and the global economy; AND Spain just saw its interest rates rise above the key seven percent level into traditional bailout territory; AND JP Morgan, of failed hedging fame, just received a major ratings downgrade by Moodys Investors Services; AND Facebook disappointed the investment world with its disastrous IPO, a comedy of errors for most everyone involved
2012-06-25 Enter, the Blindside Recession by John P. Hussman of Hussman Funds
The joint evidence suggests that the U.S. economy has entered a recession that will eventually be marked as having started presently. In recent months, our measures of leading economic pressures have indicated the likelihood of an oncoming U.S. recession.
2012-06-25 Perspective; or where you stand is a function of where you sit! by Jeffrey Saut of Raymond James Equity Research
Perspective is the capacity to view things in their true relations or relative importance. And last Thursday the stock markets perspective changed abruptly. The day started out well enough with an opening 20-point pop to the upside, but from there the Dow Dive commenced. The causa proxima for the dive was more softening economic reports from China and Germany followed by a lame Philly Fed report, which saw that index accelerate its swoon from Mays -5.8 reading to -16.6.
2012-06-25 12 Reasons US Recession Has Arrived (Or Will Shortly) by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I am amused by the Shadow Weekly Leading Index Project, which claims the probability of recession is 31%. I think it is much higher. When the NBER, the official arbiter of recessions, finally backdates the recession, May or June of 2012
2012-06-25 Market Breadth Pretty Good, Save for Thursday by John Buckingham of AFAM
It would have been a nice week if it wasnt for the big plunge on Thursday as that days 250-point drop in the Dow Jones Industrial Average interrupted a solid stretch in which market breadth had been quite favorable. In fact, the other four days last week saw more advancing stocks than declining stocks, looking at the New York Composite Daily Breadth statistics from this weekends Barrons Magazine.
2012-06-25 Jilted Investors Unsure Where to Turn by Chris Maxey and Ryan Davis of Fortigent
Institutional and individual investors are at an uncertain juncture, waiting to see what the next shoe to drop is. With an important series of events occurring soon, such as the US Presidential election this fall and the fiscal cliff facing the US at years end, investors may need to wait to get more clarity on the market outlook.
2012-06-22 Dont Expect A Double Dip This Year by Russ Koesterich of iShares Blog
Renewed fears of a US double dip are making the rounds. While Russ gives four reasons why the United States is not likely to tip back into recession this year, he has a word of caution about a risk looming over 2013.
2012-06-21 Will Quantitative Easing Lead to Higher Inflation? by Keith Wade, James Bilson of Schroder Investment Management
In certain circles, talk of Quantitative Easing (QE) immediately triggers thoughts of Weimar Germany and Zimbabwe. The only beneficiaries of turning to the printing presses, it is suggested, will be wheelbarrow salesmen. Whilst extreme inflation seems an exceptionally low risk event, there are legitimate concerns over the impact of the huge expansion of the monetary base on future inflation. In this Talking Point, we examine the key signals to watch out for in assessing future inflation risks.
2012-06-19 South Africa: Opportunities in the Rest of Africa Beckon by Team of Thomas White International
The signs are evident all across Africa, from Kenya in the east to Ghana in the west. South African businesses are increasingly looking at opportunities in their own backyard on the African continent with newfound enthusiasm. Though South Africa still lags the U.S. and China in total investments in the rest of Africa, in recent years, the growth in investments by the countrys companies has been the highest.
2012-06-19 Is China Running Out of Steam? by Matthew Rubin, Ing-Chea Ang, Justin Gaines of Neuberger Berman
The Chinese growth story is especially impressive. At a time when many economies have struggled, China has continued to expand rapidly, helped by its dominant position in manufacturing, growing middle class and, after the 2008 credit crisis, its successful injections of capital and stimulus to ward off recession. Nevertheless, recent data have suggested that the Chinese expansion is now slowing more quickly than most investors expected.
2012-06-19 Cohen & Steers European Real Estate Securities Strategy by Team of Cohen & Steers
We would like to share with you our review and outlook for the European real estate securities market as of May 31, 2012. For the month, the FTSE EPRA/NAREIT Developed Europe Real Estate Index had a total return of 7.5% (in U.S. dollars, net of dividend withholding taxes). By comparison, U.S. REITs had a total return of 4.5%, as measured by the FTSE NAREIT Equity REIT Index. Year to date, the indexes had total returns of +3.0% and +8.8%, respectively.
2012-06-18 A Brief Primer on the European Crisis by John P. Hussman of Hussman Funds
Europe has repeatedly been successful at addressing its recurring liquidity crises with the help of other central banks, but its still an open question whether they can durably solve the solvency crisis without more disruption and more restructuring of both government debt and troubled banks. In my view, the hope for an easy solution is misplaced, and the likelihood of recurring disruptions from Europe will remain high.
2012-06-18 Health Care - Will the Supremes Keep Us Hangin On? by Milton Ezrati of Lord Abbett
As of this writing, the Supreme Court has yet to announce its decision on Obamacare. It has not even announced when it will reveal its decision. Still, if much about the Courts conclusion remains a mystery, two things about it are fairly clear: 1) the Court will almost surely hand down something complex, and 2) whatever it decides, uncertainty will continue to plague business and investment decision making.
2012-06-18 What Happens In Greece Must Stay In Greece by Charles Lieberman of Advisors Capital Management
Greeks has seemingly elected a leadership to work with Europeans to help them balance their budget. Nonetheless, Greece is too dysfunctional a country for another round of credit to accomplish much. It must become a law abiding nation by paying taxes, it must severely reduce government spending by decreasing social programs, including employing far fewer Greeks, and it must restructure its restrictive labor and business laws to enable firms to grow.
2012-06-18 Cohen & Steers Large Cap Value Strategy by Team of Cohen & Steers
We would like to share with you our review and outlook for the U.S. large cap value market as of May 31, 2012. For the month, the Russell 1000 Value Index had a total return of 5.9%, compared with a total return of 6.0% for the S&P 500 Index. For the year to date, the Russell 1000 Value Index had a total return of +3.5%, compared with +5.2% for theS&P 500 Index.
2012-06-18 Secrets to Brand Building in China by Sherwood Zhang of Matthews Asia
The topic of Chinas consumer market tends to conjure up the catchphrase 1 billion customers and companies from around the world have flocked to cater to this market. As consumers in many developed countries have increasingly become overleveraged from years of easy credit, Chinas consumers have remained mostly underleveraged. Even as Chinas consumption growth has slowed recently, it is still expected to remain on a positive trajectory.
2012-06-15 Falling Equity Prices Reflect the European Crisis and Slower Economic Growth by Team of Thomas White International
Heightened concerns over the European fiscal crisis and slower economic growth dragged down emerging market equity prices during May. The emergence of political parties opposed to short-term austerity measures in recent elections in countries such as France and Greece has upset the political consensus that paved the way for an agreement on tackling the crisis last year. Borrowing costs of some of the troubled countries such as Spain have increased substantially, while countries that are in better fiscal health such as Germany remain hesitant about the issuance of common euro bonds.
2012-06-15 Equity Prices Reflect Concerns over Global Growth Slowdown by Team of Thomas White International
International equity prices corrected in May on heightened worries over a further global growth slowdown as the European fiscal crisis worsened. Political consensus on ways to address Europes fiscal problems dissipated after political parties opposed to austerity measures gained popularity in countries such as France and Greece earlier this year. However, Germany and select other countries continued to insist that structural reforms agreed as part of last years pact should be adhered to.
2012-06-15 Global Outlook Dampened Further by the European Crisis by Team of Thomas White International
Apprehensions over a worsening European fiscal crisis and concerns about slower growth in the emerging economies continued to dampen investor sentiment in May. Europes political leadership is yet to find a common ground that would accommodate the opposition to short-term austerity measures expressed in recent elections in countries such as France and Greece. There is growing expectation of a possible Greek exit from the monetary union while borrowing costs of troubled countries such as Spain have increased further, following credit rating downgrades.
2012-06-15 Every Economists Career Ends in Failure - The Irony of Hyman Minsky by John Gilbert of GR-NEAM
The economist Hyman Minsky held that capitalist economies are inherently unstable because investments are financed with debt, and the financial markets pricing of debt is volatile. Economies are prone to booms and busts as the cost of financing falls too far, or rises too much, revealing poor investment decisions. This has always been obvious to observers of business cycles, of which Minsky was one. Too many of his colleagues in economics ignore this, which we have found puzzling.
2012-06-15 Schwab Market Perspective: Time for Action by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
With escalated uncertainty, sitting back can be an easy choice, but we believe investors and policymakers alike need to take action. Equities bounced off of what appeared to be oversold conditions but although the US economy appears to be holding its own, a renewed sustainable uptrend may be hard to come by until some substantive policy actions are taken around the globe. The time for decisive action in the eurozone appears to be quickly approaching as short-term solutions are no longer satiating the market.
2012-06-15 Obstacles to a Lasting Recovery: The Liquidity, Hesitancy & Solvency Traps by Thomas Fahey of Loomis Sayles
Those familiar symptoms are back again to start the summer: risk aversion; falling equity prices; rising volatility; record-low German and US government bond yields; wider credit spreads; a European country getting picked on; and a stronger US dollar. We have seen this bad movie twice before, during the summers of 2010 and 2011. If this is indeed another rerun, we should expect central bank and other official policy responses to help limit the fallout. As we see it, hesitancy and solvency trapsnot a liquidity trapare the main obstacles to a lasting economic recovery.
2012-06-15 Cohen & Steers Global Real Estate Securities Strategy by Team of Cohen & Steers
We would like to share with you our review and outlook for the
global real estate securities market as of May 31, 2012. The
FTSE EPRA/NAREIT Developed Real Estate Index had a total
return of 6.4% for the month (net of dividend withholding
taxes) in U.S. dollars. Year to date, the index returned +7.9%.
2012-06-15 Cohen & Steers International Real Estate Securities Strategy by Team of Cohen & Steers
We would like to share with you our review and outlook for theinternational real estate securities market as of May 31, 2012. The FTSE EPRA/NAREIT Developed ex-U.S. Real Estate Index had a total return of 8.0% for the month (net of dividendwithholding taxes) in U.S. dollars. By comparison, U.S. REITs returned 4.5% for the month, as measured by the FTSE NAREIT Equity REIT Index. Year to date, the indexes returned +7.3% and +8.8%, respectively.
2012-06-14 Patient But Vigilant Fed by Asha Bangalore of Northern Trust
Chairman Bernanke failed to offer broad hints about an imminent round of financial accommodation or an extension of Operation Twist (Maturity Extension Program) in his testimony on June 7. There were three key takeaways pertaining to the near term economic outlook from Bernanke's testimony and response to questions.
2012-06-14 Chart of the Week: Growth Dichotomys Diminished Influence by Team of American Century Investments
Despite weaker-than-expected U.S. employment data for May (released June 1) and other signs of slow economic growth, the Fixed Income Macro Strategy Team at American Century Investments does not believe the U.S. economy is headed toward another recession (though the marginal possibility of recession has increased). Rather, the team believes the economy remains on a sub-par recovery/slow (1-3%) growth path, with headwinds.
2012-06-13 The Tip of the Iceberg For Dividend Stocks by Team of Columbia Management
Post-crisis equity investors seek to lower portfolio volatility. Dividend stocks have provided higher returns with less risk compared with non-dividend payers. Baby boomers are retiring now with much smaller nest eggs than they had anticipated. They need reliable sources of income and growth. Cash-rich companies are in a position to pay and potentially grow dividends, while dividend payout ratios are historically low. Active managers leverage in-depth research to uncover promising opportunities among companies likely to initiate or raise dividends.
2012-06-12 Kingdoms of the Blind by Michael Lewitt (Article)
Recent events offer a rare illustration of the combined effects of the failure of monetary, fiscal and regulatory policy to coordinate a meaningful response. Rising budget deficits, record low interest rates, J.P. Morgan's proprietary trading blunder and the botched Facebook IPO process speak to abject policy failures in virtually every aspect of finance. It's not even a question of not having learned our lessons; our collective policy intelligence actually appears to have diminished.
2012-06-12 Europe Is Near Term Driver of Market Movements by John Buckingham of AFAM
Though the dates do not coincide, as there is a lag in the Investment Company Institute data, last weeks rally in stocks was accompanied by word that for the first time in seemingly forever, mutual fund investors actually put more money into domestic equity funds than they took out, while the reverse was true for bond funds. Because it is only one week and Memorial Day was part of those ICI numbers, we hesitate to say that the tide is finally turning in terms of investor sentiment.
2012-06-12 Frontier Markets: The New Emerging Markets by Allan Conway, Edward Evans of Schroder Investment Management
In this paper, we summarise the attractive investment case for frontier markets both over the long term but also for an investment today. Frontier markets provide access to some of the most dynamic and fastest-growing economies in the world, supported by strong secular growth drivers. The investment opportunities are similarly benign as market liberalisation is accelerating and valuations look attractive in absolute terms and versus the developed and emerging world.
2012-06-11 Atlas Shrugged?! by Jeffrey Saut of Raymond James Equity Research
The call for this week: Over the weekend the eurozone agreed to lend Spain up to 100 ($126 billion) to shore up its teetering banks. That decision prompted this from my friend David Kotok, captain of Cumberland Advisors: The fact is the absence of banking collapses is good news. That is correct. Good news! We establish that good news by what we DO NOT see on TV. We do not see banks collapsing and failing to pay depositors. This means we may not witness the euro system collapsing and failing. Bank runs and deposit failures are symptoms of liquidity constraints.
2012-06-11 China Toes a Delicate Balance by Chris Maxey and Ryan Davis of Fortigent
Markets posted their best returns of 2012 last week as investors anticipated additional policy action from global central banks. A series of events during the week heightened optimism that central banks would once again step in to support financial markets. In a Wednesday release, the European Central Bank did not cut its policy rate, but ECB President Mario Draghi said the bank was ready to act in response to the deteriorating state of the Eurozone.
2012-06-08 The Global Debt Crisis by Greg Hahn of Winthrop Capital Management
The Financial Crisis of 2008 represented a turning point for the capital markets, financial regulation and global central bank policies. For the twenty years leading up to the Financial Crisis, accommodative monetary policies of the developed countries resulted in prosperity, higher wages, increased asset prices and an overall higher standard of living. However, this false sense of perpetual prosperity resulted in unbalanced social service and pension benefits that are now more difficult to rationalize in the economic environment following the Financial Crisis.
2012-06-08 The Default Delusion - Inevitable....and Desirable by Jonathan Compton of Bedlam Asset Management
The many tortuous what if articles on the eurozones financial problems address the risks of collapse and contagion together with the inchoate political responses. Inevitably they conclude catastrophic consequences. There is no gain in further exaggerating this fairy tale, which is repeated to frighten voters into submission. Every scribbler had got there apart from those for whom it became a quasi-religious cult. The current cacophony of commentary remains backward looking so will again miss the key issue: default is good.
2012-06-07 Remarks to the 12th Annual International Seminar on Policy Challenges for the Financial Sector by Mohamed A. El-Erian of PIMCO
Let me start with what I will refrain from doing specifically, I will not pre-empt the detailed discussions that you may have on such topical issues as regulatory principles, SIFIs, market infrastructure, stress testing and, of course, the rapidly changing nature of sovereign risk in advanced countries. Instead, I will try to touch on three more general topics that, in addition to your critical detailed analysis, I believe are important in assessing the potential impact of regulatory reform in terms of the past, present and future.
2012-06-07 Real Challenges in Brazil by Mark Mobius of Franklin Templeton
Brazil, the B in the emerging markets entities known as the BRIC countries (Brazil, Russia, India, China), has entered what I think can fairly be described as a rough patch of sluggish growth. Since my last update on Brazil, the country has experienced heightened economic challenges that threaten its competitive position to slip. In 2011, Brazils growth eased to 2.7% after having reached 7.5% in 2010.1 The Eurozone crisis and the impact of a stronger Real on the competitiveness of Brazilian industry are partially to blame for this growth slowdown.
2012-06-06 Our House: Is the United States the Best House in a Bad Neighborhood? by Liz Ann Sonders of Charles Schwab
I won't try to put lipstick on the pig that was last Friday's May jobs report, but I will try a little lip gloss. Somewhat lost in the mire of the dire reaction to the report were several other more-positive readings on the economy. That's testament to the likelihood that there are many more drivers to today's malaise than just jobs growth, or lack thereof. It seems clear we're in the midst of the third consecutive mid-year economic slowdown, driven by similar forces, most dominantly the eurozone debt crisis.
2012-06-05 Letters to the Editor by Various (Article)
A number of readers respond to our article, Can Krugman Fix Our Economy?, which appeared last week.
2012-06-05 When OK is Good Enough by Team of BondWave Advisors
The US economy continues to grow, but in recent months manufacturing and employment indicators have remained positive but have been flagging. While there might not be a lot to get excited about economically here in the US, OK is better than elsewhere, like Europe. We discuss the situation in the US and Europe and provide a commentary of the US Treasury, Corporate and Municipal bond markets.
2012-06-04 It's All Relative by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Equities have pulled back and are flirting with correction (-10%) territory. We believed this was a needed process, and remain modestly optimistic that economic data will rebound and the market will eventually resume its move higher over the next several months. The Federal Reserve has made clear that it stands ready to act should the US economy deteriorate, or the European debt crisis escalate, but we remain skeptical. The more important issue in our view is how the coming "fiscal cliff" is addressed.
2012-06-04 Run of the Mill by John P. Hussman of Hussman Funds
The awful behavior of the market in recent weeks is very run-of-the-mill in terms of how similarly unfavorable conditions have usually been resolved historically, and there is no evidence that this awful prospective course has changed much. Investors should expect no easy solutions to the fiscal and global challenges ahead. They should instead expect market valuations that adequately reflect the fact that there are no easy solutions. In my view, those valuations remain miles below present market levels.
2012-06-04 More Muddling Along by Charles Lieberman of Advisors Capital Management
It appears that economic growth has slowed a bit once again, although a relapse into recession seems fairly unlikely. Consumer spending, business investment and a recovery in housing should support growth at a moderate pace. Europe remains a dark cloud hanging over better prospects. Budget deficits at the sovereign level and bank capital needs at the corporate level must be resolved before markets can breathe easily. So volatility in our markets is likely to continue. Since we can exert very little control over Europe, policymakers here must remain focused on maintaining growth domestically.
2012-06-04 And That's the Week That Was by Ron Brounes of Brounes & Associates
Nothing good to report here so why even try to spin it. (Effective politicians may beg to differ.) The once promising labor picture just turned from bad to worse; manufacturing is no longer the one staple in the economy; Spain may be replacing Greece as the poster child for what ails the EU (and thats not because things are looking up in Greece). Stocks suffered their worst day of the year to end the week and the gains of the first quarter have been long forgotten. (Even the Astros stink again.)
2012-06-04 Job Drought, Greece Wipe Out 2012 Gains by Kristina Hooper of Allianz Global Investors
The U.S. employment report dominated headlines and put investors on watch for further threats to the recovery. In Europe, Ireland's adoption of the fiscal pact was not enough to counter worries about the escalating banking problems in Spain. But as long as the U.S. savings rate, which currently stands at 3.4%, continues to decline, the downside risk to U.S. economic growth is limited. In addition, the substantial drop in the price of oil should also help boost the economy. We maintain the view that the United States will achieve 2% economic growth this year.
2012-06-04 Negatives Intensify, but Panic Isn't Warranted by Bob Doll of BlackRock Investment Management
For some time, we have been suggesting that the US economy had been holding up relatively well compared to the rest of the world. While we are not changing that view, last weeks data (particularly Mays employment report) provided a negative jolt and pushed stock prices down sharply. Our summary view of the US economy is that while the United States appears to have entered another slowdown phase with the data growing more disappointing in recent weeks, the case for a renewed recession still looks flimsy.
2012-06-02 Will the ECB and Fed Follow Where China Leads? by Frank Holmes of U.S. Global Investors
Every month, policymakers track purchasing managers indices (PMI) around the world as they consider fiscal and monetary actions. To us, a PMI is a measure of health of companies around the world, because it includes output, new orders, employment and prices across manufacturing, construction, retail and service sectors. Historically, weve seen Chinas PMI number leading the year-over-year change in exports by three to four months, so when the PMI has increased, a few months later, Chinese exports have historically risen, and vice versa.
2012-06-01 Our Take on Todays Payroll Numbers by Doug MacKay of Broadleaf Partners
This mornings payroll numbers were disappointing, a fact that is being reflected in the performance of todays stock market, now down nearly 2%. Total non-farm payrolls were expected to show a gain of 150K, but increased only 69K, while the total unemployment rate edged up to 8.2% from 8.1% previously. While still in positive territory, the numbers just werent encouraging in the face of so much global uncertainty coming out of Europe and China. A client sent us a short email exclaiming Yikes and then asked us if the world was coming to an end. This was our unedited response.
2012-05-31 The Global Industrial Sector: Have Profit Margins Peaked? by John Longhurst of PIMCO
Factors driving profit margin expansion in the industrial sector include globalization, EM capital expenditures, a focus on profitability and global labour arbitrage.
Potential headwinds include a slowdown in global growth drivers, rising labour rates and global deleveraging.
We believe profit margins are most at risk in product areas where EM companies are benefiting from state capitalism and seek to take local advantages global.
2012-05-31 Wall Street Food Chain by Bill Gross of PIMCO
Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of such previously sacrosanct debt represent a potential breaking point in our now 40-year-old global monetary system. Bond investors should favor quality and clean dirty shirt sovereigns (U.S., Mexico and Brazil), for example, as well as emphasize intermediate maturities that gradually shorten over the next few years.
2012-05-30 Delayed Entitlement: The Changing Economics of Retirement by Tom Streiff of PIMCO
Its a foregone conclusion that Baby Boomers retirements will be very different from the retirements of their parents. To understand how, we need to explore the impact of the most recent financial events on Baby Boomers. The conventional wisdom is that as the leading edge of Boomers converged on age 65, their associated retirements are well underway and the economic and societal effects of this demographic-driven, transfer-payment-promised contingent are just beginning. In the next three to five years we should face a rapid and unprecedented expansion of entitlement expenditures.
2012-05-30 U.S. Dollar and Euro - Review and Outlook by Axel Merk of Merk Funds
The 12-month period ended March 31, 2012 (the Period) could be described as one of contrasting halves. News emanating from Europe dominated market gyrations for the majority of the Period. During the second half of the Period, the market appeared to ascribe a more optimistic assessment to the European situation and the global economy. Regarding the U.S. dollar, we consider the more dovish FOMC voting member composition to be a negative for the currency, as it will likely lead to more expansionary policies relative to global central bank counterparts
2012-05-29 Unraveling the Mess in Europe by Charles Lieberman of Advisors Capital Management
There is considerable nonsense written about the European debt crisis. Greece must balance its books, whether they remain inside the Euro or not. There are major benefits and costs to both remaining inside the Euro and to exiting. There is no silver bullet that will solve their problems easily. More broadly, banks need to be recapitalized all across Europe. This has not been done as yet, perhaps for political reasons, which only compounds the economic problems and allows them to fester. It seems like the Europeans are working towards solutions, but painfully slowly.
2012-05-29 The Spending versus the Austerity Debate by Jim Tillar of Tillar-Wenstrup Advisors
There is a very important debate taking place on the best way to fix our economy between those who favor more spending versus those who favor austerity. Recently the spending camp has been very vocal in promoting their theory, including recent papers by Larry Summers, Brad DeLong and Paul McCulley, Zoltan Pozsar and a new book by Paul Krugman.
What is not in dispute in the debate is that the private sector is deleveraging as an aftermath of the financial crisis, negatively impacting growth. What is in dispute is the appropriate response.
2012-05-29 Amid Uncertainty, What is an Investor to Do? by Chris Maxey and Ryan Davis of Fortigent
Markets rebounded last week after a two-week slide. The S&P 500 and Dow Jones Industrial Average rose 1.7% and 0.7%, respectively, in a choppy trading period. Discussion of a potential Greek exit from the Eurozone rattled investors, while economic data in the US was modestly positive.
2012-05-29 Canada: Untangling Pipeline Projects to Realize Energy Export Potential by Team of Thomas White International
Oil production in Canada is set to increase to 6 million barrels a day by the end of this decade, but the country lacks pipeline infrastructure to facilitate exports. For a country richly endowed in natural resources, and with growing energy production, Canada has been facing a perplexing problem in recent years. While its producers are supplying oil and gas to U.S. refineries at prices below the international market, Canadian refineries on the east coast are paying higher international prices for the oil they import.
2012-05-24 Why Invest in Asian Credit? by Showbhik Kalra of PIMCO
Asian sovereign and corporate credit offer more attractive yields than a number of other global fixed income sectors as investors take on additional risk. Given Asian markets diversity and the global macroeconomic environment, investors may wish to consider investment managers with a strong global macro process coupled with strong relationships with local stakeholders and experience in local portfolio management and markets.
2012-05-24 Pocket of Strength: Turkey Retail Stocks Rally by Frank Holmes of U.S. Global Investors
To add alpha, we believe investors need to continually seek pockets of strength amidst todays mire of pessimism. One bright spot weve seen lies just east of Greece: Turkey. Many investors believe banks are the only investment play in Turkey. The sole question for those investors is to hold or not to hold banks. Heres what we think is a better strategy: Invest in undervalued, diverse, smaller companies that will benefit from a resilient consumer, low unemployment rate and sound government policies.
2012-05-24 Through the Economic Lens: 2012 Looks More Like 2010 by Robert Stein of Astor Asset Management
The recent selloff in the market, with nervous investors made all the more so because of the medias obsession with financial issues in Europe, is renewing talk about bear markets and recessions as people head for cover. In the midst of their misguided fears of a contagion effect, there is also concern about the fiscal cliff, spending cuts and higher tax rates that, at this point, will take effect on January 1. (Funny how that sounds like it would be a good idea for our debt problem.)
2012-05-24 Jumping Into The Abyss: A Bull Case for Gold Mining Stocks by JJ Abodeely of Sitka Pacific Capital Management
Gold mining stocks, as measured by the AMEX Gold Bugs Index (HUI), are down nearly 40% from their August 2011 high. Representative ETFs such as GDX and GDXJ as down similar amounts, if not more. Mining company stock prices look to be falling into the abyss.
While buying mining stocks here could certainly look foolish in the near-term, NOT accumulating positions, or selling them for that matter, is likely to be the bigger mistake over the long term.
2012-05-23 Is Quantitative Easing the Silver Bullet to Economic Recovery? by Joseph Giulitto of Trust Company of America
I saw this quote recently while researching another topic. I found it to be appropriate to capture the challenge that professional money managers have in finding investments appropriate for the current domestic economic and geopolitical environment. The rules (that apply to what makes an investment good or bad) that have been established over the previous 40 years of investing are no longer relevant, and those investments that typically would struggle during a massive global recession have been successful in achieving a rising valuation.
2012-05-23 Global Investment Outlook by Mike Turner of Aberdeen Asset Management
Investors continue to focus on the global macroeconomic backdrop, which is still relatively positive despite slightly disappointing data recently. There are signs that some of the imbalances within the Eurozone are starting to ease as competitiveness is improving in some of the peripheral countries and this is beginning to be reflected in trade figures. Looking further ahead, we feel that global consumption should be supported by falling headline inflation.
2012-05-22 The Case for Community Banks by Ryan Issakainen of First Trust Advisors
The most difficult decisions for investors often involve overriding the emotional residue of past mistakes, and reconsidering the merits of a stock or industry with which one has had negative experiences. This was the case for many investors following the bursting of the technology bubble in the early part of the last decade, as they avoided or severely underweighted tech stocks, and ultimately missed out on the tremendous growth experienced by the sector over the last decade.
2012-05-22 Investing Through a Bumpy Ride by David Kelly of J.P. Morgan Funds
Its been a tough quarter so far. The U.S. economy is still growing, but not at a sufficient pace to excite anyone. Meanwhile, investors have had plenty to worry about including a fiscal cliff in the United States, a slowdown in China and, right now most ominously, further turmoil in Europe. Despite plenty to worry about, the realities of a U.S. economic recovery, very conservative allocations and relatively attractive valuations suggest that investors should still consider adding stocks and other risky assets to their portfolios.
2012-05-22 Return to Normalcy: The False Argument of "Austerity" vs. Growth by Team of Institutional Risk Analyst
To rescue Europe, to reinvigorate the United States, and to set the global economy on a sustainable path toward expansion, the current debate offers a so-called "choice": either slash government spending or spend your way to growth. In Europe, German Chancellor Angela Merkel is one of the most prominent proponents of fiscal restraint -- in part because Germany is picking up the tab for the continent's debt crisis. And in the United States, economist and New York Times columnist Paul Krugman is the fullest-throated supporter of more government spending.
2012-05-22 Weekly Commentary and Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Last week saw the worst week for stocks of the year, caused by the continued fears over the impending break-up of the European Monetary Union as well as the colossal flop of the IPO of Facebook, and the burgeoning horror at the trading losses at JP Morgan. Sad to say that the fears of the past several months, as expressed in these weekly commentaries, seem to be materializing. The circus act known as Europe is back in recession, as political leadership is simply not possible given the pressures of seventeen sovereign nations.
2012-05-22 The Harsh Realities of Bond Math by Mark Oelschlager of Oak Associates
Shortly after I graduated from college my father sat me down and tried to teach me about bonds. He proceeded to explain that prices and yields. He tried to explain the difference between a bonds yield and its coupon as well as the effect that time to maturity has on the sensitivity of a bonds price to changes in interest rates. It all sounded so complex, and there were intertwining effects. This, combined with its counter-intuitive nature, made the concept of bond pricing difficult to grasp in a short lesson.
2012-05-21 Liquidation Syndrome by John P. Hussman of Hussman Funds
Presently, the market remains richly valued on normalized earnings, and is coming off of a speculative peak with an abrupt and persistent initial decline. All of this reflects what might be called a "liquidation syndrome" that is selective for awful drops that began in 1969, 1972, 1987, 2000, 2007, and the more moderate but still steep losses in 1998, 2010, and 2011.
2012-05-21 Global Shipping: Any Port in a Storm? by Sai Devabhaktuni and Gregory Kennedy of PIMCO
With the exception of LNG tankers, all three major shipping categories have been suffering from a supply glut. This, combined with higher fuel costs, has led many shipping companies into financial distress. Although banks have worked with ship owners through this down cycle, they have also pulled back from financing the industry. We believe downside risks are likely minimized in the shipping industry for new lenders and investors. Vessel values are depressed by rates that are sometimes below owners' operating costs and by an oversupplied market that suppresses secondary market values.
2012-05-21 Facebook IPO Not a Flop; Underwriters Priced it Right by John Buckingham of AFAM
he social media giant ended its first day of trading up a measly 23 cents, or 0.6% from its $38 offering price, and technical difficulties at Nasdaq delayed the opening of trading and impacted market activity throughout the day, I give kudos to the underwriters for actually pricing the deal as best they could to match the relatively limited supply to the unprecedented demand. Certainly, Facebook could eventually grow into its lofty valuation, but it is eye-opening to think the disappointing first day of trading still left the company with a $100 billion+ market capitalization.
2012-05-21 Gilead Sciences Inc Strong Growth At An Unreasonably Low Price by Team of F.A.S.T. Graphs
Gilead Sciences Inc (GILD) is an innovative healthcare company with a strong record of historical earnings growth and expectations for above-average growth into the future. Nevertheless, Mr. Market seems unwilling to recognize the past and future earnings power of this niche pharmaceutical growth stock. Consequently, the company trades at a single digit PE ratio that we believe significantly undervalues both the companys past and future potential. Therefore, investors seeking high growth at a reasonable level of risk might want to look further into this undervalued growth opportunity.
2012-05-18 Sublime to Ridiculous by John Gilbert of GR-NEAM
There was a time when governments were held to account for the long-term consequences of their financial habits. Those days appear to be long gone, of course, to policymakers frenzied at the political urgency of producing rising employment. But there must be a price to pay for thumbing our noses at lessons previously learned. We look here at just how far government husbandry of the financial system has strayed over time, and how important the consequences are likely to be in years to come.
2012-05-18 U.S. Large Cap Value Investment Commentary As of April 30, 2012 by Team of Cohen & Steers
The economic expansion is likely to continue, but at a pace that is modest both in absolute terms and relative to previous recoveries. Many stocks are still attractively valued, in our view, and they have the potential to advance in the coming months. At the same time we are watchful of global economic developments, particularly in Europe and the Middle East. A winding down of monetary stimulus (such as the Federal Reserves Operation Twist program) could create headwinds.
2012-05-17 You should worry about EM inflation. Not US inflation. by Richard Bernstein of Richard Bernstein Advisors
Investors seem overly concerned about US inflation. Both market-derived expectations and actual rates of US inflation remain very subdued, yet we are consistently asked about inflation and whether our investment strategies are adequately structured for high US inflation. Across the board, these data do not support structuring investment strategies for the US inflation that investors, oddly enough, feel is inevitable. The data do, however, suggest that investors recent rush into emerging market debt is much riskier than they anticipate.
2012-05-15 Austerity Its All In The Timing by Scott Brown of Raymond James Equity Research
One problem with designing fiscal stimulus is determining how rapidly to move back toward fiscal balance. The U.S. economy has already faced some degree of austerity. According to the National Income and Product Accounts, government consumption and investment subtracted 0.6 percentage point from GDP growth over the last six quarters, where in normal times, it would have added about 0.3 percentage point (consistent with population growth). Real GDP averaged 1.8% growth over the last six quarters. It would have been nearly a full percentage point higher if not for the contraction in government.
2012-05-15 Ponzi's Children by Michael Lewitt (Article)
Europe, whose economic condition is nothing less than terminal, is about to receive what physicians refer to as a 'zetz' of morphine in the form of M. Hollande. A 'zetz' is the final dose that doctors give to dying patients to hasten their passage to the afterlife. In Europe's case, however, the medicine is not going to be painless, and its administration is not based on mercy but on resentment and stupidity.
2012-05-14 Brazil: Compelling Opportunities for the Long Term by Brigitte Posch of PIMCO
Although economic growth has moderated somewhat in recent years, Brazils growth story remains compelling.
Underpinned by favorable GDP growth, Brazilian bank fundamentals are solid; banks are closely regulated and well-capitalized.
PIMCO believes several key corporate sectors oil, gas, utilities, infrastructure and major banks will dominate the outlook for Brazil over a secular horizon thanks to stronger pricing power and improved profitability.
2012-05-14 The Bull Market Has Not Yet Reached Its Highs by Bob Doll of BlackRock Investment Management
It has been the case for some time, but recent events serve as a reminder that the primary risk to the global economy and markets is the ongoing debt crisis in Europe. Confidence over policymakers' ability to deal with the crisis took a hit recently given that the election results in Greece and France signal a shift away from governments' willingness to move forward with unpopular austerity measures. The resulting political uncertainty and investor confusion has put downward pressure on stocks and other risk assets. Unfortunately, the reality is there is no quick fix for Europe's problems.
2012-05-14 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Celebrations normally reserved for heroic events or political ascension have been breaking out during earnings season, as first quarter (2012) portfolio valuations accelerated and year-over-year comparisons show margin expansion. Doing what they do best, market pundits have been turning flax into gold, proclaiming that the recovery has begun. Another anecdotal elixir. One always wonders whether the chicken or the egg comes first. In this case, proclaiming it to be so precedes the actual fact.
2012-05-11 Spring Quarterly Commentary by John G. Prichard of Knightsbridge Asset Management
U.S. GDP rose at a disappointing 2.2% annual rate during the first quarter of 2012; so far this recovery has been too weak to reduce relative government debt levels through growth. A step toward austerity is next years fiscal cliff which features automatic spending cuts and tax increases. We have been told one-third of the entire tax code is expiring at the end of this year, with payroll, income, capital gain and dividend tax burdens all set to increase. Simultaneously, automatic cuts to defense and other discretionary areas of the Federal budget are set to take effect.
2012-05-11 Here We Go Again....or Not? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Softer economic data has prompted concerns that the market may be headed for a summer swoonsimilar to the previous two years. We believe the backdrop is decidedly different (and better) this time around but investor and business confidence will continue to be important. Some appear to be hoping for weaker data in order to spur the Fed to enact QE3. We believe the bar is much higher and that the Fed should look to return to a more normal monetary stance. Complicating the overall picture and the Feds job is the coming "fiscal cliff" out of Washington at the end of this year.
2012-05-10 International Equity: Monthly Product Commentary April 2012 by Team of Thomas White International
International equity prices remained subdued during the month of April as concerns over the European fiscal crisis continued to cloud market sentiment. Accordingly, price declines were the greatest in Europe while select markets in Asia and Latin America outperformed. As expected, the economies of both the U.K. and Spain contracted during the first quarter, and underscored the mild recession the region is facing at the moment. Bond yields of some of the troubled countries such as Spain and Italy have increased in recent weeks, and investor response to new bond issues remains lukewarm.
2012-05-10 Staying Bullish by Herbert Abramson and Randall Abramson of Trapeze Asset Management
We believe we are in a new bull market, and bull markets thrive on climbing that proverbial wall of worry. Bullish sentiment is low and bearish sentiment high. Anxious retail investors, having suffered two ugly bear markets since 2000, continue to shun stocks, with money flowing out of mutual equity funds now for more than 5 consecutive years. The public is hugely underinvested. Cash on the sidelines is enormous. The fuel to ultimately power stocks higher as confidence returns.
2012-05-09 It's All About the Fraud: Madoff, MF Global & Antonin Scalia by Team of Institutional Risk Analyst
In this issue, we return to the Lehman Brothers, Madoff and MF Global bankruptcies to talk about how the largest banks have wired US bankruptcy laws to their own advantage. Specifically, the 2005 changes to the bankruptcy code, combined with the traditional American caution regarding pre-judgement restraint on the parties surrounding a bankruptcy, has provided American banks with a free pass to facilitate fraud with no accountability. But first, Ally Financial has received the blessing of the US Treasury to file a bankruptcy for the ResCap real estate unit. This is a profoundly bad idea.
2012-05-08 Q2 Outlook: "Sell in May" May Not Work This Year by OppenheimerFunds (Article)
Chief Economist Jerry Webman explains why he believes the U.S. economic recovery is real and CIO Art Steinmetz talks about how stocks are as cheap compared to bonds as they have been in decades.
2012-05-08 Mohamed El-Erian and David McWilliams: The Key to Resolving Europe's Crisis by Robert Huebscher (Article)
Dealing with a crisis requires three things, according to Jack Welch, General Electric's former CEO. Define your reality - not as you would like it to be, but as it is. Do something about it. Then, third, acknowledge that the crisis wasn't half as difficult as you thought it was. Germany is the key player in Europe's crisis today, and it is still struggling to accurately define its reality.
2012-05-08 Sentiment Readies for a Tumultuous Fall by Chris Maxey and Ryan Davis of Fortigent
Market sentiment has oscillated quite rapidly in recent months on the heels of dramatic market intervention by the ECB and shifting views of global economic stability. Sentiment is likely to remain unstable in the months ahead as investors grapple with any number of events, from elections in Europe and the US to the end of recent monetary easing efforts domestically. While markets have rallied substantially over the past six months, retail investors are maintaining a somewhat neutral view on their allocations.
2012-05-07 Economic Insights: Earnings GrowthIs It Enough? by Milton Ezrati of Lord Abbett
After two-plus years of exceeding expectations, earnings this year seem poised to reflect the plodding nature of this economic recovery. In 2010 and 2011, even as the real economy managed only a paltry 2.4% average annual rate of expansion, the earnings of S&P 500 companies soared, rising more than 47% in 2010 and almost 20% in 2011. This year, the slow fundamentals will surely assert themselves. There is nothing ominous in the pattern. It is, after all, well-established historically that earnings should come into line with slower-growing revenues in this, the third year of economic recovery.
2012-05-07 Mixed Data and Patience is a Virtue by John Buckingham of AFAM
The labor report issued by the U.S. Bureau of Labor Statistics found that nonfarm payroll employment rose by 115,000 in April, and that the unemployment rate dropped to 8.1%. The improvement in the jobless rate came about only because 342,000 folks left the workforce, so there was little cause for cheer, even though the rate stood at 9.0% in April 2011 and 9.9% in April 2010. Employment increased in professional and business services, retail trade and health care, but declined in transportation and warehousing, while the private sector added 130,000 jobs and government payrolls fell by 15,000.
2012-05-07 The Labor Market Outlook by Scott Brown of Raymond James Equity Research
The April Employment Report disappointed stock market participants. However, it really wasnt a bad report. Private-sector job growth has been moderately strong this year. The Household Survey data suggest that the economic expansion has been strong enough to absorb the growth in the working-age population, but not enough to take up much of the labor market slack that was generated during the downturn. These figures tell us nothing about where the labor market is headed. Job growth over the next six months will have important implications for investors and for the November election.
2012-05-05 Late Bull Stampede Turns Bears Into April Fools by Douglas Cote of ING Investment Management
April should have derailed the market, but it didnt; a temporary pullback was the best the bears could muster. The bears normally make money by betting against the crowded trade; by being on the sidelines, the bears now are the crowded trade and in foolish fashion. The bulls, meanwhile, find themselves in the odd position of being seen as contrarians, even though fundamentals are setting records and equity market performance over the last two quarters has been spectacular. Let the stampede continue!
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 Stocks Cheap? Not so Fast! by Mike Paciotti of Integrated Capital management
Markets seem to have forgotten that which ailed us just 4 months ago. Talk of another Lehman style meltdown by a major financial institution has given way to positive earnings results, record profit margins and a much publicized recovery in the US. Equities, have now taken center stage once again with many major asset management firms proclaiming their attractive nature. Over the course of the next few paragraphs, we will examine this argument in greater detail by deconstructing equity market returns into component pieces.
2012-05-04 Back In by Mark Kiesel of PIMCO
U.S. housing may be a decent place to put money over the next several years due to improved absolute and relative valuations. U.S. housing fundamentals have improved significantly, led by lower prices, record low mortgage rates, improving inventory and delinquency trends and a gradually improving labor market, which in combination are helping homebuyer confidence and potential demand. While the outlook for U.S. housing has improved, several headwinds remain, including tight credit, potential supply from the shadow inventory and weak household formation due to a subpar economic recovery.
2012-05-04 Watchful Waiting by Tony Crescenzi, Ben Emons, Andrew Bosomworth and Lupin Rahman of PIMCO
Today, the Federal Reserve itself faces an unusually uncertain period because it lacks a complete understanding of the potential side effects of its unconventional policy actions; in particular the elongated timeline of its zero interest rate policy and its massive money printing. What matters in shaping market expectations about inflation and deflation are the credibility of fiscal policy, the prospect for real economic growth and the central banks commitment to step back from the punch bowl.
2012-05-03 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Earnings season continues (with the likes of Humana, AIG, Kraft), though investors may shift gears to focus on the economy next week as the new month brings key releases from manufacturing and labor. The recent jobless claims release has cast some doubt on the employment picture and last months lower-than-expected nonfarm additions have worried some analysts for the past month. (At least, it should look better than the picture in Spain?)
2012-05-03 A Troika of Problems by Team of BondWave Advisors
The troika of the International Monetary Fund (IMF), European Union (EU), and European Central Bank (ECB) has continued to prescribe austerity. But at the end of what is now a lengthy cycle of agreements and ever-increasing austerity measures, the debt still remains significant and much of the region has either been plunged into recession or is heading that way. We discuss these ongoing problems and provide additional insight on the US Treasury, Corporate and Municipal Bond Markets.
2012-05-03 Rebutting Paul Krugman: The Rest of the Story by Chris Turner of Advisor Perspectives (dshort.com)
I recently read an interesting article over at Barry Ritholtz's blog triggered by one of Paul Krugman's recent commentaries, The Secret of Our Non-success. Krugman showed the chart from the Federal Reserve Economic Data (FRED). Since data-miners and hobby chartists like me relish the opportunity to present data to readers so they can make their own decisions, I zipped over to FRED to recreate Krugman's chart.
2012-05-02 Inflation Anxiety is Spooking Investors by Matt Tucker of iShares Blog
Investors are spooked. They are so spooked that they are buying an asset that currently has a negative yield. What is the culprit causing so much concern? Curiously, its inflation. Investors appear to be so concerned about inflation that they are seeking protection against it without much regard to the cost of that protection. This phenomenon is playing out in the market for Treasury Inflation Protection Securities, or TIPS. In the last few auctions, the demand for TIPS by investors has been oversubscribed by almost 3X.
2012-05-02 Digbys Umbrella and a Dinner to Remember by Christian Thwaites of Sentinel Investments
The US economy is on a painfully slow road. It is recovering. Jobs numbers are better, even though some hiring in the first quarter may have been brought forward by mild weather. Production, manufacturing and exports, all signs of regained competitiveness in the US, are showing steady improvements. And the government sector is contracting. Not on purpose mind you, but jumping off a cliff and letting inertia do the work result in the same end. Above all of this, we have a Fed using every monetary policy at their disposal to try and promote growth and employment.
2012-05-01 Q2 Outlook: by OppenheimerFunds (Article)
Chief Economist Jerry Webman explains why he believes the U.S. economic recovery is real and CIO Art Steinmetz talks about how stocks are as cheap compared to bonds as they have been in decades.
2012-05-01 Is Now The Time To Brace For Another Volatile Summer? by Chris Maxey of Fortigent
In the latest week, the Federal Open Market Committee reiterated its stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. While rates will remain low for now, the Fed will need to fend off other challenges in the months ahead, ones that could send investors racing for the beach sooner than normal. The biggest challenge for the Fed and the economy in the coming months is in the form of Operation Twist. The hope was that such actions would drive down interest rates and encourage borrowing of all forms.
2012-05-01 A Wake-up Call on the Economy by Milton Ezrati of Lord Abbett
Economic statistics seem at times to have their own ebb and flow, sometimes overstating and sometimes understating the underlying fundamentals. Sadly, these often meaningless data variations can create false feelings about economic possibilitiesenthusiasm, when the statistical flow leans toward the strong side, or despair, when it leans on the soft side. Investors, in particular, succumb to such swings in attitude, but, to a lesser extent, so do businesspeople. So, it was with a string of insupportably good numbers late in 2011 and earlier this year.
2012-05-01 Bernanke: Be Humble! by Axel Merk of Merk Funds
To Bernanke, being humble means to keep strong monetary policy support to avoid deflation. This humbleness creates a lot of debt whether that be out of thin air on the Feds balance sheet, or across the economy as consumers, businesses and the government alike are enticed to borrow evermore money. What we consider monetary largess, as well as fiscal unsustainability, may ultimately lead to deterioration of the US purchasing power. We have encouraged investors to take a diversified approach to cash. A basket of hard currencies or gold might serve to mitigate the risks of a declining dollar.
2012-04-30 Growing Concerns by Scott Brown of Raymond James Equity Research
Real GDP rose less than expected in the advance estimate for 1Q12. However, the details were a mixed bag. The report added little to the debate about where the economy is headed. The first thing to remember about the advance GDP report is that the figures will be revised, and revised again. There is often a larger difference between the advance estimate and subsequent estimates. However, the underlying story behind the numbers typically does not change much. Consumer spending, which accounts for about 70% of GDP, helped by mild weather. Yet, the personal income figures suggest caution.
2012-04-30 Truth or Consequences? by Jeffrey Saut of Raymond James Equity Research
When youre wrong you say youre wrong; at least thats what the pros do. Clearly, I have been somewhat wrong by being conservative, but not by much because the INDU is actually 70 points lower than at the April 2, 2012 intraday high. Given the aforementioned litany of cautionary indicators, my sense remains the S&P 500 (1403.36) will spend some more time below 1425 while the short-term overbought condition is alleviated and the stock markets internal energy is rebuilt. Fridays market action only reinforced that belief with the indices gapping higher and then closing well below those highs.
2012-04-30 Housing Recovery Now Underway by Charles Lieberman of Advisors Capital Management
Many focused on the slower than expected pace of growth in first quarter GDP, but the stronger rise in housing activity merited little more than passing mention. However, housing construction is gathering steam, as inventories are now severely depressed and demographic trends require a resumption in new construction. Autos were another significant contributor to growth. We expect both sectors to continue as key sources of demand in the ongoing expansion.
2012-04-27 High Yield and Bank Loan Outlook April 2012 Sector Report by Team of Guggenheim Partners
The leveraged credit market began the year strong with yields across the credit spectrum approaching historical lows. Investors should realize that it is no longer early in the credit market rally. We are coming into the seventh inning stretch and it is getting tougher to find opportunities. It is also important to watch for signs of overheating and to remain focused on fundamental credit work and security selection. As we look ahead, we continue to see room for further price appreciation as investor demand should remain robust, while new issue supply wanes from its record first quarter pace.
2012-04-27 Roller Coaster Returns by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Despite an earnings season that has been much better than expected so far, investors appear to be again focusing on more macro concerns. Europe and China are dominant concerns but US growth sustainability is also being questioned. We remain optimistic on the ultimate direction of the stock market. The Fed meeting provided no changes but did show a slightly more hawkish tilt in their economic forecasts. Meanwhile, the US government continues to play a dangerous game of chicken as election season is already in high gear and the so-called "fiscal cliff" looms.
2012-04-26 The Global Fiscal & Monetary Policy Shift Moves Markets by George Bijak of GB Capital
The powerful macro forces that drive global economy and move stock markets have changed direction post the peak of the Global Financial Crisis. Governments are tightening their Fiscal Policies and Central Banks are expending their Balance Sheets (also known as quantitative easing or money printing) as part of globally synchronized deleveraging process.
The two opposing forces pull the global economy in different directions. The fiscal cuts are slowing economic growth but are counter-balanced by a stimulative nature of the Central Banks easing.
2012-04-25 Developed Europe: Economic Review 1st Quarter 2012 by Team of Thomas White International
The first quarter of 2012 witnessed several comforting developments in Europe. Greece fulfilled the pre-condition for securing its second bailout by convincing its private creditors to accept a 53.5 percent write-off on its debt. The deal eased concerns about a disorderly default by Greece on its sovereign debt. Following up on the liquidity-infusing program it introduced late last year, the ECB carried out another round of its Long-Term Refinancing Operation (LTRO), this time handing out to about 800 banks a total of 529.5 billion in 3-year loans at a very low interest rate of 1 percent.
2012-04-24 Bruce Greenwald on Structural Imbalances in the Economy by Eric Uhlfelder (Article)
Bruce Greenwald likes to say that he is constituted to disagree with everybody about everything, and he was true to his word at the recent Hyman P. Minksy Conference in New York. Taking immediate exception with the virtually unanimous characterization of the economic crisis as a balance-sheet recession, Greenwald, a professor of finance at Columbia University, argued that, far from being unusual, balance-sheet recessions can in fact be found at the heart of almost all business cycles.
2012-04-24 In the Long Run with Dividend-Paying Stocks by Meggan Walsh and Clint Harris of Invesco
A healthy level of skepticism and the conviction to go against consensus when it is supported by sound fundamental research is a strong combination for successful investing. We have little exposure to energy, an area investors favor. Financials is one of our largest weightings, an area thats out of favor. We prefer dividend sustainability and growth while investors are currently focused on high yielders alone. Its important to remember that history has shown that dividend-paying stocks are part of an enduring, fundamental approach to value investing and not a thematic allocation.
2012-04-24 Is 2012 the Year for Hedge Funds? by Chris Maxey of Fortigent
Prior to the financial crisis, hedge funds were largely viewed as alpha generating, high return seeking, portfolio diversifiers. In 2008, that model came under attack from multiple angles fraud, illiquidity, and poor returns being the primary culprit. Ever since that time, the value proposition of hedge funds and alternative investments remains in question, causing some to wonder if this is a make or break year for the space. There is reason to think the environment for hedge funds and active managers is improving.
2012-04-24 Chinas Growing Pains by Milton Ezrati of Lord Abbett
Among all the fears discussed in the financial community these days, worries over Chinas expansion loom large. The government in Beijing has revised down its growth expectations to 78% a year from the former breakneck pace of 1012%. Private groups, such as the American Chamber of Commerce in China, have made similar downward adjustments in their expectations. Though there is good reason to anticipate a slowdown in the pace of Chinese growth, it would be a mistake to exaggerate the risks, and especially to do so by drawing easy parallels to Americas real estate debacle.
2012-04-23 Middle East/Africa First Quarter 2012 Economic Review by Team of Thomas White International
While the Middle East and Africa (MEA) region continues to weigh the impact of the tumultuous Arab Spring uprisings, the area is facing against another challenge yet again. In addition to the existing domestic instability, a strained external environment (the Euro debt crisis) is proving to be a major threat to the regions trade, tourism, remittances and other exports receipts. According to the World Banks Global Economic Prospects report, the economic recovery seen in Morocco, Jordan and Tunisia in late 2011 is likely to stall in 2012.
2012-04-23 Spring 2012 Quarterly Commentary by Jonathan A. Shapiro of Kovitz Investment Group
Theres an old adage about a six-foot tall man who drowned crossing a stream that was five feet deep on average. We believe the lesson here is well worth heeding. In investing, its not enough to survive on average. Investment survival depends not on how well one performs during periods of market euphoria, but how well you navigate through the rocky episodes. One of the byproducts and, indeed, one of the most important aspects of investing scared is that it obliges us to make sure the downside risk of our portfolios is limited in bad times.
2012-04-23 Blowin in the Wind by Scott Brown of Raymond James Equity Research
Recent economic data have been mixed, but generally consistent with moderate economic growth. The recovery continues, but has failed to gather much steam and remains relatively fragile. Were on our way, but weve a long way to go. Over the last year, the economy has faced a number of headwinds, capping the pace of improvement. Those headwinds appear to be lessening to some extent although there are uncertainties, particularly as one looks to 2013.
2012-04-23 Americas: Economic Review First Quarter 2012 by Team of Thomas White International
Optimism over economic prospects increased across the Americas regions during the first quarter of the year, as economic data showed sustained improvement and global risks eased somewhat. Despite costlier fuel, consumer spending climbed in most countries across the region, especially in the U.S. The European fiscal crisis now appears less worrisome when compared to last year, while the slowdown in Asia has turned out to be milder than expected earlier. Commodity prices have recovered after the correction during the second half of last year, on an improved outlook in global demand.
2012-04-23 Run, Don't Walk by John P. Hussman of Hussman Funds
One way to gauge your speculative exposure is to ask the simple question - what portion of your portfolio do you expect (or even hope) to sell before the next major market downturn ensues? Almost by definition, that portion of your portfolio is speculative in the sense that you do not intend to carry it through the full market cycle, and instead expect to sell it to someone else at a better price before the cycle completes. With respect to those speculative holdings, and when to part with them, my own view is straightforward. Run, don't walk.
2012-04-23 Global Policy Remains a Critical Catalyst by Bob Doll of BlackRock Investment Management
The economic backdrop continues to be mixed, but the overall trend continues to be one in which the US economy appears to be growing slowly. One interesting pattern that has emerged is that the US household sector has been picking up at the same time that the industrial side has been weakening. While an improving household sector is critical to ensuring long-term growth, there are some caveats to this trend. First, households have been dipping into their savings to boost spending, which is clearly not sustainable. Additionally, some of the growth may have been "borrowed" from summer quarter.
2012-04-20 Monthly Investment Commentary by Team of Litman Gregory
Stocks and other risk assets surged in the first quarter, continuing the strong run that began in the fourth quarter of last year. In each of the past two quarters, domestic stocks gained about 12%, marking one the strongest runs over the October-March span going back to the 1920s. Developed foreign stocks increased nearly 12% in the quarter, emerging-markets stocks gained 14, small-cap U.S. stocks were up 12%, high-yield bonds rose 5%, and emerging-markets local-currency bonds added 8%.
2012-04-20 Whats Ahead for the Fed? by Team of Neuberger Berman
Although growth could slow from here, we do not believe economic conditions will deteriorate enough to provoke further accommodative measures from the Fed. The Fed may be on hold for the time being, but we also believe that Bernanke is acutely aware of the potential consequences of reversing monetary policy too quickly. As a result, interest rates may stay lower for longer. In this type of yield-constrained environment, we continue to favor segments like high yield fixed income and emerging market debt, which both offer attractive sources of income and upside potential.
2012-04-20 Release Oil from the SPR? Better to Take the Long View by Greg E. Sharenow and Mihir P. Worah of PIMCO
A temporary release aimed at influencing short-term prices could actually send an unintended bullish signal to the market that long-term spare capacity in OPEC producers is insufficient to meet supply losses. After the release of oil from the SPR in 2011 prices initially fell by 7%, but quickly rebounded as the market priced in the challenge of redelivering the oil to the SPR in the future. With few options, governments have limited ability to influence oil prices and so should focus instead on policies that impact the medium to long term.
2012-04-20 Outsized Outsourcing Opportunity in the Philippines? by Frank Holmes of U.S. Global Investors
Our investment team has reported in the weekly Investor Alert about a number of positive trends coming out of the Philippines lately, including a narrowing of the budget deficit, easing inflation and rising export numbers. In addition, CLSA reported last fall that, the Philippines increasingly looks like it could be where Indonesia was five years ago in terms of the potential for a multi-year credit and investment cycle to kick in after years of post-Asian Crisis de-leveraging.
2012-04-20 Equity Investment Outlook April 2012 by Team of Osterweis Capital Management
We think stocks are reasonably priced on an absolute basis and extremely attractive relative to bonds. Bonds have performed well over the past three decades, but with interest rates at record lows, there is not much room for bonds to continue outpacing stocks on a total return basis. Meanwhile, companies are steadily increasing dividends. Even Apple recently instituted a dividend. For some time, investors have been lowering their exposure to U.S. equities. We believe this trend should reverse, especially once interest rates start to rise and bond market returns turn negative.
2012-04-20 Fixed Income Investment Outlook April 2012 by Team of Osterweis Capital Management
The Feds easy money policy will likely not reverse in the near term, but may do so before 2014, if economic growth strengthens meaningfully; some inflation is also acceptable to the alternative deflation. We are seeing some economic strength in the U.S., which is translating into higher equity prices (and hopefully higher capital gains). We are still generally avoiding exposure to interest rate risk found in Treasuries and investment grade bonds. We believe the easy money has been made there and we are not currently being compensated for the risk of rising interest rates.
2012-04-19 Huge Dilemma: Do You Protect Your Job or Your Clients' Money? by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I feel like a broken record. Jeremy Grantham, John Hussman, and Lance Roberts of Streettalk Live surely feel the same way. I have been preaching the "low returns for a decade" concept for quite some time. It is very tough preaching caution, when caution is routinely tossed to the winds. Yet history has proven time and time again, that such times are precisely when caution is warranted, even though timing the precise moment is simply impossible.
2012-04-19 Price and Waistline Stability Prove Elusive as Inflation Creeps Up by Scott Colyer of Advisors Asset Management
The long-time trends are firmly in support of consistent price inflation during the history of the US. Inflation is a natural inclination for people, businesses, politicians and central banks. Given the Feds ultra-easy monetary policy aimed at creating inflation, we will eventually see it. Higher inflation requires investors to rethink where they invest. Cash and fixed income do little to cope with inflation and actually can be losers if held at times of higher than normal inflation rates. We think investors should take advantage of current bargains in real estate and equity asset prices.
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.
2012-04-18 Emerging Market Brands: From Backstage to Center Stage by Mark Mobius of Franklin Templeton
If the growth of the emerging market consumer class persists, it should translate into more clout for local consumer brands. The global emerging markets middle class is anticipated to grow from 430 million in 2000 to 1.2 billion by 2030.3 By some estimates, China and India are expected to account for two-thirds of the expansion in emerging markets.2 Its not a given, but such a large group of people with diverse tastes in consumer goods could be a boon to emerging brands over the long term.
2012-04-18 Ride the Wave of Crude? by Brad Sorensen of Charles Schwab
Crude-oil prices have moved steadily higher over the past several months, but the move may not be sustainable.
Geopolitical tensions are unpredictable, but the response in demand to rising prices has become more rapid, and we see other downside risks.
Investing directly in the energy sector may not be the best way to try to benefit from rising oil prices, given new investing options, along with companies' various costs and sources of revenue.
2012-04-18 Global Overview: March 2012 by Team of Thomas White International
Select indicators showing a possible worsening of the European fiscal crisis and slower domestic demand growth in some of the emerging economies have dulled the global economic optimism in recent weeks. After Spain faced difficulties in finding enough buyers for a new issue of bonds, several distressed European countries have seen their bond yields rise. Inflation and retail sales data from China for the month of February suggested weaker than expected consumer demand, and slower growth in March imports strengthened these concerns.
2012-04-17 Muppet Capers by Michael Lewitt (Article)
Investors enjoyed strong stock market and credit market gains during the first quarter of the year, but storm clouds may be forming on the horizon. Corporate profits have likely peaked. Stocks may be the best house in a bad neighborhood, but houses in that neighborhood appear to be fully priced for now. There are also some troubling signs in the bond markets, particularly the long end.
2012-04-17 Earnings on a Hot Plate by Chris Maxey of Fortigent
While the economy has displayed fits and starts of entering a sustained recovery over the past several years, there has been no doubt about the ability of companies to reshape their balance sheets and refocus their businesses. In the midst of first quarter earnings season, there are some concerns that the corporate hot streak will come to an abrupt end, but the reduction in earnings expectations since late last year appears to be favoring another positive earnings season.
2012-04-17 Asia-Pacific Portfolio Committee on PIMCOs Cyclical Outlook by Robert Mead, Tomoya Masanao and Ramin Toloui of PIMCO
We do not expect to see aggressively expansionary policy to combat the incremental economic slowdown in China. We believe that most countries in emerging Asia will continue to put their currency appreciation on hold, as inflation is expected to remain subdued over the cyclical horizon.
We are concerned about the sustainability of Japans economic growth beyond 2012, as the governments reconstruction spending will fade in 2013. Relatively speaking, Australia is indeed a beneficiary of higher commodity prices as a result of the strong demand for coal, iron ore and liquid natural gas.
2012-04-17 Quarterly Review and Outlook First Quarter 2012 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
From both economic theory and historical experience the answer is clear; austerity is the solution to too much debt. McKinsey Global Institute examined 32 cases where extreme leverage caused financial crises since the 1930s. In 24, or 75% of these cases austerity was required, which McKinsey defines as a multi-year and sustained increase in the saving rate. Public and/or private borrowers took on too much debt because they lived beyond their means, or they consumed more than they earned. Thus, to reverse the problem spending had to be held below income, increasing the saving rate.
2012-04-13 Schwab Market Perspective: Concern or Correction? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic data has softened a bit lately but still indicates growth in the US. After a long stretch of relative calm in the markets, we've seen the markets pull back, possibly fulfilling the correction that was overdue. We believe the longer-term trend is higher but near-term risks continue to be elevated and earnings season could bring more volatility. The minutes from the most recent meeting of the Fed seemed to solidify that another round of quantitative easing (QE3) is not in the offing. Although the stock and bond markets initially reacted negatively, we are heartened by the rhetoric.
2012-04-12 Newtonian Profits by Neel Kashkari of PIMCO
Today many equity investors are asking whether corporate profit margins can stay strong. Stock prices today are anchored on strong profits, hence investors intense focus on the sustainability of those profits. If they fall, stock prices are likely to follow. No doubt individual companies and sectors will face margin pressure. But for the equity market as a whole, our central scenario is for corporate margins to remain strong in the near future. We are buying individual companies we like based on our analysis of their own fundamentals in the context of the economic environment they are in.
2012-04-12 Global Investment Outlook - March 2012 by Team of Aberdeen Asset Management
Global economic growth sustains its momentum for now. Fiscal policy remains a global focus. Further monetary policy accommodation should support markets. Recent positive momentum within the U.S. economy is driving the global economic recovery, overwhelming the negative sentiment emanating from peripheral Europe. Real incomes, boosted by employment growth and easing inflation, are showing signs of turning positive in the U.S., feeding through to the broader economy.
2012-04-11 Time to Exit Emerging Markets? by Russ Koesterich of iShares Blog
Is it time to sell emerging market equities? Thats what many investors are wondering given that emerging market stocks are up significantly since fall lows and have modestly outperformed developed markets year to date. Despite emerging markets strong recent performance, I believe there are two major reasons why investors should still consider overweighting select countries relative to their weight in the MSCI ACWI benchmark. Cheap Valuations and Falling Inflation.
2012-04-10 Super Macro - A Fundamental Timing Model by Theodore Wong (Article)
Rather than endure losses in bear markets - as passive investors must - I have shown that a simple trend-following model dramatically improves results, most recently in an Advisor Perspectives article last month. Now it's time to extend my approach by showing how this methodology can be applied to fundamental indicators to further improve performance.
2012-04-10 Jobs 'Stunner' Not Much of a Surprise by Kristina Hooper of Allianz Global Investors
The number of new jobs created last month was downright disappointing, but maybe it should not have come as such a surprise. Job growth and improvements in the unemployment rate had been moving at a faster clip than modest economic expansion could support, a phenomenon that seemed to defy history and economic theory. Okun's Law suggests that the job market will be depressed for some time because GDP growth has been less than robust. The pullback we are seeing is not cause for alarm, however. The economy is growing and jobs are being created, but there will be fits and starts along the way.
2012-04-10 Which Stocks Win on Main Streets Comeback? by Bill Smead of Smead Capital Management
We are very excited about the next three to five years because we believe it is likely that Main Street will start to compete with Wall Street for capital and economic growth will accelerate. Unemployment rates would fall in that scenario and pent-up demand for goods and services could come out of the woodwork among average American households. What we mean by saying this is that capital will begin being demanded for business activities. As capital gets demanded for business activities ranging from housing to business expansion, the cost of capital will rise and bond prices would fall.
2012-04-09 And That's The "QUARTER" That Was... by Ron Brounes of Brounes & Associates
Europe hopes the latest (bailout and reg) moves will help it get its act together. (Good luck with that.) China applies the brakes. Labor looks strong, but can it continue? The Fed debates the need for more stimulus (without any consensus). Facebook moves closer to IPO (and investors beg to participate). The world lectures Iran and finally takes harsh measures (stand by to help Saudi). Investors hope to keep the mo going for another quarter, while being tempted to take profits along the way. Can we finally start focusing on Obama vs. Romney?
2012-04-09 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Investors return to work after much-deserved R&R and face a equity market at a crossroads. Was the pullback this week a temporary blip or was it the start of a longer-term trend representing the true fundamentals of the economy and the corporate climate? Futures predict that Mondays opening may be weak due to labor data. The dreaded I word highlights the weekly data as higher energy prices may have taken a toll on the key inflation gauges. Still experts like Bernanke do not see many price pressures on the long-term horizon and any rise in crude and gasoline due to Iran may be short-lived.
2012-04-09 The Global Debt Crisis by Gregory Hahn of Winthrop Capital Management
A major part of our investment thesis is that the developed countries in the world have too much debt relative to the size and historical growth rates of their economy. However, the costs of continued borrowing have risen as the amount of debt has increased. Furthermore, the economies of these developed countries are growing too slowly for revenues to offset the burden of increased expenditures. We expect that these countries will have significant difficulty reducing their debt burdens through continued stimulus initiatives as they attempt to inflate their economies.
2012-04-09 Strong Fundamentals Drive Best First Quarter Since 1998 by Douglas Cote of ING Investment Management
The best first quarter since 1998 was marked by strong fundamentals and reduced volatility and global risk.Could it be that the vicious cycle of the past few years has been broken? Could we have entered into the type of virtuous cycle in which positive data beget more positive data, as has marked prior sustained bull markets? Sell in May and go away and other bear strategies that have worked in prior years will likely be ineffective this year, driven in large part by strong fundamentals and global risks that have been excessively discounted.
2012-04-09 Policy, Numbers and Markets. Still good. by Christian Thwaites of Sentinel Investments
Commentary continues to use pre-2008 data as a baseline, whether for economic data, household behavior or corporate prosperity. This is a mistake. We remain in a liquidity trap. This happens 1) when asset prices fall 2) the private sector delevers 3) credit demand becomes inelastic, i.e. immune to price 4) savings increase 5) income balances between the private, corporate, net export and government sectors distort and vi) the reluctant leakages destroy aggregate demand. Throw in higher credit standards and necessary re-regulation and you can see why austerity economics is the final bullet.
2012-04-09 An Update on U.S. Manufacturing by Team of Neuberger Berman
On April 2, the Institute for Supply Management reported that the ISM Manufacturing Index had increased to 53.4 in March from 52.4 in February, slightly ahead of consensus forecasts. Although this often-watched indicator has flirted with contraction territory (below 50) at different points throughout the economic recovery, it has now expanded for 32 consecutive months since August 2009 and continues to point to strengthening economic growth. Here, we discuss our expectations for the manufacturing sector and its potential impact on financial markets.
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.
2012-04-06 Managing Expectations: Why Gold Should Thrive by Frank Holmes of U.S. Global Investors
Its been a challenging week for gold investors. As I often say, investing, like life, is about managing expectations. Over the past 11 years during golds spectacular bull run, investors should remember that price action can go both ways. What helps is to look at the historical rise and fall of gold. For example, looking at the past decade of one-day 5 percent drops in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5 percent in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.
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 CACI - Growth at a Ridiculously Low Price by Chuck Carnevale of F.A.S.T. Graphs
We believe that CACI it is extremely high-quality Defense Company with a niche that is currently being unfairly discounted by Mr. Market. The company possesses a predictable and consistent opportunity for continued double-digit earnings growth that is significantly in excess of the average company. Nevertheless, it can currently be purchased at a significant discount to the average company. This company pays no dividends; it is purely an opportunity for growth that can currently be purchased at a significant discount to its True Worth.
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.
2012-04-05 Calm After the Storm by Richard Michaud of New Frontier Advisors
The Fed has announced that it stands ready to promote economic growth with all the tools at its disposal. The Fed policy of low interest rates and cheap credit may still be needed to help the job market heal for some time to come. However, the inevitability of a rise in interest rates at a foreseeable point may encourage investors to avoid fixed income securities. The financial reality is that markets clear and prices depend on buyers as well as sellers. Time horizons and global forces are always considerations. The importance of diversification is always prudent for long-term investors.
2012-04-04 Kasriel's Parting Thoughts - Has the Fed Boosted the Stock Market? by Paul Kasriel of Northern Trust
The Feds actions have benefited the stock market as well as aggregate demand for goods and services in the U.S. economy. Would you have preferred that the Fed sit idle as it did in the early 1930s, with likely similar results for the stock market and the economy in recent years as occurred at that time? The Fed has simply provided some of the credit to the economy that the private MFI system would have had it not been crippled with loan losses. And even with the Feds additional credit creation, total MFI credit growth has fallen short of the long-run normal credit creation of private MFIs.
2012-04-04 Economic Update by Richard Hoey of Dreyfus
We believe that a full-scale global recession is unlikely, assuming that there is no major oil price spike from a disruption of the flow of Middle East oil. We believe that a key cause of global economic expansion will be the easy monetary policy prevailing in many regions and countries worldwide. We expect a global growth recession in 2012, with declining economic activity in Southern Europe, an economic stall or temporary declines in the U.K. and much of Northern Europe, a moderate slowdown in emerging markets and a U.S. expansion at a near-trend pace in 2012, somewhat faster than last year.
2012-04-04 Time Heals All Wounds by Robert Stimpson of Oak Associates
The US stock market enjoyed a strong first quarter of 2012. Fueled by better economic data and a calming of fears over Europe, the stock market surged higher. For the first quarter, the S&P 500 rose 12.6%. Oak Associates accounts did much better, gaining on average more than 17%. The strongest performing sectors of the market were financials, technology, and consumer discretionary. These three groups are the most cyclical and their strong performance bodes well for a broader economic recovery through 2012.
2012-04-03 Fewer, Richer, Greener: Why Jeremy Grantham is (Partly) Wrong by Laurence B. Siegel (Article)
Is the human experience getting better or worse? This is a big question investors are rarely asked to confront, yet its answer has profound consequences for market returns.
2012-04-03 Overcoming Financial Repression with High Yield Bonds by Peter Ehret of Invesco
In this current low-interest rate environment, we see value in the high yield market, especially as the asset class has proven to provide relative attractive returns not only when compared to treasuries and investment grade corporate bonds but also when compared to the typical inflation-hedging asset classes such as equities. Furthermore we feel the strong fundamentals in the asset class additionally bolster the positive story for high yield bonds. In summary, we believe that allocating a portion of ones investment portfolio into high yield bonds may help investors.
2012-04-03 Comfortably Numb: Have Investors Become Too Complacent? by Liz Ann Sonders of Charles Schwab
The market has had its best first-quarter start in 14 years!
But with the rally has come elevated optimism, a contrarian indicator.
The market may be vulnerable in the short term, but we think optimism longer-term remains warranted.
Let's get right to the point: It was the best first quarter for the stock market since 1998. The total return of the S&P 500 index was 12.6% for the quarter; up nearly 30% from the October 3, 2011 low. What was particularly notable about the surge since then has been the attendant plunge in volatility.
2012-04-03 Have Investors Moved Past Europe? by Chris Maxey of Fortigent
At the end of 2011, the Long-Term Refinancing Operation brought a modicum of stability to financial markets in Europe.When coupled with the orderly default of Greece, the situation in Europe is seemingly on a road to more pleasant ground. Just as soon as investors place Europe in their periphery, however, problems once again begin bubbling to the surface.In recent weeks, the spotlight has turned to Spain, where unemployment is near 24% and the government is expected to run a 5.9% budget deficit for 2012.
2012-04-02 It's All Data (Jobs) Dependent by Charles Lieberman of Advisors Capital Management
The performance of the economy has improved quite substantially over the past several months, with very significant implications for policy and politics. A healthier labor market is sufficient to insure a healthier economy, which supports the rally in the stock market, the decline in bond prices, and the rise of President Obama in the polls. Numerous issues will affect the political polls in the coming months, but the outlook for the economy remains one of continued improvement.
2012-04-02 When Will Corporate Cash Flow? by Milton Ezrati of Lord Abbett
One of the great constants in this otherwise inconstant environment is the strength of corporate finances. Financial excesses and the need to de-leverage concern governments and households, not the corporate sector, which actually came out of the 200809 financial crisis and recession with its finances in good order, and has only strengthened them since. The question now is how and when companies will deploy these impressive financial resourceswhether on capital spending, hiring, or, especially, on the mergers and acquisitions (M&A) that typically proceed from strong corporate finances.
2012-04-02 The Manufacturing Renaissance by Kristina Hooper of Allianz Global Investors
While unemployment remains elevated, the U.S. manufacturing sector has quietly staged a dramatic turnaround, one that could be a pillar of support for the economic recovery. Jobs shipped overseas decades ago are now returning home. Productivity has grown significantly thanks to advances in technology and favorable exchange rates with Americas trading partners. The cost of labor per output in the United States has decreased. Manufacturing in this country may never return to its golden years, but it is certainly experiencing a rebirth of sorts.
2012-03-30 Shifting Winds-Turbulence Ahead? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Treasury yields have moved somewhat higher, while stocks have largely continued to rise. Recent correlations appear to be breaking down, which could lead to increased volatility but we remain relatively confident in equities. Perception as to the next moves by the Fed appeared to be shifting, but Bernanke reiterated their easy monetary stance. Uncertainty is rising and the Feds goal of increased clarity through more transparent communication is under scrutiny. Liquidity concerns in Europe have eased but economic risks remain, while Spain and Italy face deal with their ongoing debt crises.
2012-03-30 Does China Hold the Winning Ticket? by Frank Holmes of U.S. Global Investors
Some bears may think the odds of China being the winner among emerging markets in 2012 are also remote. Over the past few years, Chinese stocks have lagged compared to its emerging market peers. However, the Periodic Table of Emerging Markets perfectly illustrates: last years loser can be this years winner. Historically, every emerging country has experienced wide price fluctuations from year to year. Over time, though, each country tends to revert to the mean.
2012-03-29 China's Gravity-defying Economy: How Hard Will It Fall? by Team of Knowledge @ Wharton
As China's high-octane economy shifts into lower gear, virtually everyone agrees that the double-digit, super-charged boom years are drawing to a close. Speculation over the possibility of a so-called "hard landing" for the country flourishes with each boom and bust cycle, only to die down as China's growth revs up again. This time, however, both external and internal factors -- including global conditions, domestic politics and financial trends -- are reinforcing the downturn. Many experts warn that without some painful reforms, there will be worse trouble to come.
2012-03-27 Investors Still Not Showing Stocks Much Love, U.S. Numbers Pretty Good by John Buckingham of AFAM
Given that the equity markets have been overdue for at least some sort of a pullback, we cant complain too much about the modest three-day selloff that occurred midweek, especially when stocks bounced back nicely on Friday. True, the Dow Jones Industrial Average fell over 150 points on the week, but losses in the other major indexes were generally smaller and with the equity futures on Sunday night signaling that trading in the new week will get off to a decent start, we might argue that last weeks action was a pause that refreshes as opposed to a warning shot across the bow.
2012-03-27 The Great Escape: Delivering in a Delevering World by Bill Gross of PIMCO
When interest rates cannot be lowered further or risk spreads significantly compressed, the momentum begins to shift, gradually yields moving mildly higher and spreads stabilizing or moving slightly wider. In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form. We favor high quality, shorter duration and inflation-protected bonds; dividend paying stocks with a preference for developing over developed markets; and inflation-sensitive, supply-constrained commodity products.
2012-03-26 Economic Insights: Fear, Bank Lending, and Fed Frustrations by Milton Ezrati of Lord Abbett
The Fed recently released the results of its latest survey of senior bank officers. Like the economy, the bankers' attitudes were mixed. Things have improved over the past year. Bankers on balance have shown a greater willingness to extend credit. But still, they remain very cautious. Understandable after the losses of 200809, this lingering reluctance to lend offers yet another explanation as to why this economy's recovery has proceeded so slowly to date, and will likely continue to do so for some time to come. Still, there are tentative signs that the environment is easing.
2012-03-26 Did Steve Jobs Despise Shareholders? by Charles Lieberman of Advisors Capital Management
Last week, Apple announced it will initiate a $2.65 per share quarterly dividend and a $10 billion share repurchase program. Clearly, since the passing of Mr. Jobs, management has focused more of its attention on shareholders, something uninteresting to Mr. Jobs. He wanted to make "cool things" and everything else was secondary. Mr. Jobs didn't have much patience for people, as revealed in his recent biography; I would imagine the same went for shareholders. For a man who seized on technological opportunities, Steve Jobs' ignorance for shareholders missed some great financial ones.
2012-03-26 Postcards from the Edge: Central Banking in the Age of Policy Extremes by David Kelly, David M. Lebovitz and Brandon D. Odenath of J.P. Morgan Funds
Major developed world central banks have taken extraordinary action over the last few years, leaving us in uncharted territory, close to the edge with little experience or history to rely on. The move to todays extremes was forced by the impotence of conventional monetary policy tools, as well as the breadth and depth of the crisis-causing issues. Uncertainty about the probabilities and range of possible outcomes resulting from current extremes has, and will, impact both capital markets and decision making in the real economy.
2012-03-23 Whats Next for Equities? by Matthew Rubin and Justin Gaines of Neuberger Berman
In 2011, the S&P 500 finished essentially flat on a price-return basis. That return, however, would not have been achieved without a 15% gain over the last three months of the year. Equities have since picked up where they left off and, year-to-date, most major indices are up by double digits. Front-of-mind for investors is whether this momentum can be maintained. We offer the bear and bull cases as well as our thoughts on what may lie ahead.
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 Closed End Funds - February 2012 Review and Outlook by Team of Cohen & Steers
The U.S. economic picture has brightened since the fall of 2011, and we expect the trend to continue. We are also encouraged by progress in Europe, as economic austerity measures will likely weigh meaningfully on the regions growth. In this period of extended easy monetary policy by the Fed, we believe the yield advantage of leveraged closed-end funds will continue to draw investor interest. The success of recent IPOs should bode well for closed-end fund issuance in 2012, although we do not believe new supply will pressure pricing in the secondary market or impede discount narrowing.
2012-03-23 Eye on Myanmar by Xin Jiang of Matthews Asia
Since the U.S. declared that the Asia-Pacific region is America's new priority, its strategic moves in Southeast Asia have included the notable visit to Myanmar in December by U.S. Secretary of State Hillary Clinton. The visit was generally viewed as an endorsement of the reform processes that Myanmar has slowly begun to roll out over the past year or so. On my recent trip there, I was able to take a first-hand look at some of these developments.
2012-03-23 Regressing to the Mean Asset Values Returning to Low Correlations by Robert Stein of Astor Asset Management
Asset values are finally marching, once again, to the beat of their own drummers. This is a welcome change of tune. Among the many investing challenges of the past few yearsbeyond the aftermath of a near-meltdown of the financial system and a global economy that went into a deep recessionwas the high degree of correlation among different assets. Assets moved in tandem, whether in lockstep or with inverse moves, based largely on risk on/risk off investment decisions. Concerned about Europe? Sell stocks, buy bonds. Think the EU ministers will reach a deal? Buy stocks, sell bonds.
2012-03-23 Gold and China: Where the Bulls and Bears Square Off by Frank Holmes of U.S. Global Investors
To paraphrase the great Steve Martin, todays investors are very passionate people and passionate people tend to overreact at times. An overreaction is exactly whats happened in gold and global markets in recent weeks. While market bulls have been sniffing out data points to support their case, market bears have continued to take a glass-half-empty approach. Gold and China are two areas that have been caught in the bear trap this week, but we believe the gold and China bulls still have room to run.
2012-03-23 Where is the Unemployment Rate Headed? by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I have a pretty cool interactive map below that will let you graph the unemployment rates based on parameters that you can choose. First let's take a look at the current unemployment rate and a discussion of the parameters that define it.
2012-03-22 Regulated Energy: Rise and Shine by Josh Olazabal, John Devir and Jennifer Seo of PIMCO
Regulated energy companies natural gas pipes, gas utilities and electric utilities have generally been seen as the sleepy cousins of more exciting energy subsectors like exploration and production, or coal extraction and production. But we have witnessed a number of events and regulatory developments in recent years that we believe are re-energizing the regulated energy subsector, more clearly distinguishing it from other members of the energy sector family and providing the potential for an abundance of opportunity for astute investors.
2012-03-22 The American Recovery by Mohamed A. El-Erian of Project Syndicate
The US has gone through an arduous period of intervention and rehabilitation since the global financial crisis in 2008 sent it to the economic equivalent of the emergency room. The question now is whether the US economy is ready not just to walk, but also to run and sprint.
2012-03-22 Brazil Retail Sector Riding the Wave of Middle Class Growth by Team of Thomas White International
Even in the late 1990s, Brazil was just like any other emerging economy, characterized by extremes of wealth and abject poverty with no social class dividing the bridge between. A decade and more down the line, the effervescence in the middle cannot be missed. Yes, the great Brazilian middle class defined as those who earn between $690 and $2,970 a month has arrived and is here to stay. If Brazil has made a name in the global retail sector, it had better thank these late comers, empowered with good purchasing power and access to credit.
2012-03-21 The Scarcity of Income: A Hobsons Choice by Alan Dorsey, Juliana Hadas and Leah Modigliani of Neuberger Berman
The post-global financial crisis environment has resulted in rock-bottom yields for U.S. Treasuries and other sovereign debt deemed to be either liquid or low risk. This situation leaves income seekers in some markets with a negative real yield (inflation adjusted), which could become more manifest during periods of rising interest rates in eventually recovering global economies. Alternatively, these investors may want to consider migrating a portion of their asset allocation to less senior income-producing securities.
2012-03-20 Bob Rodriguez on the Dangers in Today's Markets by Robert Huebscher (Article)
Bob Rodriguez is the managing partner and chief executive officer of Los Angeles-based First Pacific Advisors. In this interview, he discusses how the challenges faced by the US economy will impact the capital markets.
2012-03-20 The Wages of Denial by Michael Lewitt (Article)
Europe is insolvent, and hopelessly so. Her procurer - the European Central Bank (ECB) - can front her some money for a while, but in the end she is either going to have to repay him or suffer a very rough consequence. In the meantime, however, she can continue to entertain her customers, in this case those willing to extend her credit in one form or another. Sooner rather than later, however, these creditors are going to grow tired of her tricks and turn their attention otherwise. At that point, she will be left to deal with the ECB because nobody else will have her.
2012-03-20 A Turning Point by Christian Thwaites of Sentinel Investments
Bottom Line: Bonds are now outside of the recent range, especially in the 30-year. We could see another 10bp retrace to 3.50%. Equities have had a good run but still have reasonable valuations. New money goes to IG bonds. Spreads are approaching their long-term mean but demand from natural buyers is high.
2012-03-19 An Angry Army of Aunt Minnies by John P. Hussman of Hussman Funds
The steepest market plunges on record (e.g. those following the 1973-74, 1987, 2000 and 2007 peaks, among others) have generally followed an overvalued speculative blowoff coupled with divergent interest rate pressures. This is why we take the "overvalued, overbought, overbullish, rising yields" syndrome so seriously. Indeed, the outcomes are usually negative on average even without rising yields, but the yield pressures tend to add immediacy. Notably, the emergence of this syndrome has provided accurate warning of oncoming losses both historically, and also as recently as 2010 and 2011.
2012-03-16 February Leaps to a Multi-Decade Market Open by Doug Cote of ING Investment Management
The markets YTD success has been fueled by a dramatic reduction in global risk and upbeat economic data. The fence to contain the euro crisis has been definitively established. Oil prices are a concern, but the real economy has the wind in its sails. Though equity fund outflows continue, its never too late for investors to do the right thing.
2012-03-15 Market Update: A Real Recovery, or a False Start? by Team of Knowledge @ Wharton
The Dow has hit its highest level in years, loan rates are at record lows and the U.S. economy appears to be gaining momentum. Even the housing market is starting to look inviting. But is this a real recovery -- or a false start like last year's? Wharton's Jeremy Siegel and Scott Richard think the economy is showing signs of a true rebound, and predict that stocks should do well in the next 12 months. But bonds, they warn, are in dangerous waters, and economic growth will be in jeopardy if oil prices keep rising and the European credit crisis worsens. (Video with transcript)
2012-03-15 Why Our Recession Call Stands by Lakshman Achuthan and Anirvan Banerji of ECRI
Many have questioned why, in the face of improving economic data, ECRI has maintained its recession call. The straight answer is that the objective economic indicators we monitor, including those we make public, give us no other choice.
2012-03-15 And Thats The Week That Was by Ron Brounes of Brounes & Associates
The Fed gets together next week as analysts eagerly await the (more transparent) recap of the behind-the-scenes discussions between the (dissenting) parties. Rumors have policymakers debating a new type of bond buying program (sterilized QE) in which the Fed would print money to purchase long-term securities, but investors would face certain restrictions over how those proceeds can be used. As always, the Feds aim is to keep rates low and encourage more spending and investing by consumers and biz.
2012-03-15 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Instead of playing old fashioned fundamentals, gamblers are trying to pre-empt the true north of the markets by risking cash on dangerous bets about real estate, commodities, energy and bonds. In the meantime, the game continues for those who seek cover from the mayhem. Right now, there is little support for bonds or stocks. Yields are too low, and equity valuations have gone through a dangerous cycle. Thus, one might expect turmoil to continue. My risk rankings suggest that there is still more potential for the secular (bear) cycle to continue than there is momentum to reverse that course.
2012-03-14 No QE3 Yippee! by Liz Ann Sonders of Charles Schwab
The Fed made no major changes to its policy statement and announced a continuation of Operation Twist, but did not hint at or announce further quantitative easing.
The Fed's assessment of the economy did improve somewhat.
Richmond Fed President Lacker's dissent and Dallas Fed President Fisher's pronouncements ring true.
2012-03-13 Europe's “Back-door QE”: Good News for Global Bond Investors by OppenheimerFunds, Inc. (Article)
By restoring confidence in the global financial system, the European Central Bank's Long Term Refinancing Operation has allowed global bond investors to participate in attractive opportunities around the world.
2012-03-13 The Gutenberg Economy by Michael Lewitt (Article)
As commentators near and far speculate on what 2012 will bring to the global economy and markets, there is little question that one factor will be decisive: the central banks' printing presses. Both the Federal Reserve and the European Central Bank (ECB) will keep printing dollars and euros around the clock until their presses run out of ink.
2012-03-13 Will he? Won't he? by Christian Thwaites of Sentinel Investments
Will oil prices hurt the economy? No Recent good news on the economy has come with warnings of possible demand destruction from higher oil. First, lets stress that QE does not cause higher oil prices. There are too many iterations between increasing bank reserves and the trading firepower needed to drive spot oil prices sharply higher. And while we have seen an increase since September, we're no higher than a year ago. During that time economic prospects dimmed then brightened MENA troubles flared, receded and then grew, and Asian demand steadily rose. But there are reasons to be sanguine.
2012-03-12 An Overweight to Stocks Is Still Warranted by Bob Doll of BlackRock Investment Management
We believe the macro environment remains equity-friendly and we would argue that it still makes sense to retain overweight positions in stocks. The economic expansion should continue, inflation remains muted and central banks around the world are hyper-focused on maintaining easy monetary policy. Add to this backdrop the fact that stock valuations remain attractive, and the case for sticking with stocks gains strength.
2012-03-12 The Bears' Five Stages of Grief by Brian S. Wesbury and Robert Stein of First Trust Advisors
The economic bears have had it rough the past few years. They keep bashing the economy, but it keeps recovering. Watching them fight through the five stages of grief is educational. First there was denial, then anger (some are still in this stage), now its bargaining.
2012-03-12 Are the Jobless a Coiled Spring? by Kristina Hooper of Allianz Global Investors
Putting pink-slipped workers back on the job could provide a big boost to the U.S. economy. But while the recent steady job growth we have seen has fueled optimism that the pace of the recovery is quickening, market watchers may be ignoring a red flag. There is still a high percentage of unemployed people who have been out of the work force for 27 weeks or more. Yet repressed spending for such a prolonged period could be a coiled spring that could deploy with some force as they return to the work force. Why unemployment may be a short-term hurdle and a long-term catalyst for the economy.
2012-03-09 The Healing Powers of a Weaker Yen by Kenichi Amaki of Matthews Asia
In mid-February, the Bank of Japan surprised markets with an expansion of its Asset Purchase Program, Japans version of quantitative easing. At the same time, the BOJ reworded its stance regarding inflation, revising its quantitative easing understanding to a goal and formally adopting an inflation target of 1%. Equity markets reacted positively, prompting foreign investors to pour more than US$5 billion into Japanese stocks and futures over just a 2-week period. The yen weakened to levels not seen since May 2011, and the currency seems to have broken from its 5-year appreciation trend.
2012-03-09 Appreciating China to its Fullest by Frank Holmes of U.S. Global Investors
While most analysts dont expect another moon shot rise in China's GDP this year, a 7.5 percent growth rate still exceeds most emerging economies and all developed nations. Advanced economy growth is expected to be meager, slowing from 1.6 percent to 1.3 percent in 2012, according to The Conference Board. For long-term investors learning to appreciate the finer points of the country, we believe China is somewhat like fine wine; it only gets better with age.
2012-03-09 Market Fatigue? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Market action has been relatively muted, notwithstanding the first 1% down day of this year. After the strong run to start the year, another pause or pullback would not be surprising but we continue to believe the upward trend will largely stay intact. Uncertainty abounds as to whether the Fed will unleash a new round of easing but liquidity remains abundant. Rhetoric continues in Washington but any substantial fiscal or tax policy action this year seems unlikely, despite the many challenges that are looming.Europe has stabilized somewhat but risks remain elevated.
2012-03-08 Oil and Gasoline Prices Rise Again: How High and How Long? by Team of American Century Investments
One year ago, we wrote on the recent up-tick in crude oil and gasoline prices which was caused by turmoil and revolution in the Middle East. A year later, were experiencing a similar rise in crude and gasoline prices. Last week, the average national cost for a gallon of unleaded regular gasoline was approximately $3.75 per gallon. One contributing factor has been the increase in tensions between Western countries (and Israel) with Iran over its continuing work to produce nuclear fuel which could be used in atomic weapons.
2012-03-08 Bernanke Spooks Gold by John Browne of Euro Pacific Capital
Regardless of who wins the reserve currency race, a key issue will be the gold conversion price. To accommodate the world economy without being recessive, many have concluded that the price of gold would need to be far higher than it is today. In any case, if China continues to pursue a path towards a fully convertible Yuan, investors might be wise to pursue a buy and hold strategy. This of course discounts the possibility that their holdings are not confiscated by debtor governments with plummeting fiat currencies.
2012-03-08 Inflation Inferno? Maybe in 2013 and Beyond by Russ Koesterich of iShares Blog
In a controversial new paper, a staff economist at the Federal Reserve Bank of St. Louis warns that conditions are ripe for a spike in inflation. While Russ shares many of the economists concerns, he explains why its too soon to make significant changes to a portfolio based on inflation fears.
2012-03-08 And Thats The Week That Was by Ron Brounes of Brounes & Associates
New week; same old story. EU ministers continue debating the Greek bailout package which should (hopefully) come to resolution next week. Unemployment highlights a busy economic calendar as investors look to see how the solid weekly jobless claims releases translate into the key labor rate and nonfarm payroll data. Bring on Super Tuesday, right Mitt?
2012-03-08 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
What constitutes a recovery? Is it simply the absence of negative news, or must it also imply a robustness of capital, capital gains, and euphoria.
It seems to me that we are currently in rejoice only because the steady drumbeat of negative noise has abated somewhat. While it may foretell the redirection of a bear market/economy, we cannot yet proclaim the regeneration of a secular bull cycle.
2012-03-07 Winning the War in Europe by Scott Minerd of Guggenheim
Given my view on the global liquidity glut, it probably will come as no surprise that I remain bullish on U.S. investments, including equities, high yield bonds, bank loans and other risk assets, as well as art and collectibles. I believe the United States has entered a period of self-sustaining economic expansion, driven primarily by the aggressive monetary policy of the Fed, which is now being reinforced by the ECB. U.S. growth is necessary to reduce domestic unemployment and to provide support to the struggling economies in Europe and Asia.
2012-03-06 The Recovery of the US Economy Continues by John Buckingham of AFAM
The Dow Jones Industrial Average closed above 13,000 on Tuesday for the first time since May 2008. While there is no significance to the number from where we sit, The LA Times devoted front-page real estate in Wednesdays paper to the accomplishment and The WSJ ran a story titled, Dow, on A Tear, Leaps to 13000. One might think that the media coverage would perhaps provide a little prodding to get back into the market for those sitting on the sidelines, but the 3% pullback on the week in the Russell 2000 small-cap stock index suggests instead that many saw it as a reason to reduce risk.
2012-03-06 Continued Struggle Between Borrowing and Lending by Chris Maxey of Fortigent
Nonfarm payrolls and the unemployment rate headline the weeks economic data. Consensus expects another 200K+ gain in payrolls and no change in the unemployment rate. Other major economic data of note includes the ISM Non-Manufacturing index and the US trade balance. Abroad, there are important releases on tap including Q4 EU GDP and EU retail sales. Both the ECB and Bank of England meet this week, but neither is expected to adjust their key interest rates. Other central banks meeting include Russia, Australia, Brazil, Poland, New Zealand, Indonesia, South Korea, Canada, Peru, and Malaysia.
2012-03-06 Why Buy the Cow? by Peter Schiff of Euro Pacific Capital
The communist revolutions in the 20th century sought to nationalize the wealth generated by privately held industries back to the exploited workers on whose backs the profits were supposedly derived. America has made the rejection of this idea and its support of free market principles the centerpiece of its economic narrative. However, as a result of our current and proposed tax policies towards corporate shareholders, our government collects a portion of industrial output that would inspire envy in even the most rabid Bolshevik.
2012-03-05 Sound Fundamentals, Scary Geopolitics by Charles Lieberman of Advisors Capital Management
Data revisions indicate that household income grew more strongly than reported earlier, so consumers are far better able to sustain growth in spending, particularly as job gains are also increasing. Housing is recovering too, adding a new source of demand to the economy. Thus, the economic underpinnings to growth appear distinctly healthier. At the same time, the threat of conflict in the Middle East has pushed up oil prices, which eats into disposable household income. An actual conflict would chill discretionary spending, at least temporarily.
2012-03-02 TARGET2: A Channel for Europe's Capital Flight by Andrew Bosomworth of PIMCO
The Eurosystem's TARGET2 transaction system introduces elements of fiscal union via the back door. The large TARGET 2 positions developing among national central banks in the eurozone reflect capital flight from the periphery to the core and de facto introduce transfer and burden sharing elements of a common fiscal policy. Monetary policy ends up substituting for fiscal policy without going through the same democratic channels that governments' expenditure and taxation decisions entail. Taxpayers in the eurozone are contingently liable for losses incurred by monetary policy operations.
2012-03-02 Will Oil Continue Heading Higher? by Frank Holmes of U.S. Global Investors
We expect there to be corrections in the price of oil throughout 2012, just like the ups and downs commodities experience from year to year. While the world is hungry for energy, theres no free lunch on the Periodic Table of Commodities, and historically, from year to year, commodities fluctuate. Crude oil, for example, has seen its share of ups and downs: In 2008, oil lost 53 percent; in 2009, it increased a substantial 78 percent. While oil may remain elevated, use these higher prices to your advantage by owning natural resources companies that benefit from higher prices.
2012-03-01 2012: A year in US bonds by David Harris of Schroder Investment Management
There are two new factors that came to the forefront in late 2011 and which are set to influence investments throughout 2012. Indeed, it appears the collective bond market had a series of epiphanies in Q3 that should frame investment activity for some time to come, and these factors are by no means isolated to the US. The first factor is the broad recognition that debt expansion will not be the large driver of economic growth as it has been for the past several decades. The second factor is that political policy pronouncements will often trump economic and credit fundamentals.
2012-03-01 Waiting for Eighty by Doug MacKay and Bill Hoover of Broadleaf Partners
A significant shift in investor psychology is underway after many years of prolonged and painful drought. Just as a stronger economy engenders hope about the future, it also has the benefit of smothering the noxious fumes of political division. The biggest risk to the economy right now may be rising gas prices. At the same time when gas prices were at similar levels last year, mortgage rates were higher, consumer confidence was much lower, and employment trends were moving in the wrong direction. Can the United States reassert its leadership in the global economy? We believe it is and it can.
2012-02-29 Dirt Economics: Demographics Matter! by Shane Shepherd of Research Affiliates
Generations ago, people had large families, ensuring an adequate supply of labor to work the farm and provide a comfortable retirement. Now, families are small and we face a mountain of debt and soaring deficits. This months Fundamentals examines the implications for the economy and investors portfolios.
2012-02-27 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Earning season plods along with consumer-driven companies like Walt Disney and Coca Cola highlighting the calendar. Investors get a break on the economic front as the mad rush of releases slows, allowing them time to digest this weeks data, particular the news from the labor front. (Surely consumers should be more confident after the favorable developments?)
2012-02-27 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Historically, its difficult to have economic expansion without job growth, fiscal expansion, and consumer confidence. And yet, despite low interest rates, and a leveling-off of unemployment, we find ourselves in the middle of an economic recession. Of course, phrases like recession, expansion, and depression do not represent points in time, but, rather, periods during which these phenomena occur. So to suggest that we might be in any one of these economic cycles also implies that we must define the time line, the trends direction and magnitude, and our place within it.
2012-02-27 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Spread amongst positive innuendo about the Eurozone austerity discussions and strength in the global oil markets, was consternation about contentious earnings reports and a build up in selling pressure upon equities whose values are bumping up against relative strength resistance points. The state of the financial markets is net-neutral. The most important characteristic of the markets today is the aging of intermediate recovery trends and the high number of equities that amble along laterally. Any entry into long term probabilities would be done today at high risk.
2012-02-27 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
As I have written, the early-season rally is growing tired and overextended. While there is nothing specific which might have accounted for last weeks stall, the evidence is clearer that relative strength quotients in equities are growing outside sustainable levels. Usually, such valuations precede a reversal in equity direction. Last week also saw a continuation of mediocre earnings acceleration patterns. The number of companies that actually beat analysts estimates is at its lowest since the credit crisis in 2008.
2012-02-27 Game Changer by Mark Kiesel of PIMCO
In addition to strong secular tailwinds supporting the energy sector, highly expansionary global monetary policies from many central banks are adding cyclical support to globally traded commodities like oil.
In the U.S. energy sector, we believe that onshore natural gas shale and oil shale developments are creating opportunities to invest in energy companies that may grow significantly faster than the overall U.S. economy.
2012-02-27 No Inflation and Plenty of Money by Christian Thwaites of Sentinel Investments
We are still fighting: worldwide fiscal drag (aka the dogma of expansionary austerity) with accommodative money polices. The PBOC joined in with some RRR cuts, although these do not mean much in the Chinese loan-quota system. And the BOJ took steps to weaken the yen. CBs are in control. Government fiscal policies remain ineffectual. Bottom Line: US government bonds remain in a tight band of 190-210. The New Issue Market is strong with low end investment grade names trading at less than 314 over GT10s. We continue to like US equities.
2012-02-24 Global Real Estate Securities - January 2012 Review & Outlook by Team of Cohen & Steers
We are encouraged by the recent trend of U.S. economic data showing measured improvement, including steady employment gains. With funding costs remaining low and demand showing signs of strengthening, we believe U.S. real estate fundamentals will continue to gradually improve in 2012. Importantly, new supply remains scarce in most sectors, due in large part to banks continued reluctance to finance speculative development projects.
2012-02-24 International Real Estate Securities - January 2012 Review & Outlook by Team of Cohen & Steers
International real estate securities rallied along with stocks broadly in January amid an easing of macro risk concerns. Positive developments in Europe significantly reduced the risk of a liquidity crisis, while data from China suggested the country was successfully navigating a soft landing to its economy. Meanwhile, the U.S. economy continued to show evidence of modest yet self-sustaining growth.
2012-02-24 The Greek Debt Crisis by Karen Dunn Kelley of Invesco
Bailout package brings answers, but more questions remain European leaders have agreed on another bailout package for Greece, allowing the country to avoid a disorderly default on a 14.5 billion debt payment due March 20. The Invesco Fixed Income team and I were not surprised to see Europe move to avoid an unstructured default, as we believe this would have been the worst-case scenario for investors. But we also recognize the uncertainties and the challenges that remain. Time will tell whether this bailout puts an end to the Greek debt crisis or whether it simply delays an inevitable default.
2012-02-24 Schwab Market Perspective: Two Steps Forward... by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
US stocks and economic data appear to be moving at least two steps forward for every step back, which we believe leads to a strengthening trend for bothalthough there are inevitable bumps along the way. We believe the agreement in Washington to extend the payroll tax through 2012 may be the last substantial economic-related agreement before the election, but there are major issues looming. The Fed continues to believe another round of easing may be appropriate, which we think could be dangerous and that they should be looking to move in the other direction.
2012-02-24 Seeking Rewards in China by Winnie Phua of Matthews Asia
The muted performance of Chinas equity markets in 2011 has left many investors a bit wary. Since last year, concerns over Chinas slowing macroeconomic environment coupled with some corporate governance scandals left many investors on the fence about investing in China. And, even considering a robust underlying business landscape, many Chinese businesses are finding the tight credit environment challenging. With all these factors in mind, market analysts have turned more cautious on the growth outlook for Chinese firms and the market has subsequently seen a number of earnings downgrades.
2012-02-23 Emerging Markets: A 2012 Outlook by Ingrid Baker of Invesco
Emerging markets, once an asset class favored primarily by the dedicated global investor, came of age during the past decade. The Asian Crisis of the late 1990s, Russia
2012-02-22 Closed End Funds - January 2012 Review and Outlook by Team of Cohen & Steers
The U.S. economic picture has brightened meaningfully since December, and we expect the trend to continue, albeit at a modest pace. We are also encouraged by progress in Europe, but continue to monitor developments closely, as the issues there are complex and will take considerable time to resolve, while economic austerity measures are likely to weigh on growth. In this period of extended easy monetary policy by the Federal Reserve, we believe the yield advantage of leveraged closed-end funds will continue to draw investor interest, as demonstrated by the IPO in January.
2012-02-22 Tick, Tock Goes the Inflation Clock by Chris Maxey of Fortigent
Despite this short-term good news, the cloud hanging over Europe promises to remain for some time. As expected, the first glimpses of fourth quarter GDP reveal a region under severe economic pressure. Growth in the European Union contracted 0.3%, the first such decline since the recession. Most member countries saw their economies shrink, including Germany (-0.2%), Italy (-0.7%), and Spain (-0.3%). On the bright side, France actually surprised consensus with a 0.2% expansion.
2012-02-21 Woody Brock on Solving America's Fiscal Problems by Robert Huebscher (Article)
Dr. Horace 'Woody' Brock is the founder Strategic Economic Decisions, an economic research and consulting service. In this interview, he discusses his recently published book, American Gridlock, and how America can grow its economy through 'good' deficit spending.
2012-02-21 Inflation Held in Check by Fear by John Browne of Euro Pacific Capital
Out of control money supply creates inflation. In light of the trillions of synthetic dollars that have been injected into the economy by the Fed over the past five years, most observers had expected prices to spiral upward. But in making these determinations, many of us forgot to factor in the supply side of the supply/demand equation. Inflation remains low now because of game changing events that have reduced the demand for money. So beware of the recovery. Any wakening of animal spirits in the U.S. will likely stir the threat of inflation, which may very well short-circuit the recovery.
2012-02-21 International Equity - January 201 by Team of Thomas White International
International equity prices recorded strong gains in January on increased optimism that the global economy is not headed for a significant downturn this year. Markets across all regions, led by Asia, recovered during the month. Emerging markets, which had seen price declines during the second half of last year, outperformed the developed markets. Economic indicators from most regions, except Europe, have been relatively healthy and suggest expansion. EU leaders have now agreed to set tighter fiscal rules for member countries, including limits on fiscal deficits and aggregate public debt.
2012-02-18 The Enduring Popularity of Gold by Frank Holmes of U.S. Global Investors
For thousands of years, pharaohs, explorers, rulers and investors have been attracted to gold, as the precious metal has been a vital tool in building and protecting wealth. While gold naysayers focus on the day-to-day fluctuations in price, I believe gold equities and bullion will continue to enjoy maximum popularity, as the Oracle of Omaha puts it, for years to come. The allure of goldwhether it is from Fear or Lovecannot be underestimated.
2012-02-18 Danger: Caution Ahead by Bob Rodriguez of First Pacific Advisors
I know many of you would like more actionable ideas but principal protection is uppermost in my mind. Patience is required now. Many investors underestimate the potential risks and disruptiveness from high global financial leverage. We are in phase 2 of a continuing and expanding economic and financial market instability. Flexibility, high liquidity, and concentrated asset deployment, when appropriate, will be key elements in attaining superior investment performance. The era of being fully invested and adjusting portfolio weights relative to an index has been over for more than a decade.
2012-02-17 Economic Insights: Around the World of Investing Opportunity by Milton Ezrati of Lord Abbett
Europe seemingly creates new financial and economic concerns daily, while in the United States, fiscal questions and election uncertainties trouble the outlook. Still more dangerous issues surround the military and diplomatic maneuvering in the Persian Gulf. And these are just a sample of the sources of investment concern. But even as all this prompts people to hide in cash and the usual safe havens, such as U.S. Treasury bonds, these investment choices pay such poor yields that presumed safety comes at tremendous cost. Investors, then, must consider riskier investments.
2012-02-16 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Historically, its difficult to have economic expansion without job growth, fiscal expansion, and consumer confidence. And yet, despite low interest rates, and a leveling-off of unemployment, we find ourselves in the middle of an economic recession. Of course, phrases like recession, expansion, and depression do not represent points in time, but, rather, periods during which these phenomena occur. So to suggest that we might be in any one of these economic cycles also implies that we must define the time line, the trends direction and magnitude, and our place within it.
2012-02-16 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Last weeks performance was distracting. Spread amongst positive innuendo about the Eurozone austerity discussions and strength in the global oil markets, was consternation about contentious earnings reports and a build up in selling pressure upon equities whose values are bumping up against relative strength resistance points. The state of the financial markets is net-neutral.The most important characteristic of the markets today is the aging of intermediate recovery trends and the high number of equities that amble along laterally. Entry into long term probabilities would be high risk.
2012-02-14 Recession: Just How Much Warning is Useful Anyway? by Dwaine van Vuuren (Article)
In December 2011, ECRI dialled down the urgency of the timing of their call to 'within six months.' That raised the question of just how much recession warning is useful when it comes to forecasting equity market performance.
2012-02-14 Savers Are Not A Special Class by Christian Thwaites of Sentinel Investments
The self-reinforcing struggles between risk appetite and liquidity continued this week. Since the FOMC meeting, LTRO kicking in, easier policies from the ECB and a run of good economic numbers, we're in rally territory for equities here and abroad. The good news is that this has not come at the expense of other asset classes...so gold, bonds, US$, commodities are all holding up well. The liquidity push cannot have come at a better time. Private sectors are still building precautionary savings and public deficits are closing...
2012-02-14 What a Difference 3 Years Make by Kristina Hooper of Allianz Global Investors
Three years removed from the Styxian depths of the financial crisis, investors are now in much better shape. Back in 1980, when Ronald Reagan was running for president, he struck a chord with the voting populace by asking the seminal question, Are you better off now than you were four years ago? Much of the electorate ran through a mental checklist and decided that they were worse off. As a result, voters pulled the proverbial ripcord, ousted the incumbent and Reagan was elected our 40th president. Investors should be asking themselves a similar question today.
2012-02-13 Bill Gross vs. Warren Buffett and Larry Fink by Charles Lieberman of Advisors Capital Management
While bonds seem frightfully overvalued, stocks are cheap because investors are so hell bent for safety. Investors continue to shift capital out of stock funds and into bond funds virtually every month. This behavior suggests that they are fixated on the zero risk of default and fail to appreciate how they will be hurt by the loss of buying power.
2012-02-13 Around the World of Investing Opportunity by Milton Ezrati of Lord Abbett
Among those choices, credit-sensitive fixed-income instruments would seem to offer superior returns with reasonable security. Opportunities also present themselves in the equity markets. In the developed markets, North America seems to offer the best risk/reward balance. Though stock valuations are better in Europe and Japan, the former still needs to deal with its debt crisis and the likelihood of recession, while the latter faces the very fundamental matter of severely aging demographics as well as the immediate adverse impact of an expensive currency.
2012-02-12 Hot Potato by John P. Hussman of Hussman Funds
A hot potato has been repeatedly passed from speculatively overvalued, overbought, overbullish market conditions driven by massive central bank interventions, to credit strains and emerging economic weakness nearly the instant those interventions are even temporarily suspended. The same speculators who have historically accompanied major and intermediate market peaks have emerged, followed by the emergence of credit strains, economic pressures, and a flight to safe-havens. The market is in an extended game of hot potato which will be resolved by the eventual removal of both conditions.
2012-02-10 Nike (NKE): Just Do It - Sell by Chuck Carnevale of F.A.S.T. Graphs
A close examination of the earnings and price correlated graphs, coupled with the historic valuations that the market has applied to Nike shares, it becomes clear and obvious that Nike shares are overpriced today. Even with its high expected future earnings growth, the headwind of such overvaluation seems likely to make it extremely difficult to achieve any acceptable long-term rate of return. On the other hand, its also obvious that the market has decided to price Nike at todays rich valuation, and therefore, its at least possible that it can continue to do so.
2012-02-10 A Stock for its Dividends - Revisited by Jesper Madsen of Matthews Asia
Since investors often turn to Asia looking for growth, they may overlook that the region offers a well-diversified universe of dividend-paying companies in terms of sectors and countries. This month Jesper Madsen revisits the notion that the Asia Pacific region should play an essential role for investors seeking yield and growth in income.
2012-02-10 Does Inequality Mean Slower Growth? by Team of Neuberger Berman
As the November election inches closer, taxes are as always a key element of the political debate. This time out, however, the issue of income inequality has become more prominent, altering the typically partisan argument over tax rates. Below, we take a closer look at the dynamics of income inequality, how it could affect the long-term outlook for U.S. economic growth and what that implies for tax policy.
2012-02-10 Missed Opportunities? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Investors eased back into stocks to start the year. This is the start of a sustainable trend, but equities rarely go up in a straight line and near-term caution may be warranted. Another deadline is approaching for Congress and the President to make a deal. Something will get done, but any hopes for substantial action remain dim. Markets appear to be more comfortable with the European debt crisis and the risks associated with it. Central banks around the world are easing, which could help support international stocks in the coming months.
2012-02-09 Economic Update by Richard Hoey of Dreyfus
For 2012, we have three themes and three risk concerns. The three main themes are (1) global growth recession, (2) lower inflation for now and (3) monetary ease. The three main risk concerns are (1) the European financial stresses, (2) the Chinese property market and (3) the Middle East risks, with oil supply vulnerabilities as the main concern. We expect a global growth recession in 2012, rather than either a strong global expansion or a fullscale global recession.
2012-02-07 Compelling Valuation, or Value Trap? by Jeffrey Saut of Raymond James Equity Research
Remember all those Negative Nabobs that caused you to panic and sell-out at the August lows? Or, the Bear Boos who told you the undercut low of October 4, 2011 was the start of a whole new leg to the downside? Then there was the Cowering Crowd that insisted the first half of 2012 was going to be terrible. Such rants have left the world profoundly underinvested in U.S. equities. Revenues and earnings are at all-time highs, yet the SPX is ~13.5% below its October 2007 high; indeed, Strange brew trying to get through to you (Cream 1967; Eric Clapton at his finest).
2012-02-07 Financial Markets Review and Outlook Fourth Quarter 2011 by Team of Managers Investment Group
Volatility looks like it will persist within global capital marketsat least until there is more certainty about the future of European sovereign debt. Until that time, we continue to believe that markets will react with an elevated level of volatility, with gains and losses tied primarily to investors day-to-day perception of the ability of policymakers to manage this situation. Despite the persistent negative headlines, primarily surrounding the European sovereign debt crisis and the stubbornly high unemployment here in the U.S., there are signs of improvement as we head into the New Year.
2012-02-07 Fed Policies Pay Off by Christian W. Thwaites of Sentinel Investments
The forces of disillusion have glowed recently. We have had unsubtle debates on the Fed debasing money, the ECB providing unwarranted support and threats that the economy was going to lurch into a double dip (a reasonable but narrow view) or accelerate into hyperinflation (yes, really). So this was a week of unequivocal good news.
2012-02-07 Corporate Earnings Hit a Rough Patch by Chris Maxey of Fortigent
The week started slow, however, with a mixed personal income and outlays report from the Bureau of Economic Analysis. While consumer spending was flat in December, incomes grew 0.5% above expectations and the biggest gain since March. The lack of spending growth is concerning, but somewhat expected given stagnating wage growth. Spending to this point has largely been financed through savings, making Decembers income boost a much welcome improvement for consumers.
2012-02-06 Notes on Risk Management - Warts and All by John P. Hussman of Hussman Funds
Presently, there seems to be an unusually wide gap between hindsight and foresight, both in the financial markets and in the economy. In both cases, forward-looking evidence suggests weak outcomes, but recent trends encourage optimism and risk-taking. Rather than sugar-coat these uncertainties and minimize the messy divergences in the data, I think the best approach is to review the evidence, warts and all, including economic risks, market conditions, and the strengths and limitations of our own investment approach.
2012-02-06 The Coulds Are Parting by Charles Lieberman of Advisors Capital Management
It is fast becoming hard to dispute that an increasingly solid economic expansion is underway and that hiring is accelerating. The healthier economy has dispelled fears of recession and the stock market has been advancing at a strong clip, almost 16%, since the interim low at the end of November. With slow progress being made in Europe to contain the debt crisis, there should be fewer depressants holding back stocks and, with valuations still low, despite this sharp recent rally, there is still plenty of upside for long term investors.
2012-02-06 The Value in Fear by Milton Ezrati of Lord Abbett
It is hardly an insight to note that markets today are beset with fears. What is less widely acknowledged and critical to investment strategy, however, is that the level of anxiety has driven market segments to different extremes of valuation. On the one side, widespread fear has driven up the prices of the usual safe havens, such as U.S. Treasury bonds, gold, even the debt of other presumably stronger governments. On the other, the anxiety has severely held back relative pricing on equities and credit-sensitive bonds. This divergence presents potentially remarkable investment opportunities.
2012-02-06 Markets Continue Their Winning Ways by Bob Doll of BlackRock Investment Management
Notwithstanding the strong performance of the last month, we believe markets are still pricing in a more negative economic backdrop than what we are predicting. Investor confidence remains low and many are still sitting on large amounts of cash. It is important to remember that stock prices have not completely recovered from the significant drawdown that occurred in the summer of 2011, suggesting that markets have further room to run.
We are not expecting to see uninterrupted smooth sailing from here, but we do believe that the trends for stocks are pointing in the right direction.
2012-02-06 Time to Get in the Game by Kristina Hooper of Allianz Global Investors
Recent data on job growth, unemployment and manufacturing activity offer compelling reasons for investors to get off the sidelines. Private job growth continued with a gain of 257,000 jobs, signaling a very constructive trend weve seen for a number of months. Public sector job shrinkage also continued and should be a welcome sign given the need to reduce government debt. The unemployment rate fell to 8.3% in January. Arguably, investors should be willing to take on more risk when they feel their employment is more secure. And the feeling of greater job security might soon be on the horizon.
2012-02-03 The U.S. Economy Marches On To An Unsteady Beat by Team of BondWave Advisors
Despite the misgivings by the Fed about the recovery, and with much of Europe teetering on recession, domestic economic data continues to suggest moderate expansion in both output and employment. We discuss this situation along with the positive performance of the Treasury, Corporate and Municipal bond markets.
2012-02-03 Thunderstorm First, Then Rising Pressure by John Gilbert of GR-NEAM
The developed world is riskier than it was, and should be valued accordingly. That is a dour conclusion, but avoiding it does not mean that one can outrun it. Perceptions of what makes risky assets attractively valued need to be adjusted for the context. Valuation levels that were attractive when the world was less indebted are attractive only at lower levels since valuations have not yet anticipated eventual inflation. Those that will do the best are those that benefit from inflation and the negative real interest rates that result, since ultimately that is the choice governments will make
2012-02-03 In the Bullring With Gold by Frank Holmes of U.S. Global Investors
We anticipated that the Year of the Dragon would spur an increase in the buying of traditional gifts of gold dragon pendants and coins. Gold buying did hit new records, says Mineweb, with sales of precious metals jumping nearly 50 percent from the same time last year, according to the Beijing Municipal Commission of Commerce. This should serve as a warning to all of golds naysayers. Gold bullfighters bewareyou now have to fight the gold bull while fending off a golden Chinese dragon.
2012-02-01 Life and Death Proposition by Bill Gross of PIMCO
When interest rates approach zero they may transition from historically stimulative to potentially destimulative/regressive influences. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short/intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation. We can't put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering.
2012-01-31 2012 Tale of Two Bond Markets Handicapping the Bull and Bear Case for Bonds by Scott Colyer of Advisors Asset Management
2012 will likely be the tale of two bond markets. You have the high-grade debt market that has been the recipient of a huge flight to quality and fear trade. The prices of these obligations have skyrocketed and yields plummeted. Additionally, the Fed has turned out to be the biggest buyer of longer-dated Treasuries in the markets today. It is rumored that they might engage in a mortgage buying campaign later this year. That would have the effect of lowering mortgage rates further than the record lows where they are at. In short, the world has sought refuge in the U.S. bond high-grade market.
2012-01-31 America's Economic Engine Still Healing by Chris Maxey of Fortigent
A thin week of economic data and renewed focus on the European sovereign debt crisis may have prompted profit taking by some investors. Arguably, the biggest development last week was the Federal Open Market Committees (FOMC) press release on Wednesday. For the first time, the central banks decision makers released forecasts for the federal funds rate and the timing for the first rate increase. In that release, the FOMC unexpectedly announced that it expected to hold rates near zero until at least late 2014. This far exceeded previously stated expectations of a mid-2013 rate hike.
2012-01-31 To Fight or Not to Fight the Worlds Central Banks by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Lupin Rahman and Isaac Meng of PIMCO
We are skeptical that fiscal austerity alone is sufficient for all eurozone countries to grow and remain solvent. We thus expect the ECB to continue supporting the euro area with liquidity in 2012.
Recent central bank policy in China is oriented toward stabilizing growth in a political succession year, while balancing lingering inflation and medium-term systemic risks.
Investors may want to hedge portfolios by looking to select emerging markets with the ability and willingness to cut policy rates both from a cyclical as well as structural perspective.
2012-01-31 The ECB to the Rescue by Milton Ezrati of Lord Abbett
Though a good deal of concern over European downgrades has emerged, markets actually have received reason to anticipate relief in Europes financial crisis. The old risks and fears remain, of course, but the ECB has at least changed the equation, signaling that it had jettisoned its former hands-off policy and begun, at last, to support European financial markets. The remarkable nature of the change received only a few headlines, and even less commentary, but it deserved then and deserves now more attention. The ECBs help is crucial.
2012-01-30 And Thats The Week That Was by Ron Brounes of Brounes & Associates
As January goes, so goes the market for the year. Can we keep these gains for two more days? A few key bellwethers post earningsExxon Mobil looks to set new records; Amazon shows the effects of the holiday season; and UPS provides new signs about the strength of the overall economy. Labor and manufacturing highlight a very busy week on the economic calendar as investors hope to see continued positive trends from the ISM (manu), nonfarm payroll, and the unemployment rate. And, of course, Europe is never too far from the weekly headlines. (The more things change) Go Giants (a week early).
2012-01-30 Sector Insights Focus: Consumer Staples by Mark H. Dawson and Daniel M. Brewer of Rainier Funds
After steadily rising in terms of market capitalization in the 1980s, the consumer staples sector shrank in the 90s as technology shares swelled in market value. Over the most recent decade, staples representation has crawled back to about 10% in the large growth and value indices, while inclusion in small-cap indices ranges between a mere 3-6%. The theme of consolidation within industries continues today and the sector is increasingly dominated by a small number of mega-cap corporations often seeking to acquire small- and mid-cap companies.
2012-01-30 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The New Years rally continued last week. Solid earnings reports, for the most part, along with the belief that the Federal Reserve Board will offer up some policy changes this week served to support stock prices across the board. As the charts above illustrate the Dow Jones Industrial Average gained 2.4% and the NASDAQ Composite jumped 2.8% last week to extend their early year gains.
2012-01-30 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
In recent discussions with clients, I have answered questions about good new versus bad news and short-term versus long-term probabilities. As my readers are aware, I have become increasingly bearish in my asset allocations, a factor which derives from a combination of very short-term information along with macro, secular data. In short, my analysis quantifies policies, valuations, and fundamentals which have dragged down the prospects for global earnings acceleration (in the near-term). Notice that I refer to these statistics as decelerators, not necessarily absolute impediments.
2012-01-30 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Time is a luxury many investors seem not willing to indulge. A stop/start economy, seemingly moving valuations laterally, has them on the edge of their seat, hoping that something exciting happens to their net worth. Ominously, however, the recently completed holiday season comes replete with its own set of hangovers. Some economists now worry that households took on too much debt, and might cause spending in the ensuing months to contract. More foreboding is that banks and brokerages are reporting that some cash for our holiday expenditures was withdrawn from retirement fund accounts.
2012-01-30 Don't Fight The Fed, Part Three by Charles Lieberman of Advisors Capital Management
Growth is improving slowly, but insufficiently to satisfy the Fed. So Fed officials are reviewing new initiatives to promote growth, including buying mortgages in the market. The Fed's latest press release suggests that policy may remain unchanged for even longer than suggested earlier. But the Fed's willingness to remain so staunchly committed to growth remains "data dependent", as any significant increase in GDP growth could cause the Fed to backtrack. At the end of the day, the Fed is committed to an outcome, not to the calendar. And right now, it is committed to growth.
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.
2012-01-27 Global Infrastructure Investment Commentary - December 2011 by Team of Cohen & Steers
We are entering 2012 with a positive outlook for infrastructure securities based on better-than-expected U.S. economic data and credit conditions in Europe that show some signs of stabilizing. Even so, we recognize that it will take time for the global economy to achieve sustained growth. We will continue to monitor global monetary policies, having already seen the beginning of the next easing cycle. Despite the fact that the sector still carries meaningful political and regulatory risk, we believe infrastructure companies should perform well in 201
2012-01-27 12 Trades for 2012 by Komal Sri-Kumar of TCW Asset Management
Earlier this month, I suggested that investors closely watch 12 macroeconomic and financial indicators in deciding whether the world economy is improving or worsening (12 Indicators for 2012, January 3, 2012). Some readers wrote to ask if I would discuss what those indicators would mean for investment strategies. That was the genesis of the present piece which is intended to be consistent with expectations on the economic and financial fronts.
2012-01-27 Slow Road to 'Normal?' by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Market volatility has fallen and tight correlations have loosened, indicating to us some calming of fears and increased attention on more traditional economic and earnings-related news. This is a good sign for stocks in the foreseeable future. The Fed unveiled its new communication strategy after its most recent meeting, reiterating that interest rates will likely remain extremely low for some time. The European picture is brightening slightly and there may be a glimmer of hope for stock market investors. After a soft patch, global growth may be turning around.
2012-01-27 Heart of China Bull Beats Strong by Frank Holmes of U.S. Global Investors
With rising incomes and increasing urbanization, we believe China is pursuing the American Dream, and the government has shown great determination to build the necessary infrastructure along with a robust urban labor market. On a purchasing power parity basis, Chinas share of world GDP has risen significantly, from around 3 percent in 1985 to a current world share of nearly 16 percent.
2012-01-25 Rise of the Dragon by Mark Mobius of Franklin Templeton
With the debt situation in Europe continuing to further unravel and dim economic prospects in the U.S., many have come to believe that the star of the dragon descendants has the potential to rise even further in the coming years. Chinas GDP growth is expected to moderate to around 8.2% in 2012, which is high compared to developed economies. In this highly connected world, China is unlikely to be immune to the global slowdown, but I believe the Chinese government will utilize their substantial reserves and banking system to stimulate the domestic economy, as they did in 2009.
2012-01-25 Closed End Funds Investment Commentary December 2011 by Team of Cohen & Steers
The U.S. economic picture has brightened in recent weeks, a positive for equities and credit markets, and we expect slow sustained growth. However, Europe remains a risk. While recent fiscal, political and central bank initiatives to address the credit crisis in Europe are encouraging, the political landscape remains uncertain, and economic austerity measures will weigh on growth. With interest rates likely to remain near historical lows for an extended period, we believe that attractive spreads should continue to benefit the income-generating potential of leveraged closed-end funds.
2012-01-24 Contrarian Concern Too Much Bullishness? by John Buckingham of AFAM
While we expect volatility to remain elevated this year, and we have to concede that the markets have come a long way quickly, we see no reason to alter our 1400 year-end S&P 500 price target. Of course, that level actually might be a little low, considering where we stand today, but we focus our attention on the companies in which we are invested. After all, we own businesses like International Business Machines (IBM - $188.52), Intel (INTC - $26.38) and Microsoft (MSFT - $29.71), all of which posted impressive Q4 results last week, and not index funds.
2012-01-24 Economic Update by Richard Hoey of Dreyfus
The most likely outlook for the world economy in 2012 is a global growth recession. The economic outlook reflects disparate trends in different regions: a full-scale recession in Europe, stagnation or moderate recession in the nearby U.K., near-trend growth in the U.S., continued expansion in Japan and moderate slowdowns in China and most other emerging market countries. While European financial stresses are serious, the global shift towards monetary ease should help mitigate the spillover effect. The result should be a global growth recession rather than either a full-scale global recession.
2012-01-24 Risk Off, Risk On...? by Chris Maxey of Fortigent
Since the start of 2012, global risk markets have all but ignored the overhang of pessimism that frustrated the markets in 2011. For the most part, equity indices already surpassed their gains for all of last year. While such gains may ultimately prove sustainable, there remains a modicum of uncertainty that could rear its head quite suddenly, and quite viciously. In the meantime, an assessment of the investment landscape shows investors may have a legitimate reason for bullishness in the short term.
2012-01-24 The Plain Facts by Herbert Abramson and Randall Abramson of Trapeze Asset Management
We believe that, while Europe will suffer a recession in 2012 on its painful path to recovery, with or without Greece, the U.S. and Canada will likely see accelerating growth this year, as will China, India and Latin America. In fact, global growth should be above 3%, supported by record high total household wealth in the world, which has doubled since 2000. China and India provide half of the worlds economic growth. And manufacturing in India and China grew in December and should continue to do so from renewed government stimulation.
2012-01-23 Dodging a Bullet, from a Machine Gun by John P. Hussman of Hussman Funds
The interpretation best supported by the data is that recession risk remains very high based on the leading evidence and the typical outcomes that have resulted, but that the rate of deterioration has eased significantly, and it is simply unclear whether this is a temporary pause or a reversal. Rather than overstating the case one way or another, we remain strongly concerned about recession risk, but recognize the recent stabilization and the potential for a low-level continuation of that.
2012-01-23 The Path of Least Resistance Is Up by Charles Lieberman of Advisors Capital Management
There is so much skepticism with respect to stocks that most everyone who might be scared out of the market has already exited. Investors fear a credit meltdown in Europe following a Greek default. They also fear a weakening domestic economy. As a result, stock prices are depressed, despite solid earnings growth and a healthy corporate sector. If investor's fears are not fulfilled, stocks should move higher.
2012-01-23 Debt and Deleveraging: A Five-Pronged Solution by Mike "Mish" Shedlock of Sitka Pacific Capital Management
Citing the latest report on "Debt and Deleveraging" by the McKinsey Global Institute, Ambrose Evans-Pritchard proclaims a light at the end of the tunnel and that America overcomes the debt crisis as Britain sinks deeper into the swamp. However, there is a big difference between alleged "light at the end of the tunnel" and "America Overcomes Debt Crisis" as Pritchard claims. US consumers may be one-third of the way through, but US debt-to-GDP ratios are low only because unsustainable government spending has taken up the slack.
2012-01-23 Who's Afraid of the Big Bad Sovereign Debt Wolf? by Monty Guild and Tony Danaher of Guild Investment Management
Last Friday, the sovereign debt of nine European nations was downgraded by S&P. Now, there are only four European nations whose sovereign bonds carry the highest AAA rating: Finland, Germany, Luxemburg and the Netherlands. Since the sovereign debt refinancing and potential default problem still goes unsolved, we foresee the markets having to keep digesting more waves of bad news. Yet the fear created by such news is diminishingnot because of a shortage of negative news headlinesbut because European banks are more protected by the many lifelines that central banks keep throwing them.
2012-01-23 Focus Shifts from Fear to Fundamentals by Kristina Hooper of Allianz Global Investors
Kristina Hooper, head of portfolio strategies, highlights last week's rally in stocks as a launching point for investors to overcome anxiety and regain focus on valuations, corporate earnings and improving macroeconomic conditions.
2012-01-20 Equity Investment Outlook by John Osterweis and Matt Berler of Osterweis Capital Management
We believe that 2011 was an aberration in terms of stock market correlations and that gradually stocks will once again perform based more on their individual results and outlooks and less on the markets en masse risk on, risk off vacillations. Despite our near-term caution, which reflects a very uncertain economic and political climate, we are increasingly convinced that equities are poised for solid longer-term returns. Over the past ten years, stocks generally underperformed bonds. This is highly unusual. Stocks are now reasonably priced and profits are expected to expand.
2012-01-20 The Debate Over "One China" by Sherry Zhang of Matthews Asia
Taiwans recent presidential race, which saw the re-election of President Ma Ying-jeou, generated much mutual interest both in Taiwan and in mainland China, where millions reportedly used social media networks to comment on the developments. The Kuomingtang (KMT) partys control for another four years brings up the topic of One China that so often dominates headlines and online chatter.
2012-01-20 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Relative strength integers are congesting at resistance points each time our New Year rally attempts to gain traction. I am skeptical that we can sustain an upcycle. Although short cycle rallies are tempting, the dominant secular theme always prevails. We have a lot of work to do to dismantle the negative fundamentals which precipitated our current bear market. Thats not to suggest that portfolios cannot make money in here. Our portfolios have found success in mid-maturity corporate bonds, as well as trading with a shorter pulse in utilities, basic materials and technology shares.
2012-01-20 It May Take a Dragon to Breathe Fire into Markets by Frank Holmes of U.S. Global Investors
Ive found many people are particularly energized about predicting a hard landing for Chinas economy, but I believe the country is no sinking ship. China isnt fast-approaching an iceberg in the dark of the night like the Titanic. Beijing has long been anticipating the ice chunks and subtly adjusting the rudder around inflation without steering the economic ship too far off course.
2012-01-19 Asia-Pacific Portfolio Managers Discuss PIMCOs Cyclical Outlook by Robert Mead, Isaac Meng and Raja Mukherji of PIMCO
We expect emerging Asia growth below the market consensus due to its less aggressive policy responses compared to 2008-2009.
The Asia-Pacific region is less affected than others by eurozone turmoil but contagion is still a risk through direct trade and the regional production chains that characterize Asias export-oriented economies.
In this environment, we favor Australian government bonds for their high credit quality, low-beta currencies such as the Chinese yuan, corporate issuers that have delevered, covered bonds and mortgage-backed securities.
2012-01-18 Americas Economic Review: Fourth Quarter 2011 by Team of Thomas White International
As the year 2011 ended, the clouds of pessimism about the economy lightened across the Americas region, as key data trends suggested that earlier fears of a steep downturn were unfounded. Financial markets stabilized as investors turned more optimistic about the outlook for 2012. Concerns over external risks, particularly about the European fiscal crisis, also calmed down as hope was renewed that enduring political solutions will be found for the fiscal challenges facing the developed countries.
2012-01-18 The Bigger the Base, the Higher the Space by Pamela Rosenau of Hightower Advisors
Overall, people around the globe are underinvested or invested in the wrong asset classes. As data point continue to strengthen, coupled with the fact that income (and sustainability of income) are becoming a scarce commodity, a significant rally in the equity markets could ensue. As some technical analysts may suggest, the bigger the base, the higher the space. As U.S. blue chip stocks have lagged for more than ten years, they have built a base that has prepared these stocks for liftoff.
2012-01-17 Martin Wolf on the Eurozone and Beyond by Robert Huebscher (Article)
Martin Wolf is widely considered to be one of the world's most influential writers on economics. Since joining the Financial Times in 1987, where he is chief economics commentator, he has received numerous awards for excellence in financial journalism. In this interview, he discusses the Eurozone crisis and prospects for global economic growth.
2012-01-17 GMO: Something's Fishy in China by Robert Huebscher (Article)
A wide gulf separates the two most prominent views regarding China's future. Faced with slowing economic growth, one side says its leaders will deftly navigate a soft landing, while the other claims it will face an implosion similar to those that befell Japan 20 years ago and the US in 2008. Count GMO, a firm that has built its reputation on its ability to identify a bubble about to pop, in the latter camp.
2012-01-17 An Essential Client Conversation “Will I be able to pay for my hip replacement at age 85?” by Dan Richards (Article)
Advisors face a big challenge in planning for boomers. Your assumptions about how long they'll live and the nature and cost of their lifestyle as they age will dramatically impact your planning decisions. Conversations with boomers about those topics and about the implications of funding health care are difficult but important.
2012-01-17 A Nobel Laureate’s View on the US A Debt Problem, but an Unemployment Crisis by Dan Richards (Article)
Peter Diamond is a professor emeritus at MIT and the winner of the 2010 Nobel Prize in Economics for his work on unemployment and labor market policy. In this interview, he discusses the degree to which US unemployment is a structural problem and whether it can be reduced through fiscal stimulus. This is the transcript of the interview.
2012-01-17 Dwelling In Uncertainty by John P. Hussman of Hussman Funds
When unseen states of the world have to be inferred from imperfect and noisy observable data, there are a few choices when the evidence isn't 100%. You can either choose a side and pound the table, or you can become comfortable dwelling in uncertainty, and take a position in proportion to the evidence, and the extent to which each possible outcome would affect you.
2012-01-17 Good News or Cheap Stock Prices, but Not Both by Charles Lieberman of Advisors Capital Management
Investors often fail to appreciate that they can have either good news or cheap stock prices, but not both. It is good news that provides confidence and elevates stock prices to high valuations. Bad news undermines confidence and depresses stock prices. This maxim, first expressed by Joe Rosenberg, Chief Investment Officer for Loews Corp., and repeated in Barron's, applies most appropriately to prevailing stock valuations and implies an exceptional buying opportunity for those who can take a longer term investment perspective.
2012-01-17 Thinking About the Implications of Rising Euro-Exit Risks by Myles Bradshaw of PIMCO
Even if the euro survives this crisis intact, the market will price in uncertainty as the crisis evolves. Scenario planning is indispensable for investors.
Politics may prevent the European Central Bank from buying government bonds, but it could provide funding support via a special government or banking intermediary. This balance sheet expansion could be a negative for the euro.
Within the eurozone we believe investors should look at alternatives to the government sector, including agency, regional government and covered bonds.
2012-01-17 Q4 GDP - No Recession In Sight by Brian S. Wesbury and Robert Stein of First Trust Advisors
Three months ago, we added up the major components of real GDP for the third quarter and predicted a solid annualized growth rate of 3.5%. Instead, the advance report came in at 2.5% and was later revised down to a tepid 1.8%. We were too high on inventories as well as government purchases, and that made our overall forecast too high. However, our estimates of consumer spending, business investment, home building, and the trade balance were all pretty darn close to the mark. Final sales (GDP excluding inventories) grew at a 3.2% annualized rate.
2012-01-17 Global Overview by Team of Thomas White International
Fears of a recession in developed economies such as the U.S. have receded as recent data releases indicate that economic activity has not weakened as much as thought earlier. Though European economies are still expected to see a decline, there is now increased optimism that the monetary union and the common currency will survive the crisis. Large European countries such as Spain and France have been able to sell new bonds at relatively affordable costs and the European Central Bank has cut its benchmark rate again, besides extending additional liquidity support to the regions banks.
2012-01-17 In Praise of Radhanath Sikdar by Christian Thwaites of Sentinel Investments
This week we saw: France and Austria downgraded, Greece take a step closer to default, new bond auctions from Spain and Italy that, while below last month's, had pitifully low bid/cover ratios and Hungary lurch again in its bond prices and currency...down 11% and 22% in last 3 months. On the other side of the trade, Germany auctioned 6-month paper at a negative 0.012%. So this is what happens: fiscal consolidation hits private consumption and investment without (because of a pegged exchange rate system) a rise in net exports or higher lending. Mr. Sikdar would have figured this out long ago.
2012-01-17 The Impact of the Falling Dollar by Jonathan A. Shapiro of Kovitz Investment Group
Regarding the progress of the businesses we own, a useful metric we track is the Price-to-Value ratio. Conceptually, this statistic measures the current price of a portfolio company to its intrinsic value, conservatively estimated through our multiple valuation techniques. For example, Wal*Marts current P-to-V Ratio is 80%, determined by taking its roughly $60 stock price divided by our current fair business value estimate of $75. This implies, based on what we know today, Wal*Mart is roughly 20% undervalued, providing approximately 25% upside from current levels (not including dividends).
2012-01-17 An Unhappy New Year in Europe by Milton Ezrati of Lord Abbett
Though the most intense pressure from Europes financial crisis will likely abate in the coming year, its lagged effects seem poised to put the continent into recession. Even if in the next few months the governments of the EU and the leadership of the ECB act with more resolve than they did last year, any favorable economic effect will take time to develop, leaving Europes economies to suffer in the interim. The most optimistic forecasts on Europe expect negligible growth. More pessimistic forecasters look for a 23% drop in the continents real GDP.
2012-01-13 Quarterly Review and Outlook, Fourth Quarter 2011 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
As the U.S. economy enters 2012, the gross government debt to GDP ratio stands near 100%. Nominal GDP in the fourth quarter was an estimated $15.3 trillion, approximately equal to debt outstanding by the federal government. In an exhaustive historical study of high debt level economies around the world, it was demonstrated that when a countrys gross government debt rises above 90% of GDP, the median growth rates fall by one percent, and average growth falls considerably more. This study sheds considerable light on recent developments in the US.
2012-01-13 What the Next Decade Holds for Commodities by Frank Holmes of U.S. Global Investors
What will happen over the next 10 years? I believe the supercycle of growth across emerging markets will continue with rising urbanization and income rates. This bodes well for commodities, especially copper, coal, oil and gold, and well continue to focus on companies that will benefit the most from these much-needed resources.
2012-01-13 Pocket of Strength: Bright Economic Lights of Texas by Frank Holmes of U.S. Global Investors
The Milken Institute released its 2011 list of Best-Performing Cities Index and topping the list of 200 large U.S. metropolitan areas was San Antonio, Texas, home of U.S. Global Investors. The Alamo City jumped to the No. 1 spot from last years 14th place. Milkens index measures U.S. cities economic performance based on job creation, retention and quality as well as where businesses are growing and thriving.
2012-01-13 Euro Fears by Richard Michaud of New Frontier Advisors
Global investing is likely to be very challenging in the year ahead. While the euro has so far been resilient, many eurozone countries face substantive debt refinancing in the coming year. Given the current political, structural, and economic reality there is no simple cure to the euro crisis. The ECBs evolving pursuit of liquidity policies and potential interest rate cuts may be helpful, but major political changes may be necessary. Beyond Europe, the remainder of the global economy may be very dependent on a continuing expansion of the American economy and improving consumer demand.
2012-01-13 Time to Climb? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
The US economy continues to expand and has recently picked up momentum. Investors have been focused on European and US debt problems, but that may set up an environment for stocks to move higher. Many challenges await Congress. We're not optimistic that much progress will be made, but the rhetoric will almost certainly heat up as late-year elections loom. Recent policy decisions in Europe provide some hope but the region's banks continue to struggle and are pulling back on lending, which likely impedes growth. In China, policymakers attempt to keep growth from dipping below healthy levels.
2012-01-12 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
We recognize that fundamental conditions in the euro zone and the aging US economic recovery make the 2012 earnings outlook somewhat less clear and less robust than it was in 2011. While equity valuation appears supportive and US economic data is moderately improving, unexpected events can upset the balance making for greater than desired volatility, as seen in 2011. We believe equity performance for 2012 will hinge as much on macroeconomic developments as on company-specific business execution. A trading range both above and below current levels should be expected for 2012.
2012-01-12 A Look Back (2011) and Forward (2012) by Team of American Century Investments
The major US equity markets ended 2011 not far from where they began in terms of their index values. Now that the New Year has arrived, the question is where these markets might be headed in 2012. Three important considerations behind this question are: 1. How key macro-factorse.g. the EU debt crisisare or arent addressed 2. Can U.S. corporations continue to deliver the earnings growth they have for the past three years 3. What are the prospects for US consumers and householdsan increasingly important consideration as the global recovery slowed in the fourth quarter of last year.
2012-01-12 Global Investment Outlook by Team of Aberdeen Asset Management
Policy makers globally face the challenge of supporting growth while managing debt levels, and still remaining aware of inflation. The Eurozone crisis is a further complication, and has the potential to make matters more difficult. That being said, there is still growth in the world economy, though perhaps more disparate than in previous cycles. Given the inter-connected nature of countries in the globalized world, there are few areas truly insulated from turmoil. However, there are safer-havens where clearer policy frameworks and the ability to enact solutions more robustly are helpful.
2012-01-12 Emerging Europe: Fourth Quarter 2011 Economic Review by Team of Thomas White International
The European Bank for Reconstruction and Development was established in 1992 to help the former communist states in their transition to market-based economies. The EBRDs mandate includes investments in Russia and its satellite states such as Poland and Hungary. The Czech Republic, which was the first country to complete the transition process successfully, has come out from under the EBRD umbrella. According to the banks latest forecasts, GDP growth in the central and eastern European region will be approximately 4.5 percent in 2011 and about 3.2 percent in 2012.
2012-01-11 And That's The Week That Was by Ron Brounes of Brounes & Associates
After a meaningless breakeven year, the S&P 500 looks to better its performance in 2012.A recent CNNMoney survey speculates the benchmark index will gain 7% in the current year.While the economic data has been positive as of late, all eyes shift to corporate earnings and Alcoa kicks off the season in the coming days. Retail sales highlight the economic calendar and investors get a better feel for the true results of the holidays.While sales looked strong throughout, mass discounting undoubtedly cut into profits and some retailers are now rethinking the success of the markdown strategy.
2012-01-11 Emerging Asia Pacific: Economic Review 4th Quarter 2011 by Team of Thomas White International
Emerging Asia Pacifics economic expansion slowed considerably beginning in October 2011. In many economies, export growth along with investments grew at their slowest pace since the summer of 2009. Although the Purchasing Managers Index improved across key economies in November the index was still under the 50 mark, which generally means a contraction in manufacturing activity. Almost all the countries in emerging Asia Pacific posted slower third quarter expansion over the year-ago period.
2012-01-11 Aberdeen Chile Fund, Inc. Fund Manager Interview by Team of Aberdeen Asset Management
Chile has developed a middle class quicker than many of its Latin American peers and consequently, more robust domestic consumption trends. Chile has formed close ties with China in recent years and in 2005 became the first country in Latin America to sign a Free Trade Agreement with the Asian nation. Chile has proven to be a model to the Latin American region in regards to good corporate governance and transparency. Though Chile will not be fully insulated from the global downturn, the countrys longterm fundamentals remain sound.
2012-01-10 Gundlach on the Key Risk for Bond Investors by Robert Huebscher (Article)
Watch out if you own a bond fund that underperformed its benchmark by 2% or more last year, as most did. Rather than put their careers at risk by suffering a second year of poor performance, those fund managers will turn to indexation, according to DoubleLine’s Jeffrey Gundlach. And since the Barclay’s Aggregate Index holds nearly 35% of its assets in Treasury bonds with near-zero yields, its investors will endure poor returns.
2012-01-10 Using the ECRI WLI to Flag Recessions by Dwaine van Vuuren (Article)
In September 2011, the ECRI proclaimed a new U.S recession would begin sometime in the coming year. It based its prediction on a host of its own internal long-leading indexes, together with its widely followed weekly leading index (WLI). I want to focus on the proper use of the WLI and examine its accuracy in recession dating, in order to put this current recession call into context.
2012-01-10 The Dollars Lucky Streak by Peter Schiff of Euro Pacific Capital
All self-perpetuating virtuous cycles are vulnerable to a sudden break in the positive feedback loop. When reality rears its ugly head, and the spell breaks, the reverses can be vicious. It happened with dot com stocks, it happened with real estate, and I believe it will happen with the dollar and Treasuries. Even if Europe does not resolve its problems, the day of reckoning will still eventually arrive. The unfortunate truth is that the longer it takes, the worse it will be, as we will have that much more debt to reckon with.
2012-01-09 Structurally High Unemployment for a Decade by Mike "Mish" Shedlock of Sitka Pacific Capital Management
Since 2008 I have been stating the US would have "Structurally High Unemployment for a Decade". Indeed, based on historical trends in labor force growth, the expected unemployment rate for the number of jobs created during the recovery would be well north of 11%. Yet, the unemployment rate is currently an artificially "low" 8.5% (not that 8.5% is anything to brag about). To show how difficult it will be to bring that rate down, let's take a look at job growth (or losses), for the last three decades (numbers in thousands).
2012-01-09 Employment Disappointment by Milton Ezrati of Lord Abbett
Employment gains of late have taken the edge off peoples worst recessionary fears, but they nonetheless remain fundamentally inadequatefar short of historical norms and the very human needs of the now-huge army of unemployed. In the coming year, continued economic growth should improve the situation, but only marginally. Employment will increase only slowly. By the end of 2012, still more than 8% of the work force likely will remain unemployed.
2012-01-09 Lots of Bulls, Few Bears by John Buckingham of AFAM
The market goes down and investors become bearish, the market goes up and they become bullish. Seems like folks will one day wise up as buying stocks on sale should make shoppers more excited than waiting to pick them up after theyve advanced, but this is evidently not the time to break the spell. While we do worry that the rally, albeit modest, in stocks heading into Q4 earnings reporting season, which kicks off this week, could succumb to a little selling (buy the rumor, sell the news), we remain upbeat in our view for the equity markets in 2012.
2012-01-09 Will Housing Follow Job Growth? by Kristina Hooper of Allianz Global Investors
An improving job market and increased manufacturing activity suggest a stronger economy, but the housing sector remains weak. However, low interest rates, less debt and more affordable homes could turn housing into a positive catalyst.
2012-01-09 Steady As She Goes Into Early 2012 by Scott Brown of Raymond James Equity Research
Much like the situation last year, the economy appears to be poised for improvement. Again, there are still some headwinds and a number of downside risks to the growth outlook and much will depend on developments in Europe and in the oil market over the next few months. Theres still some prospect for further accommodation from the Federal Reserve we may see another round of asset purchases announced later this month.
2012-01-09 Corporate Profits Hit a Wall, But Stocks a Buy? by Chris Maxey of Fortigent
Equity markets finished their first week of the New Year with positive gains, with the S&P 500 and Dow Jones Industrial Average rising 1.6% and 1.2%, respectively. Those gains, and more, occurred in the first 30 minutes of trading on Tuesday, the first trading day of 2012. From there, markets traded choppily through the remainder of the week, as lingering problems in Europe dampened risk appetites. Investors returning from holiday break received more positive news regarding the US economy, particularly within manufacturing and employment.
2012-01-09 Middle East/Africa Fourth Quarter 2011 Economic Review by Team of Thomas White International
Weakening global activity and further political uncertainty are the foremost risks that are likely to affect the Middle East and Africa (MEA) regions performance. The IMF report notes that oil exporting nations of the MEA region have benefited from continued high energy prices and are slated to finish off 2011 clocking in a GDP growth of 5% before easing to 4% in 2012. However, these countries do face a downside risk in the likelihood of fiscal and debt challenges in the developed nations that could adversely impact global activity and international oil prices.
2012-01-06 Doing Nothing Nothing Done by Cliff W. Draughn of Excelsia Investment Advisors
Somehow, this is about the only time of year when most people reflect on the past, ponder the present, and plan/predict the future. There are several themes we have identified that will affect our asset-allocation discipline for 2012. As I commented in November, the market risks are geopolitical and the sentiment is driven by government policies. Our themes for 2012: Germanys Euro, Inflation versus Deflation, Election Year and It Isnt All Bad . For the year 2011, stocks basically broke even, although the 37 days where the Dow was plus or minus 200 points certainly made for a wild ride.
2012-01-06 Euro Fears by Richard Michaud of New Frontier Advisors
The euro crisis has dominated financial headlines and threatened global economic growth for the last two years. The European Union (EU) has repeatedly failed to articulate an effective plan to address Europes debt problems and deteriorating finances. German demands for austerity and economic rectitude by eurozone members, while politically popular in Germany, ignore basic principles of orthodox Keynes-Samuelson macroeconomics for dealing with a financial slump. There is no historical example of austerity leading to growth.
2012-01-06 And Thats The Year/Quarter That Was... by Ron Brounes of Brounes & Associates
Global geopolitical events continue to impact all investments markets. Just when Europe seemed to be taking positive steps to move passed crisis mode, along come Spain, Italy, and Hungary to remind investors that the road to recovery will be paved with many bumps along the way. A nuclear Iran presents huge concerns and additional sanctions could cause new crude supply challenges that may prompt inflation to resurface. The recent favorable labor releases woke the consumer from hibernation in time for the holidays, but will the enthusiasm last once the season ends?
2012-01-06 Dividend Champions a Rare Undervalued Opportunity by Chuck Carnevale of F.A.S.T. Graphs
We believe that based on earnings, 2012 is starting out with the stock market undervalued. We believe in the long-term ownership of great businesses purchased at sound and attractive valuations. Consequently, we view the stock market as merely the store that we shop at in order to buy the businesses we want to own.
2012-01-06 Have Winds Shifted to Provide Relief to Investors? by Frank Holmes of U.S. Global Investors
We believe the winds are shifting to bring needed relief to global investors. Weve seen improving economic data from the U.S. lately, and this positive news from the worlds largest economy, along with an improving Chinathe worlds most populated countryoffsets the negativity in Europe.
2012-01-05 Flight 2012, Cleared to Hold? by Mike Boyle of Advisors Asset Management
Commercial air travel can be pretty frustrating these days, but nothing compares to the call from the cockpit as you approach your destination that the flight is entering holding. Immediately many questions enter travelers minds including: Why? How long? Where will we land? Given the S&P 500 essentially experienced a holding pattern in 2011, many investors must be asking themselves similar questions right now. Specifically the S&P lost .04 points last year as it began 2011 at 1257.64 and ended the year at 1257.60.
2012-01-05 Finding Real Value in Real Estate Investing: REITs by Team of Managers Investment Group
REITs are not an asset class that investors typically consider for their portfolios. Yet REITs offer many benefits that make them attractive. In this paper, we explore what REITs are, the many advantages they bring, and why you should consider them for your portfolio.
2012-01-05 U.S. Dollar & Currencies: Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
In 2012, policy makers around the world may be driven by the realization that the theme of 2011 was not a Euro-specific crisis, but simply another stage in a global financial crisis. Central bankers may ramp up their printing presses in an effort to limit contagion concerns. As such, the currency markets may be the purest way to take a view on the mania of policy makers. Market movements may continue to be largely driven by political rhetoric. We dont believe this trend will abate over the foreseeable future, especially given the likely leadership changes throughout several G-7 nations.
2012-01-05 New Year, Old Worries by Team of BondWave Advisors
2011 was a volatile year where the old guard of the global economy was plagued by weak economies, bloated debt levels, tight credit, and action against normally stellar credit ratings. Europe dominated the headlines, both in December and 2011 overall, and continues to struggle. We discuss these issues and provide additional insight into the US Treasury, Corporate and Municipal Bond Markets.
2012-01-04 Fundamentals March on Despite Global Risks in 2012 by Douglas Cote of ING Investment Management
The two primary drivers of market performancefundamentals and global risksacted in opposition in 2011. It is critical to understand the hierarchy of influence of these drivers in order to understand the current market and to forecast its future direction. Although spikes in global risk may make headlines and cause temporary shocks to investor confidence, the markets path ultimately comes down to the strength of the underlying fundamentals. We expect 2012 will mark the third consecutive year that fundamentals relentlessly march forward despite ample global risks.
2012-01-04 Towards the Paranormal by Bill Gross of PIMCO
The New Normal, previously believed to be bell-shaped and thin-tailed in its depiction of growth probability and financial market outcomes, appears to be morphing into a world of fat-tailed, almost bimodal outcomes.
A new duality credit and zero-bound interest rate risk, characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion. Until the outcome becomes clear, investors should consider ways to hedge their bets.
2012-01-04 On Tap for 2012: More Bond Market Transparency by Matt Tucker of iShares Blog
In 2011, 102 new fixed income funds launched across exchanges in Europe, Canada, Asia and the United States. How will the landscape continue to evolve in 2012? Matt Tucker is here to provide a few insights, including his expectation that new fund launches will help to make the bond market more transparent.
2012-01-03 US Recession - An Opposing View by Dwaine van Vuuren (Article)
A large number of reputable analysts and companies are forecasting a new U.S recession on the immediate horizon. Attracting the most attention is ECRI, which made a public recession call on September 30th and several television reaffirmations since. But an examination of a broader range of other composite economic indicators shows that sole reliance on ECRI's forecast would be misplaced.
2012-01-03 The Triumph of Optimism by Scott Minerd of Guggenheim
Over the course of history there is a certain triumph of optimism. Betting against the column of progress of human history and the innovation of mankind has always proven to be a losing proposition. In the short run, there are times to become cautious, as the past five years have exemplified. Broad-based economic expansion and its attendant outsize investment returns follow contraction and panic just as the day follows the night. As dark as the current environment may seem, the sun will come up tomorrow. When it does, I believe it will shine favorably on the optimists of today.
2012-01-03 The Right Kind of Hope by John P. Hussman of Hussman Funds
We enter the year with great hope. But our hope is not for continued speculation and the maintenance of rich valuations (that only look reasonable because long-term cyclical profit margins are at a short-term peak about 50% above their historical norms). Our hope this year is for a return to a proper investment opportunity set - where saving is encouraged and rewarded by sufficiently high prospective returns, and the cost of capital is high enough to discourage high-risk, low-return investments and unsustainable fiscal deficits.
2012-01-03 Good Defense, Slow Progress a Win for 2011 by Kristina Hooper of Allianz Global Investors
The stock market finished flat for the year, but an absence of loss in the face of a wave of negative news coupled with improving economic conditions are cause for optimism in 2012. While the stock market took us on a wild ride to nowhere, investors are better off than they were a year ago.
2012-01-03 Thoughts About 2012 by Charles Lieberman of Advisors Capital Management
Major issues cloud the outlook for 2012. Fiscal policy remains in limbo, while the country revs up the presidential campaign. Finances in Europe remain a work in progress, yet the risk of a globally troublesome misstep remains. There is also no shortage of geopolitical risks around the world, including Iran, the entire Middle East, and a new regime in North Korea. Domestically, the economy is gathering some upward momentum. But will the economy be permitted to build on these trends, or will some external factors undermine the recovery? The answer is unclear, which is why market is so cheap.
2011-12-31 Remarkable Resilience by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Despite a remarkable series of crises, the stock market was roughly flat on the year. Earnings increasing, inflation decreasing, and economic data improving, the environment for a renewed upward move may be in place to start 2012. There seems to be little hope from DC for any relief in the near term, but 2012 brings an election cycle that will likely have a major impact on the future of the US. A near-term implosion in Europe seems to have been avoided but real solutions remain absent and the risks for a greater economic pullback are growing, which would likely have global implications.
2011-12-30 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Leave it to global austerity to bring confidence in markets to a grinding halt. Our global credit crisis allows for very little wiggle room in addressing both a moral and economic bankruptcy that has now engulfed the worlds financial markets for four years specifically, and nearly two decades, generally. In recent weeks, efforts to create multinational solutions worldwide, and bipartisan solutions domestically, have erased some doubt that the problem of overspending will be addressed, but only quenched an immediate taste for something positive to occur.
2011-12-30 Case for Sustained $100 Oil by Frank Holmes of U.S. Global Investors
China, along with other emerging markets, and the European Central Bank are in the early stages of a global easing cycle, primarily by cutting interest rates to spur growth. Also, the Federal Reserve should remain stimulative. These government actions set the stage for sustained, or perhaps higher, demand for oil. Geopolitical threats remain on the horizon, and could also be a positive catalyst for oil.
2011-12-29 On the Sharia and Islamic Finance by William Maeck of Seafarer Capital
The practice of banking according to Islamic principles, or the Sharia - the moral code and religious law of Islam - is relatively unknown within developed nations. However, in many parts of the developing world, Islamic banking is a burgeoning industry. It deserves closer scrutiny not only because it is bringing new and otherwise un-banked customers into the fold, but also because it serves as an alternative model for finance and it may manage certain types of risk better than conventional Western models.
2011-12-29 2012 Offers Few Reasons for Optimism by John Browne of Euro Pacific Capital
In 2011, politicians of the U.S. and EU set their economies on a rendezvous with economic and financial disaster. If one assumes as I do that no leader on either side of the Atlantic has the courage to face the music, then there can be little reason for optimism in 2012.
2011-12-28 Delayed LDI Implementation: Making it Worth Your While by Rene Martel of PIMCO
With interest rates so low, many defined benefit plan sponsors have delayed implementing or expanding LDI programs, often using intermediate duration bond portfolios instead.
Traditional intermediate duration portfolios may not offer the most attractive yields or the best credit match for pension liabilities, and may make the transition to long-term bonds difficult later.
We believe plan sponsors in a waiting mode should consider switching to long duration portfolios with a synthetic overlay in an effort to reduce duration exposure.
2011-12-28 Was the 2011 Economy a Miracle? by Brian S. Wesbury and Robert Stein of First Trust Advisors
Government spending may be falling as a share of GDP, but it is still very high. This limits job creation and holds back real GDP growth from its potential. Excessive regulation does the same.And while an easy Fed boosts growth, it also creates inflation, which will become more of a problem in the years ahead.
Netting all this out, the scale is still tilted toward growth.New US technologies and the productivity that they create are so powerful that they are overwhelming the drag from bad government policies.Compared to forecasts of recession, its a miracle.Look for another one in 2012.
2011-12-28 Debt, Default, and Delinquency by Milton Ezrati of Lord Abbett
This column looks at how the household and business sectors have lightened their debt burdens and how delinquency rates have improved as a result. The record is plain. As the 2008 crisis broke, the American private sector moved dramatically to reduce its dependence on debt. From mid-2008 to the quarter just ended, the household sector cut its overall debt burden by a cumulative $689 billion or about 5%. Mortgage debt, naturally, fell the most, in part because of foreclosures, but also because households voluntarily reduced their exposure.
2011-12-23 Should the Definition of the Central Bank Lender of Last Resort Function Be Expanded? by Paul Kasriel of Northern Trust
If the ECB needed to expand its balance sheet to maintain the specified rate of growth in combined ECB and MFI credit, the ECB could purchase in the open market the requisite amount of pan-euro bonds rather than individual-country sovereign debt. In this way, the ECB could fulfill its expanded lender-of-last resort function without taking on individual-country sovereign-debt credit risk.
2011-12-23 Outlook 2012: Living In Interesting Times by Victoria Marklew, Asha G. Bangalore, James A. Pressler, and Ieisha Montgomery of Northern Trust
Setting aside the debate over the appropriateness of various policy directives, this Outlook considers which countries or regions are vulnerable as we head into 2012. Not surprisingly we start off with Europe, then go through the U.S., industrialized Asia, and Latin America, finishing with a brief discussion of the political powder keg that is the Middle East.
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.
2011-12-23 Banking Reform: Hopefully Britannia Creates A Wave by Monty Guild and Tony Danaher of Guild Investment Management
The British government has set in motion this week a future overhaul in the way that individual banks do business. British banks will be required to separate their basic lending and deposit operations from investment activities involving trading and speculation on behalf of clients and the banks themselves. This should mean that the deposits of retail customers will be shielded and protected from bank investment and trading ventures.
2011-12-23 Emerging Markets Real Estate by Team of Cohen & Steers
Emerging markets real estate securities had a negative return in November following an exceptionally strong October. Worries about the global economy and Europe continued to weigh on equities broadly, while signs of slowing growth in China were of particular concern to developing countries. A sharp rally in the last few days offset some of the decline, as China cut its reserve requirement ratio for the first time in three years and central banks announced a coordinated effort to provide much-needed liquidity to European banks.
2011-12-23 Global Infrastructure Investment Commentary by Team of Cohen & Steers
The investment environment is likely to continue to be characterized by heightened risk, including political risk as governments institute austerity measures and posture ahead of upcoming elections. The delay in the Keystone XL pipeline in the United States and Canada and the challenge faced by Central Japan Railway in confirming government financial assistance underscore these risks. Positive fundamental trends do continue, such as in the North American pipeline space, where companies continue to benefit from the need to reshape the regions energy grid.
2011-12-22 The Corporate Cash Myth by Neeraj Chaudhary of Euro Pacific Capital
Despite huge amounts of cash on their balance sheets, America's largest companies are as broke as the rest of the country, and not only are they in no position to hire workers, but higher interest rates could result in more layoffs at a time when the nation can least afford it. Given these factors, economists, journalists and politicians should be applauding corporate cash reserves not deriding them. Given that a real recovery will not come until America as a country has paid down some of its debt, we should not be urging our corporations to throw caution to the wind.
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 Dennis Gartman Explains His Call on Gold by Robert Huebscher (Article)
Dennis Gartman has been publishing his daily commentary, The Gartman Letter, since 1987. He's been in the news lately because of a call he made last week on the price of gold. In this interview, he discusses the reasons behind that forecast.
2011-12-19 When "Positive Surprises" Are Surprisingly Meaningless by John P. Hussman of Hussman Funds
How much importance should we put on the fact that economic data has delivered positive surprises in recent weeks? Don't all these surprises significantly short-circuit the risk of probable recession? As economist John Williams observes, "starting in October, a divergence developed: Whereas year-to-year change in BLS estimated payroll earnings continued at a more-or-less constant, positive level, tax receipts fell quite markedly. Where the Treasury numbers reflect full reporting, the BLS data are sampled..modeled and..revised...the BLS has overstated average earnings..in recent months."
2011-12-19 AA Is the New AAA by Charles Lieberman of Advisors Capital Management
The U.S. was downgraded to AA some months ago. France, as expected, was downgraded to AA this weekend. China is AA. Europe's six remaining AAA countries are under review and will likely also be downgraded to AA shortly. It hardly matters. AA is the new AAA. The markets understood well before the rating agencies that European sovereigns were mismanaging their finances and rendered their judgment that these budget deficits need to be reduced. Europe must do so before its credit problems spread. Progress is being made, albeit painfully slowly.
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.
2011-12-19 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
I expect that the year-end will be rife with psychological mania of this kind, yielding to an extremely volatile attention span. Despite the numbers, a new landscape is emerging which trades upon hype, happiness, and expectation. It could cost us the opportunity to tune in to dormant themes that might be next years capital gains winners, or, possibly, to overlook them altogether while wallowing in excess negativity.
2011-12-19 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
I expect that the year-end will be rife with psychological mania of this kind, yielding to an extremely volatile attention span. Despite the numbers, a new landscape is emerging which trades upon hype, happiness, and expectation. It could cost us the opportunity to tune in to dormant themes that might be next years capital gains winners, or, possibly, to overlook them altogether while wallowing in excess negativity.
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?
2011-12-16 Making Sense Of The European Chaos by Monty Guild and Tony Danaher of Guild Investment Management
Developments in Europe have dominated the worlds economic headlines in recent days and have obscured some good news from China. In this weeks newsletter, we will cover the background of these important events and their meaning to global investors. We are recommending using the gold market decline to add to gold positions, we continue to hold other long term positions.
2011-12-16 Growth and Value: Esterline Technologies - a Leading Defense Contractor by Chuck Carnevale of F.A.S.T. Graphs
With the amount of volatility seen in the equity markets today, many people seem to believe that the old proven practices of investing in solid businesses for the long run no longer apply. But its important to remember that there is a significant distinction between true investing and speculating. And its even more important to recognize that the level of risk taken by speculators is significantly greater than the amount of risk assumed by investors.
2011-12-16 Early Santa Arrival? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Stocks have continued their seesaw pattern around developments in the European debt crisis. The major indices remain in the wide range we've been in for the last two years. Factors are setting up for a potential break above that range in the coming year. Expectations about progress in Washington are extremely low and near-term the biggest issues are the proposed extensions of the payroll tax cut and unemployment insurance. The increasing populist rhetoric is not helpful and any chance of major debt-reducing legislation occurring before the 2012 election seems remote.
2011-12-16 Striking Portfolio Balance with Gold Stocks by Frank Holmes of U.S. Global Investors
Back on August 22, I wrote that gold was due for a correction and that it would be a non-event to see a 10 percent drop in gold. I wrote, This would actually be a healthy development for markets by shaking out the short-term speculators. This mornings gold price of $1,590 is about 15 percent from the high, which is a little greater than predicted, but a non-event just the same. I believe the long-term story remains on solid ground.
2011-12-15 The European Overhang and Odds of a Meltdown by Russ Koesterich of iShares Blog
Earlier this week, I noted that very elevated Italian and Spanish bond yields remaina short-term risk for both the European and global economies.Several other major European-related risks also continue to threaten markets.1)In the short-term, a key risk remains European banks. While bank funding needs have been addressed by European leaders, capital adequacy still is an issue. 2)A broader risk remains in the form of the interplay between economic policy and domestic politics. In efforts to solve Europes debt problems, domestic political considerations have too often trumped economics.
2011-12-15 Asia: Diverging Outlooks Going Into 2012 by James A. Pressler of Northern Trust
With most of the industrialized world focusing on all things European, we thought it might be worthwhile to see just what was happening on the other side of the Ural Mountains. Asia has not become embroiled in the debt problems sweeping through the likes of Greece and Italy, and its exposure to the euro is contained. However, what happens in Europe will inevitably drift into Asia, so a look at its major economies might provide insight into what awaits the region in 2012. In particular, we are focusing on the two most populous countries in the world China and India.
2011-12-13 Self Sustaining by Jeffrey Saut of Raymond James Equity Research
Last week the ECBs interest rate cut took center stage, but that cut should be viewed within the context of the 40 world wide interest rate cuts that preceded it. Clearly, there is a global easing cycle underway; and, we think you will see more such news this week when the FOMC announces it policy statement Tuesday. Stocks will continue to grind irregularly higher driven by portfolio managers trying to play catch-up, the upside seasonal bias, low valuations, still depressed sentiment readings, and the knowledge that we have now entered the best performing six months of the year for stocks.
2011-12-13 What Happens If A Rising Tide Sinks Some Ships? by Chris Maxey of Fortigent
A multi-day summit in Brussels by European policymakers yielded an expected fiscal union between euro member countries. However, a key refusal by Britain undermined the credibility of the pact. Without unanimous agreement, the original European Union treaty cannot be altered, so a new intergovernmental agreement was created. Some question whether such an arrangement has the teeth to enforce budgetary discipline.
2011-12-13 Tale of the Tape U.S. Markets Back on Top by Philip Tasho of TAMRO Capital
As investors say goodbye to a year that will be remembered in the history of financial markets for its volatility and investors obsession with it one of the most battered, bruised and, yes, volatile, markets has quietly reclaimed its spot as the worlds best performer. It is, of course, the U.S. Through November 15, the S&P 500 is up 1.8% year-to-date; the Dow Jones Industrial Average has risen 6.9%; and the NASDAQ, 1.3%. Meanwhile, the rest of the worlds major equity indices are covered with red arrows, all pointing down.
2011-12-12 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Markets continue to be whipsawed by headlines out of Europe which much of the time are confusing and contradictory. Overall, however, the stock market here in the United States continues to outperform other global markets, and as evidenced by the
charts below showed gains for the week. Last week saw the Dow Jones Industrial Average gain 1.4% while the NASDAQ Composite moved higher by three quarters of a percent.
2011-12-12 Obama's 8%: Sounds Right by Brian S. Wesbury and Robert Stein of First Trust Advisors
Given his advisers track record, you would think President Obama would be very cautious when making predictions about the unemployment rate. As we all now know, even though the stimulus bill was fully implemented, the jobless rate kept heading north, peaking at 10.1% in October 2009 and never once falling even remotely close to 8%. Nevertheless, President Obama is doing it again and predicting unemployment will be 8% around Election Day. This time, we think hes right.
2011-12-09 Markets Rolling Look For More Of The Same by Monty Guild and Tony Danaher of Guild Investment Management
During the last two weeks, global markets have moved their way to higher ground and indications point to a healthier finish than expected to an otherwise sickly 2011. We see several developments supporting a continued equity market rally. They have to do with measures taken in China, Europe, and by central bankers around the globe. The Canadian and Singapore dollars are well-managed currencies in countries with conservative banking systems. They are good candidates for continued long- term appreciation versus the Euro and U.S. dollar.
2011-12-09 You Can't Print More Gold by Frank Holmes of U.S. Global Investors
As central banks print money and increase supply, currencies become devalued. Whereas in the recent past, one currency may be reduced in value compared with other currencies, this time there is global competitive devaluation as excess liquidity is put into the system. Historically, this excess liquidity has made its way to riskier assets, i.e. stocks and commodities. Gold is generally a benefactor of this flight to riskier assets as many investors see it as a store of value. This chart illustrates the interconnectivity of gold and global money supply growth.
2011-12-08 Global Economy and Market Summary Third Quarter 2011 by Stephen Hammers of Compass EMP Funds
The world economy has continued to slow during the last few months. The next several quarters are likely to be weak for three reasons. First, fiscal policy will continue to be restrictive as plans to trim excessive federal budget deficits continue to unfold. Second, private sector demand looks gloomy because households will continue to deleverage from high debt levels while unemployment remains a problem. Third, the uncertain future of the Euro-zone debt situation remains a major setback to future economic growth.
2011-12-08 2012: A Gut Check for Global Markets by Andreas Utermann of Allianz Global Investors
We are clearly facing a significant slowdown in economic activity in 2012, but we do not expect most developed economies to fall into recession. However, growth risks are increasingparticularly in Europe, where a recession is becoming increasingly likely. We do not expect a return of deflationary fears despite weakening growth, nor is inflation likely to be a threat in the foreseeable future. We expect rates to come down further in the euro zone and emerging markets; in the U.S., U.K. and Japan, we expect extremely low interest rates to continue.
2011-12-07 Waiting for All In by Mark R. Kiesel of PIMCO
Without a more forceful and coordinated policy response, Europe now faces an increasing risk of a hard landing. In this uncertain environment, volatility will likely remain high, liquidity poor, risk premiums wide and the global economy fragile as financial and credit conditions tighten. Easier monetary policy as well as the potential for more balance sheet support from a larger consortium of global central banks is now needed over our cyclical horizon. If these actions are coordinated and timely, investors and risk takers would be more likely to move off the sidelines.
2011-12-06 What Are Investors Up To? by Chris Maxey of Fortigent
With markets ebbing and flowing and making it virtually impossible to differentiate up from down, it has become all the more difficult to determine what qualifies as an attractive investment. While equity markets rallied into the end of November, volatility remains well above its long-term average, causing most investors to question their equity allocations. It should come as no surprise, then, that individual investors are anything but confident in the latest rally. Macroeconomic headlines and excessive volatility are dampening even the most hardened investors faith in financial markets.
2011-12-06 Adding Some Holiday Gloss to a Not-So-Super Month by Team of BondWave Advisors
November began with a European shakeup that did little to bolster the confidence of investors. Fear raged as Greece and Italy threatened to roll back efforts made by the ECB and IMF. In the US, all eyes were on the supercommittee, which was tasked with reducing the deficit over the next 10 years. BondWave Advisors discuss the US economic indicators that brought a coat of gloss to the pessimism and provide additional insight into the US Treasury, Corporate and Municipal Bond Markets.
2011-12-05 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Any euphoria about last weeks intermittent triple-digit rallies has to be couched in a context of longer-term developing downtrends and a desire to see any positive news as bear-busting. Alas, the ongoing downcycle persists and is likely to be the primary determinant to market performance for the foreseeable future. As junctures go, last week represented a few days of post-holiday welcome relief, but hardly the initiation of a change in secular direction. The headwinds are too daunting when analyzing market and sector relative strength quotients.
2011-12-05 And That's The Week That Was by Ron Brounes of Brounes & Associates
One week does not make a trend, especially since politicos across the globe have been more than capable of messing up a good thing in the past. Black Friday came and went, but hopefully the holiday spirit remains and shoppers still frequent the malls. The grand plan in Europe surely could ease the recurring tensions of the past few years, but grand plans have had a way of fizzling in the past. Dont put it past Congress to rain on the market parade. Do all investors celebrate the Santa Clause rally, regardless of religious affiliation?
2011-12-05 Five Reasons to Buy Equities by Milton Ezrati of Lord Abbett
Amid all the risks today, and given the spotty history of stocks during the last 10 years or so, it is easy to understand why both retail and institutional investors continue to avoid the U.S. equity market. But understandable as their reluctance is, there are at least five good reasons to consider equities now: 1) There is good value. 2) There will be no double-dip recession. 3) Europe should survive. 4) Washington will not implode. 5) Nobody is buying equities.
2011-12-05 Solid Improvement by Charles Lieberman of Advisors Capital Management
The latest employment report showed significant improvement. Job growth is still not strong enough, but the gains are sufficient for the expansion to continue without faltering, as long as the financial crisis in Europe is addressed. And finally, it appears that the Europeans are closer to resolving their debt issues.
2011-12-05 Year of the Living Dead Stock Market by Kristina Hooper of Allianz Global Investors
Stocks have been acting like a pack of zombies this year: wandering around aimlessly, frightening off everyone, but not really getting anywhere. However, recent data suggest an awakening.
2011-12-05 Treading Water by Scott Brown of Raymond James Equity Research
The good news is that the economy does not appear to be contracting. The bad news is that its still not growing fast enough to make up much of the ground lost during the downturn. The unemployment rate fell to 8.6% in November, from 9.0% in October and 9.8% a year ago. However, more than half of that drop was due to a decrease in labor force participation. The data suggest an economy that is growing just enough to absorb the growth in the working-age population.
2011-12-03 December Monthly Economic Update by Justin Anderson of Cambridge Advisors
While the improving domestic economic picture seems to be pointing to continued slow growth, the markets are focused on Europe as they continue the tumultuous process of finding a resolution to their debt crisis. Until a long-term solution is found, we will likely continue to experience above average market volatility. In this environment we continue to favor a diversified mix of asset classes with an emphasis on yield.
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 The Markets are Encouraged by the Actions of the Worlds Central Banks by Thomas S. White, Jr. of Thomas White International
Six of the worlds major central banks, led by the Federal Reserve, this week announced an expansion of a program to increase the availability of U.S. dollars to European banks and lower their cost of borrowing these funds. While this action was not designed to solve the central challenge the European governments are experiencing - the spiking interest rates they must pay when issuing their sovereign debt - it will likely calm the tangential problems this has caused within the European banking system.
2011-12-02 Are Stars Aligned for a Year-End Rally? by Frank Holmes of U.S. Global Investors
Correlations will decrease along with volatility as we get more clarity on the eurozone crisis and see signs of stability in the global economy. Volatility fell this week, with the CBOE Volatility Index (VIX) declining 20 percent. This could be related to the news that November U.S unemployment unexpectedly dropped to 8.6 percent, U.S. auto sales in November were the strongest in more than two years, and preliminary data on holiday retail sales appears to be strong. According to Bloomberg News, Black Friday sales hit a record high this year, with consumers spending $11.4 billion.
2011-12-01 On Money and Confidence by Andrew Foster of Seafarer Capital
At this moment, the worlds central banks have undertaken what appear to be coordinated efforts at relief, easing liquidity by boosting money supply. This is a welcome move, as liquidity has been strained. My concern is that while this monetary stimulus is necessary, it is not sufficient to achieve financial stability. Unless confidence is restored specifically, by repairing balance sheet solvency growth will remain tepid, and markets range-bound.
2011-11-28 And That's The Week That Was by Ron Brounes of Brounes & Associates
While traders, investors, and politicos prepare for their Thanksgiving travel plans, the week should be anything but dull. HP highlights the earnings reports as shareholders try to figure out the future of its PC biz. The Fed releases minutes from the last policy meeting so economists can view the dissension in its midst in determining if and when Bernanke and Co. will act again. GDP headlines the economic releases and some analysts expect a slight downward revision to the initial 2.5% reported expansion rate in the third quarter.
2011-11-28 And That's The Week That Was by Ron Brounes of Brounes & Associates
Black Friday results take center stage as retailers report sales data and analysts extrapolate what one days business means for the season. A rebound in consumer activity could bring new confidence to the markets. A positive showing from manufacturing and labor would also help sentiment. Then again, any newfound confidence may be overshadowed by the super-committee. Any sane politicos left? What say you, Newt, for your 15 minutes in the limelight?
2011-11-28 Multiple Focal Points by Charles Lieberman of Advisors Capital Management
Europe remains the markets focus, but the domestic economy also merits attention, particularly with another payroll report due on Friday. The data have come in consistently better than expected, including Black Friday sales, despite the distractions of Europe and the inability of the Super-Committee to reach a budget deal. Left to its own devices, it seems entirely possible that the economic expansion would slowly gather momentum. Unfortunately, it seems like a sure bet that the market will remain highly sensitive to developments in these other arenas.
2011-11-28 The Global High Yield Opportunity by Matt Eagan, Kathleen Gaffney and Elaine Stokes of Loomis Sayles
The shifting characteristics of US, European, Asian and emerging markets high yield assets have contributed to an expanding opportunity set. This has prompted many institutional investors to broaden their high yield investment guidelines, often giving portfolio managers the flexibility to include exposures to these markets within one portfolio. The days of silo investing, in which non-US investors sought exposure to US high yield and emerging market debt through separate mandates, may be giving way to an era of sector allocation driven by investors.
2011-11-26 Innovation Always Trumps Fear by J Michael Martin of Financial Advantage
While the stock market is behaving fearfully, we want to examine the thesis that the human capacity for innovation is an inexhaustible source of power that routinely topples seemingly intractable challenges. Our genius for betterment has flourished in the social arrangement known as democratic, free-market capitalism. Its promise of rewards for our efforts tends to subdue our baser instincts of fear and envy, and to stimulate the powerful creativity with which we are endowed. Capitalism has raised the standard of living wherever its been tried.
2011-11-26 The Case for Optimism: Our Top 25 Dividend Growth Stocks are Dirt Cheap by Chuck Carnevale of F.A.S.T. Graphs
Within each challenge there has also been accompanying opportunity.And in most cases, the opportunities tend to dwarf the risks. The opportunities that we believe our recent challenges are bringing us are unnecessarily low valuations on some of our highest-quality companies.Yet, it is a fact that investors are flocking to bonds in droves at precisely a time when the risk of owning bonds is perhaps the greatest it has ever been. Most investors want to defy the cardinal rule of investing-buy low, sell high.
2011-11-26 With Rising Wages, Will China Remain a Manufacturing Hub? by Frank Holmes of U.S. Global Investors
In 2010, countries such as Hong Kong, Japan, South Korea and Germany depended on China for data processing, apparel, and iron and steel exports. Chinas largest import partners in 2010 were Japan, South Korea, the U.S., Germany and Australia. For those companies not already doing business in China, theres one dominant factor that shows they should start: the vast domestic market. Companies may be able to find a cheaper workforce in Bangladesh, India or Sri Lanka, but being located in China allows convenient access to what is rapidly becoming the worlds largest consumer market.
2011-11-23 Giving Thanks by Michael Dana of Dana Investment Advisors
It has been a tumultuous decade starting with 9/11, the wars in Iraq and Afghanistan, natural disasters (hurricanes, earthquakes, floods, tornados and fires), the financial crisis starting in 2008, and upheavals in the Middle East and the continuing financial problems in Europe. All these events have combined to cause worldwide recession and slow economic growth particularly in Europe and the US. With the mortgage meltdown and the continuing high unemployment rate, you would think that there is little to be thankful for this holiday season, but you may not be seeing the forest for the trees.
2011-11-22 Debt Story by Scott Brown of Raymond James Equity Research
Loan growth plays a key role in economic expansion. Simply put: no loan growth, no economic growth. However, theres a downside. Debt doesnt matter until it does. Debt has played a key part in the economic downturn and in the gradual recovery. Europes sovereign debt crisis has continued to escalate, with no easy way out. In the U.S., the government has borrowed more, but the markets have not punished it for doing so. Theres no sign that that is going to change anytime soon.
2011-11-22 The Joy of Cooking by Jeffrey Saut of Raymond James Equity Research
Last Friday CNBCs Maria Bartiromo asked me what was going to happen with this weeks Super Committee decision? After jokingly responding that if past is prelude if the Super Committee doesnt arrive at a decision they will appoint a SuperDuper Committee, I then stated, I dont think the Super Committee will reach a consensus.I also opined, I believe there is a wink and a nod between President Obama and Speaker John Boehner to not implement the mandatory cuts and let the 2012 Presidential election resolve the debate between increased taxes and spending cuts.
2011-11-21 Investment Outlook: November 2011 by Team of Aberdeen Asset Management
Financial crisis continues to dominate the political agenda: a credit crunch looms as Europes banks shrink balance sheets, growth momentum is diverging among different regions, investor focus on global fiscal policy will intensify in 2012 and abundant liquidity via central bank easing is likely to prevail for some time. Economic data has tended to surprise analysts over the last few weeks, encouraging the view that growth may not be as weak as some were predicting only a month ago. However the picture is very different among different regions around the world.
2011-11-17 U.S. Earnings Update by Joseph S. Tanious of J.P. Morgan Funds
As 3rd quarter earnings season winds down, more than 90% of the S&P 500 market cap has reported, and it appears were headed for another quarter of record-breaking results. However, whats even more impressive is the revenue growth weve observed across all 10 S&P 500 sectors. The index is currently tracking revenue growth of roughly 13% year-over-year, a clear indicator earnings have been boosted by more than cost cutting. To be sure, margins have also widened out, which has helped fuel earnings growth over the past two years, something well touch on in more detail in the coming pages.
2011-11-17 A Risk Lurking in Octobers Retail Sales by Russ Koesterich of iShares Blog
October retail sales are the latest sign that the US economy is likely to avoid another recession and is experiencing what Im calling The Great Idle. But a look behind the retail numbers also reveals a major risk facing the US economy. With unemployment still high and wages growing so slowly that hourly workers are losing purchasing power at the fastest rate in 20 years, you may be wondering where consumers are getting the money to buy new cars or the latest iPhone. It turns out that surprisingly brisk retail spending is being supported by lower savings and by help from the government.
2011-11-17 Its All Very Taxing by Howard Marks of Oaktree Capital
But what is the fair share? How is it to be determined, and by whom? When Senator Reid says, its time for millionaires and billionaires to pay their fair share, he implies they havent been doing so thus far. How does he know? Whats the standard? If theres an objective standard for ones fair share, why does it only seem to be those from the left side of the political spectrum who say its not being paid? And if there isnt an objective standard, how can the fair share be determined? The truth is, fairness is almost entirely in the eye of the beholder.
2011-11-15 Capital Flows: Asias Quiet Revolution by Gerald Hwang of Matthews Asia
As markets evolve, so do regulations. The reflexive rebuke of capital controls once voiced by Western regulators has given way to a more flexible approach in times of extreme volatility. Asias regulators have observed the efficacy of volatility-dampening measures, and thus far, appear to have avoided the worst excesses. As fears continue over diminishing U.S. dollar power, Asias bonds remain attractive diversifiers for their yields and good credit ratings. However, one should never forget the volatile history of currencies in Asia.
2011-11-15 An Endgame for Japans Debt? by Bryce Fegley of Saturna Capital
The Japanese government's ability to extract itself from two decades of runaway debt has become all the more challenging in the face of its shrinking tax base, rising interest payments, and social security obligations, not to mention the aftermath of its earthquake, tsunami, and nuclear disasters. The recent precedent of the country's dysfunctional political system does not bode well for making tough choices necessary to stabilize the debt. Of the possible consequences of the runaway debt, eventual monetization, high inflation, and currency devaluation are the most likely outcomes.
2011-11-14 Improving Recovery Prospects by Charles Lieberman of Advisors Capital Management
Europe is moving slowly towards resolving its financial issues, but the performance of the domestic economy is looking significantly better. A domestically originated recession is looking ever more unlikely. Europe may take a while to resolve its financial and budget issues, but the adverse effect of a recession in Europe, even a severe one, on our domestic economy should be negligible. So while tremors from Europes financial turmoil may disrupt our market temporarily, they are unlikely to derail our expansion. This suggests that the equity market should continue its recent recovery.
2011-11-14 Act and Learn Versus Debate and Wait by Mohamed A. El-Erian and Michael Spence of PIMCO
Signs of disappointing policy outcomes are, unfortunately, all around us. Over the last two years, American policymakers have failed miserably to lower persistently high unemployment despite a series of stimulus measures, fiscal and monetary, conventional and unconventional. In Europe, the debt crisis has spread despite numerous summits, declarations, policy actions and political changes. In both cases, policymakers identified and sometimes mis-identified the problems and took highly publicized steps to solve them. Yet to no avail. The identified problems not only persisted, they deepened.
2011-11-14 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Retailers continue to showcase their prior quarters as Home Depot, Wal-Mart, Staples, Gap, and Ann Taylor take turns reporting profits. Additionally, October retail sales give investors one final look at the picture before the mad rush of Black Friday. The inflation data is also reported though the latest push upward in crude will not be reflected quite yet. Europe continues to be the talk of the town and all eyes will remain on Greece and Italy as the world watches the transitions of power in those two struggling economies.
2011-11-14 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Incredibly low interest rates are telling us a story that few seem able to decipher. For well over a year, interest rates on cash deposits have been near zero, while the reward for being a long-term Treasury investor has hovered below 3%. The last time rates coalesced around 2% was more than a generation ago. Concurrently, the economy has lost buying power, jobs, and valuation. As every global bourse in my universe struggles to gain upside traction, a worldwide decline in sentiment, earnings acceleration, and pricing power has diminished the foundation of free-exchange and capital markets.
2011-11-10 Aflacs (AFL) Fair Value PE Ratio Should Be Double, and So Should Its Price by Chuck Carnevale of F.A.S.T. Graphs
This is the third in a series of articles that have been designed to provide investors greater insights into the proper understanding and utilization of the PE ratio as a valuation measurement tool. With this iteration were going to look at Aflac to identify significant undervaluation. The first article in this series looked at Amazon as an example of overvaluation. Our second article looked at SCANA Corp. and Darden Restaurant Group as examples of fairly valued companies; however, we further introduced the concept of the earnings growth rate as a relative component of future return.
2011-11-08 Bill Gross' Revised Paradigm: The New Normal Minus by Robert Huebscher (Article)
Following the financial crisis of 2008, PIMCO articulated its 'new normal' forecast of slow growth and mediocre capital market returns. Appending the even drearier modifier 'minus' to that outlook, Bill Gross said that expectations now appear worse than even he previously feared. Gross was pessimistic in both the near and long terms, and he startled the audience with his premonition that 'capitalism is at risk.'
2011-11-08 Troubles Not Shrinking by Christian Thwaites of Sentinel Investments
US employment was unequivocally better in October despite the headline NFP of 80,000. Revisions in recent months mean that since June, the economy created 466,000 new jobs against first estimates of 318,000. Since March in 2010, the private sector created 3.9m new jobs while the government sector lost 1m. The ratio of government to private jobs is back to where it was in 2002. This is not a jobless recovery. It is a slow recovery with the private sector doing well under contorted and aimless fiscal drag. Corporate Profits: Productivity rose again in Q3.
2011-11-08 Known Unknowns by Neel Kashkari of PIMCO
We believe investment managers can analyze numerous data sources and apply lessons learned from past economic cycles to make assessments about the global economic outlook. These managers can make reasonable judgments about asset classes over the long term and, through rigorous bottom-up research, develop an edge regarding the outlook for individual companies. However, the market is much better at aggregating all the information that could affect any of the thousands of companies in the stock market than any investor could possibly be. Hence predictions are likely to be wrong.
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.
2011-11-07 And That's The Week That Was by Ron Brounes of Brounes & Associates
Any more surprises, Prime Minister Papandreou? Then again, will you even still be in office next week (is lame duck supposed to be hyphenated?). Europe, unfortunately, continues to earn more than its fair share of global headlines and rest of the world seems content to stand back and watch. With the G-20 meeting now in the rearview mirror, the sales tactics must move to a different venue as Europe seeks much-needed investments in its rescue fund. A slow week on the domestic economic calendar gives investors too much time on their hands to dissect the mindless gibberish out of Europe.
2011-11-07 Euro Drama Offsets Winning Earnings Season by Kristina Hooper of Allianz Global Investors
Stocks gave back gains last week with help from Europe, but there are ample reasons to stay upbeat on equities: 7 out of 10 U.S. companies are beating earnings estimates so far in the third quarter, and the private sector continues to add jobs. Stocks finished the week downbut definitely not outas a strong earnings season is cause for optimism in the face of a pervasive European debt crisis.
2011-11-05 Welcome to the Great Idle by Russ Koesterich of iShares Blog
First, there was the Great Depression. Then, there was the Great Recession. Now, the US economy is stuck idling along in neutral, temporarily unable to move beyond sluggish growth, high unemployment and a general lack of confidence.
2011-11-05 Two High-Yield Choices by Chuck Carnevale of F.A.S.T. Graphs
This article is the second in a series of articles designed to elaborate on the proper utilization and understanding of the PE ratio as an important investing metric. Our first article in this series looked at how the PE ratio could be used to determine overvaluation. With this article we are going to review two companies where each is fairly valued and each has similar current PE ratios. Moreover, both companies offer yields above 3 % which is greater than is available on the 30-year Treasury bond (current yield 30-year Treasury bond 3.02%).
2011-11-04 3 Drivers, 2 Months, 1 Gold Rally? by Frank Holmes of U.S. Global Investors
Combine the central bank purchases of gold with the fact that we are now entering the strongest months of the year for gold. While the spot gold price has differed from the S&P/TSX Composite Index of gold equities during the first 10 months of the year, their historical pattern is very similar during the last two months. November has historically been the strongest month of the year for gold equities, with mining stocks increasing 8.1 percent.
2011-11-03 Dressing Up a Default for Halloween by Team of BondWave Advisors
Politicians in Europe spent October trying to juggle three balls: 1) avoiding an unavoidable Greek default, 2) keeping a Greek default from cascading into Italy and Spain, and 3) shoring up the European banks before a Greek default. BondWave Advisors discuss the details of the Greek situation in our November Fixed Income Report and provide additional insight into the US Treasury, Corporate and Municipal Bond Markets.
2011-11-02 Born in the USA: A Look at What Could Go Right by Liz Ann Sonders of Charles Schwab
The expectations bar has probably been set low enough to be easily hurdled as the big market rally may be indicating.
Not only is recession risk fading in the near term, a very positive longer-term story is emerging, even though very few are in tune (yet).
Investors have gotten used to digesting worst-case scenarios maybe it's time to ask what could go right.
2011-11-02 Could America Turn Out Worse than Japan? by Mohamed A. El-Erian of PIMCO
There was a time when America looked down on Japan for the latters inability to deal with its economic problems. No more. Like Japan, America is now realizing how difficult a post bubble economy can be. The fear is that it will also find out that that it lacks some of Japans attributes needed to cope with long years of economic stagnation. The US has no time to waste to build on the important, albeit small progress that has been made in recent weeks. If it does not, there is a risk that the countrys economic fate could end up being even worse than what Japan has experienced.
2011-11-01 Will the U.S. and Europe Rise Again -- or Sink Together? by Team of Knowledge @ Wharton
In today's highly interconnected global economy, problems in one country often lead to difficulties in another. The United States and Europe are experiencing that reality up close as leaders try to deal with debt problems, investment-shy business sectors and seemingly intractable unemployment. At a recent presentation attended by Wharton board members, professors Franklin Allen, Richard Marston and Kent Smetters warned that a true recovery for either region will take time, and that conditions could get worse before they get better.
2011-11-01 Just When You Thought Europe was Rescued, New Skeletons Emerge by Chris Maxey of Fortigent
Economic data in the US will receive plenty of attention this week. On Tuesday, the ISM Manufacturing Survey is released, with economists anticipating continued expansion in the manufacturing sector. Wednesdays ADP private payroll employment report will offer a taste of what is to come in Fridays nonfarm payroll employment report for October. Consensus expectations are for job growth of slightly less than 100,000 and an unemployment rate of 9.1%.
2011-11-01 The Market Drivers: European Debt, Chinese Inflation, and the U.S. Economy by Ron Muhlenkamp of Muhlenkamp & Co.
We remain concerned about Europe. In fact, the two sources of capital closest to the problem, Germany and the ECB, have stated they will not provide any additional assistance, preferring to try to incent others to provide capital instead. As the concerns about the U.S. economy and China have diminished, we have put some cash back to work, but still have a bit over 15% in cash. We anticipate putting more cash to work when it becomes apparent that the Chinese Central Bank stops constricting its money supply, and we continue to watch Europe.
2011-10-31 And That's The Week That Was by Ron Brounes of Brounes & Associates
Europe apparently has solved all of its financial challenges While Greek protests continue daily, the EU leaders held a contentious summit that teetered between storming out with nothing and completing a breakthrough deal. In the end, the group agreed to significantly write-down Greeces sovereign debt held by private investors, recapitalize the banking system, and expand the bailout fund. The ministers hope that China and Japan will embrace the new deal and even throw a few bucks their way as an investment in the global economy, but nothing definitive has been determined at this time.
2011-10-31 Whipsaw Traps by John P. Hussman of Hussman Funds
Current market conditions cluster among a set of historical observations that might best be characterized as a "whipsaw trap." Though last week's rally triggered several widely-followed trend-following signals, the broader ensemble of data suggests a high likelihood of a failed rally. In this particular bucket of historical observations, less than 30% of them enjoyed an upside follow-through over the next 6 weeks. So while the expected return/risk profile of the market remains negative here, we have to be somewhat more tentative about taking a "hard" defensive position.
2011-10-31 Pennies from Heaven by Bill Gross of PIMCO
Growth is the commodity that the world is short of at the moment.
Once interest rates inch close to zero and discounted future cash flows are elevated in price, it's difficult to generate much more return if economic growth doesn't follow.
Equity markets should be dominated by dividend yields and the return of capital via share buybacks, as opposed to growth.
In fixed income assets, we suggest that portfolios should avoid longer dated issues where inflation premiums dominate performance.
2011-10-31 Rally Continues on Positive News from Europe by Bob Doll of BlackRock Investment Management
Investor sentiment has certainly improved over the past several weeks, and while it is much too early to declare victory over the European debt crisis, last weeks deal is certainly a positive step. The easing of the risks associated with Europes issues, along with a brighter outlook for the US economy than was the case a couple of months ago does create a more solid footing for risk assets. Given the sharp advance markets have seen over the past month, we may be in for a period in which markets need to "digest" these gains, but the longer-term outlook for stocks does appear to be improving.
2011-10-29 Missing the Forest for the Trees? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Earnings season was good and economic data in the US has improved. Robust growth is unlikely in the near future, but the economy is improving. Investors appear to be unconvinced that the picture may be brightening. Inflation continues to run higher than we'd like to see but sustainable price gains are unlikely. The Fed continues to be extremely accommodating. Italy has the potential to be a much bigger problem than Greece. A tentative agreement has been reached for Europe, but hopes for a true long-term solution remain thin. China is likely to suffer no worse than a soft landing.
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.
2011-10-28 America's Other 87 Deficits by Stephen S. Roach of Project Syndicate
The US runs a huge trade deficit with China, but it also runs deficits with 87 other countries. These deficits cannot be fixed by putting pressure on one of the bilateral components but try telling that to Americas growing chorus of China bashers.
2011-10-28 How China Drives the Global Economy by Frank Holmes of U.S. Global Investors
The Chinese economy is not a bubble, but that does not mean a significant slowdown wouldnt affect the global economy, especially natural resources. This is because Chinas economic transformation over the past few decades has cast the country into the forefront of demand. PIRA Energy Group says that, in 1990, Chinas share of oil and GDP was less than 5 percent; its share of world energy was just under 10 percent. Since then, Chinas share of energy, GDP and oil has risen dramatically, with each expected to be approximately 28 percent, 21 percent and 16 percent, respectively, by 2025.
2011-10-27 Outlining the U.S. Economys Growth Dichotomy by Team of American Century Investments
David MacEwen describes the growth dichotomy that has developed during the recovery from the Great Recession, and how its restricted the recovery, softened consumer sentiment, influenced the fixed income teams macroeconomic outlook, and shaped some of the teams sector outlooks. One of the key characteristics of the subpar, slow-growth recovery we have experienced since the Great Recession has been the clear divide between the recovery rates of the business and consumer sectors. Businesses have bounced back faster and stronger than the U.S. consumer who buys their goods and services.
2011-10-27 Asia-Pacific Portfolio Committee Discusses Cyclical Outlook for Globe and Region by Robert Mead, Tomoya Masanao and Isaac Meng of PIMCO
China will likely focus more on rebalancing of the investment-focused domestic economy this time, rather than on reflating of the economy to engineer higher growth as it has done in 2008 to 2009.
Japans fiscal policy will need to be expansionary to facilitate reconstruction efforts.
We believe Australian government bonds have the potential to outperform U.S. Treasuries on a local currency basis, particularly in a left-tail global economic scenario.
2011-10-24 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
The Fed, and a majority of global state treasuries, have made the decision that keeping money inexpensive is at least one of the tools they can use both to sustain economic growth. This policy has been a boon to those with money, and a severe hindrance to those without. A vexing conundrum exists when monetary policy is designed to promote the flow of money into dynamic expansion but the spigot gets blocked because psychology and momentum are running in the opposite direction. In the meantime savings rates have nearly disappeared, along with whatever savings the losers in this game had.
2011-10-24 Looking A Bit Healthier by Charles Lieberman of Advisors Capital Management
Important uncertainties remain, but our domestic economys performance appears to be improving. Third quarter GDP, which will be reported this week, is expected to be the strongest of the year, suggesting that growth held up despite battles over the budget that scared investors and induced a downgrade by S&P. Nonetheless, job growth remains anemic and Europe is still working to contain its sovereign debt crisis and the damage it could inflict on its banks. So, more progress is necessary to restore confidence and enable growth to pick up to more desirable levels.
2011-10-24 The Valley of Debt: Will You Walk Away from the Fed and Its Money? by Tad Rivelle of TCW Asset Management
Regardless of your philosophy, financial crises do test the mettle of the investor and judged this way, the past three years have been among the most challenging period in decades. Perhaps because crises mean different things to different groups of investors, we have lived with the ultimate traders market, one alternately characterized by the risk on or the risk off. Interestingly, the level of the Dow Jones is within just a few points of where that index started the year. Had you just returned from the Antarctic, you might have concluded that 2011 was a snoozer.
2011-10-21 Why Fannie Mae And Freddie Mac Were (And Are Still) A Disaster Waiting To Happen by Monty Guild and Tony Danaher of Guild Investment Management
For several years we have been pointing out that the U.S. is experiencing a banking system contraction much like Japan has experienced for two decades. Now, we are seeing the same phenomenon happening in Europe. A credit contraction is another name for a banking system contraction. Credit contractions lead to declining business activity. To put it another way, as our friend Larry Jeddeloh of the Institutional Strategist likes to say, we are in a credit cycle not a business cycle, and that is why the traditional stimulus measures are not having much of an effect.
2011-10-21 How to Succeed at Auctions by Herbert Abramson and Randall Abramson of Trapeze Asset Management
We believe weve suffered more from the illiquidity and greater volatility of many of our smaller cap holdings, but thats where we are finding the best values with the greatest potential. When the markets recover, that same illiquidity should boost performance on the way up. Maybe sooner than is believed.
2011-10-21 Do Bullish Investors Have an Ace in the Hole? by Frank Holmes of U.S. Global Investors
You may not be able to count cards at the blackjack table, but counting historical trends of the stock market and discovering inflection points are not only legal strategies, they are essential to successful investing. One card worth counting is the Purchasing Managers Index (PMI), which measures the manufacturing strength of any given country. A rising PMI indicates a growing economy and is considered a leading indicator.
2011-10-19 Equity Investment Outlook by Team of Osterweis Capital Management
During the third quarter, the stock market plunged as investors hopes for a sustained U.S. economic recovery dissipated and fears of a world-wide economic slowdown and possible U.S. double-dip recession increased. The U.S. faces several major structural headwinds including a moribund housing sector, high unemployment, bank credit restraint, and a growing and worrisome federal debt. Underlying these and other problems is the depressing effect of the end of the debt super cycle.
2011-10-19 U.S. Dollar and Euro - Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
With so many global dynamics playing out, and the worlds financial markets fixated on the political process (or lack thereof) in the Eurozone, driving market sentiment around the world, it may be a good time to take a deep breath, take a look back at where weve come from, and assess the likely implications going forward. Specifically, what are the implications for the U.S. dollar and currencies globally? With continued expansionary monetary policy here in the States, and lack of such policies elsewhere, the divergence in monetary policy is likely to further erode the U.S. dollar.
2011-10-19 Middle East/Africa: Economic Review September 2011 by Team of Thomas White International
The MENA region continues to grapple with instability in the aftermath of the Arab Spring uprisings. The draining of public finances, elevated levels of inflation and high rates of unemployment seem to paint an unfavorable picture for the region in the short term. According to the IMF World Economic Outlook report, inflation in the region is expected to average around 7 percent in 2011 and 10 percent in 2012. In addition, the report noted the adverse impact of weaker growth in the United States and Europe on commodity prices, foreign investments and economic activity.
2011-10-19 Emerging Europe: Economic Review September 2011 by Team of Thomas White International
A leading economic sentiment indicator for the Central and Eastern European region recorded its lowest reading in more than two and a half years amid an uncertain outlook for the region and the continuing debt crisis in the Euro-zone, according to a news report published in Bloomberg. Europes failure to find a way out of the debt crisis amid a slowing global economy has clouded the outlook for the whole Eastern European region, which is dependent on exports for much of its growth. Hungary recorded the biggest fall in economic expectations, then Poland, according to the Bloomberg report.
2011-10-19 Developed Europe: Economic Review September 2011 by Team of Thomas White International
With the world anxiously watching, Developed Europe battled against its sovereign debt problems on several fronts all through September. Investors became increasingly concerned as the month progressed because Euro-zone leaders delayed making a decision on paying Greece the next installment of its bailout package, despite the beleaguered country declaring that it would run out of money by mid-October without the aid tranche. News reports from the region indicated that the installment was being delayed to pressure Greece into speeding up crucial structural reforms.
2011-10-19 Emerging Asia Pacific: Economic Review September 2011 by Team of Thomas White International
After battling inflation for over a year, many emerging Asia Pacific economies are now facing challenges over stimulating growth. A year of persistent monetary tightening in emerging Asia Pacific has unfortunately coincided with slowing growth prospects in the developed world. The U.S. and the European Union are the largest trading partners for many export-dependent emerging Asian economies like South Korea, Taiwan and even China. With economic growth slowing in the U.S. and the European Union, many emerging Asian nations are rightly worried about their export prospects.
2011-10-19 Americas: Economic Review September 2011 by Team of Thomas White International
Financial markets faced significant volatility as the global economic outlook weakened and concerns about the European crisis worsened. Markets in the Americas region were also affected by the erosion in investor confidence, though the developed markets in the region fared relatively better. Latin American currencies saw steep falls against the U.S. dollar, as the weaker economic outlook is expected to force the central banks to cut interest rates in the future, potentially reducing the relative attractiveness of these markets to global investors.
2011-10-18 No Recession, At Least For Now by Scott Brown of Raymond James Equity Research
Recent data have helped reduce fears that the U.S. economy is already in a recession. However, there is still a lot of uncertainty about next year. Some of that uncertainty (gasoline prices) is beyond our control, but much is about policy both fiscal policy in the U.S. and efforts to right the ship in Europe. The outlook for growth in the remainder of this year appears a bit brighter than it did a couple of weeks ago. However, the 2012 economic outlook is still troublesome.
2011-10-18 Bob Doll: Why the US is Positioned Strongly by BlackRock (Article)
Investor unease has risen dramatically over the past quarter in the face of growing concerns about the world's economic and financial health. The focal point has been the intensifying debt crisis in Europe. The issues facing Europe are highly complex, but essentially are underscored by a single question: Is Europe facing a solvency crisis or a liquidity crisis?
2011-10-18 Three Strategists Speak Out & Rare Apology From PIMCO by Scott Colyer of Advisors Asset Management
Quality in bond land is expensive and promises little return for a fair amount of risk. The Fed is punishing Treasury investors with historically-low yields. We believe the only way to generate a return in these markets is by price appreciation because these notes have very little in the way of coupon income. This lack means that they will trade more like zero coupon bonds when, and if, the Fed ever removes the buying pressure on that market. History has shown us that the market will move before the Fed does. Our discipline has thus far beaten our benchmark.
2011-10-17 Europe: Just Getting Warmed Up by John P. Hussman of Hussman Funds
At present, the S&P 500 is again just 10% below the high it set before the recent market downturn began. In my view, the likelihood is very thin that the economy will avoid a recession, that Greece will avoid default, or that Europe will deal seamlessly with the financial strains of a banking system that is more than twice as leveraged as the U.S. banking system was before the 2008-2009 crisis.
2011-10-14 Postcard from Taiwan by Lydia So of Matthews Asia
On the surface of things, Taiwan indeed seems dwarfed by the glamour of some of its Asian counterparts. However, encouraging changes have been taking place since President Ma Yung-Jeou took office in 2008. These have included more relaxed restrictions on investments into China by Taiwanese companies, direct flights from China and, more recently, approved travel among individuals from China. In 2010, 1.6 million mainland Chinese tourists visited Taiwan, compared to just 81,000 in 2007. In related travel improvements, I was also encouraged to see ongoing renovations to the airport terminal.
2011-10-14 Elevation by Liam Molloy and Bethany Carlson of Galway Investment Strategy
One region has five of the twelve fastest economies in the world, including the fastest at a growth rate of over 20% this year. This region has grown faster than the OECD countries and its consumer sector is growing 2 3 times faster than the developed worlds. A study by the Harvard Business Review in 2009 reported that publicly traded companies average return on capital was 67% higher than comparable countries in China, India, Indonesia, and Vietnam. Investors have been blissfully ignorant of Africa for decades, but the opportunity cost of ignorance is increasing.
2011-10-14 Will the Micro Matter? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Q3 earnings season is in full swing and it will be modestly positive after numerous reductions of expectations due largely to economic concerns. The US will avoid a dip into recession and, for now, the data seems to support that view. The yield curve has flattened since the announcement of Operation Twist but mortgage applications have yet to jump and companies continue to cite concern over governmental policies for their continued caution. The EU debt crisis has had some positive movement, providing some hope to the market, but concern is growing over the state of the Chinese economy.
2011-10-14 Case Study: Buyouts Crystallize Value in the Market by Frank Holmes of U.S. Global Investors
Theres value in the market. Thats the message the market is sending through the recent strategic acquisitions in the energy and gold mining spaces.
This week it was announced that Sinopec, a large Chinese oil and gas company, is purchasing Canadian energy company Daylight Energy for $2.1 billion in cash. The deal was struck at a whopping 120 percent premium to Daylights share price prior to the announcement and a 43.6 percent premium over the 60-day weighted average price, according to Reuters.
2011-10-14 Fall 2011 Quarterly Commentary by Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management
We are left with depressed equity valuation in the US and Europe. Stocks are not supposed to be this cheap in the face of interest rates and inflation this low. In fact, stocks have tended to trade at more like 20 times earnings in the context of todays 2% inflation and 2% ten year Treasury yields, roughly 50% higher than todays valuation. Alan Greenspans Fed Model, which compares forward earnings yield (inverse of P/E) to 10 year Treasury yields, suggests US stocks are the most compelling vs. Treasuries in over fifty years.
2011-10-13 Prediction? Pain by James Moore of PIMCO
Recent Federal Reserve activity has pushed down the long end of the yield curve, spiking the present value of plan liabilities and widening the funding chasm.
The pain of the pension community shows up most obviously in funded status estimates.
High and increasing levels of implied equity risk premium in pension plans suggest sponsors expectations are increasingly optimistic about future contributions from risk assets.
2011-10-12 Employment and Unemployment by Mike "Mish" Shedlock of Sitka Pacific Capital Management
The irony is that the better the economy the more people will be tempted to come back into the labor force and the more upward pressure on the participation rate and unemployment rate as well. Therefore, we cannot assume that 158,000 jobs per month will necessarily take the unemployment rate to 7% by 2017. Should the economy slip back into recession, and I think it already has, either employers shed more jobs, corporate earnings plunge, or both. I suggest both. On that basis, earnings growth is not sustainable and stocks are certainly not cheap.
2011-10-12 Repeating the Future by Neel Kashkari of PIMCO
For long-term investors, meaning those prepared to stay invested for three, five and even 10 years, who can endure volatility, we believe equities can offer attractive returns.
In an extended period of slow economic growth and deleveraging, interest rates are likely to remain low. Actual income generation from investments is important.
Hopefully society can institutionalize the lessons from this crisis so that future generations dont repeat it: Individuals, corporations and countries should only borrow to fund long-term investment, not current consumption.
2011-10-12 Investing in an Environment of Extremes by David Kelly of J.P. Morgan Funds
The volatility of the last few months along with very negative headlines have caused a stream of assets to leave equity funds and move into cash and high-quality fixed income assets. However, this has left assets at extreme valuations. Indeed, by the end of the Q3, U.S. stocks were selling at lower prices than at the end of any quarter in 21 years. 10-year Treasury yields were running below the core year-over-year inflation rate for the first time in 31 years. Long-term investors may want to be somewhat over-weight in equities and under-weight in fixed income relative to a normal portfolio.
2011-10-12 Quarterly Review and Outlook by Team of Hoisington Investment Management
Negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012. Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income.
2011-10-11 A Critical Look at Obama’s Economic Team by Laurence B. Siegel (Article)
Confidence Men is an exposé, by the reporter Ron Suskind, of what he claims is incompetence, infighting, and insubordination at the highest levels of economic leadership in the Obama administration during the global financial crisis. Those accusations are largely misdirected. After all, there was no playbook for the administration's economic thinkers to work from - the rapidly unfolding crisis forced them to improvise.
2011-10-11 The Global ‘Old Normal’ by Michael Nairne (Article)
Amidst a torrent of dismal economic news and plunging stock prices, investment horizons have become increasingly short-sighted. The new normal of faltering growth and painful deleveraging appears to be only too true. However, investors capable of taking a long-term, global view will find forces at work that will likely drive resurgent world growth akin to that which occurred in the decades right after World War II.
2011-10-11 The Economy Takes a Sudden Turn by Chris Maxey of Fortigent
A busy economic week brought much-needed relief for investors. With 75% of domestic economic reports beating expectations over the past two weeks, equity markets were able to find stable ground. Additionally, outside the US, new QE measures by the Bank of England and progress on the European sovereign debt situation bolstered investor confidence. Re-anchoring domestically, the news was largely positive across a range of data series, from manufacturing and services to labor. Similar to last year, economic data severely disappointed in the summer but is now showing improvement.
2011-10-11 Setven Jobs - RIP by Team of Dana Investment Advisors
Just when it appears the free trade bills with South Korea, Columbia and Panama are about to be passed, South Koreans are protesting in the street to stop it. Before the worldwide economic crisis they were all for it. Now they feel their economy (exports) will be hurt by it. In this economic crisis it is every country for themself. There is legislation currently in Congress to impose a tariff on Chinese imports mainly because they will not allow their currency to float to levels that would be fairer to their trading partners - mainly us. Bad idea.
2011-10-10 And That\'s The Week That Was by Ron Brounes of Brounes & Associates
Alcoa kicks off earnings season and investors get a first glimpse into the real state of Corporate America. While the markets were down and the economy was out last quarter, many biz are thought to be doing well and waiting for signs of stability before hiring and investing in operations. The Fed releases minutes from the last meeting and retail sales provides another guess about the future holiday season. And Europe will surely add some drama as well.
2011-10-10 High Yield Market Update by Peter Ehret of Invesco
Recession is a risk, but it isnt assured. Even in recession, the depth and duration of the downturn may not be enough to truly test the asset class. The current weak environment carries with it periods of increased risk of a recession, but we think the track remains slow growth. Given this belief, we see value in the high yield market, especially as the asset class has become much healthier since the global crisis cleansed the market. Thus a low-rate, slow-growth environment, combined with the strong fundamentals in the asset class may make high yield an attractive investment opportunity.
2011-10-10 Recession Certainty - Oh, Never Mind by Charles Lieberman of Advisors Capital Management
Fears of a recession have been rampant, but the conditions that precede recession have been absent and recent data provides strong evidence that the expansion is continuing. While turmoil in Europe was expected to weaken consumer and investment spending, neither has retrenched. Rather, the economy remains on a slow growth path, with the pace of growth in the second half likely to exceed the pace of the first half of the year.
2011-10-07 Market Turmoil by Richard Michaud of New Frontier Advisors
A promising market expansion was stilled by ugly politics in Washington and Brussels. While both domestic and European crises were largely political rather than economic, the consequences rattled investor confidence in capital values worldwide. As in the U.S., agency issues are the root cause of the European debt crisis. The U.S. subprime mortgage crisis resulted from agents paid to issue mortgages without considering the ability of borrowers to pay back the loans. Similarly, European bank agents ignored the default risk of euro-based Greek government.
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.
2011-10-07 Third Quarter 2011 Market Commentary: This is Not 2008 by Robert Stimpson of Oak Associates
The discussion on how to contain the sovereign debt crisis torments the market, which would prefer a decisive solution administered by a powerful and determined financial authority. While stringing the situation along is painful in the near-term, it may actually allow other struggling countries in Europe time to right their budget problems and enact measured reform before bailout funds are required to force them to act. Regardless, an end to the debate will come and financial markets will recover. We intend to benefit from it.
2011-10-07 Can Markets Find the Road Back to Positive Territory? by Frank Holmes of U.S. Global Investors
Can markets find the road back to positive territory? This week, wed like to point out three reasons investors should consider remaining in equities or reassessing whether to sit on the sidelines: 1. Investor sentiment is signaling the market is overextended to the downside. 2. Stocks are trading well below historical valuation trends. 3. S&P 500 dividend yields are higher than the 10-year Treasury yield.
2011-10-07 Bond Market Review and Outlook by Thomas Fahey of Loomis Sayles
Amid the ongoing debate, the financial markets are signaling a need for liquidity. Until Europe and the US are able to demonstrate economic growth, the financial markets are likely to remain skittish, leaving risk premiums high. In the interim, policy-makers will be in the spotlight. In our opinion, central banks should supply more liquidity on a global basis in this turbulent environment. We believe such intervention can help assuage the markets.
2011-10-06 Worry and Volatility Continue in September by Team of BondWave Advisors
September was a continuation of the fear and anxiety that plagued August. Worries about a global slowdown and the fiscal situation in Europe drove a volatile month. Fears of a double-dip recession have been growing as economic data has moderated. These fears were stoked after the September FOMC meeting when the Fed downgraded the state of the economy by announcing a new plan intended to stimulate growth. The IMF also adjusted its global outlook down, revising its estimate for global growth in 2011 and 2012 to 4% from 4.3% Estimates for the US were revised from 2.5% to 1.5%.
2011-10-06 A Treatise for Taylor by Michael Goodson of Wolf Group Capital Advisors
Last week my granddaughter, Taylor, was born. I began musing about what kind of life Taylor might expect to have. Despite all the negative talk I suspect that Taylor will be grateful to live in this country. The U.S. economy is still the worlds largest by a large margin, and per capita GDP is still envied by most of the world. During her lifetime, the expansion in innovation and technological gains is hard to imagine. The big picture issues we fret and fuss about now will likely have little impact on her ability to find happiness and contentment.
2011-10-05 And That's The Week That Was by Ron Brounes of Brounes & Associates
While investors are still trying to figure out just what is going on in Europe, they must change their news feeds to follow events closer to home.The economic calendar will be quite hectic and investors have recently shown a propensity to over-react to each big release. Manufacturing and labor highlight the weeks data. Investors want to see a rebound in sector activity since the factory slowdown after the Japan earthquake; optimistic analysts hope the jobless claims report was not an aberration and the unemployment rate could fall below 9%. Any chance the third quarter was just a bad dream?
2011-10-05 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
A fixation with tangible metals is both forward looking as well as reflective melancholy. Because the price of commodities had risen in the past, people might expect it to do so again. In the case of commodities trends lose their appeal when everyone already knows that the valuations have become inflated. In todays case we have been in a twelve year commodities price expansion. While some might try to eke out the last few cycles of profit within that trend, others wonder how much greedier can the trend enthusiasts be. There are no linear cycles that last forever and no free lunches.
2011-10-05 Million Dollar Question: Dollar and Recession Risk Up Together by Liz Ann Sonders of Charles Schwab
Recession fears have mounted, but the picture is still mixed and it's not yet conclusive.
The US dollar is winning the "least ugly" currency contest, but isn't helping stocks or commodities.
Short-term, a stronger dollar is a negative for riskier assets but not necessarily longer-term, if history's a guide.
2011-10-04 Markets Warned of Impending Recession by Chris Maxey of Fortigent
In the latest week, economic data was mixed, but news on consumer income and spending raised concerns over the health of the all-important consumer sector. Even worse, a growing number of economists are highlighting the possibility of recession. One organization, the ECRI, went as far as declaring that recession was unavoidable and warned, theres nothing policy makers can do to head it off. Such dire forecasts do nothing to bolster economic or market confidence. The ECRI has accurately predicted prior recessions, including the most recent one in 2008.
2011-10-03 Prospects for Employment and Recession by Charles Lieberman of Advisors Capital Management
Concern is high that the U.S. economy may be close to or entering recession, yet the fundamentals lend little support to such a projection. There has been no decline in jobs, while corporate health is very strong. So the recession concerns appear to be driven more by the decline in stock prices than by economic developments. There can be no recession without job losses, although the data still report job gains. Fridays employment report will shed light if anything has changed.
2011-09-30 The Coming Euro Bail by Monty Guild and Tony Danaher of Guild Investment Management
If the optimists are to be believed, Europe will come to grips with its critical financial problems and conduct a massive restructuring of the banking system and bail out the irresponsible countries that overspent. If the pessimists are correct, the world is a mess and will stay that way. We are moving toward the optimistic side. We see that Europe is finally recognizing that the all-is-well charade is no longer working. Investors are too smart and more cynical than in the past. European banks need capital. If they get it, investors may see a sizeable stock market rally in much of the world.
2011-09-30 Chinas Landing Soft not Hard by Stephen S. Roach of Project Syndicate
China has no choice but to move quickly to implement the pro-consumption initiatives of its recently enacted 12th Five-Year Plan. Strategic transition is what modern China is all about. Thats what happened 30 years ago, when economic reform began. And it needs to happen again today. For China, a soft landing will provide a window of opportunity to press ahead with the formidable task of increasingly urgent economic rebalancing.
2011-09-30 Is a More Integrated Europe the Answer? by Andrew Goldberg and David M. Lebovitz of J.P. Morgan Funds
Germany has voted for an expanded EFSF to stabilize the European Sovereign debt crisis, an important step towards reducing near-term concerns. However, broader problems still loom. In recent weeks, mounting skepticism has exacerbated fears of recession in developed economies, sending risk assets plunging and volatility soaring. In the following update on the situation in Europe, well consider: The underlying issues plaguing Europe, A summary of steps taken to address them thus far, A look at possible next steps and solutions and a few thoughts on investing in such difficult times.
2011-09-29 PIMCO Cyclical Outlook: Growth Risks, Policy Polarization and Rethinking Returns by Saumil H. Parikh of PIMCO
Over the next 12 to 18 months, we expect the global economy to expand at a very modest real rate of 1% to 1.5%
Global imbalances have continued to rise in the post financial crisis environment, global leaders continue to fail in their policy coordination efforts, and deleveraging and reregulation continue to be critical over the course of our cyclical horizon.
We are transitioning into a world where we believe the incentives of policymakers and the divisiveness of politics will become the predominant drivers of investment returns and economics.
2011-09-27 Chinas Escalation up the Value Chain: From Low-Cost Manufacturers to World Leaders? by Vladimir Cara and Ewan Markson-Brown of PIMCO
As labour demographics change, China could suffer a double whammy of a falling savings rate and a diminishing labour force.
The size of its domestic market allows China to spend more on research and development (R&D) and so potentially build technology and scale more quickly than many foreign competitors.
In particular, we have identified wheel loaders and excavators as two sectors where we expect the Chinese to successfully migrate up the value chain.
2011-09-27 Yield Ahead by Daniel J. Manion of Sentinel Investments
So far this month the equity strategy teams of both Morgan Stanley and Bank of America Merrill Lynch have published pieces in which they extolled the current attractiveness of dividend paying stocks. At Sentinel, we couldn't agree more with the timeliness of this sentiment, although the notion of "yield support" might offer little comfort to equity investors experiencing a daily decline in stock prices equivalent to a year's worth of dividend income. Prospects for global growth have become decidedly less certain of late and corporate earnings growth expectations are being tempered.
2011-09-26 Corporate Cash by Milton Ezrati of Lord Abbett
It will take time before a return of confidence can move matters beyond the recent, tentative expressions. Cash and the lack of confidence it reflects remain high. But investors should, nonetheless, remain aware of the tremendous potential for dramatic expansion in corporate spending, hiring, and M&A activity from even a modest improvement in confidence. Especially since equity market valuations these days make it cheaper to buy than to build, the M&A potential, with its always immediate market impact, looks particularly powerful.
2011-09-26 Not Over by a Longshot by John P. Hussman of Hussman Funds
Unless we observe a robust improvement in market internals from current levels, which appears doubtful given further confirmation of oncoming recession, the broad ensemble of data we observe doesn't offer much latitude to establish a constructive position based on, say, weak technical reversals or other scraps that the markets might toss out in the near term. The first 13 weeks of a recession are among the most predictably hostile periods for equities in the data. We'll take our evidence as it comes, but the primary risks - recession, default and global credit strains - continue to increase.
2011-09-26 Full Twist, With 2.0 Degree of Difficulty by Charles Lieberman of Advisors Capital Management
The Feds new twist strategy applies a new (or very old) tool to lower long-term interest rates to promote easier financial market conditions and economic growth. The equity market sold off nonetheless. Investors seemed to be reacting to the Feds economic bearish assessment, which suggested that the risks of recession had increased. However, the Fed was merely acknowledging what most analysts had been saying over the past few months. The key message is that the Fed remains committed to doing whatever it can to promote a healthier pace of growth and that its actions speak louder than words.
2011-09-23 5 Exceptional Dividend Growth Stocks - Lower Volatility and Higher Total Return by Chuck Carnevale of F.A.S.T. Graphs
For many people these are troubled times where fears about our economy and the stock market are at a heightened state. Stock price volatility is higher than we've ever seen it, adding to investor nervousness. Therefore, we searched for a safe place for conservative investors to invest. Our due diligence identified five dividend growth stocks that possess stringent quality characteristics, while at the same time have produced strong above-average historical returns. But more importantly, each candidate had to have future consensus earnings estimated growth rates greater than the S&P 500.
2011-09-23 All Eyes on Europe by Mark Kiesel of PIMCO
The longer policymakers wait, the more likely Europes financial crisis will deteriorate. The risk of a global liquidity trap has also increased as many healthy balance sheets around the world are also refusing to engage. Germany and other strong sovereign nations in Europe have to make a choice: continue to provide financial assistance to countries with more debt and assist in helping to restructure the debt of some European peripheral countries, or potentially move forward with a smaller, stronger group of countries-or at the extreme walk away from the Euro and the EU all together.
2011-09-23 Invesco Fixed Income Quarterly Outlook by Team of Invesco
While economic growth has been rather stagnant and the statement cites significant downside risks to the economic outlook, the Feds preferred core inflation measures, consumer inflation apart from the food and energy categories, have trended upward since the onset of QE2, the central banks second round of large scale asset purchases that swelled its balance sheet to more than $2.8 trillion. At the onset of QE2, core inflation measured year-over-year was low and trending lower, and deflation represented a realistic potential outcome.
2011-09-23 "Animal Spirits" - What Keynes Penned, Its Relevance Today by Asha Bangalore of Northern Trust
In Animal Spirits: How Human Psychology Drives the Economy, Why it Matters for Global Capitalism, Akerlof and Shiller explore a new avenue to understand macroeconomy and Keyness notion of animal spirits is the inspiration for their thesis. The authors of this book make an important point about animal spirits and policy making in the context of a credit crunch. In a garden variety recession, expansionary monetary and fiscal policies have the ability to revive economic activity. However, the combination of an economic recession and a credit crunch needs a special remedy.
2011-09-22 Jobless Claims, Leading Indicators Could Show US Economy is Not Contracting by Russ Koesterich of iShares Blog
Of all the economic reports coming out this week, Im most closely watching for the latest US weekly jobless claim numbers and the new leading indicators data, due out Thursday. Both will give further confirmation on the near-term state of the economy. As Ive mentioned before, I expect that the US economy is most likely going to experience an anemic expansion, rather than another recession. Recent economic reports have so far confirmed my view. I believe the new data this week will similarly show that the while the US economic recovery has stalled, the economy is not contracting.
2011-09-20 Ya Gotta Believe! by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Lupin Rahman and Isaac Meng of PIMCO
Central banks around the world consider easing monetary policy amid concerns of a global economic slowdown.
At least one major central bank, however, appears to be taking an opposite stance: China. Policymakers there are concerned about inflation, excessive credit and property speculation.
In other emerging nations, central bankers are generally poised to ease, but have less ammunition than they did after Lehman collapsed.
2011-09-16 China as an Asset Class by Henry Zhang and Robert Horrocks of Matthews Asia
China's economic expansion over the last 30 years has allowed many enterprises to prosper. For a number of investors, Chinese stocks have also grown in importance. As modern capital markets have taken root in China, stock markets have become one of the primary channels for companies to raise capital. While China's capital market is still early in its development and has its own risks and challenges, the country is expected to continue to grow and increasingly influence world economies. For a variety of reasons, we believe China is emerging as an investment asset class in its own right.
2011-09-16 Investing in Uncertain Times by Larry Maddox of Horizon Advisors
Much has been made about how little the budget ceiling legislation has changed the future of our deficits. While this may be true in the short-term, it may miss the bigger point, which is that it has changed the future of our debates. There was actually a serious agreement and a new approach to reducing spending. At least we now know that this can be done. It will be up to future legislators and presidents to determine the level of follow-through, but for now, folks are focusing on the issue and we can at least acknowledge that this is progress.
2011-09-16 Latest Data Points to Anemic Expansion, Not a Recession by Russ Koesterich of iShares Blog
Some market watchers are interpreting the fact that US consumer confidence remained extremely low last week as a sign that the chances of a sustained recovery have diminished. In my opinion, however, theyre focusing on the wrong numbers among the slew of economic data released Thursday. The right numbers to focus on: new figures from the Federal Reserve that confirm that while economic activity is stalling, we are not yet seeing credible evidence of a double dip.
2011-09-16 An Analysis of the Obama Jobs Plan by Mark Zandi of Moodys Economy.Com
In the current political environment, it is less than likely that most of the presidents plan will pass Congress. Our current baseline outlook assumes that the payroll tax holiday for employees is extended for only one more year. There is a fighting chance that broader payroll tax cuts for employees and employers could become law, but the odds arent high enough at this time to change our baseline assumptions.
2011-09-16 Is the End Near for the Eurozone? by Team of Knowledge @ Wharton
Warning signs are flashing red. Bond markets are projecting a 98% chance of default on Greece's debt. Stock prices for French banks, heavily invested in that debt, have plunged 10% in recent days. Has the European debt crisis hit the breaking point, with Greece -- and perhaps others -- soon to exit the eurozone? Or, will officials once more cobble together new agreements that keep Greece in the club and prevent a huge contagion effect likely to cripple an already slowing global economy? Wharton finance professors Franklin Allen and Bulent Gultekin offer their insight.
2011-09-15 The Great American Economic Lie by Lance Roberts of Advisor Perspectives (dshort.com)
The idea that the economy has grown at roughly 5% since 1980 is a lie. In reality the economic growth of the U.S. has been declining rapidly over the past 30 years supported only by a massive push into deficit spending. From 1950-1980 the economy grew at an annualized rate of 7.7%. This was accomplished with a total credit market debt to GDP ratio of less than 150%. The CRITICAL factor to note is that economic growth was trending higher during this span, going from roughly 5% to a peak of nearly 15%. The end game of three decades of excess is upon us.
2011-09-15 Chinese Banks are Imitating Washington Mutual by Bill Smead of Smead Capital Management
Washington Mutual is only in existence in the world of litigation. For those of you out there who like to avoid these kinds of risks, we at Smead Capital Management recommend you avoid China, avoid the commodities which are used most heavily in construction, avoid the makers of construction and mining equipment, avoid the countries which have benefitted the most from Chinas uninterrupted growth, and avoid the vehicles used for financing all of this growth. The inevitable economic recession in China which we expect to follow will turn the asset allocation world upside down.
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.
2011-09-13 The Risks of Exchange-Traded Products by Dennis Gibb (Article)
Every major financial crisis has been foretold by timely but ultimately ignored warnings. At the end of mania, the rush to secure more fees, investment performance and status trumps common sense. In the last few months, the drumbeats of warnings from financial journals and regulators about exchange-traded funds have been sounding. Few seem to be listening.
2011-09-13 A Response to 'A Winning Endgame' by Guy Cumbie (Article)
A Winning Endgame, Robert Huebscher's review of John Mauldin's book Endgame, made some highly problematic claims about our energy usage. Moreover, Huebscher's claim is unfounded that an energy policy, such as the cap-and-trade policy he recommended, is the right step toward solving our economic crisis.
2011-09-13 Is the Next Leg Down in the Secular Bear Market Already Underway? by Martin J. Pring of Pring Turner Capital Group
It has been our view since the opening years of the decade that US equities are in a secular bear market. That opinion was based on several long-term indicators reaching the kind of extremes seen at previous secular peaks. Examples would include readings in the Shiller P/E ratio in excess of 22.5, the Tobin Q above 1.07 and the dividend yield below 3%. Since recent readings of 20.25,1.05 and 2.25% respectively have been closer to those seen at secular peaks than the 7.5,.3 and 6.5% normally seen at secular lows we are holding fast to the conclusion that the secular bear has further to run.
2011-09-13 How the Government Can Create Jobs by Peter Schiff of Euro Pacific Capital
On Tuesday, September 13, Peter Schiff will testify before the House of Representatives Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending. The hearing entitled, "Take Two: The President's Proposal to Stimulate the Economy and Create Jobs" will examine federal job creation efforts. Mr. Schiff is well known for his views on how federal regulatory activism and irresponsible monetary and fiscal policy is actively destroying jobs in America. The following statement from Mr. Schiff will be read into the Congressional Record this morning.
2011-09-12 Whats Missing From Obamas Plan by Russ Koesterich of iShares Blog
In a speech last Thursday evening, President Obama outlined his American Jobs Act, a $447 billion package of tax cuts and government spending he hopes will help stimulate the slowing economy. It calls for reduced payroll taxes, extended unemployment benefits and increased spending on infrastructure to help put people back to work. Without passage, I believe the US will suffer significant fiscal drag in 2012 and the economy will face more headwinds. However, while the proposal could spur some growth, it does nothing to fix the longer-term fiscal problems facing the country.
2011-09-12 Market Slide Continues, but Positives May Be on the Horizon by Bob Doll of BlackRock Investment Management
We are in the midst of a bear market in confidence more than anything else and investors should be on the lookout for signs that conditions will be getting better. There are a number of developments that could help restore confidence. Positive surprises in US economic data; lower interest rates in Europe; major European bond purchases; a eurobond issue; additional quantitative easing from the US Federal Reserve; the US Congressional super committee agreeing to major long-term entitlement reform; and US pro-growth tax policies that encourage capital formation.
2011-09-12 While the Economy Moderates, the Fed Mulls its Options by Chris Maxey of Fortigent
It will be a somewhat more active week as a number of economic releases are due, including the producer price index, the consumer price index, retail sales and industrial production. Additionally, the Treasury Department is set to auction $32 billion in 3-year notes (Monday), $21 billion in 10-year notes (Tuesday), and $13 billion in 30-year bonds (Wednesday). Earnings reports to follow this week include Best Buy, Diamond Foods, and Research In Motion.
2011-09-10 China Fears Much Ado About Nothing by Frank Holmes of U.S. Global Investors
There are many questions surrounding the global market but the Chinese economy remains headed toward the moon. The country, of course, remains vulnerable to external forces but we believe the economys strong momentum will be enough to carry the country through, should volatile times persist.
2011-09-09 Americas: Economic Review August 2011 by Team of Thomas White International
While markets have calmed after the anxiety caused by S&Ps downgrade of U.S. debt, economic indicators for most countries in the Americas region remain subdued. 2nd quarter growth declined for most countries and full year forecasts are being revised lower. The subdued global growth outlook has dulled the prospect for continued growth in export earnings while consumer spending in some of the larger economies is increasingly being restrained by higher interest rates and the heightened economic uncertainties. Nevertheless, inflationary risks have declined, except most notably in Brazil.
2011-09-09 Schwab Market Perspective: What's Next? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
The economic debate continues between the recession and slow growth camps. We lean toward the latter but the argument may be just splitting hairs. The more important issue is what this sideways movement may mean for the market and jobs growth. There seems to be more disagreement among Fed members than we've ever publicly seen. Theyve laid out potential further stimulus but we believe their effects are likely to be limited. The European crisis continues to fester and some hard choices may need to be made sooner rather than later. Slowing European economies however, could help emerging markets.
2011-09-08 If Some Dare Call It Treason, Was Milton Friedman a Traitor? by Paul Kasriel of Northern Trust
The principal factor accounting for the current exceptionally weak economic recovery is not unusually high uncertainty, too burdensome regulation and taxation, excessive federal government spending and/or debt or a major structural change in the economy, but rather inadequate depository institution credit creation. The reason depository institutions are not creating normal amounts of credit is that they suffered enormous losses after the residential real estate bubble burst and they remain concerned about current and/or future capital adequacy.
2011-09-08 Jobs, Jobs, Jobs The Mantra of the Current Season by Asha Bangalore of Northern Trust
The unemployment rate in August 2011 stood at 9.1%. The high for the unemployment rate in the post-war period was recorded during the 1981-1982 recession when it touched 10.8% in December 1982. In this business cycle, the recovery commenced in November 1982 and by January 1985 the unemployment rate had dropped to 7.3%. This time around, the high for the unemployment rate is 10.1% (October 2009) and the recovery is 26 months old with a jobless rate, as noted earlier, of 9.1%. Consequently, the level of concern about a persistently high unemployment rate has risen significantly.
2011-09-08 Emerging Asia Pacific: Economic Review August 2011 by Team of Thomas White International
Emerging markets across Asia experienced flagging equity prices as fears of a global slowdown, triggered by the downgrade of the U.S. sovereign credit rating and concerns over the debt crisis in Europe, gripped markets. Stock markets in some of the emerging Asian economies flirted with yearly lows. The Asian Tigers including South Korea, Hong Kong, Taiwan, Malaysia, and Thailand reported slower growth for the second quarter ended June 2011. Even China, the worlds second largest economy, reported headwinds to growth.
2011-09-08 Middle East/Africa: Economic Review August 2011 by Team of Thomas White International
According to the IMF, global economic prospects have taken a downturn in the wake of a weaker U.S. economic recovery, uncertainty surrounding the Euro-zones fiscal stability and relentless turmoil in the Middle East and North Africa (MENA) region. In recent weeks, the MENA region has been in the spotlight yet again, with the Libyan revolt against Muammar Gaddafis 42-year long dictatorship gaining momentum. The IMF has been keeping a close watch on developments in the strife-ridden country and is yet to determine the uprisings impact on the Libyan economy.
2011-09-08 Developed Europe: Economic Review August 2011 by Team of Thomas White International
Last month, major economies such as Germany and France as well as the European Central Bank (ECB) took steps to allay fears about a debt contagion in Developed Europe. Still, investor sentiment remained weak in the region, echoing worldwide concerns over the state of the American economy and the loss of momentum in the global economic recovery. Amid worries that the European Financial Stability Facility (EFSF) may not have adequate funding to bail out Italy and Spain, if the need arises, the ECB stepped in to buy the sovereign debts of the two countries for the first time.
2011-09-08 Emerging Europe: Economic Review August 2011 by Team of Thomas White International
Economic growth in the Eastern European region faltered during the 2nd quarter. With this sputtering growth, the central banks are feeling pressured to reduce borrowing costs for consumers and businesses alike. Significantly, the economic recovery in the region is currently facing its most serious threat amid the burgeoning Euro-zone debt crisis and the recent downgrading of the U.S. credit rating. The woes of these former communist states are compounded further by the fact that most of these economies are dependent on their exports to the industrial powerhouse Germany.
2011-09-07 Helicopter Ben risks destroying credit creation by Bill Gross of PIMCO
The concept of showering money over national economies to combat deflation has been an accepted principle of monetarism for decades. A helicopter, however, is not your average aeroplane, and the usual laws of aerodynamics do not necessarily apply in all cases. Similarly monetary policy at the zero interest rate bound introduces a new dynamic that may conflict or even reverse standard logic that lower interest rates across the sovereign yield curve are everywhere and always stimulative to economic growth.
2011-09-06 Double-Dip Scorecard by Milton Ezrati of Lord Abbett
Three issues have dragged the market around of late: 1) Europes sovereign debt crisis, 2) Washingtons budget debate, and 3) fears that the American economy will fall into a second recessionary dip. This Economic Insights takes up the third of these pressing issues, offering a kind of scorecard on double-dip likelihoods by peering behind the latest, admittedly weak, economic data to assess causes and likelihoods. The conclusion admits to the possibility of a second recessionary dip, but nonetheless settles on the probability that growth will continueslow to be sure, but growth nonetheless.
2011-09-06 And That's The Week That Was by Ron Brounes of Brounes & Associates
When volume is as light as it was this week, two things can happen: 1) investors return from the holiday and seek value from the exaggerated downward moves, or 2) investors who were missing in action this week jump onboard and accelerate the selling. With little data of substance to analyze, fickle investor seek new answers.
2011-09-06 Its the Jobs, Stupid! Part VI by Komal Sri-Kumar of TCW Asset Management
The zero U.S. job growth also had an impact beyond its own borders. Even though U.S. markets were closed yesterday for the Labor Day holiday, Asian and European equity markets fell sharply on growing fears that the data release signaled the beginning of a U.S. recession. (Concerns about the solvency of the European banking system were the other reason for the market setback.) The United States and the European Union each account for about one-quarter of world GDP, and emerging markets cannot maintain global growth despite their faster pace of expansion.
2011-09-06 Time to Embrace a new round of Quantitative Easing by Chris Maxey of Fortigent
As we head into the fall, investors should prepare for a continuation of this summers volatility.While August is viewed as a challenging month for the markets, September reigns supreme as the worst month for market performance historically. Dominating the headlines this week will be an announcement by President Barack Obama on Tuesday regarding plans for boosting job growth and increasing budget savings. Across the globe, services PMIs will be released this week, and akin to the global manufacturing PMIs, declines are expected.
2011-09-03 How to Find Opportunities from Blood, Debt & Fears by Frank Holmes of U.S. Global Investors
For the long-term investor, the risk/reward profile for owning stocks appears positively skewed. Equity investors have suffered through one of the most difficult decadesrivaling even the Great Depressionwhile bond investors have enjoyed a 30-year bull market. Long-term mean reversion is a powerful tool that investors can use to help them attain their long-term goals.
2011-08-30 Scenarios for a Stock Market Bottom by Keith C. Goddard, CFA (Article)
A probability-based forecast for the U.S. stock market between now and 2013 can be constructed using historical relationships between stock prices, earnings and dividends. This yields a matrix of possible outcomes for the S&P 500 Index over the next two years.
2011-08-30 The Economy is Stagnant, Are Banks to Blame? by Chris Maxey of Fortigent
On Tuesday, the S&P/Case-Shiller home price index will be released. That afternoon brings the release of minutes from the August 9 FOMC meeting, during which three individuals dissented. ISM manufacturing comes out Thursday. Economists believe it will fall into contractionary territory below 50, based on recent disappointing regional manufacturing data. By Friday, the much anticipated nonfarm payroll figures for August will be released. Expectations are low, especially considering the difficult economic headwinds faced in the past month.
2011-08-29 Banks Lending at Last by Milton Ezrati of Lord Abbett
Amid the many signs of economic weakness, the recent rise in bank lending stands as a welcome contrary indicator. Policy makers at the Fed no doubt see the news as significant. Certainly, a willingness among banks to lend actively to companies and to individuals does much to build confidence that the economic expansion can continue. Bernanke has on many occasions identified bank lending as a crucial sign that past stimulative policy has gained traction. Growth in bank loans should give the Fed comfort about its past efforts to exercise patience with a QE3.
2011-08-29 And That's The Week That Was by Ron Brounes of Brounes & Associates
One positive week does not constitute a trend (wishful thinking). The economic calendar is quite hectic next week with key news from manufacturing and labor. Though recent results have been lackluster at best, many analysts have predicted a rebound in the months to come. Hopefully, some favorable signs of such strength will present themselves as early as next week (starting with decent nonfarm additions and a reduction in the jobless rate). If not, maybe Bernanke can come to the rescue again. QE3 anyone?
2011-08-26 Confidence Counts by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Most of the normally historically-telling leading indicators continue to point to the US avoiding a recession. However, risks are clearly heightened as continued erosion of confidence could push perception into reality. The Fed continues to be divided on whether to attempt further monetary stimulus. We question if any efforts will have the desired impact. The Obama Administration and Congress continue to scramble to be seen as doing something to help, but also have limited policy options. European policymakers seem oblivious to the erosion of confidence.
2011-08-26 Valuation Gap Makes Gold Miners Attractive But All Miners Arent Created Equal by Frank Holmes of U.S. Global Investors
Goldwatchers were reminded golds volatility works in both directions this week, with prices falling more than $100 an ounce in just one day. We forecasted the selloff last week, explaining a 10 percent correction would be a non-event. Once again the CME Group hiked the exchanges margin requirements for gold investment to shake out overleveraged speculation. This is a positive for long-term investors.
2011-08-25 Double Dip? Not so quick. by Russ Koesterich of iShares Blog
In recent days, market watchers from Bill Gross to Morgan Stanley have warned of the high possibility of a double dip recession for reasons ranging from more regulation and policy errors, to slowing consumption, weak economic data and the likelihood of further fiscal tightening. While I do believe that the odds of a double dip have risen since the S&P downgrade of US debt, I still think the most likely outcome is a sluggish recovery, not another recession. Whats my evidence? Leading indicators and retail sales data in the US and abroad.
2011-08-25 Will the U.S. Economy Face Recession in 2011? by Scott Colyer of Advisors Asset Management
The question I am now most often asked is, Will the United States slip into a second economic recession this year? The risks have definitely risen such that the current soft patch in the U.S. economy may translate from slightly positive GDP to a negative reading. Investors are faced with a huge opportunity to buy risk assets at a great entry point. We believe that the probabilities are that the markets will be significantly higher in the future. Market participants are net short this market and cash on the sidelines is at record highs. That is a recipe for a rare opportunity.
2011-08-23 A Fundamental Investment Strategy for Today\'s Environment by Robert Huebscher (Article)
We spoke with Tim Hartch and Michael Keller, who are co-managers of the Morningstar 5-star BBH Core Select Fund (BBTEX) from Brown Brothers Harriman. The fund's strategy is strictly bottom-up, with investments in established, cash-generative businesses that are leading providers of essential products and services with strong management teams and loyal customers.
2011-08-23 Germany's Stumble Threatens Appetite for Peripheral Support by Ryan Davis of Fortigent
Equity markets faced mostly negative economic data last week for both the US and abroad, putting a quick end to the market rebound that began the previous week. In Europe, Germanys GDP slowed markedly. The regions most powerful economy expanded by just 0.1% in Q2, the slowest since early 2009 and down considerably from 1.3% in the first quarter. It was also far lower than an expected 0.5%. This in turn weighed on Eurozone growth, which expanded just 0.2%. Slower growth than the tepid levels already anticipated puts further pressure on the deficit-plagued region.
2011-08-23 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
A new political dynamic is overspreading the globe. It's a force not only of political will, but fiscal interests. It sets up a defensive, cash-only paradigm which favors no one but those who have capital. Ironically, this new renaissance is concentrated not in regions of vast wealth already, but in the more distressed areas of the globe. The implications are vast. Foreign investment in these regions in agriculture, water purification, industrial development, and manufacturing could prove to be the next revolution in capital spending that saves the markets and people in need at the same time.
2011-08-23 And Thats The Week That Was by Ron Brounes of Brounes & Associates
As another successful earnings season winds down, investors have all but forgotten the solid second quarter showings and are focusing on the sudden economic downturn. So much for the nice results and strong outlooks from energy, health care, retail, and certain techs. Investors are choosing instead to trade based on the political bickering, the seemingly never-ending European woes, and the short-term negative effects of Japan. Many corporations across various sectors remain cash-rich and are weighing their options as they pursue new opportunities: acquisitions, dividends, share buyback.
2011-08-22 Dont Dismiss Emerging Markets by Milton Ezrati of Lord Abbett
Fears about emerging market investments have grown of late. Todays doubts have three sources. 1) Many once popular emerging equity markets have failed to keep up with their impressive past gains. 2) The emerging economies look more vulnerable than previously to the ills of inflation and the associated slowdown in the pace of growth. 3) Valuations look much less compelling than they once did. But if all these factors keep emerging markets from repeating the phenomenal gains of the last 1020 years, investors would make a mistake to dismiss them out of hand.
2011-08-22 The Neverending Story of a by Frank Holmes of U.S. Global Investors
Gold continued to make headlines last week, reaching nearly $1,900 an ounce on Friday before resting around the $1,850 level. Golds 15 percent rise to new nominal highs over the past month has rekindled gold bubble talk from many pundits. Long-term gold bulls have been forced to listen to these naysayers since gold reached $500 an ounce. If you would have joined their groupthink then, you wouldve missed golds roughly 270 percent rise since. That said, gold is due for a correction.
2011-08-19 Paris Accord: Much Ado About Nothing by Komal Sri-Kumar of TCW Asset Management
As I have emphasized repeatedly in the past, none of these band-aid measures is likely to end the European debt crisis. Several countries of the region are excessively in debt, pure and simple. When that is the case, the solution ought to be a reduction in the level of debt through the exchange of existing debt for discount bonds, reduced-interest rate bonds, or equity. Unless the European powers recognize and act on this reality, European debt will continue to be a millstone around the global economys neck.
2011-08-19 The Silver Lining for Markets and the U.S. Economy by Frank Holmes of U.S. Global Investors
There is a silver lining: Despite all the negative news out there, the global economy will continue to grow. In fact, the U.S. economy has had several positive developments recently. The four-week average for unemployment claims dropped to 402,000 during the week ending August 13. There is still a large chunk of America unable to find a job, but that group has shrunk 13 percent since August 2010 and is about 40 percent of peak 2009 levels.
2011-08-19 Back to the Future: Median Home Prices Mirror Years Past by Gregory Tsujimoto of John Burns Real Estate
Prepare to take a trip back in time as you use the interactive map below to view the last time median home prices matched current median prices. Youll find some markets and regions are mirroring 2006 - when MySpace was the top website in the social networking realm. In other markets, you may have a flashback to 1997, standing in line to see the movie Titanic.
2011-08-17 Our Take on the Current Market Tumult by Jon Quigley of Advanced Investment Partners
A headline sums up the markets action: its a sell first, ask questions later market as investors experience flashbacks to the 2007/2008 markets. Investors/markets dont like uncertainty and theyre getting political, economic and sovereign uncertainty in abundance. With the austerity discussions that are dominating US and Europe, there are increasing concerns about a double-dip recession even though positive economic signs are out there earnings, revenues, and a slightly better than expected jobs report.
2011-08-16 A Commentary on the Correction by Michael Nairne (Article)
Market corrections are always painful and this one particularly so because of the lingering anxiety from memories of the 2008-2009 market crash. I explore the history of stock market corrections and examines the dynamics of the recent downturn as well as actions that may be warranted, depending on individual circumstances.
2011-08-16 A Closer Look at Fixed Income: Assessing the effects of the downgrade on specific sectors by Karen Dunn Kelley of Invesco
Fixed income markets are dynamic and complex, and each fixed income asset class is unique in its level of exposure to the U.S. sovereign rating downgrade by S&P. So, while Ive taken a high-level view of the downgrades effects so far, at this point, I think it would be helpful to drill a little deeper into these various asset classes. This piece will assess how these asset classes have been affected by the downgrade that lowered long-term U.S. ratings from AAA to AA+ and subsequent downgrades on other U.S. bonds, and provide their outlook on what investors can look for next.
2011-08-15 Emerging Europe: Economic Review July 2011 by Team of Thomas White International
The European Bank for Reconstruction and Development (EBRD) has sounded a cautionary note for the east European region after a new $229 billion aid package for Greece by the Euro-zone leaders was awarded in July. The bank, which was established to help the former communist states in their transition to market economies, said Eastern Europe and central Asia are at serious risk from the Euro-zone debt crisis, according to a news report published by Bloomberg. Still, the EBRD upped its economic forecast for the current year for the countries where it has investments.
2011-08-15 Emerging Asia Pacific: Economic Review July 2011 by Team of Thomas White International
China, India, Taiwan and Philippines and other Asian economies seeing inflation accelerate to new highs in June. In most of these countries higher fuel costs and food prices were the primary culprits. While large economies such as India and China hiked interest rates aggressively, many countries increased bank reserve ratios to drain excess liquidity and rein in credit growth. The lone exception to the inflation-ridden scenario in Asia was Indonesia. Indonesia has successfully navigated inflationary pressures by allowing its domestic currency to strengthen strongly.
2011-08-15 Americas: Economic Review July 2011 by Team of Thomas White International
Second quarter economic growth was weaker than expected in the U.S.. Canada is also expected to report slower second quarter growth, but may regain some of the lost pace by the second half. Slower growth in the U.S. will likely have a restrictive effect on economic activity in Latin America, especially in Mexico and Colombia, which have relatively deeper economic ties with the U.S. For the resource exporters in the region, the expected decline in global demand growth for commodities and industrial material is likely to be a dampener.
2011-08-15 Middle East/Africa: Economic Review July 2011 by Team of Thomas White International
Inflation has been the highest in the MENA regions due to capacity constraints and food prices. While rising costs of food and oil have increased inflationary pressures in South Africa, Israels inflation rate has breached the target range set by its central bank. In addition, South Africa is witnessing strained consumer demand, while growing economic disparity despite lower unemployment rates has triggered social unrest in Israel. Jordan is also battling pricing pressures and is looking to bridge its wide funding gap by raising capital with the issuance of its first Islamic debt instrument.
2011-08-15 Two One-Way Lanes on the Road to Ruin by John P. Hussman of Hussman Funds
The reason we are facing a renewed economic downturn is that our policy makers never addressed the essential economic problem, the need for debt restructuring. There are two one-way lanes on the road to ruin, and these are unfortunately the only ones on the present policy map: 1) Policies aimed at distorting the financial markets by suffocating the yield on lower-risk investments, in an attempt to drive investors to accept risks that they would otherwise shun; 2) Policies aimed at defending bondholders and lenders who made bad loans, which they now seek to have bailed out at public expense.
2011-08-15 Return to Recession.or Recovery? by Liz Ann Sonders of Charles Schwab
Soft economic data has caused talk of a return to recession to grow, leading to a return to the risk-off trade and a spike in volatility. We believe these fears and the market reaction are overdone and indicators still point to growth, but risks are high. The chorus calling for a new quantitative easing (QE3) program from the Fed has grown. We believe it's unlikely at this point. The European debt crisis continues to damage investor confidence as policymakers appear to be consistently behind the curve. Meanwhile, the economic slowdown could ultimately help emerging markets.
2011-08-15 Why This Cycle Is Different by Milton Ezrati of Lord Abbett
Back in 2009, when the recovery from the subprime crisis was just beginning, the International Monetary Fund produced a remarkable study of past economic cycles. The analysts there made a point of distinguishing the behavior of cycles caused by financial crises from the behavior of cycles with other causes. Their work made clear that recessions associated with financial crises were deeper and lasted longer than others and that the subsequent recoveries were slower. And that when cyclical forces were synchronized across the globe, as they were in 0809, these differences were even greater.
2011-08-12 And That's The Week That Was by Ron Brounes of Brounes & Associates
So what will be the effects of the debt deal on the economy and markets? For now, investors are quite pessimistic (to say the least). Even Bernanke has warned that severe spending cuts would prove detrimental and cause a drag on the economy. And any threats (real or perceived) of a ratings cut would prove disastrous. (Thats where we are today.) Retailers join the earnings fun as Macys, Kohls, Nordstrom, and JP Penney lead the way. The Fed meets and issues a statement to help folks make heads or tails over the future direction of the economy.
2011-08-12 Warren Buffett Said Ignore Political and Economic Forecasts by Julie Carnevale of F.A.S.T. Graphs
This article is about casting a light of reason on the longer-term perspective, in contrast to what is typically an emotionally charged attitude about short-term volatility. It is human nature to judge the performance of our portfolios based on their closing stock price for any given day, week, month, or even quarter. The point we're trying to make here is that it is not the most important factor, unless you were actually planning to sell on the day you measure it. Otherwise, the intrinsic value derived from the operating results that you generate is more important than price volatility.
2011-08-12 Robert Rubin, Bank America and the fate of the dollar by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we take a look at the latest week of inaction and indecision on the part of the leaders of the G-20 nations. Never has doing absolutely nothing taken so much time and garnered so much market and media attention. If the nothing doing dance by Barack Obama, Nicholas Sarkozy and Angela Merkel reaches a much higher frequency, life as we know if is definitely going to change big time. And that change may include altering the international role of the dollar, a change regarding which neither Congress nor the American people have been consulted.
2011-08-12 Developed Market Banks: Why PIMCO Pathfinder Takes a Selective Approach by Charles Lahr of PIMCO
The Pathfinder Strategy is currently limited to only a handful of banks that are best characterized by PIMCO as deep value opportunities.
We generally do not see meaningful upside potential in equity positions of developed market banks over the secular horizon.
Our concerns primarily revolve around three factors: loan growth, balance-sheet risk along with capital levels and regulation.
2011-08-12 Making Sense of the Markets by Team of Neuberger Berman
It is one thing to theorize about markets. It is quite another to invest. With that sentiment in mind, we offer a sampling of views from some of our portfolio managers across our firm who each independently form their own conclusions as to what to make of the market and how to position portfolios according to their respective investment disciplines.
2011-08-12 After the Downgrade - Evaluating S&Ps decision and possible opportunities for investors by Karen Dunn Kelley of Invesco
I want to highlight a few points that we believe give some much-needed context to this unprecedented situation. And I want to share some thoughts from my colleagues around Invesco, who are carefully monitoring both the risks and the opportunities presented by this downgrade.
2011-08-12 Developed Europe: Economic Review July 2011 by Team of Thomas White International
Sovereign debt problems on both sides of the Atlantic kept the global investment community anxious in July. While the U.S. government struggled to build political consensus on the terms for having its debt ceiling raised, European leaders negotiated hard to push their domestic agendas through, while deciding on the exact nature of another aid package for Greece. Eventually, concerns about a Greek debt contagion eased slightly after the country was given a 109 billion bailout, which included provisions for lower interest rates and longer repayment periods.
2011-08-11 No Turning Back: The ECB Brings Its Balance Sheet to Bear on Italy and Spain by Andrew Balls of PIMCO
The European Central Bank has crossed the Rubicon. By buying Italian and Spanish government bonds, it has brought a much-needed and credible external balance sheet to bear. There is thus the potential for an end to damaging games of chicken between the eurozones monetary and fiscal authorities and, therefore, stabilizing the eurozones systemically important government bond markets. But there remains huge uncertainty, together with large technical and political execution risk.
2011-08-11 Clueless by Michael Dana of Dana Investment Advisors
In Greece and Italy national debt now exceeds GDP. Spain and Ireland are not far behind. It is causing turmoil in equity markets across the globe. Meanwhile, here in America Congress pats themselves on the back for finally agreeing to their own debt solution. They must not have been reading the papers as our debt just surpassed our GDP and Standard & Poors dropped our credit rating from AAA to AA+. Our debt is now like the Titanic waiting for an iceberg. So what did Congress accomplish? Its not clear. The best we can tell is Congress agreed to cuts of $900 billion over ten years.
2011-08-11 Market Flash: "Everybody Stay Calm" by Jason B. Leach of Cravens Brothers Wealth Advisors
In the wake of this debt crisis sell-off, our political leaders need to come up with long-term structural ideas not only for budget cuts and tax reform, but for jobs, housing, education, infrastructure, real Wall Street reform, and a comprehensive energy policy. Our nation is at the point of maximum pain and the time has come for big, structural solutions, not temporary fixes. Washington must be wrested from the rule of the banking oligarchs and all manner of lobbyists during this process or we will be digging out of the holes we have put ourselves in for much longer than we would like.
2011-08-10 Update on Global Economic Uncertainty by Team of Nomura Asset Management
Investors can afford to be less nervous in a market that has already declined significantly. Rather, we would recommend that investors should recognize the ability of these companies to generate earnings as well as their ability to sustain their dividends payments. Governments of all major developed and emerging countries have to deal with deteriorating economic forecasts, so until investor psychology calms down, patience may be needed. We will continue to monitor the changing investment environment and identify stocks that offer worthwhile investment opportunities.
2011-08-10 S&P Drops a Bomb on an otherwise OK week for the Economy by Chris Maxey of Fortigent
Volatility will be the word of the week as the US is now entering unprecedented territory after being downgraded for the first time. Postulating what happens next is complete conjecture at this point. Investors should prepare for heightened volatility for the near future. Several central banks will meet this week, including those in Indonesia, Norway and South Korea. In addition, the Federal Reserve meets on Tuesday with no expected change to its 0-0.25% fed funds rate stance. Markets will closely watch for any language about the pace of the recovery or clues about its balance sheet.
2011-08-09 Does Government Intervention in Financial Markets Slow Economic Growth? by Michael Edesess (Article)
As we saw with the Dodd-Frank legislation and the Consumer Financial Protection Bureau, the question underlying the debate over financial regulation is whether it stifles economic growth. Leo F. Goodstadt's book, Reluctant Regulators, provides useful insights from the experiences of Hong Kong and China. It also causes us to ponder whether our measurement of economic growth is fundamentally flawed.
2011-08-09 Implications of the Debt Downgrade by David A. Rosenberg of Gluskin Sheff
As we had suggested in recent weeks, a U.S. downgrade was going to likely be more negative for the equity market than Treasuries, and that is exactly how the week is starting off. The reason is that history shows that downgrades light a fire under policymakers and the belt-tightening budget cuts ensue, taking a big chunk out of demand growth and hence profits. It is not just the United States the problem of excessive debt is global, from China to Brazil to many parts of Europe. And lets not forget the Canadian consumer.
2011-08-09 Bright Spots by Milton Ezrati of Lord Abbett
The American consumer is not nearly as vulnerable as during the 200809 recession. During the past two years, American households have so restrained spending, absolutely and relative to income, that presently they maintain about a $590 billion annualized savings flow, up strikingly from the $190 billion annualized flow averaged in the middle of 2007. Since this current savings flow amounts to some 5% of outstanding household liabilities, households need make no further cutbacks to improve their balance sheets, leaving them to spend marginally more freely.
2011-08-05 Urbanization: Driving Commodity Demand by Mark Mobius of Franklin Templeton
Increasing economic activity in emerging markets has continued to push up the demand and prices for key resources such as metals and oil. Infrastructure spending is a key factor driving this rising demand, as more of the working population in emerging markets move from rural areas to the cities, increasing consumption and putting upward pressure on both hard and soft commodities. Long-term commodity prices are likely to be driven by rising global demand as well as increasing costs to obtain these commodities.
2011-08-05 Advisor Alert - Placing This Week's Selloff Into Context by Frank Holmes of U.S. Global Investors
The major market indices were lower this week. The Dow Jones Industrial Average lost 5.75 percent. The S&P 500 Stock Index decreased 7.19 percent, while the Nasdaq Composite fell 8.13 percent.
Barra Growth outperformed Barra Value as Barra Value finished 7.53 percent lower while Barra Growth decreased 6.88 percent. The Russell 2000 closed the week with a loss of 10.34 percent.
The Hang Seng Composite Index finished lower by 6.80 percent, Taiwan fell 9.15 percent, and the KOSPI declined 8.88 percent.
The 10-year Treasury bond yield closed 24 basis points lower at 2.56 percent.
2011-08-04 The Five Horsemen of the Economic Malaise by Craig Hester of Hester Capital Management
The unwinding of the economic malaise will take years, and it will be a painful - but necessary-process. There is much fear and anxiety reflected in the financial markets. Many of the world economies are in a state of disequilibrium, with too much debt, facing high unemployment and sluggish growth. Policy options are limited, and politicians lack the courage to act. But out of such times come opportunities. We live in a world of instant news and an acute short-term focus. One of the keys to investment prosperity is to manage money with a long-term perspective while balancing risk and return.
2011-08-03 Disappearing Act: GDP Loses Steam by Liz Ann Sonders of Charles Schwab
Although the debt deal remains top-of-mind, the latest GDP report's weakness didn't ease the angst.
The economy is now operating at "stall speed" and is at a crucial inflection point.
There's not much good news other than corporate profits, which have boomed.
2011-08-03 Converging On The Horizon by Ed Easterling of Crestmont Research of Advisor Perspectives (dshort.com)
By the end of this year, the earnings cycle is likely to be well above its typical thresholds of duration and magnitude. Although earnings could again rise in 2012, the magnitude of excess margins portends a fairly significant decline when the earnings cycle reverts. In addition, the profile of cyclical cycles in the stock market may have also run its course. The market may sustain or extend its gains for 2011 by year-end, but another up-year in 2012 would make history. Not only is duration stretched, but also the magnitude of cumulative gains has now matched the historical average.
2011-08-03 A Deal Nears, but the Economy Remains Unstable by Chris Maxey of Fortigent
With fears of an impasse over the debt ceiling, equity markets faced a difficult week. Fortunately, leaders announced on Sunday evening that they reached a deal in principal to raise the debt ceiling. Many pundits have reiterated in recent weeks that a deal would be reached prior to the August 2 deadline, but markets and investors grew nervous over the past week. However, politicians stayed true to form. They assured the American people that, despite headlines from the past several months, Republicans and Democrats came together in the interest of their constituents to strike the best deal.
2011-08-01 And That's The Week That Was by Ron Brounes of Brounes & Associates
A month ago, the DC deficit/debt debate was amusing political theater. Partisan hacks earned brownie points with loyal constituents, while preparing for next years election. Two weeks ago, the theater turned into a game of chicken as Main Street and Wall Street watched with interest to see which party would blink first. Today, theater and chicken are no longer amusing. A complete and utter inability to compromise and a win-at-all-costs attitude have brought government and economy to the brink of disaster. Are there any grown-ups left in Washington?
2011-07-30 The 2011 Gold Season is Just around the Corner by Frank Holmes of U.S. Global Investors
September has traditionally been the beginning of the gift-giving season for gold. This is the time of year when gold jewelers are the busiest. The Muslim holy month of Ramadan begins in August and concludes with generous gift-giving in early September. Then its Diwali, known as the festival of lights in India, Christmas in the U.S., and Chinese New Year. The key to this seasonal strength over the past few years has been demand from China and India.
2011-07-30 Shifting Focus by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Some economic indicators are starting to perk up while corporate earnings have been strong as we wind down reporting season. Stocks will move higher in the coming months once confidence is restored. Whatever the near-term outcome of the debt debate, the US still has deficit issues to deal with and hard choices must be made to ensure economic stability for years to come. Europe finally arrived at their debt deal, but it likely falls short of what will eventually be needed. Meanwhile, China is key to emerging market performance and continues to deal with inflationary concerns.
2011-07-27 U.S. Businesses Appear to Have Selective Uncertainty by Paul Kasriel of Northern Trust
Business hiring remains weak and business capital spending is robust. The capital spending part is illustrated in the chart below showing the 8-quarter annualized growth in shipments of nondefense capital goods deflated by the PPI for capital goods. I would think that if abnormally-high business uncertainty prevailed today, there would have been considerably slower growth in price-adjusted purchases of nondefense capital goods than what has occurred.
2011-07-26 Is the 'Consumer-Less' Era the new Normal by Chris Maxey of Fortigent
In a relatively light week of economic releases, market participants were pleased to see positive news beginning to build. Housing data in particular, excluding the existing home sales report, trended in the right direction. Housing starts unexpectedly jumped 14.6% to 629,000 in June. Strength was apparent across single- and multi-family housing units. Residential investment, an important component of GDP, will offer little support to second quarter GDP figures, but the upward momentum should put the economy on a better trajectory for the third quarter.
2011-07-26 June Bugs...in the Employment Report by Brian Horrigan of Loomis Sayles
The June 2011 Employment Report was awful. But what are we to make of it? I drilled down into the details trying to make sense of it. The Employment Report from the Bureau of Labor Statistics (BLS) gives results from two different surveys of the labor market, the Establishment Survey and the Household Survey. Newspaper headlines focused on results from the Establishment Survey, from which we learned that nonfarm payrolls rose a lousy 18,000 in June from May. Private-sector payrolls rose 57,000, but government payrolls fell.
2011-07-25 Down to the Wire by Howard Marks of Oaktree Capital
The problem isnt the ceiling, its our behavior. The debt ceiling merely imposes a discipline that our national leaders should provide but generally havent. On this note, in his press conference on July 15, when asked about conservatives insistence on a balanced-budget amendment to the Constitution, President Obama replied, We dont need a constitutional amendment to do that [balance the budget]; what we need to do is to do our jobs. But clearly we do need some enforced discipline, because the years in which we havent run a deficit have been by far the exception of late, not the rule.
2011-07-25 Quarterly Letter by Team of Grey Owl Capital Management
We remain concerned about the global economy and suspect of broad asset class valuations.However, in a world of tens of thousands of securities there are always opportunities.Absent a significant market correction, we are likely to continue to hold cash or dry powder.We also continue to look to hold assets that can perform well in an inflationary environment, as dollar debasement seems to be the political path of least resistance out of our current problems.The politicians appear happy to solve the problems maana. We on the other hand are happy to make hay when the sun shines.
2011-07-22 2011 Halftime Report: Oil and Copper by Frank Holmes of U.S. Global Investors
Last week we recapped commodities performance for the first six months of the year and offered our outlook on gold. This week, were discussing our outlook for two other commodities that are poised to have an exciting back half of the year.
2011-07-22 And That's the Week That Was... by Ron Brounes of Brounes & Associates
While Obama and the Republicans seem to getting closer to making a deficit reduction deal (just dont mention tax hikes), plenty of naysayers lurk in the background, preparing to derail it. Additionally, lots of infighting has emerged as Conservatives worry that their leaders are giving in on taxes and Dems fear Obama is not requiring nearly enough on the tax front in return for spending cuts. The markets reacted positively to news the two sides are talking and virtually everyone thinks the debt ceiling will get raised before the deadline (except maybe some Tea Partiers).
2011-07-21 China's New Generation of Entrepreneurs by Lydia So of Matthews Asia
As investors, we are presented with an expanding universe of small- and medium-sized entrepreneurial firms with innovative business models in China. At the same time, competitive pressures are also increasing with the growing presence of both domestic and international companies in the market. It has become increasingly critical to identify and differentiate companies with sustainable business models and viable long-term strategies.
2011-07-19 Global Overview: July 2011 by Team of Thomas White International
The most recent economic indicators suggest a moderation in global economic activity growth, and forecasts for the current year have been lowered. Manufacturing activity decelerated for the second successive month in June across most major economies, except the U.S. Even Japan, which was expected to bounce back, reported slower growth. Among the emerging economies, economies suggest a decline in the pace of expansion. Consumer sentiment has weakened across the developed world over concerns about income growth as the labor market slipped again in select countries, most notably in the U.S.
2011-07-19 A Palinized Nation - No Direction, No Leadership, No Clue by Cliff W. Draughn of Excelsia Investment Advisors
America is being palinized by total lack of leadership and responsibility from both political parties on Capitol Hill. The discussion of whether the US should default on our government debt if Congress is unable to pass a budget compromise and raise the debt ceiling by August 2nd, 2011 is absurd. The result of the impasse is a gradual erosion of trust by individuals, corporations, and foreign debt holders. How did we arrive at this point of lunacy, where our leaders are actually talking about the USA defaulting on our debts? Luke 23:34: Father, forgive them for they know not what they do.
2011-07-18 The Consumer Marches On by Milton Ezrati of Lord Abbett
With recession fears again gripping financial markets, it pays to take another look at the American consumer. At more than 70% of the economy, he and she will determine the direction and the pace of the economy. And despite the current gloom abroad, the picture that emerges from this examination, though far from robust, carries the expectation of continued, if slow expansion, especially since consumer spending has good income support. Though many other economic measures have weakened of late and depressed the view of economic prospects, the consumer has shown remarkable consistency.
2011-07-18 Are Emerging Markets Ready to Lead the Global Economy? by Lupin Rahman of PIMCO
We forecast emerging economies will expand at a faster pace than advanced economies over the secular horizon. The challenge for emerging market central bankers is to remain ahead of inflation expectations and retain credibility on inflation targeting. We feel they are well positioned for this. We believe global investors remain significantly underweight emerging market assets. We expect this underallocation to decrease, providing multiyear support for the asset class.
2011-07-16 Commodities 2011 Halftime Report by Frank Holmes of U.S. Global Investors
Commodities don’t all perform in the same way. In any given year, a particular commodity will go gangbusters and outperform the group. However, that commodity will typically come back to Earth and underperform the following year or the year after that. This is why active management is important when investing in commodities. Active managers can benefit from rotating from winners to laggards or by investing in the companies which produce, farm or mine commodities most effectively.
2011-07-15 Earnings Heat Up by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Earnings season is heating up and will provide a status update on the "soft patch" and where companies' confidence level lies. Stocks have been more volatile but are they telling us something about potential future direction? Debt ceiling talks continue in Washington, with a deal still likely to come in the final days before the supposed August 2 deadline. The make-up of spending cuts, tax changes, and any entitlement reform may be key to longer-term market reaction. Contagion fears are growing in Europe and solutions are difficult to come by.
2011-07-14 The Brightening Air by Christian Thwaites of Sentinel Investments
A casual empiricist would conclude that the US economy is troubled: weak GNP, employment, housing and slowdowns in the important ISM and Fed surveys. But a longer perspective shows this is entirely in keeping with a recovery from a deep-seated financial and borrowing crisis. There are many signs that the US is picking itself up: manufacturing productivity, private sector job creation, corporate profitability and household deleveraging. Monetary policy has saved the economy from the insidious threat of deflation. Fiscal policy is meandering. Some of the answers are right in front of us.
2011-07-14 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
In many ways, 2011 feels like a repeat of 2010, as the economy has hit a bit of a soft patch, the Federal Reserve’s quantitative easing program has come to an end, and the eurozone is faced with serious sovereign financial concerns. Stocks have pulled back, but the decline has been much more moderate than in 2010, in part because the corporate earnings cycle remains firmly positive. Companies have continued to exceed analyst estimates more often than not, and we expect the upcoming quarter to produce another round of good earnings reports.
2011-07-14 Three Competing Theories by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
While the massive budget deficits and the buildup of federal debt, if not addressed, may someday result in a substantial increase in interest rates, that day is not at hand. The U.S. economy is too fragile to sustain higher interest rates except for interim, transitory periods that have been recurring in recent years. As it stands, deflation is our largest concern, therefore we remain fully committed to the long end of the Treasury bond market.
2011-07-13 Treading Water by Richard Michaud of New Frontier Advisors
While unemployment remains high, corporate balance sheets are healthier, Wall Street de-leveraging is proceeding, savings rates are up, and many strategists currently consider equities cheap.The lackluster performance of domestic equities in the quarter was associated with negative returns in financials, a symptom of the continuing de-leveraging process and new regulations worldwide. However, the underlying conditions for a long sustained business expansion do not seem in-place. A cyclical expansion, typically lasting roughly four years, seems a reasonable, though far from certain, scenario.
2011-07-12 Developed Asia Pacific: Economic Review June 2011 by Team of Thomas White International
Developed Asia Pacific economies continued to face headwinds in June as the outlook for demand from both developed markets such as the U.S. and Europe, and emerging markets cooled. In the U.S., a lukewarm labor market caused concerns about the pace of economic recovery. In the emerging markets, persistent inflation fears were prompting higher interest rates. Both these factors are putting pressure on exports from Developed Asia Pacific economies. Japan, which specializes in exporting machinery and consumer durables, is feeling the heat of a slowdown in demand from consumer countries.
2011-07-12 Americas: Economic Review June 2011 by Team of Thomas White International
The economic growth outlook in the region has moderated, as both global demand and domestic consumption growth are slowing down. Consumers are less confident than earlier this year, public spending remains restricted due to continuing fiscal challenges, and businesses have become more cautious in their hiring and investment plans. Commodity and energy prices have corrected, while manufacturing activity growth has slowed down. Even in this environment, inflation risks remain significant in some of the large emerging economies where monetary policy is being tightened further.
2011-07-12 Middle East/Africa: Economic Review June 2011 by Team of Thomas White International
The Arab Spring brought with it waves of revolution, disrupting economies of almost all the countries in the Middle East and North Africa (MENA) region. While governments of Tunisia and Egypt look to pick up the pieces, continued rumblings of unrest are heard from Bahrain, Libya, Syria and Yemen. The World Bank expects the lowest growth in Egypt and Tunisia, clocking in at 1 percent and 1.5 percent respectively, in 2011. However, despite uncertainty, these two economies are projected to improve in 2012 and witness economic expansion of around 5 percent in 2013.
2011-07-12 Emerging Asia Pacific: Economic Review June 2011 by Team of Thomas White International
Emerging Asia Pacific economies continued to be troubled by persistent inflation in June. Almost every country in the region had to either hike benchmark interest rates or bank reserve requirement ratios to rein in lending and credit growth. The monetary tightening effects are largely expected to make capital more expensive and this in turn is expected to crimp growth across many emerging markets. Inflation, which thus far has been more pronounced among food and fuel items, now seems to be spilling over to structural inputs like labor as well.
2011-07-12 Developed Europe: Economic Review June 2011 by Team of Thomas White International
The economic data reported from Developed Europe during June were mixed. According to the European Union’s statistics agency Eurostat, annual wage growth in the Euro-zone during the first quarter of 2011 was 2.3 percent compared to 1.4 percent in the last quarter of 2010. Although the figures reflect some degree of optimism in the labor market, they are a cause of worry in the context of inflation. In order to sustain their spending power amid rising prices, workers may continue to demand higher wages, which in turn may force producers to hike prices further and spark off a wage-price spiral.
2011-07-12 Positive week Overshadowed by Dour Jobs Report by Chris Maxey of Fortigent
An otherwise positive week ended in disappointing fashion but the equity markets held their gains. There were only a handful of market-moving economic reports last week, with the predominance of investors focused on the nonfarm labor report on Friday. Prior to that release, however, there was generally positive data announced on other sectors of the economy. Early in the week, the Institute for Supply Management announced that non-manufacturing activity expanded for the 19th consecutive month. Similar to the manufacturing sector, though, activity continues to expand at a weakening pace.
2011-07-12 Back in the Uptrend by Gene Peroni of Advisors Asset Management
June did not present a meaningful technical departure from the preceding five months. This does not mean that June was uneventful; it had its fair share of peaks and valleys, the most dramatic of which occurred during the gravest worries that Greece might default on its debt. It was not the first time this year that the stock market was rocked by blazing headlines reporting devastating or monumental events. In March, stocks were driven lower following the Japanese tsunami. Whether a financial woe or a natural disaster event, the effects have been similar thus far in 2011.
2011-07-11 Going for Growth by Milton Ezrati of Lord Abbett
Despite the sudden return of double-dip recessionary fears, the U.S. economy should keep growing. The growth, slow as it will likely be, is critical to a continued equity market advance. But still, the recovery is maturing, and the pace of earnings growth should slow. To be sure, the high operating leverage of American firms will allow them to turn in double-digit earnings advances even in a slow-growth environment. But the growth pace should come in much slower than last year. The change will likely move the marginal investment advantage from value to growth stocks.
2011-07-11 Jobs Versus Government by Brian S. Wesbury and Robert Stein of First Trust Advisors
After the very strong ADP employment report on Thursday, many economists marked-up their forecasts for Friday’s official payroll report. We moved ours up 5,000, and went into the report at 140,000 net new private sector jobs. Ouch…the official report showed just 57,000 new private sector jobs and equities immediately headed south. For bulls, this data was a huge disappointment. But employment is a lagging indicator. Other data have already been into, and out of, a “soft patch.” Moreover, as a forecasting tool, employment data has not always been perfect.
2011-07-11 A Wile E. Coyote Market by John P. Hussman of Hussman Funds
Fridays employment report, showing an increase of 18,000 in non-farm payrolls and a jump in the unemployment rate to 9.2% was widely viewed as a "shocker" Frankly, I dont understand the surprise. Between February and April, weekly new claims for unemployment (4 week average) dipped below 400,000, which was associated with a few months of nice growth in non-farm payroll employment. Since then, weekly unemployment claims have moved higher, and have been running at an average near 425,000 new claims weekly. Historically, thats a level that's correlated to zero growth in non-farm payrolls.
2011-07-08 Job Trend Slowing as Distributional Skew Remains by Phillipa Dunne and Doug Henwood of Liscio Report
Today's employment report showed that the diffusion index slipping, leading index is slipping. Drags on hiring and wages remain. U.S. fiscal picture: it doesn't deserve all the wailing The distributional skew remains: profits are up 12 times as much as wages.
2011-07-08 And That's The Week That Was… by Ron Brounes of Brounes & Associates
Hip hip hooray, the labor market is improving! Oops, it’s not. According to ADP and Macroeconomic Advisors, 157,000 new private sector jobs were created in June, a much better-than-expected showing and nice sign for this crucial area of the economy. However, before the ink was even dry on that report, the Labor Department contradicted it by revealing that only 18k jobs were added last month and the unemployment rate climbed to 9.2%, the highest level of the year. Additionally, jobless claims dropped in the latest weekly release, but still remain well in excess of 400,000.
2011-07-08 Don't Miss Your Chance to Catch a Bull Market by Frank Holmes of U.S. Global Investors
Many people missed the market’s enormous appreciation during the latest equity bull market because they were late to the game or chose to sit on the sidelines. The sideline is a crowded place these days as investors have been reluctant to fully embrace equities. Household savings for the past 12 months totaled $711 billion, the highest level ever recorded in dollar terms. You can see from the chart that’s roughly double the amount of savings recorded following the Tech Bubble. In fact, household debt-to-savings ratios are currently at levels so low, they’ve not been seen since the mid-1990s.
2011-07-07 Hey Hey Hey….Goodbye: The End of Quantitative Easing? by Laird Landmann of TCW Asset Management
Commentators have described the end of QE2 as a “major milestone- the first tightening move from the Fed since the financial crisis began.” Our view is that this is just the end of one balance sheet program and is certainly not the first monetary tightening since the financial crisis. Monetary tightening is all around us in the form of new regulation, changing lending practices and increased bank capital requirements. The Fed will monitor the impacts of these changes and adjust policy as needed. Currently, the plan is to continue to replace assets on the Fed balance sheet as they roll off.
2011-07-06 Economic Doldrums Overshadowed By Financial Markets by Chris Maxey of Fortigent
Economic data will rule the airwaves this week, especially the nonfarm payroll report on Friday. Economists are not overly confident that June was the month where employment growth finally kicked into high gear – a sentiment which is supported by relatively weak initial claims reports over the last four weeks. Central bank meetings will garner considerable attention this week as well. The European Central Bank alluded to the possibility of another 25 basis point rate hike last week and there is a strong likelihood that emerging market economies will also tighten policy rates.
2011-07-05 Scarce Resources by Dennis Nacken of Allianz Global Investors
For decades, investors largely ignored the commodities segment. They can no longer afford to. Commodity production can scarcely keep up with the dynamic development in global demand. The supply bottleneck could remain a sustainable driver of higher commodity prices for the foreseeable future. This applies to energy, to commodities in general and agricultural products in particular: these resources are becoming scarcer—and this is a megatrend.
2011-07-02 China Opens World\'s Longest Cross-Sea Bridge by Frank Holmes of U.S. Global Investors
When the new Qingdao Jiaozhou Bay Bridge opened to traffic this week in China, it made the Guinness World Records for the longest cross-sea bridge in the world. The 26.4-mile long and 110-foot wide bridge stretches across the bay, linking the Huangdao district to the city of Qingdao and Hongdao Island. China spent 17 years planning and designing the engineering marvel to be able to withstand the bay’s high salt content and icy winters. Yet, it only took four years to build, with at least 10,000 workers on the construction team.
2011-07-02 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
The second quarter ended on a very positive note as equities enjoyed a late surge to bring the Dow into positive territory for the period (and the other indexes close to flat). Such performances didn’t seem likely just a few weeks ago, but positive news this week from Greece, signs of a rebound in manufacturing, and declining gas prices that helped ease a more fearful inflation picture put a damper on the recent negativity. Equities enjoyed their best week in two years. Let’s hope the mood lasts.
2011-07-01 On The Importance of Sustained Capital Investment Part 2 by Andrew Foster of Seafarer Capital
This commentary revisits the topic. It presents basic evidence to support the idea that sustained capital investment is critical in the context of developing markets. The data presented below is gathered from several countries, so as to allow for comparison across emerging markets. Admittedly, the workings of macro economies are highly complex, and drawing detailed conclusions about them is tricky. Nonetheless, national statistics do reveal the general outline of an economy and its underpinnings. That’s how I intend to use the data here – to make broad inferences only.
2011-07-01 The Ultimate Shell Game by Scotty George of du Pasquier Asset Management
As governments are forced to shift policy from spending to saving, the instruments they have at their disposal become obsolete without consumer support and/or confidence. The acquisition of “things” paid for by leverage, margin, and debt is a fruitless endeavor in today’s climate. As a result a truer “new paradigm” must develop which: Shifts the focus from hard asset leverage to savings and cash, Raises secular interest rates, Globalizes investment capital, trade, and profitability and Provides for a fairer, equal playing field in financial assets.
2011-06-29 Attractive Yield Opportunities Remain in Floating Rate Loan Markets by Elizabeth MacLean of PIMCO
We believe the general trend toward more diversified capital structures may be positive for investors in the loan market.
Recent changes in loan market investor mix have had and will likely continue to have a positive impact on loan spreads.
In addition to price, leverage and other quality measures in new issues also generally remain attractive.
2011-06-28 Extending the Extended Period of Volatility by Chris Maxey of Fortigent
Personal income and consumer confidence will start the week with expectations of slightly higher numbers. On Tuesday, Case-Schiller data is expected to show moderate declines in home prices for April relative to March. The Treasury will follow its regular auction schedule this week with auctions of $35 billion worth of 2-yr notes, $35 billion of 5-yr notes and $29 billion of 7-yr notes. All eyes will be on Greece on Wednesday and Thursday, when Parliament will vote on the latest austerity plan. Greece noted that they will default if a new loan tranche is not available by mid month.
2011-06-27 Will Japan’s Crisis Cause Force Long-Term Reform? by Milton Ezrati of Lord Abbett
For all the pain suffered by the Japanese as a result of the earthquake, the disaster and its ripple effects, offer them at least some smugness. The world, obsessed new, had for years dismissed Japan as a part of the past, preferring instead to enthuse over China and emerging economies. This horrible disaster has made one thing very clear: Japan still plays a critical role in the global supply chain and economy generally. How soon, if ever, will Japan recover its former productive role? And how will the shock of the recent disaster change the Japanese economy’s long-term direction?
2011-06-25 And That's the Week That Was... by Ron Brounes of Brounes & Associates
If it’s not one things, it’s another. A Greek tragedy averted (for now, perhaps?); a move to limit the rise in crude and gasoline prices (necessary or panic?); a never-ending debt crisis with political ramification (not only in Greece); an (overly) cautious assessment of the latest Fed-speak. Add it all up and you have a pretty volatile week on the equity front. The second quarter cannot end soon enough. Hey Japan…how’s that restructuring plan coming?
2011-06-24 What’s Driving Platinum? by Frank Holmes of U.S. Global Investors
Following a substantial 90 percent increase since the financial crisis, platinum prices have been sluggish. During the first six months of 2011, the metal gained only a few basis points. Platinum has significantly lagged silver (up 15.72 percent) and gold (up 7.72 percent), but has outpaced palladium, its closest relative. In recent days, the market has discounted the metal because of weaker car sales in the U.S. According to the WSJ, Japan’s earthquake shut down car production, and higher vehicle prices and continued bad news about the U.S. economy prevented consumers from purchasing cars.
2011-06-24 On the Importance of Sustained Capital Investment, Part 1 by Andrew Foster of Seafarer Capital
I have placed greater emphasis on identifying companies that maintain steady investment programs. I prefer companies that are committed to the careful but consistent development of the markets in which they operate. My premise is that such companies are more likely to generate sustained, long-term growth.
2011-06-24 Fed Benefits from Global Fears by John Browne of Euro Pacific Capital
This week, in the second in a series of less-than-impressive press conferences, Fed Chairman Ben Bernanke offered market observers little hope that any additional quantitative easing programs are on the horizon. The Chairman continues to cling to the position that the economy is improving (with the recent “soft patch” attributable to external forces) to the extent that additional Fed support will be unnecessary. Left unsaid was any guidance as to who the Chairman believes will buy the massive amounts of Treasury debt formerly swallowed up by the QE II program?
2011-06-23 A New Era of Global Financial Repression by Scott A. Mather of PIMCO
Investors need to be especially alert to increasing financial repression. Any sovereign policy that interferes with free market activity and the pricing of debt or currency can be thought of as financial repression. Repressionary policy rates percolate through the global financial markets and affect asset prices across the risk spectrum. Many emerging market countries use repressionary tactics to capture a larger share of global growth.
2011-06-22 Japan Outlook – June 2011 by Team of Nomura Asset Management
Nomura’s forecast for Japan’s CY2012 real GDP growth is 3.2%, up from an expected rate for CY2011 real GDP growth of just 0.1%. Although there has been a temporary deterioration in Japanese economic indicators due to supply side constraints, such as capital stock damage, supply chain disruption, and electricity generating capacity shortfalls, we have already started to witness signs that these constraints are easing. The supply chain will return to normal this autumn, as production bases in the disaster-affected areas are restored or the users quickly switch to substitute components.
2011-06-22 Can U.K. CPI Really Get Back to Its 2% Target? by Mike Amey of PIMCO
U.K. CPI (Consumer Price Index) will likely continue to be buffeted by food and energy inflation. To generate the conditions necessary to bring inflation down more aggressively would put even greater pressure on U.K. households. The Bank of England is right to be cautious on raising the Bank rate given the current state of the economy.
2011-06-21 What Can The Fed Do? by Scott Brown of Raymond James Equity Research
Senior Fed officials meet next week amid what is widely seen as a slow patch in economic growth. A key question for investors, as well as for monetary policymakers, is whether this slowing will be temporary. Most likely, growth should pick up in the second half of the year. However, there are downside risks in the near term. Moreover, monetary policy appears to be handcuffed and fiscal policy is set to go in the wrong direction. The wide range of data have been consistent with a near-term slowing in economic activity.
2011-06-21 The World Held Hostage by Credit Default Swaps? Alford on the FOMC: Watch what they say by Team of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we feature a comment from Richard Alford on the state of thinking inside the Federal Open Market Committee regarding monetary policy -- at least based on what folks at the Fed say in public. We also comment on the latest financial bailout, in this case the apparent salvation of the European and US banks in the CDS market from taking a hit in the restructuring of Greece.
2011-06-20 Sector Insights Focus: Consumer Discretionary by Daniel M. Brewer and Stacie L. Cowell of Rainier Funds
International growth is a consistent theme for companies in the consumer discretionary arena. “Consumerism” is growing globally, and those companies that are able to grow in more than just one market have more growth opportunities. Another theme in this sector is the concept of reaching the consumer in more ways than the traditional method of just providing a physical store. Retail revolves around getting the product to the consumer right at the point they want to buy it, where and how they want to purchase it. Companies have invested heavily in building out their e-commerce capabilities.
2011-06-20 Sector Insights Focus: Financials by James R. Margard, Mark H. Dawson, Andrea L. Durbin of Rainier Funds
The upheaval in the global financial system has made investing in financials quite challenging as of late, Rainier positioned itself well for the crisis. Because of our emphasis on financial strength and sustainability, we were able to avoid the major financial institutions that were most exposed to toxic assets and had taken on excessive credit risk. As the economy has moved into recovery mode, the financial sector hasn’t gotten any easier. Some of the biggest winners in the sector recently have been distressed institutions that aren’t projected to have positive earnings in the next year.
2011-06-20 Will the End of QE2 Cause Interest Rates to Rise? by Charles Lieberman of Advisors Capital Management
The key to the interest rate outlook is the pace of economic activity, not QE2. If Greece obtains its financing and economic activity rebounds from the supply chain disruption, capital flight into dollar assets will cease and investors will turn their concern to the prospect of losses on Treasuries due to a healthier economy. No one believes 3% yields on 10-year Treasuries are compatible with an improving economy. QE2 is a distraction.
2011-06-20 Double-Dip Fears by Milton Ezrati of Lord Abbett
A robust recovery was never in the cards—as Lord Abbett has continually pointed out—even during the consensus’ optimism earlier this year. But a second recessionary dip is highly unlikely. Instead, the American economy should carry on with middling growth of 2.5–3% in real terms, propelled by exports, moderate consumer spending growth, and continued, cautious advances in corporate spending, while sideways moment in housing and absolute declines in state and local government spending hold the pace back from what it might otherwise achieve.
2011-06-17 China Braces for Summer Power Shortages by Henry Zhang of Matthews Asia
China's power usage has grown along with the GDP. Overall power consumption rose by about 12% in the first four months of this year—in line with average growth rates. However, the availability of power is an increasing concern for some Chinese manufacturing companies. The issue is particularly serious for China's eastern and central regions during peak power consumption months. While there are a number of factors affecting power shortages, chief among them are government regulations. China is determined to become more energy efficient, and power shortages may spur efforts toward that goal.
2011-06-16 The Good Old Days by Liam Molloy and Bethany Carlson of Galway Investment Strategy
The news of late indicates we are indeed in the midst of an economic slow patch (as we were this same time last year). This cyclical pause occurs in the context of a secular de-leveraging here in the US, which results in a healthy albeit modest expansion. The lack of job creation in the most recent BLS report and a general longing for “better days” has left many nostalgic for the good old days. The problem is the old days were just awful. Many of the gripes today really are nothing new. The great wealth disparity between rich and poor is an example.
2011-06-15 RMB Liberalization —What All the Excitement is About by Kenneth Lowe of Matthews Asia
Investors tend to be a fairly excitable bunch, always looking for the latest trends and themes to try to make a profit. But many trends have little relevance or impact over the longer term. During the past 12 months, one of those more “exciting” topics that have been discussed is the initial stages of renminbi (RMB) liberalization in Hong Kong—a concept that allows foreigners to get their hands on, and trade in, Chinese currency for the first time. But how excited should long-term investors be? A roundtable discussion among Matthews’ managers, on the same topic, is also included.
2011-06-15 Understanding the Investment Process at Jensen Investment Management - Step One: Return on Equity by Team of Jensen Investment Management
We believe that Return on Equity is a very useful criterion for identifying companies that have the potential to provide attractive returns over long periods of time. Our experience and research suggest that our requirement of consistently high Return on Equity results in a universe of high-quality, profitable companies that are able to generate returns above their costs of capital in a variety of circumstances and economic environments. This paper serves to illustrate the reasons why we use Return on Equity the way we do, and why we use it for the first step of our investment process.
2011-06-15 GOLDRelic or Real Money? by J Michael Martin of Financial Advantage
In the past 10 years, the price of one ounce of pure gold has risen from less than $300 to $1,500, far outpacing the return on stocks and bonds. And yet, in most gatherings of professional investors it is not respected. Why is that? What drives the price of gold, anyway? And is gold really an appropriate investment in the 21st century? We set out to better understand this unique metal. Well explore the reasons that some consider gold an important asset class with unique and valuable investment characteristics, while many professionals regard it as a sort of investment sideshow.
2011-06-15 Bad News Bulls by Michael Dana of Dana Investment Advisors
It’s been said that the stock market climbs a wall of worry. The bear market touched a bottom in March 2009 and proceeded to rise about 85% to a high in April. We are now in the midst of a correction from that high, but the overall trend remains positive for equities. Not so much so for the economy. Well, the economy is still growing, albeit slowly. At this stage in a recovery the economy should be recovering more rapidly. The economic news is not getting better. The May jobs report indicated that 54,000 new private sector jobs were created. Economists had forecasted 170,000.
2011-06-15 ProVise Bullets by Team of ProVise Management Group
The more things change, the more they remain the same. That trite expression has been applied to many different things. We are applying it to what may be an early stage tech “bubble”. Almost every investor is familiar with LinkedIn coming out at $45 per share then jumping to $120 per share in the first day of trading before settling in at $90 per share. Other examples abound. The very popular Facebook is estimated to be worth $76 billion. We have to admit that at least some of the tech companies are actually making money today with viable ideas, but the valuations still seem a bit absurd.
2011-06-14 Bruce Berkowitz - Ignoring the Crowd on Financials by Sam Parl (Article)
Bruce Berkowitz has said that his deep value and contrarian investing style will not guarantee short-term results, but he promises his shareholders will be rewarded for their patience over the long term. Last week, he explained why some of his positions - especially those in the financial services sector - are among the best opportunities in the market.
2011-06-14 Global Overview: June 2011 by Team of Thomas White International
Slower manufacturing growth triggers fears of another global economic downturn. Even as the global economy appeared to have entered a phase of stable growth, the unexpected slowdown in global manufacturing activity during the month of May has led to fears of another economic downturn. Activity indicators declined the most in developed economies where growth was expected to gain pace this year. However, unless the trend persists, it is more likely that the moderation in manufacturing activity growth is only a readjustment after several months of rapid expansion.
2011-06-13 Does Slowdown Justify Sell Off? by Charles Lieberman of Advisors Capital Management
Bernanke described the pace of the economic expansion as unsatisfactory and suggested that stronger job growth for a sustained period is necessary. We expect policy to remain accommodative until the expansion picks up some steam. Stocks have reacted quite strongly to the ebbs and flows of the data. If they maintain this behavior, they may rebound strongly if the economic weakness proves temporary, as we think likely. It is clear the Fed is not willing at this point to consider a third quantitative easing program. Still, Fed officials understand that policy must remain highly accommodative.
2011-06-13 Middle East/Africa Economic Review May 2011 by Team of Thomas White International
The fiscal stability of the Middle East and N.Africa region continues to be threatened by social pressures, yet rising inflation on the back of increasing fuel and energy prices and high levels of unemployment remain the main causes of concern. According to the Regional Economic Outlook report by IMF, the region is expected to grow 3.9 percent in 2011. The oil exporting countries are anticipated to record better growth thanks to high oil prices and production, while oil importing nations such as Egypt, Morocco and Jordan are expected to expand at a much slower pace.
2011-06-13 Americas: Economic Review May 2011 by Team of Thomas White International
In North America, the U.S. and Canada saw contrasting economic trends during the first quarter. While first quarter GDP growth in the U.S. slowed when compared to the previous quarter, growth accelerated in Canada. The U.S. housing market remains weak while the housing recovery in Canada started last year, and the labor market has also seen a similar divergence. However, the economic outlook for the two countries is expected to converge more in the coming quarters. As growth accelerates in the U.S., Canada may find it difficult to maintain its first quarter growth pace.
2011-06-13 Emerging Europe: Economic Review May 2011 by Team of Thomas White International
According to data from EuroStat, inflation in the Euro-zone touched a 30-month high of 2.8 percent in the month of April as prices of fuel, electricity, and housing continued to soar. In line with the broader trend, the inflation gauge in the 27-member European Union, which also includes Poland, the Czech Republic, and Hungary registered an annual 3.2 percent in April, a touch above the 3.1 percent recorded in March. Among the east European economies, the Czech Republic recorded the lowest rate of inflation during the month.
2011-06-13 Will the U.S. experience a Perfect Storm of fiscal woes? by Matt Lloyd of Advisors Asset Management
Right now it’s easy to latch onto the argument that the soft patch we are entering economically will transfer into quick sand. The predisposition of retail and institutional investors is greatly formed by events over the last decade as well as the sixth straight weekly loss for equity markets. With deposits and household liquidity standing at all time highs, is there truly exuberance and overly-hyped expectations for the economy and equity markets? It appears not, which should caution those who are longer-term bearish.
2011-06-13 Money is Flowing, But Not to Where it is Most Needed by Chris Maxey of Fortigent
Bernanke gave a speech indicating that we might be facing a period of temporary weakness. He said, “growth seems likely to pick up somewhat in the second half of the year.” Whether Bernanke ultimately turns out to be right is uncertain, but some indicators this week supported that notion. One depiction of that phenomenon is the Citigroup Economic Surprise Index, that measures the number of economic releases surprising to the upside or downside. After reaching a peak in March, the ESI plummeted, reaching a low on June 3rd. Since that point, the index gradually began to rebound.
2011-06-13 The Policy Stakes Are Raised by Scott Brown of Raymond James Equity Research
Its well known that recessions that are caused by financial crises are much more severe, are longer lasting, and are followed by gradual recoveries. Another lesson from history is that during these recoveries, policies are often tightened too soon. In 1937, efforts to balance the budget led to a recession within the Great Depression. Its said that those who dont remember the past are doomed to repeat it. Following the financial crisis, consumers and nonfinancial businesses deleveraged. However, that paydown in debt pales in comparison to the deleveraging seen in the financial sector.
2011-06-10 Searching for the Market's 'Sweet Spot' by John Derrick of U.S. Global Investors
One of U.S. Global Investors’ “sweet spots” is investing in global small-and mid-cap companies. We generally define these companies as having a market capitalization between $1 and $10 billion. Ten billion sounds like a lot but is relatively small compared to market caps of companies such as Apple ($301 billion), Johnson & Johnson ($181 billion) and Coca-Cola ($149 billion). We like small and mid-cap companies because they tend to be less volatile than micro-caps, but still nimble enough to grow at faster rates than large companies.
2011-06-10 Pause or Panic? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic data has deteriorated to the point that talk of a double dip recession has returned. The risk of another recession is low as most indicators remain well in expansion territory. Several factors are contributing to a soft patch, but a rebound is likely in the latter part of 2011. Along with talk of recession risk, chatter about the need for QE3 by the Fed has increased. The bar is quite high for QE3, but it is very likely the Fed will not let its balance sheet shrink in the near-term. Global growth is decelerating as well, with China tightening and Japan dealing with reconstruction.
2011-06-09 Taking Advantage of Cyclical Highs and Lows by Matt Lloyd of Advisors Asset Management
As we find ourselves in the throws of an economic soft patch, the anxiety to investors seems only to be a sniffle versus an outright sneeze or full-fledged cold. Many are wondering as to why the accumulation of the slowing economic news is having such a muted impact and cause many to extrapolate that a “coming to Jesus” meeting is around the corner. As we stated last week, the conundrum of negative outlook on Treasuries by three credit rating agencies is being trumped by slowing economic metrics. It is also influenced heavily by the majority of investors believing rates will rise.
2011-06-08 The Economy: When Will Happy Days Be Here Again? by Team of Knowledge @ Wharton
The latest economic reports show the U.S. recovery has faltered. But someday, surely, there will be a real recovery. What forces will drive that upturn? And will the healthy economy of the future look different from those of the past -- establishing a "new normal?" Two intertwined factors are critical to any rebound, according to many experts: Home prices must stop declining and begin to rise, and consumers must spend more freely.
2011-06-07 Its the Jobs, Stupid! Part V by Komal Sri-Kumar of TCW Asset Management
Job creation still appears not to be a priority for the Obama administration. After the first year was spent implementing a comprehensive health care reform in the midst of a financial crisis, and bailing out financial institutions considered too big to fail, the emphasis switched to fiscal and monetary measures that had little direct impact on jobs.
2011-06-07 And That’s The Week That Was … by Tom McIntyre of McIntyre, Freedman & Flynn
As we warned last week and over the past couple of months, the poor quality of the economic expansion finally has caught up to the economic statistics. Last Friday’s dismal report showing a jump in the unemployment rate to 9.1% left all of the cheerleaders from Warren Buffet to the Secretary of Labor scrambling for explanations. Given the lack of earnings or merger news, the stock market recorded its fifth straight weekly decline. As the charts illustrate, both the Dow Jones Industrial Average and the NASDAQ Composite dropped around 2.3% last week in response to the now obvious slowdown.
2011-06-07 Broken Records by Doug MacKay of Broadleaf Partners
Since February, the markets have been hitting new recovery highs, succumbing to market pressure, then reversing course and moving on to higher highs. The pattern is beginning to feel a lot like a broken record.Currently, we've been experiencing a renewed downtrend, with the market off 6% from its April highs. While these moves are normal following a 30% plus advance in just eight months The truth, however, is the uninterrupted steady gains we experienced from August through late February may be far more unusual for the markets than the back and forth gyrations of the past three months.
2011-06-06 Handicapping QE3 by John P. Hussman of Hussman Funds
As disappointing economic news mounted last week, the attention of market participants immediately turned to policy responses - will the Fed embark on QE3? In my view, there are three central questions relevant to this issue. The first is simply this: Has QE2 been successful in a way that the economy should desire more of it? The second: How much scope for intervention does the Fed have left? The third: Is Bernanke so invested in this attempt at balance-sheet expansion that he will push forward an extension of the policy despite its economic ineffectiveness and speculative distortions?
2011-06-06 David Kotok on Central Bank Credibility; Bob Eisenbeis: Did the Fed Print Money with QE? by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we republish a comment by Robert Eisenbeis, Chief Monetary Economist of Cumberland Advisers, "Did the Fed Print Money in QE1 and QE2?" Eisenbeis, who was Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta prior to joining Cumberland, corrects a puzzling comment on the Fed published last week in the Wall Street Journall by George Melloan. We assumed that Melloan and the Wall Street Journal editorial staff were aware of the rules of monetary quantum mechanics, but maybe not.
2011-06-06 A Slow Patch by Scott Brown of Raymond James Equity Research
The recent economic data have been disappointing, but hardly a disaster. The broad range of indicators suggest a slowing in the pace of growth not a contraction. One month does not a trend make, but the data have generated some anxieties about whether the current slow patch could be a lot longer lasting or turn into something more severe. We started this year with a good deal of positive momentum. Inflation-adjusted consumer spending rose at a 4.0% annual rate in 4Q10. The economy still faced a number of headwinds. However, the positive momentum was expected to offset these headwinds.
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 And That’s The Week That Was… by Team of Brounes & Associates
Congress failed to pass a bill to raise the government’s debt ceiling and help avoid a default in early August. Republicans refused to support any legislation that is not tied to specific deficit reduction, even though there is a potential downgrade on US debt without any progress on a deal. The bickering continued in the aftermath of the unemployment data as both parties blamed the other for the weaker results. Republicans questioned the “binge of taxing, spending, borrowing and over-regulating,” while Democrats claimed their counterparts are too focused on “tax breaks for millionaires.”
2011-06-03 Natural Resources Q&A with the Global Resources Fund Team by Frank Holmes of U.S. Global Investors
This week Frank Holmes and the co-managers of the U.S. Global Investors Global Resources Fund (PSPFX), Evan Smith and Brian Hicks, participated in a special webcast for the Peak Advisor Alliance. Here are some candid portions of the Q&A: Q. How are interest rates currently affecting commodity prices? A. The magic number for real interest rates is 2 percent. That’s when you can earn more than 2 percent on a U.S. Treasury bill after discounting for inflation. Our research has shown that commodities tend to perform well when rates fall below 2 percent.
2011-06-02 Some Days (Months) Are Better Than Others by Liz Ann Sonders of Charles Schwab
May was a rough month for investors, though it ended on a sunnier note. A growth slowdown is evident, but the debate rages about whether its factors are temporary. We think May's risk-off mode is easing, but choppy action remains likely until longer-term worries subside. After an uphill ride in April, when the Dow was up 4%, May wasn't kind to investors, although the last two trading days brought some sunshine. It was the first time in nearly three years that the S&P 500® index had no up weeks in a month.
2011-06-01 Buy Cheap Bonds with Safe Spread by Bill Gross of PIMCO
If the government is going to artificially repress yield, then focus on the parts of a bond that are less repressed! Rather than outright default, many countries attempt rather successfully to keep nominal interest rates lower than would otherwise prevail. Over the long term, this “financial repression” results in a transfer of wealth from savers to borrowers. Investors shouldn’t give their money away, and at the moment, the duration component of a bond portfolio comes close to doing just that – because it doesn’t yield enough relative to inflation.
2011-06-01 Recovery Shows Signs of Cracking by Chris Maxey of Fortigent
There was a limited amount of economic data released last week, and most of it turned out to be disappointing. The second revision to GDP showed the economy growing at an annual rate of 1.8% in the first quarter. Though the headline figure was unchanged, several important changes occurred in the data. Specifically, the Bureau of Economic Analysis stated that consumer demand actually rose at a 2.2% annual pace in the quarter, down from the 2.7% annual rate reported. Overall, GDP was weaker than feared in the first quarter as higher inventories and not consumer spending drove expansion.
2011-06-01 Efficient Markets?! by Jeffrey Saut of Raymond James Equity Research
I am writing this Monday night without the benefit of seeing Tuesday mornings pre-opening futures because I will be on a plane. Still, I am optimistic given last weeks backdrop. While it is clear economic statistics have softened, we believe this is largely attributable to Japan (Fukushima), the European debt debacle, the Middle East, and our continuing weird weather. That optimism is reinforced by another all-time high in corporate profits (before tax and adjusted for inventory valuation adjustment and capital allowance adjustment), which is good for capex and employment.
2011-05-31 Our Four-Year Anniversary by Robert Huebscher (Article)
This month Advisor Perspectives marks four years of publication, and I’d like to share with you some of our accomplishments over the last year and our goals for the future.
2011-05-31 Small Windows in an Unfavorable Long-Term Picture by John P. Hussman of Hussman Funds
Last week, bullishness pulled back to 43% according to Investors Intelligence, but advisory bearishness also fell to 19.4%, with the remainder boosting the "correction" camp to 37.6%. That's not much of an easing in overall sentiment, but it was enough to give us a bit of latitude to allow us to vary our exposure between a tight hedge and a 10-15% exposure to market fluctuations. That's been of help, but mainly to offset a shallow correction in a few defensive sectors like health care. Our latitude to accept risk will vary in proportion to the average market return/risk profile.
2011-05-28 Railway Revolution Builds China's Consumer Culture by Frank Holmes of U.S. Global Investors
China is building the world’s largest network of high speed rails. Since opening the first high speed line between Beijing and Tianjin in 2008, the country has laid down more than 4,600 miles of new tracks. This is three times more than Japan, where the bullet train was invented. Once completed near the end of this decade, the high speed rail system will connect more than 250 Chinese cities, span 18,641 miles and reach roughly 700 million people. Currently, the high speed rail network connects about one-third of China’s cities. That figure is set to nearly double over the next two years.
2011-05-28 Schwab Market Perspective: Shifting Sentiment by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic headwinds are causing growth expectations to be reevaluated, resulting in choppier action in a majority of asset classes. The Fed is moving steadily closer to ending its purchases of Treasuries but we dont believe its a major event. Normalization of monetary policy still seems slow in coming, although we believe QE2 ending on schedule is nearly certain. Europe's debt crisis continues to plague the eurozone. Solutions appear to be limited and agreement is still anything but assured. Meanwhile, China's slowdown is also weighing on investors.
2011-05-26 The Case for More Monetary Elixir by Scott Minerd of Guggenheim
Ive noticed a critical mass of groupthink growing around the expiration of the Feds asset purchase program dubbed QE2. After tripling its balance sheet in 2.5 years, the conventional wisdom is that the era of quantitative easing should now give way to the era of inflation. As a result, the foregone conclusion is that U.S. interest rates will rise and bonds will underperform significantly. While I acknowledge the potential for rising rates, I dont think the expiration of QE2 is the catalyst that most believe it to be. In fact, I believe U.S. rates should remain at historically low levels.
2011-05-25 Setting the Scene by Eric S. Ende of First Pacific Advisors
As it stands today, without a combination of reducing the growth of Medicare, Medicaid and Social Security and/or increasing taxes, the Congressional Budget Office projects that by 2022 these three programs and interest payments alone will consume all the government’s yearly revenue. That means running a single program in any of the other federal departments would immediately create a deficit for the year. And 2022 is only eleven years away!
2011-05-25 Global Mergers and Acquisitions Activity Continues to Rise by Team of American Century Investments
Mergers and acquisitions activity is on the rise worldwide. In the U.S. this increase has been accompanied by the return of mega-deals ($10 billion+) driven primarily by large multi-national corporations flush with cash. These deals (and the anticipation of more to come) have helped drive markets up in the first quarter of this year. But the question on the minds of many investors is whether acquiring companies are at risk of overpaying for acquisitions that—while deemed “strategic”-may only end up transferring (not creating) value from shareholders of the acquiring to the acquired companies.
2011-05-24 Risks Are Rising, but the Long-Term View Remains Positive by Bob Doll of BlackRock Investment Management
The recently weaker tone in equity markets can be attributed to a broad slowdown in economic data. A longer-term retrospective view shows that the pace of economic growth has been gradually fading over the past several months. Some of the decline can be explained by seasonal factors or factors that may prove to be temporary. In any case, however, at this juncture it appears that the recovery or acceleration phase of the business cycle may be ending. We believe the economy is now shifting into an expansion mode, and the question will become how long that expansion will last.
2011-05-23 One Small Step for Bernanke by Milton Ezrati of Lord Abbett
Fed has indicated its intention to let QE2 end as scheduled in June. This decision would mark the first designated step in the cautious program for policy change that Bernanke had previously outlined. If the Fed sticks with this plan it will take until early 2012 before policy makers will begin to increase market interest rates. Even at that last step, policy would remain easy as the Fed makes its gradual moves. The only difference is that the easing will gradually become less extreme. It will likely take until late 2012 or 2013 before American monetary policy even approaches restraint.
2011-05-23 Don't Sweat by Brian S. Wesbury and Robert Stein of First Trust Advisors
Some recent reports on the economy have been tepid and that’s likely to continue for at least a few more weeks. For example, back in early March the four-week average for initial unemployment claims hit a recovery low of 389,000; now they’re 439,000. Manufacturing production dropped the most in April for any month since the start of the recovery. Meanwhile, for May, we witnessed declines for both the Empire State index and Philly Fed index, which are measures of manufacturing activity in their regions. Both were still in positive territory but not as rapid as earlier this year.
2011-05-23 A Few of My Favorite Things by Jeffrey Saut of Raymond James Equity Research
To begin, commodities are likely on summer vacation before they resume their secular bull market, however, I continue to like a number of special situations. Williams Company (WMB/$30.76/Outperform) reported a solid 1Q11 quarter. Our bullish thesis on Williams is supported by (1) we believe the companys E&P assets will garner a higher valuation in the market place as a stand-alone entity when the company splits itself into two parts; (2) we believe the market is undervaluing Williams ownership of the Williams Partner GP, and (3) we expect strong growth from the Canadian midstream assets.
2011-05-16 Ally Financial + ING Bank? Richard Alford on Lessons Forgotten at the Greenspan/Bernanke Fed by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst we feature a comment from Dick Alford on the lessons forgotten by the Fed when it comes to financial regulation. Showing his considerate nature, Dick even uses the official histories of past crises prepared by the FDIC as the timeline to make it easier for some of our former colleagues at the Fed to follow along. But first, let's have some fun with one of the toys developed for The IRA Bank Monitor, namely our pro forma M&A analysis tool.
2011-05-16 The End of QE2 Should Be a Non-Event for Investors by Bob Doll of BlackRock Investment Management
Stock markets were flat-to-down last week as economic data continued to be mixed. In other markets, commodity prices continued to fall and the US dollar moved higher. While we do not believe that the long-term secular uptrend in commodity prices has ended, we do think that the cooling effect could be in place for some time, which will hopefully be a positive for both economic growth and stocks. Data suggests that the global economy has slowed recently, but we believe that it is still in the midst of transitioning from recovery to self-sustaining expansion.
2011-05-13 Market Turbulence Increasing by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
We are entering a traditionally tough period for the market and economic data has been raising questions about the sustainability of the recovery. While still optimistic on the longer-term outlook, there could be more choppiness in the near term as markets adjust to a changing environment. The Fed continues to buck the global trend by maintaining loose monetary policy, which contributed to a weaker dollar. But lately the dollar has gotten a lift as QE2 comes to an end, contributing to a rout in commodity prices.
2011-05-13 Three Reasons to Believe in $100 Oil by Frank Holmes of U.S. Global Investors
After selling off nearly 14% last week, oil prices finished this week slightly higher at $99.65 per barrel. While the end result was a net positive, the volatility continued. Oil reached $104/bbl, then fell to around $96, before nesting just below $100. As an investor, this volatility can be difficult to handle. Throw in the uncertainty of today’s geopolitical environment, and investors feel the need to downsize their positions in commodity investments, such as oil. Markets could remain volatile in the short-term, but here are three long-term indicators to support $100+/bbl oil prices.
2011-05-10 And That’s The Week That Was … by Tom McIntyre of McIntyre, Freedman & Flynn
A spike down in commodity prices including oil and a jump in the dollar over European sovereign default worries combined to send the overall stock market lower last week. the Dow Jones Industrial Average fell 1.34% while the NASDAQ Composite.
2011-05-10 The Financial Impact of an Aging Demographic by Chris Maxey of Fortigent
A volatile week of trading resulted in the S&P 500 Index losing 1.7% and the Dow Jones Industrial Average falling 1.3%. However, those losses were tame relative to the rout experienced in commodity markets. According to the Wall Street Journal, crude oil dropped 14.7% last week, while the Dow Jones-UBS Commodity Index lost 9.1%. There was no single cause for the sudden risk aversion, but it appears that recognition of a slowing US economy, along with tighter monetary policy in developing economies, contributed to the renewed caution.
2011-05-10 Developed Europe: Economic Review April 2011 by Team of Thomas White International
A widely anticipated European Central Bank (ECB) rate hike and Portugal’s plea for a bailout in early April failed to dampen investor optimism surrounding the steady, albeit fragile recovery in Developed Europe. However, around mid-April, equity indices in the region did register a sharp fall in response to the news of another jump in the Euro-zone inflation rate, but recovered quickly to remain in an uptrend for the rest of the month. After recording its highest level for 28 months in February, inflation in the Euro-zone climbed further to 2.7 percent year-on-year in March.
2011-05-10 Americas: Economic Review April 2011 by Team of Thomas White International
Rising inflation remains the major policy concern across most economies in the Americas region and is attracting stronger policy responses, as energy and commodity prices remain elevated. While some of the Latin American countries continue with monetary policy tightening, Canada is widely expected to start hiking interest rates later this year. In the U.S., the Federal Reserve will end its quantitative easing program by the end of this quarter, though interest rate hikes are not expected until early next year.
2011-05-10 Global Overview: May 2011 by Team of Thomas White International
Global economic growth now appears more sustainable, as the developed economies continue to recover and the emerging economies maintain their rapid pace of growth. The Euro-zone economy is expanding faster than expected while the U.S. growth slowdown in the first quarter is widely believed to be due to seasonal factors. The IMF acknowledged that global economic activity is set to accelerate again, and maintained the global growth forecasts for both this year and 2012 at 4.5 percent. However, the IMF warned that growth remained unbalanced and that inflationary risks have increased.
2011-05-09 Strong Job Growth, Finally by Charles Lieberman of Advisors Capital Management
Strong employment growth, the key missing link in this economy recovery, has finally arrived. This is absolutely crucial for a recovery in housing, which now ought to follow suit. The surge in oil prices may moderate the pace of growth over the next few months, but the economy’s momentum should now become more powerful and self-reinforcing. The economic recovery has been a bit tepid until recently, as the moderate gains in GDP simply did not translate into the kind of sizable increases in employment that are needed for growth to become well established and self-reinforcing.
2011-05-06 Silver and Gold, Silver and Gold by Doug MacKay and Bill Hoover of Broadleaf Partners
Silver and gold may still look good as decoration but the metals have also lost some luster in the dental profession (gold vs. porcelain crowns) and for anyone who uses a digital camera instead of old guard film. (Silver is used in film processing.) As most know, silver shot to new highs last week amidst a frenzy for precious metals and perhaps, their perceived inflation hedging capacities. This week, the story was a bit different, with the metal experiencing one of the most stunning drops since the Hunt Brothers tried to corner the silver market back in the early 1980’s.
2011-05-06 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
As the 10-year anniversary of 9-11 approaches, American have all too vivid memories of that dreadful day and the frightening uncertainties that have remained because of the elevated terror risks. This week, one uncertainty was lifted as Osama bin Laden, the 9-11 mastermind, was killed in a successful military operation in Pakistan. While his death does not eliminate the risk of future attacks, it brings much-needed closure to many and a newfound sense of country pride for the US military and intelligence community.
2011-05-05 A Roadmap For The Coming Changes In Fed Policy by Will Denyer of GaveKal
Last week’s FOMC statement, and Bernanke’s first press conference, were predictably anticlimactic. But they did confirm what the FOMC plans to do this summer, and what they currently think should be the next steps thereafter. Based on this apparent plan, market participants would be right to assume that Fed policy will continue, well after QE2 ends in June, to weigh on the Dollar and support the already elevated Euro, commodity prices, commodity currencies, etc… In other words, the Fed’s telegraphed trajectory would continue to contribute to the world’s biggest macro risks today.
2011-05-03 P/E: Future on the Horizon by Ed Easterling (Article)
Most people expect P/E to measure current valuation and to show historical patterns. But more features are available from some versions of P/E. The methodology behind the Crestmont P/E enables investors to anticipate the future. It may not precisely predict the market ten years away, but it frames within a relatively tight range the likely outcome. One component from determining the Crestmont P/E is a means to assess the future trend line for EPS using estimates of future economic growth (GDP).
2011-05-02 Schwab Market Perspective: Making Sense of a Mixed Bag by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Earnings season is winding down and is largely positive and CEO confidence is high. This points toward a continued improving labor outlook but could mean more grinding in the stock market. Housing remains moribund but the market seems to be largely dismissive. A ratings warning on US debt rattled the stock market but bond markets were relatively unmoved. Issues need to be addressed, but they are more likely to affect money flowing into the economy and highly unlikely to result in failure to pay obligations. Meanwhile, the Fed is striving to communicate more effectively-but about what?
2011-05-02 Warm Milk and Sweet Dreams by Herbert Abramson and Randall Abramson of Trapeze Asset Management
There is a lot of scary noise out there. MENA turmoil, the Japanese nuclear crisis, European debt, U.S. debt, debasing of the U.S. dollar, commodity prices, higher inflation, a potential left wing coalition government in Canada and Donald Trump as U.S. President. Understandably, our clients, and individual investors generally, are fretting. Confidence levels are low and risk aversion has become paramount. Surveys show that individual investors believe the odds of a one-third stock market drop is over 50% in any given year where true odds are closer to 2%. Investors are too fearful.
2011-04-29 More Pot Shots at the Fed by Charles Lieberman of Advisors Capital Management
The sheer cacophony surrounding Fed Chairmans press conference and the Fed’s policy decision seems more focused on finding reasons to criticize the Fed’s stance than to understand why the Fed must position itself as it has. The pace of the recovery is too moderate to reduce the unemployment rate at a desired rate. And with unemployment still high, it makes little sense for the Fed to allow itself to be distracted by rising commodity prices. Thus, the Fed is properly focused on insuring a stronger expansion and it will turn its attention to inflation when economic growth is somewhat healthier.
2011-04-29 FPA Crescent Fund Q1 2011 by Steven Romick of First Pacific Advisors
The optimists held sway in the first quarter of 2011 and ended the quarter on a good note, with the stock market having returned 5.9%. Crescent returned 4.7%, capturing 80% of the market’s return with risk exposure at just 58% of capital during the period. Two investments – Aon and Covidien – accounted for more than 10% of the Fund’s return in the period. No investment detracted from the return to that degree. The greatest negative impact in the quarter came from Microsoft (down 19 bps), a holding we have increased to take advantage of price weakness, given the current low expectations.
2011-04-29 Coal Use in China Shines Light on Growth by Frank Holmes of U.S. Global Investors
International coal prices hit $124 per ton this week, the highest levels in five months, as strong demand from reconstruction projects in Japan and reduced supply from flood-ravaged Australia has made coal supply tight. The floods in Queensland, Australia cut the country’s output of coal by 15 percent and other big coal producers such as Indonesia, South Africa and Colombia are experiencing similar production cuts due to floods of their own.
2011-04-28 The Fed Meets the Press by Liz Ann Sonders of Charles Schwab
The Fed's meeting ended with no surprises on rates or outlook.
But the first-ever news conference added some clarity, context and transparency to the Fed's thinking.
The Fed has just begun its long process toward monetary policy normalization—and that's a good thing.
2011-04-27 QE3 on the Horizon? by Scott Colyer of Advisors Asset Management
Everyone is concerned about what happens when QE2 ends. On one side believes that when QE2 ends, long term interest rates on Treasuries will spike as the largest buyer exits the market. They believe that the Fed may be tempted to generate QE3 in order to continue try to keep interest rates down and keep the fragile economic recovery going. On the other side of the aisle, there are folks arguing that the yields on the Treasury bonds will drop even as the Fed exits and despite the fact that they are the largest holder of U.S. debt following a slowing U.S. economy during the first quarter.
2011-04-27 Turkey’s Shaky Foundations: Structural Deficit Underpinned by Volatile Capital Inflows by David Rogovic of Roubini Global Economics
In 2009, at the height of the global financial crisis, a reduction in capital inflows and domestic demand caused a narrowing of external imbalances across Europe. Now, as the region returns to growth and recovers from the crisis, Turkey stands out in terms of the size and speed at which its current account deficit is expected to grow. This is due in part to a more rapid recovery, but also to a shortfall of domestic savings relative to investment. The country is more reliant now than in previous episodes on short-term and historically more volatile foreign capital to finance the deficit.
2011-04-26 Why Demographics will Drive Global Growth by Sam Parl (Article)
When economic pundits trade heated predictions about the massive economic shifts we see internationally, it is easy to forget the subtleties that shade their forecasts. One such shadow overhanging any intelligent debate about our global economic future is global age demographics, according to Harvard Professor Richard Cooper.
2011-04-26 Energy and Natural Resources Market by Frank Holmes of U.S. Global Investors
China’s apparent fuel consumption has gained 12 percent to an all-time high of 21 million tons in March. Chinese oil demand averaged 9.265 million barrels per day during the first quarter. Even at $4 per gallon of gas, gasoline demand in the U.S. maintained levels around 9 million barrels per day, according to the U.S. Department of Energy. Aluminum shipments by North American service centers have rebounded in March. Total U.S. and Canadian shipments were 155 kilotons. This is the highest volume since October 2008 and represents a 25 percent month increase, 29 percent year.
2011-04-26 The End of QEII: It’s Time to Make the Donuts by Tony Crescenzi, Ben Emons, Andrew Bosomworth and Lupin Rahman of PIMCO
With quantitative easing the Federal Reserve has in essence picked the pockets of Treasury bond investors throughout the world. Ultimately, the U.S. must own up to its past sins and let the deleveraging process play itself out. The U.S. must invest in its people, its land, and its infrastructure, as well as promote free trade, to achieve economic growth rates fast enough to justify consumption levels previously supported by debt.
2011-04-26 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
As the markets fumble and roil, bounce intraday from Fed pronouncements and geopolitical unrest, should we be cautious or aggressive at these levels? Although the averages defy gravity by maintaining lofty valuations, I would think twice before betting the farm on its continuation. Although most data indicate that we are “turning the corner” from recession, the same risks that got us in trouble originally still exist for the most part. In addition, as if climbing a “wall of worry,” the more robust the numbers get, the more frightened some become.
2011-04-26 Are You Watching Your Brokered Deposits? Bob Eisenbeis: What's a Central Bank to Do? by Team of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we feature a comment from Bob Eisenbeis, Chief Monetary Economist of Cumberland Advisors. Bob clearly states the obvious in his excellent analysis of the choices facing the Federal Open Market Committee, namely that the Fed continues to steer monetary policy based upon largely domestic factors, this even as the global role of the dollar creates dangers for the US and other nations as they flee the perils of deflation.
2011-04-25 Is the Stock Market Rally Justifiable? by Charles Lieberman of Advisors Capital Management
We begin with the U.S. Treasury budget, which is a mess, running a deficit of about $1.5 trillion this fiscal year, with huge deficits projected into the future. Politicians seem more anxious to shift blame rather than act to reduce these projected deficits. So, entities as blind as S&P are able to foresee a possible need to downgrade the credit rating. The U.S. is emulating the spending of Greece, Ireland, Spain and Portugal. None of these countries has its budget in order. Now, they must pay interest rates that are bringing the Greeks ever closer to default and a formal restructuring.
2011-04-22 Don’t Fear a Pullback in Prices by Frank Holmes of U.S. Global Investors
The S&P credit agency sent shockwaves through the global financial system on Monday. This sent markets lower and the prices of commodities such as oil rocketing back above $110 per barrel and both gold and silver to new highs. It should be clear the S&P announcement was just a warning, the rating was affirmed at AAA. The fears quickly subsided and U.S. markets hit fresh three-year highs. Essentially there’s only a one-third chance of a downgrade and anyone who’s ever listened to the weather man knows that a 33 percent chance of rain means you probably don’t need your umbrella.
2011-04-21 Equity Investment Outlook by Team of Osterweis Capital Management
The bifurcation of the market, with small caps outperforming large caps, has led to a valuation disparity between overvalued small caps and undervalued large caps, which we believe can be profitably exploited. We, and others, have observed for some time that many excellent, growing large cap stocks are quite cheap relative to both the overall market and to more richly priced smaller companies. We expect that, over time, more investors will agree and large cap stocks may then begin to outperform the general market, as they have to a modest extent this year.
2011-04-21 Equity Market Review and Outlook by Richard Skaggs and Thomas Davis of Loomis Sayles
The global equity bull market continued in the first quarter despite significant global strife. Most major US indices posted total returns of about +5.0% to +8.0%. Continuing the trend since the March 2009 low, small cap and mid cap stocks outperformed their larger brethren. US markets were among the best in the world, although the MSCI World Index also posted a solid gain of 4.9%. Emerging markets were among the weaker equity asset classes. As the returns demonstrate, however, emerging market stocks remain the winners by a wide margin over the past five- and ten-year periods.
2011-04-21 Banking Sector in India: Counting on Credit Growth by Team of Thomas White International
In 2008, when the global banking industry was being shaken by the tremors of the unfolding financial crisis, only one bank in India felt the aftershocks, and this, only because one of its overseas subsidiaries had made an opportunistic bet on debt issued by the failed investment bank Lehman Brothers. While the market valuations of all the leading banks in India slipped as equity prices tumbled, their businesses were not affected and their balance sheets remained healthy. Most domestic commentators continue to hold up this as evidence of the inherent strengths of the Indian banking industry.
2011-04-19 Gangs of New York by Jeffrey Saut of Raymond James Equity Research
I love New York City! Still, as I walked from the airplane into the terminal last Monday, I got the feeling I was traveling back in time, La Guardia is in need of a refresh. All in all, I felt like I was in a third-world country, not the greatest city in the world. Nonetheless, my trip started with a couple of hedge funds. At noon a segment on Breakout." From there, it was off to see some PMs before the next media hit at Fox Business with, Brian Sullivan. While I am kindred spirits with these media anchors, by far the highlight of last Monday was dinner with President Bill Clinton.
2011-04-19 Americas: Economic Review March 2011 by Team of Thomas White International
The economic repercussions to the Americas region from Japan's earthquake are expected to be limited. Though Japan is a large trading partner the percentage share of Japan in their total external trade is low. However, some of the large manufacturers, especially in electronics and automobiles, may face slower output because of shortage in supplies from Japan. Similarly, the escalation of political unrest in the MENA region, have not yet caused a flare up in energy prices. Though retail prices of gasoline have risen, they are not considered high enough to cause damage to consumer spending.
2011-04-19 Middle East/Africa: Economic Review March 2011 by Team of Thomas White International
The turmoil in the Middle East region continues, with Libya exploding into civil war, and troops from the Gulf Cooperation Council being called in to suppress the protests in Bahrain. In terms of the economic repercussions, stock markets in the MENA are estimated to have lost around $140 billion in market capitalization during the last month. According to the Arab Monetary Fund, the market capitalization of 16 Arab bourses was valued at $862 billion on March 4, compared with $1.002 billion on January 25, a day before the political crisis in Egypt triggered upheaval across the Middle East.
2011-04-18 Now Hiring by Milton Ezrati of Lord Abbett
The jobs market has begun to improve. True, the pace is much too gradual for many, but still there can be no mistake that business has at last started rehiring. Not only have payrolls increased but also other indicators foretell further fulltime hiring. What is more, the unfolding jobs recovery, despite people’s understandable impatience, seems pretty much on track with past cycles. Prospects for any continued improvement, then, should give Washington cover to cease its largely singular focus on jobs and deal with longer-term issues. Recent signs are fairly consistently positive.
2011-04-16 Will China's Economy Overheat? by Frank Holmes of U.S. Global Investors
China’s GDP growth continued at a blistering pace during the first quarter of 2011, rising 9.7 percent from the previous year. Once again this outpaced many forecasts and reignited the discussion of China’s overheating economy. While its robust growth may raise a few eyebrows, the economy isn’t in danger of “red-lining.” Andy Rothman points out that the first quarter growth figures “[aren’t] dangerously high given the GDP growth rate and strong income growth” After rising nearly 8 percent during 2010, inflation-adjusted urban incomes rose 7.1 percent during the first quarter.
2011-04-16 Inside Information by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Earnings season gives an 'insider' look at economic growth. Businesses see and react to changes in the economy before the broader macro data show a clear trend. The Fed has floated some trial balloons about reining in its extremely accommodative policies, the time for which is overdue. Budget issues remain a problem at all levels of government, but likely wont derail the recovery at this time. Despite ongoing debt problems in peripheral European nations, the ECB hiked interest rates. Europe still faces significant issues that make it more likely to underperform other areas of the world.
2011-04-15 Is the US Headed for a Japanese-Style Deflation? by Daphne Gu of FundQuest
The Great Recession of 2008 ended in June 2009. However, for the majority of 2010, the market was directionless, mired with shocks from European sovereign debt and mixed economic indicators. Inflationary concerns, born of massive liquidity from monetary authorities of the developed world, drove real assets to sky-high levels. Conversely, the traditionally lagging indicator of unemployment, sitting near 9%, has increasingly become a leading indicator of the broad market. Thus, many investors are pondering the possibility that the US might be on the path to a Japanese-style deflation scenario.
2011-04-15 Concerned About Inflation? by Brad Sorensen of Charles Schwab
Inflation has become a bigger topic of discussion among investors and in the media as of late. While we have noted in numerous publications that we don’t believe inflation is a near-term concern due to a number of factors, investors are wondering how to position themselves should inflation start to take hold. First, despite common perception, gold has not historically been a very good hedge against inflation. Due to the possibility of gold prices being a bit extended after the recent run, we don't recommend gold as an investment for those concerned about inflation.
2011-04-15 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
Though Reps and Dems came together to find $39 billion in budget cuts to avoid a government shutdown, the mood in DC is far from amicable and no one is singing kumbaya. On the heals of Tax Day, Prez O submitted his plan to rein in the deficit by $4 trillion over 12 years that includes spending cuts AND tax hikes aimed at biz and the well-off. While a bipartisan commission praised the proposal as a "solid, responsible plan," would-be Presidential candidates lined up to offer their opposing views, particularly against anything resembling a tax increase.
2011-04-12 Sentiment Creeps Back into Overly Bullish Territory by Chris Maxey of Fortigent
Over the past six months, actions by the Federal Reserve to purchase assets through its quantitative easing program played a major role in driving market prices. As the markets prepare to transition away from quantitative easing, investors are facing the prospects of a tougher market environment. The upcoming earnings season will go a long way in determining whether this recovery is ready to stand on its own.
2011-04-12 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
As we expected last Monday the stock market did nothing but tread water last week. Hesitation before the earnings season begins this week, along with the pause, while our national government debated whether to shut down, were the two dominant reasons for the peace and quiet. the Dow Jones Industrial Average as well as the NASDAQ Composite were flat for last week.
2011-04-12 Equity Market Review & Outlook by Richard Skaggs and Thomas Davis of Loomis Sayles
The global equity bull market continued in the first quarter despite significant unrest across parts of Northern Africa and the Middle East, a massive earthquake in Japan, sovereign debt issues in Europe, and inflationary pressures in certain emerging economies. US markets were among the best in the world, although the MSCI World Index also posted a solid gain of 4.9%. Emerging markets were among the weaker equity asset classes. As the returns demonstrate, however, emerging market stocks remain the winners by a wide margin over the past five and ten year periods.
2011-04-11 Charles Plosser and the 50% Contraction in the Fed\'s Balance Sheet by John P. Hussman of Hussman Funds
Last week, an unusual event happened in the money markets that should not escape the attention of investors. The yield on 3-month Treasury bills plunged to less than 5 basis points. As I noted this past January in Sixteen Cents: Pushing the Unstable Limits of Monetary Policy, a collapse in short-term yields to nearly zero is a predictable outcome of QE2, based on the very robust historical relationship between short-term interest rates and the amount of cash and bank reserves (monetary base) that people are willing to hold per dollar of nominal GDP.
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.
2011-04-11 Despite Near-Term Risks, Stocks Remain Resilient by Bob Doll of BlackRock Investment Management
The preponderance of the economic and market-related news skewed to the negative last week, with an additional earthquake in Japan, rising oil prices, an interest rate hike by the European Central Bank (ECB), escalating debt problems in Europe and increasing noise about the since-averted potential federal government shutdown. Despite this backdrop, however, US equities remained resilient and were roughly flat for the week, with the Dow Jones Industrial Average up marginally to 12,380, the S&P 500 Index down 0.3% to 1,328 and the Nasdaq Composite down 0.3% to 2,780.
2011-04-11 Does Tax Reform Stand a Chance? by Milton Ezrati of Lord Abbett
The budget debate goes on, scrapping over the still-unfinished 2011 budget and, more importantly, positioning for the more fundamental issues of the 2012 budget. President Obama has already issued his budget for 2012 and the years beyond. These are exciting times for Washington’s policy wonks. For investors, these matters are important, if sometimes mind-numbing. Related to these larger deficit issues, but also separate from them, are the newly raised questions of corporate tax reform. These will form the subject of this second in Lord Abbett’s occasional series on fiscal matters.
2011-04-09 Risk 3.0 Investment Solutions for the New Market Realities by Mitchell Eichen and John Longo of The MDE Group
In spite of the stock market rebound from its March 2009 lows, the 2007-2009 bear market still looms large. Investors have lost faith in the conventional methods of portfolio management. Investor confidence was not merely shaken, but shattered. Risk was either improperly measured, or considered a distant second to return. In this paper, we introduce a new approach to portfolio management that builds upon prior work. The main contribution is that specific kinds of risk are explicitly considered. The portfolio is then optimized, using human judgment, for the current market outlook.
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.
2011-04-08 Postcard from Indonesia by Lydia So of Matthews Asia
During a recent research trip to Southeast Asia, I spent time meeting management teams in Bangkok, Jakarta, Singapore and Kuala Lumpur. I always find it valuable to be able to compare growth opportunities and challenges facing various industries and companies within the region while I am on the ground. Compared to a decade ago, these Southeast Asian cities have all developed relatively high levels of urbanization, affording residents and visitors the modern comforts and conveniences of such things as public transportation, financial services and easy access to fast food chains.
2011-04-08 And That's The Week That Was… by Ron Brounes of Brounes & Associates
All those rabid anti-government, “conspiracy theorists” may soon get what they most desire. As of Friday afternoon, politicos were continuing their game of chicken as the clock kept ticking toward the first government shutdown in 15 years. While both parties have made concessions on spending programs, the old reliable abortion issue has entered the mix. The latest WSJ poll reveals that Americans blame congressional Republicans (37%) most, countering the partisan hope that Prez O 20% and the Dems 20%, had the most to lose. For now it appears that the American people have the most to lose.
2011-04-07 Weekly Market Update by Team of American Century Investments
“Dodd-Frank” is shorthand for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The main focus of the legislation is on increasing regulation/supervision of banks and other major players in derivatives, lending, and securitization businesses. Few of the law’s provisions are aimed directly at the registered fund industry, likely reflecting the industry’s distance from the 2008 financial crisis and general effectiveness of the framework already in place. Nevertheless, a number of provisions could affect mutual funds and their investment advisers in meaningful ways.
2011-04-07 Inflation and the U.S. Bond and Stock Markets by Jim O'Shaughnessy of O'Shaughnessy Asset Management
With the Federal Reserve well into QE2 in its response to the recent economic crisis and recession, we thought it would be an ideal time to review the effects of inflation and deflation on the returns of US bonds and stocks. The adjusted monetary base for the United States has exploded over the last several years. As a result many economists and investors expect inflation to increase in the coming years. Let’s review the history of US inflation and the returns for U.S. stocks and bonds and see what it can teach us about the returns of stocks and bonds during a variety of inflationary periods.
2011-04-06 Great Speculations: Why China Is So Bubble-Friendly by Adam Wolfe of Roubini Global Economics
China can blow bubbles faster and bigger than any other country, but the Extraordinary Salt Mania of March 2011 takes the cake for speed, size and bizarreness. Shortly after radiation was reported to be leaking from Japan’s nuclear plant, rumors spread that China’s sea salt could be contaminated by radiation and that salt could prevent radiation sickness. The apparent demand and a perceived supply shock caused prices to spike upward of 85% in days. Media reported that a Mr. Guo bought 6.5 tons of salt, three days later prices collapsed after word from officials that there was no shortage.
2011-04-05 A Trading System that Disproves Efficient Markets by Erik McCurdy (Article)
Efficient market adherents claim it is impossible to outperform the stock market over the long term. Although their principles are the foundation of modern investment theory, other compelling models, including the one I propose here, reveal that precisely the opposite is true, supporting the thesis that markets are highly inefficient.
2011-04-05 Good, But Its Not Enough by Scott Brown of Raymond James Equity Research
Happy days are here again. The job market is now adding jobs at a pace stronger than population growth however, not by much. Its been clear for some time that large-scale job losses are far behind us. The problem in the labor market has been weakness in hiring. Small and medium-size firms have begun to add jobs in recent months. Yet, with so many jobs lost in the downturn, there is a huge amount of ground to make up. The private sector shed a net 8.8 million jobs during the Great Recession (starting in December 2007 and bottoming in February 2010).
2011-04-05 Employment Manufactures Another Month of Positive Growth by Chris Maxey of Fortigent
Equity markets surged into quarter end, with the S&P 500 index rising 1.4% and the Dow Jones increasing 1.3%. For the first time since Feb the S&P 500 increased in two weeks. After hitting a trough on Tuesday morning, several positive employment reports encouraged the equity markets to move higher. As expected, manufacturing activity had a deceleration, as the ISM Purchasing Managers Index fell from 61.4% in February to 61.2% in March. Readings above 50% are representative of expansion in the manufacturing sector. Although the index fell, it is still the third highest reading since 1990.
2011-04-05 When Doves Cry: Debates Rage About QE2's Finale by Liz Ann Sonders of Charles Schwab
Will the Federal Reserve's quantitative easing (QE2) pull into the dry dock in June as intended? If so, what are the implications for stock and bond investors? Might the Fed begin tightening policy before many think?
2011-04-05 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Stocks continued their recent rebound despite a lack of resolution of any of the issues dominating not only the business news but the global headlines as well. The Dow Jones gained 1.3% on the week, which was exceeded by the gains seen in the NASDAQ Composite of 1.7%. Much of last week focused upon two things: The first was the price of oil and our involvement in Libyal. Secondly, the focus was on what, if any, fallout would be seen in last Friday’s employment data for March. This was important especially in light of the recent severe drops in consumer confidence and the price of gasoline.
2011-04-05 And That's The "QUARTER" That Was... by Ron Brounes of Brounes & Associates
“It’s a small world after all.” The past quarter was proof positive that developments across the world truly impact the global economy and investment markets (or do they?). A pro-democracy movement spread across the Middle East, crude prices surged to levels not seen in 2 ½ years and inflation fears resurfaced. Japan suffered an earthquake that brought the economy to a virtual standstill and the initial price-tag for reconstruction stands at over $200 bln. While analysts claim the rebuilding process will prove positive for global trade, excessive debt could slow a “speedy recovery.”
2011-04-04 Getting Stronger by Charles Lieberman of Advisors Capital Management
The expansion is getting stronger. Employment gains keep building, key to a sustainable lasting expansion. Adverse shocks could still hurt the expansion, but risks of the expansion faltering on its own are fading fast. This will enable the Fed to begin the lengthy process of unwinding the aggressive addition of excess liquidity into the financial system. The trend in job growth maintained its trajectory in March, strengthening consumers and businesses. Household income gains add to the ability of consumers to finance spending, which adds to corporate profitability and leads to more hiring.
2011-04-04 Core Incompetency by Michael Pento of Euro Pacific Capital
For years the Federal Reserve has told us that in order to detect inflation in the economy it is important to separate “signal from noise” by focusing on “core” inflation statistics, which exclude changes in food and energy prices. Because food and energy figure so prominently into consumer spending, this maneuver is not without controversy. But the Fed counters the criticism by pointing to the apparent volatility of the broader “headline” inflation figure, which includes food and energy. The Fed tells us that the danger lies in making a monetary policy mistake based on unreliable statistics.
2011-04-02 Above the Fray by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Attacks on Libya and recovery efforts in Japan have dominated the headlines, but behind the scenes US economic growth remains solid and we remain optimistic on the stock market. Commodity prices have backed off a bit and the Fed is likely to see QE2 through to its June 2011 end. Of particular concern is the unwillingness or inability for Congress to agree on a budget that addresses the growing deficit issues in the US. Japan has a significant debt burden with which to deal as it rebuilds, while Europe is struggling to come up with a comprehensive plan to deal with the eurozone debt crisis.
2011-04-02 Expert Roundtable on Inflation: Should You Be Worried? by Mark W. Riepe, Liz Ann Sonders, Rob Williams, Michael Iachini & Brad Sorensen of Charles Schwab
Inflation is a rise in the general level of prices of goods and services; your money buys less. With oil and other commodity prices rising, the Federal Reserve's current easy monetary policy and the economy picking up, many investors are worried about inflation. Mark Riepe, head of Financial Research and president of Charles Schwab Investment Advisory, led a roundtable discussing why Wall and Main Street may have different perspectives on inflation. The roundtable also covers our inflation outlook, ways to protect your investments and inflation-savvy investments you might want to consider.
2011-04-01 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
New quarter…renewed optimism…ongoing challenges. The second quarter 2011 kicked off with promising news on the labor front as more private sector hires and a lower jobless rate confirmed that employers have enough confidence to begin adding to the payroll. While the favorable outlook has long been apparent in the corporate boardrooms, the labor market had remained a big concern, leading consumers to hold off on major purchases. Since November 2010, however, the unemployment rate has dropped by a full percentage point, a trend that speaks nicely to the recovering economy as a whole.
2011-04-01 The Bedrock of the Gold Bull Rally by Frank Holmes of U.S. Global Investors
Naysayers started calling gold a bubble back when prices hit $250 an ounce and though gold’s bull market has tossed and flung the bubble callers around for almost a decade now, their voices have only gotten increasingly louder as prices broke through $1,000, $1,200 and now $1,400 an ounce. However, gold prices appear asymptomatic of the signs generally associated with financial bubbles.
2011-03-31 Small-/Mid-Cap Growth — Why Today’s Market Cycle is Different by Team of Columbia Management
We believe the outlook for small- and mid-cap growth stocks remains bright as we move into the later stages of the economic recovery. While the asset class is typically expected to underperform at this point of an economic rebound, there are three important distinctions that make this cycle different: 1) scarcity of growth, 2) continued M&A activity and 3) commodities inflation.
2011-03-30 “Agri”-vation by Scotty George of du Pasquier Asset Management
Recent events in the Middle East, combined with weather, have put tremendous pressure upon raw materials prices. The fear is that cyclical pricing pressure might become secular (generational) trends, accelerating inflation in energy prices, foodstuffs, and industrial components, thus undermining a tenuous uptick in consumer spending, global trade, and consumer confidence. While Wall Street rejoices that something, anything, has stimulated trading activity and profit margins, the world watches as surpluses contract and statistics become human convoys of disaster.
2011-03-29 Tilting Toward Energy by Brad Sorensen of Charles Schwab
Despite dramatic current events impacting markets, tactical shifts to your energy-sector allocation could add a small performance boost over the next several months. Volatility will likely remain elevated as events unfold in the Middle East and recovery continues from the devastating disaster in Japan. For investors looking to make shorter-term, tactical adjustments to a portfolio.
2011-03-28 Living with Turmoil by Charles Lieberman of Advisors Capital Management
Global political conditions remain a mess. The adverse effects on domestic economic growth and our prospects for recovery should remain limited. So, we remain positioned for ongoing economic expansion. Revolution is still spreading across the MiddleEast and is now enveloping even the most repressive regimes, including Syria. Japan is regaining control over its nuclear energy plants, while the disruptive economic effects, although concentrated in Japan, will have some global impact. Europe is still trying to address major fiscal in Greece, Ireland, Portugal and Spain and governments are falling
2011-03-28 Will The Job Market Rev Up? by Scott Brown of Raymond James Equity Research
Over the last year, the level of job destruction has trended very low. The problem has been a lack of job creation. Normally we look to small, newer firms to account for the bulk of new hiring in an expansion. However, small firms have been constrained by a variety of forces, the most significant being tight credit. That may be starting to change. The job market has a strong seasonal component. The next couple of months will be key to the outlook for jobs and the overall economy.
2011-03-28 China Part I – Planning for its Future by Mark Mobius of Franklin Templeton
As a result of some labor shortages and rising wages in the low-end labor intensive manufacturing sector, some managers are moving parts of their production out of China to lower-cost countries such as Vietnam. This raises the question of unemployment in the export-oriented area which, combined with inflation, could result in social turmoil and labor unrest, if it’s not well-managed. One positive aspect is that the Chinese government recognizes the issues and addresses many of them in their new Five-Year Plan.
2011-03-28 Equities on the Rise Despite Geopolitical Risks by Bob Doll of BlackRock Investment Management
Risk assets (and equities in particular) powered to a strong week of gains, with the Dow Jones Industrial Average climbing 3.1% to 12,221, the S&P 500 Index advancing 2.7% to 1,314 and the Nasdaq Composite rising 3.8% to 2,743. Although a number of near-term risks remain (particularly related to the unpredictability of escalating unrest in the Middle East), we maintain our view that equity markets are likely to continue their longterm trend of outperformance.
2011-03-28 A Central Bank Match by Chris Maxey of Fortigent
Equity markets donned the rally cap last week as the S&P 500 index finished higher by 2.7% and the Dow Jones Industrial Average experienced a 3.1% gain. Stability in the price of crude oil and improvement in Japan lent a helping hand to the markets, as did the announcement that AT&T would buy T-Mobile. On the domestic front, investors turned a blind eye to the slew of negative economic data. Housing, in particular, experienced the brunt of the disappointment. Existing home sales offered the first piece of bad news after falling 9.6% to 4.88mln on a seasonally-adjusted annual rate in February.
2011-03-27 QE2 - Apres Moi, le Deluge by John P. Hussman of Hussman Funds
As rules of thumb go, "the trend is your friend" historically performs better than "don't fight the Fed". While the market tends to perform better when both are true, the exception is the overvalued, overbought, overbullish, rising-yields syndrome, which is uniformly negative regardless of the random subset of historical data one examines. There is certainly a tendency for "unpleasant skew" featuring a persistent series of marginal new highs for some period of time, but on average, those are ultimately overwhelmed by steep and abrupt losses that finally clear this syndrome.
2011-03-27 Changes in the Inflation Rate Matter as Much to Investors as the Level by Bill Hester of Hussman Funds
It is clear from February's inflation data that there was a broad increase in price levels last month, especially for goods used during the early stages of production. The Producer Price Index rose 5.6 percent from its level a year earlier, up from 3.6 percent in January. On a month-to-month basis, the PPI rose 1.6 percent, doubling its recent pace. That increase was partially fueled by higher food prices, which makes up about a fifth of the overall PPI. Commodity prices tracked within the PPI Index rose 8 percent from a year ago, up from 5.6 percent last month
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.
2011-03-25 What's Driving Russia's Outperformance? by Frank Holmes, John Derrick and Tim Steinle of U.S. Global Investors
All ten sectors of the S&P 500 Index increased this week. The best-performing sector for the week was energy which rose 4.08 percent. Other top-three sectors were technology and materials. Financials was the worst performer, up 0.50 percent. Other bottom-three performers were utilities and healthcare.
2011-03-24 Shiller P/E Still Points to Extreme Overvalution by David A. Rosenberg of Gluskin Sheff
One of our favourite equity valuation metrics, the Shiller Cyclically Adjusted P/E ratio, continues to suggest that the equity market remains overvalued (the cyclically-adjusted P/E uses 10-year earnings to smooth out volatility). At 23.7x, it suggests an overvaluation of over 40% relative to historic norms (and in this case the data goes back to the late 1800s). Note that this indicator has been over 23x for three months in a row, something we haven’t seen since early 2008.
2011-03-23 Germany's Solid Outlook Anchors Wobbly Eurozone by Katharina Jungen of Roubini Global Economics
The German economy is set to power ahead in 2011, as indicated by high-flying business and consumer sentiment surveys and full order books. The initially export-led economic upswing, stands to broaden further given the positive outlook for investment activity and private consumption. Despite the contribution from the moderating external sector, GDP growth will remain above potential, not least due to a sizeable carryover effect from 2010. RGE expects buoyant GDP growth in 2011, boosted by a sharp rebound in construction activity following the weather-related slump at the turn of 2010/11.
2011-03-23 PIMCO Cyclical Outlook: U.S. Economy, Global by Saumil H. Parikh of PIMCO
PIMCO continues to foresee a multi-speed global recovery over the next few years. The U.S. is experiencing a cyclical economic rebound, but its strong durability is uncertain. Several countries in Europe face headwinds to growth over our cyclical horizon. Japan’s growth rate will likely fall in the near term, but reconstruction activities should stimulate growth over time. We expect real economic growth in key emerging economies to remain at a solid rate during 2011, but lower than 2010.
2011-03-22 There are Still So Many Unknowns by David A. Rosenberg of Gluskin Sheff
There are still many unknowns with regard to the global macro picture, but what we do know are the following 10 things: 1. There are more upside than downside risks to the oil price. 2. Japan was already the number-one importer of liquefied natural gas (LNG) and this status will be accentuated as replacements for a damaged nuclear grid is sought. 3. Nuclear energy development takes a near-term hit here by the politics of the Japanese crisis but not a permanent hit. 4. The aftershock in Japan will be related to contaminated food supply so we can expect to see more inflation on this score too.
2011-03-19 Middle East Politics and Oil: The Influences on Global Interest Rates, Credit Spreads & Stock Prices by Tom Fahey, Ryan McGrail, Richard Skaggs and Joseph Taylor of Loomis Sayles
The market has added a substantial risk premium to the price of oil given the unrest in the Middle East and North Africa. Prices have increased by more than 20% since December 2010; half of that increase occurred during the past three weeks in reaction to unrest spreading to Bahrain, one of the Gulf States. Market participants have raised their probability calculations for black swan events. There may be excess pessimism in the market, as reflected in increased concerns about unrest spreading to the other Gulf States. Those concerns are potentially overblown.
2011-03-19 How the VAR Model and Japan’s Tragedy Affect Investors by Frank Holmes of U.S. Global Investors
The threat of disaster from the damaged Fukushima nuclear power plant unleashed a ferocious sell-off of Japanese equities, but the damage to other major markets has been limited. Already experiencing a slight pullback prior to the events on March 11, U.S. equities and emerging markets have held up quite well. The MSCI Emerging Markets Index has only pulled back 2 percent since the earthquake and the S&P 500 Index only 3 percent.
2011-03-19 What the Heck is Going On??? by Team of Emerald Asset Advisors
In recent weeks, the capital markets have weathered a bout of volatility not seen for quite some time. What are the main causes and how does this volatility affect our strategies and your portfolios? While there are many flashpoints around the world, we will highlight the "Big 3" (Japan, the Middle East, and federal budget issues) that have made the most headlines, and those which we believe have had the greatest and most recent impact on volatility.
2011-03-18 Has the Game Changed? by David A. Rosenberg of Gluskin Sheff
An object at rest will remain at rest unless acted on by an unbalanced force. An object in motion continues in motion with the same speed and in the same direction unless acted upon by an unbalanced force. This is otherwise known as Newton’s first law of motion. In market parlance, this implies that a trend remains in force until such time as an exogenous shock causes it to either stall or reverse. Economic, geopolitical, and natural disaster events aside, equity markets around the world have definitely broken their intermediate-term uptrend.
2011-03-17 5 Dividend Champions to Work Your Money as hard as You Worked for It! by Chuck Carnevale of EDMP
You worked hard over your lifetime to build a nest egg in order to fund your retirement. Doesnt it make sense that now that youre retired your money should work as hard for you as you worked for it? When you were working, you were accustomed to receiving a raise in pay each year. Why should that end now, just because you are retired? It doesnt have to, because investors today have the good fortune and opportunity to invest in blue-chip 'Dividend Champions' (companies that have increased their dividend every year for at least 25 years) which are trading at historically low valuations
2011-03-16 Fukushima vs. Three Mile Island vs. Chernobyl by Mikka Pineda of Roubini Global Economics
This year marks Chernobyl's 25th anniversary, and how ironic it is that the world has a new nuclear emergency on its hands: Japan's Fukushima power plant. The situation at Fukushima continues to worsen, with explosions at two more reactors and the radiation released surpassing that of Three Mile Island. The 40-year-old reactors were due for decommissioning at the end of this month. The Fukushima nuclear incident will likely be upgraded from a level 4 to a 5 on the International Nuclear and Radiological Event Scale. Chernobyl was a level 7—the only level 7 event so far.
2011-03-15 Running on Empty by Michael Lewitt (Article)
Despite the increasing undercurrent of negative news creeping into the financial markets, the stock market remains strong. HCM expects equities to continue to perform well for the foreseeable future (i.e. through the end of June) although most of this letter will discuss the reasons why it shouldn't. In some ways, this market is a lot like Charlie Sheen. It pretends to have tiger blood and the powers of a warlock, but deep inside it is suffering from an addiction to a substance (i.e. debt) that will ultimately kill it.
2011-03-15 Margin Shrinkage - It Can Happen to You by Vitaliy Katsenelson (Article)
Profit margins are a tick away from all-time highs and are creating the impression of cheap equity valuations. But that impression is a mirage, because today's generous margins are destined to shrink.
2011-03-15 Consumers Right the Ship by Chris Maxey of Fortigent
A confluence of macroeconomic events created selling pressure during the week, sending the S&P 500 Index lower by 1.3% and the Dow Jones Industrial Average down 1%. Releases on the domestic economic situation continued to show positive momentum, ranging from improvement in retail sales to a pickup in consumer credit. There was some concern about weaker consumer confidence figures and deterioration in weekly jobless claims, but it was clear last week that consumer balance sheet deleveraging continues. Retail sales for Feb increased 1% from Jan for a total increase of 8.9% in 12 months.
2011-03-15 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Last week’s financial markets reflected the uncertain outcome of the various mid-east conflicts, as well as the horrific news from Japan that an earthquake of unimaginable intensity has rocked that country, both of which have global economic implications. Overall, the stock market was calm. The Dow Jones Industrial Average fell just one percent while the NASDAQ Composite dropped 2.5% as fears of slower growth were compounded late in the week by news of the earthquake in Japan, which is home to many technology supply-parts manufacturers.
2011-03-14 The End of QE2 by Charles Lieberman of Advisors Capital Management
This week's meeting of the Federal Reserve Open Market Committee is sure to focus on whether to terminate its quantitative easing program early and when it will be time for overnight interests to be returned to more normal levels. While economic growth appears to be much healthier, higher oil prices and credit risks in Europe pose significant risks to the growth outlook. Therefore, we expect no change to policy, although it is our judgment that the Fed should begin to alter its language subtly to remind investors that changes in policy will be coming.
2011-03-12 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
The volatility is back. In Jan., the Dow encountered but two days of triple digit moves. In Feb., that number jumped, but only to three. Already by March 11, the index has moved by 100 point or more (up or down) on four occasions this month. Geopolitical events in the Middle East, Asia, and Europe have brought renewed uncertainties to the marketplace and prompted some recent profit taking and maybe even a flight-to-quality into treasuries. This week, the “nays” had it as the Libyan conflict continued and threats of its spreading to oil giant Saudi Arabia remained fresh on investors minds.
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.
2011-03-12 Volatility on the Rise by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Geopolitical unrest and rising inflation concerns have conspired to increase market volatility. We remain bullish on US stocks and believe that this recent increase in consternation will ultimately be healthy for stocks. The US government keeps kicking the debt can down the road, while the Fed seems unconcerned about inflation and is intent on completing QE2. We believe changes are needed at both entities to foster sustainable economic growth. The European debt crisis is bubbling up again, while the ECB is talking interest-rate hikes. Future growth depends on the path of both issues.
2011-03-11 Europe: Economic Review February 2011 by Team of Thomas White International
Various data released in Feb. confirmed once again that the economic recovery in Europe is gaining momentum. Nevertheless, investor sentiment on the continent, and indeed everywhere in the world, remained largely subdued during the month due to the growing political uncertainty in the Middle East and N.Africa region. Since rising food, raw material, and crude oil prices have already pushed up inflation to worrying levels in most parts of Europe, the recent surge in oil prices amid the protests in Libya and some MiddleEastern countries eclipsed encouraging signals about the Euro-zone economy.
2011-03-11 Middle East turmoil not yet a significant threat to the global economy by Team of Thomas White International
The political unrest spreading across the Middle East and the resultant disruptions to the regional economy are not considered very significant for the global economic prospects for this year. Though oil prices have reacted on fears of lower supplies from the region, there have been no actual disruptions so far and any perceptible deceleration in global economic growth is expected only if prices shoot up further. It is widely believed that, unless the agitations spread to the region’s major oil producers like Saudi Arabia, the prospect of a sustained upsurge in energy prices is limited.
2011-03-11 Americas: Economic Review February 2011 by Team of Thomas White International
Rising energy prices, due to the political upheavals in the Middle East, are becoming the primary economic risk for the Americas region. While the subdued inflationary trends will provide banks leeway to hold interest rates, they may be forced to advance their rate hikes if prices rise at a faster rate. In contrast, several of the emerging economies are expected to slow down this year. These economies may see interest rates rising faster, which may slow their pace of expansion even more. Also, higher interest rates will likely keep their currencies stronger and may restrict export growth.
2011-03-11 Asia Pacific: Economic Review February 2011 by Team of Thomas White International
Asian economies recorded some of their best performance for the full year 2010. In particular, Southeast Asian nations witnessed a banner year, clocking their best performance in recent memory. However, although the full year record was exemplary, growth in the final months of 2010 began to cool off. While a rising currency continued to trouble export-based economies, inflation haunted almost all central banks in the region. Central banks, having to choose between raising interest rates and attracting foreign capital, opted to hike rates.
2011-03-09 Gold or Goldilocks? by Kevin Feldman of BlackRock Investment Management
After a roller coaster January, gold prices have been soaring to nominal highs again of late. Given the recent rise in price, I thought this would be a good time to revisit the case for having a small amount of gold in your portfolio. Investors flocked to gold in 2009 and 2010 because of worldwide concern over the stability of the financial system, and as a result the precious metal’s price skyrocketed, passing $1400 an ounce. Last month, Barron’s warned its readers that the gold rush is over. Suggesting investors were likely to search for assets with greater expected returns than gold.
2011-03-08 Consumer Confidence Turns Back Down by David A. Rosenberg of Gluskin Sheff
According to an RBC consumer outlook poll, one in three U.S. households is already “significantly” cutting back on spending because of rising gasoline prices. And this was a survey taken at a time when the national average price at the pumps was around $3.20 per gallon ― wait and see what happens when it costs four bucks to fill up the tank ― that is the pain threshold for 41% of the consumer sector as per this poll.
2011-03-08 Will the Global Recovery be Brought to its Knees by Commodity Prices? by Chris Maxey of Fortigent
There is a dangerous trend developing in food and energy costs, one that threatens to derail the global recovery. Thus far, consumers are able and willing to accept higher commodity prices. With consumers still feeling the effects of the worst recession in nearly a century, though, there is only so much that people will be willing to tolerate and the second half of the year may be too far away, at least when it comes to crude prices.
2011-03-07 Toryism, Socialism and Housing Reform: Real and Imagined by Christopher Whalen of Institutional Risk Analyst
This commentary is background for the presentation entitled "GSEs: The Future Role of Government Sponsored Enterprises in the US," at the Global Association of Risk Professionals event on Tuesday, March 8, 2011, in New York. The Obama Administration recently advanced some proposals to reform several government agencies that control the market for housing. Treasury/HUD plan is really a menu of possible options, eliminating what would not work and making it clear that change will happen slowly, if at all.
2011-03-07 Random Post-Employment Thoughts and Consensus On Oil Impact by David A. Rosenberg of Gluskin Sheff
The consensus is that the U.S. labor market is healing. That may well be the case but the slack in the job market remains huge allowing for a structural rise in the unemployment rate. Only 15% of the recession job losses have been recouped despite the fact that expansion has surpassed the downturn. The consensus is that the world economy has gotten used to high levels of oil prices so this latest run-up in crude poses little risk to the economic outlook. But it is change that matters to growth, not levels. As for the macro impact, do not understate the potential for economic contraction.
2011-03-07 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
The case for gold and energy-related price spikes is rooted, in part, by good intentions hedging against dollar fluctuations, inflation risk, and political discord. But unlike a level of rational speculation one might expect to see, one has to wonder whether the market’s players are overdoing their hand just a bit. Simply, the world of commodities gambling has been turned into a shootout. While oil production and distribution (as with gold) has been spiking over the last 3 years, real demand has only turned up modestly.
2011-03-07 Employment Growth on A Solid Trajectory by Charles Lieberman of Advisors Capital Management
Economic prospects continue to improve, although investors are distracted by turmoil in the Middle East and the risk premium being built into crude oil prices. The globe is highly likely to remain a dangerous place, but oil supplies are not likely to be disrupted sufficiently to undermine the U.S. expansion.
2011-03-07 Investment Commentary by Bob Doll of BlackRock Investment Management
A tug of war is taking place in the markets, with crosscurrents of good economic reports on the positive side and a continued rise in oil prices from the conflicts in the Middle East on the negative side. Last week, US equities were up modestly, with the Dow Jones Industrial Average rising 0.33% to 12,169, the Nasdaq Composite advancing 0.13% to 2,784 and the S&P 500 adding 0.10% to close at 1,321.
2011-03-04 And That's The Week That Was… by Ron Brounes of Brounes & Associates
Unlike Egypt’s Mubarak, Libya’s Gadhafi is not going down without a strong fight. With tensions escalating throughout the region, the world’s oil supply and crude prices soared above $104/barrel over the past few days to levels not seen in 29 months. While optimists point out that Saudi Arabia has been quick to pick up the slack for any shortfall out of Libya, others worry that a prolonged crisis limits its ability to do so indefinitely. The bigger pessimists fear that the uprising could spread to Saudi (Anyone think it may be time to reduce our dependency on foreign oil?)
2011-03-04 The Job Market, Oil Prices, and the Fed by Scott Brown of Raymond James Equity Research
Higher oil prices have raised new concerns about the strength of the economic recovery. If sustained, the rise in gasoline prices will restrain the pace of economic growth noticeably, but does not appear to be large enough (so far) to derail the expansion. Meanwhile, a federal government shutdown looms as lawmakers bicker over the future path of expenditures. Austerity at all levels of government is well-intentioned, but is not advisable at this point in the economic recovery.
2011-03-03 What Happens If There is No QE3? by David A. Rosenberg of Gluskin Sheff
“who picks up the slack if the Fed stops its bond-buying program?” The answer is hardly complicated since we have a template for this. It is a very simple guidepost. Last year, from April 23rd through to August 27th, the Fed allowed its balance sheet to shrink from $1.207 trillion to $1.057 trillion for a 12% contraction as QE1 drew to a close. Go back a year to the Federal Open Market Committee minutes and you will see a Federal Reserve consumed with forecasts of sustainable growth and exit strategy plans. A sizeable equity correction coupled with double-dip fears were nowhere to be found.
2011-03-03 Multi-Asset Real Return: Assessing & Exploiting Price Pressures in their Many Forms by Kevin Kearns, Laura Sarlo and James Balfour of Loomis Sayles
An asset manager’s challenge is to preserve and grow the purchasing power of investors’ portfolios under a variety of economic conditions. Understanding the breadth of global inflationary or deflationary trends that can occur, and the ways different assets might perform in these environments, is critical to this objective. Based on our research, we have determined that no single asset class can protect investors from inflation. On the contrary, we believe the flexibility and diversification offered by a multi-asset-class strategy is necessary to help weather changing inflation regimes.
2011-03-02 Two-Bits, Four-Bits, Six-Bits, a Dollar by Bill Gross of PIMCO
A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and stability. Because quantitative easing has affected all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences. Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.
2011-03-01 Disasters Rocking U.S. Dollar? by Axel Merk of Merk Funds
From earthquakes in New Zealand to revolutions in the Middle East, natural and man-made disasters are rocking the world. We are all too often made to believe that in times of crisis there’s a flight to the U.S. dollar. However, the U.S. dollar has instead had a rocky ride of its own thus allowing the crisis-ridden Eurozone to shine. What’s going on? Is there no crisis, or has the U.S. dollar lost its appeal as a safe haven?
2011-02-28 When Inflation Fuels Deflation by Chris Maxey of Fortigent
Global macroecon concerns led to the sharpest weekly sell off in the S&P500 Index in three months. For the week, the S&P 500 Index was down 1.7% and the Dow Jones Industrial Average fell 2.1%. A multitude of catalysts were behind the selloff, including concerns about the situation in Africa and the Middle East, surging commodity prices, in particular crude oil, and finally, a feeling that equity valuations were moving into overbought territory. There were only a handful of important domestic economic releases last week, including several data points on housing and the state of the consumer.
2011-02-28 Moment of Surrender: Regimes Fall, Oil Prices Spike by Liz Ann Sonders of Charles Schwab
Geopolitical tensions swell along with oil prices, pushing the stock market lower. The absence of a longer-term oil- supply shock suggests the price spike could be short-lived. Consumers will take a hit, but the broader economy should avoid a double-dip recession.
2011-02-27 Bank Stress Index Up in Fourth Quarter; Can China Slow Down Bank Lending? by Christopher Whalen of Institutional Risk Analyst
The Q4 2010 results from the latest IRA bank stress index ("BSI") survey are in and the US banking industry saw slightly higher stress than in the previous quarter. At the start of 2010, we wrote in The IRA Advisory Service that Q1 was likely to be the best quarter of the full year 2010. As it turns out, Q1 2010 was the lowest BSI score for the full year and since the start of 2009. Operational stress as measured by the BSI has been rising in the US banking industry steadily since Q1 2010.
2011-02-27 Cash or Credit - Implications for the Financial Markets by John P. Hussman of Hussman Funds
From the standpoint of prospective investment returns, it is important to recognize that the main effect of quantitative easing has been to suppress the expected return on virtually all classes of investment to unusually weak levels. It's widely believed that somehow, QE2 has created all sorts of liquidity that is "sloshing" around the economy and "trying to find a home" in stocks, commodities, and other investments. But this is not how equilibrium works.
2011-02-25 What Really Drives the Market by David A. Rosenberg of Gluskin Sheff
Well, we used to say there were four key drivers: 1. Fundamentals; 2. Fund flows; 3. Technicals; 4. Valuation; Then we introduced another one last week: 5. The Fed’s balance sheet; Now that is not going to be included in any of the Graham & Dodd textbooks, that is for sure. But since Dr. Bernanke embarked on his non-traditional monetary maneuvers two years ago, there has been an 86% correlation between the S&P 500 and the movement in the Fed’s balance sheet. And now there is a sixth: 6. Corporate earnings surprises Yes, this works with a 90% historical accuracy rate.
2011-02-25 Asia Insights from EM Analyst Conference by Allan Lam of Franklin Templeton
Many tend to focus on China and India, the two rising Asian economic powers, and there are reasons why we believe both, which are currently among the top five largest economies in the world will likely be among the top three in 2020. Land and labor costs remain cheap in China. In addition, the country appears to have a competitive edge in terms of work ethics, relatively flexible labor laws and excellent logistics. India’s strength is in its young, growing and increasingly well-educated population, which is fluent in English. This has enabled the country to become a leader in IT consultancy.
2011-02-25 Worry ... Friend or Foe? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Interest rates have moved higher, inflation concerns are growing, debt issues remain and global tensions are heightened. All valid concerns, but in our opinion not enough to derail stocks—although they could potentially in the future. Violence in the Middle East and North Africa is creating tension in global markets, but there are other concerns for emerging markets as well. Europe is becoming a bifurcated situation, with investors distinguishing between those with debt issues and those without.
2011-02-25 Oil And Vinegar by Scott Brown of Raymond James Equity Research
Higher oil prices have raised new concerns about the strength of the economic recovery. If sustained, the rise in gasoline prices will restrain the pace of economic growth noticeably, but does not appear to be large enough (so far) to derail the expansion. Meanwhile, a federal government shutdown looms as lawmakers bicker over the future path of expenditures. Austerity at all levels of government is well-intentioned, but is not advisable at this point in the economic recovery.
2011-02-23 Reevaluating ‘Chindia’: The Story of the Elephant and the Dragon by Arpitha Bykere, Adam Wolfe and Arnab Das of Roubini Global Economics
The emerging market powerhouse known as “Chindia” is becoming a focal point of global attention as China and India show themselves to be growth dynamos of the coming Asian Century. But examining these countries’ intrinsic differences is more illustrative than listing their similarities—and the two countries are likely to be on a divergent path over the next five years in the areas of growth, economic policy and politics.
2011-02-23 It's All About the Timing by David A. Rosenberg of Gluskin Sheff
The calendar of events that could create recurring bouts of market volatility is coming into closer view: February 25: Irish elections. Is a default coming? March 4: U.S. government shutdown; this is the date that the latest resolution expires. The hardliners in the GOP are digging in their heels over $60 billion of spending cuts. April 1: U.S. nonfarm payroll report for March. The jobless claims data suggest no improvement from poor February results. Then end of QE2 and the knowledge that movements in the Fed’s balance sheet in the last 14 months have had an 86% correlation with the S&P 500.
2011-02-23 FPA Perennial Shareholder Letter by Eric S. Ende of First Pacific Advisors
The major issue affecting global markets continues to be the amount of debt outstanding worldwide. Governments and consumers in many of the world’s developed countries are under the microscope as lenders question whether these borrowers will be able to make interest and principal payments on their loans. We expect these concerns to remain for some time to come.
2011-02-23 Right Brains and the Dismal Science by Herbert Abramson and Randall Abramson of Trapeze Asset Management
It has been said that successful investors need to employ not only the left side of their brains which is the analytical or scientific part but also the right side which is the centre for creative thinking. Thats because much of investing has to do with the unpredictable, the down cards, variables about future demand, growth, political policy changes, psychological responses, weather, oil spills, and so forth. Value investors dont want to pay for the down cards, but want to buy so cheaply in the here, that there is little or no risk of losing, and the hereafter can take care of itself.
2011-02-23 Right Brains and the Dismal Science by Herbert Abramson and Randall Abramson of Trapeze Asset Management
It has been said that successful investors need to employ not only the left side of their brains which is the analytical or scientific part but also the right side which is the centre for creative thinking. Thats because much of investing has to do with the unpredictable, the down cards, variables about future demand, growth, political policy changes, psychological responses, weather, oil spills, and so forth. Value investors dont want to pay for the down cards, but want to buy so cheaply in the here, that there is little or no risk of losing, and the hereafter can take care of itself.
2011-02-22 Revolution and Oil Do Not Mix by Charles Lieberman of Advisors Capital Management
The Middle East uncertainty is already roiling markets, driving up the price of crude and gold. Longer-term, whatever new regimes ultimately emerge in power, they will need to remain large oil producers. How else will they be able to obtain the revenue they need to feed their people and to help their economies? Even Iran remains a large exporter of oil to pay for the global expansionist policies of the mullahs. It is the disruptive intermediate term that is so uncertain. We can only watch and hope that it passes quickly with little bloodshed.
2011-02-22 Fiscal Contraction is Coming ... This is a Key Theme by David A. Rosenberg of Gluskin Sheff
Well, if you haven’t yet heard, major budgetary restraint is coming our way in the second half of the year, and so we would recommend that you enjoy whatever fiscal and monetary juice there is left in the blender. There isn’t much that is for sure. The weekend newspapers were filled with reports of how the conservative wing of the Republican party have banded together to ensure that spending cuts will be in the offing. The state and local governments are already putting their restraint into gear.
2011-02-22 Investment Commentary by Bob Doll of BlackRock Investment Management
The bearish view of the current rally is that it is liquidity-driven and based on artificial propping-up by overly easy monetary and fiscal policy support. While we agree that the stimulus from the Federal Reserve and other policy makers has been an important pillar in helping to restore economic growth and drive risk asset prices higher, we also believe that the economy is transitioning into a self-sustaining expansion. In our opinion, this environment of improving growth, low inflation and a supportive policy backdrop continues to represent a “sweet spot” for risk assets.
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.
2011-02-19 Let Yourself Feel Good Again by Doug MacKay of Broadleaf Partners
The stock market has continued to perform exceedingly well so far in 2011 and is now up roughly 7% year to date. While an oil spill or European contagion type event could always disrupt the progression, the stock market, S&P 500 profit levels, and leading economic indicators are all pointing to a similar conclusion. The economy is likely to graduate from its recovery phase to an outright expansion sometime this year. It's time to start letting yourself feel good again.
2011-02-18 Breakfast with Dave by David A. Rosenberg of Gluskin Sheff
The Treasury market retains a nice bid here and equities now look a bit wobbly or at least engaging in a pause. European bourses are in the red column for the most part and Asia was mixed with Japan, Hong Kong, and Korea posting gains but China and India were both clocked for a 0.9% and 1.6% loss, respectively. Even though China raised reserve requirements by a half-point again, the oil price is receiving support from concerns over the spread of social unrest in the Middle East towards Libya and Bahrain.
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.
2011-02-15 Food Chain: Do Spiking Food Prices Warn of Generalized Inflation? by Liz Ann Sonders of Charles Schwab
Food inflation has heated up and has incited global unrest. But for now, it's unlikely to become a monetary phenomenon. Investors should expect geopolitical risk to stay elevated in 2011, with implications for emerging markets performance.
2011-02-14 Bernanke on the Hot Seat by Charles Lieberman of Advisors Capital Management
Why is the Fed taking so much flak? Is this a subtle way to criticize the Administration indirectly? If so, the critics will get their due, since the Fed's policies appear to be helping the economy gather some momentum. The inflation outlook remains benign, while growth is picking up. The critics will be the ones with some explaining to do, while Bernanke is working to earn a reputation for the history books for dealing with the credit crisis and promoting recovery.
2011-02-14 Fiscal Drag Coming and No More QEs by David A. Rosenberg of Gluskin Sheff
In an otherwise uneventful weekend, what did come out is that fiscal stimulus is about to turn towards restraint in a significant fashion. Even the White House recognizes the need for fiscal discipline and is on the precipice of unveiling a much more austere budget. And this will coincide with massive tax hikes and spending cuts at the lower levels of government too. The surgery is much more preferable now than becoming a banana republic down the road.The future of QE2 is looking more certain ― it will live to see June of this year but the chances of a QE3 are remote.
2011-02-14 What Will Propel Equities Further? by Milton Ezrati of Lord Abbett
The positive outlook for equities draws on many sources, but basically rests on two pillars: 1) continued economic growth that will sustain an earnings expansion and 2) still-favorable valuations prevail, despite the great rally since March 2009. Neither point, of course, is beyond complaint. Nothing in any investment outlook is absolutely secure. Now, as ever, prospects are overshadowed by a cloud of risks. But the likelihoods still favor the earnings growth and a favorable response from equity markets.
2011-02-14 Investment Commentary by Bob Doll of BlackRock Investment Management
For many investors, the shift into equity markets is still in the early stages and equity valuations are hardly stretched, suggesting that the upward moves have further to run. While pullbacks and corrections will no doubt occur along the way, we believe they should be short and shallow and should be taken advantage of to add to positions.
2011-02-14 Recovery Here to Stay with Equities Flashing Caution by Chris Maxey of Fortigent
Equity markets continue to melt higher, despite several unfavorable technical developments. The market began its recent rally in September of last year, with only a brief respite in November. Since that time, each pull back is used as an opportunity to pile more money into equities and with the Federal Reserve offering massive liquidity to all corners of the market, this phenomenon could potentially last longer than any are willing to admit.
2011-02-13 Rich Valuations and Poor Market Returns by John P. Hussman of Hussman Funds
At present, my view on monetary policy is that the inflation outlook following the completion of QE2 will be quite unstable, because small changes in interest rates are likely to induce very large changes in the willingness of individuals to hold base money. Any external upward pressure on interest rates beyond a fraction of a percent will have to be rapidly offset by a large reduction in the outstanding monetary base in order to avoid a deterioration in the value of money relative to goods and services (i.e. inflation).
2011-02-12 Balancing Act by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Strong US economic signals and solid earnings continue to provide a positive backdrop for stocks. We expect pullbacks if optimistic sentiment gets too elevated, but remain optimistic about the stock market. Inflation concerns are rising, but the Federal Reserve is unlikely to react with tighter policy. There's not much it can do to fight commodity inflation, but Treasury yields are rising in response to headline inflation, even with little near-term risk of companies passing on rising costs.
2011-02-11 The Year of the Rabbit by Craig Hester of Hester Capital Management
The global financial markets in 2011 are likely to reflect many of the characteristics of the rabbits personality: quick to react, avoiding conflicts, erratic, resilient yet determined. The year started on a fast note. The S&P 500 jumped out to a 3.3% gain before selling off late in January over concerns regarding political instability in the Middle East. Global tensions, sovereign debt, state and federal finance, the economy and earnings may affect financial markets this year. One can expect a year of volatility, but a market that will display resiliency in the face of these uncertainties.
2011-02-10 The Two Faces of Ben Bernanke by Peter Schiff of Euro Pacific Capital
When the rest of the world no longer links their currencies to ours, the Fed will truly not have to worry about fueling global inflation. Instead, all of its inflation will burn through our banks accounts right here at home. And that blaze, so concentrated, will burn a lot hotter than the fires we see abroad.
2011-02-10 Betting Against the House; Is This the Time to be Going Long? by David A. Rosenberg of Gluskin Sheff
Housing starts are at around 550k annualized units right now and household formation averages in the 1.1 to 1.2 million range. At what point do you think this dovetails and a housing recovery takes place? Great question. This is one overextended U.S. stock market, that is for sure. We have a dividend yield on the S&P 500 of 1.8% with a 10-year bond yield at 3.7%. The dividend yield, by the way, is where it was at the market peak in October 2007. The cyclically-adjusted P/E ratio on the S&P 500 is now 23.3x, where it was back in May 2008. At the lows, it was trading at 13.3x.
2011-02-10 FPA Crescent Fund Q4 2010 by Steven Romick of First Pacific Advisors
We do not have a strong view as to what will transpire over the intermediate-term with respect to the economy or securities markets, nor do we have a great love for the opportunities the markets have to offer. In general, we require more upside than the market currently permits, because the downside (for reasons discussed) is not inconsequential. Taking a look at the S&P 400 Midcap Index gives some idea as to why that may be the case. Midcap stocks have increased 129% since the 2009 trough. That kind of move generally sucks the oxygen out of the room as far as good risk/reward investments go.
2011-02-09 Testing the Wisdom of Ben Graham’s Formula (part one) by Chuck Carnevale of EDMP
Ben Graham’s formula for valuing a company V* = EPS x (8.5 + 2g) established a solid foundation for future value investors to build upon. The small “g” in the formula represents your reasonably expected 7 to 10 year growth rate. Consequently, Ben Graham’s formula was forward-looking. In this article we looked at modern historical performance in order to test the validity of this famous value formula. Remarkably, the formula proves itself to being very precise when applied in the real world to businesses that grow earnings between zero and 5% per annum.
2011-02-09 How to Play in 2011 by David A. Rosenberg of Gluskin Sheff
At the start of every year I remind myself that each individual year has its own story. For example, 2007 taught us that it never hurts to take profits after the market doubles and that if something is too good to be true (housing and credit bubble) it probably is. The 2008 lesson focused on capital preservation strategies and the urgency of managing downside risks. 2009 it was vital not to overstay a bearish stance in the face of massive fiscal and monetary stimulus. Last year’s lesson was how to handle the many post-stimulus market swings that are inherent in a post-bubble credit collapse.
2011-02-08 Undoing Meredith Whitney's Damage by Hildy Richelson, Ph.D. (Article)
Meredith Whitney did the municipal bond market an immense disservice with her misguided comments on 60 Minutes when she predicted massive defaults. Two recent articles in this publication provided accurate rebuttals to her analysis, but they failed to clarify important reasons why muni bond investors do not face the imminent peril that Whitney predicted.
2011-02-08 Give ‘Em Credit; Looking at Sales, Not Just Earnings by David A. Rosenberg of Gluskin Sheff
Across many indicators, this goes down as a horrible recovery, especially in view of all the stimulus. Of course things look much better than they did in the “double dip” risk days of last summer but absent the impact of the GDP deflator’s collapse and the decline in the savings rate, Q4 real GDP would have actually come in closer to +0.5% SAAR than the posted +3.2% print. We are hearing how great S&P 500 sales are doing so far for Q4 — up 7.7% and beating estimates by the highest margin in 5 years. We scoured the data and found almost all the growth in sales is coming from outside the US.
2011-02-07 Inflation Noise by Charles Lieberman of Advisors Capital Management
Investors are being distracted by the rise in commodity prices, which is being taken as an indication that inflation pressures are building. Unfortunately, that's just not the case. Some rise in inflation would be welcomed by the Fed, but it remains somewhere off beyond the visible horizon, even as economic growth prospects continue to brighten.
2011-02-07 Jobs Data Redux and Inflation Spasm Ahead by David A. Rosenberg of Gluskin Sheff
The labor market in the US is not improving. Lost in the debate over the weather impact was the benchmark revision to 2010 — overstated by 215k or 24%. The economy generated 909k jobs last year -insignificant considering that the population grew around 160k/month. The level of employment today is where it was in 2003. There have only been a handful of times in the past when both food and energy prices were rising so sharply in tandem. Since almost 25% of the CPI basket is in food and energy directly, it would seem logical to assume that we are going to get headline inflation in coming months.
2011-02-07 Strong News and Stronger Markets by Charles and Louis Vincent Gave of GaveKal
Bears have little to munch on right now: economic activity is bouncing back strongly, jobs are being created (albeit at a slow pace), global trade is soaring, the great majority of companies are reporting better than expected sales, and US profit margins are making new all-time highs. Given this plethora of good news, financial intermediaries are responding coherently and once again expanding their balance sheets.
2011-02-07 Why Credit-Sensitive Bonds Still Make Sense by Milton Ezrati of Lord Abbett
Clearly if Europe’s sovereign debt problems careen out of control, a global flight to quality would likely reoccur, bringing U.S. Treasury and agency yields back down. But if as expected the European Union (EU) manages the situation, then the recent unwinding of the former flight to quality should continue, rendering Treasuries and agencies problematic investments at best, and leaving the only fixed-income opportunities in credit-sensitive investments.
2011-02-07 The Economic Recovery Pushes Ahead Despite The Strange Labor Report by Chris Maxey of Fortigent
Encouraging. Confusing. Disappointing. Mixed Bag. These were all terms used to describe the labor report for January. Ultimately, it may turn out that none of those terms are relevant and investors would be better served in pretending this report was a figment of our imaginations.
2011-02-07 Investment Commentary by Bob Doll of BlackRock Investment Management
Although we expect some hiccups along the way, improving economic growth and corporate earnings point the way toward a continuation of the equity bull market. We are in the midst of the first global economic recovery that is being led by emerging economies, and the U.S. is only at the beginning of transitioning into a self-sustaining expansion, suggesting that economic improvements still have a way to go. As the economy improves, we are beginning to see equity market correlations fall —stock prices are being driven more by fundamentals and less by macro factors, a trend we expect to continue.
2011-02-04 Portfolio Commentary : Fourth Quarter, 2010 by Jay Compson of Absolute Investment Advisors
For our 4Q commentary we have decided to alter our approach and provide direct insight into our managers’ thoughts by providing portions of their commentaries in a series of independent “short stories.” Collectively they represent many of the thoughts that we have utilized for writing our quarterly commentaries, but we feel the current environment offers a unique time to hear things “directly from the horse’s mouth.”
2011-02-04 US Employment – Snow Job? by David A. Rosenberg of Gluskin Sheff
It is next to impossible to make book on the January employment report. The data were not as weak as the disappointing headline would suggest, but there was nothing here to say that the U.S. labor market is progressing at anything close to resembling a normal post-recession recovery. The headline nonfarm payroll report came in light at +36k, well below consensus views of 146k and whispered numbers ahead of the report that were bordering +180k. Adjusting for our estimate of what the Bureau of Labor Statistics birth-death model artificially added, the headline would have been -52k!
2011-02-04 January Employment Report – Pace of Job Growth Inadequate for Fed to Change Current Stance by Asha Bangalore of Northern Trust
The number of jobs created since the recovery commenced in June 2009 is troubling and raises the level of concern for policymakers. The level of employment, irrespective of how it is measured, is still significantly below the prior peak even after 19 months of economic growth. Job creation is proceeding in the desirable direction but at a tepid pace such that it is does not offer sufficient justification for the Fed to end the $600 billion purchase of Treasury securities (also known as QE2) before the planned expiration date of June 2011.
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!
2011-02-02 Unrest in Egypt, Uncertainty in the Region by Rachel Ziemba and Ayah El Said of Roubini Global Economics
Egypt’s political direction could have profound effects on regional stability—potentially involving, the Israeli-Palestinian conflict and efforts to contain Iran’s nuclear ambitions—with broad economic and financial ramifications. The recent economic and political developments do not bode well for Egypt’s debt, and this contagion could continue to spread within the region, leading to the persistent underperformance of local currency debt and equity markets. Regarding wider implications, the oil market remains the key link between instability in the Middle East and the global economy.
2011-02-02 Random Thoughts from the Lone Star State by David A. Rosenberg of Gluskin Sheff
I still consider this to be a bear market rally. With respect to the economy, the illusion of sustainable prosperity has done wonders for consumer spending in the U.S. The consumer has been an upside surprise and the ISM was a whopper too as these manufacturing indices have been in general around the globe. There are so many other headwinds out there. Dramatic cutbacks and tax hikes at the state and local government levels are in motion. Federal government austerity is next. The housing market has not yet stabilized.
2011-02-01 Can Economics Save the Economy? by Robert Huebscher (Article)
Christina Romer, Greg Mankiw and Paul Krugman were among a group of thought leaders who spoke at a conference in Cambridge last week. They cited a lack of sufficiently powerful and politically feasible policy options, calling into question whether economists will be able to produce the clear path to the stronger recovery that the Obama administration seeks.
2011-02-01 Back in Black: Economy Moves to Expansion From Recovery by Liz Ann Sonders of Charles Schwab
Real GDP moves from recovery to expansion, but growth remains below potential. Inflation concerns globally replacing double-dip recession concerns as key theme in 2011. Egyptian unrest and rising volatility could further temper optimism, which could bring back the "wall of worry" the stock market likes to climb.
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.
2011-01-31 The Investment Outlook: An Overview by Milton Ezrati of Lord Abbett
This is the first of a four-article series on the macro considerations behind Lord Abbett’s fixed-income and equity outlooks. This first installment offers an overview. The three pieces that follow will, in turn, take up the reasons behind 1) the general preference for credit-sensitive fixed-income issues; 2) the positive overall stance on equities; and 3) the call for a thorough capitalization mix within equities.
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.
2011-01-28 The Fed Sticks to the Status Quo by Liz Ann Sonders of Charles Schwab
The Fed announced no changes to its interest rate and quantitative easing round two (QE2) policies. There were no dissenters, with two new voting members changing their tune about QE2. The risk is growing that the Fed will stay easy too long, which could have implications for bond yields (and bond investors).
2011-01-28 Is There Really Joy in Mudville? by David A. Rosenberg of Gluskin Sheff
The Q4 GDP data, while a tad light on the top line versus the consensus and whispered estimates of 4% did confirm that the spring and summer lull was just that, as opposed to the onset of a double-dip downturn. The 3.2% annualized real growth rate followed a 2.6% trend in Q3 and 1.7% in Q2. The configuration of the GDP report should help real GDP growth maintain its trend in the current quarter. The critical test will be the second quarter, when the incremental fiscal stimulus fades and the effects of higher food and energy prices depress the “real” macro numbers.
2011-01-26 Plan C for UK Fiscal Consolidation by James Mason and Parul Walia of Roubini Global Economics
The UK government has engaged in a forceful reduction of its fiscal deficit (“Plan A”) to ensure debt sustainability and thereby reduce the risk of a loss of market confidence in public finances. The move has been effectively endorsed by Bank of England Governor Mervyn King, who has said that further quantitative easing could be used to support the economy if necessary (“Plan B”). In RGE’s view, however, the risk to the market was overstated, as the UK has enjoyed safe-haven status while pressures have intensified in eurozone countries.
2011-01-25 'Fear, Hope & Greed' by Jeffrey Saut of Raymond James Equity Research
I believe the evidence for a pullback is mounting. Since September 1, 2010, every time the Russell 2000 (RUT/773.18) has closed below its 20-day moving average (DMA), buyers have showed up the very next day. Not so last week. In fact, last week was the first down week for the SPX in eight weeks as the divergences in the stock market continue to grow. As legendary Dow Theorist Robert Rhea observed, mounting divergences suggest stocks are being distributed (read: sold) by smart money.
2011-01-24 A Malicious Mix of Economics and Politics by Charles Lieberman of Advisors Capital Management
I suspect 2011 will continue to produce its ups and downs (much like the past few years). The European debt crisis is still a big issue. The US Municipal debt (particularly in Illinois) issue is lingering. Congress is still Congress. When and if these issues present themselves and the markets react, we could view those situations as continued buying opportunities since the underlying fundamentals of stocks improve. However, long term investors should not wait for dips to begin investing, but rather start a systematic plan of redistributing cash back into the market.
2011-01-24 Muni Update by David A. Rosenberg of Gluskin Sheff
The unfunded liability that has to be closed at the lower levels of government is estimated to be $1 trillion and the combined deficit that has to be closed for this year is far higher than we initially thought at $135 billion. Second, there is reportedly talk in Congress of a broader bankruptcy bill that would give the states the power to adjust their pension obligations and rework union contracts. However, no bailouts are coming and the GOP is adamant about that. Staff cuts, service reductions, and tax hikes are coming in this critical 12% of the economy. Count on it.
2011-01-24 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Earnings are coming in at a very strong pace. The problem is that stock prices in many cases have risen in anticipation of these results. As far as the economy is concerned the bulk of the evidence released last week was encouraging, but the impact of higher oil prices is really starting to be interpreted as a negative for future consumer spending and corporate hiring plans.
2011-01-24 Monetary Stimulus is Gaining Traction by Milton Ezrati of Lord Abbett
The Federal Reserve’s recent recommitment to a second round of quantitative easing (aka QE2) has come at a time when past efforts at monetary stimulus seem at last to have gained traction. Accelerations in various measures of money supply suggest that the economy is finally drawing on the copious amounts of liquidity the Fed previously injected into it even before the most recent round of quantitative easing.
2011-01-23 Sixteen Cents: Pushing the Unstable Limits of Monetary Policy by John P. Hussman of Hussman Funds
Completing the Fed's planned purchases under QE2 will require a decline in 3-month T-bill yields to just 0.05% in order to avoid inflationary pressure. Otherwise, liquidity preference will not expand enough to absorb the addition to base money, even if we assume GDP growth at 4%. Given the extreme stance of monetary policy, the avoidance of inflationary pressures increasingly relies on a very persistent willingness by the public to hold the outstanding quantity of base money in the financial system. Small errors will have surprisingly large consequences. This is not a stable equilibrium.
2011-01-22 Together at Last! by Stephen J. Taddie of Stellar Capital Management
Many people get lost when economists start talking about monetary and fiscal policy. By definition, fiscal policy is the use of government expenditure and revenue collection to influence the economy through borrowing, spending and taxation. Monetary policy is the process by which the monetary authority of a country (the Federal Reserve, or “Fed”, in the U.S.) controls the money supply in that economy through targeting interest rates or buying and selling securities from its portfolio. In the end, the two policies are just two different tools used to manage an economy.
2011-01-22 And That\'s The Week That Was by Ron Brounes of Brounes & Associates
With another corporate earnings season moving into high gear and equities riding a seven week winning streak, a healthy bit of skepticism (not necessary pessimism) has crept into the investor mindset. Some analysts still want to see more revenue growth as opposed to cost-cuts in the earnings reports. Others fear that “the trend is your friend” may be a nice guide, but investors may be disregarding the ongoing debt issue in the EU and the rise in interest rates throughout emerging markets.
2011-01-21 What Will Turn Me More Bullish On Tthe U.S.A. by David A. Rosenberg of Gluskin Sheff
Here's a list of ideas: An energy policy that truly removes U.S. dependence on foreign oil (shale case, coal, nuclear). A complete rewrite of the tax code that promotes savings, investment, and a revamp of the capital stock. A credible plan that reverses the runup in the debt to GDP ratio. A massive mortgage write-down by the banks. A creative strategy to put people to work instead of paying them to be idle ... and more
2011-01-20 Word on the Street: Cautious Optimism by Eagle portfolio managers of Eagle Asset Management
The general consensus among Eagle managers is that companies are more optimistic than they have been in many years. Businesses are starting to loosen their purse strings, albeit slowly and deliberately, to take advantage of competitive opportunities. Eagle managers continue to believe independent, diligent research is paramount in selecting stocks right now and that this likely will prove to be an excellent opportunity for long-term investors.
2011-01-19 Breakfast with Dave by David A. Rosenberg of Gluskin Sheff
In more than 20 months, the equity market has managed to turn in the same performance it took 60 months to achieve in the last bear market rally. Strip out the financials, and indeed, the entire equity market is now behaving as if the destruction of debt and household balance sheets either never happened or that the aftershocks are completely yesterday’s story. Governments around the world, especially in the U.S.A., have managed to convince nearly everyone that prosperity is here and will persist to perpetuity. But … if it is too good to be true, it probably is. This is an illusion.
2011-01-19 2011 Capital Markets Outlook by Joseph V. Amato of Neuberger Berman
During 2010, macroeconomic factors largely dominated the financial markets, creating a volatile, emotional environment as investors appeared at times to be thinking less about what stocks to own than whether they should own stocks at all. As a result, many equities with very different fundamental characteristics often showed very high correlations to one another, while valuations converged. Over time, we believe that the market will differentiate these stocks based on their individual fundamentals. A similar statement can be made about other assets as well.
2011-01-19 China's Inflation Problem Looms Large by Peter Schiff of Euro Pacific Capital
The global economy has become so unbalanced that government ministers recognize that something has to give. To a very large extent the distortions are caused by China’s long-standing policy of pegging its currency, the yuan, to the U.S. dollar. But as China’s economy gains strength, and the American economy weakens, the cost and difficulty of maintaining the peg become ever greater, and eventually outweigh the benefits that the policy supposedly delivers to China. In the first few weeks of 2011 fresh evidence has arisen that shows just how difficult it has become for Beijing.
2011-01-19 Market and Performance Summary by Jonathan A. Shapiro of Kovitz Investment Group
The broad market, as represented by the Standard & Poor’s 500 (S&P 500), rose 10.8% for the quarter and 15.1% for the full year. We remain optimistic regarding forward returns, not because the market has been strong, but because we believe we still hold a basket full of undervalued securities even after these robust gains.
2011-01-18 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Today, bond and stock inventors sit at the edge of a new paradigm, indeed, where inexpensive money has yielded about as much as possible from corporate balance sheet expansion, while lower interest rates no longer offer high yield or capital gains probabilities to fixed income investors. The difficulty today, however, is that stocks are at a significant inflection point where the likelihood of perpetual sustainable upside gains is limited.
2011-01-18 Headwinds Ahead by David A. Rosenberg of Gluskin Sheff
It is difficult to understand why it is that everyone is so whipped up about U.S. growth prospects. Even the latest set of data points has been less than exciting. Retail sales, payrolls, and consumer confidence have all been below expected and all of a sudden we see that jobless claims are moving back up. We have federal fiscal support, which at the margin is subsiding. And we have massive monetary support, and on this the Fed is going to be facing much more intense congressional scrutiny going forward. At the same time, about half of last year’s GDP growth was inventory accumulation.
2011-01-18 Equity Investment Outlook by Team of Osterweis Capital Management
During the fourth quarter, the stock market staged a strong rally, reflecting both growing evidence of a sustained economic recovery and the reversal (thanks to the Republican victory in November) of the seriously anti-business tone in Washington. These two factors enabled investors to begin thinking not just of a recovery from the recent crisis and recession, but of a more sustainable and enduring expansion. As a result, they were able to bet on a longer stream of favorable corporate earnings.
2011-01-18 The Fed’s Dual Mandate – Therein lies the Dilemma by Jason R. Graybill and Neil D. Klein of Carret Asset Management
High-quality municipal bonds should continue to move in concert with U.S. Treasury bonds. We expect supply to decrease slightly to be more closely aligned with softer demand. The media will continue to cast a light on the challenges facing the market. As the overall economy improves, we envision states and local municipalities following suit. Downgrades may continue to occur but the most severe cuts should be limited to the marginal parts of the municipal landscape. In closing, we expect structural change to occur, in a positive way, over the next few years.
2011-01-17 Adding Up the Inflation Carnage; US Consumer Hitting an Air Pocket by David A. Rosenberg of Gluskin Sheff
This is just the fifth time in modern history that BOTH food and energy prices have risen at a double-digit annual rate for any length of time ― 1979, 1980, 1996, and 2008. At this rate, the energy bill is going to create a drag U.S. household spending power by $60 billion this year. Beneath the veneer of all the enthusiasm is the reality that real organic incomes are under pressure.
2011-01-15 Further Fuel? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Stocks may be vulnerable to a near-term pullback thanks to elevated sentiment, and earnings season could provide an impetus for some profit taking. The economy appears to be strengthening and we remain optimistic. Despite signs of growth, the Fed seems insistent on letting QE2 play out, pointing to continued high unemployment and housing. The new congress also has to deal with these issues, while attempting to pare deficit spending. International exposure is important, but we recommend taking some profits and rebalancing if your emerging-market exposure gets above your target allocation.
2011-01-14 Quarterly Review and Outlook, Fourth Quarter 2010 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
An even slower growth rate of real GDP should be recorded over the next four quarters, suggesting the unemployment rate will be essentially unchanged a year from now. As we have noted previously, this modest expansion is due to the significant over-indebtedness of the U.S. economy. We see seven main impediments to economic progress in 2011 that will slow real GDP expansion to the 1.5%-2.5% range.
2011-01-14 2011 Outlook: International and Emerging Market Equities by Benjamin Segal and Conrad Saldanha of Neuberger Berman
We anticipate modest but positive global economic growth in 2011. Economic growth in emerging markets should benefit developed-market firms with global reach as well as emerging-market companies. Issues we are closely watching: the potential for currency/trade wars, asset bubbles and inflation in the emerging markets, increasing regulation and possible negative impacts of monetary tightening. Many overseas corporations are profitable and healthy, with cash available for M&A, higher dividends and other corporate activities.
2011-01-14 Creating an Illusion of Prosperity by David A. Rosenberg of Gluskin Sheff
The question really today is still one of sustainability. If the Fed and our public officials were as comforted as the financial markets now seem to be over the sustainability of the recovery, then after a full year into it the central bank would not have embarked on another monetary experiment and the government would not have dipped into Social Security as a means to put more change in people’s pockets for spending purposes. Money, as an aside, that isn’t really ours.
2011-01-12 Malaysia\'s Middle-Income Malaise by Nouriel Roubini of Roubini Global Economics
Malaysia’s policy makers have been forced to confront the factors blocking the country’s rise to high-income status. Facing higher labor costs, the economy has been unable to maintain a growth model based on low-value-added manufacturing that was largely successful for the 30 years prior to the 1997 Asian financial crisis.
2011-01-12 Tolerable Accuracy by Christian Thwaites of Sentinel Investments
It paid to be practical in 2010. We started the year with relief that we averted catastrophe but were dimly aware it would be tough. How could it not be? Financial markets were in disrepair and the economy looked like it had only just made it through a re-stocking cycle. All other parts of the economy looked down for the count. But in the end, despite euro sovereign emergencies, deflationary fears and a phony currency war, both the real economy and financial assets had a strong year.
2011-01-11 The Two Elephants Facing the US Economy by Michael Lewitt (Article)
The consensus has reached the conclusion that financial markets will enjoy a strong start to 2011. This is reason enough to approach the markets with caution as the year begins. When everybody is leaning to one side of the boat, the vessel is far more likely to tip over, particularly if it hits an unexpected wave.
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.
2011-01-10 Global Instability by David A. Rosenberg of Gluskin Sheff
With inflation in China over 5%, Chinese policymakers are going to spend 2011 in restraint mode. Count on it. We are in the throes of a global currency war and late last week we saw Brazil move aggressively to rein in the real’s strength by imposing reserve requirements on domestic banks’ foreign exchange positions. We have food prices surging and this is very likely going to cause social strife in the emerging market world - India, China and Indonesia come to mind. The Eurozone sovereign debt situation is looking increasingly tenuous.
2011-01-10 Is a Sovereign Default on the Agenda for 2011? by Chris Maxey of Fortigent
Last year will unequivocally be remembered as the year the sovereign credit crisis unfolded in earnest. We were fortunate that no major sovereign defaults occurred during that period, but can we hope to be so lucky in 2011?
2011-01-10 Investment Commentary by Bob Doll of BlackRock Investment Management
We see a number of potential risks for the economy and the markets in the year ahead, including sovereign debt issues, emerging markets inflation and the possibility of higher tax rates, but we remain positive on the overall environment. Inflation should remain low throughout 2011, economic growth should accelerate slightly with the quality of that growth improving, and corporate earnings should remain strong an environment that should provide a solid backdrop for stocks to post further gains over the course of the year.
2011-01-08 And That's The Week That Was by Ron Brounes of Brounes & Associates
So was the holiday season really as strong as most retailers claimed? So is inflation about to rear its ugly head? Next week should help answer these questions as some key data will be released. After the disappointing same-store sales numbers, investors are eager to see the December retail sales report; the recent run-up in crude price may begin to work its way into the PPI and CPI data. Investors also look to start a new equity market winning streak to keep hope alive that January turns out to be a positive month (and the rest of the year will follow suit).
2011-01-08 Forecast 2011: Better than Muddle Through by John Mauldin of Millennium Wave Advisors
Mauldin reviews his prior-year forecast. He was right on currencies and gold, but missed the bull market in equities. For 2011, he likes gold relative to the euro, pound and yen, but is less bearish on the pound than he was a year ago. He fears the Kamchatka volcanoes (in Russia) will trigger a spate of bad wealth which will lead to scarce resources and inflation. He is optimistic about the job market and employment, and forecasts that the US economy will grow 2.5-3% in 2011. He fears, however ,that structural problems in the work force will leave many untrained for employment.
2011-01-07 U.S. Real GDP vs. Potential GDP – Time to Assess this Yardstick by Asha Bangalore of Northern Trust
The U.S. economy has registered six quarters of economic growth, inclusive of the projected increase in real GDP during the fourth quarter of 2010. There is enormous room for growth before inflation becomes a concern. The recovery phase ended in 2010 and expansionary phase of the current business cycle should commence in 2011. Cognizant of this information, markets will evaluate the performance of the economy in a different light going forward.
2011-01-07 Weekly Asia Update: Postcard from China by Xin Jiang of Matthews Asia
Automation is one of the many possible solutions for China. There is plenty of room for China to catch up with its industrialized Japanese neighbor. China’s current level of industrial automation is comparable to that of Japan in the early 1980s, based on the percentage of computerized machine tools, the market size of the core machinery components needed for factory automation, and the level of automation in vehicle manufacturing.
2011-01-06 Some Risks Worth Factoring In For The Year Ahead by David A. Rosenberg of Gluskin Sheff
Home price declines are an added significant risk to household wealth and spending. The Dallas Fed just published a report concluding that home prices have potential to decline more than 20% from here. Perhaps the banks can handle that, but the implications for the household wealth effect, consumer confidence and spending are hardly constructive.
2011-01-05 Market Review & Outlook by Doug MacKay of Broadleaf Partners
In 2011, we remain optimistic, believing the economy will progress from its recovery phase into expansion territory sometime during 2012. A more favorable regulatory and political environment should be a positive for corporate America, which may finally begin to spend its huge accumulated cash hoards, not solely by returning it to shareholders in the form of stock buybacks and dividends, but by also hiring new employees and upgrading their capital equipment as demand trends improve. A continued trend of bond market outflows and equity inflows should also prove constructive for the stocks.
2011-01-05 And That's The 'Year' That Was by Ron Brounes of Brounes & Associates
While the consumer has emerged from hibernation, an improved labor picture would boost this favorable trend. The Fed hopes that QE2 will help build on the recent economic momentum, though many doubters surely remain. Earnings comparisons get more difficult in the coming quarters, though analysts expect improved revenue growth to contribute to the positive results. The tax “compromise” means a continuation of the bullish mindset in equities (for now). Developments abroad will impact the domestic markets as the EU looks to move beyond its debt issues, and China leads the global recovery.
2011-01-05 What The Bulls May Be Ignoring ... At Their Peril ... Plus Some Ideas For 2011 by David A. Rosenberg of Gluskin Sheff
The bullish case is pretty well established right now and there is no sense repeating them but what may be ignored are these half-dozen. Nothing of course says that the market can’t keep going up over the near-term. risks, I list. Just as the onus was on the double-dippers last summer given the sentiment and market action, the onus now is clearly on the V-shaped enthusiasts.
2011-01-04 The Coming Decade of Sideways Markets by Robert Huebscher (Article)
'We are in the middle of a sideways market, and we still have another decade to go,' says Vitality Katsenelson. In this interview, Katsenelson shares his insights on the decade ahead and the many factors that may keep China from leading us out of the recession.
2011-01-04 Glory Days: Another Good Year in 2011? by Liz Ann Sonders of Charles Schwab
Setting targets doesn't make sense to us, but we do believe in reading the market's tea leaves, and the outlook is healthy. However, frothy sentiment has us a little concerned in the very near-term. Investors need to be mindful of complacency, but also to make sure they're not still loaded up on bonds—a major capitulation from bonds to stocks is possible.
2011-01-04 Getting a Grip by David A. Rosenberg of Gluskin Sheff
We can expect a showdown between the House Republicans and the Administration over the debt ceiling in Q2. At stake could be a good dose of spending restraint as ‘pay-go’ rules make a sudden reappearance after being neglected by the lame-duckers last year. There is always the reality of the payroll tax cut coming to an end in December and how that will crimp personal income in 2011. Of course, there is always the prospect of a Q4 corporate spending binge as the bonus depreciation allowance expires. The last 3 quarters of 2011 are going to be very interesting
2011-01-04 Job Growth – The Key To The 2011 Outlook by Scott Brown of Raymond James Equity Research
While the outlook for economic growth has improved, a number of headwinds remain in the near term. Lingering problems in the housing sector, tighter state and local government budgets, and the decrease in the federal fiscal stimulus will restrain overall economic growth. In addition, higher gasoline prices may dampen the pace of consumer spending growth. However, stronger job growth would help counter these pressures, providing fundamental support for the housing market and helping to lift state and local government tax receipts.
2011-01-04 Think International, Think Small by Wasatch Funds of Wasatch Funds
Outperforming in today’s investment climate requires taking advantage of the wealth of opportunities available globally. Foreign stocks offer strong growth potential and attractive fundamentals, particularly small cap and micro cap companies. In this paper we explore what makes international investing particularly compelling, and the unique advantages of foreign small and micro cap companies, including: higher growth potential, better valuations due to the market inefficiencies of smaller companies and lower correlation with U.S. stocks, and under representation in portfolio allocations.
2011-01-03 2011 Economic & Investment Outlook by Charles Lieberman of Advisors Capital Management
The outlook for economic growth has improved considerably over the past few months, lending support to our judgment that growth will be in the 3.5% to 4% range in 2011. Most importantly, this pace of expansion will require increased hiring by firms, so the unemployment rate should decline this year, falling below 9% by yearend. Interest rates should continue to rise, returning to more normal levels, while stocks should have another solid year.
2011-01-03 New Year Fraught with New Risks? by Chris Maxey of Fortigent
With 2010 officially behind us, it is time to consider what risks and opportunities lay ahead for investors for 2011. Just as 2010 proved to be the year of the sovereign credit crisis, 2011 will not be forgotten as a year without its own potholes. From the economic side of the ledger, the biggest concern remains employment. Despite improving economic growth and a Federal Reserve that has shown a penchant for doing everything in its power to stimulate the economy, employment growth is virtually nonexistent since the recovery began.
2010-12-28 The Squam Lake Report: Reforming the Financial System by Dougal Williams (Article)
Ken French and Robert Shiller were among a group of leading economists who, in the fall of 2008, convened what was to become known as the Squam Lake Group. Their recently released and much-talked about book offers its authors' collective best answer to a defining question of our day.
2010-12-28 Emerging Markets in 2011 – Strong Economies, Rising Prices by Mark Mobius of Franklin Templeton
I believe emerging markets are now in a secular bull market, and as discussed below, I expect this trend to continue into 2011. Even more money is likely to be directed into these markets as investors around the world realize that emerging economies on average are growing three times faster than developed economies, and generally have more foreign reserves and lower debt-to-GDP ratios than their developed counterparts.
2010-12-28 Consumer Confidence Index: Down Slightly But Well Below the Historical Trend by Doug Short of Doug Short
Let's take a step back and put the Director of the Consumer Research Center's rather rosy interpretation of consumer confidence in a larger perspective. The chart below is intended to help evaluate the historical context for this index as a leading indicator of the economy. Toward this end I have included recessions and GDP. The linear regression through the index data shows the long-term trend of this very volatile indicator. Today's 52.5 reading is significantly below the 85.3 of the current regression level (38.5% below, to be precise).
2010-12-27 Treasury Moves—Four Reasons Why by Milton Ezrati of Lord Abbett
Treasury bonds recently have made an impressive and, to some, frightening move—a sudden reversal of the long flight to quality that previously had so bid up Treasury prices and reduced the yields to ridiculous lows. Many explain this sudden reversal in terms of Washington’s recent decision to extend the Bush-era tax cuts for another two years. Certainly, there is reason to make such a link, but there is more going on than just this compromise, enough to keep the trend in place for some time to come. Here are four references on what lies behind this reversal.
2010-12-25 The Skinny On Thursday’s Data Flow by David A. Rosenberg of Gluskin Sheff
We got a flurry of U.S. data releases on 12/24 that, at the margin, added some comfort for the growth bulls. Initial jobless claims came in roughly as expected at 420k on a seasonally adjusted basis for the week of December 18, down 3k from the prior week. The 4-week moving average is at 426k and this time last year it was sitting at 479k, so the pace of firings has clearly receded sharply. The issue at this time is really one of hiring and going beyond part-time help.
2010-12-23 No, Krugman, You're Eating America Alive by Neeraj Chaudhary of Euro Pacific Capital
Here we go again. This week, Paul Krugman, the 2008 Nobel Prize winner in economics and the go-to guy for progressives who need a morale boost, launched another misguided attack on Austrian School economists. From his New York Times soapbox, he referred to the free-market Austrian “hard money” philosophy as a “zombie idea” that is inexplicably eating the brains of the voting public.
2010-12-22 The Year in Review by Doug MacKay of Broadleaf Partners
For 2011, we believe this trend of bond outflows and equity inflows will likely continue, overwhelming any concerns about valuations or fundamentals. In the short run, I've come to realize that fund flows, or investor desires for specific favored asset classes over others - tends to exacerbate price movements in both directions, often for much longer than most expect. I see great things for the stock market in 2011. While an improving economy will help, a shakeout in bonds may be just what the doctor ordered to get investors truly interested in stocks again.
2010-12-21 Ed Hyman: We Are Not Japan by Katie Southwick (Article)
Despite his worrisome outlook earlier this year, the ISI Group's Ed Hyman provided an upbeat forecast of the US economy, arguing that we are in the midst of an economic recovery that will lead to expansion. We are demonstrating that we are not Japan, he said.
2010-12-17 Fed Decision: Stick to the Status Quo by Liz Ann Sonders of Charles Schwab
The stock market may not be fighting the Fed, but are bonds? Treasury yields and stocks can rise simultaneously, but dollar strength could bite. Investors are being driven to reallocate away from bonds and toward stocks.
2010-12-15 Europe Remains a Clear Downside Risk by David A. Rosenberg of Gluskin Sheff
Europe remains a clear downside risk for the global economic outlook with the problems spreading to Spain and Portugal. Contagion risks are being underestimated by Mr. Market who has been myopically focused on irresponsible fiscal expansion in the US and recent hopes that QE2 would morph into QE3. As some proof that the recent economic data flow are over-rated, and likely exaggerated by seasonal influences, the Fed barely raised its macro outlook and actually seemed to dampen its view of the housing sector.
2010-12-14 Looking Back at a Year of Policy Mistakes by Michael Lewitt (Article)
As we approach the end of 2010, the global economy remains captive to a boom-and-bust cycle resulting from years of pro-cyclical monetary, fiscal and regulatory policies. With very limited exceptions, the same policies that contributed to the 2008 financial crisis remain in place. The only difference is that government balance sheets are far more leveraged than they were heading into that crisis.
2010-12-14 A Notable Year of Emerging Market Growth by Mark Mobius of Franklin Templeton
I view 2010 as a year of economic resurgence. Many emerging markets recorded strong GDP growth as they continued to recover from the impact of the 2008 financial crisis. In several cases, robust domestic consumption, government expenditure and intra-regional trade offset weak external demand from developed markets. This led many countries in Asia and Latin America to return to pre-crisis growth levels much faster than expected. China and India were among the world’s fastest-growing major economies during the year, with China overtaking Japan as the world’s second-biggest economy.
2010-12-14 The Case for Dividend-paying Stocks by David A. Rosenberg of Gluskin Sheff
Despite all the noise that the Democratic left is making, the tax bill is going to pass very soon. There is a tangible positive effect here from the tax bill and pertains to dividends. Under the deal, the top tax rate on dividends will stay at 15%. If most of the spasm in the bond market is behind us, one would have to think that a focus on dividend growth is going to have some payoff with the taxation uncertainty put to bed. The U.S. nonfarm nonfinancial corporate sector is sitting on $1.93 trillion of cash/equivalents, which is at a 51-year high representing 7.4% share of total assets.
2010-12-13 Opposing Forces by Scott Brown of Raymond James Equity Research
Economic recoveries are never straight-line expansions. They tend to be uneven across time and across sectors. That means a continuation of mixed economic figures over the near term and further volatility in the financial markets as investors attempt to gauge the underlying strength. Volatility creates opportunities.
2010-12-13 Dr. Copper by Jeffrey Saut of Raymond James Equity Research
The most important chart patterns of December (at least so far) are the charts of the 10- and 30-year Treasury bonds, whose yields have backed up more than 10% since the end of November (see the first chart on page 3). The second most impressive chart for the month is copper, which is up 10.8%. Copper is often referred to as “Dr. Copper” for it has a better predictive record on economic growth than many economists; and last week copper came a cropper as it traded to new all-time price highs.
2010-12-13 Economic Insights: Consumers Save Themselves by Milton Ezrati of Lord Abbett
Like the Southern belle of romance, American households have begun to revive from their former swoon. Reestablished
savings flows have, during the past year or so, begun to pay down the debt-overhang built up in previous years. Households still have a long way to go before they can return their finances to the sound state they enjoyed in, say, the mid-1990s, but matters have improved enough to support a modest expansion in spending and enough to support a continued, if slow, overall economic recovery.
2010-12-13 Budget Battles by Charles Lieberman of Advisors Capital Management
Was this fiscal deal necessary? I think it is necessary for exactly the reasons given by the President. With the agreement, the expansion, which is building momentum slowly, gets another small booster shot at a crucial time. Along with the Fed's increased purchases of Treasury securities, policy remains highly supportive for growth. Moreover, uncertainty is eliminated over income taxes, estate taxes, and unemployment insurance, allowing businesses and households to plan.
2010-12-13 Bullish Sentiment Nears Extreme Levels As Investors Pile Into Equities by Chris Maxey of Fortigent
According to EPFR Global, a research provider that aggregates mutual fund flows, the week ending December 8th saw investors allocate $13.7bln of new capital to stocks funds while only investing $146mln in fixed income funds. Domestic bond funds experienced withdrawals of more than $1bln. Interestingly, money market funds picked up more than $32bln in new funds, the highest total in 22 weeks. Whether this is a wise time to jump back into equity securities remains a hotly debated issue but based on several metrics, this may not be the most opportune time to increase equity exposure.
2010-12-12 Warning - An Updated Who's Who of Awful Times to Invest by John P. Hussman of Hussman Funds
In recent weeks, the U.S. stock market has been characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile to stocks. Last week, the situation became much more pointed. Past instances have been associated with such uniformly negative outcomes that the current situation has to be accompanied by the word "warning."
2010-12-11 U.S. Tax Cuts Extended - This Is Bullish For Stocks by Monty Guild and Tony Danaher of Guild Investment Management
The tax breaks will mean even more QE…and the bond market seems to agree with us. This weeks’ poorly bid U.S. Treasury auctions says that while investors agree that tax breaks are good for encouraging economic growth, they also drive government deficits higher. Bond offerings from the U.S. Treasury are going to go up, and the Fed had better buy the Treasury’s bonds, because it is apparent investors don’t want them. QE is here to stay.
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.
2010-12-10 Interim Update and Comment by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Federal Reserve Chairman Ben Bernanke said in a recent television interview that economic growth was not “self sustaining.” This description also applies to an economy that is in a classic growth recession. A growth recession is characterized as an economy where GDP grows but the unemployment rate also moves higher. A close look at the U.S. economy bears out Chairman Bernanke's description.
2010-12-09 Come On Rich! Our Take On Richard Bernstein’s Themes for 2011 by David A. Rosenberg of Gluskin Sheff
It is extremely difficult to judge what part of the economic cycle we are really in. If you look at the unemployment rate, the workweek, the industry CAPU rate, the levels of consumer confidence, housing starts and sales, you would think we were still in a recession. But if you looked at profit margins and the ISM index, you would come to the conclusion that we were mid- or even late-cycle.
2010-12-08 No Comfort in November for U.S. Employment by Nouriel Roubini of Roubini Global Economics
November data clearly calls for caution. The stall in the improvement in wages and the average workweek is especially concerning. Sustainable growth in aggregate consumption will be driven by wage growth, which needs to improve from its severely depressed levels. Most importantly, it is quite clear that future employment gains will be well below the levels required to make a meaningful dent in the unemployment rate, which will continue to be just shy of double-digit territory for some time.
2010-12-08 Second Take on The Latest Financial Stimulus Announcement by David A. Rosenberg of Gluskin Sheff
There wasn’t really that much “new” information in the Obama announcement, except for the fact that the President ended up repealing everything he said he stood for during the election campaign, like reducing the extreme income bifurcation that was exacerbated during the Bush era. Then again, who is going to risk a renewed contraction in the economy and then take the blame? How can anyone take the U.S. seriously when the country fails to get enough votes over the weekend to bring the deficit reduction package recommended by the White House debt-reduction panel to the House and Senate floor.
2010-12-07 Looking at the Tax Compromise Measures by David A. Rosenberg of Gluskin Sheff
The just-announced comprise tax measures along with the Fed’s pump-priming, have pretty well extinguished double-dip risks, notwithstanding the myriad of other headwinds. This amounts to a new stimulus measure. If the U.S. government opts for a series of fiscal measures that could end up adding as much as $750 billion to the existing large public debt burden, the fixed-income market is not exactly going to like it. Elsewhere, EU finance ministers ruled out an immediate aid package for Portugal or Spain (putting the onus on the ECB to restore calm).
2010-12-07 Markets Rebound Despite Poor Jobs Report by Chris Maxey of Fortigent
Earlier in the fall, pessimists were pointing towards a slowing ISM index as a surefire harbinger that a “double-dip” recession was on the way. That did not happen, fortunately, and manufacturing activity has since rebounded.
Several subcomponents also provided encouraging data. In particular, the employment index finished the month at 57.5, a clear-cut sign that manufacturers are continuing to hire in order to keep up with growing demand. Somewhat less positive was the prices paid index, which remained elevated at 69.5 in November.
2010-12-06 Cutting Through the Noise by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic data is rarely clear-cut, but we believe the weight of the evidence indicates a strengthening US economy. The negative rhetoric surrounding the Federal Reserve's recent decision reached a crescendo, but while we were among the first to voice our belief that it wasn't necessary, we believe the dire warnings of potential consequences from a second round of quantitative easing (QE2) are overblown. The European debt crisis continues to plague world markets. Finally, we believe the European Central Bank (ECB) needs to be more proactive instead of continually reactive.
2010-12-06 Labor Market Update: Still Struggling by Scott Brown of Raymond James Equity Research
The November Employment Report was disappointing. The holiday shopping season apparently got off to a strong start, but that failed to translate into a corresponding jump in retail employment (at least, on a seasonally adjusted basis). Manufacturing jobs were soft. State and local government continued to shed jobs, reflecting budget strains. What’s in store for 2011? The November jobs data aren’t encouraging, but the recovery is likely to remain on track.
2010-12-06 Creating a Mirage of Economic Growth by Doug Carey (Article)
Bubble formation is not random. Some may believe it is, but bubbles are in fact a predictable byproduct of the fractional reserve system upon which our economy is built. By stimulating and amplifying lending through its fractional reserve system, the Federal Reserve systematically creates the mirage of growth, from which deception systemic crises inevitably result.
2010-12-04 Rebalancing the World by Mark Mobius of Franklin Templeton
We are currently witnessing a largely one-way flow of capital, as money moves from countries of disinflation or deflation to countries with inflation, possibly perpetuating the situation for both. We need to see a rebalancing of the world economy. In recent history, financial authorities in the developed world have encouraged a period of easy credit and loose monetary policy, driving a debt-fuelled rise in consumption. There needs to be more ‘balance’ in the world economy, so high-savings countries should spend more and develop their own vibrant domestic market as we see in the U.S.
2010-12-04 Decoupling, Further Defined by Andrew Foster of Matthews Asia
Emerging market equities— particularly those sectors most associated with decoupling themes—are now subject to elevated valuations. It appears that some investors have grown overly convinced that decoupling is a one-way, short-term bet. Don’t bet on it. Instead, take your time, and set any expectations for decoupling over the longest horizons.
2010-12-04 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Retail Ireland, retail, China, retail, tax cuts, retail, QE2, retail, jobs, retail. Yes, investors have plenty on their minds these days. Hopefully, the news from retail can continue to compensate for some of the more concerning dynamics at play.
2010-12-04 Reframing A Case For High Yield Bonds by Tom Fahey of Loomis Sayles
Our contention is that high yield bonds are likely to continue to be a respectable store of value. We base this on their valuation profile and fixed income characteristics, which tend to stand out in the midst of a protracted economic recovery and ongoing deleveraging process that could have significant implications for economic growth and yield potential.
2010-12-03 Fundamentals and the Stock Market by Matthew Rubin of Neuberger Berman
Is continued discomfort in the stock market justified? It can be argued that the economy is
relatively weak, and with high unemployment, the weak housing market and a new focus on fiscal restraint, few expect rapid expansion anytime soon — not exactly a bullish sign for an asset class that is supposed to benefit from expansion.
However, from a number of vantage points, stocks are displaying what we consider attractive characteristics that suggest the benefits of maintaining substantial exposure to equities in the current environment.
2010-12-03 Fish, Chips & Latkes with Dave: Market & Data Musings by David A. Rosenberg of Gluskin Sheff
The recovery is obviously still so fragile that the Fed felt the need to expand its balance sheet by an additional 25% and policymakers in DC fear that the economy can slip back into recession if the Bush tax cuts and the 99-week emergency jobless benefit plan are not extended. Job market conditions have improved, but the reality is that the preponderance of the employment gains in the past six months has been in part-time positions. The tailwinds to US profits from accelerating global growth, not to mention a weak dollar, which has turned the corner, are about to become headwinds.
2010-12-01 Confident Or Not? by David A. Rosenberg of Gluskin Sheff
The Conference Board’s measure of U.S. consumer confidence report was all the rage in November with an above-consensus print of 54.1 from 49.9 in October and 48.6 in September. But, five of the nine major regions were actually down in November. In a possible sign that the GOP victory may have been at play, the West South Central region, which includes Texas, soared from 68.8 to 92.6 — the fourth largest spike ever!
2010-12-01 Open and Shut by Howard Marks of Oaktree Capital
Today some assets are fairly priced and others are high, but there are no bargains like those of 2008. Capital and nerve can’t hold the answers in such an environment. We’re no longer in a high-return, low-risk market, especially in light of the inability to know how today’s many macro uncertainties will be resolved. Instead of capital and nerve, then, the indispensable elements are now risk control, selectivity, discernment, discipline and patience.
2010-11-30 QE2: Beware the Perils of its Success by Vitaliy Katsenelson (Article)
QE2 is like a drug prescription that comes with a list of side effects that are often worse than the disease it was supposed to cure. It is difficult to know the unintended consequences of QE2, but it may result in a substantial decline in the dollar, stagflation, lower economic growth and much higher interest rates.
2010-11-30 Currency Focus: QE2 and the Course Ahead by Ugo Lancioni of Neuberger Berman
We believe the dollar is likely to move higher on an intermediate-term basis. QE2, in our opinion, could lead to stronger economic growth in the U.S. and eventually drivehigher yields, making the dollar more attractive to investors. In our view, the impact of QE2 was already in the price of the U.S. dollar at the time of the announcement. And the market is generally still shorting dollars.
2010-11-29 Plenty of Action, but Quiet Improvement by Charles Lieberman of Advisors Capital Management
Ireland gets all the headlines and attention, but the domestic data is coming in on a more positive note, suggesting that economic growth may be picking up. As always, the crosscurrents are strong, with unpredictable political distractions now including Korea. But despite it all, the economic outlook, strongly supported by policy, is improving.
2010-11-29 Valuation Opportunity by Milton Ezrati of Lord Abbett
Because the fears forged during the 2008–09 crisis still linger, investors continue to avoid equities. For a while, extreme caution drove almost all new flows of funds into cash and U.S. Treasury bonds. As these flows drove down Treasury and agency yields, investors sought returns in more credit-sensitive bonds, but still, they largely avoided equities. The pattern has by now distorted valuations enough to present a special opportunity in stocks, even after their impressive rise from spring 2009.
2010-11-29 A List of Concerns – A Dozen of Them by David A. Rosenberg of Gluskin Sheff
Among Rosenberg’s concerns: China undergoing a significant, though likely brief, economic adjustment by 2012; The contagion reaching Spain, which would likely be game over for the euro; A renewed deflation in home prices in the US; State and local government budgets – the critical source of downside risk for the U.S. economy in 2011, which could easily result in 1.5-2.0 percentage points of withdrawal from GDP growth.
2010-11-29 A Time to Invest in Africa by Nile Capital Management of Nile Capital Management
In this report, I will summarize my answer to the often-asked question: “Why is this a good time for investors to focus on Africa?” I also will explain why the best way to participate in African markets and manage their risks is through an actively managed fund that offers “feet-on-the-ground” expertise in Africa.
2010-11-29 Holiday Shopping Off to Enouraging Start by Chris Maxey of Fortigent
Early indications from the weekend shopping spree suggest that it was an overall success for retailers. Perhaps even more encouraging was the news that consumers would be less reliant on credit cards for purchases this holiday season.
2010-11-29 Not Fade Away: European Debt Crisis Hits Markets by Liz Ann Sonders of Charles Schwab
Optimism is waning as global concerns are taking center stage, notably in the euro-zone. Investors shouldn't be complacent, but should heed the more-positive message coming from the US economy.
2010-11-28 House on Ice by John P. Hussman of Hussman Funds
If our policy makers had made proper decisions over the past two years to clean up banks, restructure debt, and allow irresponsible lenders to take losses on bad loans, we would be quickly on the course to a sustained recovery. Unfortunately, however, we have built our house on a ledge of ice.
2010-11-24 US Q3 GDP and Profits Analyzed by David A. Rosenberg of Gluskin Sheff
The Q3 real GDP is better, but momentum has clearly waned. Based on the hits that the household sector will likely face in the early part of 2011, Q1 growth is likely to be disappointing. On a sequential basis, corporate profits are still clearly rising, but at a more moderate rate than before. Not only did housing starts get clobbered in October, but existing home sales fell unexpectedly as well. Retailers are anticipating a solid holiday shopping season, and yet, they are aggressively marking down their prices well in advance.
2010-11-23 Why Three Top Bond Managers Like Equities by Robert Huebscher (Article)
You'll rarely - perhaps never - hear a fund manager say that market conditions do not favor investing in their chosen asset class. That's why it was so remarkable when several prominent managers recently admitted that they favored equities over their own discipline - fixed income.
2010-11-23 The Fed Under Attack by Scott Brown of Raymond James Equity Research
Despite hopes that the anti-QE rhetoric would die down, the noise continued last week, and unfortunately, become more political. One of the key aspects of the Fed is its independence. The Fed is answerable to Congress, and ultimately, to the American people. However, it is not controlled by Congress - nor would we want it to be controlled by Congress. Attacks on the Fed and its latest round of asset purchases aren't helping
2010-11-19 Gold Standard or Political Discipline? by Stan du Plessis and Andreas Freytag of VoxEU
President of the World Bank, Robert Zoellick, caused a stir this week by hinting at a need to return to the gold standard. While supporting the drive for pro-growth policies and the desire to maintain an open international trade system, this column argues that a return to gold would struggle to achieve this and could even be a destabilising force.
2010-11-19 Philly Fed Up, NY Empire Down by David A. Rosenberg of Gluskin Sheff
Despite mixed indicators, it looks like real GDP is chugging along at a tepid though still above-water annual rate of between 1% and 2% at an annual rate. The fragility is what is important. Gold still looks very good in this uncertain and unstable environment.
2010-11-17 Shifting Politics, Tightening Policies in China by Nouriel Roubini of Roubini Global Economics
The Central Economic Work Conference in early December should signal an end to the 'moderately loose' monetary policy that has allowed the long cycle to dominate the short since late 2008. There will likely be little commentary about renminbi (RMB) flexibility at the conference; nevertheless, we expect that technocratic control of China's monetary policy should marginally increase the rate of RMB appreciation against the USD.
2010-11-17 Gold's Allure Tied to Interest Rate by Michael Pento of Euro Pacific Capital
The continued bull market in the price of gold has been one of the staple discussions in the financial media for the better part of a decade. But, in that time, almost no consensus has emerged to explain the phenomenon. The truth is the main drivers for the price of gold are the level and direction of real interest rates and the intrinsic value of the dollar.
2010-11-17 Can You Handle The Truth by David A. Rosenberg of Gluskin Sheff
The S&P 500 has been locked in a rough 1,000-1,200 range now for 14 months. Most pundits still believe we are in a cyclical bull market but that is not the case — it has been a sideways market now for over a year. Moreover, after testing support in July, the market hit resistance levels in November, so it would seem logical to expect the index to make a run at the low end of the range. The only question is whether support will hold up once again.
2010-11-16 Jeremy Siegel on the Upside for Equities and the Virtues of QE2 by Robert Huebscher (Article)
In our annual interview, Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School, offers his forecast for equities - a 10% to 20% gain in 2011, along with a continued rally through the end of this year. He also explains why the current round of quantitative easing is exactly what is needed to stimulate the economy.
2010-11-15 Lighten Up, Francis by Scott Brown of Raymond James Equity Research
The increase in the deficit over the last couple of years is due largely to the recession and efforts to minimize the impact of the economic downturn. Quantitative easing isn’t some hair-brained scheme, but is simply another form of monetary policy accommodation. The dollar is down, but not out of line with its longer-term trend. Stop the hysterics, please.
2010-11-15 U.S. Consumer Confidence - Less than Meets the Eye by David A. Rosenberg of Gluskin Sheff
So, when you do the simple math, Joe Sixpack sees inflation at 3% in the coming year (from 1% now) and then averaging 2% in the next four years. Depending on how food and fuels play out, this could well be consistent with a zero or even sub-zero environment as far as core consumer price trends are concerned. This is why long Treasuries are likely to remain in a secular bull market for some time to come.
2010-11-15 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The stock market succumbed to profit taking last week. The reasons are many, but revolved around a poor earnings report from Cisco Systems, a growing skepticism of the Fed’s announced plan to goose the money supply, and finally what the mainstream media is reporting as a rather disappointing trip to Asia by President Obama even as he tried to put his electoral defeat here at home behind him.
2010-11-15 Fall Quarterly Commentary by John G. Prichard of Knightsbridge Asset Management
Economic and employment conditions remain soft amidst continued deleveraging. Developed market debt and currency issues remain. There are however offsetting positives. Corporations are in good shape with lots of cash and moderate leverage. Household finances are improving as well. Further, it is important to remain cognizant of the fact that conditions can change and equities are forward looking. Housing and autos, common drivers of economic expansion, should kick in at some future point.
2010-11-12 Analyzing China's Banking Sector Reform by Richard Gao of Matthews Asia
China's banking reform has effectively transformed its state-owned banks into commercial banks running under international practices.
2010-11-12 Don't Shoot the Messenger by Michael Dana of Dana Investment Advisors
This election has seen the installation of some non-political, business type people into office. These people know how to start a business, hire people and meet a payroll while balancing the books. We take this as a plus as capitalism is still the best economic system and will flourish in a regulatory friendly environment. We hope both parties (or is it three?) have a better understanding of the word bipartisan. That’s what it will take to avoid gridlock and get this country moving forward again. So what can Congress and the President do to right this ship? We would have several suggestions.
2010-11-11 A Kind Word For Ben by Paul McCulley of PIMCO
The Fed makes policy consistent with its legislative mandate handed down by the democratically elected government of the United States. Price stability (mandate-consistent inflation) that promotes bubbles in asset prices and debt creation is a prescription for a debt-deflation bust and a subsequent liquidity trap. Acting irresponsibly relative to conventional wisdom is precisely the right approach for reversing an economy facing, or worst yet, mired in a liquidity trap.
2010-11-11 Leadership Changes in Latin America by Mark Mobius of Franklin Templeton
In Latin America, we are seeing a large and young population moving up rapidly to the new “consumer” middle class, but at the same time having one of the lowest loan penetrations in the world. The rise of this consumer middle class and growth in per capital GDP is resulting in an increase in domestic spending, which drives the domestic economy. Secondly, the region has vast resources available at low cost.
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.
2010-11-09 Keynesian Confusion by Michael Lewitt (Article)
Keynesian policies are inflicting untold damage on the U.S. and global economies today. Keynes did not have to be misread. The reason that the current recovery is below par is that the economy is experiencing a massive paradox of thrift. We doubt that reducing already low rates is going to stimulate much of anything other than more frustration on the part of savers. Sooner or later, everything being earned on the upside of this liquidity-induced rally will be given back in spades - the only question is when.
2010-11-09 Bogus Numbers by Michael Nairne (Article)
The crux of the difference between the 'cheap' and 'overvalued' market valuation views lies in the selection of earnings numbers, of which there are two basic sets. The broadest traditional measure is 'as reported' earnings which includes all charges except the cumulative impact of accounting changes, discontinued operations and extraordinary items. Is the market cheap by the appropriate measure?
2010-11-09 Gridlock, Inertia, or Hope? by Scotty George of du Pasquier Asset Management
'How will the election results impact upon the markets and my portfolio during the next year?' Scotty George evaluates the data.
2010-11-09 Latest GDP Growth Report Points to Continued Economic Weakness by Team of American Century Investments
After one quarter of robust gross domestic product (GDP) growth late last year - characteristic of an economy snapping out of a recession - the trend that has followed has been very uncharacteristic, with a substantial downward shift in GDP growth. American Century Investments investigates quarterly shifts in consumer spending and investing and other factors that effect GDP.
2010-11-09 There Was a Fed Chairman Who Swallowed a Fly by Peter Schiff of Euro Pacific Capital
In reality, quantitative easing will produce the exact opposite of its intended result. In the short-run, it may create the illusion of economic growth and temporarily add some service sector jobs, but once the QE ends, the growth and jobs will vanish. Then, the Fed will most likely try once again to douse the fire it started with another round of QE gasoline, creating an even larger and less manageable inferno.
2010-11-09 Chinks in the Armour by David A. Rosenberg of Gluskin Sheff
Nobody thought a year ago that things would have weakened to such an extent that we would have needed QE2 or the extension of Bush tax cuts. The Fed is doing $600bln in quantitative easing, which is about one-third what it did last year. I’m not convinced that it alone will prevent the economy from weakening, even if contraction risks have abated. Now what will it take to turn me more positive? Well, a sustained job creation for one and if we can get initial jobless claims down to 400k that would be huge. But I have to admit, QE2 does not do it for me.
2010-11-09 An Inflationary Death Spiral by Michael Pento of Euro Pacific Capital
I have no doubt that Bernanke will be remarkably successful in his stated goal of driving inflation higher. I simply disagree with his nonchalance about the long-term consequences. There is currently no easy exit strategy for the Fed. There is only the prospect of Americans suffering through either a deflationary depression or hyperinflation.
2010-11-08 Increased Clarity Implies Increased Optimism by Charles Lieberman of Advisors Capital Management
Major events of last week clarified the outlook in a way that is consistently very positive for equities. Much of the weakness in the economy since spring was merely temporary fallout from the Greek debt crisis. Policy remains very expansion oriented and the political environment should improve for the corporate sector. The latest developments imply we should be even more circumspect over the outlook for bonds (if possible) and more optimistic with the equity market's prospects.
2010-11-08 Crossing the Threshold into a New World ... Or Not by Chris Maxey of Fortigent
There is no doubt that the events which transpired last week are without precedent. The long-term implications of quantitative easing by the Federal Reserve are entirely unknown. Should the Fed’s program conclude on schedule, private investors would need to step to the plate and replace the incremental demand lost from the Fed. It is unlikely private investors could replace that demand, which would lead to enormous upward pressure on interest rates.
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.
2010-11-07 Fall 2010 Quarterly Commentary by Jonathan A. Shapiro of Kovitz Investment Group
As for the next decade, we are optimistic. This view is based primarily on two factors. The first is the entry level. We believe that current valuations of our portfolio holdings are very attractive, both on an absolute level and relative to history. While it doesn’t guarantee any outcome, starting at these levels certainly stacks the probabilities firmly in our favor.
2010-11-05 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
Investors should keep gold for long-term investment, as well as oil-related holdings. The U.S. dollar, Japanese yen, British pound and the euro are poor long-term prospects. Investors should continue to hold shares of growing companies in India, China, Singapore, Malaysia, Thailand, Indonesia, Colombia, Chile and Peru, as well as food-related shares such as grains, wheat, corn, soybeans and farm suppliers. Finally, investors should continue to hold U.S. stocks for a further rally.
2010-11-05 More on QE2 - Will it Work? by David A. Rosenberg of Gluskin Sheff
Quantitative easing is no antidote for structural economic problems, even if it manages to give investors a short-term sugar high. Let's learn from the Japanese QE experiment. The day the Bank of Japan launched the program on March 19, 2001, the Nikkei surged 7.5 percent, from 12,190 to 13,103. Three months later, as it became painfully obvious that the real economy was not responding well to the shock therapy, the Nikkei index slid 16 percent to just over 12,000.
2010-11-05 Beware the Fed Tide by John Browne of Euro Pacific Capital
This week desperation became palpable at the Fed. In both the formulaic statement that accompanied its Federal Open Marked Committee policy decision and Chairman Ben Bernanke's unusual (and clumsy) Washington Post op-ed follow up, the guardians of our currency expressed grave disappointment at the slow pace of U.S. economic recovery and emphasized the continued threat of deflation. The Fed is now pledging to defeat this recession using any monetary means necessary. Unfortunately, their embrace threatens to smother our economy.
2010-11-05 Thoughts on Liquidity Traps by John Mauldin of Millennium Wave Advisors
Lacy Hunt writes that the Oct employment situation was dramatically weaker than the headline 159k increase in employment measures. The most distressing aspect is the loss of another 124K full-time jobs, bringing the 5-month loss to 1.1 million. John Hussman discusses liquidity traps, where investors prefer cash to debt (because of low interest rates) and the central bank loses control. Fiscal policy, not monetary policy, impacts economic growth and inflation - and the proper fiscal measures, such as infrastructure spending, may be the best hope for growth.
2010-11-05 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
Dissecting election results, a Fed policy meeting statement, several key economic releases, and new earnings reports can prove pretty stressful. This week saw a somber Obama offer an olive branch to Republicans following their big victory in the midterms. Bear in mind, Prez Clinton suffered a similar fate in 1994 and lived to fight another day. Politicos now expect conciliation over taxes, health care, offshore drilling, and other GOP action items as Big Oil, Big Pharma, and Wall Street prepare for another boom. (The pressure is on, Speaker Boehner.)
2010-11-04 U.S. Challenges and Hope by Charles and Louis Vincent Gave, Anatole Kaletsky of GaveKal
Why, in spite of record profitability and very strong cash flows, are U.S. firms not hiring more? One very simple explanation is the dramatic drop in the value of the assets of U.S. corporations. The net worth of U.S. non-farm, non-financial corporations stood at $16 trillion in 2Q07. By the last quarter of 2009, this net worth had dropped to $12.3 trillion. Now that the net-worth of U.S. corporations is expanding again, however, U.S. unemployment could improve rapidly given supportive fiscal and regulatory policy.
2010-11-04 Thanksgiving Pie by Doug MacKay and Bill Hoover of Broadleaf Partners
Where might the unexpected upside come for investors? Two areas. Dividends may attract some money away from the bond market as a source of yield, providing some relative capital appreciation potential for stocks. On a longer term secular basis, the emerging market consumer may also be worth paying attention to. As the wealth of overseas economies grows and makes its way into the hands of its citizens, a growing middle class should emerge with the same needs and wants that many of those in the United States have enjoyed for years.
2010-11-04 Thoughts on QE2 by David A. Rosenberg of Gluskin Sheff
While the Fed could have done more yesterday, it didn't because the economy is doing better than expected, even if it is still quite fragile. Auto sales, for example, rose to 12.3 million at an annual rate in October from 11.8 million in September (best result since August 2009). However, recall that motor vehicle sales also jumped 2.4 percent in September and all that translated into was a +0.08 percent inch-up in total real consumer spending, which was one of the weakest months of the year. Consumer spending excluding auto will now be essential to watch.
2010-11-03 Five Bitter Pills or One Sweet but Deadly? by Michael Pento of Euro Pacific Capital
The current Chairman of the Federal Reserve believes that diluting the dollar is the cure for everything from a recession to male pattern baldness. And like other snake-oil salesmen before him, Mr. Bernanke is heavy on promises and light on results. Michael Pento presents five prescriptions that money printing can't fulfill.
2010-11-02 More of the Same by Scott Brown of Raymond James Equity Research
Real GDP rose about as expected in the third quarter. Details were mixed, but remained consistent with the view that the pace of growth, while still positive, is subpar - far below a rate that would be associated with a significant reduction in unemployment. What to expect from here? More of the same, most likely. The economy continues to face a number of serious headwinds, but the recovery is likely to remain on track.
2010-11-02 The New Abnormal by David A. Rosenberg of Gluskin Sheff
We are definitely in an abnormal economic environment. We just came off a 2 percent real GDP growth performance in a quarter - the fifth in this nascent recovery - where the economy is usually humming along at a 4.3 percent clip and on a lot less government stimulus. Make no bones about it, heading into year two of the post-recession recovery, the pace of activity is usually accelerating, and doing so at a 5 percent rate. The Federal Reserve with its continued monetary expansion just may well see something in the economic outlook that has yet to fully register with Mr. Market.
2010-11-01 Lessons From a Lost Decade by John P. Hussman of Hussman Funds
If the past decade has a lesson for investors, that lesson should have two components. The first is that valuations matter. Although valuations often have little impact on short-term returns over periods of less than a few years, they are undoubtedly the single best predictor of long-term market returns. Moreover, high valuations are ultimately followed by far deeper periodic losses than emerge from low valuations. Put simply, greater risk does not imply greater reward if the risks that investors take are overvalued and inefficient ones.
2010-11-01 Looking Past the Graveyard by Scotty George of du Pasquier Asset Management
We are two months removed from the end of this year, 2010, and already investors are bracing themselves for 2012 as if next year won't count. With unemployment widening and portfolio values simply treading water, many have their sights set on a rebound year in 2012 that they think has more promise than 2011. In fact, informal opinion polling suggests that many see 2011 as nothing more than a postscript to a miserable three year cycle begun when the global credit crisis erupted.
2010-10-30 Schwab Market Perspective: So Now What? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
The Federal Reserve and upcoming elections are in sharp focus and results and actions in these two areas could determine whether the momentum seen since September can continue. Earnings season was better than expected and the market reacted as such. But confidence remains a major issue, with brewing mortgage-related problems and continued uncertainty around tax policy causing consternation. Debt remains a major issue that's just now being addressed and protectionism still threatens economic expansion. China remains a bright spot for global growth.
2010-10-29 Asset Allocation in an Uncertain Economy by Robert Huebscher (Article)
Advisors should not bet on whether the recession will be L-, V-, or W-shaped. Instead, Ron Albahary said they should use strategic asset allocation and overweight or underweight those asset classes that have historically done well at certain points in the economic cycle. Albahary is the CIO of Convergent Wealth Advisors, a Washington, DC-based wealth manager.
2010-10-29 Postcard from Vietnam by Taizo Ishida of Matthews Asia
As much as two-thirds of Vietnam's GDP can be attributed to strong personal consumption in a country of 86 million (with an average age of 26). Over the past 20 years, the country has shown impressive economic expansion, averaging 7.1 percent growth per year, which has pushed GDP per capita up to just over $1,000 U.S. Although Vietnam still faces potential problems with inflation, it is still encouraging to witness the real changes taking place in the country's consumer behavior.
2010-10-29 Asset Allocation: Fall 2010 by Tony and Rob Boeckh of Boeckh Investment Letter
Excess liquidity will continue to act as a tailwind for equities, commodities and non-dollar currencies well into 2011. Deflation will dominate in the short term; the inflationary threat is probably further away than most investors expect. Gold is expensive relative to the inflationary outlook. Fixed income markets are heavily influenced by government intervention. While it is likely that continued intervention will succeed in depressing bond yields below market levels, even a modest increase in inflationary expectations would undermine these actions. We recommend shortening duration.
2010-10-27 Fifty Not Nifty by David A. Rosenberg of Gluskin Sheff
Consumer confidence came in at 50.2 in October versus the 49.9 expected. Of course, the media types were hyping up the number as another reason to load up on equities. Let's get a grip. In periods of economic expansion, consumer confidence averages 100.3 on the nose. For all the rejoicing, today's level is half what is normal for an economy supposedly out of recession, and in recessions, consumer confidence averages 72.9. We are 22 points south of the level that historically typified economic contractions. Yikes!
2010-10-26 Emerging Market Uprising: What it Means for Investors by George Magnus of Boeckh Investment Letter
This special report by George Magnus, a senior economic advisor at UBS Investment Bank, takes a look at some key economic and investment issues regarding emerging markets and China. Magnus, who has just completed a book on emerging markets, argues that while EMs have boomed in recent years, there are a number of unresolved problems which suggest the past may not repeat, and investors must be careful.
2010-10-26 Hope is Not a Strategy by John West of Research Affiliates
Most pension funds and 401(k) calculators assume total returns in the 7-8 percent range. Is this assumption realistic, however, with a mature economy saddled with unprecedented debt levels and an aging workforce? This commentary examines retirement plan assumptions and calculates that we can reach this return level only if we assume top quartile results for stocks, bonds, and alternatives over the next 10 years. That's like expecting a decade of sunshine in the markets.
2010-10-26 Have the Financial Markets and the Real Economy Become Disconnected? by Team of American Century Investments
There are solid and logical reasons why equity markets have been up substantially since the start of the third quarter. The U.S. economy remains in a fragile situation and the global financial system is far from healthy. Nonetheless, progress is being made and, barring any new crises or setbacks, the case for the market's recent rise can be justified. What's different this time is that two sectors that have traditionally led economic recoveries in the U.S. - consumer spending and real estate - will remain on the sidelines for the foreseeable future.
2010-10-25 Bernanke Leaps into a Liquidity Trap by John P. Hussman of Hussman Funds
The belief that an increase in the money supply will result in an increase in GDP relies on the assumption that velocity will not decline in proportion to the increase in monetary base. Unfortunately for the proponents of 'quantitative easing,' this assumption fails spectacularly in the data - both in the U.S. and internationally - particularly at zero interest rates. Once short-term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity.
2010-10-25 Key Dates Approaching by Scott Brown of Raymond James Equity Research
The first week of November looms large for the markets. The November 2 midterm elections are expected to result in a power shift on Capitol Hill - but how much will actually change? The Fed's November 3 monetary policy decision has important implications for interest rates, the dollar, and the economy in general. The October Employment Report (due November 5) will help shape the near-term economic outlook and set expectations for future Fed policy moves.
2010-10-18 Equity Investment Outlook by Team of Osterweis Capital Management
Housing is still deflating, but commodities are mixed. The concern longer term is that the Fed is printing money in order to stimulate the economy. At some point, all this liquidity in the system could cause inflation to accelerate, perhaps to a level that the Fed cannot contain. We are not forecasting either serious deflation or serious inflation. On the other hand, we do not regard the probability of a negative outcome as trivial.
2010-10-18 Thoughts About Bernanke and the Fed by Charles Lieberman of Advisors Capital Management
Conditions for stock market gains remain intact, even if the pace of recovery remains below preferred levels. Growth at a moderate pace will be sufficient for corporate profits to remain on a solid upward trajectory. Interest rates and inflation remain very low and are likely to remain so for an 'extended period of time,' so the pricing of bonds implies a meaningfully higher equilibrium valuation for equities. And if policy proves successful in increasing growth, fears of a double-dip would be vanquished and forecasts of rising profits would become more believable.
2010-10-18 Mexico - Problems and Prospects by Milton Ezrati of Lord Abbett
Mexico's drug-related violence is a tragedy for the country and a conundrum for all those who invest there. However, as long as the U.S. economy can continue its advance, slow as it will likely be, Mexico’s economy, equity market, and currency should find support. Once the recovery in the United States begins to create jobs, as it should later this year and into 2011, remittances from Mexican nationals working north of the border will begin to add marginal momentum to Mexico’s economic growth, and hence to its market prospects.
2010-10-18 'Gone in 60 Seconds' by Jeffrey Saut of Raymond James Equity Research
The likelihood of the QE2 has risen dramatically since Ben Bernanke's Jackson Hole speech. This is being reflected by the 'stubborn rally' in most asset classes. If Bernanke did not think QE2 was needed, he surely would not allow such speculation because he does not want to surprise the various markets. Any ensuing pullback will be mild and contained above the 1130 - 1150 level on the S&P 500. Nevertheless, Jeffrey Saut is cautious, which he has not been since April.
2010-10-15 Q310 Portfolio Commentary by Jay Compson of Absolute Investment Advisors
Asset prices appear to be solely supported by the potential effects of QE2. Global credit markets, where liquidity could be highly strained given the large flows into bond funds and the hazardous reach for yield, are particularly disconcerting. While the Fed could successfully create asset inflation in the short term, the asymmetry of these policy efforts is to the downside, and patience should be better rewarded. Additionally, a dollar rally is quite possible given current sentiment, and could create much volatility in both global equity and credit markets.
2010-10-15 Interesting Insights from Bernanke; A Double-Dip Signpost by David A. Rosenberg of Gluskin Sheff
Despite a speculative equity market binge, a weakening U.S. dollar, an economy that seemingly avoided a double-dip recession last quarter and a renewed boom in commodity prices, what continues to prove elusive in this so-called recovery is pricing power in the broad retail sector.
The headline rate of inflation sits at 1.1 percent today. The core inflation rate, proven to be the key driver for bond yields, is now running at a mere 0.8 percent year-over-year rate, the lowest level since March 1961.
2010-10-14 Who's Doing the Buying? by David A. Rosenberg of Gluskin Sheff
So who's buying equities right now? Good question. We know it's not the retail investor and private clients - they have been selling into this entire bear market rally and rebalancing their asset mix in favor of income. It's not the mutual funds, because institutional private managers already have cycle-low cash ratios. There would seem to be three principal buyers right now: pension funds struggling to reach their 8 percent assumed annual returns, hedge funds, and the proprietary trading desks at big commercial banks.
2010-10-13 What's Ahead in Q3 Earnings Season; Our Fair Value of the S&P by David A. Rosenberg of Gluskin Sheff
The consensus is still expecting U.S. operating earnings per share growth of $95-plus in 2011, but at a time when profit margins are at a cycle high, not a trough. Judging from past performance at cycle highs, however, it may be more prudent to be valuing the equity market at $75 EPS growth, rather than $95. Slap on an appropriate multiple and you can see why an underweight position in equities still makes sense, speculative fervor sparked by quantitative easing notwithstanding.
2010-10-12 Beggar Thy Neighbor, Beggar Thyself by Michael Lewitt (Article)
In the latest edition of the HCM Market Letter, Michael Lewitt argues that reported attempts by countries to devalue their currencies will only result in higher inflation and not economic growth. QE2 will similarly fail, and the necessary "heavy lifting" for the economy should be through fiscal, not monetary, policy. A continuation of Keynesian policies, as advocated by Paul Krugman, will also fail. Lewitt warns of dangers in ETFs and offers his investment recommendations.
2010-10-12 It's a Mad World by David A. Rosenberg of Gluskin Sheff
Gold could be the only asset class that makes sense right now. If the bond market is right, then we will get deflation, and gold is a hedge against the uncertainty such an environment would entail. If the equity market is right, then we will get gobs of liquidity out of the Fed and then go off to a new reflationary credit cycle - gold would benefit in this scenario, too. And if the commodity complex is right, then we are heading towards a new inflationary cycle, and of course gold is a classic way to play this scenario.
2010-10-11 No Margin of Safety, No Room for Error by John P. Hussman of Hussman Funds
Over the past 10 years, the S&P 500 has achieved a total return, including dividends, averaging -0.03 percent annually. Over the past 13 years, the total return for the S&P 500 has averaged just 3.23 percent. These poor returns were entirely predictable during the late 1990s based on the historical relationship between valuations and subsequent returns. What's more, current valuations suggest similarly poor returns over the next five to seven years.
2010-10-11 Don't Fight the Fed, II by Charles Lieberman of Advisors Capital Management
The economic expansion remains disappointing, but stocks continue to rally. Why? Corporate profits remain on a strong upward trajectory, while financial conditions remain extraordinarily supportive, courtesy of a Fed committed to insuring a stronger economy. Both factors should contribute to continued gains over the coming months.
2010-10-11 Will the Holiday Shopping Season Boost Employment? by Chris Maxey of Fortigent
The National Retail Federation announced last week that it expects holiday sales to increase by 2.3 percent from last year. That is good news following a decline of 3.9 percent in 2008 and a meager 0.4 percent growth rate in 2009. In addition, consultant Challenger, Gray & Christmas estimates that the retail sector will add as many as 600,000 jobs over the next three months. That is better than the 501,000 jobs added during the holidays last year, but still well below the pre-crisis levels of more than 700,000.
2010-10-11 In QE We Trust by Komal Sri-Kumar of TCW Asset Management
Senior monetary officials worldwide have complained about the massive inflows of capital into their financial markets resulting from expectations of monetary easing in the United States. One of the major pitfalls of quantitative easing is that beggar-thy-neighbor currency interventions do not result in increased growth for all participating countries. Instead, they sharply increase the risk to exporters and international investors and, eventually, dampen global growth.
2010-10-08 Narratives vs. Facts: Why U.S. Stocks are Surging Despite Anemic Economic News by David Edwards of Heron Financial Group
Investors chasing yields have bid up the prices of corporate bonds and preferred stock, while Treasury bonds, near post-war lows, barely yield more than inflation. Emerging markets stocks and bonds are doing well, but the high returns of 2008 are unlikely to happen again. Indeed, after a decade of pariah status, perhaps the only asset class that offers a reasonable risk-adjusted return is U.S. stocks. Even so, expect no more than 8 percents returns including dividends until the debt deflation process is complete in another 5-10 years.
2010-10-08 Still Vulnerable by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Economic growth has been largely due to an unsustainable, and probably over-extended rebuilding of inventories. The proposed QE2 is unlikely to succeed, and the U.S. economy faces four problems: excess leverage, counterproductive fiscal policies, sub-optimal tax policies and excess bureaucracy. Treasury bonds are not in a bubble and represent good long-term investments.
2010-10-07 You Can't Make This Stuff Up! by David A. Rosenberg of Gluskin Sheff
In the October 6 New York Times, op-ed contributor Daniel Gross called on the American consumer to 'get back into the game.' 'The renewed willingness and confidence to spend money we don't have,' Gross wrote, 'is vital to the continuing recovery.' There was no mention in the article of the fact that with a 70 percent share of GDP, U.S. consumer expenditures never exactly went into hibernation, even if spending decisions have changed. And haven't employment and income always been the vital components to sustainable growth?
2010-10-07 Emerging Markets Commentary by Conrad Saldanha of Neuberger Berman
With emerging market economies posting substantially higher growth rates, many investors are increasingly attracted to emerging equity markets. Equity returns, however, tend to be driven more by earnings growth than by GDP growth. Returns are also influenced by other factors such as a country's financial market structure, fiscal and monetary policies, and legal standards. Furthermore, index or ETF investing may not capitalize on stock-specific factors that contribute to the underlying economy's performance.
2010-10-07 Government Policy and the Markets: Prepare For Some Big Changes by Tony and Rob Boeckh of Boeckh Investment Letter
Proponents of gold base their arguments on predictions of eventual monetary ruin, a dollar collapse and high inflation. The bond market, however, is far bigger and more sophisticated than the gold market, and it indicates that inflation expectations are nonexistent. Bond yields are far below their long-run equilibrium levels and if anything, are forecasting deflation and possible stagnation. The huge disconnect between gold and bonds should serve as a reminder to gold bulls to tread carefully, unless they are sure that the bond market has it wrong.
2010-10-06 And That's the Week That Was... by Ron Brounes of Brounes & Associates
The economy remains unsteady as an uncertain labor picture continues to limit consumer activity. And yet, corporations have accumulated trillions of dollars in cash and money markets yielding near 0 percent have forced managers to seek other options. Looking ahead, the Fed's stimulus debate wages on although many expect a more limited bond buying program than the $1.7 trillion one offered last year. As for the markets, companies still have lots of cash looking for a home and hopefully equities have more room to run.
2010-10-06 Deflation Economics: Quantitative Easing and the Portfolio Balance Channel by Thomas Fahey of Loomis Sayles
The level of assets on central bank balance sheets has been relatively stable since the initial burst of quantitative easing in late 2008 and early 2009. As growth slows, however, money and credit numbers could drop significantly. Central banks could still do more to spur a more complete economic recovery. Until then, bond yields should remain low. Perhaps 10-year Treasury yields below 3 percent are low enough to reverse the real demand for money and force portfolio rebalancing. Investors will need to watch the corporate sector for signs of cash hoarding and hiring as evidence of that.
2010-10-05 Win, Lose or Draw: Do We Have a Win-Win Scenario? by Liz Ann Sonders of Charles Schwab
U.S. stocks are not expensive and they're most certainly under-owned. Most individual investors are either pessimistic or indifferent about the stock market, suggesting the 'wall of worry' - the contrarian nature of the market to perform best when pessimism is highest - is alive and well. In the near term, the stock market is likely overbought, and a little pullback to improve the sentiment picture would be helpful. On the other hand, however, strong stock market would be a terrific confidence builder, as Alan Greenspan noted last week.
2010-10-05 Cyclical Outlook by Paul McCulley of PIMCO
The influence of emerging economies is on the rise, while developed countries are retrenching. Monetary policy in the developed countries will remain extraordinarily accommodative for an extended period, with policy rates pinned close to zero and use of quantitative easing. PIMCO will therefore position its duration and curve strategies accordingly: overweight investments in the developed world, concentrated in the 'belly' of yield curves. In contrast, an increasing share of its positioning in the 'spread sectors' will be allocated to the emerging markets, including their currencies.
2010-10-05 In a Word, Surreal by David A. Rosenberg of Gluskin Sheff
Why do so many people think bonds are in a bubble when they are actually the most detested asset class out there? After all, as we saw in the tech mania of the late 1990s and the housing mania of 2003-2006, bubbles usually involve a mix of adulation, admiration and adoration with the asset class in question, which is obviously missing in the current case as it pertains to Treasury securities. You can't lift up a newspaper or watch a business program on TV and not see pundit after pundit talking about the dangers of being invested in bonds. Something here is amiss.
2010-10-04 What's On My Mind?: Five Developments Driving Investor Sentiment by David A. Rosenberg of Gluskin Sheff
The bottom-up S&P 500 operating EPS estimate currently driving equity valuations is $95. That would be a 14 percent gain on top of this year's anticipated 36 percent bounce. Here's the rub: to get that $95 operating EPS for 2011, we either need to see at least 7 percent nominal GDP growth, which last happened in 1989 when inflation was 5 percent, not close to zero, or margins manage to reach new all-time highs. The base case now, however, is for low single-digit nominal growth and some margin compression so frankly we could be looking at something closer to a $75 earnings stream next year.
2010-10-04 Is it Feasible to Have Your Cake and Eat it Too? by Chris Maxey of Fortigent
Suggesting that the bond markets are in a bubble is dangerous at this point in the economic cycle. The intervention of the Federal Reserve into the government bond markets will inherently depress yields, while a lack of clarity around economic growth will encourage individuals and corporations to refrain from embracing excessive spending. This in turn could lead to stagnant growth and further desire to hold less risky assets. For now, bond investors can sleep well knowing that sometimes, just sometimes, you can have your cake and eat it too.
2010-10-01 Postcard from Japan: Before the Dawn by Andrew Foster of Matthews Asia
Matthews Asia portfolio manager Andrew Foster recently returned from Japan, where he met with companies from a variety of industries. As in past trips, many of these companies seemed to be resting on their laurels, even as present growth was flagging. During this most recent visit, however, a subset of companies in different industries seemed to share a realistic outlook, combined with a sense of urgency to improve performance. Each of these companies cited the strength of the yen as a key factor that would allow them to execute overseas acquisitions, especially in the U.S.
2010-10-01 A Fall Surprise... by David Baccile of Sextant Investment Advisors
If billionaire money manager John Paulson is correct, and inflation reaches low double-digits by 2012, the discount rate used by investors to estimate the present value of their stock investments will rise sharply, which will have a very negative impact on equity prices as present value calculations decline. Sure, companies will be able to pass along price hikes and inflation should have a positive impact on nominal earnings growth, but the higher discount rate will overwhelm any benefit to the bottom line.
2010-10-01 And That's the Week That Was... by Ron Brounes of Brounes & Associates
So much for “sour” Septembers. This year, “super” September is more appropriate. The bulls were out in force last month as equities experienced their best September since 1939. The week was met with some profit-taking and quarter-end window dressing (is that still allowed?) as investors eyed an uncertain Fed policy and a heated election season.
2010-09-29 Multiple Risks From a Multispeed Eurozone Recovery by Nouriel Roubini of Roubini Global Economics
Although the euro zone's recovery from recession has been better than initially envisaged, there are still external and domestic pressures - some persistent, some new - as potential threats to 2011 growth. The standout perfo