More on Related Themes
2014-04-01 Have You Looked at India Lately? by Eric Stein, Patrick Campbell of Eaton Vance
In our judgment, it’s time to remove India from the ranks of the so-called “Fragile Five”* emerging-market countries. We believe the strong investment case to be made for India today underscores the importance of taking a country-by-country approach to emerging-market investing.
2014-04-01 2016 (Part 1, The Economic Issue) by Bill O'Grady of Confluence Investment Management
In this report, we are tackling the geopolitical impact of the 2016 elections. Given the size of the topic, it will be discussed over a three-part series. As we survey the political landscape for 2016, the next presidential election could be historic. In our opinion, the last three presidents have been unable to create a consistent foreign policy that reflects America’s role as the unipolar superpower. We will begin by examining the economic challenges the next president will face, with a broad analysis of the issues of inequality and economic growth.
2014-03-28 “Mind the Gap”: Adapting to a Post-Crisis World in Transition by Virginie Maisonneuve of PIMCO
??Barring any sharp deterioration in global geopolitical risk, the medium term outlook for equities is quite positive in an environment where we see subdued growth and inflation amid healing economies. From a markets standpoint, valuations are not very expensive – they’re not cheap, but they’re not expensive versus historical standards for the market overall.
2014-03-24 Market Outlook by Scotty George of Alexander Capital
For those of us that have been around for awhile, we have come to recognize that each Federal Reserve Board Chairman has had a unique way of speaking and a unique personality. Remember the "Volcker Rules"? How about "Greenspan-speak"? Well, last week we had a chance to take a measure of the person, and her language, who currently presides over monetary policy, Fed Chair Janet Yellen. And while a snapshot is not necessarily a truism of the embodiment of the whole, there were a few takeaways, not the least of which was the market's (once again) overreaction to what was being said.
2014-03-18 Japan’s Rising Opportunity by Neil Hennessy, Masakazu Takeda of Hennessy Funds
After WWII, the Japanese economy began what is sometimes referred to as the “Economic Miracle”, a three-decade long period of growth and prosperity. Japanese firms and their management teams were studied around the world as the model of efficiency and an example for all companies and leaders to strive for. In 1989, a bubble in real estate fueled by speculators burst, and the Japanese markets crashed. Since then, the Japanese economy has been in a virtual standstill with more than two decades of stagnant growth and a deflationary environment.
2014-03-17 Restoring the "Virtuous Cycle" of Economic Growth by John Hussman of Hussman Funds
The so-called “dual mandate” of the Federal Reserve does not ask the Fed to manage short-run or even cyclical fluctuations in the economy. Instead – whether one believes that the goals of that mandate are achievable or not – it asks the Fed to “maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”
2014-03-17 Market Outlook by Scotty George of Alexander Capital
What's another 200 point down day (Dow) when you're having fun? The violent and excessive overreactions of the week prior were added to by Asia and Europe on Thursday/Friday past, just for good measure.
2014-03-13 A Closer Look at Japanese Yen Depreciation and its Impact on Growth and Equities by of Manning & Napier
Weakness in the Japanese economy has given investors reason for concern. Recently released data showed that GDP grew just 0.2% quarter-over-quarter (qoq) during the last three months of 2013. This worked out to be a qoq annualized rate of merely 0.7%, and marked the second consecutive quarter of weaker growth relative to the preceding periods. Growth in the country has softened despite significant monetary and fiscal stimulus, and it is especially concerning considering that an impending tax increase (April 2014) has pulled some consumption forward.
2014-03-09 The Problem with Keynesianism by John Mauldin of Millennium Wave Advisors
Keynes himself would appreciate the irony that he has become the defunct economist under whose influence the academic and bureaucratic classes now toil, slaves to what has become as much a religious belief system as it is an economic theory. Men and women who display an appropriate amount of skepticism on all manner of other topics indiscriminately funnel a wide assortment of facts and data through the filter of Keynesianism without ever questioning its basic assumptions. And then some of them go on to prescribe government policies that have profound effects upon the citizens of their nations.
2014-03-07 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
The fight over Ukraine is an unwelcome source of uncertainty; Hiring in the U.S. improves in February; American businesses have lots of cash to invest.
2014-02-27 Gut Check: The Outlook on Fixed Income by Colin Lundgren of Columbia Management
With nearly two months of the year behind us, we thought now would be a good time to see how the fixed-income market is faring in 2014 and assess our outlook. We asked our investment team five questions to help capture our view on the market today.
2014-02-25 Smoother Sailing in Washington? by Libby Cantrill of PIMCO
With the debt ceiling increase out of the way, we should expect many fewer fiscal fights – and less policy uncertainty and potential market disruptions – emanating from Washington in 2014. We also expect Washington to do less harm from an economic growth perspective. We estimate that fiscal drag in 2014 will be about 0.4% of GDP. As we enter an election cycle, we expect Congress will do very little that is constructive for the economy in the year ahead – meaning that tax reform and an immigration overhaul will likely have to wait.
2014-02-21 Is the U.S. Economy Under the Weather? by Carl Tannenbaum of Northern Trust
Is the U.S. economy under the weather?; Japan is faltering a bit as year two of Abenomics begins; Bitcoin has generated a lot of attention, some of it unwanted
2014-02-20 Thanks Washington, But the Recovery Remains Soft by Russ Koesterich of iShares Blog
While two events in Washington last week supported stocks and other risky assets, they overshadowed the release of some relatively disappointing economic numbers providing more evidence of still soft U.S. economic growth.
2014-02-19 The U.S. an Oasis in a Global Sea of Problems by Charlie Dreifus of The Royce Funds
Despite the ongoing political and economic uncertainty in the emerging markets and a slow start for stocks in 2014, Portfolio Manager and Principal Charlie Dreifus believes the U.S. economy is in good shape going forward.
2014-02-15 The Economic Singularity by John Mauldin of Millennium Wave Advisors
Today, let’s think about central banks and liquidity traps and see if we agree that central bankers are driving the car from the back seat based upon a fundamentally flawed theory of how the world works. That theory helped produce the wreck that was the Great Recession and will have its fingerprints all over the next one.
2014-02-13 A Centennial to Celebrate - The Federal Reserve Looks Forward to Its Next 100 Years by Carl Tannenbaum of Northern Trust
The Fed’s centennial arrives at an interesting juncture. Never in its history has the American central bank been so deeply involved in economic management, and rarely has it attracted such controversy. The recent transition in Fed leadership marks the end of a significant era. In some ways, this makes it a perfect time to contemplate what the Fed was, what it has become and what it should be during its second century. The results of this review will be valuable to central banks the world over.
2014-02-07 2013 Year-End Investment Commentary by Team of Litman Gregory
We find ourselves with a more sanguine big-picture view, at least over the nearer term, than we have had in some time. U.S. and global economic fundamentals gradually improved over the past year across a number of dimensions, and seem poised for continued improvement or at least stability in 2014. However, as we look ahead, the longer-term risks related to excessive global debt, subpar growth, and unprecedented government policy that we have worried about since the aftermath of the 2008 financial crisis still remain largely unresolved.
2014-02-06 Will China Overtake the U.S. as World Leader and Reserve Currency? by Dawn Bennett of Bennett Group Financial Services
Will China Overtake the US as World Leader and Reserve Currency? This has not happened yet, but it may not be far down the road if the US does not get its fiscal house in order. The United States has been the biggest national economy since 1871, but more than half of Americans have slapped an expiration date on its global reign.
2014-02-05 The Fed\'s Forced Feeding Will End Badly by Dawn Bennett of Bennett Group Financial Services
This financial market reminds me of when we were kids sitting at the dinner table and the one thing almost all of us heard back in the 1970s was "that plate better be clean by the time I get back or else." This left us with images of torture that would follow the "or else."
2014-02-05 Emerald Economic Commentary by Team of Emerald Allocation Strategies
As Yogi Berra once said, "You got to be careful if you don’t know where you’re going, because you might not get there." As we look back on 2013 and look ahead to 2014,we want to share our thoughts on the road traveled and more importantly, the possible road ahead.
2014-01-31 The Trouble with Emerging Markets by Nouriel Roubini of Project Syndicate
The financial turmoil that hit emerging-market economies in the spring of last year, following the Federal Reserve’s "taper tantrum" over its quantitative-easing policy, has returned with a vengeance. But the immediate trigger for these pressures should not be confused with deeper causes: Many emerging markets are in real trouble.
2014-01-30 Quarterly Review and Outlook - Fourth Quarter 2013 by Van Hoisington, Lacy Hunt of Hoisington Investment Management
In The Theory of Interest, Irving Fisher, who Nobel Laureate Milton Friedman called America’s greatest economist, created the Fisher equation, which states the nominal bond yield is equal to the real yield plus expected inflation. It serves as the pillar of macroeconomics and as the foundational relationship of the bond market. It has been reconfirmed many times by scholarly examination and by the sheer force of historical experience. Examining periods of both low and high inflation offers insight into how each variable in the Fisher equation affects the outcome.
2014-01-29 A Few Concerns by Scott Brown of Raymond James
We’ve begun 2014 with widespread expectations that economic growth will pick up. Growth last year was restrained by tighter fiscal policy. With that out of the way and the housing sector recovering, the pace of expansion is poised to improve. However, there are a number of concerns. Weak growth in real wages may limit consumer spending, which accounts for 70% of Gross Domestic Product. Long-term interest rates could rise too rapidly, choking off the recovery in the housing sector. A continued low trend in inflation, a major concern for some Fed officials, could weaken growth.
2014-01-29 Bear Raid? by Jeffrey Saut of Raymond James
I should have guessed that something was wrong when I checked into the Langham Hotel last Thursday only to be told by the valet, "There is a bear on the loose in the neighborhood so watch out." At first I didn’t believe him, but when I turned the TV on there it was, and as the cameras rolled the news anchor said, "Pasadena police and wildlife officials are warning residents to be on alert for a black bear after it was spotted wandering through backyards. The animal appears to be moving from home to home."
2014-01-24 How the Safe Havens Stack Up by Russ Koesterich of iShares Blog
For investors who are worried about a correction, Russ provides a look at which traditional safe-haven assets tend to perform best during times of uncertainty.
2014-01-24 The Policy View From Washington by Scott Brown of Raymond James
Lawmakers put the finishing touches on the budget bill, which will remove most of the fiscal policy uncertainty for the next two years. That’s helpful for the economy and the financial markets, although the debt ceiling remains a possible trouble spot. Federal Reserve officials seem intent on continuing the tapering of asset purchases, but economic and financial market developments will dictate the pace.
2014-01-23 Economic Growth is Likely to Improve in 2014 by Derek Hamilton of Ivy Funds Investment Management
We believe a global economic upturn is likely in 2014, although the overall growth rate will remain sluggish. We think developed countries will show the largest improvement, which in turn will help support growth rates in emerging markets.
2014-01-23 Ordem e Progresso by Michael Gomez of PIMCO
Amid stagnant growth and high inflation in 2013, Brazil’s equity market was one of the worst performers, the real was a chronic underperformer and the corporate sector struggled. Brazil needs to anchor economic policy around a stringent and credible primary surplus target rather than run the current mix of loose fiscal policy, subsidized public credit and ever tighter monetary policy. Valuations are attractive, but unless an effective policy mix is restored, the outlook for order in Brazil’s financial markets is less certain.
2014-01-22 Market Outlook by Scotty George of Alexander Capital
One of the most common themes we hear from political pundits and market observers these days is about either the demise or rise of the middle class, an amorphous, non-homogeneous group of people not quite rich but also not too poor. This class is often cited as the reason either to be for or against legislation, fiscal policy, social norms, or the price of a gallon of gasoline at the pump!
2014-01-16 Fiscal Policy: Nothing\'s Certain with Debt and Taxes by Milton Ezrati of Lord Abbett
After the budget deal, markets will have to contend with two wild cards in Congress: the debt ceiling and tax reform.
2014-01-16 EM Sovereign Debt 2014: Neither Phoenix nor Failure by Paul DeNoon of AllianceBernstein
Emerging-market (EM) sovereign bonds were burned badly in 2013. Will they rise from the ashes in 2014? We believe some will and some won’t. The watchword for 2014 will be selectivity.
2014-01-14 Merk 2014 Dollar, Currency & Gold Outlook by Axel Merk of Merk Investments
Rarely has the future been so clear. Really?? A lot of money has been lost jumping on the bandwagon. Let’s do a common sense check on the greenback to gauge where risks might be lurking and where there might be profit opportunities for investors.
2014-01-13 Equity Bubble? No. by Richard Bernstein of Richard Bernstein Advisors
The US stock market performed very well during 2013. The S&P 500’s total return of nearly 33% far outpaced the returns of most asset classes. A growing contingent of market observers is fearful that the US equity market is in some sort of a bubble. We disagree completely with this notion. A strong market rally that many investors have missed is hardly sufficient grounds for a financial bubble.
2014-01-10 2014 Economic and Investment Outlook by Team of Ivy Funds Investment Management
Although the December 2013 U.S. budget pact between House and Senate negotiators was a welcome development, partisan battles over government spending still are possible in 2014. The agreement ends a three-year budget fight and sets government spending through fall 2015, but it does not eliminate the need to raise the nation’s borrowing limit - the "debt ceiling."
2014-01-10 Macro Strategy Review by Jim Welsh of Forward Investing
Heavy emphasis on the fundamentals factors driving the U.S., European Union, China, and Emerging economies, and how the fundamentals are likely to impact markets.
2014-01-09 A Great Time for Investors by Scott Minerd of Guggenheim Partners
Last January, the global economy faced myriad headwinds, choppiness lay ahead, and we expected plenty of volatility. Nevertheless, I said then that risk assets were the best choice for investors. Now, the headwinds of 2013 have largely dissipated, and the outlook is benign for risk assets for the first three to six months of 2014, if not longer.
2014-01-08 Ready For Lift-Off? by Scott Brown of Raymond James
While some had expected a quick recovery from the recession, that was never likely to be the case. Recessions that are caused by financial crises are different from the usual downturns - they are more severe, they last longer, and the recoveries take a long time. The economy has been in recovery mode for the last four and a half years, but finally appears to be poised for an acceleration in 2014.
2014-01-03 Six Questions for 2014 - January 3, 2014 by Carl Tannenbaum of Northern Trust
Our economic outlook for this year will be available next week. To provide a taste of what’s ahead, here are six of the key questions we’ll focus on during the coming months.
2013-12-27 Gary Shilling: Review and Forecast by John Mauldin of Millennium Wave Advisors
It’s that time of year again, when we begin to think of what the next one will bring. I will be doing my annual forecast issue next week, but my friend Gary Shilling has already done his and has graciously allowed me to use a shortened version of his letter as this week’s Thoughts from the Frontline. So without any further ado, let’s jump right to Gary’s look at where we are and where we’re going.
2013-12-21 Start Me Up: Fed Announces a Much-Anticipated Taper by Liz Ann Sonders of Charles Schwab
The Fed decided to begin tapering its QE-related bond purchases with a reduction of $10 billion; split evenly between Treasuries and mortgage-backed securities. In a sign that tapering was already priced in, the stock market surged on the announcement; while bond yields remained quite tame. The Fed announced slightly sunnier economic forecasts, suggesting quantitative easing could wind down within a year.
2013-12-20 Looking Beyond the Initial Fed Taper by Sam Wardwell of Pioneer Investments
Can the Fed be believed or trusted? Pioneer’s Sam Wardwell analyzes the tension between data dependency and forward guidance in Fed policy.
2013-12-19 A Dovish-Bullish Taper by Brian Wesbury, Bob Stein of First Trust Advisors
They finally did it. At Chairman Bernanke’s next to last meeting, the Federal Reserve announced a modest tapering of quantitative easing, reducing its monthly purchases of Treasury securities and mortgage-backed securities by $5 billion each ($10 billion total) to $75 billion starting in January. As a result, the size of the Fed’s balance sheet will continue to rise, but slightly more slowly than before.
2013-12-18 PIMCO\'s Cyclical Outlook for Asia: Growth Is Stabilizing but Not Stellar by Ramin Toloui, Tomoya Masanao, Robert Mead of PIMCO
In China, near-term economic performance will be dominated by the dialing back and forth of credit conditions by policymakers, while long-term reform progresses incrementally. Japan’s GDP growth will slow in 2014 due to a consumption tax hike but will still be above the country’s potential growth as it is assisted by reflationary policies. The pace of Australia’s growth will slow due to weakness in manufacturing and mining, reflecting tempered growth in China.
2013-12-17 Taper Time? by Scott Brown of Raymond James
There are many arguments for and against an initial reduction in the Fed’s monthly rate of asset purchases, but the balance has shifted toward a December taper. It appears to be a very close call, but even if the Fed decides to delay again, we all know (or should know) that QE3 is going to wind down in 2014.
2013-12-16 The World We Live In by Michael Kayes of Willingdon Wealth Management
For me, the final month of the year has always been a time to reflect upon the past as well as plan for the future. Analyzing the year soon to pass provides a valuable perspective with which to evaluate the important issues that will impact our country and economy going forward. In this context, 2013 sure has been a memorable year highlighted by horrific natural disasters, the deaths of Margaret Thatcher and Nelson Mandela, and on the lighter side, the unforgettable ending to perhaps the greatest Iron Bowl ever played.
2013-12-16 Debt Crisis Recovery: Bell Curves and Balance Sheets by John Greenwood of Invesco Blog
This three-part series examines the life cycle of a debt crisis and looks at where the US, UK and eurozone are in the recovery process. This second post looks at where the US stands in the deleveraging process. Part 1 explained the phases of a debt crisis, while Part 3 will focus on why the UK and eurozone lag the US in balance-sheet repair.
2013-12-16 2014 Investment Outlook: Economic Growth Should Broaden by Bob Doll of Nuveen Asset Management
For the first time in several years, we approach the new year without big clouds on the horizon. In the United States, accommodative monetary policy has healed many of the wounds from the 2008-2009 crisis.
2013-12-12 PIMCO Cyclical Outlook: Synchronized Optimism by Saumil Parikh of PIMCO
In the U.S., the abatement of fiscal policy tightening combined with steady improvements in labor market demand and higher asset valuations is likely to drive an increase in real growth. The eurozone should finally emerge from recession in 2014, and Japan is likely to continue to grow with the continued assistance of extraordinarily expansive policies. In China, external demand will likely improve, but domestic demand will likely slow somewhat.
2013-12-11 Muddling Through: The \'Realpolitik\' of the Eurozone Crisis by Andrew Bosomworth of PIMCO
The long-term cost of Europe’s economic recovery is likely to challenge social tolerance and political will to achieve a fully integrated fiscal and political union. Although able to exploit the untapped potential of European treaties, the soon-to-be-elected 8th European Parliament looks more likely to continue to muddle through. We see low medium-term risk for government and corporate bonds with maturities of up to three years, but caution may be required for securities with longer maturities and lower down in the capital structure.
2013-12-11 Q3:2013 Flow-of-Funds Report - \'Tis the Season to Be Jolly by Paul Kasriel of Econtrarian, LLC
I know that being a Debbie Downer gets more face time on cable news, but after looking at the Fed’s latest Financial Accounts of the U.S. report, formerly known as the Flow-of-Funds report, I cannot contain my optimism about the economy’s prospects in the New Year.
2013-12-10 Fiscal Policy and Monetary Policy - Update by Scott Brown of Raymond James
Market participants expected the November Employment Report to be the deciding factor on whether the Federal Reserve would begin to slow its rate of asset purchases this month. However, officials aren’t going to react to any one piece of data. The best argument for tapering is that it has to start sometime. However, the key factors that delayed the tapering in September and October are still with us to some extent.
2013-12-05 Gimme Three Steps...on the Path of Deleveraging by Liz Ann Sonders of Charles Schwab
Debt (and Fed policy) continue to be my biggest longer-term concerns; even with the progress made over the past few years by the household sector. The budget deficit is plunging; and that’s great news, but more is needed to bring overall debt growth down to more reasonable levels. The solutions stool is three-legged: spending, revenues...and growth!
2013-12-03 Is the Fed Increasingly Monetizing Government Debt? by Axel Merk of Merk Investments
Fed Chair Bernanke vehemently denies Fed "monetizes the debt," but our research shows the Fed may be increasingly doing so. We explain why and what the implications may be for the dollar, gold and currencies.
2013-11-22 What is the Current Market Reality? by Giordano Lombardo of Pioneer Investments
At this year’s Global Investment Forum, the discussion among Pioneer investment professionals was generally positive. Of course, everyone was conscious of the current market reality: that the major force behind recent positive, though benign, market trends is the unprecedented creation of liquidity and extremely loose stance of monetary policies around the world. Monetary policy alone cannot be the only conduit to a new economic model of income growth and job creation.
2013-11-20 Yellen: “Farther To Go” by Scott Brown of Raymond James
Janet Yellen gave a balanced assessment of how monetary policy will be conducted during her tenure as Fed chair. However, the financial markets perceived a “dovish” tilt. She stressed that conditions in the labor market are still far from normal and noted that inflation has been running below the Fed’s goal of 2% “and is expected to do so for some time.” However, Yellen noted that there were risks of removing support too late as well as too soon. QE3 can’t go on forever.
2013-11-18 Willing a Fiscal Win by Christine Hurtsellers, Matt Toms of ING Investment Management
Why can’t we just will our desired political outcomes the way the most fervent seemingly can impact ballgames? After watching Fenway Park packed to the rafters with Red Sox faithful exercising their sovereign and ethereal right to psychically encourage baseballs out of the yard and knowing that millions of others in Red Sox nation were doing the same in front of their televisions we’re left wondering if the fans of Team U.S.A. can apply a little of that classic Carlton Fisk mojo a few hundred miles down I-95.
2013-11-12 Markets Vacillate Between Stronger Economy and Fed Accommodation by Bob Doll of Nuveen Asset Management
U.S. equities finished mostly higher last week as the S&P 500 increased 0.6%, ending higher for the fifth straight week. The return of central bank action was a primary concern. The European Central Bank (ECB) surprised investors with a 0.25% rate cut, while the debate over the Federal Reserve’s impending tapering decision continued in earnest.
2013-11-06 Tighter Fiscal Policy Not Helping by Scott Brown of Raymond James
We are now more than five years into the economic expansion, but to many Americans, it still feels like a recession. Many of the headwinds that restrained the recovery early on, such as housing and state and local government, have turned to modest tailwinds, and monetary policy remains highly accommodative. The biggest restraint on growth this year has been fiscal policy. There is a near-term focus on a long-term budget deal, but an agreement seems rather unlikely. Sequester spending cuts set for mid-January should be a more important consideration for lawmakers.
2013-11-05 Fed in Holding Pattern, but for How Long? by Christopher Molumphy of Franklin Templeton
At its October 29-30 policy meeting, the US Federal Reserve (Fed) again put off the so-called “tapering” of its $85 billion-a-month asset purchase plan, now over a year old, until some future date. In an official statement released at the conclusion of the meeting, the Fed cited fiscal policy issues as restraining growth and said it will continue its quantitative easing program (known as “QE”) until the job market improves “substantially.”
2013-11-01 Weekly Economic Commentary by Team of Northern Trust
The public needs to move beyond its bad feelings toward financial institutions. Should we modify the price stability mandate of central banks? The Fed offers no surprises.
2013-10-30 Bernanke vs. Yellen: A Spooky Outlook? by Axel Merk of Merk Investments
Fed Chair nominee Janet Yellen will take over where her predecessor Ben Bernanke leaves off. Not just operationally, but also philosophically. To understand where the Fed and the U.S. dollar may be heading, we take a closer look at where Bernanke and Yellen are coming from.
2013-10-30 Fed Tapering Could Be Off The Table Until 2014 by Michael Materasso of Franklin Templeton
Sometimes, hindsight is insight. The mystery of why the Federal Reserve didn’t start pulling back or “tapering” its prolonged quantitative easing program at its September policy meeting seems more clear now that we’ve experienced the fallout from the fraying of US fiscal policy soon thereafter, including a 16-day government shutdown in October. Given that the Congressional agreement reached in October only funds the government through January 15 and extends the debt ceiling through February 7, more political grandstandingand economic consequencescould lie ahead.
2013-10-29 Equities Reach All-Time HighsYet Again! by Bob Doll of Nuveen Asset Management
U.S. equities marked another all-time high last week as the S&P 500 increased 0.9%. (1) Global equities reached new cycle highs for the second week in a row. Many investors have concerns that the gains will not last since the world economy remains lackluster and the liquidity driving the current rally will eventually stop.
2013-10-28 Beyond the Noise, More of the Same? by Scott Brown of Raymond James
Delayed economic data reports have begun to arrive. The figures point to a disappointing 3Q13 (relative to expectations) and the partial government shutdown is unlikely to help in 4Q13. The recovery had been poised for improvement this year, but fiscal policy has been a major headwind. Economic figures will be distorted in October (due to the government shutdown) and in November (due to the rebound from the shutdown). Yet, beyond the noise, the underlying pace of growth is likely to remain disappointing in the near term. Is there hope for 2014?
2013-10-23 Economic & Capital Market Summary by Gregory Hahn of Winthrop Capital Management
It has been five years since the Financial Crisis wreaked havoc on the economy and capital markets. With equity markets trading near record highs and new issue corporate bonds coming to market regularly, the capital markets have largely recovered. However, we are concerned that the economic recovery is just an illusion that exists in spite of the efforts in Washington D.C. to kill it.
2013-10-22 The Fiscal Follies, the Economy, and the Fed by Scott Brown of Raymond James
The deal reached last week does not remove uncertainty about the budget and debt ceiling. We could go through a similar crisis in three months. The hope is that lawmakers will learn from the recent experience and work together.
2013-10-21 Smaller Government Won! by Brian Wesbury, Bob Stein of First Trust Advisors
Well, New York City is not underwater, China did not sell bonds, oil did not stop flowing in the Bakken or Eagle Ford, the Cloud is still wherever it is, or was, the US stock market did not collapse, and the earth is still rotating on its axis. Democrats are still mad at Republicans, who are still mad at the Tea Party, who still fret about the path of fiscal policy.
2013-10-21 Europe Turning a Corner? by Brandon Odenath of J.P. Morgan Funds
Since late last year, investors have seen periods of strong outperformance by assets from the most impacted parts of Europe, leaving many observers wondering if Europe is turning a corner. Intervention by the ECB and the ability of those liquidity injections to stop the bleeding in the economy has helped. The reduction of austerity and drag coming from fiscal policy should be the key to faster economic growth.
2013-10-18 High Yield Bond Outlook: A Time for Unconstrained Management by Vilis Pasts, Matthew Pasts, Isaac Braley of BTS Asset Management
Using our unconstrained approach, BTS indicators signaled a move back into High Yield bonds near the end of September.BTS Asset Management views the High Yield bond sector as exhibiting solid fundamentals. Based on historical comparisons, High Yields have strong cash flow coverage for interest payments, due to conservative use of leverage. Post 2008, companies hired less people and have kept other fixed costs down.
2013-10-17 Yellen to the Rescue? by Axel Merk of Merk Investments
While Democrats and Republicans fight with water pistols, the President may be readying a bazooka by nominating Janet Yellen to succeed Ben Bernanke as Fed Chair. You may want to hold on to your wallet; let me explain.
2013-10-17 Some Encouraging News, but Further Uncertainties by Scott Brown of Raymond James
Financial market participants welcomed signs that leaders in Washington were at least willing to talk to each other. However, it remains unclear what sort of agreement will be reached. A temporary extension of the debt ceiling sidesteps a near-term financial catastrophe, but does not remove uncertainty completely.
2013-10-16 Two More Reasons to Like Equities: Growth & Inflation by Russ Koesterich of iShares Blog
Russ offers more evidence supporting his preference for equities over bonds: Historically equities have tended to outperform bonds on a monthly basis in a growth and inflation scenario like the one we’re in today.
2013-10-11 Flying Blind: Forecasting with No Data or Endgame by Diane Swonk of Mesirow Financial
Everything from the government shutdown to posturing regarding the lifting of the debt ceiling has heightened uncertainty about the economic outlook. Consumer and business confidence have fallen since the threat of a shutdown emerged, while the reality has taken a toll on communities where a large number of federal workers have been furloughed. Everyone, from cab drivers to restaurant owners, small retailers and (largely) defense manufacturers, were affected in the early days of the partial shutdown of government agencies.
2013-10-09 Five Years in Limbo by Joseph Stiglitz of Project Syndicate
The US financial system may be more stable than it was five years ago, but that is a low bar it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild regulatory improvements should focus on what still needs to be done.
2013-10-04 The New Normalization of Fed Policy by Tony Crescenzi of PIMCO
The Fed is sending a message that the unwinding of its extraordinary accommodation will be done with great care and patience, and will take time - a long time. In delaying a taper, not only did the Fed show markets it has little tolerance for any tightening of financial conditions, it also strengthened its forward guidance considerably. The Fed’s decision to delay a taper will likely relieve some of the upward pressure on longer-term interest rates.
2013-09-30 Fourth Quarter Outlook: A Turning Point? by Gene Goldman of Cetera Financial Group
It seems sometimes that the outlook for the global economy and the markets has been unchanged for years. Since the end of the recession, each year has commenced with forecasts that the United States economy would break out of its below-trend growth mode, only to see expectations dashed. Meanwhile, Europe has been mired in its own recession as it struggles with heavy post-crisis debt burdens. Growth has slowed in the emerging markets, ending the commodity boom of the first decade of this century.
2013-09-27 Give Me Tapering... Just Not Yet by Zach Pandl of Columbia Management
Last week Federal Reserve (the Fed) officials surprised investors by choosing not to begin slowing the pace of quantitative easing (QE) despite months of setup in their public comments. Instead, the latest iteration of the Fed’s bond buying strategy will continue at $85 billion per month. At this point our best guess is that the decision was a path of least resistance among a divided committee: there seemed to be a number of officials who were concerned about downside risks to growth from fiscal policy uncertainty and higher interest rates.
2013-09-27 You Never Know by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Surprises come at any moment in the investing world, reinforcing the need to have both a long-term view and a balanced/diversified portfolio. We believe signs are pointing to better US and European growth, a near-term rebound in China, and some possible positive momentum building in Japan. But near-term fiscal policy risks abound. Investors that need to add to equity positions should use pullbacks to do so.
2013-09-26 PIMCO Cyclical Outlook for Europe: Near-Term Recovery, Long-Term Risks by Andrew Balls of PIMCO
While Europe has emerged out of recession, the relative tightness of monetary policy means the eurozone is still struggling to get back to potential pre-Lehman growth rates. The European Central Bank should be able to maintain stability over the cyclical horizon while policymakers continue to address outstanding issues as they look to build a less vulnerable monetary union. We are selective in our approach to regional credit and remain neutral on the euro, balancing our cyclical outlook with longer-term secular concerns on the eurozone outlook and valuations.
2013-09-25 Fiscal Policy: Once More, with Ceiling by Milton Ezrati of Lord Abbett
Will the upcoming congressional debate on interim financing and raising the debt limit lead to a government shutdownand market turmoil? Not likely.
2013-09-25 Misplaced Budget Priorities by Scott Brown of Raymond James
The Federal Open Market Committee delayed the initial reduction in the pace of its asset purchases, citing concern about the recent tightening of financial conditions (higher long-term interest rates). However, Bernanke also noted uncertainty in fiscal policy. He recognized the improvement in economic activity and labor market conditions since the Fed began QE3, which was achieved in spite of a federal fiscal retrenchment. He also suggested that the debates on the government’s spending and borrowing authorities may create downside risks.
2013-09-23 Seeking Global Growth: Our Outlook for Credit by James Balfour of Loomis Sayles
Global business and credit cycles are nothing new to investors. The familiar sequence of recession, recovery, expansion and slowdown plays out over time, influencing interest rates, credit availability, business climate and capital markets. It’s a time-honored process, but in practice, no two business and credit cycle pairings are exactly alike. Business and credit cycles tend to be driven by specific but varying factors that accumulate until an economic “tipping point” is reached, after which the business and credit climates deteriorate.
2013-09-21 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
Global deleveraging has a long way to go. Fiscal drama and the economy. Funding for economic statistics needs to be enhanced
2013-09-19 When Doves Cry, \"Not Yet\" by Liz Ann Sonders of Charles Schwab
The Fed surprised markets and the consensus by maintaining its full QE bond buying program; while both stocks and bonds soared on the news.
2013-09-19 A Fine Balance in the Global Profits Cycle by Saumil Parikh of PIMCO
In the U.S., we expect growth to accelerate over the cyclical horizon, but to disappoint elevated consensus expectations. In Europe, we also expect growth to accelerate, but just barely, and also below consensus. In Japan, we expect growth to remain heavily reliant on aggressive fiscal and monetary policies. And in emerging markets, we expect a stabilization in growth assisted by central banks regaining control of currency and financial market conditions. The outlook for global corporate profits is a key measure of success in determining the handoff to self-sustaining growth going forward.
2013-09-12 Brave New World by Christine Hurtsellers, Matt Toms of ING Investment Management
If the monotony of high school lulled you into a catatonic state the semester you were supposed to read Brave New World, here’s the CliffsNotes summary of what you missed. Aldous Huxley imagined a futuristic utopia in which the government promotes economic and emotional stability through the plentiful use of a soporific opiate called “soma”. Soma allows the mind to take a holiday from worldly problems via a gram, or two or three. Imagine the chaos into which this fictional world would descend were the government to abandon its role as pharmacist to the masses.
2013-09-03 As Uncertainty Abounds in September, Sideways Consolidation Continues by Bob Doll of Nuveen Asset Management
Global equities struggled last week, with the S&P 500 declining -1.39%.1 Volatility rose from geopolitical uncertainty over the military strike in Syria.2 Oil prices spiked with concerns about escalation and tension but retreated due to dampened international support and expectations that a military campaign would be short-lived. The U.S. Treasury announced its borrowing capacity will be exhausted by mid-October, exposing contentious fiscal battles. Reports mentioned former Treasury Secretary Larry Summers may be leading the succession race for Fed Chairman.
2013-08-30 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
Global policy-makers increasingly at odds with one another. Foreign exchange reserves may hold key to stabilizing emerging markets. Geopolitics weigh heavily on energy markets.
2013-08-26 Equities Relatively Flat as Crosscurrents Remain by Bob Doll of Nuveen Asset Management
U.S. equities finished mostly higher last week, and the S&P 500 advanced 0.50%.1 The Dow Jones Industrial Average was the only the only major U.S. index to falter last week.1 Market sentiment was dominated by the notion that the market had become too bearish in the wake of the prior week’s sell-off in equities and credit. Continued improvement in global recovery sentiment seemed to provide a notable tailwind. The Fed dominated headlines markets appear obsessed with policy normalization and succession issues.
2013-08-19 The Tick-Tock on Tapering by Scott Brown of Raymond James
The Fed’s September 18 decision on whether to begin reducing the pace of asset purchases will depend on the economic data (the job market figures, in particular), but there’s a growing consensus that we’re likely to see a modest initial step, as a compromise between Fed officials who want to end the program sooner and those that want to see it continued. There are other things for policymakers to consider. One is the possibility of an adverse reaction in the financial markets. Another concern is the low underlying trend in inflation.
2013-08-15 Correlation and Portfolio Construction by Dean Curnutt of Macro Risk Advisors
We review recent periods of financial market stress, which bring about elevated levels of asset volatility and during which investors are vulnerable to incurring substantial loss of capital. We illustrate that risk is determined both by the volatility of individual investments in a portfolio and the degree to which they are correlated. Often overlooked, correlation is a critical factor. Because assets become more correlated at the same time they become more volatile, we argue that the benefits of diversification often are difficult to achieve when they are most needed.
2013-08-13 So Now What? by Scott Brown of Raymond James
What did we learn last week? The Fed may not be in any hurry to begin reducing the rate of asset purchases. The economic data suggest a mixed picture.
2013-08-13 Emerging Asia Pacific: Regional Economic Review - Q2 2013 by Team of Thomas White International
Asia’s emerging nations, the darling of the world economy since the 2000s, uncharacteristically slowed in the first quarter of 2013. After a decade of robust growth, many of Asia’s fast-growing economies are coming to terms with structural changes. Asian currencies, which had appreciated quite a bit over the past few years thanks to ultra-loose monetary policy in the developed world, came tumbling down at the first talk of a slowdown in the supply of cheap money.
2013-08-12 Fight Over the Fed: Why So Ugly? by Michelle Shwarzman of Invesco Blog
When President Barack Obama let it slip in a June interview that Federal Reserve (Fed) Chairman Ben Bernanke had “already stayed a lot longer than he wanted or he was supposed to,” the quest for the next Fed chair was underway. But few anticipated it would devolve into a fairly brutal brawl - by economist standards - between two extremely competent and capable PhD candidates: Fed Vice Chair Janet Yellen and former Treasury Secretary Larry Summers, who also served as Harvard’s president and chief White House economic advisor.
2013-08-05 The Minsky Bubble by John Hussman of Hussman Funds
In his classic treatise on speculation, Manias, Panics and Crashes (originally published in 1978), the late Charles Kindleberger laid out a pattern of events that has periodically occurred in financial markets throughout history. Drawing on the work of economist Hyman Minsky, the conditions he described are likely far more relevant at the present moment than investors may recognize.
2013-07-31 An Important Week on the Economic Front by Scott Brown of Raymond James
The markets have placed too much emphasis on the Fed tapering. Whether policymakers decide to slow the rate of asset purchases in September or December shouldn’t matter all that much. The Fed’s decision will be data-dependent. Note that it’s not the figures themselves that matter. Rather, it’s what the data imply for the overall economic outlook.
2013-07-30 Earnings Take a Back Seat to Policy by Chris Maxey, Ryan Davis of Fortigent
Although it was a quiet week on the economic front, there were a few notable indicators to digest.
2013-07-30 FPA Crescent: Steve Romick\'s Quarterly Commentary by Steven Romick of FPA Funds
FPA Crescent Fund has released its quarterly commentary examining the state of the fund and its investments as well as an outlook on the greater economy. Portfolio manager Steve Romick feels that the economic “recovery has been disappointing and largely engineered by central bank policy” and worries “that low interest rates and novel and theoretical Fed policy could lead to unintended consequences.”
2013-07-24 Quarterly Review and Outlook by Van Hoisington, Lacy Hunt of Hoisington Investment Management
The secular low in bond yields has yet to be recorded. This assessment for a continuing pattern of lower yields in the quarters ahead is clearly a minority view, as the recent selling of all types of bond products attest. The rise in long term yields over the last several months was accelerated by the recent Federal Reserve announcement that it would be “tapering” its purchases of Treasury and mortgage-backed securities. This has convinced many bond market participants that the low in long rates is in the past.
2013-07-22 The Purgatory of Low Returns by James Montier of GMO
This might just be the cruelest time to be an asset allocator. Normally we find ourselves in situations in which at least something is cheap; for instance when large swathes of risk assets have been expensive, safe haven assets have generally been cheap, or at least reasonable (and vice versa). This was typified by the opportunity set we witnessed in 2007.
2013-07-19 Is Inflation Really Gone Forever? by Jon Ruff of AllianceBernstein
Recent movements in asset prices suggest that markets have forsaken any possibility of an inflation outbreak in the next decade. We believe that view is far too sanguine.
2013-07-19 Weekly Economic Commentary by Team of Northern Trust
The year’s first half included some big surprises. U.S. wage and salary growth sets the stage for stronger consumption. Don’t be discouraged by the most recent housing report.
2013-07-17 Canadian Secular View: Into Darkness? by Ed Devlin of PIMCO
Many investors are buying Canadian federal government bonds, shorting Canadian bank stocks and selling Canadian dollars in anticipation of a prolonged downturn. While significant risks are clearly facing the Canadian economy, our baseline forecast does not justify positioning our portfolios for a prolonged Canadian downturn.
2013-07-09 The G8: Sorry, Maybe Next Time by Milton Ezrati of Lord Abbett
While the recent gathering of the Group of 8 industrialized nations addressed worthy topics such as Syria and tax avoidance, it failed to tackle essential economic and fiscal issues.
2013-07-03 Failure to Communicate, Part 2 by Scott Brown of Raymond James
The financial markets have begun to reassess Fed Chairman Bernanke’s monetary policy comments. Several Fed officials spoke last week, each echoing Bernanke’s key messages: 1) policy will remain data-dependent, 2) tapering is not tightening, and 3) a rise in the federal funds target rate is a long time off. With an emphasis on data-dependence, the economic figures should get more scrutiny from the markets. Still, there’s a sense that hope plays a major role the Fed’s economic outlook.
2013-06-27 Monetary Exit Strategy: Removing The Doubt by Zach Pandl of Columbia Management
In the press conference following last weeks FOMC meeting, Federal Reserve (the Fed) Chairman Bernanke said that the committee was “puzzled” by the sharp rise in bond yields over the last two months, and that the increase “seems larger than can be explained by a changing view of monetary policy.” We would argue, in contrast, that the recent increase in bond yields has been almost entirely about a changing view of monetary policy.
2013-06-19 Changes in our Asset Allocation by Gregory Hahn of Winthrop Capital Management
We believe that valuations in publicly traded securities are stretched, and, although we have seen a move higher in interest rates and stocks have sold off from their high levels, investors are faced with choices that offer generally lower expected returns based on historic measures of return. Today, with the S&P 500 hitting 1650 and the yield on the 10 year US Treasury Note moving abruptly from 1.70% to 2.15%, there are generally two schools of thought on the minds of investors.
2013-06-17 The Price of Distortion by John Hussman of Hussman Funds
Corporate profits have benefited in recent years from enormous fiscal distortions that have bloated margins 70% above their historical norms. Stock prices have benefited in recent years from enormous monetary distortions that have suppressed interest rates and encouraged investors to “reach for yield.” Combining those effects, investors have been encouraged to chase stocks, placing elevated price/earnings multiples on already elevated earnings. Investors who value stocks on the basis of these distortions are likely to discover in hindsight that they have paid a very dear price.
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 On the Radar: Bernanke\'s Balancing Act by Milton Ezrati of Lord Abbett
A recent analysis in this space made the case for equities. Pointing to the continued flood of liquidity from the Federal Reserve and still-attractive stock valuations, I argued that the rally would continue, despite the subpar economic recovery and continued policy muddles in Washington and Europe. In this column, I will take up one of those fundamental, longer-term considerations: Fed policy. The columns that follow will discuss two other major issues: fiscal policy and energy.
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.
2013-06-08 Banzai! Banzai! Banzai! by John Mauldin of Millennium Wave Advisors
In practice it may be harder for Japan to grow and generate inflation than it might be for other major nations. Today we’ll focus on Japanese demographics. While the letter is full of graphs and charts, it does not paint a pretty picture. The forces of deflation will not go gently into that good night.
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 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.
2013-06-05 Will Green Shoots Flourish in U.S. and Latin America? by Josh Thimons, Lupin Rahman of PIMCO
The US economy is much further along the road to repair relative to its developed market peers, but it is still dealing with an unsustainable fiscal situation. Latin America is closely coupled to the rest of the world. What happens in the U.S., China and Europe over the secular horizon is especially critical. Our secular investment outlook calls for a more defensive posture toward risk. In U.S. fixed income, this suggests positioning for alpha rather than capital appreciation.
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.
2013-05-31 The Week in Fiscal and Monetary Policy by Scott Brown of Raymond James
The financial markets were more than a bit confused by the minutes of the April 30 May 1 Federal Open Market Committee meeting. Some Fed officials wanted to begin tapering the rate of asset purchases as early as June. However, that wasn’t a majority opinion. Fed Chairman Bernanke’s testimony to the Joint Economic Committee of Congress was balanced, but strongly suggested that monetary policy is unlikely to be tightened anytime soon. In his testimony, Bernanke also lectured congress on fiscal policy, which has been completely wrong-footed this year.
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.
2013-05-29 Filling the Hole We Have Dug by Adam Bowe, Robert Mead of PIMCO
Mining investment contributed more than 60% of the growth in Australia’s GDP in 2012. The expected decline in mining investment will likely leave a significant economic hole in the short term that needs to be filled. PIMCO expects easier monetary policy will be needed to support other sources of domestic growth, such as non-mining business investment, household consumption and housing construction.
2013-05-28 Economic Climate Change & the Long-Term View on Yields by Sponsored Content from Loomis Sayles (Article)
Will rates rise? It’s a logical question. US Treasury yields have been in a secular downward trend since the 1980s and almost frozen at historic lows for the last several months. While recent cyclical improvements suggest the US economy is heating up, we do not expect interest rates to start soaring to record highs. The interest rate environment will eventually undergo climate change, but the process will be gradual. There are secular headwinds cooling rates, and we expect them to persist for years to come.
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.
2013-05-22 How to Turn the ECB Straggler into a Central Bank Pacemaker by Myles Bradshaw of PIMCO
In our opinion, the ECB will be most effective if it can design a programme that helps banks deleverage more quickly to stimulate growth in the real economy. To have a meaningful impact on Europe’s broken transmission mechanism, any ECB programme needs to not only lower the cost of credit, but also be regionally tailored or big enough to be effective. Long-term investors should remain focused on the quality of issuers’ balance sheets rather than simply taking more risk because of lower prospective returns.
2013-05-22 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Once again stock prices moved higher last week despite mostly poor economic data and a background in Washington DC of multiple scandals. The latter begging the question as to whether substantive policy actions are now off the table for the year.
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.
2013-05-14 The Budget Deficit by Scott Brown of Raymond James
The Monthly Treasury Statement showed a large budget surplus for April. Some of that may prove to be temporary. Income was pulled forward into 2012 ahead of expected tax increases in 2013 and that was reflected in higher tax payments in April. Some of it is payback from the bailouts of a few years ago (for example, earnings from Fannie Mae and Freddie Mac). However, much of the improvement reflects a rebound from a severe recession. Tax revenues are recovering and recession-related expenses are trending lower.
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.
2013-05-06 All's Well That Ends Well by Scott Brown of Raymond James
The economic data reports were decidedly mixed last week. However, the April Employment Report exceeded expectations, which provided a good excuse for share prices to move higher. Bonds were whipsawed, encouraged by the view that the Fed was less likely to taper its asset purchases, but then hit hard by the better-than-expected payroll figures.
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.
2013-05-06 Sell in May But Stick Around by Christian Thwaites of Sentinel Investments
A bit odd, perhaps, to worry about deflation as the S&P hits all time highs. But the whiff of deflation is in the air. The YOY PCE core (the one the Fed likes) came in at 1.1% which is the lowest it has ever been.
2013-05-02 Fed Doesn\'t Budge by Brian Wesbury, Bob Stein of First Trust Advisors
It would be hard to find a policy statement from the Federal Reserve with as few changes as the one issued today. The Fed made no changes to monetary policy and only minor changes to the language of its statement. Even the lone dissent, from Kansas City Fed Bank President Esther George, was a carbon copy from the last statement in March.
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.
2013-04-30 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.
2013-04-25 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 Europe's Sovereign Debt Problem: A Call for a Clear Destination by Andrew Bosomworth, John Henning Fock of PIMCO
Without political commitment to a common fiscal destination, the long-term instability and market distortions within Europe’s capital markets are likely to intensify. To preserve the euro, the eurozone must develop federal fiscal policies that tackle significant economic, cultural and societal differences and define a credible roadmap to achieving structural reforms, a banking union, political union and fiscal union. Historical precedents in Europe may help guide the way.
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.
2013-04-19 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.
2013-04-11 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 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 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.
2013-04-05 PIMCO Cyclical Outlook for the U.S.: Back From the Brink by Josh Thimons of PIMCO
We expect the largest contributors to U.S. growth this year will be housing and related industries, increases in capital expenditures (albeit from very depressed levels), certain manufacturing sectors, such as the auto industry, and the energy sector. We see roughly 1.7 percentage points of drag on GDP coming out of Washington far less than the four to five percentage points of potential drag had there been no fiscal cliff resolution. We believe the Fed will continue with hyperactive monetary policy, which we now call “QE Infinity,” that does not have an explicit end date or progr
2013-04-05 Every Gold Coin Has Two Sides by Frank Holmes of U.S. Global Investors
Just as every coin has two sides, every data point that doesn’t meet expectations usually has an upside somewhere. For instance, although the gold price has fallen with the strengthening U.S. dollar, the yellow metal is appreciating in Japanese yen. So when negative news about the economy came out this week, along with the U.S. Labor Department reporting that the country added only 88,000 jobs in March, investors found reasons to be encouraged.
2013-04-03 When Does The Great Recession Become the Great Rotation? by Gene Tannuzzo of Columbia Management
Given the strong flows into the bond market over the past few years, many pundits have pondered the beginning of the “Great Rotation” when bond investors begin to move money into the equity market. Investors fear that this shift could cause losses in bond funds as investors flee. Indeed since the start of the Great Recession in 2008, investors have plowed into bond funds as an alternative to equity volatility.
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.
2013-04-02 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.
2013-04-01 Again and Again. by Scotty George of du Pasquier Asset Management
My work has always been predicated upon using quantitative modifiers to enhance portfolio value through greater efficiency of information processing and the creation of momentum-driven asset allocation models. But because so many investors quizzically suffer from a herd mentality, they find it difficult to digest common sense solutions to diffuse problems. And yet, our methodology and its consistent point of view has enabled clients to benefit without compromising investment expectations.
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.
2013-03-25 Fed Outlook: Cautiously Optimistic or Just Hopeful? by Scott Brown of Raymond James
The Federal Open Market Committee’s latest policy meeting generated few surprises. The FOMC maintained its forward guidance on the federal funds rate target, which is still not expected to start rising until 2015, and did not alter its asset purchases plans ($40 billion per month in agency mortgage-backed securities and $45 billion in longer-term Treasuries). However, in his press briefing, Bernanke indicated that the pace of asset purchases could be varied as progress is made toward the Fed’s goals or if the assessment of the benefits and potential costs of the program were to cha
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.
2013-03-25 Still Bullish by Richard Golod of Invesco
Global equities (as measured by the MSCI All Country World Index) fell modestly in February amid reignited fears about the euro’s future, signs of distress in China’s economy and the looming sequester deadline in the US. Nevertheless, I believe the US, Japan and emerging markets may offer compelling opportunities, while Europe requires a more selective approach.
2013-03-21 Fed Still Inching Toward Optimism by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve made no changes to monetary policy today and only some small changes to the language of its statement. Once again, the Fed’s comments were slightly more optimistic about the economy than they were after the prior meeting.
2013-03-19 Rising Political Risk and Ongoing Economic Weakness Challenge a Difficult Journey to Recovery by Andrew Balls of PIMCO
Looking ahead, it will continue to be a very bumpy journey as we anticipate economic contraction in the eurozone by -0.75% to -1.25% over the next year, hampered by growing political risk and fiscal tightening. Although we expect the pace of contraction in the eurozone to diminish over 2013, the duration of the recession is likely to be longer than consensus forecasts.
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 Washington May Be Ready to Take a Break From the Brink by Josh Thimons, Libby Cantrill of PIMCO
With Washington’s dysfunction not in the forefront, the economy could be more unencumbered to grow, with markets trending in a similar direction. The Fed’s proactive policies should continue to favor overweight positions in the five-year through 10-year part of the Treasury yield curve and support interest-rate-sensitive sectors of the economy most notably housing. In the longer term, however, we would advise investors to be cautious: Without meaningful long-term structural deficit reform, real growth will inevitably lag in the U.S.
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.
2013-03-11 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 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.
2013-03-05 Weave a Circle Round Us Thrice by Christian Thwaites of Sentinel Investments
There was plenty of news to threaten the recent market rallies but, as of writing, we're within a whisper of all time highs in US stocks and managing to have a very orderly consolidation in bonds. This is surprising because the political process has once again taken careful aim and shot itself in the foot. The sequester has become the dumb answer to difficult questions and will initiate, mostly indiscriminate, across-the-board cuts.
2013-03-05 Reflections on Sequester by Bill O'Grady of Confluence Investment Management
Over the past several weeks, the notion of sequester, a plan of across the board spending cuts, has been dominating the news. The sequester was a program designed to never go into effect. In the dark days of 2011, when the debt ceiling debate threatened to cause the U.S. to default on its debt, the administration and the House GOP made a deal. In return for a higher debt ceiling, one high enough to ensure that it would not be hit before the 2012 presidential elections, a commission was tasked to make significant cuts to fiscal spending.
2013-03-05 No Rest for the Wicked by Scott Brown of Raymond James
With headwinds fading, the U.S. economic recovery appeared poised to pick up more substantially in 2013. Unfortunately, fiscal policy is going in the wrong direction.
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.
2013-03-01 ProVise Bullets by Ray Ferrara of ProVise Management Group
With the battle over sequestration going on in Washington, the President has made it clear he wants to raise more revenue. Just what does he have in mind? First, he would like to limit itemized deductions beginning at the 28% tax bracket. This means that taxpayers in the top three brackets would lose some of the benefit of their itemized deductions. Of course, these deductions have a phase out, so the effect may not be as great as is perceived.
2013-03-01 There Are More Sellers Than Buyers in the World Economy. by Team of Northern Trust
There are more sellers than buyers in the world economy. The recent Italian election may usher in renewed instability. US bank lending is finally expanding, but not everyone is happy about it.
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 Fiscal Policy: The Same Old Drag by Milton Ezrati of Lord Abbett
Among the many fears shared by investors, concerns over fiscal drag have recently risen. Though no one yet can know the specifics of Washington's coming compromises, these will no doubt impose the anticipated tax hikes or spending cuts, and these will indeed hold back the pace of economic growth. Still, it would be a mistake to anticipate too much of a shock. The country, after all, has suffered fiscal drag for some years now. Even with failure in Washington, a moderation in cutbacks at the state and local level should allow government overall to offer the economy a measure of relief.
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 Cracks Appear in the French Economic Model by Darren Williams of AllianceBernstein
Today's PMI data point to a deepening recession in France at a time when Germany is showing tentative signs of life. Is the euro crisis exposing the weaknesses of the French economic model?
2013-02-20 Sequestration Will Slow Real GDP Growth But Not Because of Demand-‐Side Effects by Paul Kasriel of Econtrarian, LLC
In my February 5, 2013 commentary "2013 Economic Outlook Bright Sunshine for the U.S., Some Cloud Abroad," I argued that changes in federal fiscal policy have no material impact on total spending on the economy, but rather affect the distribution or composition of a given amount of total spending. The crux of my argument was that other private spending would "crowd in/out" changes in demand emanating from changes in tax and/or government spending policies. In this commentary, I will amend that argument.
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 All is Not Well Down Under by Russ Koesterich of iShares Blog
Though Russ continues to like Australian equities for the longer term, he explains why he may downgrade his near-term view of the Australian market soon.
2013-02-19 On Competitive Devaluations by Scott Brown of Raymond James
Aggressive monetary policy moves in recent years have been accompanied by a growing fear of a currency war. In a currency war, or competitive devaluation, countries attempt to weaken their currencies to boost exports, but each devaluation leads to counter devaluations. That's not what's going on now. However, whether a country is purposely devaluing its currency or is merely pursuing accommodative monetary policy is irrelevant, the consequences are the same. The recent meeting of G-20 finance ministers and central bankers highlights the lack of coherent policies to boost growth.
2013-02-15 All is Not Well Down Under by Russ Koesterich of iShares Blog
Though Russ continues to like Australian equities for the longer term, he explains why he may downgrade his near-term view of the Australian market soon.
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).
2013-02-12 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.
2013-02-08 The Year in Review: 2012 by Richard Bernstein of Richard Bernstein Advisors
Politicians crave the spotlight, but it is unfortunate that investors watch the show. 2012, like 2011, was another year in which Washington theatrics scared investors. As a result, investors largely missed out on above average equity returns. Corporate profits and valuations, and not Washington, continue to be the primary drivers of equity returns. We think there are several important points to consider when reviewing 2012 performance, and when structuring portfolios for 2013.
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 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Earnings have come in pretty well, but the news on the economy remains dreary despite the cheerleaders in the financial media.
2013-02-05 Currency War or Something Altogether Different? by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
"Who is afraid of currency wars?" asks Gavyn Davies in the FT. I have known Gavyn for 25 years and have to confess that he is way out of my league intellectually. He is one of the smartest people I have ever met and, thankfully, also one of the humblest. He rarely gets things wrong so, when I occasionally disagree with him, it always makes me slightly uneasy.
2013-01-31 Hasenstab: Little Value in U.S. Treasuries Right Now by Team of Franklin Templeton Investments
The financial markets may have let out a collective sigh of relief on January 1 when U.S. politicians managed to avoid falling off the fiscal cliff, but the fact is the fundamental issue plaguing the U.S. still hasn't been addressed mounting debt. As a result, Dr. Michael Hasenstab, co-director of the International Bond Department and portfolio manager for the Templeton Global Bond Fund, says he doesn't see much value in U.S. Treasuries right now. He does see it elsewhere in the world, though, including Ireland and select emerging markets where fiscal houses appear in much better order.
2013-01-24 Quick Takes on the Investing Year Ahead by Sam Wardwell of Pioneer Investments
We covered a lot of market and investment topics at Pioneer's National Sales and Marketing Meeting last week. Here are some notes on a few that were popular: GDP Growth for the U.S.. Expectations for rates: Fed Funds Rate and the 10-year Treasury, EM equities favored over U.S. Equities?, Things that keep us up at night (outside of the debt ceiling, Europe, and Middle East tension.
2013-01-23 Dissipating Gloom by Charles Lieberman (Article)
Investor confidence seems to be returning, as the economic outlook improves and policy concerns are addressed. The tone of media coverage and strategy commentaries has improved considerably. Nonetheless, investors are not positioned for a more optimistic view. Hedge funds and other professional money managers remain underexposed to equities and retail investors are dreadfully light in equities and badly overweight bonds. Stocks will enjoy a very nice tailwind as these portfolios are rebalanced to reflect the more positive view.
2013-01-16 Haka Politics and the Slow Crawl by Christian Thwaites of Sentinel Investments
In the last few months we have seen the rise of Haka politics. Familiar to any All Blacks fan, this is the ritualistic Maori war dance, full of noise, bluster and theater. But it rarely intimidates and most opponents sit it out with some amusement. So it is with the political interventions last year. We saw countless announcements and intentions from EU leaders and solemn pledges with little follow-through. And in the US we had a soporific election and a squalid squabble over the fiscal cliff that caught the public but not the market's attention.
2013-01-15 The Nothing That Is by Michael Lewitt (Article)
The world is awash in money. But money isn't what it used to be. I would point to two characteristics of modern money that should be keeping portfolio managers up at night (they certainly keep me up at night).
2013-01-11 Gold Strategy Investor Letter, Q4 2012 by John Hathaway of Tocqueville Asset Management
John Hathaway, manager of the Tocqueville Gold Fund (TGLDX), examines in his latest quarterly letter the macro factors affecting the price of gold and gold mining stocks. While such stocks have traded at a discount relative to historic norms, Hathaway remains bullish on gold and gold related equities, believing both could see new highs in 2013.
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.
2013-01-08 From Cliff to Ceiling: No Clear Signal for Investors by Libby Cantrill, Josh Thimons of PIMCO
We expect the last minute deal in the lame duck session to result in about 1.3% of GDP contraction, slightly less than our earlier prediction of about 1.5%. The compromise eliminated (or at least delayed) the possibility of the most damaging equity market outcomes. The deal failed to set up a framework for structural deficit reform in 2013. Almost immediately, Congress must address the debt ceiling, the sequester and the continuing resolution to keep the government funded.
2013-01-06 Partial Deal: Perspectives on the U.S. Fiscal Policy Agreement by Team of Janus Capital Group
The U.S. Congress and President Barack Obama have patched together a deal that avoided the January 1 fiscal cliff. However, Washington has postponed a full resolution of fiscal and tax issues, creating continued uncertainty that can be expected to weigh on business and consumer spending and potentially keep U.S. gross domestic product growth below 2% in 2013.
2013-01-04 Ring in the New by Mark Mobius of Franklin Templeton Investments
The "year of the dragon" in 2012 certainly didnt disappoint, as the global markets battled one financial dragon after another. From the Eurozone's sovereign debt crisis to persistently high unemployment in the U.S. and a mayday call from many who worried that China's growth rate was headed for a "hard landing," 2012 certainly was interesting. As we turn the calendar page to 2013, the Eurozone seems to be in less-critical condition and China's economic growth still appears to be flying but as of this writing, the U.S. debt problems still haven't been solved.
2013-01-03 Beyond the Fiscal Cliff by Richard Bernstein of Richard Bernstein Advisors
Politicians love the spotlight, but it is very unfortunate that investors watch the show. The drama of the so-called "fiscal cliff" has scared investors, and led them to miss a very good year in the equity market (the S&P 500's total return was 16.0% during 2012 versus the long-term annual average of 11.8%). It appears as though Washington wants to continue to dominate the headlines, which means that it may be more important than ever for investors to downplay Washington's theatrics.
2013-01-03 Outlook 2013: Fiscal Cliff Remains Unresolved, but Opportunities Still Exist by Russ Koesterich of BlackRock Investment Management
As we look ahead to 2013, it is impossible to make any sort of forecast without first turning our attention to the still-unresolved fiscal cliff debate. We have long said that unless we were to see significant movement on the issues of tax rates and entitlement spending, the most likely outcome would be some sort of bare-bones deal. At the time of this writing, congress and the President were still negotiating, but our analysis suggests that such a bare-bones resolution remains the most probable result, even if it does not come before the January 1 deadline.
2012-12-31 Brief Holiday Update by John Hussman of Hussman Funds
Though our concerns still weigh heavily toward the defensive side, there are hints of progress toward the resolution of the lopsided market conditions we've seen.
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.
2012-12-21 The Japanese Economy: The Result of the Lower House Election by Team of Nomura Asset Management
The Liberal Democratic Party (LDP) reclaimed power in a landslide victory. Together with coalition partner, the New Komeito Party, the LDP secured 325 seats giving it two-thirds of the total seats, which allows them to pass legislation by using the supermajority position in the lower house. This will enable them to overrule the upper house where no party currently holds an overall majority, otherwise requiring the LDP to consult with opposing parties. In addition, on an individual case by case basis, the LDP would be able to seek cooperation from the third party Japan Restoration Party.
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.
2012-12-19 2013: A Year in Multi-Asset Investing by Johanna Kyrklund of Schroders Investment Management
Extreme political risk is reduced but the cyclical environment remains challenging. Safe havens are expensive and we are increasingly incentivized to take on more risk. Equity valuations are attractive. Our core emphasis remains on quality although there is tactical opportunity in pockets of extreme value.
2012-12-18 Three Takeaways from the Fed by David Rosenberg (Article)
The equity market likes the prospect of more money printing and the Fed's more forceful efforts to reflate the economy, and stocks are a far better inflation hedge than bonds.
2012-12-17 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The stock market has gone into a trance as we approach the end of the year. The uncertainty around fiscal policy, along with concerns over Apple and the economy at large have caused institutions to wait for the dust to clear.
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.
2012-12-14 Fiscal Friction is Taking a Toll on Confidence in Washington and Rome by Carl Tannenbaum of Northern Trust
Fiscal friction is taking a toll on confidence in Washington and Rome. What inflation rate should be used to index entitlements? Our updated US forecast assumes a budget resolution before year end.
2012-12-13 The Fed and The Fiscal Cliff by Evan Schnidman of Fed Playbook
President Obama and Speaker Boehner are Thelma and Louise getting ready to drive the car off the cliff with the U.S. public locked in the trunk. While the Fed may not have the power to hit the breaks for them, they could simply refuse to fill the car with gas. Instead, the FOMC decided today to top off the tank and sup-up the engine in hopes that the President can floor it to clear the ravine.
2012-12-13 The Fake Economy by Bill Mann of Motley Fool Funds
A random question for you (one that contemplates your breaking federal law, so be forewarned): Given enough time and ample resources, do you think you could create a reasonable facsimile of a $20 bill? I'd wager that given modern printing capabilities, a reasonably diligent and determined individual could create a fool-some-of-the-people copy of a $20 bill.
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 Tax Reform: A First Step by Clyde Kendzierski of Financial Solutions Group
I rarely use this space to rant about political issues, but the recent election made it obvious just how dysfunctional the American political process has become. The ongoing financial crisis in the US will never get fixed as long as both political parties remain focused on solutions that make the problem worse. The Democrats want to give people more money to spend, claiming this will grow the economy. The Republicans want to cut taxes, so that people have more to spend, claiming that will grow the economy
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.
2012-12-04 Cliff Diving by Michael Lewitt (Article)
While there may be compromise to avoid the self-inflicted crisis of the fiscal cliff, the course of fiscal policy is unlikely to alter significantly. There is a great deal of bold talk about tax reform, but the odds of our current leaders replacing our profoundly flawed tax regime with one that would breed economic growth and productivity are low. Congress will be lucky to avoid the fiscal cliff; asking it to alter the economy's DNA is unrealistic.
2012-12-03 Tumbling Down the Fiscal Staircase by Scott J. Brown of Raymond James
Revisions to the 3Q12 GDP data have altered the near-term consumer spending outlook, adding to the anxiety surrounding the fiscal cliff. However, even if much of the fiscal tightening is postponed, more will be needed in the years ahead. The estimate of 3Q12 GDP growth was revised to a 2.7% annual rate, vs. 2.0% in the advance estimate. Good news, right? Well, no, just the opposite. Much of the revision was due to an increase in the estimate of inventory accumulation.
2012-11-30 Fiscal Cliff Countdown: Templeton Perspectives by Team of Franklin Templeton Investments
The U.S. "fiscal cliff" clock is ticking loudly, and so far U.S. politicians havent been able to cooperatively silence it. A sweeping roster of automatic spending cuts and tax hikes remain set to go into effect at year-end with what could be detrimental economic consequences.
2012-11-26 Deja Vu All Over Again by Tony Crescenzi, Andrew Bosomworth, Lupin Rahman, Ben Emons of PIMCO
If the eurozone is to endure, it will require reduced economic differences among countries and larger common fiscal capacity. Emerging market central banks are likely to remain in wait-and-see mode while looking to the U.S. for clarity on the fiscal negotiations and domestic macro prints for signs of moderation in both inflation and activity. While central banks in advanced economies have not traditionally used explicit policies to target exchange rates, the European debt crisis may change all that.
2012-11-26 Illegitimum Non Carborundum by Jeffrey Saut of Raymond James
In my opinion Richard Fisher said in plain English what Ben Bernanke is trying to say in a much more politically correct way hey Congress, get your act together because I have done just about all I can do on a monetary basis, so it is up to y'all to make the tough decisions on fiscal policy that need to be made to get this economy going again. Surprisingly, I think Congress, and the President, will rise to the occasion because if they don't, and the country falls off the "fiscal cliff" for an extended period of time, it most assuredly will put us back into a recession.
2012-11-26 Monetary and Fiscal Policy in Early 2013 by Scott Brown of Raymond James
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliffs negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
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 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?
2012-11-21 Meet Cliff by Rob Isbitts of Sungarden Investment Research
Oh, we had heard about Cliff. We were warned about this nefarious character many months ago. We knew he was lurking and we knew he was not going to just go away. Cliff had invited himself into our lives, and unless we dealt with him, he was not going anywhere. You, the hard-working financial advisor, have probably been wondering when everyone else would notice him. That time came when the sun came up Wednesday after the election. There he was, casting his extraordinarily long and potentially costly shadow. Fiscal Cliff finally entered the national spotlight. It is time to meet him.
2012-11-19 Monetary and Fiscal Policy in Early 2013 by Scott Brown of Raymond James
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliff's negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
2012-11-16 Central Bankers Take Steps Where Politicians Fear to Tread by John Remmert of Franklin Templeton Investments
In the past few years, many global central banks have enacted various measures to stimulate their respective economiesin some cases without the support of fiscal measuresand sometimes to little effect. John Remmert, senior vice president and senior portfolio manager for Franklin Equity Group, shares his insights on why central banks have acted in some cases where politicians seemed fearful to tread.
2012-11-15 The Fiscal Cliff Comes Into Focus by Zach Pandl of Columbia Management
Investors and economists have been debating the fiscal cliff for more than a year. When budget negotiations fell apart in July 2011, the White House and congressional leaders delegated responsibility for finding additional federal savings to a bipartisan "super committee". However, this group could not bridge the differences between the two parties either, and so the nation's fiscal policy was set to the fallback option: automatically begin cutting spending and allow tax rates to set higher at the start of 2013.
2012-11-14 U.S. Economic and Interest Rate Outlook - November 2012 by Carl Tannenbaum, Asha Bangalore of Northern Trust
Our updated forecast anticipates some movement on the "fiscal cliff."
2012-11-13 Addressing the Fiscal Cliff by Scott Brown of Raymond James
The 2012 election put a major uncertainty behind us. We now know that Barack Obama will remain president and that Congress will be split. However, a major uncertainty lies ahead with the fiscal cliff. The danger is that a deal wont be reached soon and may get tangled with efforts to raise the debt ceiling
2012-11-12 After the Election, Fiscal Cliff Outcome May Surprise by Libby Cantrill, Josh Thimons of PIMCO
Our base case for a fiscal cliff resolution continues to be a lame-duck mini-deal that would reflect about 1.5% of GDP in fiscal contraction in 2013 (vs. nearly 5% without a deal). But the dynamics of polarization and partisanship that played a role in past dysfunctional negotiations may have gotten worse. On a more optimistic note, it is widely known that second-term presidents are largely interested in their legacies spearheading noteworthy, bipartisan and lasting accomplishments for the history books.
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 Weekly Economic Commentary by Carl Tannenbaum, Asha Bangalore, Victoria Marklew of Northern Trust
Hurricane Sandy will impact the pattern of upcoming data, but is not likely to have a lasting economic impact. Our updated forecast anticipates some movement on the "fiscal cliff." France may be part of Europe's problem, not a source of Europe's solutions.
2012-11-08 Magic 8 Ball Knows All by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
The efficacy of 1980s technology turned out to be a real bummer, huh? Flying DeLoreans and flux capacitors are the ultimate heartbreakers, but the clairvoyance promised by those iridescent black and white Magic 8 Balls is definitely a close second. Give one a few shakes today and see for yourself. "Magic 8 Ball, [SHAKE] will financial markets rally post the U.S. election?" "It is decidedly so." "Magic 8 Ball, [SHAKE] are you lying?" "Yes definitely." "Magic 8 Ball, [SHAKE] seriously?" "Reply hazy, try again."
2012-11-07 October 2012 Monthly Commentary by David Kelly of J.P. Morgan Funds
A light flashed on in my car this morning, telling me that it was due for service. When I take it in, the mechanics will presumably check both the engine and the brakes before deciding on exactly what it is that I need to repair, replace or adjust. For investors, after nine months of ups and downs in markets, an investment strategy checkup is in order.
2012-11-07 October Surprise by Douglas Cote of ING Investment Management
Third quarter earnings growth for S&P 500 companies is at risk of being negative for the first time in three years. While the presidential election is important, Congress will ultimately control spending and tax legislation. Monetary stimulus alone is both inadequate and unsustainable; pro-growth taxation, spending and regulatory policy is key to our economic revival.
2012-11-06 Lacy Hunt on Our Economic Future by Robert Huebscher (Article)
Last week I spoke with Lacy Hunt, an unequivocal advocate of deficit reduction. Hunt defended – as persuasively as few others can – the need to address our fiscal imbalances. But equally respected economists are advocating for the other extreme, and he shares some common ground with them.
2012-11-05 Election Matters, But Stocks are Cheap by Brian Wesbury, Bob Stein of First Trust Advisors
Tomorrow's election may be the most important one for economic policy of our generation. Years from now, we may look back at the choice Americans make as an inflection point leading toward either more economic freedom or less, with major effects on long-term economic growth and living standards.
2012-11-01 The Fed and the Fiscal Cliff by Zach Pandl of Columbia Management
Prospects for this quarter's results are being very closely scrutinized. After healthy growth in Q1, Q2 results proved quite sobering, as sales decelerated and operating leverage proved hard to come by. Given continued disappointing global macro growth, Q3 results seem tracking to be close to flat year over year again. Implicit in the consensus S&P500 estimate of around $103 is a reacceleration in Q4. Implicit in the 2013 consensus of around $115 is renewed healthy growth continuing consistently through the year. Such reacceleration seems highly at risk, which raises a few questions.
2012-11-01 Time To Vote! by Bill Gross of PIMCO
So I pulled out my magic lamp that for some reason works only every October 22nd, and rubbed until the Genie appeared in his red and white checkered cloak with a 10-inch diameter Flavor Flav clock hanging ceremoniously around his neck. Being a rather forward, although not disrespectful Genie, he immediately said, "Mr. G, instead of the yield on the 10-year Treasury, perhaps this year you should wish to know who is going to win the Presidential election?"
2012-10-29 A Moderate Recovery More Of The Same by Scott Brown of Raymond James
The advance estimate of 3Q 12 GDP growth was not far from expectations. Consumer spending growth was moderately strong, while business fixed investment was a bit weak. The details suggest that some of the headwinds may be abating, although risks are tilted to the downside.
2012-10-29 Distinction Without a Difference by John Hussman of Hussman Funds
In recent weeks, market conditions have fallen into a cluster of historical instances that have been associated with average market losses approaching -50% at an annualized rate. Of course, such conditions don't generally persist for more than several weeks the general outcome is a hard initial decline and then a transition to a less severe average rate of market weakness (the word "average" is important as the individual outcomes certainly aren't uniformly negative on a week-to-week basis).
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.
2012-10-23 There's New Hope for US Recovery as Early Cyclical Sectors Rebound by Joseph Carson of AllianceBernstein
Something is changing in the US economic recovery. Housing and autos are finally starting to wake up from a recession-induced slumber, and the timing couldn't be better.
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.
2012-10-23 The GDP Outlook by Scott Brown of Raymond James
On Friday, the Bureau of Economic Analysis will release the advance estimate of third quarter GDP growth. Theres always a lot of uncertainty in the advance estimate. The BEA will have to make assumptions about inventories, foreign trade, and a few other missing components. However, the report should continue to show the U.S. economy in recovery mode.
2012-10-22 Politics, Cliff Watching Take Priority in the Short-Term by Bob Doll of BlackRock Investment Management
The US elections are only two weeks away, and the recent polls show a very tight race. There are significant differences, both perceived and real, in the policies of the two candidates and the impact they might have on financial markets.
2012-10-19 Stealth Mode by Stephen J. Taddie of Stellar Capital Management
After more than 30 years of declining rates, a reversal that started a longer term trend of higher interest rates, like that experienced from the late 50s to early 80s could be devastating to bond investors. In addition, interest rate increases have not treated many other income investments like fixed rate preferred stocks very well as many of these issues have extremely long maturities, and/or are perpetual. This makes stretching for yield in this type of environment both challenging and hazardous.
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.
2012-10-16 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.
2012-10-15 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 Passed Pawns by John Hussman of Hussman Funds
I've long been fascinated by the parallels between Chess and finance. Years ago, I asked Tsagaan Battsetseg, a highly ranked world chess champion, what runs through her mind most frequently during matches. She answered with two questions "What is the opportunity?" and "What is threatened?" At present, I remain convinced that the key opportunity lies in closing down exposure to risk.
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 Economic Singularity by John Mauldin of Millennium Wave Advisors
There is considerable disagreement throughout the world on what policies to pursue in the face of rising deficits and economies that are barely growing or at stall speed. Both sides look at the same set of realities and yet draw drastically different conclusions. Both sides marshal arguments based on rigorous mathematical models "proving" the correctness of their favorite solution, and both sides can point to counterfactuals that show the other side to be insincere or just plain wrong.
2012-10-10 And That's the Quarter That Was by Ron Brounes of Brounes & Associates
The "quarter of Bernanke" left investors optimistic over the past three months despite the ongoing concerns at home and abroad (and a critical election).
2012-10-08 Number Five by John Hussman of Hussman Funds
Examine the points in history that the Shiller P/E has been above 18, the S&P 500 has been within 2% of a 4-year high, 60% above a 4-year low, and more than 8% above its 52-week average, advisory bulls have exceeded 45%, with bears less than 27%, and the 10-year Treasury yield has been above its level of 20-weeks prior. While there are numerous similar ways to define an "overvalued, overbought, overbullish, rising-yields" syndrome, there are five small clusters of this one in the post-war record.
2012-10-03 Don't Bring Me Down: Not Swayed by Pessimism at BCA Conference by Liz Ann Sonders of Charles Schwab
We present highlights, key takeaways and perspective on the recent BCA Research Investment Conference. The eurozone crisis and China's slowdown remain risks, but are somewhat offset by optimism about US markets. Politics will remain a force underpinning uncertainty and volatility.
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.
2012-09-28 Falling Off the Fiscal Cliff? by Libby Cantrill, Josh Thimons of PIMCO
When we look at how the fiscal debate is likely to play out, rather than how it should play out, our base case is the fiscal cliff will likely be resolved in a short-term deal before the end of the year, making what was a cliff more like fiscal black diamond still dangerous, but not likely to land the economy in a body cast.
2012-09-28 Alternative Thoughts: Macro Investing - What is macro investing and investing in a macro strategy? by Lawrence Epstein, Josh Rowe of Orinda Asset Management
Macro investing has long been the focus of investors in search of non-correlated investment strategies. Orinda Asset Management believes that macro strategies have the potential to produce positive absolute returns across market cycles. In addition, the strategy has historically exhibited low correlation to traditional equity and fixed income indices, and has provided effective diversification benefits when incorporated as part of a long-term investment plan.
2012-09-27 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.
2012-09-24 Clear Progress by Christian Thwaites of Sentinel Investments
Two weeks into a new era of ECB and Fed policy and it is a tie between the gains in equities, with the US and European broad indexes up around 2.2%. But it's the lack of follow-through and opacity of the ECB moves which are perhaps the most disconcerting and so, probably, the more short-lived. While both central banks reported easing in the form of securities purchases they had very different origins and aims.
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.
2012-09-19 Us and Them: Household Sector Deleveraging vs. Public Sector Leveraging by Liz Ann Sonders of Charles Schwab
The eruption of the financial crisis in 2008 unleashed a household deleveraging cycle, triggering unprecedented Fed easing and now QE∞. Next up, government sector deleveraging.
2012-09-18 Gundlach – The End of the Bond Bull Market by Robert Huebscher (Article)
Likening bullishness on Treasury bonds to a 'mass psychosis,' Jeffrey Gundlach made his strongest statement yet that interest rates are about to rise. In a conference call with investors last Tuesday, he said that the rate on the benchmark 10-year Treasury bond could increase by 100 basis points by the end of the year.
2012-09-18 Federal Reserve Actions Help the Rally to Continue by Bob Doll of BlackRock Investment Management
The headline news last week was the US Federal Reserve's announcement of a new round of quantitative easing in which the central bank plans to purchase $40 billion of mortgage-backed securities on a monthly basis (without a predetermined end date). The Fed also pushed back the timeframe on how long it will maintain its current zerointerest-rate policy, indicating that the current level of rates should be in effect through the middle of 2015.
2012-09-17 The Fed to the Rescue? by Scott Brown of Raymond James
Citing concerns about the pace of improvement in the labor market, the Federal Open Market Committee extended and amplified its forward guidance and started a third round of large-scale asset purchases (what most people call "QE3"). The FOMC said that economic conditions are expected to warrant exceptionally low levels of the federal funds rate target through mid-2015 (vs. "late 2014" in the previous policy statement) and added that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
2012-09-14 Open-Ended Easing by Carl Tannenbaum and Asha Bangalore of Northern Trust
The Federal Open Market Committee (FOMC) took a very forceful set of steps this week, designed to stimulate what officials have called a "frustrating" job market. Our updated forecast suggests that the growth trajectory of the US economy is positive but sufficiently sub-par for the Fed to have initiated additional monetary policy support. There are increasing signs that China's economy is slowing more than the official readings would suggest.
2012-09-14 Central Banks Take Center Stage by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Accommodative central banks have traditionally been good for equities and stocks have responded positively to recent action. However, each market reaction to US Fed action has been shorter in length and challenges persist. Although recent economic data has been beating relatively low expectations, it is still not meeting the Fed's hopes. We appreciate the sentiment of wanting to stimulate growth, but the Fed's power is limited. It's down the street in Washington where the real power to stimulate growth lies.
2012-09-13 Back to the Future: What's at Stake for the Economy in the Obama-Romney Contest by Team of Knowledge @ Wharton
To hear the two candidates tell it, the U.S. presidential election offers a dramatic choice on the economy: Vote for me, each says, if you want a robust recovery; pick my opponent, and we'll plunge back into recession. But given the huge problems the country currently faces, the future -- no matter who wins in November -- will look much like the present, according to several Wharton faculty.
2012-09-12 PIMCO Cyclical Outlook: Building Rickety Bridges to Uncertain Outcomes by Saumil Parikh of PIMCO
Without structural change aided by well-planned fiscal policy, we are afraid the nominal bridges of monetary policy will fail to reach their desired outcomes. The probability of a deflationary left-tail outcome emanating from the eurozone has declined substantially in the short run, yet outright economic growth in the eurozone will remain elusive in 2013.The much-publicized "fiscal cliff" is set to hit the U.S. economy on January 1, 2013, and could reduce U.S.
2012-09-11 Mondays! by Jerry Wagner of Flexible Plan Investments
In 1965, John Phillips penned Monday, Monday for the first album released by The Mamas and the Papas. The song was a melancholy downer. But it is perfect for summing up the experience for most investors over the last ten years. As you can see, if one had only invested on Mondays, the result would have fallen significantly short of investments for the full market period.
2012-09-10 Late-Stage, High-Risk by John Hussman of Hussman Funds
The market conditions we observe at present are very familiar from the standpoint of historical data, matching those that have appeared prior to the most violent market declines on record (e.g. 1973-74, 1987, 2000-2002, 2007-2009).
2012-09-10 The August Employment Report and the Fed by Scott Brown of Raymond James
The August job market report was disappointing. Nonfarm payrolls rose less than expected and previous figures were revised lower. The unemployment rate fell, but that was due to a decrease in labor force participation (dont read too much into that).
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.
2012-09-07 The ECB: No Rest for the Weary by Carl Tannenbaum of Northern Trust
The economic picture in Europe is worsening, exposing flaws in the foundation of the euro compact. The European Central Bank is trying its best, but remains hindered by its charter. European policy makers should focus on stabilizing the situation first, and seeking retribution later.
2012-09-07 Euro: Looks Like a Duck, Quacks Like a Duck by Alex Merk of Merk Funds
If it looks like a duck, quacks like a duck, it just might be a duck. We are talking about the euro: it now looks like a currency, acts like a currency, it might as well be yet another currency.
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.
2012-09-06 August 2012 Market Commentary by Andrew Clinton of Clinton Investment Management
On a year-to-date basis the municipal bond market has, once again, delivered meaningful returns both on an absolute and risk adjusted basis. While the market yield and or cash flow of a bond is typically very important to investors, it is equally important to remember that the income a bond produces is only one component of a bonds return. Investors must consider several other essential elements of a security to properly quantify a bonds relative value.
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.
2012-08-30 The ESM: Saviour, Super SIV or End of the Road? by Andrew Bosomworth of PIMCO
So long as the fundamental issues about the future of the eurozone remain unsolved, the extra supply of ESM bonds will likely drive up the borrowing costs of its weaker stakeholders. Without a cap on or exit clause from additional capital calls, the ESM could lead northern eurozone countries down a difficult and unsustainable path.
2012-08-29 Fiscal Cliff Adds Urgency to US Election Budget Showdown by Joseph Carson of AllianceBernstein
With a record tax increase on tap for January 1, 2013, there has never been a better time for Washington to have a serious debate about fiscal policy. Before the economy reaches the so-called fiscal cliff, when huge tax increases and spending cuts are scheduled to take effect, US voters will have the opportunity to make a clear choice between two fiscal visions in the November elections.
2012-08-28 The Gold Standard Gets Another Look by Peter Schiff of Euro Pacific Capital
As Republicans convene in Tampa to nominate Mitt Romney and hammer out their party platform, one of the planks that could attract the most attention is the Party's official position on the gold standard. As it is now being considered, the platform stops short of recommending a return to the gold standard, but does advocate a commission to consider the possibility.
2012-08-27 Still No QE3 by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve is clearly ready to do something. In recently released minutes from the 7/31-8/1 meeting and a letter from Chairman Bernanke to Congressman Darrell Issa (R-CA), the Fed argued that its actions had helped the economy already and that the Fed was ready to do more.
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.
2012-08-07 The Not So Super Hero by Peter Schiff of Euro Pacific Capital
The past week provided clear lessons not just in how central bankers have a limited ability to positively influence the economy but also how they are limited in their capacity to deliver the shortsighted policy actions that investors currently crave. The developments should provide new reasons for investors and economy watchers to abandon their faith in central bankers as super heroes capable of saving the economy.
2012-08-06 Why the Long Face? by Brian Wesbury, Bob Stein of First Trust Advisors
Back in early 2009, the University of Chicago Booth School of Business and the Northwestern University Kellogg School of Business teamed up to create the Financial Trust Index. The latest readings from July 2012 show that just 21% of Americans trust the financial system and only 15% trust the stock market. For many, this negativity is understandable.
2012-08-03 The Race for Resources by Frank Holmes of U.S. Global Investors
The world watched in awe as American swimmer Michael Phelps became the most decorated Olympian of all time. It's inspiring to see the incredible results of his tremendous sacrifice and commitment. Investing in global markets requires the same sort of stamina, especially at times like this week, when the month's reading on the manufacturing industry was not encouraging. The J.P. Morgan Global Manufacturing PMI of 48.4 for July was the lowest since June 2009.
2012-07-30 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Our collective mood is souring, particularly in light of falling wages, increased competition for jobs, portfolio (net worth) depreciation, and daily news about politics, terrorism, and business corruption. Wheres the good news?
2012-07-30 Legends of the Fall 2012 by Nicholas Field of Schroder Investment Management
Are there any lessons from history for global stock markets, including emerging markets? Despite strong economic fundamentals, emerging stock markets have been negatively impacted by the global financial crisis and the European crisis. The outcome for all stock markets, including emerging markets, significantly depends on how these problems are resolved. In this context can previous crises, including the 1930's, give us any clues regarding timing?
2012-07-30 The Longest Yard by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Isaac Meng of PIMCO
As the global slowdown progresses, we can expect central banks to deploy more policy tools without limits to stem the pace of deleveraging. In Europe, quantitative easing using ESM bonds could prove to be another bridge that buys politicians more time, but does not solve the root problem. We expect real economic growth in China to be muted. While some stabilization is possible later this year, it is hard to foresee a sustained recovery.
2012-07-27 FOMC Preview: Christening QE III by Carl Tannenbaum of Northern Trust
Look for the Federal Reserve to embark on a new round of quantitative easing next week.
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 Wesbury vs. Krugman by Brian Wesbury, Bob Stein of First Trust Advisors
Today, on Bloomberg with Tom Keene, Brian Wesbury was asked about Paul Krugman. Wesbury said Krugman was wrong - government spending does not boost growth, if it did there would be no poverty in the world. This was reported on BusinessInsider...BusinessInsider then reported that Krugman fired back...quoting his New York Times blog. In it, he claims it all "depends on the situation."
2012-07-19 Fixed Income Investment Outlook by Team of Osterweis Capital Management
Recent escalations in the euro crisis and weaker-than-expected global economic data have led to widespread calls for further stimulus. Global leaders believe they are addressing the issue, with China and the ECB lowering interest rates and the Bank of England announcing an additional 50 billion sterling of quantitative easing. We are skeptical about the benefits of such policy action and believe that the U.S. and Europe each require different solutions to solve their fiscal issues.
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 Breaking Bad by Michael Lewitt (Article)
With our largest business and government institutions committing every conceivable act of legal or moral anomie, we have every right to ask who is going to protect the rest of us from those who have been entrusted with so much power and influence. The institutions that were supposed to be the lifeblood of our economy are the same institutions that inflicted the greatest harm on society. When the family has to be protected from the man who is supposed to protect the family, the family is in serious trouble.
2012-07-16 Stocks Are Really Cheap by Brian Wesbury, Robert Stein, Strider Elass of First Trust Advisors
America's equity markets have rallied sharply since last October, with the S&P 500 up 22%. Nonetheless, the stock market has been stuck in a range for 18 months, with the Dow Jones Industrial's Average trading between 10,650 and 13,280, well below the October 2007 high of 14,165. Financial markets have priced in all kinds of bad things a fiscal cliff, slower earnings growth, a potential recession, and big government. But, we think these markets are overly pessimistic.
2012-07-13 The Pain in Spain - Is There Time for Hope and Change? by Richard Mattione of GMO
The intertwined problems of sovereign debt, European banking systems, and the euro itsself will continue to be debated despite the measures that came out of Junes meetings in Europe. Yet it is the economic and financial situation in Spain that is driving policy now. The precedents being set because of Spain are in a sense more important than discussions about the euro, for decisions about the euro can be delayed, whereas the pain in Spain is acute and the time for decisions is now.
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.
2012-07-09 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 Disappointing, but Not Terrible by Charles Lieberman (Article)
Job growth has slowed to a disappointing pace over the past three months, insufficient to bring down unemployment, but not so weak that recession is much of a threat. This mediocre performance also leaves the Fed in a quandary, neither making an obvious case to leave policy unchanged or a clear case to implement yet another form of policy accommodation.
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.
2012-07-04 What Next For The Euro-Zone? by Victoria Marklew of Northern Trust
The European Union has just completed its 20th make or break Summit in a little over two years, and actually managed to beat expectations. Two key agreements were reached on June 28-29: expanding the remit of the two bailout funds to include sovereign debt purchases and eventually direct banking sector support; and creating a unified banking regulator for the Euro-zone under the auspices of the European Central Bank (ECB).
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.
2012-06-29 Meanwhile, Back at the Ranch... by Scott Brown of Raymond James Equity Research
With worries about Europe and the individual mandate of the Affordable Care Act behind us, we can go back to looking at the economy. At issue is whether recent signs of slowing were an illusion or more real. In particular, the June job market figures will be critical.
2012-06-21 Rising China is a Misnomer...and Other Actionable Takeaways by Frank Holmes of U.S. Global Investors
Did you know that at the beginning of the 19th century, China made up the largest share of the worlds GDP? This makes the term Rising China a misnomer, as the country has been simply returning to, instead of rising to, super power, says former U.S. Secretary of State Henry Kissinger.
2012-06-20 Fed Does the Least by Brian S. Wesbury and Robert Stein of First Trust Advisors
In the past few days, news outlets have breathlessly reported that the Federal Reserve would today launch into another round of quantitative easing, probably including major purchases of mortgage backed securities. Instead, the Fed did the least that was expected, extending Operation Twist until the end of the year, but not altering the size of its balance sheet at all and not as some analysts suggested it might changing when it thinks it will start raising rates (still late 2014).
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 What Happens In Greece Must Stay In Greece by Charles Lieberman (Article)
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.
2012-06-15 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.
2012-06-12 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.
2012-06-11 Looking Over the U.S. Fiscal Cliff by Team of Neuberger Berman
Absent congressional intervention prior to year-end, over $600 billion (about 4% of U.S. GDP) of fiscal tightening is scheduled to take effect in the United States in early 2013. Dubbed the fiscal cliff by those in the financial community, the negative impact on growth caused by expiring spending and tax provisions has the potential to derail the ongoing recovery and, according to some observers, even tip the U.S. economy back into recession.
2012-06-11 Bet Against QE3 by Brian S. Wesbury and Robert Stein of First Trust Advisors
Since the financial crisis in 2008 the Federal Reserve has done extraordinary things lowered interest rates to essentially zero, increased the size of its balance sheet by $2 trillion and announced Operation Twist. With unemployment still relatively high and real GDP growing at a 2% rate in the past year, there are many on (and off) the Fed who think more should be done. If we thought liquidity was a problem, we might agree, but its not.
2012-06-11 Bertha and Casey by Christian Thwaites of Sentinel Investments
Markets braced last week for a bailout on Spain which came this weekend. Its banking sector is in wretched condition and joins other European banks at 25 year lows in share price. The official downgrades came long after the stock market had voted with its feet. European leaders had little to add to the debate. There's some talk of a twin track: some European countries pressing on to further integration, some coping with contraction and austerity on their own.
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.
2012-06-07 Spain & Weak US Economy Dominate Markets by Gary D. Halbert of Halbert Wealth Management
Stock markets around the world have been pummeled in recent weeks amidst the growing reality that were in a global recession, especially in Europe. Fears that the US will also fall into recession have intensified, particularly in light of last weeks very disappointing economic reports. At the same time, the European debt crisis has once again raised its ugly head, this time with the spotlight on Spain. Spains own Prime Minister has admitted that the country is in a state of emergency, and money is gushing out of Spanish banks.
2012-06-04 More Muddling Along by Charles Lieberman (Article)
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 Tomorrows Europe by Andrew Balls, Andrew Bosomworth, Mike Amey of PIMCO
Our secular view is that the status quo is not an option for the eurozone. In the near term, we believe it is more likely than not that Greece will exit the eurozone. While a Greek exit would likely be messy and volatile, our baseline view is that a smaller union will persist. To be sustainable, it will have to be underpinned by much stronger fiscal union, greater support for the banking system, and mutualization of debt to mitigate cross-border capital flight risks.
2012-06-04 Job Recap/How Big of an Impact from Europe? by Scott Brown of Raymond James Equity Research
Job growth has slowed. However, its unclear exactly why or even, despite all the hand-wringing on Friday, whether its something to worry about. A European recession would have a moderate impact on U.S. exports, but there are some positives. There are a number of other possible explanations for the recent slowdown in (seasonally adjusted) job growth.Firms may be reluctant to hire for a number of reasons: political uncertainty, fiscal policy uncertainty, higher gasoline prices, and worries about the fallout from Europe.
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.
2012-05-31 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 CBO Warns of Recession in 2013 by Gary D. Halbert of Halbert Wealth Management
The non-partisan Congressional Budget Office (CBO) has calculated the expected negative effects on the US economy if the Bush tax cuts expire at the end of this year. Their numbers just released last week are eye-opening! To give us some perspective, US Gross Domestic Product rose by 2.2% (annual rate) in the 1Q of this year.
2012-05-29 Can Krugman Fix Our Economy? by Robert Huebscher (Article)
Our economy faces depression-like conditions, according to Paul Krugman, in its alarmingly high unemployment rate. It needn’t be that way, though, Krugman says – a few simple steps could quickly solve our problems.
2012-05-29 The Reality of the Situation by John P. Hussman of Hussman Funds
If one steps back from the trees to observe the forest, the reality of the situation is that Europe is already largely in recession, the global economy is slipping quickly toward the same outcome, and in my view, the U.S. is also entering a recession that will ultimately be dated as beginning in May or June of 2012 (i.e. now). The economic headwinds already in place are likely to make any meaningful budget progress virtually impossible in the Eurozone, and without meaningful budget progress, the likelihood of continued bailouts to peripheral European states is slim.
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.
2012-05-23 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 Were Off to See the Wizard by Bill Smead of Smead Capital Management
In October of 2010 we explained in a missive called The Wizard of Oz that investors had put too much confidence in the ability of a group of Chinese National, US-educated economists to manage the China economy. Thanks to the writing of Ambrose Evans-Pritchard in The Telegraph on May 13th of 2012, we can see just how successful the Wizard has been in perpetuating the myth that China can be the first major world economy to defy business cycles.
2012-05-16 Africa: Investing in the Cradle of Civilization, Part 3: Ghanas Golden Opportunties by Mark Mobius of Franklin Templeton
This year could prove an interesting one for Africas west coastal country, Ghana. Presidential and parliamentary elections are slated to be held by year-end, the results of which are almost sure to impact the shape of the countrys future. President John Atta Mills has stated in the press that he will take all necessary constitutional steps to ensure the conduct of free, fair and transparent elections. Im encouraged by the economys 14% growth in 2011 (thats faster than China!), and would be pleased to see evidence of more positive momentum.
2012-05-15 An Attack on Paul Krugman by Michael Edesess (Article)
A foundational principle of modern economics is that the creation of credit leads to economic growth. That precept underlies need for quantitative easing, and it is central to the question of what role monetary policy can and should play in stimulating a faster recovery from the Great Recession. It is also the subject of a debate between one of the world's most prominent economic scholars, Paul Krugman, and a feisty Australian economist, Steve Keen.
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.
2012-05-11 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.
2012-05-08 Dont Fight the Last War Lessons from the Battlefields of Risk Management by Niels C. Jensen of Absolute Return Partners
Investors often behave as if they operate in a world of logic and certainty even when that is not the case. For that reason, history is littered with investors who have failed miserably. In this month's Absolute Return Letter we look at many of the pitfalls facing risk managers and we take a stab at where the next big crisis is going to surface. Our conclusion may surprise a few readers.
2012-05-04 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 ECB Warns Easy Money No Solution by Axel Merk of Merk Funds
Austerity is the easy part, structural reform is the tough part. With regard to monetary policy, Draghi was notably light. He shed cold water on the notion of re-activating the peripheral bond purchase program. He also dampened expectations of a rate cut by emphasizing balanced inflation risks, as well as a gradual economic recovery, albeit with downside risks. He suggested the European banking sector is improving, not only visible in reduced intra-bank refinancing (repo) rates, but also apparent in an increase of the deposit base in peripheral Eurozone countries.
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 Euro Risks Continue but Support for Risk Assets Is by Bob Doll of BlackRock Investment Management
At this point last year, two of the major downside risks were the possibility of the European debt crisis spiraling out of control and the inability of the United States to get its fiscal house in order. Today, while these remain two factors that have investors concerned and while there are some similarities between the situations one year ago and today, there are also some important differences. The US fiscal policy is murky. The tax and fiscal policies that are set to expire at the end of 2012 are clouded in uncertainty and it is impossible to view them outside the 2012 elections.
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.
2012-04-23 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 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.
2012-04-17 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.
2012-04-12 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 Emerging Market Rates: A Different Cycle by Francesc Balcells of PIMCO
The business cycle in EM has been conducive to easing policy rates. Global growth decelerated noticeably in the second half of 2011, and this included most EM economies. While we expect EM local rates will move higher again as the business cycle progresses, the cyclical highs will likely be lower than the previous highs, reinforcing the secular trend towards lower rates. We like EM local rates with a strong credit quality, steep local curves and high real rates that may offer compensation for taking inflation risks. The local markets of Brazil, Mexico and South Africa all stand out.
2012-04-10 Paul Kasriel's Parting Thoughts on the Economy by Robert Huebscher (Article)
Paul Kasriel, the chief economist at Northern Trust, will retire at the end of this month. In this interview, he explains why he is optimistic about the prospects for the US economy and why supposed headwinds - from the price of oil to the housing market - pose much less of a threat than most people believe.
2012-04-10 Managing Expectations: Why Gold Should Thrive by Frank Holmes of U.S. Global Investors
It was a challenging week for gold investors. Although the yellow metal has been on a spectacular 11-year bull run, some think golds heyday is over. This March, there seemed to be one main driver eight thousand miles away negatively affecting gold prices. I often say that government policy is a precursor to change, and fiscal policy strongly affected the Love Trade in India last month. To trim its current account deficit, Indias finance minister proposed doubling the customs tax on the precious metal. As a result, gold imports into the worlds largest gold market fell 55 percent.
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.
2012-04-06 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 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.
2012-04-04 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.
2012-04-03 The Easy Money Saloon by Michael Lewitt (Article)
When two of the world's soundest central banks (Israel and Switzerland) start investing their reserves in stocks (the Bank of Israel is run by the highly respected Stanley Fischer for God's sake!), one has to wonder what the world is coming to. Apparently the global saloon is expanding its boundaries. No doubt we will soon hear the ECB is merging with the London Stock Exchange.
2012-04-02 The Outlook for the U.S. Dollar by Nic Pifer of Columbia Management
On a trade-weighted basis, the U.S. dollar was largely unchanged in the first quarter of 2012. We expect a broadly similar story in both the near- and medium-term, with the balance of structural and cyclical weakness across the major economies providing little clear direction for the U.S. currency. For sure, movements of 5% or more in the trade-weighted dollar are always possible, reflecting short-term swings in investor sentiment and the normal volatility of currency markets. But we do not expect sudden moves in either direction to be sustained.
2012-03-27 Our Current Perspective on the Global Economic Outlook by American Century Investments (Article)
As we proceed through the first quarter of 2012, the U.S. economy continues to drift— not in recession, but far from the level of growth and dynamism we would like to have. Meanwhile, global economic growth has slowed as the world anticipates a solution to the European sovereign debt crisis. In short, we are in a period of uncertainty, not only about how key events will unfold, but about the timing associated with their future progress and resolution.
2012-03-27 Caviar for the General by Jeffrey Bronchick of Cove Street Capital
The stock market as measured by the S&P 500 is up almost 30% over the last 6 months, and has doubled from the March 2009 lows and yet most investors remain underinvested. Despite this temporary risk aversion, we remain convinced that stocks remain a unique species: the higher the price and less compelling the value, the more they seem to be desired by investors. In addition to the number of reasonably valued assets that can be found in financial markets, this represents an anecdotally strong underpinning for a reasonable intermediate future in our opinion.
2012-03-22 Explaining the Stir over Recent Fed-Speak by Team of American Century Investments
The official statement from the Federal Reserves March 13 interest rate policy committee meeting was relatively ho-hum (no significant changes from Januarys statement), but other recent Fed communications have raised more of a stir. In particular, we explain what fiscal cliff and sterilized QE mean, and help put them into context. Its all part of a mixed, uncertain economic outlook in which slower mid-year growth, like last year, cant be ruled out, but higher inflation by next year is also a possibility.
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 Economic Insights: Bernanke's Drama Strikes a Chord by Milton Ezrati of Lord Abbett
The chairman has shown clearly that all policyboth fiscal and monetaryfaces quite a balancing act. The Fed, which has already done a great deal to support financial markets and the economic recovery, has reason already to worry over longer-term inflationary pressures. But it cannot remedy matters if the federal government fails to do its job of fiscal reform while protecting the economic recovery. Bernanke has made it clear that there are no easy answers, because all the pieces of the puzzleeconomic growth, inflation, monetary policy, and fiscal policydepend on each other.
2012-03-13 Europe Needs a Good Crisis by Michael Edesess (Article)
When it comes to economies in general and financial crises in particular, it's remarkable how little we actually understand. While global financial actors struggle to restructure Greece's debt and to avoid contagion throughout Europe's periphery, we should recall the lessons of the Asian-Russian crisis 15 years ago. As the writings of Joseph Stiglitz and Martin Wolf remind us - and those events illustrate - crises are part of an evolutionary process, and the afflicted economies often emerge with surprising vigor.
2012-03-13 PIMCO Cyclical Outlook: Navigating the Hurricane of Global Deleveraging by Saumil H. Parikh of PIMCO
We expect the eurozone economy to experience a recession in 2012 on the back of continuing pro-cyclical fiscal austerity measures. We expect 2012 to be the year in which the residential construction sector begins to gradually contribute to U.S. economic growth after a long and painful five-year hiatus. Major emerging market economies are struggling with domestic over-investment, rising income inequalities and inflation risks. Therefore, PIMCO expects major emerging market economies to be less of a global engine of growth in 2012-13.
2012-03-08 Global Forecast Update: Growth Upgraded, But Problems Remain by Azad Zangana and Keith Wade of Schroder Investment Management
We have upgraded our forecasts for global growth in response to better data and a further easing of policy. In particular, the success of the European Central Banks (ECB) long term liquidity operations and surprising resilience of Germany mean that we expect the recession in Europe to be shallower than before. However, it is still a weak picture. We do not see US activity taking off as the de-leveraging process has further to run. Much of the recent improvement in growth reflects an inventory cycle as the factors which held the economy back last year fade and go into reverse.
2012-03-06 Fiscal Fantasies by Marie Schofield of Columbia Management
The Congressional Budget Office (CBO) just released updated budget and economic projections for the next 10 years in its monster annual report. The report looks a touch closer to reality in the very near-term, marking down expected growth rates for the economy. Real gross domestic product (GDP) growth of 2% is forecast this year (down from the original estimate of 2.7%), and only 1.1% in 2013 (down from 1.5%). Both these estimates are below those of the Federal Reserve by a third. Much rosier projections are assumed thereafter with no interruption via recession.
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.
2012-02-29 2012: A Year in the Global Economy by Azad Zangana and Keith Wade of Schroder Investment Management
Global growth is set to slow further in 2012 largely as a result of the euro crisis. On the positive side, two factors should support activity in 2012. The first is a fall in inflation, which will support household real incomes leading to stronger consumer spending. The second is the strength of the corporate sector; companies have stockpiled cash and built up profits. However, Europe is entering a serious recession and will weigh on growth elsewhere. Euro policymakers should redouble their efforts to find a solution to the eurozone crisis.
2012-02-28 ARRA, Three Years On by Scott Brown of Raymond James Equity Research
The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009. Did it help? Yes, but estimates of the impact vary. Before Barack Obama took office, he selected Christina Romer to be the chair of the Council of Economic Advisors. Romer, a professor of economics at the University of California, Berkeley and an expert on the Great Depression, is exactly the sort of person youd want advice from in combating a severe recession. Its long been rumored that Romer had requested a significantly larger stimulus package than the roughly $800 billion in ARRA.
2012-02-27 Equity Gains Likely to Continue, But at a Slower Pace by Bob Doll of BlackRock Investment Management
It was a relatively subdued week in terms of economic data, with the highlight perhaps being the weekly initial unemployment claims, which were unchanged (a stronger-than-expected result). This data helps confirm that improvements in the labor market have been gaining traction. This Friday we will see the February employment report and most economists are calling for a new jobs number of 200,000 or higher with a flat or perhaps slightly lower unemployment rate.
2012-02-23 9 Key Themes To Impact Returns in 2012 by Scott Migliori of Allianz Global Investors
A breakdown of the key drivers of market performance in 2012 including corporate profits, pricing/inflation, interest rates, economic activity, international performance, the dollar, valuations, technical/sentiment and fiscal policy. The U.S. economy is likely to grow 5%
2012-02-22 Will Greece Survive the Ides of March? by Mike "Mish" Shedlock of Sitka Pacific Capital Management
As a point of curiosity, the Greek 1-Year Bond Yield touched 682% today, now down to a mere 666%. Bloomberg quotes the open as 566%, if correct, the one year yield soared 116 percentage points from the open to the high. Deal "Really" Finalized? Open Europe says Many questions around the second Greek bailout remain unanswered.
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 Stocks Rising, But Still Cheap by Brian S. Wesbury and Robert Stein of First Trust Advisors
The rise in equities so far this year is not just a sugar high. The Fed has done nothing new, while Keynesian pump-priming is on the wane. Federal spending peaked at 25.3% of GDP back in 2009. Its still way too high, but has fallen to 23.7%. Meanwhile, despite shenanigans like the temporary payroll tax cut, federal revenue has risen from 15.1% of GDP to 15.4% in the past year. Spending is down and taxes are up. Fiscal policy is contractionary. Yes, the Fed is loose and is holding interest rates down. But even if we assume normal interest rates and stable profits , stocks are very cheap.
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.
2012-02-14 The Federal Budget Outlook by Scott Brown of Raymond James Equity Research
The White Houses Office of Management and Budget will release its revised budget outlook this week. That outlook is expected to show a substantial reduction in the 10-year budget deficit, largely due to the required discretionary spending cuts specified in last years Budget Control Act. For the most part, the legislative battle ahead is not whether to cut, but what to cut. More importantly, tax policy, and in turn, the economic outlook, remains a major uncertainty into 2013.
2012-02-09 Bernanke on the Unemployment Rate and Labor Weakness by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I nearly always disagree with Bernanke on monetary and fiscal policy. Specifically, the Fed ought not have a monetary policy for the simple reason the Fed should not exist. Indeed, the Bernanke Fed and the Greenspan Fed have both proven beyond a shadow of a doubt they do not know what they are doing, where the economy is headed, or anything else of relevance in setting monetary policy. However, on rare occasions, Bernanke can say a few snippets that seem to make complete sense. For example, Bernanke Says 8.3% Unemployment Understates Labor Weakness.
2012-02-09 Q411 Portfolio Commentary by Jay Compson of Absolute Investment Advisers
We continue to stress that investors remain patient. Given that we are likely in the 1% of money managers that look beyond the next 30 days, it is inevitable that the markets will move counter to our positioning. This is to be expected and is consistent with the Fund's historical performance.We continue to remain disciplined and receive counsel from the investing bible: Graham and Dodd's Security Analysis. For those few true value investors left, it's worth noting that nowhere is the phrase "margin of safety" defined by quantitative easing, government stimulus, or bank bailouts.
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 Letters to the Editor by Various (Article)
Readers respond to past articles, including Robert Huebscher's article, The Misreading of Reinhart and Rogoff, our interview with Lacy Hunt, and Wade Pfau's article, Safe Withdrawal Rates: A Do-It-Yourself Approach.
2012-02-07 If Current Bank Credit Trends Continue, Bet Against the Feds Interest Rate Forecast by Paul Kasriel of Northern Trust
A majority of FOMC members expect that the interest rate on federal funds, an interest rate controlled by the Fed, will not be increasing until late in 2014. If the current trend in the behavior of bank credit continues in 2012 and into 2013, I believe that the FOMC will be lifting its federal funds rate target early in the second half of 2013. Again, if the current growth trend in bank credit continues, a failure on the part of the FOMC to raise its federal funds rate target and shrink its balance sheet will sow the seeds of a rate of consumer inflation above the FOMCs 2% annualized target.
2012-01-31 Lacy Hunt on the Roadblock to Recovery by Robert Huebscher (Article)
'The fundamental key to prosperity is not governmental financial transactions, or even private sector financial transactions,' according to Lacy Hunt, the widely respected economist at Hoisington Investment Management, with whom we spoke last week. 'The key to prosperity is the hard work and creativity of our individuals in businesses.'
2012-01-31 Bob Doll Believes the Recent Equities Rally Could Continue by BlackRock (Article)
Conditions have improved compared to last quarter, with the US economy showing signs of acceleration and European policymakers moving further along the path of progress. With the bearish tone receding, investors should consider moving into "risk" assets and out of "safe" assets, especially on pullbacks.
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.
2012-01-30 Warning: Goat Rodeo by John P. Hussman of Hussman Funds
We're observing an "exhaustion" syndrome that has typically been followed by market losses on the order of 25% over the following 6-7 month period (not a typo). Worse, this is coupled with evidence from leading economic measures that continue to be associated with a very high risk of oncoming recession in the U.S. - despite a modest firming in various lagging and coincident economic indicators, at still-tepid levels. Compound this with unresolved credit strains and an effectively insolvent banking system in Europe, and we face a likely outcome aptly described as a Goat Rodeo.
2012-01-27 Europe Investment Commentary - Full Year 2011 by Team of Cohen & Steers
Our global macro outlook has turned positive given the shift toward monetary easing as well as U.S. economic data steadily improving growth. However, Europes central role in fiscal crises has made for a difficult backdrop in the region. We have begun to envision a recession in Europe as a base-case scenario. Given this, we seek to invest in companies that are best able to shield themselves from the most adverse effects of a slowing economy. Broadly speaking, opportunities to invest in companies with good balance sheets that are trading at meaningful discounts to their property values.
2012-01-27 Global Real Estate Securities Investment Commentary - Full Year 2011 by Team of Cohen & Steers
Our macro outlook has turned more positive given the global shift toward monetary easing as well as U.S. economic data confirming steadily improving growth. However, we expect the fiscal crisis plaguing Europe to remain an overhang, as the region is likely heading into recession, making a long-term resolution increasingly difficult. Despite these challenges, we believe fundamentals for global real estate securities will continue to improve broadly, with the lack of new supply coupling with growing demand and effective expense reduction to generate meaningful cash flow growth.
2012-01-27 International Real Estate Investment Commentary - Full Year 2011 by Team of Cohen & Steers
We remain materially underweight Europe and Japan, and overweight Asia Pacific (ex-Japan). We have selective allocations to well-established companies in emerging markets whose business models are positioned to benefit from secular growth in consumer spending among emerging middle classes. We are overweight high-quality retail and offices in major city centers globally, where tenant demand has been more resilient and supply more constrained. Finally, we have allocations in property sectors and geographies where stronger cyclical recovery is emerging as a driver of outsized cash flow growth.
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.
2012-01-24 Dale Mortensen on Addressing Unemployment by Dan Richards (Article)
Dale Mortensen is an economist, a professor at Northwestern University and a co-winner of the 2010 Nobel Prize in Economics. In this interview, he discusses the unemployment situation in the US. This is the transcript.
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.
2012-01-23 Cutting Debt and Deficits by Keith Wade and James Bilson of Schroder Investment Management
Clearly fiscal tightening in the developed markets will produce strong headwinds to world economic growth at an already unfavorable phase of the economic cycle. The extent of this drag on growth will in part be determined by the composition of the consolidation taking place between spending and revenue. Fiscal multipliers - the extent to which changes in spending and taxation affect real output - are difficult to predict with great accuracy at the best of times, but two factors suggest they may have become more powerful.
2012-01-23 Willful Optimism in the Face of Pessimism by Robert Horrocks of Matthews Asia
The U.S. has an unemployment problem, Europe is insolvent and Chinas banking system and property developers face the prospect of rising bad loans. The only thing that appears to be sustainable in investors minds is depression. Indeed, this has led to ongoing pessimismand perhaps too much of it. This month Robert Horrocks, PhD, takes a dissenting view on all the negativism as central banks in Europe, the U.S. and Asia appear to be shifting to more accommodative stances as inflationary pressures subside.
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 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.
2012-01-17 A Nobel Laureate’s View on the US - A Debt Problem, but an Unemployment Crisis - Video 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 video of the interview.
2012-01-17 Double-Digit Market Returns in 2012? by Bob Doll of BlackRock Investment Management
Skeptics would suggest that the solid start to 2012 is little more than a typical "January effect" in which stocks tend to rise at the beginning of the year, but we think there is more to it than that. In part, we believe the upward moves of the last two weeks can be attributed to the fact that many investors (including active fund managers) came into the year underexposed to risk assets following a disappointing 2011, and who are at this point beginning to put their cash to work.
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 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 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.
2012-01-10 Bad Medicine, Bad Policies by Christian Thwaites of Sentinel Investments
We can see the results of sensible monetary policy and not so sensible fiscal policy: slow recovery of manufacturing and service jobs, decline in all government jobs and gradually lower participation rates. Expect these trends to continue. We find 30-year bonds with a near 20 duration very tradable. The YTD price swing is already over 4% and with a 3.0% yield; we must be careful that price changes not wipe our coupon returns. Stocks offer attractive entry points but we look at individual companies, balance sheets and management more than the overall asset class.
2012-01-09 Muddling Through in 2012 by Bob Doll of BlackRock Investment Management
The world continues to operate in a post-creditbust environment in which significant amounts of deleveraging still need to occur. The momentum in the United States is pointing in the right direction, but we do expect to see ongoing back-and-forth in the tone of economic data. Conditions will not continue to improve at the same pace we have seen over the last couple of months, nor will they deteriorate to the point that a double-dip recession becomes likely. Instead, we expect the economy to chart a middle course and grow somewhere between 2% and 2.5% for the year.
2012-01-06 ECRI Recession Call: Growth Index Shows Further Contraction by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -8.2 in its latest reading, data through December 30. The latest public data point is a deeper contraction from last week's -7.6. The index had been hovering in a narrow range between -7.4 to -7.8 for the previous seven weeks but has now slipped lower.
2012-01-05 2012 Market and Economic Commentary and Outlook by Multiple of Various
This is a compilation of economic and market forecasts from managers at 14 individual mutual fund companies.
2012-01-03 Ghosts of Christmas Past by Michael Lewitt (Article)
While Europe desperately needs the liquidity that the latest bailout scheme provides, nobody should mistake liquidity for solvency and think for a moment that the crisis is over. Much more work is needed to heal the wounds that European policy makers and business leaders have inflicted on their societies since the European Union was formed.
2012-01-03 Thoughts About 2012 by Charles Lieberman (Article)
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.
2012-01-03 Dale Mortensen on Addressing Unemployment - Video by Dan Richards (Article)
Dale Mortensen is an economist, a professor at Northwestern University and a co-winner of the 2010 Nobel Prize in Economics. In this interview, he discusses the unemployment situation in the US. This is the video.
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 Beyond Beasts and Bossa Nova:The Brazilian Boom by Team of Guild Investment Management
What does all this mean for those who wish to invest in Brazil? It means that when it is time to buy Brazil and the time isnt here yet you will want to consider banks and credit card companies as a way to capture the wave of consumer cash since many consumers go abroad to buy personal and pricey consumer goods. To take advantage of rising internal Brazilian spending you will probably want to consider autos, housing, and big ticket durables that will not fit into the luggage of shoppers returning from spending trips abroad.
2011-12-30 ECRI Recession Call: Growth Index Virtually Unchanged for Seven Weeks by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -7.6 in its latest reading, data through December 23. The latest public data point is virtually unchanged from last week's -7.7. The index has been hovering in a narrow range between -7.4 to -7.8 for the past seven weeks. Those of us who follow this indicator are nervously awaiting a confirmation or reversal of the trend.
2011-12-20 By The Side Of The Road by Jeffrey Saut of Raymond James Equity Research
For months I have stated, While I guess we could talk ourselves into a recession, like the aforementioned hot dog folks, most of the finger-to-wallet ratios I monitor are not pointing towards a recession. To be sure, railcar loadings (especially intermodal) have been pretty strong for the past few months. State tax receipts are up year-over-year. East Coast port traffic, both inbound and outbound, remains perky. And, one of the best walk around indicators, namely foot traffic at the casual dining restaurants because it is the most discretionary of all consumer purchases, is still positive.
2011-12-16 A Bad Year for Common Sense by Gerald Hwang of Matthews Asia
The phrase common sense can be a paradoxical concept in investment conversations. Seemingly imbued with a perverse, reverse meritocracy, the catchphrase appeals to investors as an intellectual leveler. It suggests, Let us think things through logically. Not only does this sound good, but what could be more egalitarian and humble? But when investment managers consider something to be common sense, be wary. We take a look at how common sense failed bond investors this year.
2011-12-16 ECRI Recession Call: Growth Index Contraction Moderates Fractionally by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -7.5 in its latest reading, data through December 9. The latest public data point is fractionally less negative than last week's -7.7, which is a downward revision from -7.6. CRI's recession call is, to say the least, quite controversial in financial circles. The perma-bears are generally supportive of the forecast, while the predominantly bullish mainstream financial view ranges from skeptical to dismissive.
2011-12-15 Eastern Europe Financial House Stronger than Debt-Ridden Neighbors by Frank Holmes of U.S. Global Investors
For some Eastern European investors the geographic proximity to the eurozone has been too close for comfort, with the Russian MICEX Index declining about 20 % year-to-date. However, stronger fiscal and monetary stances in Eastern Europe compared with its western neighbors warrant a 2nd look. Eastern European countries generally have experienced higher GDP growth along with less debt, so financing costs have less of a negative effect on GDP than in Western Europe. In most of Eastern Europe, every one percent increase in the cost of funding only detracts about 0.5 percentage points from GDP.
2011-12-12 Hard-Negative by John P. Hussman of Hussman Funds
The present market environment warrants unusual concern, in my view. Based on a wide variety of evidence and its typical market implications over an ensemble of dozens of subsets of historical data, the expected return/risk profile of the stock market has shifted to hard-negative. This isn't really a forecast in the sense that shifts in the evidence even over a period of a few weeks could move us to adjust our investment stance, but here and now we observe conditions that have often produced abrupt crash-like plunges.
2011-12-12 Decoupling, American Style by Kristina Hooper of Allianz Global Investors
The loosening relationship between US and European economic growth and what it portends for US stocks and investors. Decoupling never seems to go out of vogue in America. Britney and K-Fed. Ashton and Demi. Arnold and Maria. Kris Humphries and a Kardashian. Elizabeth Taylor and just about everyone. But right now were seeing a differentand decidedly more positivekind of breakup: the US economy is decoupling from Europes economy. While strategists are increasing the odds that Europe goes into recession, they are decreasing the odds that the US will go into recession. And with good reason.
2011-12-09 ECRI Update: Lakshman Achuthan Explains the ECRI Recession Call by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -7.6 in its latest reading, data through December 2. The latest public data point is fractionally less negative than last week's -7.8. Yesterday Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. It was sufficiently representative of the ECRI view that it's also available on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its entirely.
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 Evaluating Optimum Currency Areas: The U.S. versus Europe by Ben Emons of PIMCO
While economic integration has progressed materially since the inception of the EMU, the U.S. scores much higher in terms of labor productivity, labor mobility and wage flexibility. Research shows that wage rigidity-defined as wage freezes or cuts as a fraction of total workers-is much lower in the U.S. than the eurozone. Eliminating these rigidities is crucial for the eurozones growth as an optimum currency area. Albeit painful, the intensity of the debt crisis in Europe may force a quicker progress of reform implementation, which could be a competitive advantage for the EMU in the future.
2011-12-02 ECRI Recession Watch: Growth Index Reverses Trend and Declines Further by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -7.8 in its latest reading, data through November 25. The latest public data point is more negative than last week's downwardly revised -7.4 (previously -7.3). Today's update reverses the trend off its interim low of -10.1 on October 14.
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.
2011-11-26 ECRI Recession Watch: Decline in Growth Index Continues to Moderate by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index growth indicator of the Economic Cycle Research Institute posted -7.3 in its latest reading, data through November 18. The latest public data point is less negative than last week's upwardly revised -7.8 and continues the trend off its interim low of -10.1 on October 14. Earlier this month I posted the November 7th CNBC interview with Lakshman Achuthan, the Co-founder of ECRI. I'm again including video because ECRI continues to feature it on their website here, which I see as ongoing evidence that they stand behind their recession forecast.
2011-11-22 A Failure to Act by Russ Koesterich of iShares Blog
The bipartisan Congressional super committee announced on Monday that it would not be able toreach a deficit-reduction dealin time for its deadline this week. The committees failure will not unleash a near-term economic catastrophe, but it does have four important implications for the US economy: 1. Lower Investor Confidence 2. A Stalled Economy in 2012 3. Fiscal Drag in 2013 and 4. Another Potential Downgrade.
2011-11-22 Whether the U.K. is in the Euro or Not, We Are All in This Together by Mike Amey of PIMCO
Can the U.K. economy withstand a further sharp deterioration in the European debt crisis? The prospect of European recession, coupled with the U.K.'s program of tight fiscal policy, points to a challenging economic outlook for the U.K. A weak eurozone means weak export prospects at a time when the U.K. is trying to rebalance its economy towards greater exports. The U.K. economy has made great strides in stabilizing its banking system, but it is not yet in a position where it can withstand a systemic European crisis involving multiple defaults.
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.
2011-11-16 Ben Bernanke: The Decider by Tony Crescenzi of PIMCO
Amid great economic stress, policymakers have missed many opportunities to improve the situation and better the lives of people. The leadership void in the U.S. was illustrated by the dismal display of policy dysfunction that led the country to lose its AAA credit rating. European leaders have fared no better. Ben Bernanke and the Fed, however, have demonstrated leadership. What is both remarkable and instructive for the outlook for monetary policy is how active the Fed remains even though it has reached the zero-bound for interest rates.
2011-11-14 Hokey Pokey by John P. Hussman of Hussman Funds
Sound monetary policy requires sound fiscal policy, coupled with a habit of the private sector to allocate resources productively so that the government isn't forced to compensate for bad decisions. That's where the global economy has failed.
2011-11-11 ECRI Recession Watch: Growth Index Decline Moderates by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index growth indicator of the Economic Cycle Research Institute posted -8.5 in its latest reading. The latest public data point is less negative than last week's -9.4, and trending above its interim low of -10.1 on October 14. ECRI has come under some harsh criticism this past week, starting with a CNBC interview of Lakshman Achuthan, the Co-founder of ECRI. About half-way through the interview, the discussion turns into an uninformative debate in which Achuthan speaks of a "contagion among the forward leading indicators" but dodged requests for specifics.
2011-11-08 O Dollar, Where Art Thou? by Chris Turner Guest Commentator of Advisor Perspectives (dshort.com)
What would the value of S&P 500 index be if it were adjusted based on the dollar index? Many of us are familiar with the dollar index. We know that the value of our dollar versus a basket of currencies fluctuates as a result of many reasons. Let's look at our dollar index, which is conveniently available from Federal Reserve's economic data repository (FRED). What would the S&P 500 Index look like if we adjusted for the rise or fall of the dollar? We typically adjust for inflation, but do we know what impact our central bank, government spending, and monetary policies have upon the dollar?
2011-11-02 Debarred from Certainty by Christian Thwaites of Sentinel Investments
The innocent pre-2008 are days gone. Expect volatility. Markets distrust most of the news and theres little conviction in any one direction. Vanilla investors are on the sidelines. Day to day trading is mostly position covering and range bound investing. Thats fine with us. The more algos and high frequency trading noise, the easier to spot fundamental anomalies. The challenge is to keep fluid between seemingly different but highly correlated markets.
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.
2011-10-28 Et tu, Berlusconi? The Daunting (But Not Always Insuperable) Arithmetic of Sovereign Debt by Rich Mattione of GMO
This paper sets itself two tasks. The first is to construct a simple model that would arithmeticize the dynamics of sovereign debt so as not to get hung up with all of the acronyms and programs designed to save the world. The second is to put this into the context of the European sovereign debt problem and hazard some opinions as to which options can work, and which cannot. Grand solutions may yet come, but they probably will not come soon enough. Now is the time to separate the daunting from the insuperable, and to fix both sets of nations.
2011-10-28 ECRI Recession Watch: Growth Index Virtually Unchanged by Doug Short of Advisor Perspectives (dshort.com)
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -10.0 in its latest reading, data through October 21, a fractionally change from the previous week's -10.1. On September 30th, the ECRI publicly announced that the U.S. is tipping into a recession, a call the Institute had announced to its private clients on September 21st.
2011-10-27 Third Quarter Investment Commentary by Team of Litman Gregory
Since 2008, we have been in a period where macroeconomic forces are particularly influential and must inform our portfolio strategy. This quarter's developments in which we saw heightened concerns about a global economic slowdown, political gridlock, and serious concerns about shorter-term European and longer-term U.S. debt problems are consistent with the risk scenarios we've been discussing the past several years.
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.
2011-10-27 Eyes on the Prize by Richard Clarida of PIMCO
Before Nobel laureates Tom Sargent and Chris Sims developed their methods, economists and policymakers had no rigorous way to incorporate expectations into their statistical models. There is a limit to forward guidances effectiveness, which is why the Fed has pursued other policy options since hitting the zero lower bound. An uncanny correlation exists between the Feds preferred measure of the publics long-term inflation expectations and the timing or initial announcement of a quantitative easing or twist program.
2011-10-25 Fed Outlook More Asset Purchases? by Scott Brown of Raymond James Equity Research
The Federal Open Market Committee, the Feds policymaking arm, will meet on November 2-3. Clearly, there are some differences of opinion among senior Fed officials regarding the appropriate path for monetary policy. However, the dissenters (those wanting to do less) are a small minority. The FOMC will come together with a somewhat less troublesome near-term economic outlook (no recession in the near term), but there are more concerns about growth in 2012.
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 Penny Wise and Euro Foolish by John P. Hussman of Hussman Funds
The bottom line is a) Euro leaders will likely initiate a forced bank recapitalization within days; b) Greece will default, but the new hold-over funding may give the country a few more months; c) the EFSF will not be "leveraged" by the ECB; d) banks are likely to take haircuts of not 21%, but closer to 50% or more on Greek debt; e) much of the EFSF will go toward covering post-default capital shortfalls in the European banking system following writedowns of Greek debt; f) the rest will most probably be used to provide "first loss" coverage of perhaps 10% on other European debt.
2011-10-21 Global Equity OutlookFourth Quarter 2011 by Team of American Century Investments
In this edition of Weekly Market Update, presents the teams outlook for global equity markets, based on the latest research and discussions with companies from industries and countries across the economy and the globe. The team focuses on individual security selection, building portfolios from the bottom up, rather than making top-down judgments about the economy. In their view, economic trends matter to the extent that they relate to corporate earnings power. As a result, the outlook focuses on corporate earnings and other areas they deem important to successful global equity investing.
2011-10-19 Five Policy Prescriptions for Europe by Tom Fahey of Loomis Sayles
The European sovereign debt crisis is chronic. It can not be resolved until countries can demonstrate the ability to grow and improve their budget deficits. The immediate need is to stop Europe from hemorrhaging risk into the global financial markets. That can only be done by the ECB because it is Europes most effective and high profile euro-area institution and the banking systems only lender of last resort. Until the ECB steps up to commit sufficient liquidity, the overall septic conditions of European risk will likely continue to infect the global capital markets.
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 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?
2011-10-14 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.
2011-10-13 Pointing Fingers: Can Europe and the U.S. Work Together to Solve the Financial Crisis? by Team of Knowledge @ Wharton
Even as U.S. officials and investors watch Europe struggle to shore up its financial system and avert another shock to the global economy, signs of a subtle transatlantic "blame game" have surfaced. Experts from Wharton and elsewhere note that although there are no immediate answers to the mounting crisis -- and its impact on capital markets in the U.S. -- it's clear that any finger pointing needs to be replaced by a sense of urgency and mutual cooperation before solutions can be found.
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 Q3 Client Letter Drawing on Buffett’s Optimism 'The U.S. is coming back now' - and why three inves by Dan Richards (Article)
Since 2008, each quarter I have posted a template for a letter to clients; these are consistently among my most popular articles. This quarter's letter provides clients with perspective on the recent market turmoil.
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 Global Investment Outlook: October 2011 by Team of Aberdeen Asset Management
Global growth momentum continues to decline but is worst in Europe. Solvency of national governments and now banks is creating fears of a crisis. Coordinated policy action is key to stemming adverse market reaction. Although economic data has continued to demonstrate slower business activity, this is most obvious within Europe which has suffered from fiscal contraction as well as diminishing export demand from the emerging world. Unemployment levels remain elevated, and the reluctance to create new jobs is proving the Achilles heel of policymakers efforts to kick start private sector demand.
2011-10-04 The Economic Outlook In A Holding Pattern by Scott Brown of Raymond James Equity Research
The consumer outlook is muddled. Spending growth hasnt been especially strong, but its not falling off a cliff. Real income growth has slowed, but lower gasoline prices may provide some relief over the next several months. Corporate profits and cash flows are strong, helping to support business fixed investment. However, were still facing a significant drag from fiscal policy and Europe is a major question mark. The anxieties of September are likely to continue into October and beyond.
2011-10-04 Is Recession a Certainty in the U.S.? by Scott Colyer of Advisors Asset Management
There is certainly much greater economic risk out there than there was just a month or two ago. My sense is that any recession that the United States may experience would be associated with a slowing of U.S. GDP because of a fall of in Europe, and potentially China. I believe that China would act quickly to reverse their tightening bias to spur growth. Calling recessions is a dangerous game. We all try to make logical sense of markets and try to forecast the future. All I know is that folks that have done well decade over decade, like Buffet, are buying and not selling.
2011-09-30 The Fed's 'Twist' Turns into a Problem for Pensions, Insurers and Households by James Moore of PIMCO
In its attempt to stimulate borrowing by making long-term money cheap, the Fed has harmed large swaths of savers. A look at three groups in particular proves instructive: pension plans, life insurance companies, and households saving both inside and out of 401(k)s.
2011-09-30 Extreme Divergence Between Coal Rocks and Stocks Unwarranted by Frank Holmes of U.S. Global Investors
Coal was relatively flat for the quarter, but whats interesting is that coal companies were severely discounted. Over the last two years, coal stocks and the commodity have closely tracked each other, until this summer, when worries about a global slowdown caused coal stocks to fall off a cliff, not once, but twice, in August and again in early September. This extreme divergence between coal companies and the commodity seems unwarranted when the long-term drivers of coal remain supportive.
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.
2011-09-28 With Apologies to James Carville, It's the Demand, Stupid by Paul Kasriel of Northern Trust
If there were more demand for goods and services in the economy, then corporations allegedly sitting on all that cash would start to use it. Our current weak economic growth is largely the result of inadequate aggregate demand for goods and services, not inadequate supply. And that is why I suggested a properly designed Federal Reserve quantitative easing could chum up aggregate demand until banks are able to create adequate amounts of credit on their own to get the job done. Monetary policy is all about affecting aggregate demand; fiscal policy is all about affecting aggregate supply.
2011-09-27 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
When the Federal Reserve Board runs out of tools to fix the economy, its an even worse scenario. They are not simply useless, they become irrelevant. And so, last week the Fed meekly bought more long-term treasuries in an effort to salve the economy by keeping interest rates, all across the time spectrum, low. Instead, what they wrought was disdain, confusion, and declining confidence. Ive said it before. Low interest rates today are analogous to giving free drinks at closing time. You can lead a horse to water, but you cant make him spend.
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.
2011-09-21 Liquidity Crisis? A Currency Perspective by Axel Merk of Merk Funds
In 2008, the global financial system faced a potential meltdown when funding seized up for investment banks, ultimately leading to the failure of Lehmann Brothers. Three years on, we have got plenty of problems, but as we shall argue - investors may want to differentiate between a financial meltdown and insolvency. While complaining about policy makers and bankers may generate animated water cooler discussions, lets take their human (and fallible) nature as a given, and discuss implications for investors. In this context, we assess the U.S. dollar, currencies and equities.
2011-09-20 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.
2011-09-20 Europe!? by David Kelly of J.P. Morgan Funds
Investors might wonder why global markets care so much about European debt. After all, relative to the size of their economies, both the U.S. and Japan run bigger annual budget deficits and have accumulated more government debt than the Euro Zone as a whole. The answer lies in the fact that Europe is now too integrated to be immune to the problems in any one nation, but still too divided to do anything effective to deal with them. Because of this, a very serious budget problem in one nation can undermine confidence in government debt and the banking system across the entire continent.
2011-09-19 Preparing for a Greek Default by John P. Hussman of Hussman Funds
The yield on 1-year Greek government debt ended last week at 110%, down slightly from a mid-week peak of 130%. Even with the pullback, the Greek yield structure continues to imply default with certainty. All the markets are really quibbling about here is the recovery rate. That figure was still hovering near 50% as of Friday, but was a bit higher than we saw a few days earlier. A bailout today does not avert default, but at best defers it to a later date, and squanders funds that could otherwise be used to stabilize the European banking system once that inevitable default occurs.
2011-09-19 Diogenes in the Barrel by Christian Thwaites of Sentinel Investments
Its a good time to sit tight and stay with cash. Its not uncertainty. We can live with that. Its the certainty of temporary impasse. Heres why. When Europe gets it wrong it gets it really wrong. The cycle of tighter budgets, lower growth, higher deficits and higher bond yields is so manifest that you would think some coordinated policy response would be front and center. Not a bit of it. Greece is fast approaching the point where a declining economy cannot support debt repayments. It does not matter if the country embraces frugality or not. There is simply not enough juice to pay off debt.
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 More of the Same by Bob Rodriguez of First Pacific Advisors
What would it take for me to shift to a more optimistic longer term outlook? First, there should be a discussion and then implementation of real and substantive congressional budgetary reforms that have a standing in law. Without this change, a future congress can overturn any of the expenditure cuts that are voted on today but are not implemented until much later. With a congressional approval rating of 13%, the American public should demand nothing less because the Congress cannot be trusted. Both parties are equally responsible for the fiscal mess the nation faces.
2011-09-13 Extraordinary Measures Needed by Scott Brown of Raymond James Equity Research
While Fed officials appear to be divided the hawks are a minority. More monetary stimulus is coming but its unclear whether this will include another round of asset purchases or a lengthening of maturities in the Feds asset holdings. Looking at Europe, its difficult to quantify the probability of a banking crisis, the exit of one or more countries from the monetary union, or a complete breakup. The political environment is difficult in a different sort of way than in the U.S. Fiscal and monetary policy efforts in the U.S. may not lead to a strong recovery anytime soon, but at least we try.
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 The G-7 Disappoints Again by Mohamed A. El-Erian of PIMCO
Unlike recent G-7 meetings of finance ministers and central bankers that were essentially ignored, there was quite a bit of interest in the one held this past weekend in Marseille. That interest turned out to be misplaced, however, as the G-7 delivered little of substance yet again. The G-7 issued a communiqu whose disappointing lack of content contrasts sharply with the deteriorating health of the global economy, the intense risks ahead, and legitimate policy confusion. The G-7 is fortunate that it is not required to justify the expenses of its meetings in terms of what is achieved.
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 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
September has been a wild ride for global markets, and October is expected to bring more of the same. On the horizon is a key inflection point at which portfolio allocation might either protect or bury any portfolios. As global economic recovery sputters there is a new urgency about either continuing on a portfolio path of growth, or reverting altogether to a default cash position. Within each scenario, however, is a psychological uneasiness that borders on shock and awe. It is much more difficult to manage clients downside risk appropriately, than to pick winners when all stocks are rising.
2011-09-10 Preparing for a Credit Crisis by John Mauldin of Millennium Wave Advisors
This week we turn our eyes first to Europe and then the US, and ask about the possibility of a yet another credit crisis along the lines of late 2008. I then outline a few steps you might want to consider now rather than waiting until the middle of a crisis. It is possible we can avoid one but whether we do depends on the political leaders of the developed world making the difficult choices and doing what is necessary. And in either case, there are some areas of investing you clearly want to avoid. Finally, I turn to the weather and offer you a window into the coming seasons.
2011-09-06 An Imminent Downturn: Whom Will Our Leaders Defend? by John P. Hussman of Hussman Funds
The global economy is at a crossroad that demands a decision-whom will our leaders defend? One choice is to defend bondholders-existing owners of mismanaged banks unserviceable peripheral European debt, and lenders who misallocated capital by reaching for yield and fees by making mortgage loans to anyone with a pulse. Defending bondholders will require forced austerity in spending of already depressed economies, continued monetary distortions, and the use of public funds to recapitalize poor stewards of capital. It will do nothing for job creation, foreclosure reduction, or economic recovery.
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 Economic Recovery Poised to Improve by Bob Doll of BlackRock Investment Management
The U.S. will avoid a deep slump, but it remains an open question as to whether growth is modestly positive or if the US flirts with a recession. In any case, however, we do not expect to see a period of economic weakness that is anything like what we saw in 2007 and 2008. Unlike then, the US financial system is much better capitalized, the housing market is no longer overvalued and there is some demand in the cyclical parts of the economy. Additionally, we would point out that temporary factors are at least somewhat responsible.
2011-08-31 Policy Conundrums by Scott Brown of Raymond James Equity Research
In a week or so, President Obama will announce proposals to boost job growth and shore up the housing sector. These efforts, even if they could make it through Congress, would help somewhat, but wouldnt boost economic growth substantially. Bernankes Jackson Hole speech showed that the Fed chairman remains optimistic about the long-term prospects for the economy. Current difficulties are unlikely to affect the long-term growth potential, but he stressed that is if our country takes the necessary steps to secure that outcome.
2011-08-30 Austerity is not Enough by Andrew Balls of PIMCO
Before the Jackson Hole meetings over the weekend, it was no surprise that all eyes were on central banks. They have demonstrated in recent years that they can act swiftly and decisively when they choose to. While eurozone governments have failed to maintain a united front to deal with a sovereign debt crisis, and American politicians have concocted their own budget crisis, central bankers have retained the moral and operational high ground. Yet, given the problems of growth in the U.S., and of growth, solvency and the coherence of the eurozone, there is a limit to what central banks can do.
2011-08-29 A Reprieve from Misguided Recklessness by John P. Hussman of Hussman Funds
Over the past three years, Wall Street and the banking system have enjoyed enormous fiscal and monetary concessions on the self-serving assertion that the global financial system will "implode" if anyone who made a bad loan might actually experience a loss. Because reversing this mantra is so difficult, policy makers are likely to continue fitful efforts to "rescue" this debt for the sake of bondholders. The justification for those policies will therefore have to be coupled with rhetoric that institutions holding these securities are too "systemically important" to suffer losses.
2011-08-29 Warren Buffett Gets It by Charles Lieberman (Article)
Warren Buffetts decision to call the CEO of Bank of America to invest $5 billion in newly issued preferred shares reveals how a canny investor can take advantage of market psychology. The decline in bank stocks reflects latent fears. It was driven by the experience of 2008, when the credit markets froze up and banks suffered large, unknowable losses on their mortgage portfolios. The fear of today is that the same thing could happen. The credit problems in Europe are a major source of concern. Unlike US banks, European banks did not raise a lot of capital following the market meltdown in 2008.
2011-08-29 Markets Recover Some Ground As Uncertainty Remains High by Bob Doll of BlackRock Investment Management
In some ways, whether or not the economy does sink into recession is a technical point. If we do see a double-dip recession, any such contraction should be mild. If the economy avoids a recession, growth will still be weak. From an earnings perspective, any decline that comes about in earnings growth due to economic weakness should also be smaller than the average contraction that occurs during a typical recession. Looking ahead, our forecast is that earnings growth flattens out while GDP remains very low.
2011-08-25 There They Go Again by Peter Schiff of Euro Pacific Capital
Picking up where they left off in 2008, the media is in the midst of a campaign to ignore and undermine the presidential candidacy of Ron Paul. Political pundits just do not know what to do with a candidate who fails to fit into the blue and red boxes that form the simple narrative of American politics. They are perturbed by the grass roots nature of the campaign, by the strange honesty and earnestness of the candidate and his supporters, and the odd mixture of conservative values and liberty-minded policies. And like most adolescents, they reject what they don't understand.
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.
2011-08-17 The European Debt Crisis: Key points to consider by Tom Fahey & Ed Thaute of Loomis Sayles
A toxic combination of factors contributed to the recent selloff in risk assets and the sharp decline in German and US government bond yields. The lingering European sovereign debt crisis, exacerbated by political bickering, weak economic data and doubts about the potential effectiveness of monetary and fiscal policy tools, fed investor anxiety. Ever since Greece requested its first rescue package in May 2010, the European sovereign debt crisis has been simmeringwith occasional flare-ups.
2011-08-17 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The volatility in share prices was quite extraordinary last week on a daily basis. However, when the week was over and as the charts below indicate the Dow Jones Industrial Average had declined by just 1.5% while the NASDAQ actually fell by less than one percent. Given this mornings strong opening (Europe is quiet due to a religious holiday), all of last weeks losses have now been reversed, which is hard to believe.
2011-08-17 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The volatility in share prices was quite extraordinary last week on a daily basis. However, when the week was over and as the charts below indicate the Dow Jones Industrial Average had declined by just 1.5% while the NASDAQ actually fell by less than one percent. Given this mornings strong opening (Europe is quiet due to a religious holiday), all of last weeks losses have now been reversed, which is hard to believe.
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 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.
2011-08-13 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
In short, there are no easy solutions. We have just about used up all our rabbits in the hat as far as fiscal and monetary policy are concerned. We now need to focus on what we can do to get out of the way of the private sector, so it can find ways to create new businesses and jobs. And that means figuring out how to get money to new businesses, because that is where net new jobs come from. But that takes time...
2011-08-10 Global Investment Outlook: Aberdeen's monthly outlook for economies and markets. by Team of Aberdeen Asset Management
Eurozone crisis threatens financial stability Global industrial production momentum may be turning back up Fiscal policy and sovereign indebtedness is the major medium-term issue Monetary policy remains accommodative with emerging countries becoming less restrictive
2011-08-10 Crisis Averted, A Re-focusing On Prior Worries by Scott Brown of Raymond James Equity Research
Fiscal policy in the U.S. and abroad is going the wrong way, weakening the prospects for global growth. What about monetary policy? In the U.S., Fed policymakers meet this week. As Chairman Bernanke testified in mid-July, even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further. The Fed could provide more explicit guidance on how long short-term interest rate would remain low and how long the balance sheet would be maintained at its current elevated level.
2011-08-08 Everyone Forgot the Basic Laws of Economic by Richard Bernstein of Richard Bernstein Advisors
The consensus over the past month of so was that Washington would come to a last minute debt limit resolution and the equity markets would rally once the cloud of uncertainty regarding the US's finances was removed. Washington did come to its last minute resolution, but the markets have sold off. What happened?
2011-08-05 Striking Fiscal Balance in Indonesia by Kenneth Lowe of Matthews Asia
The first thing that most people will notice when they touch down in Jakarta is the almost overwhelming volume of traffic that turns what should be a fairly short ride from the airport to the city center into a two-hour epic journey. The Jakarta road network is bursting at the seams. And its not just roads that need investment. Indonesia is rich in terms of natural resources and, although reserves remain high, getting coal and petroleum products out of the ground at an efficient price has also proved a tricky task over the last decade.
2011-08-04 Washington and the Art of the Possible by Raghuram Rajan of Project Syndicate
The big necessary decisions on curbing entitlement growth and reforming the tax code will probably have to wait until after the next election, giving the divided electorate an opportunity to reflect on its own inconsistency and send a clearer message. In the meantime, US politicians might have done just about enough to convince debt markets that Americas credit is still good. For that, Americans and others around the world should stop pillorying them and give them their due credit.
2011-08-03 The Advance 2Q11 GDP Report Feeling Nauseous by Scott Brown of Raymond James Equity Research
The advance estimate of second quarter GDP growth came in somewhat lower than expected. Some of the second quarter's softness was transitory, but is there a danger of hitting stall speed? Will the debt ceiling crisis contribute to weaker growth? Real GDP growth rose at a 1.3% annual rate in the advance estimate for 2Q11. It's important to remember that these are preliminary figures. However, we don't expect the story to change very much. Annual benchmark revisions delivered downward adjustments to growth to 4Q10 and 1Q11 GDP. The revised 1Q11 GDP figure looked like a misprint. No such luck.
2011-08-02 The Second Great Contraction by Kenneth Rogoff of Project Syndicate
Why is everyone still referring to the recent financial crisis as the Great Recession? The term, after all, is predicated on a dangerous misdiagnosis of the problems that confront the United States and other countries, leading to bad forecasts and bad policy. The phrase Great Recession creates the impression that the economy is following the contours of a typical recession, only more severe. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong.
2011-07-30 Visualizing GDP: The Consumer Is Key... and at the Razor's Edge by Doug Short of Doug Short
Over this time frame, we see that the personal consumption expenditures component has shown the most consistent correlation with real GDP itself. When PCE has been positive, GDP has been positive, and vice versa. As the Q2 GDP component analysis clearly illustrates, personal consumption expenditures, at 0.07 of the real GDP 1.29, is at the razor's edge of positive territory.
2011-07-28 Observations on the Debt Ceiling Debate by Larry Maddox of Horizon Advisors
We also think that in the unlikely event that the deadline passes without an agreement, a negative market reaction would likely force Washington to act in some fashion to quickly remedy the issue, at least for the short-term. Further, if the deadline passes, we think there will be cuts to non-essential services before we stop paying interest on our debt, triggering a default. With this in mind, and pending a resolution to this issue, we are not planning any changes in the positioning of our clients' portfolios.
2011-07-28 Eurozone Leaders are Fighting Contagion, But is it Too Little, Too Late? by Andrew Balls of PIMCO
European politicians and bureaucrats may want to focus on their summer holiday plans rather than the eurozone sovereign crisis, but with Italy and Spain facing ongoing contagion they may have to forget their holidays and get to work. When the eurozone leaders finally got around to their summit on July 21, they no doubt hoped that the announcement of a new bailout plan for Greece and plans to expand the role of the European Financial Stability Facility (EFSF) would buy them some time. Unfortunately, that has not happened.
2011-07-25 Name That Tune?! by Jeffrey Saut of Raymond James Equity Research
Last week saw the U.S. Dollar Index decline by ~2.6% and gold tag a new all-time high of $1610.70. The real star of the week, however, was Sugars Surge of 7.87%. I cant imagine the President would want to go down in history as the Captain whose watch saw America lose its AAA status. Accordingly, I would continue to cautiously favor the upside, on a risk-adjusted basis, for if the debt ceiling is not raised we see another downside "hit." And this morning it looks like another hit, at least on a short-term basis, as our elected leaders continue to talk to the wind.
2011-07-25 US Fiscal Policy a Risk, But an Actual Default Is Unthinkable by Bob Doll of BlackRock Investment Management
Thanks to a new agreement to at least temporarily resolve the Greek debt crisis, some intermittent progress on the debate over raising the US debt ceiling, and strong corporate earnings results, stocks posted solid gains last week. Despite all of these debt-related risks, global indicators are not signaling a recession. One area of significant strength remains the corporate earnings landscape. We have also been seeing a rebound in industrial production and consumption. There are certainly areas of economic weakness and uncertainty remains high, but we expect to see stronger growth levels.
2011-07-18 Politicians Are Playing With Fire by Charles Lieberman (Article)
Politicians have the ability to screw up the economy. Investors remain focused on three major concerns: the debt ceiling imbroglio, default risk in Europe and the pace of economic recovery in the U.S. All three may be disruptive and damaging to markets and the economy, although the first two are matters of policy and should be overcome with sensible policy judgments. Instead, the markets remain hostage to the political game of chicken. This will not happen if common sense prevails. Unfortunately, investors lack confidence that politicians will make good decisions.
2011-07-18 Looking Past a Weak Q2 by Brian S. Wesbury and Robert Stein of First Trust Advisors
While some economists are reducing their projections for second half growth, we remain confident in a relatively strong rebound from a weak first half. We forecast that real GDP will grow at a 4% to 4.5% average annual rate in Q3 and Q4 2011. Productivity is strong, monetary policy is loose and fiscal policy is getting no worse. Jobless claims are falling again and auto production is set to surge. In addition, with full expensing allowed for tax purposes this year, record levels of both profits and cash will fuel growth in business investment.
2011-07-15 Europe Must Consider Radical Options by Mohamed A. El-Erian of PIMCO
Europe has been applying a liquidity solution to a solvency problem. The approach, which has bought time, is near exhaustion as it has failed to improve debt sustainability, restore access to markets and put in place the conditions for sustainable growth. Time is approaching for a radical change, with policymakers potentially facing two options. They could opt for greater fiscal union to include cost-effective guarantees and transfers, rather than just loans, in exchange for individual countries sacrificing a significant amount of national sovereignty.
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 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.
2011-07-12 Inflation Field Manual: A Guide for a Changing World by American Century Investments (Article)
This client-approved executive summary by Senior PM Robert Gahagan and Senior PM William Martine, CFA examines the competing forces at work that will affect inflation for the months and years to come. It also provides an analysis of inflation-hedging assets in different market environments, and suggests strategies for protecting a portfolio from inflation risk.
2011-07-12 Emerging Europe: Economic Review June 2011 by Team of Thomas White International
In an update to its Global Economic Outlook published in April, the IMF sounded a cautionary note on the global economic recovery due to the slowing growth in the U.S. and the Euro-zone debt crisis. The Washington-based lender said it sees global activity slowing in the second quarter of 2011, though a rebound is expected in the second half of the year. Despite this forecast, the IMF exuded confidence that the strong growth in Germany, Italy, and France would offset the economic slackening in the U.S. and Japan.
2011-07-08 Bond Market Review & Outlook by Thomas Fahey & David W. Rolley of Loomis Sayles
We are experiencing a case of déjà vu with another economic soft patch and a Greek solvency crisis. We saw this movie in the spring and summer of 2010, but then we got a major policy response (a European bailout, QE2, and tax cuts) that helped lift us out of the doldrums. There is no major policy response coming in 2011. In fact, many countries are pursuing tighter macro policies by raising interest rates or cutting public spending to reduce swollen budget deficits. The European response to the sovereign debt crisis has been messy, and that has been a major contributor to the recent anxiety.
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.
2011-07-01 Expert Roundtable on Interest Rates by Mark W. Riepe, Liz Ann Sonders, Kathy A. Jones, Rande Spiegelman & Brad Sorensen of Charles Schwab
US short-term interest rates have hovered near zero percent for a record period of time. The Fed has kept the funds rate extremely low, not only to boost economic growth, but also to ward off the threat of a deflationary spiral. Given the economy's recent soft patch, we don't expect the Fed to raise rates too soon. But, at some point rates will rise, it makes sense for clients to start planning now. With this in mind, Mark Riepe, led a roundtable discussion of investment and debt strategies for both the current low-interest rate environment and a future point when rates begin to tick up.
2011-06-28 Smart Risk Taking: Realigning Client Portfolios with Their Long-Term Goals by American Century Investments (Article)
The financial crisis sparked widespread flight from risk. Although the crisis is over and equity prices have rebounded, many investors have not yet returned to the capital markets. For them, the safe-haven appeal of money market funds remains strong. In this paper, American Century Investments® proposes a strategy of "smart risk taking," an active asset management approach that seeks to identify, understand, manage, and be consistently rewarded for risk.
2011-06-28 The Fed Outlook: Uncertainty and Reluctance by Scott Brown of Raymond James Equity Research
The Federal Open Market Committee policy statement and Chairman Bernankes post-meeting press conference held few surprises. Monetary policy is still accommodativeand still on hold. Theres also apparently little will at the Fed to do more to help the recovery along. Fortunately for the Fed and the consumer, we can catch a break if oil prices continue to decline. The Fed lowered its GDP forecast for this year to a range of 2.7%-2.9%. In January, the Fed was expecting 3.4% to 3.9%. Growth has slowed due to temporary factors, still the Fed lowered it's outlook.
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.
2011-06-21 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.
2011-06-17 An Investor’s Road Map by Tim Shirata of Guild Investment Management
It looks as if banking regulators are finally showing some backbone. Here in the U.S. and in Europe, they are demanding less leverage. This will likely spread as there is no question that many large global banks are in trouble. The problem is that they are not addressing leverage from derivatives. It is too little and too late, especially after the moral harm created by the bank bailouts. To us, the big question remains this: what about controlling and clearing derivatives through a central exchange so the world of derivative holders and writers can clearly know the risks involved?
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.
2011-06-14 The Consequences of Policy Failure by Michael Lewitt (Article)
Investment performance for the rest of the year will be determined by the macro-economic views of investment managers. While microeconomic factors are always extremely important in charting investment strategies, they are particularly important today as the U.S. and global economies continue to fight their way through the detritus of the global debt crisis. A compelling case can be made for weaker 2Q112 growth based on a combination of factors.
2011-06-14 A Cautionary Tale from the World's Most Influential Economist - Video by Dan Richards (Article)
Raghuram Rajan was recently cited by The Economist as having the most important ideas for the post-crisis world. In this interview, he identifies key policy issues the Obama administration must confront. This is a video of the interview.
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.
2011-06-08 Gold at $1,500 an Ounce: Speculation or Fundamental Demand? by Team of American Century Investments
We believe gold’s performance in recent years and current price above $1,500 an ounce reflect solid fundamental demand, rather than speculative fervor. A key driver of gold demand in the current environment is buying by central banks around the world. In addition, it appears that investors looking for a hedge against both the falling dollar and broader economic uncertainty have been buying gold for its diversification benefits. Jewelry demand in India and China are other, underappreciated positives.
2011-06-08 Behind the Numbers: The Latest from the Federal Reserve by Russ Koesterich of BlackRock Investment Management
On Wednesday, the Federal Reserve Board released its latest Beige Book report, which provided more color on the recent slowdown and indicated the recovery is likely to be anemic and uneven. According to the report, which is a summary of anecdotal information from each Federal Reserve Bank on its district’s current economic conditions, “economic activity generally continued to expand since the last report,” though it did slow somewhat in four of the 12 districts. In particular, “some slowing in the pace of growth” was noted in the New York, Philadelphia, Atlanta, and Chicago districts.
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.
2011-06-02 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.
2011-05-25 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!
2011-05-21 All for One Euro and One Euro for All? by John Mauldin of Millennium Wave Advisors
What Will the EU Do? Seriously, will Trichet really say “non” when they once again peer down at the abyss? He blinked last time. But if the desire is to acknowledge in private what they cannot say in public - that Greece should leave the eurozone and go back to the drachma - there is no better way than to not take Greek debt onto the ECB’s books. It is not a matter of whether Greece defaults, but when. It may be easier in the long run to clean up the mess they have now than continue to create even more debt that cannot be paid.
2011-05-11 Tough Love: Hawkish Contenders for Bank of Italy Governorship Line Up by Mark Willis, James Mason and Nouriel Roubini of Roubini Global Economics
Mario Draghi appears well-placed to succeed Jean-Claude Trichet as the president of the ECB in October, leading to speculation about who will replace him as governor of the Bank of Italy. Four names are floating around: Lorenzo Bini Smaghi, Vittorio Grilli, Fabrizio Saccomanni and Ignazio Visco, the deputy director general of the Bank of Italy. Eurozone horse trading could support Bini Smaghi, but domestic politics could help Grilli, and frequently new governors have been sourced from within the Bank of Italy.
2011-05-10 Inflation Field Manual: A Guide for a Changing World by American Century Investments (Article)
We examine the competing forces at work that will affect inflation. On the one hand, a whole host of factors are currently constraining inflation. On the other hand, US monetary and fiscal policies and a number of global economic imbalances suggest an environment of high and rising inflation. The outcome of this debate is important for financial assets, whose performance turns on the difference between expected and actual inflation-it is when inflation surprises to the upside that stocks and nominal bonds typically underperform and inflation-protected assets do best.
2011-05-03 The Dollar: It’s Payback Time! by Axel Merk of Merk Funds
It’s payback time for Ben Bernanke. In some ways, this should neither surprise, nor scare anyone. Unfortunately, it might do both. In any open market, information is absorbed into asset prices, including exchange rates. Indeed, exchange rates may be the best pricing source to assess the impact of the relentless involvement of policy makers’ “print and spend” mentality in the markets. When trillions are spent, markets are likely to move. However, an unintended consequence has been that a broad range of assets are now moving more and more in tandem, giving investors fewer options to diversify.
2011-04-28 European Engines of Growth by Frank Holmes of U.S. Global Investors
Emerging countries in Europe are expected to outpace their developed counterparts over the next two years, with Latvia, Poland, Romania and Slovakia leading 2012 GDP growth, according to The World Bank. In its “EU10 Regular Economic Report,” the organization expects Romania to lead the way with 2012 GDP growth of 4.4 percent followed by Slovakia’s projected growth of 4.3 percent. Poland’s GDP is anticipated to grow by 4 percent this year and 4.2 percent next year. As domestic demand recovers, Latvia is set to produce a GDP of 4 percent by 2012.
2011-04-19 The Bell Tolls in Washington by Chris Maxey of Fortigent
Earnings season brought about a week of choppy trading in the equity market, resulting in the S&P 500 index falling 0.6% and the Dow Jones Industrial Average dropping 0.3%. Economic data throughout the week was mixed, but the impact of higher gas prices is being felt across the economy. Small businesses recorded a severe hit to sentiment last month after the small business optimism index sank from 94.5 to 91.9. A host of concerns, from declining sales expectations to trepidation about the future of the economy, were culprits behind the weakening.
2011-04-19 Developed Asia Pacific: Economic Review March 2011 by Team of Thomas White International
During March, most developed Asian economies faced headwinds to export growth. Continued efforts to tighten credit in China, inflationary pressures and strengthening currencies were some of the factors affecting export growth across many developed Asian economies. However, a devastating earthquake that struck Japan in early March disrupted supply chains across Asia. Japan, which accounts for 9 percent of the worlds GDP, plays a crucial role in the functioning of the global auto and electronics industry. It is estimated that Japan will require another 2-4 quarters to recoup the losses suffered.
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.
2011-04-15 Not all Bonds are Created Equal by Dan Fuss, Kathleen Gaffney, Matthew Eagan & Elaine Stokes of Loomis Sayles
It has become the question of the day: If interest rates are heading higher, shouldn’t I bail out of bonds altogether? While we anticipate rates will rise, we don’t believe abandoning bonds would be prudent for most investors. Bonds can play an important role in investor portfolios by providing income potential plus diversification. In this piece, we describe why we think rates may be biased higher in coming years and how our portfolio strategies may adjust to the new environment.
2011-04-14 U.S. Dollar – Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
We believe that continued U.S. dollar weakness may be a consequence of the diverging monetary approaches central banks are taking around the globe. While many international central banks have been on a tightening path, raising rates (i.e. Australia, Brazil, Canada, China, India, Norway, Sweden, to name a few), the U.S. Federal Reserve has been conspicuous in its continued easing monetary policy stance. Indeed, while other central banks have been shrinking the size of their balance sheets, the U.S. Fed’s balance sheet continues to expand on the back of ongoing quantitative easing policies.
2011-04-12 Been Down So Long It Looks Like Up To Me by Michael Lewitt (Article)
"The budget crisis is a crisis of leadership," writes Michael Lewitt in the latest issue of the HCM Market letter. "There is no intellectual mystery involved in cutting the budget - entitlement spending must be reduced through the adoption of tighter eligibility standards... The markets will also have to evaluate whether Congress and the Obama administration can make any meaningful progress on budget reform, which will mean tackling the entitlement issue. The failure to rein in federal deficits remains a profound threat to the dollar and interest rates."
2011-04-12 No Help by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
If the objectives of QE2 were to: a) raise interest rates; b) slow economic growth; c) encourage speculation, and d) eviscerate the standard of living of the average American family, then it has been enormously successful. Clearly, with the benefit of hindsight these results represent the Fed’s impact on the U.S. economy, regardless of their claims to the contrary. Why the Fed would believe the economy could benefit from the addition of $600 billion in reserves to a banking system that already had over $1.1 trillion in unused, but potentially inflationary reserves on hand defies understanding
2011-03-30 Andrew Balls Discusses PIMCO’s European Cyclical Outlook by Andrew Balls of PIMCO
Europe’s outlook hinges on limiting contagion from the most troubled peripheral countries. The European Central Bank has signaled its intentions to start tightening, which could complicate the outlook for the more distressed countries. We think the Bank of England will begin to tighten rates over the summer. The UK outlook depends on the impact of fiscal tightening.
2011-03-29 American Consumer Sputtering in Q1 by David A. Rosenberg of Gluskin Sheff
The U.S. consumer spending and income report for February was a bit of a mixed bag. First, personal income in the U.S. did eke out a 0.3% MoM gain in February, but it was below expected and failed to keep up with the rise in inflation, which are largely, but not exclusively, being driven by food and fuel prices (accounting for half the increase). The personal consumption expenditure (PCE) price deflator rose 0.4% MoM and as such real income - straight up, net of taxes and excluding personal transfers - fell 0.1% in the first contraction since last September.
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.
2011-03-26 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.
2011-03-23 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.
2011-03-11 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.
2011-03-04 Payroll Review – Nice Job, Shame about the Paycheck by David A. Rosenberg of Gluskin Sheff
The reaction to the jobs report today is uniformly positive. I think a dose of reality is really needed here. It may as well come from this pen. Here is what I think is important: because of the winter storms, we really have to average out the past two months. While we are seeing positive job growth, it is not accelerating even though we are coming off the most intense impact of the fiscal and monetary easing that was unveiled late last year. We are disappointed with what is still a lackluster trend in net job creation, particularly in view of the peak stimulus we are currently experiencing.
2011-03-01 Simon Johnson on the Unconscionable Risks We Face by Dan Richards (Article)
Simon Johnson is a professor of economics at MIT and was the chief economist for the International Monetary Fund. In this interview, he explains why the underlying factors which led to the financial crisis remain unresolved. This is the transcript; a video is also available.
2011-03-01 Investment Commentary by Bob Doll of BlackRock Investment Management
Escalating turmoil in the Middle East and North Africa caused oil prices to spike higher last week and stock prices to fall. Oil prices went over the$100 a barrel mark and despite a late-week rally, stocks ended the week noticeably lower. In many ways, it could be argued that a stock market correction was overdue-before last week, the US stock market had gone 107 days before experiencing a peak-to-trough decline of 3.5%, a new record. Our long-term view is that while shortterm volatility is likely to persist, the growing geopolitical risks are unlikely to derail the global economic recovery.
2011-03-01 The Good, The Bad and The Ugly by David A. Rosenberg of Gluskin Sheff
The good: The manufacturing data in the U.S. continues to improve, at least within the confines of the major diffusion indices. The bad: The U.S. income and spending numbers were hardly stellar. It remains to be seen how much of the weakness was weather-related, but consumer spending dipped 0.1% in January — the first decline since Apr 2010. The fact is that consumers kept a lid on their spending even with the fiscal windfall in Jan, pushing the savings rate up to a four-month high of 5.8% from 5.4% in both Nov and Dec. The ugly: The housing sector remains in the dumpster.
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.
2011-02-15 US and State Default Risk by Team of Bespoke Investment Group
The US stock market has been on a tear lately, but default risk for the country has remained stubbornly high. Granted, default risk for the US is very low compared to most countries, but it is currently near 1-year highs. Below is a chart highlighting US default risk using 5-year CDS (credit default swaps) price in Euros. While risk is nowhere near as high as it got during the financial crisis in late 2008 and early 2009, it is more than 100% higher than where it was in late 2009.
2011-02-14 Bernanke on the Hot Seat by Charles Lieberman (Article)
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.
2011-02-12 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin looks at an important paper from the Bank of International Settlements on “The Future of Public Debt.” While the debt supercycle is still growing on the back of increasing government debt, there is an end to that process, and we are fast approaching it. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. This leads the BIS to conclude that the question is when markets will start putting pressure on governments, not if.
2011-02-12 Ignorance is Confidence: Fedtalk or Newspeak? Andrew Jackson on Repealing a Central Bank by Christopher Whalen of Institutional Risk Analyst
In this issue Richard Alford, Christopher Whalen and members of the Herbert Gold Society opine on the Fed's attitude toward veracity and transparency in an age when confidence is the paramount policy concern. In the process of seeking to restore and maintain confidence, in the financial system and in the Fed as an institution, the Board of Governors in Washington led by Chairman Ben Bernanke seem to follow the last of the three slogans of the Ministry of Truth in George Orwell's book, 1984: "Ignorance is Strength."
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.
2011-02-07 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.
2011-02-01 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 Why Public Funding of Venture Capital Has Failed - Video by Dan Richards (Article)
Josh Lerner is a professor at the Harvard Business School, with a joint appointment in finance and entrepreneurial management. In this interview, he discusses his research on why public-funded venture capital sometimes succeeds but other times fails. This is a video of the interview.
2011-01-25 Fed Policy Outlook: Waiting It Out by Scott Brown of Raymond James Equity Research
The economic outlook largely remains a good news/bad news story. The good news if that the recovery is continuing, even gathering a little more steam. The bad news is that the pace of growth is insufficient to push the unemployment rate down significantly. The Fed has a dual mandate: stable prices and maximum sustainable employment. While these goals may be seen to be in conflict from time to time, Fed officials (and most economists) believe that economic growth can be maximized over the long run by keeping inflation low.
2011-01-24 A Malicious Mix of Economics and Politics by Charles Lieberman (Article)
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.
2011-01-23 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 The Unsustainable Meets the Irresistible by John Mauldin of Millennium Wave Advisors
States are the largest component of US GDP, and states' revenues have declined 10% from their peak. On top of that, federal stimulus support for states is running out. Congress should allow states to declare bankruptcy and force unions to come to the bargaining table. The US is on an unsustainable path. Absent very serious fiscal remedies, long before we get to 2019 the bond markets will have taken away our ability to finance our debt at low rates.
2011-01-19 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.
2011-01-18 Jeffrey Gundlach: The Greatest Investment Opportunity of 2011 and 2012 by Robert Huebscher (Article)
In June of 2007, against a backdrop of strong equity and corporate bond performance, Doubleline's Jeffrey Gundlach was one of the first to warn investors that sub-prime mortgages were 'a total unmitigated disaster, and they are going to get worse.' In an equally bold statement, last week he identified the asset class he considers the greatest investment opportunity for the next two years. Again, it was one for investors to avoid.
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.
2011-01-11 Global Outlook and Strategy by Team of Loomis Sayles
After being challenged in November by renewed Eurozone sovereign debt concerns, global risk markets ended 2010 on a strong note. The key to the late-2010 and early-2011 optimism was the potential for the two biggest engines of global growth – the US and Chinese economies – to pull together this year.
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.
2011-01-07 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.
2011-01-04 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 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
2011-01-03 Economic Outlook 2011—Inching Our Way Toward Recovery by Milton Ezrati of Lord Abbett
For all the complexities and undeniable risks, the outlook is reasonably upbeat. Continued, if slow, economic growth will raise earnings and, in time, gradually will begin to improve the labor market. Inflation, though a longer-term risk, will remain well contained in the coming year. Questions about monetary and fiscal policy will continue to hang over the economy and the markets, but circumstances nonetheless seem set to generate further advances. If, at the end of the year, few would declare themselves as rich and secure as they once felt, they still will have experienced improvement.
2011-01-03 2011: Dow 14,500, S&P 1575, 10-Year 4% by Brian S. Wesbury and Robert Stein of First Trust Advisors
Seven weeks ago our Monday Morning Outlook was titled “Stocks Are Cheap, Bonds Are Not.” We said, “the bull market is still young….and bond yields are headed higher.” Since then, the S&P 500 is up 6% and investors in the 10-year Treasury note have lost more than 4%. Our models tell us to expect more of the same in 2011. We use a capitalized profits model to value stocks. We divide corporate profits by the 10-year Treasury yield, compare the result to each quarter for the past 60 years and use it to find an average fair value for stocks.
2010-12-27 A Fed-Induced Speculative Blowoff by John P. Hussman of Hussman Funds
Why are Treasury yields rising despite hundreds of billions of Treasury purchases by the Federal Reserve? There are two possibilities in the current debate. One is that the Fed's policy of purchasing Treasuries has scared the willies out of the bond market on fears of higher inflation, and that the policy is a failure. The other is that the policy has been such a success at boosting the prospects for economic growth that interest rates are rising on anticipation of a better economy. From our standpoint, neither of these explanations hold much water.
2010-12-22 Here We Go Again! by David A. Rosenberg of Gluskin Sheff
Market sentiment is as overly optimistic now as it was pessimistic at the July-August lows. Eurozone fiscal deflationary shock. Anti-inflation policy restraint in emerging Asia. Widespread cutbacks at the state and local government level. Debt ceiling issue triggers major rounds of market volatility. Tax breaks that are temporary tend to have marginal economic impact with few multiplier impacts, hence GDP revisions will likely be to the downside post-Q1. Another downleg in home prices undercuts confidence and spending (with around two years’ supply of total vacant inventory backlog).
2010-12-16 Next Phase of China's Development by David A. Rosenberg of Gluskin Sheff
Considering that China has now exceeded the United States for two years running in terms of motor vehicle sales, it is not 100% the case that the country is exclusively reliant on fixed investment and exports for its economic success. Inch by inch, the consumer is comprising an ever-greater share of GDP. China is also largely responsible for the extended bull market in resources.
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 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 Perception versus Reality by David A. Rosenberg of Gluskin Sheff
I've been a secular bond bull and am not yet changing my view of the fixed-income market, but the perception that the economy will grow vigorously is now extremely strong. I think it will only grow about 2% next year and that core inflation will continue declining. These are the primary downside risks: 1. The U.S. Treasury market becomes unglued. 2. Further sharp increases in energy prices. 3. Renewed fiscal problems in Europe. 4. Bad inflation news out of emerging markets. 5. U.S. state & local cutbacks become more severe. 6. Latest down-leg in home prices accelerates.
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.
2010-12-10 Fleshing Out Our Themes for the Year Ahead by David A. Rosenberg of Gluskin Sheff
Consensus views of 1,350 on the S&P 500 and 4% real GDP growth are far too high. In my view, real GDP growth in the U.S.A. is set to slow from around 3% in 2010 to 2% in 2011, or possibly even lower. This is not a double-dip but it is a slower growth profile. The fiscal and sovereign credit problems in Europe are not going away. The U.S. dollar is likely to strengthen, particularly versus the yen. Emerging markets will struggle as central banks move more forcefully to curb accelerating inflationary pressure.
2010-12-06 A Most Important Rule by John P. Hussman of Hussman Funds
A decline in bond prices has modestly improved expected returns in bonds, but not yet sufficiently to warrant an extension of our durations. Precious metals have become more overbought, and while we are sympathetic to the long-term thesis for gold, intermediate term risks are now elevated. Finally, we have observed a further deterioration in market conditions for stocks.
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 The Risk of Fixed Income Indexing vs. Active Multi-Sector Management by Ken Taubes of Pioneer Investment Management
Tepid economic growth coupled with weak equity markets over the past few years have driven U.S. investors to the perceived safe haven of fixed income. We believe that fixed income indices may be appropriate as benchmarks, but not as investment strategies.
2010-11-25 Scenario Building - Key Risks Ahead by David A. Rosenberg of Gluskin Sheff
The dramatic fiscal tightening in Ireland and others is insane and I wonder how a new government in early 2011 is going to react. Everybody seems to believe the euro is sacrosanct, but this was also the view around the Argentina nearly a decade ago; it ultimately devalued in order to reflate and pay off its debts in debased currency. Some of these peripheral countries will leave the EU, go back to their own currency to reclaim control over their monetary policy and pay their debts in devalued punts, drachmas and pesetas.
2010-11-23 Letter to the Editor by Various (Article)
A reader responds to Jack Falvey's article, Through the Looking Glass with Steven Rattner, which appeared last week.
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
2010-11-22 Reality Check by David A. Rosenberg of Gluskin Sheff
The world's economic environment is extremely fragile. The growth bulls are underestimating the fact that the fiscal disarray at state and local governments is a major headwind for the U.S. economy --state and local governments are the second largest contributor to spending outside of the American consumer. There is still scant evidence of a vibrant organic recovery. At least initially, the reversal of all the risk-on trends in the markets suggests that the pullback that became apparent after the peak in April is likely to be sustained over the intermediate term.
2010-11-22 Economic Insights: Five Reasons to Give Thanks by Milton Ezrati of Lord Abbett
Custom at this time of the year asks people to look back for reasons to give thanks. Though for investors the political-economic turmoil and risk of the times seem at first blush to yield little along such lines, a dispassionate reprise of the last year does, in fact, offer more material for thanks. To be sure, economic and financial matters are far from perfect or even second best. But still, they have improved during the last 12 months, in some instances, dramatically. Here are five reasons for thanks.
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.
2010-11-15 Stocks Are Cheap, Bonds Are Not by Brian S. Wesbury and Robert Stein of First Trust Advisors
Stocks are still cheap and the bull market is still young. Bonds are expensive and bond yields are headed higher. Quantitative easing is under attack and better fiscal policy is on the way. Put it all together and the bearish (or “risk aversion”) trade of recent years is losing ground.
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 RCM's Global Strategic Outlook: Fourth Quarter 2010 by Andreas Utermann of RCM
Analyzing various leading indicators, there is hardly any hint of a recession. This is not to say that there is no risk of a recession happening. A continued weak labor market is weighing on household consumption in industrialized economies. The housing market in the U.S. is showing signs of weakness. There is a risk of a policy failure in emerging markets, especially of China overdoing policy tightening. Fiscal policy tightening in the West may actually turn out to be too strong. In sum, we think that structural headwinds and tailwinds could balance each other out.
2010-11-09 The Fed's Asset Purchases by Scott Brown of Raymond James Equity Research
As expected, the Federal Open Market Committee has embarked on another round of planned asset purchases. There has been much criticism of the move in the financial press. Certainly, there are risks in the Fed’s strategy. However, it’s hardly reckless or ill-advised.
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.
2010-11-08 No Soft Patch, No Excuse for QEII by Brian S. Wesbury and Robert Stein of First Trust Advisors
The bottom line here is that QEII – which we believe is ineffective anyway – was unnecessary, especially when the ball and chain of fiscal policy is under attack. Not only will current tax rates likely be extended for two (possibly three) years, but the White House has made it clear it is willing to eliminate the 1099-reporting requirement for purchases over $600. This was a part of Obamacare and other parts of that law may also face the knife as well.
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.
2010-11-05 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.
2010-11-04 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.
2010-11-03 Impact of Midterm Elections on the Market by Kevin D. Mahn of Hennion & Walsh
Traditionally, the third year of any presidential cycle has been positive for the U.S. stock market. The average gain of the Dow Jones Industrial Average has been 24.7 percent in the third year of a presidency. As a table presented in this commentary illustrates, a divided government can also lead to higher market growth rates.
2010-11-02 Gold and the Decade to Come by American Century Investments (Article)
Gold is an asset class unto itself. It is not only a barometer of confidence in governments and the financial system, but also a reserve asset, an alternative currency, and a store of value. Those characteristics make gold an ideal diversifier because it has low correlation to most financial assets, both in expansionary and recessionary periods. Indeed, the return pattern to gold investments is not only uncorrelated to most traditional financial assets, but makes gold uniquely positioned to outperform when you want diversification the most--during periods of crisis.
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 The Servicer of the First Part; Dick Alford on the Fiscal Illusion by Christopher Whalen of Institutional Risk Analyst
This week the Institutional Risk Analyst features a comment by the FRBNY's Richard Alford. Alford provides a very revealing look into the brave new world of macroeconomics and how the members of the priesthood of imprecision see the 'multiplier' associated with fiscal spending. When you realize just how poor the methodology is behind these economic debates, both in terms of the mathematical assumptions and the understanding of human action, the fact that these distinctions underpin fiscal policy is truly frightening.
2010-10-28 The Four Horsemen by David A. Rosenberg of Gluskin Sheff
There are two basic components to GDP: inventories and real final sales. The run-rate on real final sales is 0.9 percent, by far the weakest 'post-recession' recovery ever recorded. And we know with reasonable certainty that we will face a negative fiscal shock in 2011 that will drain at least 1.5 percentage points from the underlying trend in GDP. So arithmetically, there is a strong chance that the economy will contract next year, barring some exogenous positive development that can act as an antidote.
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.
2010-10-19 Bernanke's Impossible Dilemma by Robert Huebscher (Article)
David Wessel, economics editor of the Wall Street Journal, examines the challenge Ben Bernanke faces. His goal is to provide full employment and price stability. Yet he faces a slowly growing economy, unemployment close to 10%, consumers deleveraging and spending frugally, renewed fears of banking system instability, and the threat of an asset bubble is growing somewhere in the markets. Monetary and fiscal policy options have been seemingly exhausted, and the public is losing confidence in all aspects of government.
2010-10-18 The Recklessness of Quantitative Easing by John P. Hussman of Hussman Funds
With continuing weakness in the U.S. job market, Ben Bernanke confirmed last week what investors have been pricing into the markets for months - the Federal Reserve will launch a new program of quantitative easing, probably as early as November. Further attempts at QE are likely to have little effect in provoking increased economic activity or employment. This is not because QE would fail to affect interest rates and reserves. Rather, this policy will be ineffective because it will relax constraints that are not binding in the first place.
2010-10-18 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
After the steady run-up in natural resources equities the past year, some are concerned that the progression might come to an end. Based upon improving policies and demand worldwide, however, it is still entirely appropriate to reserve an overweight ranking for these investments. As long as industry prudently manages inventory-versus-demand cycles, upward valuations might persist. In the long term, depleting resources might provide the science and politics for an elongated trend with significant capital gains potential.
2010-10-18 The Fed, Inflation Expectations, and the Dollar by Scott Brown of Raymond James Equity Research
Will they or won't they? The September 21 policy meeting minutes and comments by senior Fed officials suggest that the Federal Open Market Committee is leaning toward further monetary accommodation (specifically, additional purchases of long-term Treasury securities). However, it's not entirely settled. There are excellent arguments for doing more, but also a number of reasons for the Fed to be cautious. Most likely, the FOMC will pull the trigger on November 3. In the meantime, the uncertainty has added to the volatility in the financial markets.
2010-10-12 Misconceptions in the Great Bond Bubble Debate by Robert Huebscher (Article)
Interest rates, many claim, have bottomed, making bonds the latest asset class worthy of the dreaded "bubble" label. Others counter that deflationary forces will prevail and that bonds offer the best risk-adjusted returns in the market. Which side of this debate you take matters profoundly, but making that call is not simply a matter of predicting the direction of interest rates, as is the typical focus of analysts.
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 The Great Depression, the Great Recession and Lessons from 1937-1938 by Team of American Century Investments
While much shorter and less severe than the Great Depression, the recession of 1937-1938 added approximately three years to the recovery period. It is extremely unlikely that we will see a repeat of this type of recession. However, depending on the outcome of elections in November, there could be substantial shift in the fiscal and taxation policies of the federal government away from Keynesianism and toward fiscal discipline and supply side economics.
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 The Job Market - More of the Same... by Scott Brown of Raymond James Equity Research
The September employment report was a mixed bag. Growth in private-sector payrolls was not far from expectations and the August increase was revised higher. However, job growth is far below what we'd like to see. The unemployment rate held steady, but there was a large jump in the number of people working part time who would rather have full-time employment. There's nothing in the data to suggest a double-dip recession. However, more quantitative easing is on the way.
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 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.
2010-10-04 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.
2010-09-28 Stan Druckenmiller is Leaving by Bill Gross of PIMCO
The economic drivers that once pumped up asset prices and favored the production of paper over commodities are now retrograde. The reality during Stan Druckenmiller's 'old normal' was that prosperity and overconsumption were driven by asset inflation that in turn was correlated with leverage and interest rates. Investors are now faced with bonds yielding 2.5 percent and stocks staring straight into new normal real growth rates of 2 percent or less. There is no 8 percent there for pension funds. There are no stocks for the long run at 12 percent returns.
2010-09-15 A Balancing Act For the Bank of Canada by Nouriel Roubini of Roubini Global Economics
The Bank of Canada adopted a hawkish tone at its September 8 policy meeting, despite signs of slowing growth. Less need for balance sheet repair should indeed allow Canada to continue to outgrow most of the G7. The country cannot decouple from U.S. growth, however, in part because most Canadian exports are U.S.-bound. These dynamics and a moderate core inflation rate call for the Bank of Canada to maintain the current, accommodative interest rates for the rest of 2010, despite its concerns about excessive debt practices.
2010-09-09 Euro-Dollar Ambiguity by Milton Ezrati of Lord Abbett
The euro seems to have the edge over the U.S. dollar for the very near term, if only because the EU seems poised to shake off the lingering negatives of its spring crises. Beyond that, the dollar seems to have the edge. More rapid growth on the west side of the ocean should trump modestly higher rates on the east. Longer term, however, the shifts again back to the euro, as European governments should be further along than the United States in addressing the fiscal excesses that all nations concerned incurred during the 2008–2009 crisis.
2010-09-07 The Recognition Window by John P. Hussman of Hussman Funds
Over the course of the market cycle, one of the primary areas of risk for stocks (and conversely, one of the best periods for Treasury bonds) is typically the 'recognition window' where economic activity begins to deviate from the upward trend that is priced into the market, and investors begin to recognize that an economic downturn is, in fact, likely. The instant relief provoked by the manufacturing purchasing managers index and the employment report was an overreaction to data that is still very early in that window.
2010-09-02 The Economy is in a Modern Day Depression by David A. Rosenberg of Gluskin Sheff
The economy is in a modern day depression. A depression, put simply, is a very long period of economic malaise, a series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which description fits the bill today.
2010-08-28 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
Despite the increased boardroom confidence (dealmaking), investors carried their bearish tone into Friday’s session with many anticipating a weekly close below the critical 10k level on the Dow. Somehow they perceived good news in a downwardly revised GDP release and comments from Bernanke that future Fed stimulus may be in order. In reality, the light volume these days may imply little conviction for any direction in the markets and the real tone will not be set until after Labor Day when vacations end and traders are back at their desks in full force.
2010-08-27 Double-Dip Economy: Does Quantitative Easing Really Matter? by Christopher Whalen of Institutional Risk Analyst
While the financial markets await the latest pronouncement from Fed Chairman Ben Bernanke, the Institutional Risk Analyst features a comment from friend and former colleague at the FRBNY Richard Alford. He asks whether any of the policy options being considered by the U.S. central bank are meaningful to the American economy. As Paul Krugman wrote in the New York Times on Friday, 'policy makers are in denial.'
2010-08-24 Why Hasn't the Stimulus Been More Stimulative? by Paul Kasriel of Northern Trust
The $790 billion stimulus package was supposed to put the economy firmly on a trajectory toward recovery. As one Obama administration economic advisor has said, however, the economy is still having trouble reaching 'escape velocity.' This is because fiscal policy must be accompanied by bank financing in order to stimulate aggregate demand. Otherwise, fiscal policy just reallocates total aggregate demand toward government spending and away from private spending. Policymakers should therefore concentrate more on invigorating bank credit if they want faster economic growth.
2010-08-17 When Unconventional Become Conventional by Paul McCulley of PIMCO
Conventional monetary policy is undergirded by the doctrine of central bank independence, founded on the proposition that fiscal authorities, hostage to the political process, inherently are prone to an inflationary bias. When the economy suffers from private sector deleveraging and a fat-tail risk of deflation, however, conventional monetary policy is not enough. In such circumstances, the central bank has a profound duty to act unconventionally, ballooning its balance sheet by monetizing assets, either government or private, or both.
2010-08-16 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
While earnings remain quite good, the macro news on the economy warrants a more defensive stance as we head into the fall midterm elections. Clearly, the economy is not in the kind of trouble it was two years ago, but just as clearly, the policies emanating from Washington D.C., whether they be tax increases, healthcare mandates, oil drilling moratoriums or the recently concluded financial regulation monstrosity, are stifling business plans.
2010-08-03 Woody Brock: How to Achieve Growth without 'Bad' Deficits by Robert Huebscher (Article)
Of all the challenges facing our nation, none is as daunting as trying to achieve economic growth and reduce unemployment without adding layers of debt to our already bloated deficit. Legislators and economists have debated the merits of stimulus measures, changes in tax rates, and monetary policies, but they are no closer to a consensus than they were at the onset of the financial crisis. H. 'Woody' Brock, however, says a genuine solution is possible.
2010-08-03 Richard Koo: Lessons from Japan's Decline by Dan Richards (Article)
Richard Koo is the Chief Economist of Nomura Research Institute, and has served as an advisor to the Japanese government. In this interview with Dan Richards, Koo explains why Japan's recovery was thwarted by inadequate stimulus spending. This is a transcript of the interview.
2010-08-03 Richard Koo: Lessons from Japan’s Decline (Video) by Dan Richards (Article)
Richard Koo is the Chief Economist of Nomura Research Institute, and has served as an advisor to the Japanese government. In this interview with Dan Richards, Koo explains why Japan's recovery was thwarted by inadequate stimulus spending. This is a video of the interview.
2010-08-03 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
High cash balances are warranted as volatility leads to market dislocations and good buying opportunities. Gold is approaching attractive prices for additions to portfolios. Some high-yielding oil-related shares will also be attractive on price declines. Longer term, China, India, Malaysia, Thailand, Singapore and Brazil continue to be attractive destinations for investment capital.
2010-08-02 Growing Federal Debt Will Cause Major Challenges in the Years Ahead by Team of Litman Gregory
A combination of sharply declining tax revenues and a surge in stimulus and bailout spending, both stemming from the financial crisis, caused the federal budget deficit to soar to almost 10 percent in 2009. Total debt to GDP ratios are climbing sharply, and could pass 90 percent by next year. The growth track of entitlement programs has led many to conclude that growing federal debt levels are unsustainable in the long term. Additionally, the Greek debt crisis could trigger increasing awareness of sovereign default risk with investors demanding higher rates for owning government debt.
2010-08-02 Will Basel III Crush the Global Economy? by Christopher Whalen of Institutional Risk Analyst
This piece features a comment by Richard Alford on the evolving rules for the new Basel capital framework. Investors and bankers alike need to pay more attention to the machinations in the Swiss city of Basel to develop new bank capital guidelines, standards which could greatly constrict the supply of credit in industrial nations in the coming years. Christopher Whalen also comments on Q2 2010 bank stress test ratings, Japan, technology and the housing market.
2010-08-02 Weekly Investment Commentary by Bob Doll of BlackRock
Market volatility has remained elevated over the past several months as investors remain uncertain about the future direction of global and U.S. economic growth. There is a lack of conviction and confidence on the part of businesses, consumers and investors, but as long as the economy does not slide back into recession, corporations should be able to continue to grow their earnings. A combination of positive (if slow) economic growth, solid corporate earnings and attractive equity market valuations should be enough to restore some positive momentum in equity markets over time.
2010-07-27 Robert Shiller: A Cautious Outlook for Stocks (Video) by Dan Richards (Article)
Dan Richards recently spoke with Robert Shiller, the Yale economist who foresaw the financial crisis and created the Case-Shiller housing index. Shiller discusses the potential for a double-dip recession, valuations in the US equity market, and the outlook for a housing recovery. This is the video of the interview.
2010-07-27 We're All Chartists Now by David A. Rosenberg of Gluskin Sheff
Fed chairman Ben Bernanke may not be the world's best forecaster. He has the deepest rolodex, however, deeper than that of any CEO. And when he uses the phrase 'unusually uncertain' to describe the economic outlook, it is irrational to ascribe anything fundamental to the current market rally. The technical picture has indeed improved. The market gets it wrong, however, as often as it gets it right. There is still potential for many disappointments in earnings reports to come.
2010-07-26 Betting on a Bubble, Bracing For a Fall by John P. Hussman of Hussman Funds
Investors who will need to fund specific expenses within a short number of years - retirement needs, tuition, health care, home purchases etc. - should not be relying on a continued market advance. If your life plans would be significantly derailed by a major market decline, get out. In contrast, if you are pursuing a disciplined, long-term investment strategy, and you know from your own experience of the past decade that you are diversified enough to ride out periodic losses without abandoning that strategy, ignore my views (and those of everyone else) and stick to your discipline.
2010-07-23 So What Else are the Bulls Looking at Right Now? by David A. Rosenberg of Gluskin Sheff
This is still a meat-grinder of a market. The bulls have the upper hand, but only until the next shoe drops in this modern-day depression and post-bubble credit collapse. The best we can say is that we do have a tradable rally on our hands and that we are at a critical technical juncture at the 50-day moving average on the S&P 500 - but remember, in a secular bear market, these rallies are to be rented, not owned. To be sure, 140 companies have reported so far and the news overall is good … but earnings are a coincident, not a leading indicator.
2010-07-22 It's Greek to Me by Howard Marks of Oaktree Capital
The current positives for investors include moderate valuations, rising corporate earnings and the likelihood we're already in a recovery. On the other hand, consumers are still too traumatized to resume spending strongly. Conservatism, austerity and increased savings are good for individuals but bad for a stagnant overall economy. Anyone who invests today in a pro-risk fashion out of belief in the recovery must be confident he'll be agile enough to take profits before the long-term realities set in.
2010-07-20 Jeremy Siegel on Why Stocks are Undervalued (Video) by Dan Richards (Article)
The Wharton School's Jeremy Siegel remains an outspoken proponent of stocks for the long run, as he demonstrates in this interview with Dan Richards. Siegel explains why equity investors should not be deterred by sour economic forecasts or by signals of apparent overvaluation based on Shiller P/E ratios. This is the video of our interview.
2010-07-20 The Fed\'s View by Scott Brown of Raymond James Equity Research
Federal Reserve Chairman Ben Bernanke will testify on the Fed's semi-annual Monetary Policy Report to Congress this week. This is usually a big deal for the markets. However, there's much less suspense this time around. The Fed's views were already included in the minutes of the June 22-23 policy meeting. Fed officials lowered their projections of near-term growth and inflation, and about half saw the risks to their growth outlooks as tilted to the downside. However, policymakers felt that the shift in the near-term outlook did not warrant stimulus.
2010-07-19 U.S. Lessons From Last Week: A Fiscal Dead End by Komal Sri-Kumar of TCW Asset Management
With the Obama administration's $787 billion stimulus money mostly spent or committed, the fiscal deficit has risen and borrowing needs have gone up, but the private sector is still incapable of generating sufficient employment or economic growth. While the $8,000 first-time home buyer credit temporarily helped housing, and 'cash-for-clunkers' was a boon to the automotive industry and car dealers last fall, the end of programs like these has typically been marked by a falloff in demand.
2010-07-16 Keynesian Economics: RIP by Team of Dana Investment Advisors
The American public and many members in Congress are waking up to the fact that Keynesian economics is not working. It did not work in the 1930s either, as we actually had a recession within the depression, and suffered double-digit unemployment throughout the decade. This time can be different if the public demands and Congress enacts legislation that will lift the veil of uncertainty and help build a more conducive environment for establishing new businesses and creating new jobs in existing businesses. Then money would come out of hiding and get this economy moving again.
2010-07-14 The Fundamental Trendline is Still Down by David A. Rosenberg of Gluskin Sheff
What we are grappling with is this: If the consensus earnings forecast is 'the market,' then the S&P 500 is de facto pricing in $96 of operating earnings next year - a new peak. That is a 35 percent increase from here, and it is extremely difficult to see profits soaring that much at a time when margins are already back at cycle highs and with the prospect of slowing nominal GDP growth. It just does not add up.
2010-07-13 Deficits Monetary and Moral by Michael Lewitt (Article)
"The word 'deficit' has come to epitomize not only our economic dilemmas but also our moral and intellectual failures to address them in an era that should be boasting of new breakthroughs in the social and physical sciences," writes Michael Lewitt in the latest installment of his HCM Market Letter, Deficits Monetary and Moral. "Instead, our ability to solve complex problems is weighed down by flawed and corrupted government processes and the lack of courage to forthrightly change them."
2010-07-12 Four Major Impediments to Economic Normalcy by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Although the four coincident indicators that the NBER utilizes in judging recession troughs have turned positive, two of them (income less transfer payments and employment) have only marginally shifted upwards and are subject to significant revisions. Thus, history may come to judge that the NBER was very wise to hold off making this end of recession call. The past several quarters may be nothing more than an interlude in a more sustained economic downturn, with further negative quarters still ahead. Such an outcome will suppress inflation further and quite possibly lead to deflation.
2010-07-08 Double-Dip Revisited by David A. Rosenberg of Gluskin Sheff
The U.S. economy is very fragile and more vulnerable to exogenous shocks than has been the case in the past. It takes time for these shocks to percolate - six months in 1995 and 12 months in 1998 - and we have yet to feel the full brunt of the European debt crisis hit home, in terms of the depressing impact of their aggregate demand on our export growth. Where the offset from government stimulus comes from next will be interesting to see. If it's not fiscal policy or the Fed, then something tells us that the bond market is going to have to work that much harder.
2010-07-06 Implications of a Likely Economic Downturn by John P. Hussman of Hussman Funds
Instead of directing savings toward investments in real, productive assets that we would observe as physical output, fixed capital, and equipment (and claims on those assets in the form of corporate stocks and bonds), our economy has been forced to choke down a massive issuance of government liabilities in order to bail out bad debt. For every dollar of debt that should have defaulted, we now have two dollars of debt outstanding: the original debt, and a newly issued government security. What appears to be 'sideline cash' is simply the evidence of past spending.
2010-07-06 Animal Spirits and the Economic Outlook by Scott Brown of Raymond James Equity Research
Near-term economic expectations have softened over the last few months and the risks to the growth outlook have become tilted more to the downside. There's nothing to suggest that a double-dip recession is imminent or even likely over the next few quarters. However, the one element that's hard to get a handle on is psychology. Fears of a double-dip could become self-fulfilling if enough firms stop hiring.
2010-07-03 The Dismal Science Really Is by John Mauldin of Millennium Wave Advisors
Yesterday's unemployment numbers were very bad, and Mauldin explains how they were calculated and the implications of adjustments, such as the birth/death model. Personal income was also down, which is a very rare occurrence. Other indicators, including the money supply, are not indicative of economic growth. The Fed will act aggressively to thwart deflation.
2010-07-01 Bonding with the Bond by David A. Rosenberg of Gluskin Sheff
The U.S. long bond yield is edging lower with each and every passing day, and now stands below 3.90%. It could ultimately reach 1.9%. The most important driver of bond yields is inflation expectations – more important that fiscal policies or other variables. Core inflation will head lower. As for the equity market, the news, unfortunately, is not good. The S&P 500 has broken below the key line of support for the past five months of 1,040.
2010-07-01 Ten Commandments for Fiscal Adjustment in Advanced Economies by Olivier Blanchard and Carlo Cottarelli of VoxEU
The G20 communiqué stresses the difficulty of balancing fiscal stimulus and fiscal consolidation. This column-written by one of the world's leading macroeconomists-sums up the research-based policy analysis of the issue. Put simply, what advanced countries need is clarity of intent, an appropriate calibration of fiscal targets, and adequate structural reforms – with a little help from monetary policy and their (emerging market) friends.
2010-06-30 Will Debt Problems Metastasize to ‘Core’ European States? by Nouriel Roubini of RGE Monitor
One of the major issues is whether the problems of the PIIGS will metastasize from the eurozone periphery into the “core” countries of the continent. This commentary focuses specifically on Belgium, which has the third highest debt-to-GDP ratio in Europe. It is uncertain how Belgium’s necessary belt-tightening measures can be implemented, particularly given the dim prospects of a durable political consensus.
2010-06-30 ECRI Data, Our Themes in the Morning Press, and Radically Restructuring Entitlements by David A. Rosenberg of Gluskin Sheff
David Rosenberg sets the ECRI’s record straight, arguing that the Lex column should ask about the recent equity market drop rather than the unpredictable rally. Rosenberg comments on the themes of inflation and deflation in the press and how society is becoming familiar with Bob Farrell’s rule, “Exponentially rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.”
2010-06-25 When It Comes to Increasing Aggregate Demand, What’s Fiscal Policy Without Monetary Policy? by Paul Kasriel of Northern Trust
In order for an increase in government spending to result in an increase in total aggregate demand, the government's spending needs to be financed by the central bank and the commercial banking systems. Although the Fed and the banking system have helped fiscal policy to stimulate total aggregate demand through a cumulative increase in Treasury borrowing of $1,455 billion, the help was not all that spectacular. No wonder the results of the recent fiscal stimulus program were something less than awe-inspiring with regard to increasing aggregate demand.
2010-06-25 Does the Oil Leak in the Gulf of Mexico Herald a Big Discovery? by Monty Guild and Tony Danaher of Guild Investment Management
The Macondo well blowout may indicate that these Gulf of Mexico fields, located in deep water about 50 miles offshore and under another 20,000 to 35,000 of rock below the seabed, represent a massive oil discovery. The costs of exploitation will be huge (and already are), and it will probably be decades before the oil can be brought to the surface, but they may do a great deal to help the U.S. attain energy independence. Despite the ongoing tragedy of the Gulf oil spill, the reality is that these resources are likely to eventually make it to market.
2010-06-22 Niall Ferguson on Japan, China, and the US by Dan Richards (Article)
Harvard's Niall Ferguson is arguably today's leading economic historian. In part two of this interview, Ferguson explains why he fears the future is bleak for Japan, why China may someday be the leading global superpower, and what all this means for the US. We provide a video and a transcript.
2010-06-22 Navigating Fears of the Bond Market by James Pressler of Northern Trust
The need to keep the bond market happy while implementing often far-reaching fiscal reforms is most acute across Europe, where the outlook is for weak real GDP growth into 2011 – albeit with significant variations between countries. Conversely, the recoveries in Asia and in the Americas have effectively eliminated fears of sovereign defaults but now concerns over economic overheating will dominate. The U.S will eventually have to address its own public debt overhang, but for now is enjoying a temporary safe-haven status.
2010-06-22 The Case for Bonds by David A. Rosenberg of Gluskin Sheff
The problem with trying to assess either supply or demand in the current market environment is that everything is so confusing in the early stages of this new secular paradigm of a global credit collapse. There is no way to get it completely right. As Lacy Hunt has always maintained, it makes much more sense to assess the outlook for inflation as the primary effort in predicting Treasury rates. Maybe perhaps instead of inflation, we should really be discussing deflation, which has emerged as the primary trend, and governments have few bullets left in the chamber to deal with it.
2010-06-22 Indian Economy Poised for Double-Digit Growth by Team of American Century Investments
India was not severely impacted by the global economic recession and the country is projected to grow rapidly over the next decade. For investors, a consumer-based Indian economy holds positive implications because many global companies view potential Indian demand as a ticket to future growth. Indeed, India's is one of the biggest and fastest growing consumer populations in the world. Nevertheless, the government's inability to keep building infrastructure and power generation and tackle core problems in education, land reform, corruption and social reform may temper growth.
2010-06-21 Excessive Fiscal Tightening – A Major Worry by Scott Brown of Raymond James Equity Research
Studies of past recessions show that downturns associated with financial crises tend to be more severe and longer-lasting, and have gradual recoveries. Studies also point to a common error made in these recoveries - that is, policy is often tightened too soon. Chairman Bernanke is a student of the Great Depression, so the Federal Reserve seems unlikely to make that mistake. However, there is a growing public mood to do 'something' about the federal budget deficit. While well-intentioned, excessive fiscal tightening is bad economics.
2010-06-15 Today’s Top Economic Historian: The Path to European Stability by Dan Richards (Article)
Harvard's Niall Ferguson is arguably today's leading economic historian. In this interview with Dan Richards, Ferguson discusses the current troubles and future outlook for Europe. We provide a transcript and a video.
2010-06-10 The 'Yield' Theme Continues Unabated by David A. Rosenberg of Gluskin Sheff
Fixed-income is woefully under-represented in U.S. and Canadian household balance sheets, while the average baby boomer is 55 years old and as a result is at an age where capital preservation strategies win out over a strict capital appreciation focus, which worked so well in the 80s and 90s. The market moves in 16- to 18-year cycles. Sadly, this secular down-phase in the equity market began in 2000 when the major averages hit their peak in real terms, so the best we can say now is that we are probably 60 percent of the way into it.
2010-06-10 Some Unpleasant Keynesian-Minsky Logic by Paul McCulley of PIMCO
Thirty years ago, virulent inflation demanded robust monetary authority independence, so as to pursue a draconian monetary policy that even disciplined fiscal authorities when their loose policies contradicted the overriding goal of winning the war against inflation. For the past decade, however, a more collaborative relationship between monetary and fiscal authorities has been required in order to cut off the fat tail of deflation risk, notably in recessions. The European Central Bank needs to realize this, even if future policies threaten to unmoor long-term inflation expectations.
2010-06-09 Hungary Suffers from Foot-in-Mouth Syndrome by Nouriel Roubini of RGE Monitor
While Hungary may not be 'another Greece,' the country's government announced an economic action plan last week aimed at reining in public finances amidst growing investor concern. The plan includes a special bank tax, public sector spending cuts, a cut in the corporate tax rate, and a recommendation to ban foreign exchange-denominated mortgage lending. It's unclear, however, that this plan will be enough for Hungary to reduce its deficit to meet this year's 3.8 percent of GDP target agreed upon with the IMF.
2010-06-04 The New Economic Reality - Part II by Monty Guild and Tony Danaher of Guild Investment Management
Some investors believe that deflationary influences will lead to an immense slowdown in world economic activity, and thus thus are selling stocks, buying bonds and short-selling commodities. Others think government action to forestall the deflation will end up creating inflation, and are buying commodities, buying stocks and avoiding bonds As the two sides pull markets back and forth, volatility will continue. To deal with the volatility, Guild is holding a large percentage of client assets in cash and gold, which can rise in either an inflationary or a deflationary situation.
2010-06-01 Municipal Bond Market Insights by Northern Trust Investments (Article)
Not surprisingly, the most profitable investment trends tend to be those with the most staying power. That could be particularly good news for investors in municipal bonds, since structural forces are in place that may make tax-free bonds - and the income they generate - even more valuable in the years to come. Northern Trust provides their secular outlook for municipals, and we thank them for their sponsorship.
2010-06-01 Oil and Red Ink by John P. Hussman of Hussman Funds
It's no longer reasonable to apply previous risk estimates even after we've observed a major disaster. Before the housing crisis, it might have been tempting to shrug off mortgage defaults as relatively isolated events, since the price of housing had generally experienced a long upward trend over time. Indeed, historically, sustained declines in home prices could be shown to be very low probability events. But as the bubble continued, investors made little attempt to assess the probability of a debt crisis.
2010-05-26 Gold Prices, Housing, Bond Yields and the Shiller P/E Ratio by David A. Rosenberg of Gluskin Sheff
The fact that earnings have been rising while the stock market has been correcting has helped cut the degree of overvaluation in half, to a 0.5 standard deviation from 1.0 just over a month ago on a normalized Shiller P/E ratio basis. The ECRI leading economic index is foreshadowing a deceleration in real GDP growth, however, to 1.5 percent in the second half of the year from the 3.75 percent average pace since the recession technically ended in mid-2009. The S&P 500 level that would be consistent with that sort of pace would be around 850, rather than the current level of 1,074.
2010-05-25 Letter to the Editor by Various (Article)
In a letter to the Editor, a reader responds to Charlie Curnow's March 30 article, America's "Failing" Infrastructure?.
2010-05-25 Return of the Nervous Weekend by Mohamed A. El-Erian of PIMCO
Having over-romanticized the cyclical bounce, some investors are now scrambling to reposition their overextended portfolios now that structural problems are undeniable. The disruption in financial markets is not a garden-variety market fluctuation. Instead, it’s an overdue recognition that the global economy faces an uncertain future that involves slower growth and greater government regulation. Structural problems require structural solutions. The question is whether policymakers in Europe will acknowledge this, or remain hostage to hope for an immaculate recovery.
2010-05-19 Review of First Quarter 2010 by James F. Keegan of Ridgeworth
The recovery to date has largely consisted of an inventory correction and a response to various government stimulus programs; very little of it will prove to be organic or sustainable. Consumer spending has proven more resilient than anticipated, but this has come at the expense of savings. The consumer remains over-leveraged and the balance sheet repair process can't rely again on asset appreciation; hence, further gains in spending are unlikely. Meanwhile, capital expenditure plans remain tepid, and the tailwind from the stimulus plan is also diminishing.
2010-05-18 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The euro represents one currency, backed by 19 countries with various fiscal policy problems that range from bad to hopeless. The runaway government spending that dominates the euro area is now calling the future of the monetary union into question. One would hope that the Obama administration would look at Europe and wonder whether deficits in the U.S. at the federal, state and local levels could cause problems there. So far it is business as usual.
2010-05-17 Two Choices: Restructure Debts or Debase Currencies by John P. Hussman of Hussman Funds
Without a central taxing authority, the common European currency can only survive if participating countries strictly control their deficits. It should not be difficult to recognize that confidence in any currency is tied to confidence in the assets which stand behind it, and associated confidence in the restraint of fiscal and monetary authorities. The bureaucrats in both the U.S. and European central banks have chosen to betray that trust.
2010-05-17 Why Be Bullish? by Charles Lieberman (Article)
Investors are nervous that Greece and Europe's need to restrain fiscal policy could spill over and cause a double dip recession in the United States. While that isn't impossible, it is highly unlikely. The U.S. economy is building momentum and derailing the expansion is quickly becoming difficult. Fundamentals also strongly suggest an improving economy. Thus, rather than weakness in Europe undermining domestic growth, it is far more likely that a healthier economy in the U.S. and in Asia will spill over to help the Europeans.
2010-05-17 Volatility on the Rise by Liz Ann Sonders of Charles Schwab
Volatility in stocks has increased during the past several weeks as investors have grappled with numerous global concerns. Is this the start of a longer-term problem or is it just a short-term phenomenon? Developments in the housing and job markets hold the key to further economic improvement. Meanwhile, the European debt crisis was addressed with a massive package, but long-term issues remain, and China's rapid growth rate could lead to overheating and inflation.
2010-05-12 A Typical European Response To An Atypical European Problem by Victoria Marklew of Northern Trust
Markets heaved a sigh of relief this week after European Union officials announced their $1 trillion rescue plan to save the euro. European states, however, will still have to face medium-term problems concerning fiscal deficits and economic restructuring. Demands that Spain make a renewed commitment to fiscal austerity suggest a new level of cross-country intervention. And the big issue has been swept under the carpet: how to ensure prudent fiscal policy-making across the 16 members of a monetary alliance with strong national identities and prickly memories of past hostilities.
2010-05-11 A Historical Perspective on the Slight Depression by Robert Huebscher (Article)
Armed with textbooks and formulas, economists attack a problem by drawing lines, forming equations and trying to fit data to the real world. Niall Ferguson, a historian by training, thinks you can learn more simply by analyzing what has already happened. So what's a historian's take on the current crisis? Ferguson says it has yet to run its course.
2010-05-11 Across the Pond - Still a Sea of Red by David A. Rosenberg of Gluskin Sheff
It remains to be seen how Greece and the other problem countries in the euro area will manage to cut their deficits without at the same time controlling their monetary policy and their currency. While coincident economic indicators such as employment have improved in recent months, many of the leading indicators are pointing towards a discernible slowing in economic and earnings growth in the second half of the year and into 2011 as countries worldwide shift from stimulus to fiscal restraint.
2010-05-08 The Center Cannot Hold by John Mauldin of Millennium Wave Advisors
Citing a paper from the Bank for International Settlements, Mauldin says increasing sovereign debt has two consequences - higher interest rates for that debt and lower growth rates for the underlying economies. Growth in sovereign debt at its current rate is unsustainable and poses systemic risks for the global economy. Fiscal austerity is the only solution, and that seems unlikely, particularly in the case of Greece.
2010-05-06 First Quarter 2010 Market Review and Outlook by Ronald W. Roge of R.W. Roge
Recent signs of economic strength are encouraging, but mostly stem from temporary factors like stimulus spending and inventory rebuilding. Based on current valuations, it is likely that stock returns will trend below average in the next five years. Even under more optimistic scenarios, annualized equity returns barely reach double digits. This goes for stocks of both domestic and foreign developed markets. Roge's investment view therefore remains cautious, balanced and flexible.
2010-05-04 Lacy Hunt: Keynes was Wrong (and Ricardo was Right) by Robert Huebscher (Article)
Underpinning the Obama administration's economic policies is the work of John Maynard Keynes, the legendary British economist who called for large fiscal and monetary interventions to counter the Great Depression. On this critical issue, Keynes was wrong, says Lacy Hunt, the internationally renowned economist with Texas-based Hoisington Investment.
2010-05-01 Resilience Resonates by Liz Ann Sonders of Charles Schwab
The stock market has absorbed numerous body blows recently, but continues to chug along—waiting for a big price correction to buy could be detrimental. Economic data remains solid, confounding some recovery skeptics and providing the Fed ample reason to slowly return to normalcy. European debt problems are growing and concerns over contagion are rising; there's no quick fix, and some politically unpopular decisions are going to have to be made.
2010-05-01 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin defends Goldman Sachs, arguing that buyers of the synthetic CDO it created should have been aware of the risks. He then comments on a paper by the Bank of International Settlements (BIS) which analyzes the level of sovereign debt across a number of countries. The BIS says the overall debt levels for these countries, which include many of the G20, are unsustainable, and the US is among those with the worst long-term outlook.
2010-04-27 Gary Shilling: America’s Lost Decade by Robert Huebscher (Article)
The US faces 10 years of slow growth and deflation that could rival Japan's "lost decade" - two words which Gary Shilling did not utter but which unmistakably characterize his forecast. Shilling is founder and President of the New Jersey-based economic consulting firm A. Gary Shilling & Co.
2010-04-23 Equity Investment Outlook by Team of Osterweis Capital Management
During the first quarter, the stock market continued to work its way higher as evidence mounted that the economic recovery was solidly underway. While Osterweis is reasonably comfortable with the very near term outlook for the economy, it is quite concerned with the longer-term implications of the rising federal deficit, as well as about how the economy will perform as monetary and fiscal policy inevitability shift from maximum stimulus to a more neutral stance. The company, therefore, wants to focus its 'bets' more on individual companies than on broad macro-economic trends.
2010-04-21 Republicans Now Favored to Take Back the House? by Team of Bespoke Investment Group
Intrade.com has contracts on whether the Republicans or Democrats will control the U.S. House of Representatives following the 2010 midterm elections. While the Democrats currently hold a large majority in the House, the odds for them retaining that majority after 2010 have been declining over the past year or so. As of today, the Republicans are now favored to win a majority in the House after the 2010 elections. The current odds based on Intrade's contract prices are 50.1 percent for a Republican majority and 45 percent for a Democratic majority.
2010-04-20 Unconventional Wisdom: An Interview with Robert Shiller by John Heins (Article)
"Few macroeconomic prognosticators have been as publicly right as Yale's Robert Shiller,whose first and second editions of the book Irrational Exuberance laid bare, with remarkable timing, the speculative bubbles forming first in the Internet-crazed stock market and next in residential real estate," writes the highly regarded newsletter Value Investor Insight in its preface to this interview with Shiller and excerpt from his latest book. Value Investor Insight, which bills itself as the "Leading Authority on Value Investing, offers a no-obligation, one-month free trial subscription.
2010-04-19 Goldman SEC Litigation: The End of OTC?; Alan Boyce on the Duration of Fed Open Market Operations by Christopher Whalen of Institutional Risk Analyst
This piece features a comment from Alan Boyce, chief executive officer of Absalon, on the impending end of the Fed Purchasing Program. Boyce says that as FPP ends, there is the real potential for unintended consequences in domestic and foreign markets. If markets were to become unglued, the Fed may purchase more mortgages and Treasury debt. Foreign central bankers will likely snap and become sellers, however, if the Fed decides to monetize more debt. Markets would likely take it as a sign that the Fed is politically unable to exit the mortgage market, or quantitative easing.
2010-04-16 Update on Thailand by Mark Mobius of Franklin Templeton
While the current political crisis in Thailand poses big headline risks to stocks over the short term, it is not new or unexpected for the country. Since absolute monarchy was abolished in Thailand in 1932, there have been about 20 successful and failed coups, numerous unrests, and several changes in the constitution. The series of political issues from the Asian crisis in 1997 to recent fears of the Thai King’s waning health late last year, however, have not impacted the long-term growth outlook for Thailand.
2010-04-16 Overinvestment in China by Robert J. Horrocks of Matthews Asia
The evidence for overinvestment in China seems to be thin - on the contrary, returns on capital have been stable and rising, suggesting that the productivity of the underlying economy remains strong. The government has tools to combat any concerns about overheating - including interest rates, reserve requirements and allowing the currency to appreciate. This commentary also includes a roundtable discussion with the Matthews Asia Funds Investment Team on a possible China bubble.
2010-04-16 India's Focus on Investor Protection by Sunil Asnani of Matthews Asia
India’s financial sector watchdogs have demonstrated their independence time and again. For example, the country’s central bank, the Reserve Bank of India, was one of the few central banks that chose to break from prevailing global loose monetary policies. India’s other regulator, the Securities and Exchange Board of India, which is equivalent to the Securities and Exchange Commission in United States, has also come a long way in asserting itself. Formed in 1992, SEBI has been making systemic reforms aimed at better corporate governance, deeper capital markets and more satisfied investors.
2010-04-14 Quarterly Review and Outlook by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Massive government spending is unsustainable, and will not lead to economic growth. Recent research says that the multiplier for federal government spending is less than one (each dollar spent results in less than one dollar of growth), whereas the multiplier from tax reductions is greater than one. Other economic research suggests that in an extremely overleveraged economy, monetary policy does not work. With excessive levels of debt and contractionary monetary and fiscal policies in place, inflation will continue to moderate, thereby driving long term treasury yields lower.
2010-04-13 Another Month, Another Huge Deficit by Team of Bespoke Investment Group
With total revenues of $153 billion and spending of nearly $219 billion, the federal government spent 43 percent more than it took in this month for its record 18th straight monthly deficit. Believe it or not, this month's $65 billion shortfall was the fourth-lowest over the last 12 months. When all is said and done, the total cost of the Troubled Asset Relief Program bailout is likely to reach $89 billion. When the federal government runs $65 billion in the red during its normal course of business, $89 billion to avert the collapse of the entire financial system doesn't seem so bad.
2010-04-09 Krugman Strikes Again by Peter Schiff of Euro Pacific Capital
Like most of his academic peers, New York Times columnist Paul Krugman believes that falling prices are the economic equivalent of kryptonite, guaranteed to bring low even the mightiest economy. He is wrong. We need deflation. As a result of a phony boom in assets, prices levels are still too high relative to the earning power and productivity of American workers. Falling prices will cushion the blow of recession by allowing people to buy more with their paychecks and savings, and will eventually encourage people to spend when prices fall low enough.
2010-04-06 Do Not Give Up on Stocks: Stay Active by Jay Feeney of Robeco Investment Management
Stocks clearly have much better fundamental earnings support now than they did in mid-2009, when profits were still in a downward spiral. Money, however, is flooding away from active strategies and into passive indexing and ETFs. At this juncture, the headwinds against expansion are considerable and this stacks the balance of risk in favor of active stock-picking strategies that maintain a strong valuation bias. Higher-quality large cap stocks should also be emphasized, since the rally off the bottom has favored lower quality names, leaving the larger names with more attractive upside.
2010-04-06 Municipal Bond Advantages Remain by American Century Investments (Article)
You and your clients often sift through competing, complicated information in the course of making investment decisions. That's certainly true in the municipal bond market today. Joseph Gotelli, municipal bond portfolio manager at American Century Investments®, urges investors to consider municipals' enduring features. Conflicting news and views on the municipal market should not obscure the fact that many municipal bonds remain high-quality investments with compelling tax advantages. We thank American Century for their sponsorship.
2010-03-31 Corporate Cost Of Health Care: Announced Charges as of 3/31 by Team of Bespoke Investment Group
Since Congress passed the health care reform bill on March 21st, we have seen numerous companies announce that they will take charges to earnings. The charges stem from one aspect of the legislation that eliminates deductions for tax-free subsidies companies receive from the government for providing prescription drug benefits to retirees. Due to the material and quantifiable impact that the bill will have on their business and financial results, the companies are required by law to disclose it. So far at least fourteen companies have announced charges totaling at least $1.6 billion.
2010-03-24 Bull Market or Just Bull? by John Browne of Euro Pacific Capital
As the markets have rebounded from the brink of disaster, many Wall Street cheerleaders have proclaimed the dawning of a major new bull market. If we measure market cycles biannually, and if bull markets need not eclipse peaks achieved in previous cycles, then this forecast is spot on. The political, economic and financial fundamentals of our new big government era, however, do not support a sunny long-term outlook for U.S. stocks, and may even presage a second financial crisis.
2010-03-22 What Is Priced In? by David A. Rosenberg of Gluskin Sheff
The cyclically sensitive segments of the S&P 500 have priced in an extremely robust economic landscape. Sentiment is also very bullish, with the latest Investors Intelligence poll finding 46.2 percent bullish sentiment versus 21.3 for bears. Some of this bullish sentiment may be a product of complacency, however. Most leading economic indicators have peaked, indicating a slowdown ahead.
2010-03-05 Greek Bailout: This is a Trojan Horse! by Komal Sri-Kumar of TCW Asset Management
Eurozone members may be reenacting the story of the Trojan Horse in their efforts to rescue Greece from a debt crisis. The bailout brings unintended consequences that could weaken the entire eurozone. Greece shows no indication that it will take the necessary austerity measures to keep its fiscal house in order after a bailout takes place. A Greek bailout could make Spain and Portugal think that they are entitled to a similar financial rescue. And a bailout could feed resentment from German taxpayers, who would bear much of the burden.
2010-03-05 Intrade Odds for Obamacare to Become Law by 6/30/2010 by Team of Bespoke Investment Group
The odds for Obamacare to become law by June 30, 2010 jumped to 60 percent on Intrade a few days ago after the president pushed for the Senate to use reconciliation to pass reform, a procedure that requires only 51 votes and cannot be filibustered. Before then, odds ranged from 30 to 35 percent.
2010-03-02 Budget Proposals - Red on Arrival by Milton Ezrati of Lord Abbett
The latest White House budget proposals reveal that fiscal policy will offer little control over the river of red budgetary ink already at flood. The White House expects the deficit to run at $1.6 trillion, up from last year's record $1.4 trillion, taking the deficit up to about 10.6 percent of GDP. Furthermore, despite optimistic growth projections, deficit forecasts barely get below 4 percent of GDP by 2014. These deficits would raise the country's overall debt from the present $7.5 trillion to $18.6 trillion, or about 80 percent of GDP, by 2015.
2010-03-02 Asset Allocation Perspective by Scott Wittman, CFA (Article)
Scott Wittman, Chief Investment Officer for American Century Investments, provides his quarterly review of macro-economic factors and trends which influence the tactical weighting decisions for American Century's asset allocation funds. In the article, Wittman reviews and comments on recent events, trends and expected short-term future changes in monetary, fiscal, industrial, trade, regulatory, political and financial macro economic factors. We thank them for their sponsorship. This is sponsored content.
2010-03-01 Don't Bet on a Recovery by Peter Schiff of Euro Pacific Capital
Consumer spending increased 0.5 percent in January, but contrary to popular belief, this is not evidence of a bona fide economic recovery. Incomes and credit are still down, while the savings rate fell to its lowest level since 2008. Our government's plan for economic recovery is to print a bunch of money and give it to consumers to spend. This is not a plan for recovery but a recipe for disaster.
2010-02-19 Euro-Area Imbalances: Is Germany Part of the Problem? by Darren Williams of Alliance Bernstein
The stagnation of consumer spending and the weakness of wage growth in Germany over the past decade deprived Greece and other peripheral European countries of their most important trading partner. Expansionary German policies could help correct imbalances in the euro area, and remove the need for bailouts.
2010-02-18 Taxes Paid by the Highest-Paid Americans by Team of Bespoke Investment Group
A recent IRS report provides ammunition for both sides in the debate over whether the ultra-rich should pay higher taxes. The 400 top U.S. earners accounted for 2.1 percent of all taxes paid in 2007, up from 1.2 percent in 1997. They paid an average tax rate, however, of 16.6 percent, down from 24.2 percent ten years earlier. Their average income in 2007 was $137.9 million.
2010-02-13 Between Dire and Disastrous by John Mauldin of Millennium Wave Advisors
Mauldin discusses the Greek debt crisis and the options for resolving it. A Greek default "would bankrupt the bulk of the European banking system," but that is unlikely, he says. He cites Niall Ferguson's recent article in the FT and argues that the Greek crisis is a precursor to other countries facing similar sovereign debt problems.
2010-02-12 Denial and the Pan-European Debt Crisis by Michael J. Schussele of Michael J. Schussele, CPA
Michael J. Schussele says the ill-conceived economic restrictions imposed by the European Stability and Growth Pact made the Greek debt crisis inevitable, and Germany and other Eurozone members seem unwilling to commit to a solution. The situation in Greece may just be the beginning of a pan-European debt crisis that includes Spain, Italy and Ireland.
2010-02-02 Letter to the Editor by Various (Article)
In a letter to the Editor, a reader responds to a commentary recently posted on our site.
2010-01-30 Watch Out for Spam! by Bill Mitchell of Billy Blog
Bill Mitchell is an Australia-based economist. This commentary is a direct rebuttal to many of John Mauldin's arguments, particularly regarding the message of Reinhart and Rogoff's book, This Time is Different.
2010-01-28 Monthly Investment Commentary by Team of Litman Gregory
When the dust settled on one of the most eventful and upended years in memory, investors had generous gains in stocks and certain segments of the bond market to salve the wounds of a disastrous 2008 a
2010-01-26 The Potemkin Market by Michael Lewitt (Article)
We are again privileged to publish the current issue of Michael Lewitt's newsletter, titled The Potemkin Market. Lewitt updates his forecast for the S&P 500, criticizes the current financial reform efforts and the ongoing GSE bailout and Fed Chairman Bernanke. Lewitt argues that risk is overpriced in many segments of the market.
2010-01-22 Thoughts on the End Game by John Mauldin of Millennium Wave Advisors
"As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubbl
2010-01-19 Inflation Myth and Reality by John P. Hussman of Hussman Funds
It is in this context that we should consider inflation risks over the coming decade. At present, inflation risks are hardly considered to be problematic by Wall Street. From the standpoint of the nex
2010-01-13 Payrolls, Policies, Politics by Art Patten of Symmetry Capital Management
2010-01-12 Things Fall Apart in Eurozone by John Browne of Euro Pacific Capital
2010-01-12 Olivier Blanchard on Global Stability by Dan Richards (Article)
Olivier Blanchard is the chief economist at the International Monetary Fund, a position he has held since September 1, 2008. In Dan Richards' interview, Blanchard discusses the steps being taken to revive the global economy and what he believes is in store for beleaguered debtor nations - particularly Greece.
2010-01-05 Paul Krugman on Deficits, Taxes, Inflation, and Recovery by Dan Richards (Article)
Dan Richards' interview with Paul Krugman, the 2008 Nobel prize winner in Economics, covers his views on the size of the next stimulus package, how high marginal tax rates should go, and lessons from the Japanese experience. Whether or not you agree with him, Krugman is highly influential and his views may presage future policy decisions.
2010-01-04 Timothy Geithner Meets Vladimir Lenin by John P. Hussman of Hussman Funds
2009-12-30 Monetary Policy: Inflation-Deflation, Debt, Excess Reserves, Currency Volatility by Michael J. Schussele of Michael J. Schussele, CPA
2009-12-26 Paul McCulley Discusses PIMCO's Cyclical 2010 Outlook by Paul McCulley of PIMCO
2009-12-22 Staggered Return to Global Growth by Paul Kasriel of Northern Trust
2009-12-21 Predictions of 2010: The Best is Yet to Come by Christopher Whalen of Institutional Risk Analyst
2009-12-01 Allen Sinai: Jobless Recovery and the Failure of Current Economic Policies by Robert Huebscher (Article)
As the Democratic leadership in Congress has looked for ways to simultaneously create jobs and reduce the deficit, a key person they have turned to and continue to rely on is Allen Sinai. Sinai now fears the US is in the "mother of all jobless recoveries" and that the economic policies of the Obama administration are not working.
2009-10-20 Asset Allocation Perspective from American Century Investments by Scott Wittman, CFA (Article)
Scott Wittman,Senior Vice President, Asset Allocation at American Century Investments reflects on the one-year anniversary of the near-meltdown by our financial system and provides perspective on what kind of recovery may be coming. We thank American Century Investments for their sponsorship.
2009-08-18 Letters to the Editor – Paul Krugman by Various (Article)
Our interview with economist Paul Krugman two weeks ago continues to generate responses, and we share several from our readers.
2009-08-04 Paul Krugman on the Prospects for Recovery by Eric Uhlfelder (Article)
Nobel laureate economist Paul Krugman tells Eric Uhlfelder that massive government spending is essential for generating growth, but fears the first stimulus package will not be enough to keep the economy from slipping back into recession nor reducing unemployment.
2009-05-12 The Well-Meaning by Michael Lewitt (Article)
We are once again privileged to publish the latest version of the HCM Market Letter, edited by Michael Lewitt. Lewitt's analysis and writing are a cut above virtually everything else we see, and you will enjoy reading his latest thoughts. You can also subscribe directly to his newsletter using the link at the beginning of the article.
2009-04-28 Gary Shilling – Economic Forecast and Current Market Opportunities by Robert Huebscher (Article)
Gary Shilling is well-known for his forecasting record, having correctly predicted major economic events over the past several decades. Beginning in 2002, he warned his clients that the housing market "has taken on self-feeding, bubble dimensions that will sooner or later collapse," and continued to sound this warning through 2007, when his predictions came true. Dr. Shilling shares with us his current forecast for the economy and the market.
2009-04-28 Equity Income: A Fund for All Seasons by Matt Oldroyd and Shawn Connor (Article)
If the first quarter of 2009 is any indication, we appear to be in for another year (or longer) of extreme market volatility and uncertainty, the result of a worsening recession and a dismal profit picture, still frozen credit markets, a struggling auto industry, and doubtfulness about the government's stimulus package. Matt Oldroyd and Shawn Connor of American Century Investments explain why that's a strong case for investing in American Century's Equity Income fund - a fund for all seasons. We thank them for their sponsorship.
2009-04-28 The Next Great Bubble? by Vitaliy Katsenelson (Article)
One more bubble, please. After the bubbles in technology, housing, and commodities, we saw the mother of all bubbles: the one in global liquidity. The world economy seemed to require bubbles for its continued functioning. Guest contributor Vitaliy Katsenelson says investors' prayers are now being answered: There's a new bubble now - or an old one is being re-inflated - which he calls the Troubled China Revival Program (TCRP).