More on Related Themes
2013-12-03 Looking Out on the Horizon for Equities by Bob Doll of Nuveen Asset Management
U.S. equities finished higher for an eighth consecutive week as the S&P 500 increased 0.1%, representing the longest positive streak since 2004. Inertia may have carried markets forward in a relatively quiet trading week without major headlines. Retail news appeared fairly positive in anticipation of a strong start to the Thanksgiving shopping weekend. Economic data was mixed.
2013-12-03 Fixed Income Markets Slog Forward by Chris Maxey, Ryan Davis of Fortigent
The past five years have seen a dramatic influx of investor capital into corporate credit markets. As investors jumped into the market, there is growing concern that credit markets are nearing stretched valuations. Those concerns are likely premature, particularly with central bank intervention in place.
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.
2013-11-29 \"Fixed\" Income Investing is Broken by Robert Isbitts of Sungarden Investment Research
Back in June of this year, the Fixed Income (a.k.a. bond) market may have experienced the defining moment of this generation of investors. The yield on the 30-year U.S. Treasury bond moved above 3.50% for the first time since the summer of 2011. It stands at about 3.80% now. After many fake-outs, this could be the start of a long-term trajectory higher.
2013-11-25 Equities Extend Gains for the Seventh Consecutive Week by Bob Doll of Nuveen Asset Management
U.S. equities finished higher again last week as the S&P 500 increased 0.4%. The Fed continued to dominate headlines, with heightened emphasis on the distinction between tapering and tightening. Bubble speculation continued to receive attention in the press, while many articles refuted such concerns. The financial sector performed well, led by banks.
2013-11-21 Two Nobel Laureates...Two Tales of Value by Vitali Kalesnik of Research Affiliates
How can you build a better value stock portfolio? The key is discerning whether the value premium stems from mispricing or risk.
2013-11-19 October 2013 Market Commentary by Andrew Clinton of Clinton Investment Management
The Fed’s decision in September to maintain it’s policy of asset purchases, better known as Quantitative Easing (QE), caught the broader market by surprise. Fed “tapering” of QE was broadly expected to begin in September. The Fed’s decision to delay the reduction of QE pushed back the date upon which anticipated tapering would begin. This resulted in a meaningful rally in Treasury bond prices in September. To the surprise of many media pundits calling for ever higher interest rates, US Treasury yields ended October at 2.55%, virtually unc
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.
2013-11-18 The Muddle-Through Economy and Grind-Higher Equity Market Continue by Bob Doll of Nuveen Asset Management
U.S. equities finished higher last week as the S&P 500 and Dow Jones Industrial Average closed at record highs, marking the sixth straight week of advances.1 Several macroeconomic themes are important as third quarter earnings season comes to an end. Fed Chairman nominee Janet Yellen spoke before the Senate in support of current monetary policy and suggested a similar path under her leadership. Economic data was mixed for the week, and any economic weakness continues to be perceived as supporting a delay in tapering. In turn, this can be seen as positive for equities.
2013-11-15 “Great Rotation?” How About “Selective Rotation?” by Eric Takaha of Franklin Templeton
A few months ago there was a lot of buzz about a so-called “Great Rotation,” used to describe an investor exodus from fixed income and into equities, conjuring up images of a massive herd of wildebeest on the African plain racing for greener pastures. Oftentimes, when investors react to the market with a herd mentality, they can wind up losing sight of where they are going, and why. Eric Takaha, senior vice president and portfolio manager for Franklin Strategic Income Fund, says what he’s seen is more of a “selective rotation.”
2013-11-15 Are You Prepared for Economic Recovery? by Nanette Abuhoff Jacobson of Hartford Funds
Nanette Abuhoff Jacobson discusses how many portfolios are out of balance today and explains why investors should consider increasing their equity exposure.
2013-11-14 And That\'s The Week That Was by Ron Brounes of Brounes & Associates
Data keeps coming fast and furious and (for the most part) it has been favorable. Investors remain torn between being ecstatic about the solid recovery or worried about the implications for another Fed move. Stocks were mixed throughout the week with the Dow Jones staying in record territory. Is that worth a Tweet (now that it’s public)?
2013-11-13 Why I Sell the Dollar: From Dollar Strength to Dollar Weakness by Axel Merk of Merk Investments
To those that say the U.S. has the cleanest of the dirty shirts, we would like to point out that it hasn’t helped the greenback, as evidenced by the euro outperforming the dollar both so far this year, as well as last year. Yes, we have a mess in the Eurozone that won’t be resolved anytime soon. But we also have a mess in the U.S., Japan, and many other places around the globe.
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.
2013-11-07 Global Inflation: A Mixed Picture by Monty Guild, Anthony Danaher of Guild Investment Management
Many investors and global macro economists have been on vigil for a ramp up in global inflation spurred by immense central bank QE and other forms monetary stimulus. All of the money printing from around the globe has helped keep the financial system functioning, and it continues to help weak developed economies get back on firmer growth footing. However, it has not translated to rapidly rising prices for goods and services that many expected.
2013-11-06 Permabull? by Jeffrey Saut of Raymond James
A permabull is defined as somebody who is always upbeat about the future direction of the stock market and the economy. Recently I have been called a permabull by certain members of the media, which may be true since March of 2009, but certainly not true over the past 14 years.
2013-11-05 Skepticism Still Abounds by Bob Doll of Nuveen Asset Management
U.S. equities were mixed last week as the markets were broadly unchanged. The October FOMC statement was a bit more hawkish than expected, causing concern that the recent delay in tapering may have been too aggressive. Other worries appear to be tail risks surrounding a possible Fed liquidity trap and accompanying asset bubbles. Economic data were mixed as markets struggle with the trade-offs between recovery and policy normalization.
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.”
2013-11-04 Steve Jobs Didn\'t Give a *!@% About the Debt Ceiling by Jeffrey Bronchick of Cove Street Capital
A quick nod to Bloomberg columnist Caroline Baum from whom we lifted our title. Anything else you might have been (or will be) subjected to on the subject of how the government operates pales in materiality to the headline. And as miserable as our predicament seems to anyone over the age of 13, it really and truly is old and increasingly dull news. To wit, I present the following, highly curated list of quotes-please note the timeline.
2013-11-04 Mortgage REITs: Last Chance to Exit? by Keith Jurow of Advisor Perspectives (dshort.com)
An online advertisement raises the following question often asked by your clients: Can you find me more income? In a nutshell, that is the dilemma facing high net worth investors.
2013-10-31 Third Quarter Letter by Team of Grey Owl Capital
Despite the recent shenanigans in Washington concerning funding the government and raising the debt ceiling, as well as the constant news coverage of the quantitative easing “taper” that the Federal Reserve may or may not begin, we are going to spare (at least for this quarter) both you and us another long discussion of these very real issues.
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.
2013-10-24 Glory Days: Could They Come Back for US Equities? by Liz Ann Sonders of Charles Schwab
A "great rotation" may not be underway by individual investors; even amid record-breaking outflows from bond funds this summer. But fund flow data do show some shift in preferences and highlight the sensitivity of investors to any rise in longer-term interest rates. A more interesting place to look is at the fiduciary community; that has decidedly shifted its attention away from traditional equities (and fixed income) over the past decade.
2013-10-23 Shifting Gears: The Fed Turns from Tapering to Tempering Expectations by Nanette Abuhoff Jacobson of Hartford Funds
Federal Reserve (Fed) Chairman Ben Bernanke surprised markets on September 18 by announcing a continuation of the Fed’s $85 billion-per-month bond purchases and more muted expectations for economic growth and inflation. With this proverbial monkey wrench thrown into the gears of financial markets, investors are now asking how the Fed’s new course changes the investment outlook.
2013-10-23 Can Kicked Down the Road Once Again... by Blaine Rollins of 361 Capital
Donkeys 1, Elephants 0, Congress -535. The can was kicked down the road once again. We would all like to think that Congress will avoid another last minute battle in early 2014, but unfortunately we can’t put it past the current list of non-negotiators. The only thing that is certain in the future is that it will be many election cycles before a member of Congress makes it into the World Series of U.S. Presidential ballots.
2013-10-23 I Thought The Safety Was On by Liam Molloy, Bethany Carlson, Charlie Mas of Galway Investment Strategy
For the past thirty years investors could allocate a portion of their portfolio to investment grade bonds and regard that money as “safe”. Wealth preservation was easy buy a ladder of Treasuries or triple-A rated corporates and go back to bed. That perceived safety was a direct result of a continuing, if not steady, decline in interest rates.
2013-10-22 Bond Legend Dan Fuss on Rising Rates by Robert Huebscher (Article)
Having just celebrated his 80th birthday, Dan Fuss can claim a unique achievement – his tenure in the fixed income markets has spanned a full market cycle, from the great bear market that began in the early 1950s through the equally great bull market that commenced in 1981. Fuss said today’s environment most closely resembles what he confronted in the late 1950s, when long-term rates were 3% and beginning their march upwards.
2013-10-22 Inching Closer by Sponsored Content from Janus Capital Group (Article)
How is the recent flooding in Colorado related to global economies and the financial crisis of 2008? Get a unique perspective from Colleen Denzler, CFA, Janus’ Global Head of Fixed Income Strategy, on how global economies are grappling to wean themselves off government support and grow their economies from within.
2013-10-22 Earnings Season Hides in the Government Shadow by Chris Maxey, Ryan Davis of Fortigent
Lost in all the discussion about Washington is the fact earnings season is in full swing.It is shaping up to be another interesting reporting season, on account of volatility in the markets and economy.So far, companies are beating expectations, but the broader trend is lower.
2013-10-22 After the Minimalist Debt Ceiling Deal: The Good & Bad News by Russ Koesterich of iShares Blog
Last week, investors cheered that Washington finally reached a last-minute debt ceiling deal. But despite their big sigh of relief, the debt ceiling deal wasn’t all good news. Russ provides a quick look at the good, the bad and the investing implications of the compromise.
2013-10-22 And That\'s The Week That Was by Ron Brounes of Brounes & Associates
The gov is back in biz (so get back to work). Investors were pleased (for now).
2013-10-21 Fourth Quarter Investment Outlook by Bob Doll of Nuveen Asset Management
The macro theme of the fourth quarter and early 2014 is monetary reflation and global growth resynchronization. The Fed’s surprising decision to postpone tapering its QE program will likely encourage further risk-taking. In the meantime, we observe increasing signs of a synchronized improvement among the four important economies - the United States, Europe, Japan and China.
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 Debt Limit Extended, Fed Policy in the Wings - What to Expect from the Markets by Paresh Upadhyaya of Pioneer Investments
Last night Congress reached an agreement to raise the debt limit and end the 16-day shutdown. After all the acrimony and tense negotiations, the deal passed by a comfortable margin with 81-18 vote in the Senate and 285-144 in the House.
2013-10-18 In Other News by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
It will take some time to gauge the full impact of the government shutdown and data is likely to be somewhat skewed over the next couple of months. However, sitting on the sidelines isn\’t a great option and stocks still appear to us to be the best place to invest money for the longer term. International growth, although not robust, appears to be more supportive as we head into 2014 than it has since the financial crisis, and we favor developed over emerging markets for the time being.
2013-10-17 Fixed Income Investment Outlook by Team of Osterweis Capital Management
Last quarter we wrote about the confusion that can be created by the Federal Reserve’s (Fed’s) two official mandates: keeping inflation in check and ensuring full employment. We also pointed out that given the rather fragile economic backdrop, talk of letting the economy stand on its own two feet by reducing their bond buying might be premature. During the third quarter, it appeared most economists felt comfortable that the Fed would indeed begin “tapering” its purchase of Treasuries and mortgage securities after the September Federal Open Market Committee (FOMC) meetin
2013-10-14 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
Equities generally performed well across the board in the third quarter. The S&P 500 Index’s solid 5.24% return built on strong gains from earlier in the year. The Index has returned more than 19% through September, surpassing expectations at the start of the year. Slow but steady economic growth in the US, support from the Federal Reserve (the Fed), and more recently, signs of potentially better growth in Europe and Asia have been important positive catalysts.
2013-10-14 Me and My Horse by Jim Goff of Janus Capital Group
This is not a story about getting back on the horse that throws you. It is about just staying on the horse. It is also a market story.
2013-10-14 Can Markets Remain Resilient in Light of Political Dysfunction? by Bob Doll of Nuveen Asset Management
Equities were mixed again last week, and the markets remain focused on the budget impasse in Washington, D.C., after the second week of the partial government shutdown. The S&P 500 closed the week in positive territory, increasing 0.8%.1 It is hard to ignore headlines and market volatility, but the real issues for markets are the debt ceiling debate and third quarter corporate earnings announcements.
2013-10-09 The Squeeze Play by Jerome Schneider of PIMCO
Reductions in Treasury bill and commercial paper issuance compounded by developments on the demand side mean the “squeeze play” is on for many short-term portfolios. Investors should consider the potential for substantive changes to liquidity conditions as banks contend with increases in capital requirements due to updated Basel III regulations. Active management of short-term investments is important: Don’t rely on static regulatory frameworks or traditional indexes to determine a portfolio’s unique liquidity needs.
2013-10-09 Getting Serious About Investing Responsibly by Luke Spajic, Josh Olazabal of PIMCO
To date, much of ESG-related investing has focused on negative screening, but we believe there is a better approach. This approach rests on three pillars: identifying and analyzing key ESG issues facing a given investment sector, engaging with the issuers of securities, and supporting the development of markets for ESG investments.
2013-10-09 An Unnecessary Crisis by Scott Brown of Raymond James
With the lapse in appropriations, the federal government slipped into a partial shutdown last week. The economic impact will depend on how long the standoff lasts, which could be a couple of weeks or more. Recent economic data suggest that third quarter growth was a lot lower than anticipated. So, the crisis in Washington arrives at a particularly bad time. Lawmakers appear to be taking the debt ceiling more seriously, and we could see action on that before the budget authorization is settled but it’s unclear how the situation will be resolved.
2013-10-09 Ashes to Ashes by Jeffrey Saut of Raymond James
The phrase “ashes to ashes, dust to dust” is derived from the Biblical text of Genesis 3:19 and was adapted to its present form at an old English burial service. Last week I repeated those words as I scattered my father’s ashes next to my mother’s in the memorial garden of the church they loved so much in Richmond, Virginia. Indeed, my week was spent in Richmond, Washington D.C., and Baltimore seeing institutional accounts, consulting with political types, and speaking at various events for our financial advisors and their clients.
2013-10-09 Emerging Values by Cliff Stanton of Envestnet
The current valuations and fundamentals in Emerging Markets make for an attractive entry point, if you can stomach the increased volatility and risk associated with the asset class.
2013-10-08 The Futility of the Endowment Model by Robert Huebscher (Article)
In the past two decades, the so-called endowment model has been adopted by hundreds of endowments, foundations and advisors – particularly those serving ultra-high-net-worth clients. By aggressively allocating to illiquid alternative asset classes, those investors hoped to duplicate the results of Yale and other top-tier institutions. New research exposes the futility of those efforts.
2013-10-08 Government Shutdown Masks Pending Debt Ceiling and Third Quarter Earnings by Bob Doll of Nuveen Asset Management
Equities were mixed last week as the markets were focused on the budget impasse in Washington, D.C., that forced the federal government into a partial shutdown. As with the 17 prior shutdowns, we do not anticipate a lasting impact on the economy or markets. While the shutdown makes headlines, the issues that will likely have the most impact are the debt ceiling debate and third quarter corporate earnings announcements, which could mean a bumpy ride for investors.
2013-10-08 The Death of Fixed Income? Not so Fast . . . by Giordano Lombardo of Pioneer Investments
Recent market movements have reminded investors that the fixed income market is facing a secular change, after a 30-year-long bull market driven by a continuous decline in interest rates. I believe the announcements of the death of fixed income as an asset class are greatly exaggerated, and in order to face the new reality, fixed income investors and asset allocators need to adopt a significant change of approach.
2013-10-07 What Should Investors Know about the U.S. Government Shutdown? by Ken Taubes of Pioneer Investments
Yesterday was the start of a new fiscal year for the U.S. federal government, but failure to agree on a spending plan in time for that deadline left federal coffers short. As a result, a partial government shutdown took effect. It’s important to emphasize that this was a partial government shutdown. Many services remain operational, such as our active military, Medicare/Medicaid, Social Security and airline travel.
2013-10-04 Nowhere to Hide: Navigating Rising Rate Risk in High-Yield Markets by Gibson Smith, Colleen Denzler of Janus Capital Group
Over the past few years, investors have flocked to high-yield credit, many believing it a good way to mitigate their interest rate risk as well as capture additional yield. However, they may not realize the level of rate risk that has followed them. High-yield indices, negatively correlated to five-year Treasury bond yields over the past 15 years, have been positively correlated for the past year.
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.
2013-10-04 The Economy, the Fed, and Politics by Richard Michaud of New Frontier Advisors
It was a good quarter to invest in equities, and despite a down second quarter, overall a good year as well. The Dow was up 1.5%, the S&P 4.7% and the NASDAQ 10.8%. Year-to-date returns were very positive with the Dow up 15.5%, S&P up 17.9%, and NASDAQ up 24.9%. International equities were also positive for the quarter and year with the MSCI ACWI ex US up 9.4% and up 7.5% year-to-date. While emerging market equity indices were up 5% for the quarter they remained negative -6.4% for the year.
2013-10-04 The Debt Ceiling Drama is Heating Up by Team of Northern Trust
The debt ceiling drama is heating up. Threatening default is reckless, but long-term budget issues require attention. Measures of policy uncertainty show a link to economic performance
2013-10-04 The Malfunctioning United States Government by Gene Goldman of Cetera Financial Group
Overall, we are entering a potentially volatile period for the financial markets. Increased uncertainty combined with below-trend economic growth will likely lead to sharp market fluctuations. To mitigate the risk of volatility, we remain committed to increased diversification. Within equities, we would begin reducing exposure to U.S. stocks and instead focus on better areas of opportunity international developed markets. Within fixed income, we would maintain a bias toward spread product, such as corporate bonds, which generally pay a higher yield compared to similar Treasuries.
2013-10-03 Buying the Shutdown by Scott Minerd of Guggenheim Partners
Volatility from the government shutdown and other political developments in Washington D.C. will likely continue to rise. Despite this, the reduction in output from this will be short-term, and investors still have several attractive options for deploying capital across asset classes in the United States and globally.
2013-10-03 Survival of the Fittest? by William Gross of PIMCO
I hate crows and my wife Sue hates bugs, but like most married couples we have learned to live with our differences. Crows eat bugs though, and bugs eat bugs, and that scientific observation sets the context for the next few paragraphs of this month’s Investment Outlook.
2013-10-02 Quarterly Market Commentary by Scotty George of du Pasquier Asset Management
Many of us bear emotional scars from the excesses of a debt-driven, casino-like mid-2000 decade. The last recession was punctuated by lost jobs, lowering wages, diminishing portfolio valuations, putrid returns on cash savings, and a total decimation of confidence in the so-called “Titans” who drove the Wall Street bus during that period.
2013-09-30 Long/Short Equity in Rising Rate Environments by Kurt Voldeng of AdvisorShares
The party in fixed income has been a good one. Spanning approximately 30 years and touching four different decades dating back to the Volker Era in the early 1980’s, it has been a fairly smooth ride with few, short lived, painful periods. It now appears that possibly, and the market pundits are still debating, that the party may be over. Most agree that if not over yet, the end is near.
2013-09-30 Investing In Corporate Bonds: The Compelling Case For Active Management by Ed Devlin, Michael Kim of PIMCO
Passive investment returns in the Canadian corporate bond market have been unimpressive because of the way corporate bond indices are constructed and factors unique to the Canadian market. Unconstrained by these limitations, active managers with global reach may provide superior returns. The current environment presents an attractive opportunity for Canadian investors to implement a wide discretion, active approach to managing corporate bonds.
2013-09-30 Congress Holds Equities Hostage by Bob Doll of Nuveen Asset Management
U.S. equity advances ended last week and the S&P 500 declined -1.0%.1 Markets appeared concerned about overbought conditions from a strong run up over the past three weeks and uneasy about Federal Reserve (Fed) monetary policy normalization as well as the credibility of its communication strategy. Other widespread reasons for the downturn included increased focus on the fiscal battles in Washington, D.C., heightened worries about a possible near-term government shutdown and the contentious debt ceiling debate.
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 The Weekly Speculator by Michael Shaoul, Ranita Ragunathan, Timothy Brackett, Brendan Moynihan of Marketfield Asset Management
We wrote last week on the eve of the FOMC meeting which resulted in the surprising decision not to reduce the current program of treasury and mortgage security purchases. What was to our eyes equally surprising was the volume and strident tone of the commentary that was issued following this release, ranging from the arrogant to the outraged as if anything really meaningful had changed.
2013-09-25 Surprise... by Blaine Rollins of 361 Capital
Clearly, the numbers didn’t meet the Fed’s preconditions for tapering. And while the jobless rate has fallen to 7.3% (from 8.1% when QE3, the current round of quantitative easing began), Bernanke had to acknowledge what’s been obvious to all. The decline in the jobless rate hasn’t occurred just because more folks are getting jobs; it’s because many are dropping out of the workforce, which means they’re not counted as unemployed by the government.
2013-09-25 Muni Market Resurgent by Andrew Clinton of Clinton Investment Management
In light of the recent recovery in fixed income markets and the outperformance of the municipal bond market in particular, I thought I would send a note to provide a brief update since we last sent our market observations in July and August. As you may recall, we stated in the clearest terms that we felt the recent rise in interest rates provided an attractive entry point for municipal bond investors.
2013-09-24 Michael Aronstein’s Warning to Fund Investors by Robert Huebscher (Article)
Fixed-income investors may think rising interest rates are their biggest worry. But bond funds face a new risk, driven by their need for liquidity to service investors’ daily redemptions, according to Michael Aronstein.
2013-09-23 Enhanced Dividend for Income by Jim O'Shaugnessy of O'Shaughnessy Asset Management
It is axiomatic in the financial planning canon that investors searching for a steady source of income should rely heavily on bonds. Stocks are for capital appreciation and bonds for income. The practice is so ingrained, that I have not heard of many investors who would make the case for using an equity portfolio to generate income. Bonds also appeal to advisors because of their inherent principal protection advantage. As a bond owner, you are a creditor, not an owner.
2013-09-23 Fed Inaction Lengthens Reflationary Economy by Bob Doll of Nuveen Asset Management
U.S. equities advanced last week as the S&P 500 increased 1.32%.1 The Federal Reserve (Fed) delivered a big surprise by leaving intact the current $85 billion monthly purchase program. The Committee appears nervous about the resiliency of the economy. Chairman Bernanke pointed to three factors for postponing tapering: 1) the need for more labor market data to be confident in the outlook, 2) a desire to assess the degree to which tighter financial conditions, particularly mortgage rates, are affecting the real economy and 3) an interest in gaining clarity on “upcoming fiscal debates.̶
2013-09-21 How Did The Fed Catch Markets Off Guard? What Does it Mean for Investors? by Ken Taubes of Pioneer Investments
We think this decision prolongs the positive market environment we have seen in both equities and fixed income. With the Fed seemingly a distance away from tapering and raising rates, this could bode well for the risk sectors, where we could see further tightening in credit spreads on both high yield and investment-grade corporate bonds.
2013-09-20 Rising Interest Rates Must End Soon by Scott Minerd of Guggenheim Partners
The yield on the benchmark 10-year U.S. Treasury bond has risen by more than 84 percent from May to early September, one of the most violent and rapid increases on record. This spike has caused severe convulsions in the bond market, leading many investors to wonder how long the torment can last.
2013-09-20 Will Europe's Improving Economy Push Interest Rates Higher by Giordano Lombardo of Pioneer Investments
Gross Domestic Product (GDP) increased in the second quarter after six straight declines. Data expectations were on the optimistic side, but investors appeared to become more confident before the release, thanks to encouraging evidence from supposedly reliable forward-looking indicators.
2013-09-20 The Fed's About-Face by Scott Minerd of Guggenheim Partners
The Federal Reserve’s decision not to taper quantitative easing telegraphed a mixed signal to markets about policy guidance while tempering forward economic growth expectations. Dramatically lower interest rates can be expected.
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.
2013-09-18 Is the Commodity Supercycle Dead? by Nicholas Johnson, Greg Sharenow of PIMCO
While commodity price appreciation won’t likely mirror the supercycle, this shouldn’t necessarily imply a negative view on commodity returns going forward. We believe commodity prices are at reasonable levels from a long-term valuation perspective. In addition, the roll yield from investing in commodities is the highest it’s been since 2005. The outlook for commodity returns today seems broadly consistent with historical returns, and commodities remain an important tool for hedging inflation risk.
2013-09-17 Investing for Real People by Sponsored content by Oppenheimer Funds (Article)
Investor goals are the same, but solutions have changed. Today, aiming to meet basic needs requires new solutions. Laser focus on investor goals will help uncover appropriate investment opportunities. Expanding the opportunity set beyond the usual suspects will be critical to long-term success.
2013-09-17 “Risk-On” Resumes as Uncertainty Subsides by Bob Doll of Nuveen Asset Management
Equity markets rallied last week with the hope of a diplomatic solution to the crisis between Syria and the United States. The S&P 500 advanced 2.03% for the week.1 Broadly, the S&P 500 is in a churning phase after witnessing an all-time high of 1709 on August 2 and then stalling.1 We believe the market has been on hold while waiting for lower oil prices, progress on Syria, further global growth and successful Federal Reserve tapering.
2013-09-16 The Next Big Challenge to Investors: Rising Rates by Mike Temple of Pioneer Investments
Many investors were conditioned to accept that the economy would be in the rehabilitation ward for the foreseeable future, rates would remain low, and monetary stimulus would continue unabated. It was an increasingly dangerous mindset. Now that’s changing with the slow but steady recovery of the economy and the Federal Reserve’s announcement in August that it may begin “tapering” its billions in monthly bond purchases designed to keep rates low and boost asset prices.
2013-09-13 Active ETF Market Share Update & Weekly Market Review by AdvisorShares Research of AdvisorShares
Last week, total AUM in all active ETFs increased by around $38.2 million.As in previous weeks, assets in “Short Term Bond” active ETFs increased, this time by almost $61.7 million, while AUM in the “Global Bond” category fell by about $39 million.The “Global Bond” category had another bad week, ending over $18.3 million below where it began.The “Alternative Income” category increased again but by less than in previous weeks; AUM increased by nearly $4.26 million. The “Alternative” active ETF category’s AUM rose by approximately
2013-09-10 Check or Checkmate... by Blaine Rollins of 361 Capital
The White House’s goal is to persuade Congress to authorize a limited military strike against Syria to punish it for a deadly chemical weapons attack. But after a frenetic week of wall-to-wall intelligence briefings, dozens of phone calls, and hours of hearings with senior members of Mr. Obama’s war council, more and more lawmakers, Republican and Democrat, are lining up to vote against the president.
2013-09-09 Equities Advance Despite Concerns Over Weak Employment and Growth by Bob Doll of Nuveen Asset Management
U.S. equities moved higher last week, with the S&P 500 advancing 1.40%.1 In the face of another disappointing employment report, positive recovery expectations provided tailwinds. Key manufacturing and service sector data surprised to the upside, and improved corporate confidence was highlighted by merger and acquisition activity. Developments outside the U.S. supported recovery and reform, and emerging market fears lessened. A potential U.S. military strike on Syria was an overhang as President Obama’s decision to seek congressional approval raised concerns about other looming battles.
2013-09-09 Market Technicals Signal Trouble Ahead by Chris Maxey, Ryan Davis of Fortigent
Bear market enthusiasts have so far been disappointed in September after the sudden market rally last week. With equities up more than 1% on the month, many bears pointed to the historically poor performance of equity markets during this month as a reason to remain cautious. Bear enthusiasts need not fear, as markets appear to be converging toward an inflection point right around the Fed meeting in the middle of the month.
2013-09-06 The Emerging Markets Debt Evolution by Giordano Lombardo of Pioneer Investments
My colleagues Mauro Ratto, Head of Emerging Markets, and Yerlan Syzdykov, Head of Emerging Markets Bond & High Yield, offered these thoughts on emerging markets.
2013-09-06 Four Interest Rate Scenarios We Could Face by Mike Temple of Pioneer Investments
I’ve written a lot lately on the subject of “duration” and its potential impact on investor portfolios, now that the initial goals of the Federal Reserve’s “Great Monetary Experiment” appear largely accomplished and tapering of its monthly purchase of Treasuries to keep rates low is on the table. The era of lowering interest rates and rising bond prices looks finally at an end, with no place for rates to go but up. It’s vital, then, that investors think about the impact that rising bond yields could have on their portfolios. Here are a few scenarios w
2013-09-06 The Good, The Bad and The Ugly by Douglas Cote of ING Investment Management
“Good” economic news in developed markets has been overshadowed lately by the “bad” (burgeoning Asian currency crisis) and the “ugly” (Syria). Unwinding central bank support from the markets will be arduous; it is already contributing to destabilization of certain emerging market currencies. News out of Washington this autumn tapering, Fed leadership and the debt ceiling has the potential to add volatility and uncertainty. The U.S. equity market has been the place to be this year, but diversification remains key.
2013-09-05 Seventh Inning Stretch by William Gross of PIMCO
They say that reality is whatever you wish it to be and I suppose that could be true. Just wish it, as Jiminy Cricket used to say, and it will come true. Reality’s relativity came to mind the other day as I was opening a box of Cracker Jacks for an afternoon snack. That’s right I said Cracker Jacks! I can’t count the number of people who have told me during the seventh inning stretch at a baseball game to make sure I sing Cracker Jack (without the S) because that’s what the song says. I care not. No one ever says buy me some “potato chip” or some “pea
2013-09-05 Dividends Matter by Mark Mobius of Franklin Templeton Investments
Many people think of emerging market stocks as pure growth plays, and may not realize that there is a separate potential benefitdividendsthat can also be available to investors in these markets. A prolonged period of easy monetary policies in many developed nations (particularly the US) has left income-seeking investors searching for alternatives to traditional fixed income, including dividend-paying stocks. Many investors may not realize dividends aren’t just a developed-market phenomenon.
2013-09-04 Fixed Income - Where to Now? by Chris Maxey, Ryan Davis of Fortigent
Since the end of the Global Financial Crisis (GFC), investors moved aggressively into fixed income asset classes. They were quickly rewarded in the years following the crisis with a combination of falling interest rates and tighter credit spreads, which led to positive absolute returns. The easy money in fixed income is gone, however, and now is the time for careful asset class selection.
2013-09-03 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.
2013-08-29 High Yield Bond Market Mid-Year Check In by Matthew Pasts of BTS Asset Management
After a prosperous 30-year bull market, the prospect for the future direction of High Yield bonds would seem to hinge on not whether, but when their decline starts.Dan Fuss has been managing bonds for 55 years. His multi-sector bond fund, Loomis Sayles Bond Fund, ranks in the top 10% of its peer group over the last 15- and 10- year periods as of December 31, 2012. Fuss believes that bonds are currently “the most overbought market I have ever seen in my life in the business.”
2013-08-29 Have Emerging Markets Gotten Oversold? by Mark Mobius of Franklin Templeton Investments
At Templeton, we’ve repeatedly championed our value-driven philosophy by frequently buying at times others are most pessimistic. This is not easy to do, even for seasoned market veterans. During the past few months, emerging markets have been subject to such pessimism. These periods of short-term volatility are certainly not new to us, and don’t change our long-term conviction of the potential emerging markets hold.
2013-08-27 Policy Uncertainty on the Rise by Libby Cantrill, Josh Thimons of PIMCO
Congress seems to be digging in and ramping up the rhetoric in advance of a possible government shutdown, a debt ceiling increase and a probable selection of a new Fed chair. We think it is likely policymakers will agree to a short-term deal to fund the government and avert a shutdown, and also cobble together a resolution on the debt ceiling, although neither is likely until the last minute. The Fed chair debate will likely continue to sway markets over the next few months, leading to greater uncertainty and greater market volatility.
2013-08-26 Inflation Update by Team of North Peak Asset Management
As can be seen in the schematic above, most portfolios are effectively a bet on a low inflation environment due to their heavy reliance on mainstream equities and fixed income securities. In order to protect a portfolio from the damage that inflation can inflict, asset classes that are sensitive to increases in inflation need to be incorporated into the asset mix. These include Inflation Linked Bonds (TIPS), Precious Metals, Global Natural Resource equities and Commodities.
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.
2013-08-23 Utilities - Today's Best Bond Alternative by Chuck Carnevale of F.A.S.T. Graphs
To refer to any stock or equity as an alternative to bonds or fixed income is sure to stir up the ire and consternation of many professional and individual investors alike who deem themselves prudent. Frankly, under normal circumstances I would tend to agree.
2013-08-23 Buckle Up by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Caution is warranted near-term. For investors that have a solid strategy of dollar-cost averaging into the market, we don’t recommend deviating from that path. However, for investors who are more tactical, better entry points are likely yet to come. Longer-term, we remain bullish on US equities and prefer developed international markets over emerging markets.
2013-08-23 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
India: Broken promise or temporary hiccup? Bond markets appear unmoved by central bank guidance. Rising mortgage rates are taking some of the steam out of housing.
2013-08-23 The Next Big Challenge to Investors: Duration by Mike Temple of Pioneer Investments
Many investors have been conditioned to accept that the economy will be in the rehabilitation ward for the foreseeable future, rates will remain low, and monetary stimulus unending. We believe this is an increasingly dangerous mindset and the next great risk for bond investors is coming into view: the return of higher interest rates. We look at the “refuge” subsectors those areas of the fixed income market that investors may believe provide “safe haven” from the gathering storm.
2013-08-22 Bernanke's Taper Tinkering by Tad Rivelle of TCW Asset Management
For at least the past five years, the Fed has cast an exceedingly long shadow over the capital markets. For this reason, understanding Fed policy has been central towards proper guidance and direction of investor capital allocations. Since Chairman Bernanke’s trial ballooning surrounding a potential “taper” of the Fed’s QE policy, longer maturity Treasury interest rates have soared over 100 basis points.
2013-08-21 The Danger of Duration: The Damage Potential of Rising Rates by Mike Temple of Pioneer Investments
The Federal Reserve’s initial goals from “The Great Monetary Experiment” are accomplished. Investors could now face the threat of rising bond yields.
2013-08-21 Weekly Market Review Notes by Team of Tuttle Tactical Management
This was a tough week for the markets as the long expected and healthy correction finally surfaced. Times like these can be a little nerve wracking is there are always now shortage of people to go on CNBC and claim that the sky is falling.
2013-08-20 The Speed of Fed Rate Hikes by Zach Pandl of Columbia Management
For the last several months, talk of tapering has dominated the Fed debate. Although there remains some uncertainty around the detailssuch as how large the initial step might bemost observers now expect the Federal Reserve to begin slowing the pace of quantitative easing (QE) at the September 17-18 meeting. Attention is now turning to another major issue on next month’s agenda: the publication of Fed officials’ forecasts for the funds rate in 2016. The Fed rolls forward the Summary of Economic Projections (SEP) by one year each September.
2013-08-19 Equity Fatigue Continues with Headwinds from Bond Sell-off by Bob Doll of Nuveen Asset Management
U.S. equities finished lower for the second straight week as the S&P 500 declined 2.04%, narrowly escaping its worst week of the year. A specific catalyst behind the pullback was not identified by us or market analysts.
2013-08-16 Preparing for Rising Interest Rates: Bond Ladder vs. Bond Fund Ladder by BMO Tax-Free Fixed Income Team of BMO Funds
The last few years have seen interest rates hold steady or drift lower, causing investors to be concerned about how their fixed income portfolios will be affected when rates eventually rise. The question is, how can investors protect themselves from rising rates while still earning income while they wait?
2013-08-16 Fixed Income Investing In a Reality Star World by Kirk Moore of Columbia Management
Reality stars are famous for being famous. We should not begrudge them for recognizing an opportunity, seizing the momentum and exploiting it successfully. However, an approach that emphasizes form over substance can neither be consistent or highly repeatable.
2013-08-16 The Case for Global Dividends: Valuations and the Impact of Rising Rates by Ehren Stanhope of O'Shaughnessy Asset Management
The S&P 500 Index has risen over 150 percent since March 9, 2009 in what could arguably be deemed the most hated equity rally of all time. The MSCI All Country World Index, one of the broadest global indices, has risen “just” 110 percent since its March 2009 nadir. Evidence indicates that United States (U.S.) investors have not participated in this rallya truly sad state of affairs. It is worthy of noting that over the last several years a number of well known market pundits have viscerally rejected the equity rally due to macroeconomic concerns.
2013-08-15 To Manage Rising Rates, Consider Benching Your Benchmark by Douglas Peebles, Michael Mon of AllianceBernstein
As we enter a period of rising rates, many bond investors are growing more aware of the risks of benchmark-oriented bond portfolios. It may be time to sit the benchmark down and consider more flexible, unconstrained approaches to fixed income.
2013-08-15 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 Dog Days of Summer Are Upon Us by Blaine Rollins of 361 Capital
Hopefully you are reading this from the beach, because there is so little news happening in the markets that those of us in the office are about to start making news up to justify stock price movements. But while news and volumes are at August lows, here are some thoughts that might ring a bell to help you to either make some money or to set down your smartphone and get back to the water.
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.
2013-08-12 The Key Economic and Market Forces Guiding Equity Markets by Bob Doll of Nuveen Asset Management
This week we want to address important themes that underline our continued cautious optimism for a slowly improving global economy and signs of revenue and earnings growth momentum.
2013-08-12 Lower Your Expectations for Future Return by Cory Fulton of Mesirow Financial Wealth Management
While equities are not priced particularly well and the current environment does not bode well for future long-term expected real returns, they are currently a better choice for investors relative to the alternative. Right now, any meaningful shifts in one direction or the other could be setting the investor up for additional disappointment. At this stage in the game, equities look to offer better prospects in the long-term. However, the time is not right to abandon your long-term investment plan in the face of the positive market headlines and lofty predictions emanating from Wall Street.
2013-08-09 The Calm Before the Storm? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Record highs in US equities have resulted thus far in only modestly elevated investor sentiment and it appears retail investors are returning to the market, which could fuel further gains. However, volatility is likely to increase with political and Fed issues on the horizon. Europe remains attractive, along with Japan, but we are watching the potential consumption tax increase closely, while China’s valuations are improved but concerns remain.
2013-08-08 Market Melt-Up Catches Defensive Investors by Surprise by Douglas Cote of ING Investment Management
Extraordinary returns in the fourth year of a bull market remind us that long-term defensiveness can’t be rationalized. July saw remarkable returns across global equity and fixed income markets, with the exception of U.S. Treasuries. Investors would be well served to ignore media drama and fear mongering and simply follow the fundamentals. Five years spent worrying about Armageddon is too long, but there’s still time to get back to a normal allocation.
2013-08-08 Bond Wars by William Gross of PIMCO
Adaptation is tantamount to survival in the physical world. So argued Darwin, at least, and I am not one to argue with most science and its interpretation of natural laws. Adaptation has been critical as well for the survival of countries during wartime, incidents of which I am drawn to like a bear to honey, especially when they concern WWI. Stick with me for a few paragraphs on this the following is not likely to be boring and almost certainly should be instructive.
2013-08-08 What is Risk? by Chris Engelman of Cedar Hill Associates
There are no rewards from investing without some measure of risk. Risk management, a process for recognizing, assessing and prioritizing a variety of risks, is an essential part of managing a portfolio successfully. Cedar Hill takes a holistic approach to risk management by identifying each client’s objectives, preferences and constraints, then creating specific asset allocation and implementation strategies to minimize the effects of negative events.
2013-08-08 Investment Advice Technology and How to Lose Money in the Coming Years by Kendall Anderson of Anderson Griggs
Adventures are good for my soul. They create wonderful memories, both of where I have been and all the effort it took to get there. All of us have memories, both good and not so good. I am a bit worried about the near term future.
2013-08-06 Equities Grind Higher as the Economy Continues to Muddle Through by Bob Doll of Nuveen Asset Management
U.S. equities advanced last week, with the S&P 500 increasing 1.10%.1 For the month of July, the S&P gained 5.09%, and equities have increased 21.33% year to date. Second quarter earnings season is nearly complete, and there has not been a material change in estimated earnings for the balance of the year or 2014. Revenues were slightly ahead of expectations, and earnings per share were approximately 3% higher than expected, annualizing at about $110 per S&P 500 share.
2013-08-06 The ABCs of ABS: Identifying Opportunities in Asset-Backed Securities by Scott Minerd of Guggenheim Partners
In the search for yield, ABS offers an opportunity to generate higher returns through rigorous analysis, unaccompanied by additional credit or interest-rate risk.
2013-08-02 Rising Rates? Keep the TIPS, Leave the Duration by Greg Wilensky of AllianceBernstein
Treasury Inflation-Protected Securities (TIPS) have been popular in recent years with investors worried about inflation, and returns have been strong. But TIPS have benefited from a long bull market for bonds and high interest-rate sensitivity. This could be a problem aheadunless investors do something about it.
2013-08-01 July 2013 Market Commentary by Andrew Clinton of Clinton Investment Management
Fixed income investors have enjoyed a steady move higher in bond prices over the past five years. Given the consistency with which bond values have increased, it is understandable if bond investors were surprised by the just over 0.60%, or 60 basis point rise in ten year Treasury yields and corresponding movement down in bond prices during the second quarter.
2013-07-31 Calm Has Replaced Fear in the Bond Market by Tony Crescenzi of PIMCO
Calm largely returned to the bond market in July following a bout of turbulence in June. Volatility declined across the broad spectrum of fixed income assets, with interest rates and credit spreads falling from their highs, in some cases dramatically. Flows have also turned positive in many market segments, particularly for high yield and bank loan securities.
2013-07-31 The Context of Price by Pamela Rosenau of HighTower Advisors
While the stock market has enjoyed a recent rally, some investors are experiencing some “weakness in the knees” as they continue to ascend the climb. These new all-time highs in the market compound the problem for some investors as they suffer from the recency effect, or the not-too-distant memory of significant market losses.
2013-07-30 A Strategy for Reducing Volatility While Increasing Returns by Steven Farber (Article)
The product on every advisor’s wish list would have the low volatility of fixed income while providing equity-like returns. Although such a product does not exist, equity options, when used properly, will give you the ability to achieve pre-defined goals and objectives.
2013-07-30 Conflicting Crosscurrents Move Equities Sideways by Bob Doll of Nuveen Asset Management
U.S. equities finished last week narrowly mixed, with the S&P 500 falling -0.02%.1 While the second quarter earnings per share growth continues to move higher, revenue growth remains below trend. The economic calendar is focused on this week’s release of the July employment report. Global macro headlines generated more uncertainty than direction for the markets.
2013-07-29 And That\\\'s the Week That Was by Ron Brounes of Brounes & Associates
So now Prez Obama is sharing his two cents about the economy. After weeks of endless babble from the Fed Chief and his partners in crime about the economy and the longevity of the bond buying program, O is now making job creation his number one priority. Is anyone listening to his urgent messages (certainly no one in DC)? Investors (at least those not on vacation) were less than impressed with the less than impressive earnings of the week, though markets held their own.
2013-07-26 Attention 3-D Shoppers by John West of Research Affiliates
Why do retail shoppers love a sale while capital markets flee from falling prices? Investors should consider starting to fill their shopping carts while inflation hedges are cheap....
2013-07-25 A Midyear Update: Getting Back to “Normal” by Douglas Cote of ING Investment Management
Though markets were whipsawed by the announcement, the Fed’s plan to step aside and allow normalization is a good thing. Today, the primary risk for investors to hedge is economic growth and the strong equity returns it tends to produce not financial Armageddon. While risks in Europe and China persist, U.S. fundamentals look relatively strong. Two consecutive quarters of S&P 500 earnings growth prompts a forecast update.
2013-07-25 The Damage Potential of Rising Rates by Michael Temple of Pioneer Investments
The initial goals of the Federal Reserve’s “Great Monetary Experiment” to keep rates low, create negative real yields, spur consumption and cushion the budgetary consequences of fiscal stimulus have largely been accomplished. Investors could now face the threat of rising bond yields. Various bull and bear scenarios might ensue. What are they and what could trigger them? What are the risks to portfolios?
2013-07-24 Earnings Acceleration Likely Needed for Next Upturn in Stocks by Bob Doll of Nuveen Asset Management
U.S. equities finished mostly higher last week. For a fourth straight week, the S&P 500 and Dow Jones Industrials were up (returning 0.73% and 0.57% respectively for the week), while the NASDAQ underperformed at -0.34%. It was a busy start for second quarter earnings. More than 70% of the 100 S&P 500 companies that have reported earnings have beaten consensus earnings per share expectations by approximately 3% in aggregate.
2013-07-23 Taper Protection: Where to Go when Rates Rise by Casey Frazier, CFA (Article)
I have fielded a number of questions from advisors about the effects of rising interest rates on real estate values. The negative effect of rising rates is predictable for fixed incomes, but real estate returns vary and are dependent on a number of factors. I will start with a historical analysis that demonstrates the strength of real estate returns during periods of rising rates. Then I’ll outline the factors that drive changes in real estate values in a rising-interest-rate environment.
2013-07-22 Can China Give Credit Where It's Due? by Milton Ezrati of Lord Abbett
June was a rough month for China’s economy and its financial markets. Old concerns about sustainable growth came to the fore, as reports surfaced and resurfaced, recounting liquidity shortages, misdirected and excessive credit growth, gyrating interest rates, and signs of weakness in manufacturing. Commentators and analysts alike voiced fears of a Chinese collapse on a par with America’s subprime crisis. For the second time in as many years, several in the global financial community have prophesized a “hard” landing for China’s economy.
2013-07-19 Fixed Income Outlook by Team of Osterweis Capital Management
The question we keep asking is “Will the real Fed mandate, please stand up?” The Federal Reserve (the Fed) traditionally is charged with keeping inflation in check, but it also has a second mandate to ensure full employment. This dual mandate can occasionally create general confusion as to what is the best policy at a given time and which policy goal the Fed is trying to achieve. Today, we are at a juncture where the Fed’s mandates may not clearly align with stated future monetary actions.
2013-07-19 7 Things Investors Should Know Now by Russ Koesterich of iShares Blog
Can stocks move higher? What are the best opportunities now in stocks and fixed income? Russ answers these questions and others in an update to his mid-year outlook.
2013-07-19 Fixed Income Fed Insight: It's All About Employment by Christopher Molumphy of Franklin Templeton Investments
We can try to guess what the Fed is thinking, but ultimately the Fed is driven by inflation and the labor markets. With inflation seemingly under control, it’s really the labor markets that dominate. So if you want to know what the Fed’s going to be doing, look at the labor markets how many jobs we create each month and, most importantly, the unemployment rate.
2013-07-19 Opportunity in Europe by Team of Neuberger Berman
A striking feature of this year’s global stock market rally is that international markets have significantly trailed U.S. stocks. Nevertheless, Neuberger Berman’s Asset Allocation Committee (AAC) recently made the contrarian call of upgrading its view for international developed markets, particularly Europe. In this Strategic Spotlight, we provide an update on the European economy and lay out some reasons for optimism despite the dour growth outlook.
2013-07-16 The Great Rotation Continues Forward... by Blaine Rollins of 361 Capital
Fed Chairman Ben Bernanke grabbed the mic on Wednesday and gave a performance that garnered a standing ovation from Stock, Bond, and Commodity investors. Only U.S. Dollar longs went home dragging their programs and spilling their popcorn. As a result, U.S. equity markets ended the week at all-time highs as stocks remained the darlings of the asset classes.
2013-07-15 Mid-Year Outlook: Waiting to Move Beyond a Muddle-Through Economy by Bob Doll of Nuveen Asset Management
By focusing on current economic conditions while giving due importance to the uncertainty created by Fed actions we offer thoughts for consideration in evaluating “risk-on” investments.
2013-07-15 Rock-A-Bye Baby by John Hussman of Hussman Funds
I’ve always thought that singing “Rock-a-bye baby” offers a bizarre lesson to our young, encouraging them to be lulled gently to sleep by describing a scene that should have them wide-eyed with terror.
2013-07-12 Rising Rates: Time to Position, Not Panic by Douglas Peebles of AllianceBernstein
It finally happened. After endless discussion about the potential for rates to rise, they finally didin a big way. During May and June, the 10-year US Treasury yield soared by nearly one percent, and markets reeled. Instead of panicking, investors should make sure their portfolios are positioned effectively.
2013-07-12 Bond Yields Gone Wild? by Frank Holmes of U.S. Global Investors
With the Federal Reserve’s intention to taper its easing, yields have risen quickly, causing municipal bonds to experience their worst decline since September 2008. In the second quarter, the Barclays Capital Municipal Bond Index lost nearly 3 percent, with the long end of the yield curve receiving the biggest blow, as bonds maturing in 20 years fell more than 4 percent.
2013-07-12 Hasenstab: Emerging Out of the Consensus Trade by Michael Hasenstab of Franklin Templeton Investments
Just when is a potential long-term reward worth the short-term risk? Investors are often most focused on the short-term pain of a particular event (hard to blame them), losing sight of possible outcomes farther out into the future. That could partially explain what’s going on in the emerging markets right now, at least according to Michael Hasenstab, co-director of the International Bond Department, Franklin Templeton Fixed Income Group.
2013-07-12 Opportunity Knocks for Mortgage Investors by Matthew Bass of AllianceBernstein
We don’t usually think of rising rates as being good for homeowners. That may be because we’re accustomed to thinking of financing (and refinancing) as the key to reviving sagging housing markets. And it’s true that financing availability remains tight, at least by historical standards, and isn’t going to get looser with rising rates.
2013-07-11 TIPS Get Hammered in the 2013 Second Quarter by Stephen Percoco of Lark Research, Inc.
The beginning of the return to normalized interest rates took a big toll on straight Treasury securities in the 2013 second quarter, but TIPS got hit even harder. For the quarter, the average TIPS security lost 6.6%, worse than the average loss of 3.0% on comparable maturity Treasurys and by far the worst losses seen in the TIPS market since the 2008 financial crisis.
2013-07-10 Rising Rate: Challenge and Opportunity by Gibson Smith, Lindsay Bernum of Janus Capital Group
While the prospect of rising interest rates generally strikes fear into the hearts of fixed income investors, it’s important to remember that periods of rising rates are normal and can create opportunities for active bond managers. Since 1970 there have been 21 periods in which interest rates rose significantly. While each has had its own unique characteristics, over the past 20 years equities have rallied during these periods, which has tended to support corporate credit markets.
2013-07-10 What is Happening to Gold? by John Hathaway of Tocqueville Asset Management
John Hathaway, manager of the Tocqueville Gold Fund (TGLDX), examines in his latest Tocqueville Gold Strategy Investor Letter the dramatic developments in the gold market over the last six months. The letter goes on to discuss the impact the Fed continues to have, and suggests that today’s valuations represent a “compelling entry point.”
2013-07-09 High Yield Munis: Risky Business by Ryan Davis, Jingwei Lei of Fortigent
We shine a spotlight on the obscure market of high yield municipals this week. In the current fixed income selloff, the market has been among the worst performing with a drawdown of 6.1%. Investors could not get enough of the sector in 2012 as they chased yield; the Barclays high yield muni index returned over 18%. Investor sentiment has turned sharply, however, on this asset class. Funds experienced significant outflows over the last couple of months, which is especially troubling for a small and retail dominated market. Why did this onetime darling asset turn into a pariah so abruptly?
2013-07-09 So the Bulls Returned... by Blaine Rollins of 361 Capital
So the Bulls returned to Equities on a holiday shortened week with plenty of news and data to outrun. The Egyptians threw out their President and the Portuguese gave a thumbs down to their government. But dovish comments out of Draghi/ECB, strong data out of Japan, and a 3rd strong month of Non-Farm Payroll growth pushed the Russell 2000 to all-time highs as the rest of the market jumped into its slipstream.
2013-07-09 Whitney George on 2Q13: Stocks Continue to Look More Appealing Than Fixed Income by Whitney George of The Royce Funds
In addition to detailing what sectors currently look attractive to him from a valuation standpoint, Co-CIO, Managing Director, and Portfolio Manager Whitney George discusses three stocks that exemplify his approach, the current case for active small-cap management, why stocks look more attractive than fixed income, and his opinions on the market’s decline in late June.
2013-07-08 Deflationary Boom? by John Hussman of Hussman Funds
Taken together, the financial markets have priced a wide range of assets on the assumption that the U.S. is on the verge of a deflationary boom. Most likely, part of this scenario is wrong.
2013-07-03 Getting Back to “Normal” by Douglas Cote of ING Investment Management
Though markets were whipsawed by the announcement, the Fed’s plan to step aside and allow normalization is a good thing. The primary risk to hedge is now economic growth and the strong equity returns it tends to produce not financial Armageddon. While risks in Europe and China persist, U.S. fundamentals look relatively strong. It’s not too late for investors to move away from defensive positioning and back toward a standard allocation.
2013-07-03 Long Train Running: Why Stocks Are Rebounding by Liz Ann Sonders of Charles Schwab
Why the June swoon occurred and why it might already be over. Fed’s move toward policy normalization may have a lot to do with pricking perceived asset bubbles; not a more hawkish economic stance. Sentiment has improved notably; but technical conditions may need a bit more repair.
2013-07-03 A Roadmap for Rates by Scott Minerd of Guggenheim Partners
Uncertainty over the Federal Reserve’s timeline for tapering quantitative easing has resulted in increased volatility in fixed income markets. While the coming months could see the 10-year Treasury yield climb as high as 3.5 percent, the resulting economic slowdown will keep rates subdued in the medium-term.
2013-07-03 “Taper Tantrum” Grips Muni Market by Rafael Costas of Franklin Templeton Investments
The markets have been in fits since mid-May, when Federal Ben Bernanke planted the seed that the central bank’s prolonged asset buying program would start winding down. Many investors were gripped with irrational panic, a so-called “taper tantrum” that roiled equity and fixed income markets. Rafael Costas, senior vice president and co-director of our municipal bond department, believes the early summer swoon sweeping the muni markets is unfounded and should be temporary, but the core reason for investing in the sector remains solid: long-term tax-free income potential.
2013-07-02 Gundlach’s One-Word Explanation for June’s Decline by Robert Huebscher (Article)
According to Doubleline’s Jeffrey Gundlach, a single word explains the declines global capital markets experienced in June.
2013-07-02 Recent Volatility – Noise, not Signal by Keith C. Goddard, CFA (Article)
This spasm of volatility is a normal side effect when market participants adjust their positions to a new expectation for the future of monetary policy. Even though the policy adjustment being discussed at the Fed is minor – i.e., a gradual tapering of quantitative easing (QE) – the timing of the change was sooner than many investors expected, so trading volume jumped.
2013-07-02 Let\'s Barbecue It... by Blaine Rollins of 361 Capital
Equity investors finished June with the first down month in 8 for the S&P500. Bond investors took a Tommy Boy two by four across the face. And yes, it did leave a mark. Two months ago the "Great Rotation" from bonds to equities was nowhere to be seen. Today the panic out of fixed income funds is happening at the highest levels seen since 2008. As we noted last week, inflection points in major rotations are volatile, scary, and unpleasant. This helps to explain the seven 100 basis point moves in the S&P500 in the month of June, which marks the most volatility in 12 months.
2013-07-02 Stay the Course as Mixed Signals Move Markets by Frank Holmes of U.S. Global Investors
Traders stampeded out of gold, emerging markets and bonds this month, setting record monthly outflows in June. Ever since the Federal Reserve hinted in May that signs of a stronger economy could allow for a slowdown of stimulus, markets have protested the news.
2013-07-02 Preparing for the Second Half of 2013 by Russ Koesterich of iShares Blog
It’s halftime halfway through the year. That means Russ is looking back at what he got right and wrong in the first half of the year, and updating his expectations for the remainder of 2013.
2013-07-01 Consider Convertibles in a Rising Rate Environment by Walter Stabell III of Invesco Blog
The recent mass exodus out of bonds in which investors pulled more than $18 billion from funds that invest in bonds over a two-week period ending June 12 may have left you searching for the best opportunities in the bond market.
2013-06-28 Labor Force Myth Sends the Wrong Signal on U.S. Growth Prospects by Brandon Odenath of J.P. Morgan Funds
We’ve seen the pundits on TV and read their op edsthe drop in the labor force participation rate is proof that unemployment is falling because many of the unemployed have simply given up the search for work. The inference of course, suggests that the economy is in much worse shape than falling unemployment rates would indicate.
2013-06-28 Riding Out Recent Volatility by Michael Hasenstab of Franklin Templeton
Major central bank policy turns are naturally going to cause some market dislocations. Hasenstab says it’s pretty clear the Fed couldn’t continue printing money forever, and while some investors are panicking about what the end of the Fed’s easy money policy will mean, Fed tapering doesn’t equate to Fed tightening.
2013-06-27 How Bonds Will Suffer Before the Fed Raises Rates by Mike Temple of Pioneer Investments
The Federal Reserve’s years-long zero-interest rate policy has flattened Treasury yields to where rising interest rates and inflation are almost assured manifestations. Investors may have to face the threat of rising bond yields. Damage to high quality, long-duration debt instruments would likely happen far in advance of a rise in interest rates with periods of significant volatility. What are the risks to portfolios? The first in a series of three papers that examines this questions is now available.
2013-06-27 Policy-Induced Volatility Continues by Scott Minerd of Guggenheim Partners
The recent bond market collapse is reminiscent of the Great Crash of 1994. Further pressure on the economy due to rising interest rates could cause the Fed to revisit its timetable for QE.
2013-06-27 Currency Wars: A Case for the U.S. Dollar by Gibson Smith, Chris Diaz of Janus Capital Group
In recent years, the U.S. dollar has tended to lose value when the global economy improves, as investors are more willing to take risks. We believe that pattern has changed and that the U.S. dollar will outperform the Japanese yen, the euro and the British pound over the medium term, even if the global economy continues to improve. In our view, current conditions justify a material deviation in currency exposure compared with certain global fixed income benchmarks, such as the Barclays Global Aggregate Bond Index.
2013-06-27 Welcome Back, Mr. Bond by Jeffrey Saut of Raymond James
“We’ve been expecting you Mr. Bond.” The phrase is itself a variant and joins the phrase “Play it again Sam” as a phrase attributed to a film or TV series. I have used said quip over the past few years, having been wrong-footedly expecting a backup in interest rates. While I did finally target the yield low of last July, the ensuing rate rise has been far slower than I would have thought, that is until the past few weeks.
2013-06-27 AdvisorShares Weekly Market Review by Team of AdvisorShares
Once again, US stock indexes declined last week based on investors’ fears of rising interest rates. While markets were rising at the beginning of the week, on Wednesday, Federal Open Market Committee Chairman Ben Bernanke said that if the economy continued on its current growth path, the Fed would scale back on asset purchases by the end of the year and attempt to end the extraordinary measures by the middle of 2014.
2013-06-26 When I Suggested it May Be Time To Go Fishing... by Blaine Rollins of 361 Capital
When I suggested that it may be time to go fishing, I didn’t think that everyone would sell their bonds, notes, and bills to buy a new boat...
2013-06-26 Trampled By the Crowd? Logic Briefly Abandoned Creates Opportunity by Scott Colyer of Advisors Asset Management
The past two week slide in asset prices has caused a resurgence of doomsday pundits warning of impending calamity. The negative interpretation of Fed Chairman Bernanke’s comments regarding the U.S.economy’s future upgraded prospects is simply not logical. A careful review of what Bernanke said at his press conference was entirely consistent with what the Fed has said and done in the past.
2013-06-25 Letters to the Editor by Various (Article)
Adam Apt responds in the latest exchange of letters on the topic of socially responsible investing. A reader responds to Geoff Considine’s article, A Better Alternative to Cap-Weighted Bond Indices, which appeared June 11. A reader responds to Wade Pfau’s article, Retirement Income Designations – Which Should You Choose?, which appeared last week.
2013-06-25 Is Fixed Income the New Equity? by Chris Maxey, Ryan Davis of Fortigent
After several decades of positive returns, fixed income investors are being treated to a rude awakening in the last six weeks. Recent comments from Federal Reserve officials suggest a sooner than anticipated exit from quantitative easing, raising the prospect of higher interest rates. Throughout the universe of fixed income assets, investors are questioning the future return potential, leading many to wonder, what now?
2013-06-25 Stay the Course by Douglas Hodge of PIMCO
It is that time of the year again. As school schedules give way to summer vacations, many families will be packing up the SUV to head to one of this nation’s amazing national parks. Years ago, my young family traveled to Yellowstone National Park, home of Yogi Bear and Old Faithful. The requisite float trip down the Snake River was arranged and a good time was had by all a bit of spray but nothing too jarring. Only days later, I returned to the Snake River and had the ride of a lifetime.
2013-06-24 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
What is the Fed actually saying? The economy is recovering; the labor market is improving; short-term interest rates should remain low until at least 2015; the bond buying program will continue in its current form; any “winding down” (tapering) of purchases will be contingent on steady growth; the policymakers would be prepared to ramp up buying if conditions warrant. What have many investors been hearing/thinking?
2013-06-24 Quick Takes by Charles Lieberman (Article)
One of the issues being hyped these days is over the uncertainty surrounding Fed policy, which quite candidly, I don’t get. Short of laying out precise dates and amounts, the Fed has provided exceptionally detailed guidance that it will ease off the accelerator over the coming months, as long as the unemployment continues trending down. Downside risks have receded, the economy is improving, and extraordinary measures for policy are no longer needed. On the economy’s current trajectory, the Fed suggests it will no longer be engaged in QE by next summer.
2013-06-24 \"Fixed\" Income Investing Is Broken by Robert Isbitts of Sungarden Investment Research
Herb Brooks, who coached the 1980 “Miracle on Ice” U.S. Olympic Hockey Team to its unlikely win over the Soviet Union, included that quote as part of what I consider to be the best motivational speech in sports history. He was talking about his team and their Russian opponents. He might as well have been talking about bond investors on June 20, 2013.
2013-06-24 Despite Interest Rate Concerns, Muni Volatility May Offer an Entry Point by Jack Tierney of Invesco Blog
As we approach the midway point of 2013, the capital markets have many concerns: the potential end of quantitative easing (QE3), the slow rate of economic growth, the stubbornly high unemployment rate and the sorry state of affairs in both federal and state government finances. I won’t speculate on the eventual outcome of these issues, especially where politics is concerned. But I do think it’s valuable to look past the market’s fear and search for areas where smart investors can take clear-eyed action and benefit in uncertain conditions.
2013-06-24 A Timetable for Ending QE by David Kelly of J.P. Morgan Funds
In a press conference following this week’s FOMC meeting, Fed Chairman Ben Bernanke provided markets with a clearer understanding on how the Fed expects to phase out its current quantitative easing (QE) program. This timetable is justified both by economic progress and by the significant future costs which a too-large Fed balance sheet is likely to entail. Moreover, the timetable, while never previously explicitly outlined, should not have been a surprise to most market observers. Nevertheless, Mr. Bernanke’s words have been met by a sharp selloff across a wide range of financial a
2013-06-21 Fed Tapering Won't Cause a Bond Market Armageddon by Russ Koesterich of iShares Blog
Even if the Fed scales back its pace of bond purchases later this year, Russ explains why investors shouldn’t expect rates to finish the year much higher than where they are today.
2013-06-21 The Fear Factor in US Equities by Grant Bowers of Franklin Templeton Investments
Fear is a powerful motivator. Whether it’s a saber-toothed tiger or investment risks, it’s hard to stay calm when confronted with a perceived threat. Fear of a 2008 2009 downturn repeat, even in spite of strong performance in the US equity market in the first half of the year, has kept many investors sidelined. Grant Bowers believes fear itself could be the biggest issue holding back many investors right now, noting that in his view, short-term volatility aside, the recent US market rally is based on supportive fundamentals which he thinks should have staying power.
2013-06-20 Active ETF Market Share Update by Team of AdvisorShares
Total AUM in all active ETFs fell from $14.552 billion to $14.416 billion over the course of the week. Just like the previous week, ETFs with longer term fixed income investments are facing redemptions, while “Short-Term Bond” ETFs are rapidly expanding their asset base. AUM for active ETFs in the “Global Bond” category fell below the $5 billion dollar level.
2013-06-18 High Yield Market Overview May 2013 by Team of Nomura Asset Management
The high yield market, as measured by the Bank of America Merrill Lynch High Yield Master II Constrained Index (the “Index”), was down 0.53% for the month of May, as fears of eventual Fed tapering dominated investor sentiment and put upward pressure on Treasury yields. The end result was the most substantial setback in a year for the high yield market. Despite the fears of rising rates, mildly improving economic conditions, healthy corporate earnings/balance sheets, and reduced tail risks and stagnant global growth/low inflation continue to benefit the high yield market.
2013-06-18 Unconstrained Bond Funds Fail to Deliver by Chris Maxey, Ryan Davis of Fortigent
There have been an incessant number of articles in the past year addressing a “Great Rotation” by investors the seismic shift in asset allocation predicted to result from a transition to a rising rate environment. Individual investors “spoiled” by a 30-year secular decline in interest rates, it is thought, will run to new alternatives in the face of this structural headwind for a significant chunk of their portfolios.
2013-06-17 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
With the markets trading at “all time highs” and investors scurrying to find alpha, much is being made about the demise of the bond market. Analysts and economists are in accord that the age of bond appreciation is over. The cause? Global austerity and national treasuries forcing (holding) interest rates down to their lowest levels in generations.
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.
2013-06-14 The Sustainability of Managed Futures Returns by Robert Keck of 6800 Capital
Many investors have begun to question the efficacy of an investment in managed futures given the most recent two years of negative performance for the industry as a whole at a time when U.S. equity prices have been achieving multi‐year highs. The concern is not so much the magnitude of the losses incurred by the managed futures industry during this period; in many cases they are relatively small in comparison to the size of the drawdowns experienced by many other asset classes such as equities, real estate, fixed income, etc., during peak periods of market stress.
2013-06-14 Which Way for Bonds? Mapping a Path Forward by Bill Gross of PIMCO
In 1980, the Federal Reserve, led by Paul Volcker, tightened the quantitative noose to tame double-digit inflation, fueling an unprecedented tailwind for bond prices. Thirty years later we find ourselves at the other extreme, as central banks print money in the trillions of dollars to stimulate economic growth, and inflation is abnormally low. While we are not likely to see a repeat of that type of bull market any time soon, we also do not believe we are at the beginning of a bear market for bonds.
2013-06-14 A Taste of Rising Rates by Team of Neuberger Berman
The mantra "sell in May and go away" has taken on a new twist this year. Equity markets saw mixed returns last month but bonds took a beating, with losses materializing in nearly every fixed income segment. The reason? Interest rates rose significantlyand rather unexpectedlyover the course of the month. What implications would rising rates have for the market? We consider what’s ahead.
2013-06-13 Thinking About Thinking? by Jeffrey Saut of Raymond James
I think a lot about thinking in an attempt to improve my ability to make good decisions. I also work hard to avoid linear thinking, which tends to extend present conditions “linearly” into the future. Such thinking caused investors to ignore the Dow Theory “sell signal” of September 1999 with portfolio consequences that are now legend. That same thinking occurred in November of 2007, concurrent with another Dow Theory “sell signal,” with similar portfolio consternations. Ladies and gentlemen, economic changes, and for that matter stock market changes, tend t
2013-06-12 Silver Lining: Fed's “Tapering” Signals Stronger Economy by Eric Takaha of Franklin Templeton Investments
The Federal Reserve’s warning that it planned to scale back purchases of Treasuries sparked a storm on Wall Street, bringing instability to what had been a pleasant May in the US markets. Almost lost in the noise, however, is a silver lining: the Fed thinks the economy may be healthy enough to fly on its own.
2013-06-12 5 Reasons Not to Flee Non-US Dividend Stocks by Russ Koesterich of iShares Blog
“As bond yields rise, is it time to flee dividend stocks?” Russ explains why the answer is, no, at least when it comes to international dividend payers.
2013-06-11 A Better Alternative to Cap-Weighted Bond Indices by Geoff Considine (Article)
Capitalization weighting is the prevailing choice for equity index investors, who can choose from low-cost index funds constructed with theoretically proven methodologies. But capitalization weighting in fixed-income markets enjoys no such theoretical foundation, leaving investors without a clear choice for a diversified core fixed-income holding. A portfolio of bond exchange-traded funds that optimizes the tradeoff between yield and risk gives investors a commendable way to own a broadly diversified core allocation.
2013-06-11 Risk Parity - New Thinking or New Packaging? by Chris Maxey, Ryan Davis of Fortigent
Ever since Harry Markowitz brought forth the notion of mean-variance optimization in 1952, academics and practitioners alike have sought ways to build more robust asset allocation methodologies. Recently, the most talked about approach in the institutional world is risk parity, which seeks to focus on risk as its primary input. Risk parity is intuitively appealing, but suffers many pitfalls that investors need to consider.
2013-06-11 Crushing the Middle Class by John Browne of Euro Pacific Capital
Like a carefully memorized religious incantation, politicians and central bankers continually stress how their stimulus policies are designed to promote the interests and prosperity of the middle class. Cynical observers may note that this brave political stance may have something to do with gaining the support of the vast majority of voters who identify themselves as "middle class." However, the cumulative effect of their economic programs has achieved the opposite.
2013-06-10 2009 vs. 2013 by John Hussman of Hussman Funds
One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about this is that the last two 50% market declines both the 2001-2002 plunge and the 2008-2009 plunge occurred in environments of aggressive, persistent Federal Reserve easing.
2013-06-10 DC Solutions: Adding Global Bonds to Target-Date Funds by Alison Martier, Seth Masters of AllianceBernstein
Within US defined contribution (DC) target-date funds (TDFs), whether we’re considering customized TDFs for larger plans or packaged solutions for smaller plans, our research shows that having a bond allocation that is not US-centric can lead to better outcomes and enhance the effectiveness of the glide path.
2013-06-07 Liquidity Markets Likely to Evolve Under Proposed Money Market Reforms by Jerome Schneider of PIMCO
We view the SEC’s proposed regulations on money market funds as a pivot point for cash and liquidity management. If the first proposal is adopted, prime institutional money market funds would convert to a floating net asset value share price. That conversion would likely cause some volatility in pricing. As we do not expect yields to increase in the near-to-medium term, in our view the risk-reward tradeoff would not be as attractive for investors.
2013-06-06 But We Want Goldilocks-Like Growth by Blaine Rollins of 361 Capital
While the equity markets would enjoy a bit of the great rotation out of the 20+ year outperformance in bonds and into equities, the move in May has been too much, too quick for even equity investors to stomach. So while the Long Treasury ETF (TLT) fell -6.8% in May, the size of the move even scared investors in REITs (IYR), Junk Bonds (JNK/HYG), and Utilities (XLU).
2013-06-06 More Than a Feeling by Team of AdvisorShares
Tangible signs of fundamental weakness are appearing everywhere, yet financial market participants are simply choosing to ignore these signs. There remains a significant disconnect between the real economy and financial markets. Read this paper by Peritus Asset Management to learn how to navigate the weak fundamental picture in what they believe to be the beginning of a 15-20 year positive technical backdrop, which will put yield generating assets, such as high yield bonds, in the sweet spot.
2013-06-06 Omissions of the Omen: \"Hindenburg Omen\" and the Selloff Last Week by Liz Ann Sonders of Charles Schwab
Rising US Treasury bond yields and Fed "taper talk" not to mention a "Hindenburg Omen" sighting hit stocks last week. A look inside the Omen should calm fears of impending doom. The market is likely not out of the woods, but we don’t expect an overly sinister correction.
2013-06-05 Harleys and Leather Jackets by Jeffrey Bronchick of Cove Street Capital
We are just about done with Proxy Season and with summer in full swing, there is nothing more that we would like to do than kick back and indulge in the 75 pages of shame, greed, ignorance, and political correctness-with only the occasional bright light of shareholder friendly corporate governance-that make up SEC Form 14A, aka the Proxy Statement. I would postulate that this document remains an underrated and under-read part of the investment puzzle as it is the factual record of management’s incentives.
2013-06-04 The Role of Cash in Multi-Asset Portfolios by Ashish Tiwari, Andrew Spottiswoode of PIMCO
Determining the optimal allocation to cash is as challenging as ever in today’s unusually uncertain markets. When allocating to cash, investors should consider a multi-dimensional framework to assess the liquidity of the underlying cash instruments. In our view, the most attractive risk-adjusted opportunities for cash investors lie just outside the traditional money market space.
2013-06-04 Equities Hit Pause by Bob Doll of Nuveen Asset Management
Stocks and other risk assets struggled last week, with the S&P 500 declining 1.11%.1 Equities finished lower on Friday, the final trading session of May. The decline trimmed May’s gains and sealed the second consecutive weekly decline for U.S. equities. The S&P increased 2.34% for the month and has gained 4.31% this quarter and 15.37% for the year.1
2013-06-03 Is Volatility Dead? Hardly. by Paresh Upadhyaya, Michael Temple of Pioneer Investments
Certain pundits suggest we have entered a new volatility regime that volatility has been tamed by the massive amount of liquidity injected into worldwide capital markets by very accommodative central banks. We take a different view. While volatility has been declining across many asset classes, it is creeping into several that may have escaped some investors’ attention.
2013-06-03 Does Sector Shift Spell A Continued Rally? by Chris Maxey, Ryan Davis of Fortigent
Unlike most robust equity rallies, however, 2013 performance was initially led by traditionally defensive sectors, such as health care, utilities, and consumer staples. Through the first quarter, those three sectors posted an average return of 14.5%, while traditional cyclicals averaged just 9%. While some speculated this trend was due to investors’ reach for yield amid a frothy fixed income environment, the magnitude of this sector leadership (in an up move) was certainly unusual.
2013-05-31 The Fixation on the Fed: 3 Investing Implications by Russ Koesterich of iShares Blog
Hypersensitive investors are reacting to every utterance from central banks like the Federal Reserve and the Bank of Japan. Russ shares three investing implications of this fixation.
2013-05-31 The Great Reflation by Peter Schiff of Euro Pacific Capital
This week economists, investors and politicians were treated to some of the "best" home price data since the frothy days of 2006 when home loans were given out like cotton candy and condo flipping was a national pastime. The Case-Shiller 20 City Composite Home price index was up a startling 10.9% for the 12 month period ending in March. Prices in all 20 cities were up, with some (Las Vegas, Phoenix, and San Francisco) notching gains of more than 20%. Meanwhile the National Association of Realtors announced that April pending home sales volume reached the highest level in nearly three years.
2013-05-31 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
Is central bank communication clarifying or confusing? The European Central Bank should focus its efforts on small business lending. A look beneath the surface of housing proves revealing.
2013-05-29 Is This the End of the World As We Know It? by Massimo Tosato of Schroders Investment Management
After five turbulent years of decline and unrelenting economic doom there are signs that change could be afoot.
2013-05-29 April 2013 Market Commentary by Andrew Clinton of Clinton Investment Management
Interest rates rose modestly during the first quarter as ten year Treasury yields increased by approximately 0.10% or 10 basis points. Seasonal tax-time municipal bond liquidations, together with a heavier primary calendar, weighed heavily on the market causing municipal bond yields to underperform on a relative basis. In our recent market opinion we thoroughly discussed our view that the relative cheapening of municipal bonds presented investors with and attractive entry point as we expect technical conditions to improve as we move into the summer months.
2013-05-29 Weekly Market Commentary by Team of Tuttle Tactical Management
Last week we talked about the market being overbought in the short term, so the three day selloff (Wednesday-Friday) was to be expected. The media will blame the Fed but they didn’t tell us anything we didn’t already know. Bottom line, when the market gets extremely overbought traders will use anything and everything as an excuse to take profits. Interestingly, last week was the first streak of three down days this year. The S&P 500 seemed to find some support at 1640.
2013-05-28 Taking Stock by Bob Doll of Nuveen Asset Management
U.S. and global equities were under pressure last week, with all major U.S. indices lower for only the fourth time this year. With discussion of the Fed tapering its stimulus, market uncertainty gained momentum. The S&P 500 was down 1.0% for the week.1 We consider the market pullback technical in nature since the mention of a Fed quantitative easing exit likely created a natural point to take profits after the recent rally.
2013-05-24 Remarkable Resilience by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
We saw how the prospect of a sooner pullback in purchases in bonds by the Fed rattled the market both in the US and globally, but the picture, to us, has not changed to any great degree. A very gradual pullback, not even going to zero, in quantitative easing due to an improved economic situation doesn’t spell disaster to us. We continue to urge investors to pay attention to both sides of the risk equation when making decisions and to keep the longer-term perspective in mind. Short-term swings are inevitable, but should not be the basis for sound decision making.
2013-05-22 The Right Question by Team of Tuttle Tactical Management
As the market continues to make new highs the arguments about whether stocks can go higher or the rally will end become more interesting. As usual in any debate about the market, both sides can make a great case. There are a number of factors that I could point to that suggest stocks have room to run but there are also a number of troubling signs on the horizon that could stop the rally in its tracks. Investors almost always get drawn into this debate and most of the people I talk to are pessimistic that this rally can continue.
2013-05-22 A Whiff of Confidence by David Kelly of J.P. Morgan Funds
The single biggest on-going survey of consumer confidence in the United States is conducted by Rasmussen, who survey 500 consumers every night on their views of the U.S. economy and their personal finances. Since October 2007, there has not been a single month in which the index produced by this survey has exceeded 100. However, since the start of May it has averaged well above this level.
2013-05-22 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
Four times a charm. Despite lackluster earnings and economic data that raises some concerns, investors continue to play the game of “how high can we go” and stocks climbed for the fourth straight week With 15k (Dow) and 1600 (S&P) well in the rearview mirror, investors seem to have their targets set on bigger and better things. Some bullish comments by a hedge manager; a solid consumer sentiment reading; a reason for the Fed to hold off on tapering its bond buying stimulusand it’s off to the races for equities (again).
2013-05-22 Where is inflation headed? What will it mean for investors? by Russ Koesterich of BlackRock Investment Management
Slow economic growth and long-term headwinds should keep inflation contained. Low inflation should help support equity markets and high yield bonds, but may be a negative for gold prices. The inflation environment should also help prevent interest rates from rising too fast.
2013-05-21 Do Annuities Reduce Bequest Values? by Joe Tomlinson (Article)
The widely held view that annuities reduce bequest values is too narrow. Adjustments can be made in retirement portfolios to reduce retirement risk without sacrificing the value of one’s bequest. Here’s how retirees can purchase annuities, adjust allocations in remaining assets and achieve improved retirement outcomes.
2013-05-21 Federal Spending, the Deficit and Debt Ceiling by Gregg Bienstock of Lumesis
As our regular readers know, we have a level of concern with regard to the budget deficit, the debt ceiling and all things related thereto. And, while many of us have concerns regarding maintenance of the tax-exemption for muni debt and the tax-deductibility of muni fixed income interest, this week we are approaching the world from a slightly different angle. The focus: how reliant are States and counties on the Federal Government and who is most reliant.
2013-05-21 (Yawn)...As Equities Advance Another 2% by Bob Doll of Nuveen Asset Management
U.S. equities advanced again last week, with the S&P 500 increasing 2.1%. Global stocks are reaching new highs in this cycle and the U.S. market is at an all-time high. Bonds were hurt in the move, dragging credit down, while commodities fell slightly on weaker manufacturing data. The unrelenting equity rally and an environment without positive news about earnings and the economy is making many investors uncomfortable.
2013-05-21 DC Plan Sponsors Should Look Further than Their Own Backyard by Alison Martier, Seth Masters of AllianceBernstein
US defined contribution (DC) plan sponsors large and small are seeking ways to help plan participants achieve better outcomes. Over the last 30 years, compelling evidence has accumulated that suggests currency-hedged global bonds may be an important part of the solution.
2013-05-20 Still Bullish by Brian Wesbury, Bob Stein of First Trust Advisors
Like Rip Van Winkle, imagine you went to sleep on October 9, 2007 and didn’t wake up until yesterday. On 10/9/2007, equities were at record highs: 14,165 for the Dow Jones Industrial Average and 1,565 for the S&P 500.
2013-05-17 4 Reasons to Still Hold High Yield by Russ Koesterich of iShares Blog
With high yield spreads historically tight and prices at all-time highs, some market watchers are wondering whether it’s time to jump off the high-yield bandwagon. Russ weighs in and explains why this asset class is still worth holding.
2013-05-16 Everybody Wants Some: Central Banks and Bond Funds Step up Buying of Stocks by Liz Ann Sonders of Charles Schwab
The stock market has broken out of its "triple top" formation, which started in 2000, yet remains reasonably valued. Supply within the stock market has been dwindling thanks to near-record company buybacks. Demand for stocks is coming from some seemingly unlikely sources: global central banks and bond mutual funds.
2013-05-15 Dissecting the Rally: What Sectors Look Attractive? by Russ Koesterich of BlackRock Investment Management
The current rally has been fueled by investors looking for relatively "safe" areas of the market. As such, the classic defensive sectors, such as utilities, consumer staples and healthcare, have been outperforming. This trend may be changing, indicating that sectors such as energy and technology are growing more attractive.
2013-05-15 Speaking of a Great Week... by Blaine Rollins of 361 Capital
I left the office each day thinking that I just saw another walk off game winning home run by the S&P500. The bears were given their chance in April with the weak economic data and slightly less than exciting earnings, but they just couldn’t break it. In return, the employment data was a bit better, the global central banks came out swinging (ECB, Australia, and South Korea), then the markets broke the Yen, Bonds, and Gold, and the Bulls absolutely skinned the Bears.
2013-05-15 The Great Capitulation by Pamela Rosenau of HighTower Advisors
If you were to browse the virtual bookshelves of Amazon, some of the latest titles do not seem overly optimistic about the future. In Niall Ferguson’s The Great Degeneration, he examines why civil society is in complete “free fall”. Another recent “pick me up” entitled The Great Deformation, by former Reagan budget director David Stockman, discusses the negative impacts of Washington’s political dysfunction to our democracy.
2013-05-14 Guide to Working with Monetary Napalm by Scott Colyer of Advisors Asset Management
Napalm is a highly incendiary form of jellied fuel. It was used extensively in the Vietnam War to quickly ignite massive fires over large areas of land. In the world of financial incendiaries, the Fed’s overwhelming monetary stimulus has ignited asset prices in the United States with the force and effectiveness of napalm. Is the fire short lived? Are the gains in asset prices temporary or can they be believed? Are the housing and stock markets on fire just because of the Fed’s quantitative easing (QE) or could there be a much more fundamental reason?
2013-05-14 Cyclical and Emerging Market Strength May Be Pointing to Better Growth by Bob Doll of Nuveen Asset Management
Last week U.S. equities advanced as the S&P 500 increased by 1.3%. We have been amazed bythe market’s ability to continue to rally in an environment in which sales growth has been anemic and earnings gains have been largely based on companies’ abilities to manage margins and utilize financial engineering.
2013-05-14 Changing Face of High Yield by Christian Thwaites of Sentinel Investments
High yield has been on a tear. A series of fortunate events have made this one of the best asset classes in recent years. It has outperformed the S&P nine out of the last thirteen years. In those that it lagged, underperformance averaged 1.9%. Outperformance averaged 9.7%. From 1985 to 2012, high yield had five down years averaging (-8.8%). The S&P had five down years averaging (-16.6%). Over the entire period, high yield underperformed the S&P by around 180bp but with about half the risk and a 0.58 correlation.
2013-05-10 A Tale of Two Markets: Equity Bulls and Bond Bears by Douglas Cote of ING Investment Management
Surging equity markets absent an accompanying rate rally is a red flag, as Treasury yields remain well below “normal”. While investors’ renewed enthusiasm for equities is warranted, they must be careful to avoid the “folly of gaming diversification”. Corporate earnings have impressed, though revenue has struggled due in part to a moribund Europe. Divergent markets mean investors should stay broadly diversified in equities and real bonds not near-cash and ever alert to the fundamentals.
2013-05-10 Weekly Research Briefing by Blaine Rollins of 361 Capital
This week’s focus was squarely on central bank policy decisions and the U.S. April payrolls data. Mid-week the FOMC reinforced the "Bernanke put" by stating explicitly that quantitative easing can be increased if conditions worsen.
2013-05-08 Deflation Is OverPlease Come Out by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
A blooper reel of 20th century history would likely include a feature on Japanese soldier Hiro Onoda. Posted to a small island in the Philippines during the waning days of World War II, when Onoda’s mission proved unsuccessful he was ultimately forced to flee into the woods, where he survived on a steady diet of coconuts and bananasfor almost 30 years after the end of the war.
2013-05-08 Are Investors Breathing a Sigh of Relief? by Bob Doll of Nuveen Asset Management
Last week U.S. equities delivered another gain as the S&P 500 increased by 2.0%.1 On Friday, the U.S. jobs report offered relief from fears of an accelerating weakness caused by prior softness during this time in each of the last three years. However, the full set of economic data for the week supports our view of a slower second quarter in a post-sequestration environment.
2013-05-08 US Economy Should be \"Good Enough\" for Stocks by Russ Koesterich of BlackRock Investment Management
The April employment report confirms that the US is on a slow-but-positive course of economic growth. This environment should be conducive to further gains in equity prices. Europe, in contrast, continues to struggle and investors should approach that region with caution.
2013-05-07 Why Did Gold Prices Fall So Sharply? by Paresh Upadhyaya of Pioneer Investments
April’s sharp decline in gold got people’s attention. Plunging from $1,561 to $1,347/oz on April 12 and 15, it was a staggering decline of 13.7% the biggest 2-day drop since 1983. Is anything significant going on behind the scenes? We believe this price action is not a new phenomenon for gold, but a continuation of a much bigger trend that has been in place since the third quarter of 2011.
2013-05-07 Navigating Opportunities in Senior Loan and High Yield Corporate Bond ETFs by Ryan Issakainen of First Trust Advisors
In this newsletter, we will consider how senior loan and high yield corporate bond ETFs may be utilized by investors to pursue a higher level of income while seeking to mitigate the impact of rising interest rates. We’ll discuss why we believe benchmark indices are flawed investment strategies for gaining exposure to these asset classes, and we’ll highlight how First Trust utilizes active management to seek better risk-adjusted returns than passive senior loan and high yield corporate bond index ETFs.
2013-05-06 Beyond the Headlines: Job Growth, Exports and Housing by Gregg Bienstock of Lumesis
Congress has done something for the American public. FAA, sequester, flight delays we can fix that! While I would usually take a cynical swipe at Congress (something like, “did they act because they, too, were impacted by their own stubbornness”), I’ll let well enough alone and simply pass on a heartfelt thanks. Perhaps this is the start of something. I hear they are working closely on immigration reform and an exemption for Congress and their staff from the Affordable Care Act (aka Obamacare). Ok, so two of three initiatives garnering bi-partisan support are purely self-ser
2013-05-04 Don't Sell in May: Here are Reasons to Extend Your Stay by Frank Holmes of U.S. Global Investors
During the first week of May every year, the maxim, “Sell in May and Go Away,” gets taken out, dusted off and powered up as a reason to sell stocks. The rhyme is more than just a catchy urban legend: June, July, August and September have historically been the weakest months of the year for the S&P 500 Index.
2013-05-02 In Treasuries, the Risks Outweigh the Rewards by Russ Koesterich of BlackRock Investment Management
The 1Q GDP report was mixed, but the lack of income growth remains troubling. Oil prices are likely to remain range-bound, but that should be good enough to help energy stocks. While yields could decline further in the near-term, Treasuries look quite unappealing.
2013-05-01 While the Bears Fight... by Blaine Rollins of 361 Capital
While corporate earnings outlooks and released economic data remained soft, the world moved to declare Austerity a failure and quickly assumed that the ECB could ease further at this week’s meetings. The recent collapse in commodity prices and slowdown in China does put a high card in their hand. With these new thoughts, European equities and bonds both surged on the week...
2013-05-01 Weekly Market Review Notes by Team of Tuttle Tactical Management
he mixed economic numbers we have been seeing lately----higher than expected consumer confidence and home prices vs. lower than expected Chicago PMI---might be confusing to some. One number shows the economy improving while another shows the economy contracting. However, for investors this is actually good news as the data continues to confirm that we are in a Goldilocks economy, not too hot, not too cold.
2013-04-29 High Yield in a Rising Rate Environment by Team of AdvisorShares
We have all witnessed a major move in Treasury rates over the last couple months, causing concern for many that we may be in the early stages of a rising interest rate environment. The traditional thought is that as interest rates rise, bond prices fall. But looking at history, the high yield market has defied this widely held notion. This paper from Peritus Asset Management examines the main reasons why high yield bonds have historically performed well during times of rising interest rates.
2013-04-29 Economic Slowdown Has Not Weakened Share Prices by Bob Doll of Nuveen Asset Management
U.S. equities rebounded last week as the S&P 500 increased by nearly 1.8%,1 despite continued weak economic data. We believe recent data is not yet weak enough to change forecasts. The relative stability of data and forecasts - supported by stimulative monetary policies, an improving U.S. housing market and fading political polarization in the U.S. and Europe - sends a message of reasonably low volatility and manageable downside risks.
2013-04-26 The Sustainability of U.S. Interest Rates Rising by Paresh Upadhyaya of Pioneer Investments
Investors are growing concerned, with good reason, we think, that yields have bottomed for the 10-year Treasury and will surge as the economy gains strength. Prices, which move inversely to yields, would fall, and the question is whether rising rates in 2013 could trigger a bond bear market along the lines of the Great Bond Bear Market of 1994. We don’t think so.
2013-04-26 Why The Fed's Balance Sheet Matters Neosho Capital Takes On Alan Blinder by Chris Richey of Neosho Capital
We anticipate the Fed will begin slowing, but not eliminating, its QE purchases later this year, barring another severe downturn in the intervening period. As such, we expect macro-economic factors such as currency, interest rates, growth, and inflation to continue to be a significant influence on stock market returns and that the long-term benefits of active portfolio management and individual company performance will continue to be masked by these macro influences.
2013-04-25 Like Air Out of An Untied Balloon... by Blaine Rollins of 361 Capital
Earnings hit the market like a ton of bricks this week. It wasn’t that the reported numbers were a disaster, but that the new data points did not change the trajectory of the current buying and selling patterns. Investors rewarded the defensive earners (bought more Coca-Cola, Johnson & Johnson, and Microsoft) and sold their shares in more cyclical stocks (Industrials, Semis, and Oil Services). Financial stocks survived the week, but few owners went home Friday feeling better about their bank names than at the start of the week.
2013-04-25 Value Investing and the Philosopher's Stone by Kevin Simms, Joseph Paul of AllianceBernstein
When J.K. Rowling finished her first manuscript of Harry Potter and the Philosopher’s Stone in 1995, she submitted it to 12 publishers, who all rejected the book. In time, those publishers would regret missing the chance to back an unknown author who would later take the world by storm. Like the publishers who passed over Harry Potter, we believe that many investors today risk missing a historic opportunity to invest against the grain in attractively valued stocks across the globe.
2013-04-25 Q1 2013 Market Commentary by John Prichard of Knightsbridge Asset Management
The country now in the news is tiny Cyprus, which received a bailout for its banks from the European Union (EU), but only after agreeing to steep losses for those banks’ large depositors. Hitting up bank deposits represents a new dimension to the European debt crisis and illustrates how in a crisis, leaders can and often will resort to whatever means are necessary. When the Cypriots first requested a bailout from the EU and were told their depositors had to suffer, they balked and said that was unacceptable...
2013-04-24 The 2030 Non-state World by Bill O'Grady of Confluence Investment Management
Several weeks ago we started looking at the alternative world scenarios as projected by the National Intelligence Council (NIC). The NIC issues a long-term strategic outlook every five years and projects a forecast from this analysis for the following 15-20 years. In the most recent report, Global Trends 2030, the NIC proposes four alternative world scenarios. We are now turning to the last projected outlook, the Non-state World. Under this scenario non-state actors aided by emerging technologies will have increasing influence, as the importance of traditional nation-states decays.
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.
2013-04-24 Weekly Market Review Notes by Team of Tuttle Tactical Management
Bulls and Bears continue to fight it out around the S&P 500 record high. There is a lot to worry about at this point----earnings and economic numbers have been somewhat disappointing, terrorism fears are back (Boston Marathon, Canada, fake Twitter posts, etc), and we continue to see a divergence between riskier areas of the market and less risky areas. On the plus side there is still nowhere else to go except for stocks. As we have said before, volatility around an all time high is normal and to be expected.
2013-04-23 Enhancing Credit Returns in 2013 by Andreas Berndt, Ryan Blute of PIMCO
While credit achieved exceptional returns in 2012, achieving such returns in 2013 will be challenging in light of less upside potential and limited spread compression. Challenged by continued loose central bank monetary policies, alpha generation plays an increasingly significant role in seeking attractive total returns within credit portfolios. Encouraging investors to provide managers with a variety of innovative approaches and flexibility may enhance the return potential of a European corporate bond portfolio without materially changing overall credit or interest rate risks.
2013-04-22 Strategy for a Second Gear Economy by David Kelly of J.P. Morgan Funds
American investors could be forgiven for feeling just a little confused. One week after the stock market posted its strongest first-quarter gains since 1998, the Bureau of Labor Statistics announced the weakest monthly job growth in nine months. Real GDP growth was just 0.4% in the fourth quarter but appears to have been much stronger in the first. So is the economy getting stronger or weaker, how is the Federal Reserve likely to react to it and what, if anything, should investors do about it?
2013-04-22 Commodity Declines and Weak Data Startle Investors by Bob Doll of Nuveen Asset Management
U.S. equities declined last week as the S&P 500 fell by more than 2.0%, which came on the heels of a new all-time high the prior week. Led by gold, commodities experienced volatility and declined over the past two weeks. Other detractors included disappointing first quarter Chinese economic numbers and somewhat softer U.S. releases.
2013-04-19 Fixed Income Investment Outlook by Team of Osterweis Capital Management
Based on the nearly 2,500-point rise in the Dow Jones Industrial Average since last June, it appears that Mr. Bernanke has been successful in increasing demand for risk assets and creating some exuberance in the stock market. Short-term volatility in the markets may be driven by questions about the Fed’s eventual exit strategy and how effectively the politicians will deal with U.S. fiscal issues. The good news is that that the U.S. economy is growing, albeit slowly, unemployment is falling, again slowly, and consumer confidence is improving.
2013-04-17 In the Category of Sign Spinners by Blaine Rollins of 361 Capital
If you thought the plunge in Gold prices was tough on those long the precious metal, wait until you see the upcoming hit to the April Non-Farm Payrolls in the category of Sign Spinners...
2013-04-15 The (Up) Beat Goes On, Part II by Bob Doll of Nuveen Asset Management
We wrote Part I of this theme on February 11 during the first quarter rally, when the S&P 500 closed the week at 1518. This past week the S&P ended at 1589, after increasing 2.3%. Global stock prices continue to push to new highs and thus provide support for a pro-equity bias. One nuance is that the composition of the equity rally has been abnormally defensive.
2013-04-12 The Bank of Japan Pulls All the Stops by Raymund Uy of Invesco
The Bank of Japan (BOJ) surprised the markets by announcing a particularly aggressive round of quantitative easing (QE) designed to rid the Japanese economy of its persistent deflation. The new policy was unexpected not only in the size of the asset purchases announced, but also in the types of securities to be purchased and their maturity.
2013-04-10 Economic Slowdown Halts Equity Rally by Bob Doll of Nuveen Asset Management
The latest softness in economic indicators probably means that more consolidation in the equity markets is required before we can advance beyond the recent all-time highs. During March, nearly all of the activity for the S&P 500 was within 1% of 1550. Equities may move lower due to deteriorating technical conditions and the possibility of weak first quarter earnings reports.
2013-04-10 Financial Markets Review and Outlook First Quarter 2013 by Team of Managers Investment Group
Risk-based assets rallied sharply during the first quarter on the heels of a fiscal tax-cliff compromise that overhung the market in the latter half of 2012. U.S. equities posted their best quarterly returns since 1998, with both the Dow Jones Industrial Average and S&P 500 Index reaching all-time highs. While the equity market rally extended abroad, returns overseas were muted by a strengthening U.S. Dollar. Bond markets, with the exception of high-yield investments, failed togenerate anything beyond middling returns, as investors’ risk appetites started the year strong.
2013-04-10 Don't Pay Too Much for That Bordeaux - Or That Bond by Jeff Helsing of PIMCO
The financial market’s reliance on ratings agencies and benchmarks, along with regulations, can cause distortions in the value of some securities. These price distortions can create potential opportunities for some investors. Investors should consider aligning capital allocation with outcome-oriented objectives that aren’t influenced by credit ratings or benchmarks.
2013-04-10 Weekly Market Review Notes by Team of Tuttle Tactical Management
The market continues to experience volatility around the new record high. Again, this is to be expected as this is a very psychologically important level so we shouldn’t expect the market to blow through this and never look back. There is still a lot of background "noise" in the markets. Last week’s jobs numbers were disappointing, we have had some weaker economic numbers, Cyprus, etc. None of this looks like it can change the fact that money has nowhere else to go but stocks at this point, but the economic numbers bear watching.
2013-04-09 MLPs: Winning Streak Broken, Growth Story Intact by Sponsored Content from Legg Mason ClearBridge
by Chris Eades, Portfolio Manager (Article)
After an off year clouded by investors’ concerns about future tax policy, ClearBridge’s outlook for MLPs is again brightening. Oil and natural gas production are both ahead of estimates and the resulting infrastructure build-out is continuing.
2013-04-09 Bond Market Review & Outlook by Thomas Fahey of Loomis Sayles
The first quarter of 2013 turned out pretty much as expected: a low volatility environment with the level of bond yields and credit spreads relatively stable. At some point, we have to be happy with earning a yield on our fixed income investments. The last several years have been a major bond bull market, particularly 2012, but with yields at low levels, there is not much room left for bond price appreciation and we should be comfortable with earning our yield and carry.
2013-04-08 A Continuing Case for Dividends by Richard Skaggs of Loomis Sayles
The investment case for dividend-paying stocks is as strong as ever. Many dividend-paying stocks continue to boast yields comparable to or higher than US Treasurys, and the case for dividend growth in the years ahead remains favorable. Dividends have a long history as a significant component of total return, and investors will likely continue to press for rising payouts since corporate balance sheets are flush with cash. What should investors consider as they survey the universe of dividend-paying companies?
2013-04-08 “Country Roads, Take Me Home,To The Place I Belong ” by David Lieberman (Article)
Recently, I was listening to a Pod Cast from This American Life about the increasing disability rolls in the United States. The story itself was excellent and I would highly recommend it, but the implications of the numbers are equally remarkable. In the past 20 years, the number of people on disability in the United States has soared, even recently when the unemployment rate has declined materially. Rather than focus on the policy decisions, causes of this phenomena, or even whether they are logical, good, or bad, I’m going to focus purely on the unemployment and economic ramifications
2013-04-05 What's Next for U.S. and European Markets? by Mike Temple of Pioneer Investments
I was asked recently to provide some color around the state of global fixed income markets as we close out the first quarter of 2013. Of course, one of the more watched situations in the global markets has been Cyprus’s banking crisis. I won’t go into too much depth on the subject here, as my colleague, Cosimo Marasciulo, has recently provided a comprehensive analysis.
2013-04-05 China's Uncertainties Won't Stop Renminbi's Rise by Hayden Briscoe of AllianceBernstein
Recent data releases and the transition to new political leadership have created some uncertainty about China’s short-term economic outlook. While positive growth surprises are unlikely in 2013, we still think nothing can stop the long-term appreciation of China’s currency, the renminbi (RMB).
2013-04-03 First Quarter Recap by Bob Doll of Nuveen Asset Management
This past month marked the fourth anniversary of the global equity market bottom on March 9, 2009. U.S. stocks have clawed back all of the losses from the Great Recession and are near historical highs. Most other major markets are still well below their 2007 peaks, but have rebounded sharply since last June and look increasingly resilient. However, there is tremendous anxiety about the economic outlook, and many investors fear equities and other risk assets are floating on a sea of liquidity rather than solid fundamentals. We are more constructive and maintain a pro-growth investment stance.
2013-04-03 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 Hello 2nd Quarter and Hello Baseball by Blaine Rollins of 361 Capital
Hello 2nd Quarter and Hello Baseball. It’s ’Go’ time for both players and stat geeks... It was a very good First Quarter for U.S. Equities. As you can see from the Year to Date charts below, risky sectors did well, but so did many lower risk sectors like Health Care, Consumer Staples, Utilities and MLPs. The Q1 goal as an asset allocator was to be fully invested, but not in Gold, Long Bonds, Emerging Markets and Apple.
2013-04-03 Minor Crisis...Not Too Many Hurt by Christian Thwaites of Sentinel Investments
Cyprus proved, over the last two weeks, that markets often overlook the small stuff. Very few commentators we follow saw any of it coming and the theories that sprang up in the interim (Cyprus as vassal state to Russia, return to the Cypriot pound, imminent EU break up, twin euros in circulation, utter disaster for the economy, German intransigence and Schrecklichkeit) were absurd.
2013-04-03 Spring Economic Commentary by Larry Maddox of Horizon Advisors
The Fiscal Cliff We loudly went over the cliff and received a largely quiet and unexpected market reaction? Risk of rising interest rates After a 30 year period of declining interest rates, caution is in order. Our thoughts on portfolio fixed income positioning. The heightened awareness of uncertainty Despite lingering uncertainty investors should be committed to long term well diversified porftolios.
2013-04-03 Why This Economic \"Recovery\" is So Weak by Gary Halbert of Halbert Wealth Management
We start today with an excellent editorial I read last week written by Mort Zuckerman, Editor-In-Chief of U.S. News & World Report. My goal every week is to do a lot of reading and summarize what I’ve learned in these pages week in and week out. But every now and then I run across something so good that it just makes sense to reprint it in its entirety, even if it’s not my own work. Not many of my contemporaries are willing to do that, as they think it makes them look less scholarly. I don’t have that problem.
2013-04-03 Weekly Market Review Notes by Team of Tuttle Tactical Management
After hitting a record close last week the market is showing some warning signs, which is to be expected. You don’t typically break through an important resistance point without testing it and re-testing it so some volatility around a record high is normal. We are also slightly concerned that small and mid cap stocks have drastically underperformed the S&P 500 over the past two days.
2013-04-02 ProVise Bullets by Ray Ferrara of ProVise Management Group
As we began 2013 America was looking ahead to President Obama’s second term, the passage of a tax bill that raised government revenue significantly, discovering that fourth quarter growth was virtually flat, corporate earnings that had only a few mild surprises to the upside and several to the downside, and finally, an increase in Social Security taxes of 2%. Then the sequester kicked in in early March, a band aid was used to patch the government together until the end of September, and we saw the nervousness the European markets, highlighted by Cyprus.
2013-04-01 Currency and Emerging Markets: What Can We Expect? by Giordano Lombardo of Pioneer Investments
Currency markets are making headlines again after taking a low profile amid the crises and the turmoil in financial markets of the last five years or so. I asked Greg Saichin, Head of High Yield and Emerging Markets Fixed Income Portfolio Management here at Pioneer, to provide his views about what is going on, and what he sees as the drivers of investment flows into emerging markets.
2013-03-28 What Will Drive the Market? by Charlie Dreifus of The Royce Funds
The sequester adds to the economic headwinds caused by ending the payroll tax holiday and the boost in tax rates. However, even with the sequester, total federal government outlays will rise this fiscal year. Finally, after more than a month of daily increases for a gallon of unleaded gasoline, prices are now declining. This has been of concern as rising oil and gasoline prices were yet another headwind facing the U.S. economy. (Oil prices have also declined.)
2013-03-27 Call Him Ishmael by Jeffrey Bronchick of Cove Street Capital
One of the hardest things to conquer as a value investor is the concept of "price." The industry remains mired in fascination with abstract prices like 100, 1,000, 14,000, previous highs, new lows, etc. The stock is up x% from x dollar price; it is down x% from x price. There is also much in print and general fretting in regard to "price action," with lots of attention paid to where the stock has "been" and how this move relates to other "moves," as in "the largest move since last December 12th."
2013-03-27 Weekly Market Review Notes by Team of Tuttle Tactical Management
The continuing mess in Cyprus and the S&P 500 nearing a record close dominated the news this week. As I said last week, Cyprus is insignificant, the only important aspects of what is going on is timing. If the crisis hit the news during a time when the market was oversold and due for a rally then it would have little, if any, impact. The fact that that market has rallied this year without much of a selloff gives traders an excuse to use something like this to take profits.
2013-03-27 What Happened to That Export-Led Recovery? by Mike Amey of PIMCO
With nearly 50% of the UK’s total exports going to Europe, an economic area constantly flirting with its own recession, it is no surprise to see that UK trade performance has been challenged.As the US continues to re-heal, and trade becomes more geographically diversified, we should see exports start to grow once more, albeit off a modest base. The easing in sterling is undoubtedly welcome and will improve prospects for exports, but it is unlikely to be a “game changer”.
2013-03-25 Voyager by Jeffrey Saut of Raymond James
According to Wikipedia, the Voyager 1 spacecraft is a 1,590 pound space probe launched by NASA on September 5, 1977 to study our solar system and interstellar space. Operating for more than 35 years, the spacecraft receives commands and transmits data back to the Deep Space Network. At a distance of more than 11 billion miles it is the farthest human-made object from Earth and is traveling in a previously unknown region of space. Similarly, the D-J Industrial Average is traveling in a previously unknown region of space as it boldly goes where no man has been before.
2013-03-25 Cyprus Reminds Us of Threats and Improving Global Economy by Bob Doll of Nuveen Asset Management
Equity averages sagged slightly last week. Strength later in the week made up for earlier weakness as the equity rally paused for the Cyprus crisis. We (and the consensus) perceive Cyprus as mainly a local problem and believe it supports our view to remain cautious with Eurozone weightings.
2013-03-22 ING Fixed Income Perspectives March 2013 by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Developed sovereigns are still broadly unattractive, but global central banks appear poised to ease. We prefer EM currencies that will continue to benefit from positive global growth and tolerate further upward pressure on the U.S.
2013-03-20 Weekly Market Review Notes by Team of Tuttle Tactical Management
The banking crisis in Cyprus dominated the news this week as the market sold off 3 days in a row after being up 10 days in a row. The selloff was blamed on what was going on in Cyprus but that was not the real story. Globally Cyprus is pretty insignificant, most people probably don’t even know where it is. The real story is that markets just don’t go up for 10 straight days without needing a breather from time to time, Cyprus was just an excuse to take some profits.
2013-03-19 The Outlook for Equities by Howard Marks of Oaktree Capital Management
It doesn’t take much to get me started on a memo. In this case one sentence was enough, in an article from the February 4 online edition of Pensions & Investments, as described by FierceFinance on February 28: “The long-term equity risk premium is typically between 4.5% and 5%.”
2013-03-19 A Tired Equity Market Crawls Higher by Bob Doll of Nuveen Asset Management
U.S. equities rose again last week as the S&P 500 increased 0.66%, with an overall gain for the year of 9.96%.1 The remarkable resilience of the U.S. economy against fiscal cliff headwinds has boosted equity investor sentiment. The U.S. macroeconomic outperformance has also helped U.S. equities outperform global counterparts. Investor preference toward the U.S. has largely been confirmed by rising flows into U.S. equities.
2013-03-19 Keeping Up With Changes In Emerging Market ETFs by Jun Zhu of Leuthold Weeden Capital Management
In this report, we highlight benchmark changes in a major player, a potential substitute (with cheaper fees) for another major player, a new player with an innovative weighting scheme and provide an overview of the Emerging Market ETF space available to investors.
2013-03-18 M&A and Dividends Likely Drivers of the Market by Charlie Dreifus of The Royce Funds
The sequester adds to the economic headwinds caused by ending the payroll tax holiday and the boost in tax rates. However, even with the sequester, total federal government outlays will rise this fiscal year. Finally, after more than a month of daily increases for a gallon of unleaded gasoline, prices are now declining. This has been of concern as rising oil and gasoline prices were yet another headwind facing the U.S. economy. (Oil prices have also declined.)
2013-03-14 Weekly Market Review Notes by Team of Tuttle Tactical Management
The Dow continues to make new highs but the rate of climb has slowed considerably this week. This is normal as markets have to take a breather after large moves.
2013-03-14 3 Reasons It's Not Too Late to Consider Emerging Market Bonds by Russ Koesterich of iShares Blog
After the recent rally in emerging market bonds, is it too late to allocate to this asset class? Not for long-term investors, says Russ and he offers 3 reasons why.
2013-03-13 Yield Opportunity in a Low Yield Environment by Troy Johnson of Westcore Funds Denver Investments
The Fed’s aggressive monetary policy teamed with its inability to jump-start the anemic economic growth pattern has challenged investors’ quest for yield entering 2013. We offer investors the following for consideration as they seek yield in this environment.
2013-03-11 Spring is in the Air, Who's Buying Fixed Income and Exports by Gregg Bienstock of Lumesis
This week we start with a look at some bizarre coincidences that have us wondering if it is Spring that is the cause. We next look at who is buying so much debt and to contemplate the implications for the muni market. We conclude with a look at Exports and a reminder that the world really is a small place.
2013-03-11 Forecasting Bond Returns in the New Normal by Saumil Parikh of PIMCO
PIMCO has a detailed framework for deriving a forecast for secular bond returns based on our most current expectations of policy rates and the inflation-adjusted (or real) bond risk premium. We start by defining the expected secular real policy rate as the expected average rate of the fed funds rate after adjusting for inflation over the next 10 years.
2013-03-08 Three Trends Will Shake American Businesses Out Of Paralysis by Mike Temple of Pioneer Investments
On-shoring, energy infrastructure reinvestment and plant replacement are three trends in the making that will shake American business out of paralysis. In the last "Bond Deer in the Headlights," I outlined the "Monetary Abolitionists" assertion that out-of-control government spending, made acceptable by historically low interest rates, was responsible for corporate paralysis in investing and hiring.
2013-03-07 Weekly Market Review Notes by Team of Tuttle Tactical Management
Yesterday saw a new record close on the Dow Jones Industrial Average and a renewal of the panic buying we saw earlier in the year. While it is great to see that the Dow has retraced all of the losses from the 2008 decline I am concerned about what message will be directed towards individual investors. The asset allocation/buy and hold crowd will use this milestone to "prove" that markets always come back so that their approach is still valid. This is true, but it ignores the fact that it took the market almost 6 years to come back and the lost opportunity cost associated with that.
2013-03-07 Animal Spirits: F.I.R.S.T. by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Call it what you will a dog-eat-dog world in which you're wearing Milk-Bone underwear or an example of capitalism at its finest an M&A cycle is heating up. This activity may be signaling the rebirth of what British economist John Maynard Keynes originally referred to as "animal spirits", much to the delight of fictional corporate barbarian Gordon Gekko and his real-life analogues, who require little prompting to act on Keynes "spontaneous urge to action".
2013-03-06 Liquidity Tiering for Higher Yields in the Tax-Free Market by Duane McAllister, John Bortizke of BMO Global Asset Management
In today's low-yield environment, investors need a fresh approach to managing their portfolios for higher income. Liquidity tiering provides a framework that can help you achieve both principal stability and yields sufficient to meet your goals.
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 The Magic of Compound Interest by Jeffrey Saut of Raymond James
When compound interest works in your favor, it is a blessing. When it works against you, it's a curse! That is a "Jeffreism" I learned the hard way back in the bear market of the early 1970s when I was working for a $100 per week in this business and consequently had my credit cards levered to the "max." The interest rate at the time was 18%.
2013-03-04 Forecasting Bond Returns in the New Normal by Saumil Parikh of PIMCO
PIMCO has a detailed framework for deriving a forecast for secular bond returns based on our most current expectations of policy rates and the inflation-adjusted (or real) bond risk premium. We start by defining the expected secular real policy rate as the expected average rate of the fed funds rate after adjusting for inflation over the next 10 years.
2013-03-01 Seeking a Fixed Income Fix by Team of Franklin Templeton Investments
While governments worldwide continue to struggle with debt and budget issues, for the most part, corporations have turned lemons into lemonade and have become lean and mean. While not without risk, corporate credit actually looks to be in fairly good shape, according to Eric Takaha who, as senior vice president and portfolio manager of Franklin Strategic Income Fund spends a good deal of time analyzing the space.
2013-02-27 Love, Money or Disappointment: What Will Asian Credit Investors Find in Their Red Envelopes? by Robert Mead, Raja Mukherji of PIMCO
Our cyclical economic outlook for Asia in 2013 is unusually dependent on breakthroughs in structural policies. Although we continue to favor select opportunities in key sectors, in general Asian credit spreads are trading historically tight. Bottom-up research is critical, along with careful top-down views on shifting economic conditions, and investors need adequate compensation for taking credit risk. Some sectors and companies can grow significantly faster than their respective economies.
2013-02-27 Weekly Market Review Notes by Team of Tuttle Tactical Management
For a while it was obvious that the market had become overbought and was due for a selloff, all traders needed was an excuse, this past week they got two of them. First, the Fed hinted that QE might end and then Italian elections sparked uncertainty in Europe. Add those things in with the looming sequester and you have all the ingredients for a profit taking selloff. At this point this is all part of normal market machinations. The market doesn't go up in a straight line and it doesn't go down in a straight line.
2013-02-27 Ignore the Noise. Equities Offer Income Potential. by Joe Kringdon of Pioneer Investments
Common prospectus disclosure reads, "past performance is no guarantee of future results." Yet, this crowd of naysayers seems to be projecting the paranoia associated with the "lost decade(s)" onto the current environment and beyond. They are preparing for the future by fighting the last few wars all over again. Their sentiments and actions (or inactions) are emblematic of an American looking the wrong way for traffic on a London street. Given wrongfully configured context, these people are looking in the wrong direction for the wrong things. I continue to be positive on the equity markets.
2013-02-26 Can Advisors Add Value Through Fund Selection? by Joe Tomlinson (Article)
Low-cost index funds will beat the average actively managed fund after expenses. But can advisors identify superior active funds to overcome this disadvantage? Advisors who believe they can choose those funds will be challenged by the results of two studies from the defined-contribution industry.
2013-02-25 We Expect High-Yield Defaults to Remain Low by Jeff Skoglund of AllianceBernstein
High-yield bond defaults are historically low today, even for troubled companies. Despite the worries we hear in some corners about looming high-yield defaults, we think default rates will stay low for at least the next few years. In the wake of the 2008 financial meltdown, US companies did the responsible thing and got leaner, reducing head count and overhead costs aggressively. When the recovery gained traction, they held the line on expensesand profit margins are at historic highs today.
2013-02-25 Market Gains Will be Tougher to Come By by Russ Koesterich of BlackRock Investment Management
Markets saw a return to more volatile conditions last weeka trend that is likely to continue. The sequester is likely to contribute to an increased fiscal drag in the first half of the year. Nevertheless, stocks have the potential for increased gains, although the road ahead will be bumpier.
2013-02-22 Uncovering 'Diamonds in the Rough' in Today's Credit Markets by Mark Kiesel of PIMCO
There are still good opportunities for yield and total return in the credit markets, but there has been a shift in where and how investors can find them. A "diamond in the rough" is a credit that is under-covered, or not actively followed or researched by many investors. At PIMCO, we identify these opportunities through our top-down and bottom-up investment process. We've identified a number of sectors that appear poised for above-average growth.
2013-02-22 Finding What's Real in Real Estate by Team of Franklin Templeton Investments
The U.S. financial crisis in 2008-2009 left many investors with a reluctance to take investment risks, particularly those related to any of the world's wilted housing markets. However, as your local real estate agent would likely tell you, the market in one location can be vastly different than it is in another. Wilson Magee, co-manager of Franklin Global Real Estate Fund would agree that the adage "location, location, location" applies not only to individual home buyers and sellers, but to investors seeking opportunities in the commercial real estate sector, too.
2013-02-22 January 2013 Market Commentary by Andrew Clinton of Clinton Investment Management
The municipal bond market continues to perform well in the face of significant political, financial and economic uncertainty, once again, demonstrating the importance of consistent, competitive tax-free cash flow. Municipal bonds proved to be one of the best performing asset classes during 2012.
2013-02-22 The 4 New Defensive Strategies by Russ Koesterich of iShares Blog
Waiting for a market correction? Wondering how to potentially protect your gains? Forget merely opting for traditional defensive sectors. Instead, consider Russ' four suggestions.
2013-02-20 Trying And Failing To Make The Math Work For Long-Term Bonds by Doug Ramsey, Eric Weigel of Leuthold Weeden Capital Management
For the past 31 1/2 years, owners of 10-year U.S. Treasury bonds have earned "real" total returns of 6.7%on par with the long-term real return to equities. Long before government bonds matched real stock returns, they suffered a 55-year period that offered investors a real return of zero. The short-term implications of higher U.S. Treasury rates on asset allocation decisions.
2013-02-20 Event Driven Investors Receive Their Wish by Chris Maxey, Ryan Davis of Fortigent
For several years, investors have wondered why M&A activity has been so benign.Corporate management teams cited uncertainty about the economic outlook as a primary reason for the depressed activity.With the latest round of tax increases and revenue cuts determined, companies finally appear willing to free their animal spirits and embark on the path of acquisition.
2013-02-20 The 2030 Most Likely Best Case Scenario by Bill O'Grady Kaisa Stucke of Confluence Investment Management
Two weeks ago we started looking at the 2030 alternative world development scenarios as laid out by the National Intelligence Council (NIC). The NIC forecasts the likely paths that are either currently underway or are forecast to occur in the future. In its most recent report, the NIC projects four possible global political and economic states based on these expected trends. Last time, we presented the most likely worst case scenario. This week, we will explore the most likely best case scenario.
2013-02-20 Weekly Market Review Notes by Team of Tuttle Tactical Management
Markets continued to move up this week in spite of looming Fiscal Cliff budget cuts. Everyone still expects a selloff but money continues to flow into the market as it has nowhere else to go.
2013-02-16 Seeing the Forest by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Equity markets continue to be resilient and investor confidence is elevated in various sentiment indices, suggesting a near-term pullback is possible. But there are longer-term trends developing that give us hope that the US economy's expansion and market's rally are sustainable. Federal spending cuts via the "sequestration" appear sure to happen, but there will continue to be debates about the nature and size of the cuts. Similarly, questions are increasing as to the potential unwinding of current Fed policy with regard to timing and rapidity.
2013-02-13 Weekly Market Review Notes by Team of Tuttle Tactical Management
After a decent selloff earlier in the month the market has continued to move up, but in very small increments. Most people seem convinced that we are due for another selloff, which seems to be tempering upside enthusiasm. On the other hand, there also doesn't seem to be any enthusiasm to sell.
2013-02-12 Looking Forward 2013: Fixed Income Outlook by Team of Managers Investment Group
On January 8, 2013 Managers Investment Group (MIG) hosted a webinar "Looking Forward 2013: Fixed Income Market Outlook." The discussion included insightful analysis of the 2012/2013 fixed income markets and Q&A sessions with renowned panelists Nancy Angell of GW&K Investment Management (subadvisor to our suite of GW&K Funds), Dan Fuss of Loomis Sayles (subadvisor to the Managers Bond Fund), and Tony Crescenzi of PIMCO (subadvisor to the Managers PIMCO Bond Fund).
2013-02-12 High Yield Opportunity in a Crowded Space? by Mike Temple of Pioneer Investments
We have seen something interesting unfold over the last month in the markets signs of what we believe are the beginning of a Treasury breakout. Yields are starting to push through levels that have been fairly stable and steady over the last year. Our observation would be that we are starting to see a more secular move out of U.S. Treasuries and other high quality fixed income assets.
2013-02-11 Distracting Dividends by John Petrides (Article)
With interest rates at historic lows, bonds have become a difficult place to find income (although paradoxically, in 2012, asset flows into bond mutual funds have outpaced that of stock mutual funds yet again), so investors have looked to other assets for yield, most notably high dividend paying stocks. Stocks continue to be attractively valued relative to fixed income and cash. In addition, high dividend paying stocks offer investors the ability to grow the income to help offset inflation, whereas in bonds, the income is fixed.
2013-02-07 Echoes of 2004 by Scott Minerd of Guggenheim Partners
Rising equities and tightening credit spreads define the near-term investment outlook, but this is not the first time we have seen this cycle play out in recent memory.
2013-02-06 Market Commentary by Matthew Tuttle of Tuttle Tactical Management
The long awaited sell off finally came this week as the market suffered its worst day since November. The decline seems to have somewhat solved the overbought situation as the market rallied back the next day.
2013-02-05 Letters to the Editor by Various (Article)
A reader responds to Joe Tomlinson's article, Predicting Asset Class Returns: Recommendations for Financial Planners, which appeared last week, and another reader responds to Dan Richards' articles.
2013-02-05 The 2030 Outlook by Bill O'Grady, Kaisa Stucke of Confluence Investment Management
Over the next several weeks we will look into the more distant future, to the year 2030. We will explore the long-term strategic alternative world development scenarios as laid out by the National Intelligence Council (NIC) and present our views regarding the developments. The NIC forecasts the likely paths that are either currently underway or are forecast to occur in the future. The NIC projects four possible global political and economic states based on these expected trends.
2013-02-04 What's the Best Asset Allocation When the Business Cycle Moves to Stage IV? by Martin Pring of Pring Turner Capital Group
History shows that the business cycle, which has been with us since recorded economic history began, experiences a set series of chronological sequences. The calendar year progresses through seasons, one of which is literally ideally suited for making hay. The business cycle also has seasons or phases, where certain sectors of the economy fall in and out of favor. For investors, the key lies in the fact that the cyclical turning points of bonds, stocks and commodities are all part of the business cycle progression.
2013-02-01 Q412 Portfolio Commentary by Jay Compson of Absolute Investment Advisers
While much of the fundamental picture has played out as we expected over the past 18-24 months, the financial markets appear to be concerned solely with the existence or non-existence of macro headlines and events. There seems to be a disconnect between market movements and fundamentals which means doing real work based on intellectual honesty and logic puts you at a disadvantage. Chasing momentum and profiting from central bank market manipulation appear to be the current winning strategies.
2013-02-01 The Lost Decade...Found? by Jeffrey Bronchick of Cove Street Capital
While much of the fundamental picture has played out as we expected over the past 18-24 months, the financial markets appear to be concerned solely with the existence or non-existence of macro headlines and events. There seems to be a disconnect between market movements and fundamentals which means doing real work based on intellectual honesty and logic puts you at a disadvantage. Chasing momentum and profiting from central bank market manipulation appear to be the current winning strategies.
2013-02-01 For All the Sad Words of Tongue and Pen... by Jeffrey Saut of Raymond James
"For all the sad words of tongue and pen, the saddest are these: It might have been." ... John Whittier; an influential American Quaker poet. Certainly, American poet John Greenleaf Whittier's apothegm has stood the test of time, serving as a universal lament for what "might have been." I was reminded of this maxim last week as Wall Street heard increasing laments from investors on the Street of Dreams.
2013-02-01 Look at the Bears! Look at the Bears! by Christine Hurtsellers, Matt Toms and Mike Mata of ING Investment Management
Yes, the grumbling of bond bears is reverberating in Treasury yields, but that sound isnt the death knell of a grizzly; at this point, the closest ursine analogue is Boo-Boo Bear.
2013-01-31 Credit Supernova! by Bill Gross of PIMCO
They say that time is money. What they don't say is that money may be running out of time. There may be a natural evolution to our fractionally reserved credit system which characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a "big freeze" trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence.
2013-01-31 Making Sense of Low Volatility Investing by Feifei Li of Research Affiliates
Why do low volatility stocks outperform riskier ones over time? Dr. Feifei Li, our Head of Research and my long-time collaborator, has focused on understanding the theoretical foundation underpinning the low volatility anomaly and documenting the strategy's risk-return characteristics in developed and emerging markets. In this issue of Simply Stated, our newsletter focusing on investor education, she summarizes the literature on the low volatility effect as well as provides additional insights from her own research based on an expanded global data set.
2013-01-31 A Look Back at My 2012 Calls by Russ Koesterich of iShares Blog
It's time again for Russ K's annual look back at the investment calls he made in 2012. Find out what he got right and the couple of things he got wrong.
2013-01-30 An Apple's First Worm by Doug MacKay, Bill Hoover, Mike Czekaj of Broadleaf Partners
Writing about Apple is painful. Not because I have lost money in recent months or have no insight to provide, but because the media will likely report on it ad nausea for the next few days. It is perhaps human nature that the news which is most readily produced is also the news that is most easily consumed. If you want to be read, it's best to write words that people will read. While this makes for great entertainment and advertising, it hasn't typically been the best way to get new investment ideas.
2013-01-30 Weekly Market Commentary by Matthew Tuttle of Tuttle Tactical Management
The market continued to "melt up" this week. Everybody is expecting some sort of correction, but just like every time there is a consensus on something it never tends to happen. It is hard to envision the market having a massive continuation of this rally without some pullback, but we could easily continue to inch up for a while.
2013-01-29 Strategies for Speculating on the Crisis in Japan by Simit Patel (Article)
Bears on Japan are finally, after nearly two decades of being on the wrong side of the market, getting some vindication. The end of 2012 was marked by a significant decline in the Japanese yen and a rise in the yield on 30-year Japanese Government Bonds (JGBs). Should those trends continue, the conventional wisdom is that investors will do best by shorting JGBs. But a superior strategy is to short the yen itself.
2013-01-29 Q4 2012 Market Commentary by Team of Altegris Advisors
With the end of a historically challenging year for alternative investment strategies, signs emerge of a potentially more favorable environment.
2013-01-23 High Yield Market Overview December 2012 by Team of Nomura Asset Management
The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, posted a positive total return of 1.59% in December, as the high yield market rallied on the perceived benefits of a fiscal compromise in the U.S.
2013-01-23 Economic Backdrop Supports Stocks, Credit Sectors and Munis by Russ Koesterich of BlackRock Investment Management
Thanks to solid earnings, some decent (if mixed) economic news and indications that the debt ceiling debate may be delayed slightly, stocks posted additional gains last week, continuing their strong start to 2013. For the week, the Dow Jones industrial average climbed 1.2% to 13,649, the S&P 500 index advanced 1.0% to 1,485 and the NASDAQ composite rose 0.3% to 3,134. Bonds have remained relatively steady, with the 10-year Us treasury closing the week at a yield of 1.84%, two one-hundredths lower than the previous Friday close.
2013-01-23 The Year of the American Consumer by Philip Tasho of TAMRO Capital
It was an above-average year for stock returns across the domestic market cap spectrum. Ultimately, unconventional and accommodative monetary policy trumped investor concerns over fiscal policy, the Presidential election and weakness overseas. The Federal Reserve (the Fed) entered uncharted waters when it announced open-ended quantitative easing through the ongoing purchasing of government securities. Importantly, other central banks globally waded in by mimicking the Fed in word if not deed and the global liquidity cycle continued apace.
2013-01-23 The Washington Hurdles by Scott Brown of Raymond James
While President Obama is now beginning his second term, the new Congress isn't expected to "get down to business" until next month. There are three hurdles for Washington, which are likely to have significant implications for the financial markets.
2013-01-18 Equity Investment Outlook January 2013 by Team of Osterweis Capital Management
Despite many headwinds and amid great uncertainty, both the U.S. economy and stock market enjoyed a rather good year in 2012. Real Gross Domestic Product ("GDP") grew around 2%, and the stock market, as measured by the S&P 500 Index, returned 16%. At the risk of sounding complacent, we believe that the fundamental trends that produced such favorable results in 2012 are still in place and should support another good year in 2013.
2013-01-18 Fixed Income Investment Outlook by Team of Osterweis Capital Management
We continue to feel that the mismatch between yield and interest rate exposure means that investment grade bonds are less attractive compared with the non-investment grade universe, especially in shorter maturities. Treasury, investment grade corporate and high yield bonds have yields and effective durations that are virtually unchanged compared to levels three months ago. Yields on short-dated high yield paper have actually risen a bit and are still, in our opinion, the most attractive sector we look at in terms of interest rate risk.
2013-01-17 Signs of a Rotation by Scott Minerd of Guggenheim Partners
As yields continue to dwindle and risks in the fixed income market come into clearer focus, investors have begun to regard equities as a compelling alternative to bonds.
2013-01-15 Are Investors Buying into the Equity Story? by Chris Maxey, Ryan Davis of Fortigent
Last week we discussed the debate over active versus passive management. We believe active managers can add tremendous value in particular segments of the market, despite recent challenges. Outside of the active management discussion, many investors are deciding whether equities are a prudent place to allocate capital at this point in the market cycle. The first week of the year answered investors' opinions on that question loud and clear.
2013-01-15 New Year's Vantage Point: Christopher Molumphy by Christopher Molumphy of Franklin Templeton Investments
For a view on the U.S. and global fixed income market and potential opportunities therein, we turn to Christopher Molumphy, CFA, chief investment officer of Franklin Templeton Fixed Income Group.
2013-01-15 A Conversation With Warren Buffett by Jeffrey Saut of Raymond James
Clearly, the stock market "thinks" something good can happen given the action so far this year. To wit, we ushered in the New Year with a 90% Upside Volume Day on December 31st followed by another 90% Upside Volume Day on January 2nd (90% of total volume traded came in on the upside). Such back-to-back Upside Days are pretty rare, especially at the beginning of the year.
2013-01-14 And That's the Week That Was by Ron Brounes of Brounes & Associates
Finally, a week not totally dominated by "fiscal cliff" discussions (though politicos now have their hands full with a gun control debate...what are the chances of compromise there?). Alcoa kicked off earnings season as usual and the early results lend credence to the thought that China will again be relied upon to lead any global recovery. Major banks announced major settlements as they continued to try to close the (negative) books on the financial crisis. Oil rose on Saudi production cuts.
2013-01-11 2013 Leveraged Credit Report: High Yield and Bank Loans by Scott Minerd of Guggenheim Partners
Record high prices, historically low yields and gradually deteriorating fundamentals have tempered expectations for the leveraged credit market. Generating above-market returns in 2013 will require an even greater emphasis on fundamental credit analysis to unearth opportunities in attractively valued segments of the market, such as upper middle-market bank loans.
2013-01-11 Winter Quarterly Commentary by John Prichard of Knightsbridge Asset Management
While a last minute compromise may have been reached on taxes, it represents only a brief rest stop on a required road of repair. On the positive side, we should see less annual wrangling with tax rates having been made permanent, meaning they will not automatically change at some future date (but rather only when Congress feels like changing them), with many areas also sensibly indexed for inflation.
2013-01-10 Defense as a Good Offense by Brian Frank of Frank Capital Partners
Oddly, defensive names that ordinarily trade at premiums to the market are trading at big value discounts. These companies that have the ability to grow in any economic environment are a part of the portfolio, as well as companies riding pockets of growth around the globe. There is a lot to be excited about in 2013 for value stocks.
2013-01-10 A New Years Vantage Point: Michael Hasenstab by Michael Hasenstab of Franklin Templeton Investments
As we ring in a new year, it's a good time to gain some perspective on where we've been, and where we might be headed. In the first few weeks of January, Beyond Bulls & Bears will be featuring a series of investment commentaries from select Franklin Templeton investment management teams. These professionals provide their insights on the market ups and downs of 2012, and the potential challenges and opportunities that may lie ahead from their respective vantage points. Today we hear from Michael Hasenstab, portfolio manager and co-director of the International Bond Department.
2013-01-09 Financial Markets Review and Outlook: Fourth Quarter 2012 by Team of Managers Investment Group
As expected the fourth quarter economic landscape was dominated by the U.S. Presidential and Congressional elections and their collective impact on the fiscal cliff. After the elections were completed, markets nervously awaited the outcome of the fiscal cliff negotiations as economists generally predicted dire consequences for the U.S. economy in 2013 if a timely resolution was not reached by the end of the year.
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.
2013-01-08 Early 2013 Looks to Feature Slow Growth and Ongoing Fiscal Drama by Russ Koesterich of BlackRock Investment Management
Stock markets started 2013 off with a bang, as investors expressed relief over the down-to-the-wire agreement on the fiscal cliff that came on January 1. For the week, the Dow Jones industrial average jumped 3.8% to 13,435, the S&P 500 index rose 4.6% to 1,466 and the Nasdaq composite advanced 4.8% to 3,101. Although the deal reached last week was good news for the markets, Washington's fiscal soap opera is far from over. Although the deal reached last week was good news for the markets, Washingtons fiscal soap opera is far from over.
2013-01-07 Fixed Income Asset Allocation Post-Apocalypse by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
December 21, 2012 the day the Earth was prophesized to collide with a black hole of kaputness has come and gone in defiance of the Mayan calendar. The more upbeat interpretation of the 5,125-year Mayan cycle, however, is that the end date doesn't signify Armageddon but rather the beginning of a new time for positive change here on earth. So allow us to suggest an investment playbook to cash in on this silver lining. In short, the sweetness of the metaphorical fortune cookie in your hand will depend on how you allocate your fixed income assets in 2013.
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.
2013-01-03 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.
2013-01-03 5 Investment Ideas for a Post-Fiscal Cliff Deal World by Russ Koesterich of iShares Blog
As discussed in previous posts, Congress kicked off the New Year with a bare bones deal to avert (or at least delay) the fiscal cliff. Though markets responded positively to the news Wednesday morning, the euphoria isn't likely to last.
2013-01-02 Getting the Most from Your Investment Committee by Bob Veres (Article)
Investment committees are a little bit like fingerprints: they come in all shapes and sizes, and no two are exactly alike in form or function. So advisory firms that have investment committees – or are considering creating one – can learn a lot from one another. My research has identified some best practices for this flexible management tool, by comparing notes among advisors on how they are managing their IC teams.
2013-01-02 Is Fracking a ‘Happy Solution’ to our Energy Needs? by Richard Vodra, JD, CFP (Article)
A few weeks ago, John Mauldin called fracking a 'happy solution' that will produce jobs, potentially solve our trade deficit and generate new tax revenue, though energy prices may rise in the process. But how excited should we be about the 'shale revolution'?
2013-01-02 Brian McMahon on Thornburg’s Investment Income Builder Fund by Robert Huebscher (Article)
Brian McMahon is the chief executive officer and chief investment officer for Thornburg Investment Management, where he the co-portfolio manager for the $11.4 billion Thornburg Investment Income Builder Fund (TIBAX). The fund's goal is income production, and it has outperformed its benchmark, the Morningstar Moderate Target Risk, over the last ten years (10.87% versus 2.88%). In this interview, he offers his views on the economy and the markets, and how he has positioned his fund.
2013-01-02 Deal or No Deal? Assessing a Bare Bones Fiscal Plan by Russ Koesterich of iShares Blog
A grand bargain in fiscal cliff negotiations remains elusive, but a bare bones deal seems likely. Russ K explains what that means for the economy and investors.
2012-12-28 Don\'t Wait for the Robins: Investment Strategy for 2013 by Pamela Rosenau of HighTower Advisors
Warren Buffet once remarked, "If you wait for the robins, spring will be over." "Uncertainty" has been an overarching issue since the financial crisis of 2008 and one of the principal reasons that investors have remained on the sidelines away from the equity markets. As it has been a part of the investment lexicon, "uncertainty" will always exist in some capacity. In 2012, investors began by focusing on European issues, then the U.S. election, and now the fiscal cliff. In fact, when there is little uncertainty and investors appear unafraid, one should be more concerned.
2012-12-27 The Ten Best Articles You Probably Missed by Robert Huebscher (Article)
Great articles don't always get the readership they deserve. We've posted the 10 most-widely read articles for the past year. Below are another 10 that you might have missed, but I believe merit reading.
2012-12-27 Saving for Retirement Stage 3: Making Retirement Funds Last as Long as You Do by Team of Franklin Templeton Investments
So you're finally ready to retire. You've worked hard. You've planned. You've saved. You're ready to toss the business section and flip to the travel pages. You hope the investment decisions you've made have positioned you to meet your future needs. You may be retired, but your money has to keep working, and luck, as they say, tends to favor the prepared. In this third installment of our "Saving for Retirement" series, we take a look at some considerations and strategies for those fortunate folks beginning or living in retirement.
2012-12-26 The Ten Key Benefits of Investment Committees by Bob Veres (Article)
In this first part of a two-part report, I'll identify ten core purposes that investment committees serve in different types of firms, ranking them in order of the number of responses I received. If your investment committee is serving all ten purposes, based on the survey, you're among a select minority - which means that many advisors may find new ways to use this versatile new tool in their RIA practices.
2012-12-21 Lights, Camera and Action in China by Winnie Phua of Matthews Asia
More than a decade ago, China reached a turning point in its film industry with the co-production of its first internationally acclaimed movie hit, "Crouching Tiger, Hidden Dragon." The film, directed by Academy Award winning Taiwanese American director Ang Lee, raked in more than US$213 million globally, and became the highest grossing foreign language film in U.S. history. Pretty good for a movie made in China on a US$17 million budget.
2012-12-20 2012 in Review by Investment Strategy Group of Neuberger Berman
As we approach the New Year and contemplate the opportunities the investment landscape may offer in 2013, it helps to look back at the performance trends of 2012. Overall, the year-to-date period has seen impressive results from various risk assets, which is in line with the projections of our Asset Allocation Committee. However, ongoing concerns about volatility and Europe hampered the markets at times. Here, we provide a performance scorecard and consider potential developments in the year ahead.
2012-12-19 TAG Could Be Tagged in Fiscal-Cliff Negotiations by Doug Peebles, Jon Denfeld, Ed Dombrowski of AllianceBernstein
Caught up in the wrangling over the US fiscal cliff is a little-publicized program that could have big implications for short-term investors and bond yields if it expires on December 31. If the Transaction Account Guarantee (TAG) program ends, huge sums of money may start looking for a new home.
2012-12-18 Comparing Long-Term Care Alternatives by Joe Tomlinson (Article)
Should clients buy expensive long-term care insurance they might never need, or go without insurance and risk a big hit to their life savings? For advisors whose clients face this critical dilemma, there's now a third option: life insurance and annuity products that also incorporate long-term care insurance.
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 Fiscal Cliff Deadlines Draw Near by Russ Koesterich of BlackRock Investment Management
In addition to the seemingly never-ending focus on the fiscal cliff, markets turned their attention to last week's Federal reserve meeting and the corresponding announcement of the central bank's continuation of its bond-purchase program. Following a very brief rally after the announcement, however, stock prices fell and ended the week marginally lower. For the week, the Dow Jones industrial average declined 0.2% to 13,135, the S&P 500 index fell 0.3% to 1,413 and the NASDAQ composite dropped 0.2% to 2,971.
2012-12-17 2013: A Year in Global Emerging Markets by Allan Conway of Schroders Investment Management
We expect emerging market equities to deliver solid performance during 2013 and perform even better over the longer term. Emerging markets look extremely attractive in terms of valuations. We believe the Chinese economy has stabilised and will see a modest recovery next year and that tail risks in the developed world have been reduced for now by central bank policy.
2012-12-13 Rescuing the Bond Deer from the Bond Bear by Mike Temple of Pioneer Investments
It's the season to talk about the man who delivers presents. No, not Santa Claus, but Fed Chairman Bernanke who has been delivering the green stuff for the past four years in a helicopter, not a sleigh... My last installment introduced the Fixed Income Bond Deer the investor caught in the headlights confused about what to do. This week we contemplate the following: should "Bond Deer" be grateful for the green stuff or frightened by the possibility that it is fueling the next bond "bear" market? The answer: it depends on how long this experiment continues.
2012-12-13 2012 in Review by Investment Strategy Group of Neuberger Berman
As we approach the New Year and contemplate the opportunities the investment landscape may offer in 2013, it helps to look back at the performance trends of 2012. Overall, the year-to-date period has seen impressive results from various risk assets, which is in line with the projections of our Asset Allocation Committee. However, ongoing concerns about volatility and Europe hampered the markets at times. Here, we provide a performance scorecard and consider potential developments in the year ahead.
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 Fine Wine - Why it's for More than Just Drinking by Mark E. Ricardo, JD, LLM, AAMS (Article)
For many investors, an ideal asset class would combine superior long-term absolute and risk-adjusted returns with a hedge against inflation and stock market volatility. There's a way to get all of that, in an asset class you might never have thought of until now: fine wine. Investment-grade wine deserves careful consideration, particularly now that - unlike other collectibles, such as art and rare books - it can be traded on a regulated exchange.
2012-12-06 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Now that the election is over, and the markets are oversold, the Mideast is again volatile, and the fiscal cliff is fast approaching, most market concern rests with whos going to be the first one in the pool? Interestingly, although the stars are aligned once again to make money in the equities markets, it is still a psychological, not financial, component that governs peoples capital deployment considerations.
2012-12-04 Surprising Choices in the Search for Safety Near-Certain Loss of Purchasing Power versus Short-Term by Jason Petitte, CFA (Article)
Risk, in its many guises, is unavoidable, and investors today are taking on significant amounts of credit risk, duration, and leverage to obtain high yields from many presumably safe bonds. But certain types of risk are often mispriced. By overweighting one's portfolio to those sectors that currently offer attractive risk-adjusted returns, investors will be better positioned to meet their long-term goals.
2012-12-03 Watching for Cliff to Fade, Jobs to Appear by Bob Doll of BlackRock Investment Management
Investors are likely to remain volatile as the focus on the fiscal cliff will remain intense. Progress on the cliff needs to happen quickly if a compromise is to be reached. Given the sluggish nature of jobs growth, we are unlikely to see the Fed change its stance anytime soon.
2012-12-01 Are Corporate Bonds Expensive? by Team of Neuberger Berman
As in the case of Treasury bonds, yields for U.S. corporate credits have fallen to historic lows as prices have risen. The yield on the Barclays Aggregate U.S. Investment Grade Bond Index was recently at 2.8%far below levels achieved during the heady days of 2007. Obviously, this reflects overall interest rates, but is it also a sign that corporate issues may be overvalued? We explore the issues and consider how investors should position their portfolios for the current environment.
2012-11-29 "Bond Deer" in the Headlights by Mike Temple of Pioneer Investments
An insightful client exclaimed to me last week, after I had enumerated the many risks facing bond market investors that he felt like a deer in the headlights. "Bear" with me for a paragraph or two while I elaborate. . .
2012-11-28 Idiosyncratic Risk...and the Other Kind by Jeffrey Bronchick of Cove Street Capital
If the recent election demonstrated anything of relevance to an investor, it should have been the beginning of the end of the tyranny of the "catalyst." The day before the election, an investor could have legitimately been worried about any number of micro, macro, domestic or global issues. And yet the sun rose, work was attended to by those who have jobs, markets opened, fell, and closed and the collective attention moved to the next "perceived" catalyst-the so-called fiscal cliff. Calling Roseanne Roseannadanna.
2012-11-26 Buying Treasuries and Avoiding Stocks Not the Way to Go by John Buckingham of AFAM
While we know better than to make too much out of a low-volume rally, especially during a holiday-shortened trading week, it was interesting to hear what The Wall Street Journal had to say one week ago at this time. As the publication helped ready investors for the week ahead, one story advised folks to head toward the safety of U.S. Treasury securities: "Expect safe-haven Treasurys to draw demand at the expense of stocks in the coming weeks, bucking a seasonal trend that has often favored riskier assets."
2012-11-20 Fix the Debt! by Team of Franklin Templeton Investments
In the "normal" course of a U.S. election, investors typically breathe a sigh of relief when the results come in, with at least one layer of market uncertainty removed. This time around, the political squabbling hasn't ended with the close of the polls on November 6. The debate about the "fiscal cliff," a combination of spending cuts and tax hikes set to go into effect on January 1, 2013, has heightened. Market volatility since the election seems to have heightened, too.
2012-11-15 Too Low for Too Long by Scott Minerd of Guggenheim Partners
The Federal Reserve faces the risk of inducing a sell-off in bonds similar to that which occurred in 1994 when Dr. Greenspan tightened credit conditions after maintaining an artificially low interest rate environment for an extended period.
2012-11-12 President Obama Wins Reelection; Equity Markets Trade Lower by Matthew Rubin of Neuberger Berman
Congress remains split following Tuesday's vote (Democrat Senate, Republican House. DJIA and S&P 500 decline 2.0% and 2.3%, respectively, last week. European Central Bank and Bank of England maintain current monetary policy stances.
2012-11-09 Roots of Economic Karma by Vivek Tanneeru of Matthews Asia
I'm a strong believer that bad governance (yes, bad) is a natural part of the process of socio-political empowerment, and one that is actually necessary at times in order for some democracies, such as India, to achieve faster economic growth. Typically, during times of great socio-political transformation economic governance takes a backseat as newly empowered segments of society view redistribution of power and patronage as the first order of business. Their attention turns to good economic governance only after they feel fully assimilated. Allow me to explain.
2012-11-08 Obama Wins: What's Next? by Team of Janus Capital Group
U.S. President Barack Obama has been re-elected for another four years, while Democrats will continue to control the Senate and Republicans the House of Representatives. We believe this outcome was largely anticipated by the markets before Election Day. However, U.S. Treasury markets likely will gain and risk assets could decline as investors remain concerned about sluggish economic growth, the impact of the impending "fiscal cliff" and the effects of continued Federal Reserve (Fed) intervention.
2012-11-06 Letters to the Editor by Various (Article)
A reader responds to Gary Halbert's commentary, What Really Happened in Benghazi on Sept. 11, which appeared on October 31, and a reader responds to David Schawel's article, Will Bonds Be 'Burnt to a Crisp?', which appeared on October 16.
2012-11-02 High Yield is Looking Expensive by Russ Koesterich of iShares Blog
High yield has enjoyed a rally over the last several months. Russ explains why it may be a good time to reexamine your exposure to the asset class.
2012-10-30 Bond Market Primer by Kendall Anderson of Anderson Griggs
For years, our tag line "Common Sense Portfolio Management for Intelligent Investors" has served us well. There are times, though, that "Common Sense" can steer us in the wrong direction. Take driving. When a teenager sits behind the wheel of a car for their very first attempt at driving they know, from years of watching Mom and Dad drive, that when they want the car to go to the right, they turn the steering wheel to the right. Even someone who has never driven an automobile knows this. It is common sense.
2012-10-29 Waiting for Treasuries to Reverse Course by Chris Maxey, Ryan Davis of Fortigent
In the years since the global financial crisis, investors have funneled money into fixed income securities. This year alone, more than $260 billion found its way into fixed income mutual funds. In an environment desperate for yield-oriented solutions, such demand is not surprising. What might be considered surprising, however, is investors' willingness to embrace such yield with extraordinary risk attached.
2012-10-26 The China Debate by Robert Horrocks of Matthews Asia
It seems to me that pretty much the only thing you can get Democrats and Republicans to agree on these days is that China is bada job-destroying exporter of cheap goods. And indeed, at the most recent two presidential debates, both candidates spoke of the trade deficit with China and described China as a rule-breaker, including the way it has managed its currency. They phrased their views as if trade were a competition between nations and that exports are obviously superior to imports. U.S. manufacturers might agree but consumers may demur.
2012-10-26 October 2012: Fixed Income Investment Outlook by Team of Osterweis Capital Management
Like last year, this summer's quarter was eventful. Investors entered the quarter with high expectations that the European Central Bank (ECB) and Federal Open Market Committee (FOMC) would provide the markets with more monetary largesse. On July 26th, Mario Draghi, President of the ECB, vowed to "do whatever it takes" to preserve the euro. Risk assets then began an anticipatory rally heading into some key events in mid-September.
2012-10-26 October 2012: Equity Investment Outlook by Team of Osterweis Capital Management
Equity and other "risk" assets rallied in the third quarter in anticipation of further monetary easing by central banks around the world. The prospect of increased liquidity from the central banks appears to have focused investor attention, at least temporarily, away from the generally softer economic data that continue to emerge from Europe and Asia.
2012-10-26 Of Irish and Fiscal Cliffs by Team of Franklin Templeton Investments
Dr. Michael Hasenstab, Templeton Global Bond Fund portfolio manager and co-director of Franklin Templeton Fixed Income Group's International Bond Department, doesn't prescribe legislative answers, but he can relate the fiscal challenges the U.S. faces to the experiences of a country with its own dramatic cliffs: Ireland.
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.
2012-10-22 3 Investment Strategies for the New World by Russ Koesterich of iShares Blog
No doubt about it the investment climate has changed, and it's unlikely to change back anytime soon. Russ K gives 3 possible solutions for investors seeking to adjust to the new investment world.
2012-10-19 Quarterly Letter by Ron Muhlenkamp of Muhlenkamp & Company
In his latest quarterly letter, Ron Muhlenkamp, president and portfolio manager of the Muhlenkamp Fund, re-examines Europe, China, and U.S. Politics as the major drivers of the markets. On September 7, 2012, Muhlenkamp published a Market Commentary, headlined "Threat of European Banking Crisis Recedes." In it, he discusses the Outright Monetary Transactions program, introduced by the European Central Bank. Mr. Muhlenkamp thinks this program makes credible the ECB's promise to do all it can to keep the Eurozone together.
2012-10-19 Monthly Investment Bulletin by Team of Bedlam Asset Management
In their efforts to support growth, governments and central bankers have steadily chipped away at the free market. Through increased regulation, financial suppression and monetary intervention they have accentuated the lack of supply in quality fixed income paper, driving bond yields down to previously unthinkable levels. Policy makers are almost pathological in their belief that the end justifies the means as they try to inflate away their debt by keeping interest rates below nominal growth.
2012-10-19 Educating India by Siddharth Bhargava of Matthews Asia
India has long been a country where entrepreneurs have stepped in to fill gaps in the market, and their role in primary education has been no different. Over the last decade, an estimated 300,000 low-cost private schools have sprung up across India. And as counterintuitive as it seems, many poor parents are willing to pay for their children's schooling to avoid the country's free education system.
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.
2012-10-15 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
Global equity markets performed well in the third quarter after posting modest losses in the second quarter. The soft second quarter, which followed back-to-back double-digit quarterly gains, proved to be a pause rather than a signal that the equity bull market was ending. Though defensive sectors garnered favor in the second quarter, economically sensitive sectors have generally led performance this year, with technology, financials and consumer discretionary topping the list year to date.
2012-10-15 High Yield and Bank Loan Outlook by Scott Minerd of Guggenheim Partners
The leveraged credit market turned in an impressive Q3 with high yield bonds and bank loans returning 4.3 and 3.1 percent, respectively. Unprecedented accommodation from central bankers across the globe has alleviated much of the macroeconomic tail risk that we highlighted in last quarters publication. Presented with a seemingly insatiable demand for new issue bonds, issuers returned to the torrid pace of issuance that characterized the start of 2012 by raising a record $99 billion during the third quarter.
2012-10-12 Teetering on the Edge? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
Concerns about a possible US recession remain elevated in light of the pending "fiscal cliff," resulting in some lackluster stock market action. The fiscal cliff and uncertainty around tax and regulatory policy appear to be influencing business decisions to the detriment of economic growth. While worst-case scenarios for Europe may have been taken off the table by the ECB, Spain's reluctance to ask for aid is causing consternation. And although we see continued weak growth in China, signs indicate the global slowdown may be turning around.
2012-10-12 The Golub Group Commentary by Team of The Golub Group
High-quality businesses that have the ability to pay and increase their dividends are even more attractive in this low yield environment and the valuations of these businesses are cheap on an historic basis and relative basis to the alternatives.
2012-10-11 When Averting Loss Can Lead to Averting Gains by Team of Franklin Templeton Investments
Think about something you'd really hate to lose, something of value to you such as a treasured possession. Now imagine you're told that if you lay that object on the line in a bet, you have a good shot at doubling its value, but there's also a possibility you'll lose it. How low would the chance of loss have to be before you'd be willing to take the risk? Maybe 10 percent? Less than that? The answer may lie in a behavioral economic theory called "loss aversion."
2012-10-10 Munis and Tax Reform: Tempest in a Teapot or Taxmageddon? by Team of Neuberger Berman
We've heard increased dialogue recently about the future of the tax exemption for municipal bond income. While it has long been commonly thought that taxing municipal bond income would result in higher borrowing costs to governments potentially impairing their ability to operate the current political landscape, upcoming election and looming "fiscal cliff" have opened for debate the prospect of changes to longstanding provisions of the U.S. tax code.
2012-10-10 Third Quarter Surge Caps 12-Month Relentless Risk Rally by Douglas Cote of ING Investment Management
Despite the rally of the past year, equity markets still look cheap. Weakening manufacturing data suggest the 12-quarter streak of positive earnings growth may come to an end in the third quarter. Housing has turned the corner, providing consumers with cause for confidence. Though fundamentals have wavered a bit, we are constructively bullish on risky assets, as "successful investing demands a choice between prudent risk control and outright risk avoidance".
2012-10-10 Potential Picks for a Yield-Starved Portfolio by Russ Koesterich of iShares Blog
Yield-hungry investors today are faced with a stark choice: accept lower yield or more risk. Russ K explains why given those options, investment grade bonds may be one of the better bargains.
2012-10-09 Is Gluskin's David Rosenberg Right about Utilities? by Geoff Considine (Article)
They're not the sexiest property on the Monopoly board, but in today's market, there's plenty of evidence mounting that utilities are a great source of income. Indeed, Gluskin Sheff's David Rosenberg made the case for utilities in a recent commentary.
2012-10-09 Expect Economic Sluggishness to Persist by Bob Doll of BlackRock Investment Management
Although the economy does seem to have improved a bit in recent months compared to where it was in the second quarter, growth levels in both the United States and around the world will likely remain subpar at least through the middle of next year. The base case for the United States appears to be the economy continuing to grow at around 2% (perhaps a notch higher) over the course of 2013. This growth level would be contingent on avoiding the full force of the fiscal cliff and would be underpinned by a recovery in housing and a pickup in capital spending levels.
2012-10-09 High Yield and Equities Mind the (Equity) Gap by Hozef Arif of PIMCO
High yield bonds returned 12% through September, even as corporate defaults continued to rise, albeit gradually. While the default rate is an important market metric, it has been a lagging indicator of high yield bond total return performance. Investors should closely monitor equity markets for signals on where high yield spreads may go.
2012-10-05 Market Performance and the Party in Power: Is There Really a Connection? by Team of Janus Capital Group
The relationship between domestic securities market returns and U.S. Presidential elections is a favored topic of Wall Street commentators. As the 2012 Presidential election heads toward the tape, the pundits are in full swing once again, and claims about the impact of a Democratic or Republican victory on U.S. stock and bond markets pop up almost as frequently as political ads. In this paper, we address the question, Should investors take these prognostications to heart and, more importantly, apply them to their asset allocations?
2012-10-05 Economic Recovery and Debt Reduction: Faster, Please! by Chris Molumphy of Franklin Templeton Investments
It's tough to be patient in an age of instantaneous communications and instant gratification. We all want immediate answers to our questions and quick fixes to our problems. When it comes to real world tangles like the global economy, though, Chris Molumphy, CIO of Franklin Templeton Fixed Income Group, reminds us that patience, not a magic pill, is the order of the day when it comes to European and U.S. struggles to cure their economic ailments. He's realistic about these problemsbut isn't waiting to act where he does spot investment opportunities.
2012-10-05 Harmony and Turmoil by Sherwood Zhang of Matthews Asia
Since Japan's recent purchase of the disputed Diaoyu/Senkaku Islands a few weeks ago, anti-Japan protests erupted in various Chinese cities, with some turning violent and targeting Japanese shops, cars and factories.
2012-10-05 Market Respite by Richard Michaud of New Frontier Advisors
In a period of looming macroeconomic risks and great investor uncertainty the quarter resulted in solid gains in most global equity markets. The Dow was up 4.3%, the S&P 500 5.8% and the NASDAQ 6.2% for the quarter. Year-to-date the Dow was up 10%, the S&P 14.5% and the NASDAQ 19.6%. The news internationally was encouraging though mixed with European indices up 8% for the quarter and 11.8% for the year while Pacific indices were up 2% for the quarter and 7.4% for the year.
2012-10-03 Stocks Are Taking a Breather from the Rally by Bob Doll of BlackRock Investment Management
To at least some extent, the pause in the rally we have seen over the past couple of weeks can be attributed to some profit-taking on the heels of a significant multi-month uptrend (US stocks rose close to 6% in the third quarter). It is also likely, however, that investors are coming to grips with the fact that the world continues to face some serious risks and are recognizing that not all of the world's problems can be solved by central bank action.
2012-10-02 The Risk in Safety by Greg Nejmeh of HS Management Partners
The "risk on/risk off" sound bite is routinely applied by financial commentators when attempting to explain inexplicable market fluctuations. As the pendulum oscillates between greed (risk on) and fear (risk off), the fulcrum the pivot point where the scale rests in perfect balance can best be characterized as safety. It is from that state of equilibrium that the market begins each trading day...
2012-10-01 Moral Hazard. by Scotty George of du Pasquier Asset Management
Overall, equity market risk is dissipating. There appears to be a stronger momentum ameliorating a global tapestry of "ills." What may have been a domino effect when the credit crisis began has stopped short of a cataclysm and turned closer to equilibrium. As a result, equities might be poised to perform. The question is when?
2012-09-28 ProVise Bullets by Ray Ferrara of ProVise Management Group
The median household income adjusted for inflation is now around $50,000 for a "typical" American family. This is 8% below the all-time high, which was set in 2007. Driving these results, as reported by the Census Bureau, was the fact that 80% of Americans saw their household incomes decline, or at a minimum, remain the same, while the top 20% saw their incomes increase by 1.6%. Depending upon which side of the political spectrum you are on, an argument could be made for the policies of either President Obama or Governor Romney.
2012-09-28 Schwab Market Perspective: Disrespected RallyCan It Continue? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
US equities are trading near five-year highs but numerous measures show investors remain skeptical. The enthusiasm following the Fed's announcement of more quantitative easing was short-lived, although the summer rally in stocks could be at least partially attributed to anticipation of more stimulus. The enthusiasm following the Fed's announcement of more quantitative easing was short-lived, although the summer rally in stocks could be at least partially attributed to anticipation of more stimulus.
2012-09-28 Look Out Below! The Fiscal Cliff Steepens by Russ Koesterich of iShares Blog
Despite the recent happy headlines, most measures of US economic activity point to slower growth, which makes the threat of the fiscal cliff pushing the US economy into a recession even greater. Russ K explains how investors can prepare.
2012-09-27 Dividend Yield vs. Dividend Growth by Ashvin Viswanathan of O'Shaughnessy Asset Management
Investor demand for high-yielding companies has grown even stronger because of the perception that these companies are more defensive and recent news that the Federal Open Market Committee (FOMC) has extended its forecast of low rates until 2015. We believe buying a portfolio of high-quality, global, market-leading companies with superior valuations and high dividend yields provides investors with an excellent opportunity to consistently beat the market, while providing high income relative to fixed income securities in the current environment.
2012-09-25 Bill Gross: Hedging Your Bet on Deflation versus Inflation by Ben Huebscher (Article)
Will deflation or inflation prevail? The answer to that one question determines portfolio construction, according to Bill Gross, founder, managing director, and co-CIO of PIMCO.
2012-09-25 Stocks Should Overcome Hurdles to Continue the Bull Market by Bob Doll of BlackRock Investment Management
Although global economic data has been relatively weak in recent years, risk asset prices have nonetheless advanced. We would attribute this trend to the fact that weak economic growth does not, by itself, limit the potential for risk assets. In our view, the liquidity-driven reflationary policies of the world's central banks have been a more important factor for asset prices than economic growth levels have been.
2012-09-24 Do TIPS Pose a Hidden Risk to Seekers of Inflation Protection? by Douglas Peebles of AllianceBernstein
Treasury-inflation protected securities, or TIPS, have been a popular choice for investors concerned about future inflation. And TIPS' returns have been impressive in recent years. But the main contributor to TIPS' performance isn't inflation. It's an ingredient that could become as hurtful down the road as it's been helpful in the past.
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 Main Street Policy...Seriously? by Jason Doiron of Sentinel Investments
In case you did not catch the press conference last week, Ben Bernanke believes that his latest round of quantitative easing will benefit Main Street. Seriously? The notion that Main Street will benefit from the Fed purchasing an additional $40 billion per month of agency-backed MBS is preposterous to us.
2012-09-14 All In by Bob Rodriguez of First Pacific Advisors
2013 is a critical moment in time. If a material and timely fiscal restructuring does not take place by next September, I fear and believe that it will not occur before 2017. Unfortunately, if this were to occur, my 2009 warning of a crisis of equal or greater magnitude than the Great Recession by 2017 would be a more likely outcome. My worst fear is that fiscal gridlock continues, coupled with the policies of this activist Fed Chairman. Todays Fed actions add to my anxieties. ALL IN may be a good strategy for poker but not for this economy.
2012-09-14 Operation Screw by Peter Schiff of Euro Pacific Capital
The Fed will try to conjure a recovery on the backs of currency debasement. It will not stop or alter from this course. If the economy fails to respond to the drugs, Bernanke will simply up the dosage. In fact, he is so convinced we will remain dependent on quantitative easing that he explicitly said he won't turn off the spigots even if things noticeably improve. In other words, the dollar is screwed.
2012-09-13 How Would Municipals Fare Under Romney? by Douglas Peebles of AllianceBernstein
Last month, we wrote that changes to the tax code being discussed in Washington would affect the value of municipal bonds. While that analysis still holds true, that was before the election campaign engines really revved up. Now there's more chatter, if not more clarity. My colleague Michael Brooks weighs in.
2012-09-13 Finding Seeds of Growth by Serena Perin Vinton of Franklin Templeton Investments
Like the seed waiting to emerge beneath an icy winter blanket, there are equity growth opportunities sprouting that perhaps aren't obvious on the surface. When the global economic landscape seems rocky and unfertile, you might think opportunities in growth-oriented stocks would be stunted. Serena Perin Vinton, co-manager for Franklin Growth Fund, knows where to dig for those growth opportunities though, and sometimes it's in unusual places. One area she points to is U.S. manufacturing, which she believes could be set to stage a comeback.
2012-09-12 On Uncertain Ground by Howard Marks of Oaktree Capital
I'm going to devote this memo to the uncertainty in the world and the investment environment and then offer my take on the appropriate strategy response. This will require me to touch on a large number of topics, but I will try to dwell less than usual on each of them.
2012-09-12 Investing is Like Duck Hunting by Pamela Rosenau of HighTower Advisors
The discussion of additional monetary easing by the Federal Reserve has been the topic du jour in recent weeks. As a result of potential additional monetary stimulus, the US dollar has experienced a decline. Also, after a weaker than expected jobs report last week, US treasuries initially rallied given an increased expectation of Fed action. However, as pointed out by the market commentators at Sober Look, the Treasury curve has begun to steepen with the "30-year bond and other longer dated treasuries steadily selling off."
2012-09-11 The Winds of Market Change by Mark Mobius, Michael Hasenstab of Franklin Templeton Investments
As we cross the mid-way point of the year, you might say the equity and fixed income markets have been a lot like the recent weather in much of the world: uncertain, and tending toward extremes. The perception of a stormy economic climate has driven some equity valuations to extremely low levels, particularly in Europe, and investors have been pouring into fixed income despite extremely low yields.
2012-09-11 Rally Should Continue, but Look for More Volatility by Bob Doll of BlackRock Investment Management
Despite a relatively disappointing jobs market report for August, stocks rose last week as investors focused on the European Central Banks (ECB) announcement of its longawaited plan to buy bonds in the secondary market. The ECB program represents an important step in terms of lowering volatility and providing a cushion for Europes debttroubled countries to make some longer-term improvements in their fundamentals.
2012-09-10 Fixed Income Investment Insight by Michael Siviter of Invesco
At the beginning of a crucial period for the Eurozone, Michael Siviter, Portfolio Manager in Invesco Fixed Income, outlines the challenges the authorities face.
2012-09-07 The Federal Reserves Next Move: QE3? Perspectives on U.S. monetary policy by Team of Janus Capital Group
We believe the Fed will take additional action by mid-September to stimulate the economy, probably through a third round of quantitative easing. U.S. economic growth remains well below potential and is slowing, and the Fed is not meeting its dual mandate to ensure price stability and full employment. We recently reduced our 2012 GDP growth estimate to between 1.5% and 1.7%.
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.
2012-09-04 The Ultimate Income Strategy - Higher Yield and Lower Volatility by Geoff Considine (Article)
Investors, especially those in the de-accumulation phase of their retirement, count on high income and low volatility. Achieving the best possible tradeoff between yield and risk is a major challenge for advisors. Over the last two years, I've shown how to construct a low-risk portfolio - the ultimate income portfolio (UIP) - that yields over 9.0%. Let's look back at how those portfolios performed and the components of this year's UIP.
2012-09-04 Letters to the Editor by Various (Article)
A reader responds to Dan Richard's article, The Wrong Way to Ask for Referrals, which appeared last week, and two readers respond to Bob Veres' article, The Profession's Faulty Assumptions: A Top Ten List, which appeared on August 21.
2012-09-04 Challenges in Todays Municipal Market by Douglas Peebles of AllianceBernstein
Most fixed-income investments carry two key risks: interest-rate risk and credit risk. Both affect a bond's value in the market. But before the 2008 financial crisis, interest-rate risk was the primary concern of many investors and investment managerscredit risk was much less of a consideration. My colleague Michael Brooks explains why.
2012-08-31 Rethinking How We Invest by Matt Scales of Columbia Management
Building portfolios to meet individual objectives is or should be a customized exercise, so this article should not be considered advice for any individual. Instead, it is an alternative philosophy to how investors have traditionally approached building portfolios. For the vast majority of us, we allocate our capital to asset classes with the highest expected returns.
2012-08-30 Dividends: The Next Bubble? by Ed Perks, Don Taylor of Franklin Templeton
Dividend-paying stocks have received a good deal of attention this yearand for good reason. Ed Perks, senior vice president and director of the Core Hybrid Portfolio Management Group at Franklin Templeton, and Don Taylor, senior vice president and portfolio manager for Franklin Equity Group, suspect it's these fearful prognostications that are overinflated, not the asset class. As they see it, the dividend-paying stock universe is expanding, and deserves investor attention.
2012-08-29 Closed-End Funds by Douglas Bond of Cohen & Steers
We would like to share with you our review and outlook for the closed-end fund market as of July 31, 2012. For the month, the total return of the Morningstar U.S. All Taxable ex-Foreign Equity Closed-End Fund Index was 3.0% based on market price and 2.3% based on net asset value (NAV). Year to date, the index had a market-price return of 11.8% and a NAV return of 8.1%. By comparison, the S&P 500 Index and the Barclays Capital U.S.
2012-08-29 A Two-Pronged Case for Holding Gold by Russ Koesterich of iShares Blog
Gold continues to benefit from today's low interest rate monetary climate, and Russ says its diversifying effects mean the metal can be a valuable risk management tool for investors.
2012-08-28 Real Estate Resiliency: the REIT Model Proves its Mettle by Josh Olazabal, Amit Arora of PIMCO
REIT unsecured debt has been one of the best-performing sub-sectors in the entire investment-grade credit area. When insurance companies began to look at REIT unsecured debt, they asked for the same type of covenants associated with property-level mortgages. These requirements have coalesced into a standard REIT covenant package. We believe low default rates and relatively high recovery rates make the sector attractive over the long term particularly for buy-and-hold investors.
2012-08-28 Policymakers Hold the Key to Confidence by Bob Doll of BlackRock Investment Management
The Dow Jones Industrial Average fell 0.9% to 13,158, the S&P 500 Index slid 0.5% to 1,411 and the Nasdaq Composite lost 0.2% to close the week at 3,070. As August draws toward a close, US equities have hit four-year highs, corporate bond yields touched multi-year lows and many risk assets can look back on a pretty good summer. But despite plenty of investment and central bank activity, we continue to see a shortage of economic and financial market confidence.
2012-08-22 What Will it Take for the Rally to Continue? by Bob Doll of BlackRock Investment Management
One of the factors underlying the upturn in stock prices over the past couple of months has been a modestly improving trend in US economic data. Last week, retail sales advanced 0.8%, well ahead of expectations. This was the first increase in four months, which suggests that while households remain generally cautious, spending levels are beginning to tick higher.
2012-08-21 Hype and Reality in the Muni Bond Market by Hildy Richelson (Article)
Meredith Whitney's prediction last year of billions of dollars in municipal bond defaults stirred investors' fears. Earlier this summer, bankruptcies in three California cities reignited them, and last week a Federal Reserve study revealed that muni bonds have defaulted at a higher rate than previously reported. But no crisis has befallen the municipal bond market, and it is highly unlikely that one ever will.
2012-08-17 Disconnected Markets Confound Investors by John Browne of Euro Pacific Capital
The current environment for investors is perhaps one of the most confusing that many have ever encountered. Unpredictable markets now appear to take no clue whatsoever from underlying economic data, and maxims long cherished by traditional money managers are being abandoned in favor of seemingly illogical choices. While such an environment is enough to encourage many to cash out completely, we believe that investors should remain focused on the fundamentals.
2012-08-14 An Imperfect Storm by Janus (Article)
Changing regulations have drained liquidity from the corporate bond markets, as growth in bond ETFs is distorting a shrinking market. These converging forces are likely to result in a more volatile environment, but we see opportunity for managers able to understand the fundamental risk and reward.
2012-08-13 Thinking about Treasuries? 2 Reasons to Think Again by Russ Koesterich of iShares Blog
The Fed will soon own more long-term Treasuries than the entire private sector. Russ explains the implications of this milestone for US long-dated debt and shows investors where to look for more attractive alternatives.
2012-08-13 To Find Liquidity in Corporate Bonds, It Pays to "Think Odd" by Howard Edelstein of BondDesk Group
Electronic corporate bond markets are suddenly all the rage. Apparently, much of Wall Street now believes that a new, centralized electronic market will be required in coming years to prevent a contraction in liquidity in the $8.1 trillion market for corporate bonds. That's because there's a perfect storm of looming regulatory changes that will increase the capital banks need to support their trading operations, while limiting their ability to trade for their own account.
2012-08-13 Stocks Look Poised for Continued Gains by Bob Doll of BlackRock Investment Management
Although investor attention seems focused on a number of well-known downside risks (including the European debt crisis, hesitant US economic growth and the pending US fiscal cliff), stocks have continued to climb higher and last week notched their fifth consecutive week of gains.
2012-08-07 A Plane on the Tarmac by David Kelly of JP Morgan Funds
A few weeks ago, I was sitting in a plane on the tarmac at La Guardia. We had pulled away from the gate, but the pilot had just come over in the intercom to let us know that we were number 35 in line for takeoff. Since we were going nowhere fast, I took out my laptop and tried to think of an analogy to describe the current state of the American economy. Then I realized that I was sitting in one.
2012-08-02 Two Inflection Points by Andrew Redleaf of Whitebox Advisors
I'm generally happiest, professionally, when I have at least one strong investment conviction. Currently I have two. I want to be long large-cap equities and short small-cap equities. And I want to be long cheap options on natural gas, mostly by owning E&P (exploration and production) firms that have become attractively cheap with the collapse of gas prices.
2012-08-02 Mythbusting: How Elections Affect Markets by Russ Koesterich of iShares Blog
Elections do matter for the markets, but not necessarily for the reasons that investors tend to believe. Ahead of the next presidential election, Russ debunks some common myths surrounding markets and elections.
2012-08-01 The Vanishing Treasury Yield by Team of Neuberger Berman
Although Treasury bonds have performed well in recent years, investors should be aware of increasing risks as yields decline. Yields for 10-year Treasury Inflation-Protected Securities have been persistently negative since the fourth quarter of 2011 and continue to trend lower, implying that investors are paying increasingly higher prices for the relative safety these investments are supposed to provide.
2012-08-01 China's Growing Pains by Mark Mobius of Franklin Templeton Investments
Many feel that China is the engine for the world economy and that if it slows down, we may be doomed to a recession or even a depression. Yes, China's growth is decelerating from the double-digits of recent years; various forecasters are predicting a possible GDP growth range of 7-8% this year. However, I think it's important to emphasize that would still represent an impressive pace, and remember that China isn't the world economy's only locomotive.
2012-07-31 The False Promise of Gold as an Inflation Hedge by Michael Edesess (Article)
If you were a time traveler, hopping from one point in history 2,000 years forward or back, you'd best carry with you - if your time machine will allow it - a small stash of gold. Gold has been an effective hedge against inflation over the very, very long term. But that's about all it's good for. The other common reasons for owning gold - in particular, to use as a short-term or even a long-term hedge against inflation - are baseless.
2012-07-30 Sharp Decline in Earnings and Revenue Estimates by Mike "Mish" Shedlock of Sitka Pacific
For the first time in three years, US Quarterly Earnings are Poised to Drop. "Third-quarter earnings of Standard & Poor's 500 companies are now expected to fall 0.1 percent from a year ago, a sharp revision from the July 1 forecast of 3.1 percent growth, Thomson Reuters data showed on Thursday. That would be the first decline in earnings since the third quarter of 2009, the data showed."
2012-07-30 The Central Bank by John Petrides (Article)
Global markets responded favorably last week to comments from Mario Draghi, President of the European Central Bank, saying that he would do whatever it takes to save the euro (this reminded me of Fed Chairman Bernanke's comments in February 2009, when the Fed started its asset purchase program, and markets responded favorably soon after). Although the world awaits more details as to what Mr. Draghi's comments entail, equity markets rallied, and the yields on Spanish and Italian bonds came in.
2012-07-30 Looking Past Weak Data; Awaiting Policy Responses by Bob Doll of BlackRock Investment Management
Although last week featured some lackluster economic and earnings news, investors continued to focus their attention on the growing possibility of additional monetary policy action, particularly from Europe. For the week, the Dow Jones Industrial Average climbed 2.0% to 13,075, the S&P 500 Index advanced 1.7% to 1,385 and the Nasdaq Composite rose 1.1% to 2,958.
2012-07-26 Global Bonds: Protection in Down Markets by Douglas Peebles of AllianceBernstein
As US Treasury yields continue to plumb record lows, some have quipped that government bonds have gone from offering risk-free returns to return-free risk. Indeed, when interest rates inevitably rise from their current levels, bondholders face the prospect of poor or even negative returns. One way for investors to mitigate such a risk is by globally diversifying their bond holdings.
2012-07-25 Global Bonds - Where To Now? by Nic Pifer of Columbia Management
Economic data over the past four months show a clear softening trend in global economic activity. From our perspective, the muddle-along, sluggish global growth scenario remains very much intact. Highly accommodative monetary policies by the major central banks are helping support activity and contain downside risk.
2012-07-25 If You Own Utility Stocks, Consider Selling The Overvalued Ones - Part 1 by Team of F.A.S.T. Graphs
Recently, I've come across several discussions by dividend growth investors as to whether the utility sector is overvalued or not today. Therefore, I decided to look into the sectors relative valuation as a whole to see what I could find. The only way to efficiently conduct this kind of research is to rely on a broad statistical array utilizing traditional valuation metrics. However, before I report my findings there are some caveats and clarifications that I feel are very appropriate.
2012-07-24 Markets Likely to Continue Moving Unevenly by Bob Doll of BlackRock Investment Management
Notwithstanding a pullback on Friday, stocks managed to post gains last week despite a generally negative tone to the economic data. In some ways, the recent trend of relatively weak data has actually been beneficial for stocks in that it has been boosting hopes for additional policy stimulus around the world. For the week, the Dow Jones Industrial Average climbed 0.4% to 12,822, the S&P 500 Index advanced 0.4% to 1,362 and the Nasdaq Composite climbed 0.6% to 2,925.
2012-07-20 Long Journey, Map Provided by John Gilbert of GR-NEAM
It is almost four years since the Lehman bankruptcy. In the periods of economic contraction that were typical of the postwar period, the clouds would be parting by now. Income growth would have resumed and necessary balance sheet repair would be more or less complete. By any standard, the current episode is a balance sheet recession of historic proportion. Previous downturns were initiated by central bank rate increases, which occurred this time as well.
2012-07-20 No Armageddon, but Consequences by Michael Hasenstab of Franklin Templeton
In a time of severe stress and crisis, its easy to come to the conclusion that Armageddon is upon us. Those who believe the European Union is going to split up and Chinas growth will come to a screeching halt are probably building bunkers and sharpening their survival skills right about now. Hasenstab isnt in panic mode. In fact, hes optimistic the eurozone will survive, and that no, China wont move back into the feudal age.
2012-07-20 The Fiscal Cliff: 4 Reasons To Be Concerned by Russ Koesterich of iShares Blog
The bottom line: If were still stuck at an impasse come fall, investors should consider positioning their portfolios for a higher probability of a recession in 2013 by implementing five strategies that I outline below.
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.
2012-07-17 Gundlach – Avoid Riskier Assets by Robert Huebscher (Article)
Since early this year, Jeffrey Gundlach has warned investors to avoid exposure to riskier assets – among them, equities, non-dollar-denominated securities and sovereign debt. Still reluctant to move to a more aggressive position, Gundlach said on Thursday that 'substantial opportunities await,' but they may be as much as a year away.
2012-07-17 Global Slowdown: Preparing for a Recession by Russ Koesterich of iShares Blog
While Russ believes that the most likely scenario for the global economy in 2012 is continued slow growth, he explains what's behind the recent global slowdown and what investors may want to consider doing if it grows worse.
2012-07-17 Bull Market Has Been Buffeted, but Remains Intact by Bob Doll of BlackRock Investment Management
During a relatively modest week in terms of trading activity, stocks managed to stage a rally on Friday that helped erase the declines of the previous four days. The stock market gains over the past month can be largely attributed to the perception that policymakers in Europe have been making some progress combatting the ongoing debt crisis. There is a sense of uncertainty over the state of the US economy, and that uncertainty is making investors, companies and consumers wary about the future.
2012-07-16 Rethinking Asset Allocation by Curtis Mewbourne of PIMCO
As risk and return characteristics evolve, we believe investors need to adapt the way they think about using asset classes. Asset classes are likely to be affected by the situation in Europe and, more broadly, by high debt levels in developed countries. The related political debate about austerity vs. growth is also critical. Fixed income investors should note whether countries control their own currencies and can monetize their debts. Those that can may be greater inflation risks.
2012-07-13 End Game: What Happens to Residential Mortgage-Backed Securities if There's a Eurozone Exit by Rod Dubitsky of PIMCO
An exit would substantially affect euro-denominated RMBS mortgage collateral. Currency redenomination and devaluation would likely wipe out the entire available credit enhancement for most deals. Losses of redenominated loans could overwhelm credit support, even for well-performing deals.
2012-07-12 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
Following back-to-back double-digit quarterly gains, US stocks took a breather in the second quarter, with the S&P 500 Index declining 2.8%. It could have been worse. At the quarters low point in early June, the Index had declined 10.0% from the first-quarter close. June was a strong month for stock performance, leading to a welcome recovery from the early quarter decline. However, positive returns from the first quarter prevented the Index from becoming negative on a year-to-date basis.
2012-07-12 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.
2012-07-10 Is Higher Inflation on the Horizon? by Orhan Imer of Columbia Management
For nearly two decades inflation in the U.S. has been fairly contained except for a few periods of moderate acceleration around peak levels of economic activity. More recently, headline inflation as measured by the year-over-year change in the CPI-U (Consumer Price Index for Urban Consumers) declined from 3.9% in September 2011 to 1.7% in May 2012 driven primarily by the slowdown in the U.S. economy and the sharp drop in energy and commodity prices.
2012-07-10 Investing and the Euro Crisis by David Kelly of J.P. Morgan Funds
In the summer of 2012, the Euro Zone crisis continues to dominate financial markets as it has done over each of the past two summers. While the solution to the problem remains relatively straightforward, it requires a level of economic understanding, political courage and communication among policymakers that has been absent thus far. Without this, the crisis is likely to lurch forward with only a very slow and painful resolution.
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.
2012-07-03 Bond Funds: You Get What You Don't Pay For by Michael Edesess (Article)
Innumerable studies have shown that it's well-nigh impossible to beat the averages consistently investing in equity funds. But what about bonds? Bonds, after all, have more structure - perhaps there are ways an expert fund manager could exploit that structure and gain an edge over other investors. Is it possible to predict how well a bond fund will perform relative to other funds?
2012-07-03 10 Predictions for 2012: Mid-Year Update by Bob Doll of BlackRock Investment Management
At the midway point of 2012, it seems an opportune time to review the predictions we made at the beginning of the year. Although much could change, at this point it appears that the majority of our predictions are on track.
2012-07-03 The 2012 Mid-Year Geopolitical Update by Bill OGrady of Confluence Investment Management
As is our custom, we use this early July report to offer our outlook for the next six months. In this issue, we will discuss what we see as the key geopolitical issues that will affect the markets for the rest of 2012. This list is not exhaustive but highlights our greatest concerns.
2012-07-03 2Q 2012: Why I Still Believe in the Long-Term Viability of Stocks by Chuck Royce of The Royce Funds
Royce's President and Co-CIO talks about recent volatility, correlation, and why he still has confidence in stocks...How long do you think the market will be caught in this volatile, range-bound pattern? I think it's impossible to say with any certainty, though obviously we'd all like it to be over soon. There's vast turmoil going on in Europe, which is having an effect on the equity markets, and that is a large part of this range-bound phenomenon that has characterized the markets.
2012-06-25 12 Reasons US Recession Has Arrived (Or Will Shortly) by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I am amused by the Shadow Weekly Leading Index Project, which claims the probability of recession is 31%. I think it is much higher. When the NBER, the official arbiter of recessions, finally backdates the recession, May or June of 2012
2012-06-25 Markets Vacillate Between Weaker Data and Hopes for Policy by Bob Doll of BlackRock Investment Management
Last week was a modestly negative one for stocks as investors continued to focus on a trend of weakening economic data. Additionally, many were disappointed by what was perceived to be a less-than-robust response from the Federal Reserve following its policy meeting last week.
2012-06-21 Cohen & Steers Closed-End Fund Strategy by Team of Cohen & Steers
We would like to share with you our review and outlook for the closed-end fund market as of May 31, 2012. For the month, the total return of the Morningstar U.S. All Taxable ex-Foreign Equity Closed-End Fund Index was 4.4 percent based on market-price and 4.6 percent on a net-asset-value (NAV) basis. Year to date, the index had a market-price total return of 5.1 percent and a NAV return of 2.6 percent.
2012-06-19 Retirement Floors and Implications for Evensky's Cash-Reserve Strategy by Wade Pfau (Article)
Does sensible retirement planning call for funding basic needs with less volatile assets and investing more aggressively for aspirational goals? Or, with client goals clearly defined and prioritized, does sensible planning call for a total returns approach? Multiple schools of thought have emerged, but there is not yet any consensus about what constitutes a proper retirement income floor. These lingering unresolved disagreements reinforce the benefits of Harold Evensky’s and Deena Katz’ popular strategy.
2012-06-19 Will Policy Response Follow Policy Rumor? by Bob Doll of BlackRock Investment Management
The past two weeks have been better for stocks, with the major indices up in consecutive weeks for the first time in more than a month. Europe remains stuck in a cruel cycle of recession, a banking system in need of life support, frozen policymakers, too much debt and a downward confidence spiral. In the United States, economic growth slowed this spring (likely due to poor weather and the earlier spike in gasoline prices), but remains intact.
2012-06-19 Achilles Last Stand: Greeks Vote in Favor of Euro by Liz Ann Sonders of Charles Schwab
The June 17 Greek elections favored the pro-bailout party and allow for a likely coalition to be formed probably the least-tumultuous outcome. However, kicking the can further down the road doesn't solve the eurozone's structural problems, nor does it stem contagion. Next on investors' radar is this week's Federal Reserve meeting, where additional easing is expected.
2012-06-19 U.S. High Yield: A Closer Look at Junk Spreads by Hozef Arif of PIMCO
Investors are cautious about high yield bonds which have become more volatile following strong performance and inflows earlier this year. We believe the cyclical bottom in default rates is behind us, and based on a tightening in lending standards compared to last year, we expect a gradual increase toward the mean in default rates and credit losses in 2012.
2012-06-18 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
The big problem last week was in trying to distinguish between macroeconomic factors and underlying stock performance. The resulting decoupling made some equities more vulnerable than aggressive weekly gains might otherwise have one believe. As we muddle through the disappointment of global austerity packages and downwards earning revisions, too many stocks have spurted up simply on traders dreams for a new bull cycle.
2012-06-18 Cohen & Steers Preferred Securities Strategy by Team of Cohen & Steers
We would like to share with you our review and outlook for the preferred securities market as of May 31, 2012. For the month, the BofA Merrill Lynch Fixed Rate Preferred Index had a total return of 0.3% and the BofA Merrill Lynch Capital Securities Index returned 0.7%. Year to date, the indexes had total returns of +6.9% and +7.7%, respectively.
2012-06-14 Chart of the Week: Growth Dichotomys Diminished Influence by Team of American Century Investments
Despite weaker-than-expected U.S. employment data for May (released June 1) and other signs of slow economic growth, the Fixed Income Macro Strategy Team at American Century Investments does not believe the U.S. economy is headed toward another recession (though the marginal possibility of recession has increased). Rather, the team believes the economy remains on a sub-par recovery/slow (1-3%) growth path, with headwinds.
2012-06-13 U.S. Commercial Real Estate: A Technical Affair by John Murray of PIMCO
We believe attractive investment opportunities will arise in sectors of CRE that haven't yet caught the eye of technicals-driven capital. Demand for CMBS arguably comes from a lack of alternatives as opposed to any sort of inherent belief in rental fundamentals. Fickle technical factors are not the only headwinds: Deleveraging, regulatory uncertainty and weak fundamentals add further pressure.
2012-06-11 Investors Look Forward to More Policy Help by Bob Doll of BlackRock Investment Management
Following a significant slide the week before, stocks bounced back last week, primarily due to a growing sense that policymakers in Europe and the United States may be ready to engage in further easing measures. The increasing stress in Europe has put additional pressure on the European Central Bank (ECB) and on other policymakers to take stronger action, and, indeed, over the weekend European finance ministers announced a new plan to recapitalize the Spanish banking sector.
2012-06-08 The Purveyors of Notgeld by Tony Crescenzi of PIMCO
It is through this emergency money and repressively low interest rates that the worlds central banks create conditions that compel investors to seek out value in real assets and move outward along the risk spectrum. Investors should focus on assets that are likely to benefit from central bank policies designed to reflate deflated economies: commodities, land, equipment and software, for example. In equities, this means favoring entities in the developing world over those of the developed world in particular those reliably expected to pay a dividend.
2012-06-07 European Government Bonds Investment Outlook Update by Mark Nash of Invesco
The muted market reaction to the Greek bailout package unveiled on 20 February suggested that investors retained scepticism about the solvency of Greece looking forward. And for good reason, as the implementation risk of the package is tremendous given the European Union (EU) stipulates that Greece makes debt repayment a priority over basic public services. This package, and the deteriorating economy, led to inconclusive Greek elections in May and, more importantly, a clear rise in the popularity of the leftist anti-bailout parties.
2012-06-07 The Specter of Default: How Safe Are U.S. Treasuries? by Team of Knowledge @ Wharton
Just how solid are U.S. Treasury bonds, long considered a "riskless" investment? Is a default possible? Desirable? Unthinkable? And what are the options for reducing the annual government deficits that cause the country's debt to grow? Those and other questions were the subject of a recent Wharton conference titled, "Is U.S. Government Debt Different?" The conference was set up in the wake of last summer's debt-ceiling showdown in Washington, which highlighted the risk of a default on government bonds.
2012-06-06 Liquidity Lessons: The Critical Importance of Budgeting for Overlay Strategies by Markus Aakko, Jared Gross of PIMCO
One approach is to tier liquidity into current and contingent tiers, where some assets are kept in more liquid form and others are kept in higher-yielding investments. Quantifying how much of the immediate category is needed is a relatively straightforward risk-management exercise involving estimating the potential mark-to-market change in value of the overlay. Our view is that locating the liquidity pool internally has a number of potential advantages over an external model.
2012-06-04 My Best Investment Advice - Watch Your Fellow Investors And Do The Opposite by Chuck Carnevale of F.A.S.T. Graphs
In my opinion, the recent selloff in stocks defies commonsense and logic, but in truth and fact it usually does. In other words, its not uncommon to see investors selling at precisely the time they should be buying and vice versa. Moreover, when investor pessimism is at a high, like it is today, stocks become cheap causing people to panic and sell. Now when I review the data, I get optimistic and immediately began to suspect that all this pessimism is creating a great long-term opportunity for investors with a more optimistic view of the future.
2012-06-04 Negatives Intensify, but Panic Isn't Warranted by Bob Doll of BlackRock Investment Management
For some time, we have been suggesting that the US economy had been holding up relatively well compared to the rest of the world. While we are not changing that view, last weeks data (particularly Mays employment report) provided a negative jolt and pushed stock prices down sharply. Our summary view of the US economy is that while the United States appears to have entered another slowdown phase with the data growing more disappointing in recent weeks, the case for a renewed recession still looks flimsy.
2012-06-01 Asset Allocation: Does Macro Matter? Part II by Sebastien Page of PIMCO
We see the conventional, valuation-based approach to asset allocation as akin to looking in the rearview mirror, which may lead to suboptimal investment outcomes when important macroeconomic shifts take place. We believe an econometric framework to assess the impact of shocks to GDP growth and inflation provides the missing link between macroeconomic forecasts and portfolio performance. Investors should constantly complement, review and revise qualitative and quantitative macroeconomic analyses with judgment, experience and a view on current events.
2012-06-01 Hasenstab on a Possible Grexit by Michael Hasenstab of Franklin Templeton
The Greek debt drama looks to be entering its final act. On June 17, Greek citizens will cast their votes to either elect a pro-austerity government that would keep the economically eviscerated country in the eurozone, or leave the union and go it alone. Dr. Michael Hasenstab expects either option is going to be painful for Greece, so the big question in his mind is whether the world is prepared for either outcome. A summary of some of Dr. Hasenstabs thoughts on what Greeces next move may mean for investors.
2012-06-01 Civil Disobedience Hong Kong Style by Robert Horrocks of Matthews Asia
Walking around Hong Kong a couple of weeks ago, I was struck by the citys own version of the Occupy Wall Street movement. Directly underneath the HSBC tower, in the center of Hong Kongs vibrant financial district, is a small paved area, a portion of which is home to Hong Kongs anti-capitalist, anti-Wall Street movement. In the skyscraper above, thousands of banking and financial employees toil away daily, not overly disturbed by the protesters directly beneath their feet. Why? Because the civil disobedience below is just sowell, civil.
2012-05-31 The Sense and Sensibility of Global Investors by Mark Mobius of Franklin Templeton
The worlds financial markets are like a spiders web; inter-linked and highly connected, strong and flexible, but sometimes fragile, too. The global financial markets have gone through rapid change in the last ten years. Large, emerging economies such as China and India have increased their contribution to global GDP and become true global powers1, causing individuals perceptions of the global economy to shift, as well. Perception has the tendency to impact market reality, which is why I was intrigued to see the results of our 2012 Global Investor Sentiment Survey.
2012-05-31 The Case for Short Duration High Yield by Greg Hahn of Winthrop Capital Management
Valuations in the domestic high yield market appear stretched and we are concerned that opportunities for incremental return are fewer over a near term horizon. In this article we provide an analysis of the structure of the high yield market and a rationale for investing in specific short duration and callable high yield bonds which offer investors a better risk/reward trade-off in the current environment.
2012-05-25 India's Demographic Dividends by Sunil Asnani of Matthews Asia
Fortunately, Indias vast population of 1.21 billion, considered a time bomb not long ago, is increasingly being viewed as a positive. While its population has grown by roughly 18% over the past decade, the percentage of its children has actually fallen during this same period.looking to base manufacturing operations in other countries.India would do well to realize that this period of demographic shift is not merely a stroke of luck, but a window of opportunity. For growth to be sustainable requires some reforms in the way people live and work.
2012-05-25 Convertibles Market Review and Outlook by Ellen Gold and Ramez Nashed of Invesco
2012 will continue to be a good year for convertible bonds. New issuance will remain on its current path and increase as companies take advantage of low interest rates to raise capital to fund stock buybacks and mergers and acquisitions activity. Avoiding issue-specific underperformers still remains the key to performing well. This will prove to be even more important than picking the issue specific winners, given the asymmetric risks that are present in the market.
2012-05-22 Investing Through a Bumpy Ride by David Kelly of J.P. Morgan Funds
Its been a tough quarter so far. The U.S. economy is still growing, but not at a sufficient pace to excite anyone. Meanwhile, investors have had plenty to worry about including a fiscal cliff in the United States, a slowdown in China and, right now most ominously, further turmoil in Europe. Despite plenty to worry about, the realities of a U.S. economic recovery, very conservative allocations and relatively attractive valuations suggest that investors should still consider adding stocks and other risky assets to their portfolios.
2012-05-22 Finding Alpha with Active Managers by Jay Feeney of Robeco Investment Management
Many investors are convinced that alpha has disappeared from U.S. equity markets and prefer to use passive investment tools such as exchange traded funds (ETFs) to broadly gain exposure to these markets. The problem with this approach is that it gives up any chance of outperformance and forces an investor to settle for benchmark returns minus fees. It also ignores the fact that alpha potential does exist. Although many active managers have not done a good job in capturing alpha, there are many who have outperformed over time, producing very sizeable excess returns.
2012-05-22 Goodbye Planet Rates, Hello Planet Quantity: Credit Markets in a Zero Rate World by Luke Spajic of PIMCO
There is a sense that developed market economies are somehow undergoing a reversed metamorphosis reverting from butterfly back to caterpillar where growth is crawling as opposed to flying. The fear of credit destruction, perhaps triggered by deflationary scares, becomes a bigger obsession for central banks. The culture of credit risk-taking changes as rates go lower and approach zero with a perennial risk of the economy tipping into deflation.
2012-05-21 Are We Near the End of the Correction? by Bob Doll of BlackRock Investment Management
Although US economic data was generally good last week, stocks sank sharply as investor fears over Europe's debt problems intensified. Despite the mounting crisis in the eurozone, the US economic recovery continues to look stable. While it is true that US stocks have taken a turn for the worse over the last month, other markets (particularly European stocks) have been hurt even more. In our view, markets are awaiting some sort of positive jolt (perhaps in the form of a policy response in Europe or some stronger US economic data) to break out toward the upside.
2012-05-18 Real Assets by Team of Cohen & Steers
Chinas economic growth is a key theme that drives our outlook for real asset categories. As the worlds dominant consumer of most commodities, China is the largest importer of iron ore, producer of steel and consumer of copper. About 65% of the worlds soybean production is imported to the region. Thus, we were encouraged by central bank easing in response to the first-quarter slowdown, as it seems to have orchestrated a soft landing. Should there be further policy actions, it could spur opportunities in a number of natural resource categories.
2012-05-18 U.S. Large Cap Value Investment Commentary As of April 30, 2012 by Team of Cohen & Steers
The economic expansion is likely to continue, but at a pace that is modest both in absolute terms and relative to previous recoveries. Many stocks are still attractively valued, in our view, and they have the potential to advance in the coming months. At the same time we are watchful of global economic developments, particularly in Europe and the Middle East. A winding down of monetary stimulus (such as the Federal Reserves Operation Twist program) could create headwinds.
2012-05-18 Preferred Securities Review & Outlook for April 2012 by Team of Cohen & Steers
Barring meaningful erosion in the economic backdrop, preferreds can continue to deliver attractive total returns due to generally improving credit fundamentals and historically wide credit spreads. In addition, favorable technicals should continue to support the asset class, as investor appetite for income is likely to remain strong and the overall size of the market could shrink as banks retire issues that may lose Tier 1 capital status. Preferreds offer an average yield close to 7%, which is significantly higher than other investment-grade alternatives such as corporate bonds and Treasurys.
2012-05-18 Closed-End Funds April 2012 Review and Outlook by Team of Cohen & Steers
Given various risks to the domestic and global economies and generally modest inflation, monetary policy in the US will remain accommodative. With borrowing rates likely to remain low for an extended period, the yield advantage of leveraged closed-end funds will continue to draw investor interest. As a result, we see potential for the broad closed-end fund market to maintain historically narrow discounts, or even at times trade at premiums to NAV.
2012-05-17 Our Fixed Income Insights on Yield Traps by Team of American Century Investments
From a fixed income perspective, we explain why aggressive yield-enhancing strategiesresulting from this extended period of historically low U.S. interest rates and yieldscan threaten the potentially valuable long-term portfolio benefits from holding fixed income positions. In particular, chasing yieldand stumbling into yield trapscan derail the important volatility reduction and diversification benefits offered by carefully selected and well-managed fixed income holdings.
2012-05-15 Lacy Hunt on Debt, Austerity and Recovery by Robert Huebscher (Article)
Global economies are experiencing unsustainable debt disequilibrium, according to Lacy Hunt. Economic textbooks preach that equilibrium, rather than transition, should be the predominant condition. But our attempts to reduce our indebtedness by taking on more – and less productive – debt are weakening our economy and creating unstable conditions.
2012-05-15 A Growing Attraction to Municipal Bonds by Team of Hennion & Walsh Asset Management
For income oriented investors, bonds can provide for a dependable and consistent stream of income, and principal protection when held to maturity. Bonds, whether they are Municipal, Government or Corporate bonds, can also provide for compounded growth opportunities when the income received from the bonds is reinvested. Additionally, for growth-oriented investors, fixed income securities can provide investors with downside protection and diversification within a growth portfolio especially in a highly volatile market where additional, measured, short-term flights to quality are likely.
2012-05-10 A Mixed Fixed Landscape by Team of Franklin Templeton
The lingering low-rate environment in the U.S, Eurozone, Japan and some other nations has many yield-seeking investors feeling stuck in the mud. At its April policy meeting, the Federal Reserve pledged to keep its key short-term interest rate exceptionally low at least through late 2014. Some other global central banks, even in emerging nations, have pushed their rates lower too this year to spur growth. On top of that, many countries are also still trying to dig out of debt, but seem to be spinning their wheels.
2012-05-10 Benchmarking Tail Risk Management by Vineer Bhansali of PIMCO
While tail risk hedging is a critically important area of modern portfolio management practice, the relative newness of the area means standard frameworks for benchmarking such portfolios have not developed. In fact, weve found that once the framework for proper tail hedge construction is defined based on key guidelines (including exposures, attachment, cost, and basis risk), the task of creating a proper index becomes relatively straightforward. To compensate for insufficient real-time performance measurement, tail hedges need to be evaluated on the basis of scenario analysis.
2012-05-09 The Bond Market\'s Changing Face by Tom Seay of Heartland & Co.
Many investors think of the bond market as a sleepy backwater of the investable universe. But since interest rates peaked in the early 80s, financial innovation in the bond market has spawned countless new investment vehicles (junk bonds, zero-coupon bonds, collateralized debt obligations and other derivative products), democratized lending (think subprime borrowers and emerging countries) and brought Central Bankers our of dark paneled, smoke-filled rooms into the media spotlight (think Fed Chairman Ben Bernanke on 60 Minutes). All this has occurred during a 30-year bull market in bonds.
2012-05-08 Sentiment Readies for a Tumultuous Fall by Chris Maxey and Ryan Davis of Fortigent
Market sentiment has oscillated quite rapidly in recent months on the heels of dramatic market intervention by the ECB and shifting views of global economic stability. Sentiment is likely to remain unstable in the months ahead as investors grapple with any number of events, from elections in Europe and the US to the end of recent monetary easing efforts domestically. While markets have rallied substantially over the past six months, retail investors are maintaining a somewhat neutral view on their allocations.
2012-05-07 Q1 2012 Letter by Team of Grey Owl Capital Management
The overall equity markets strong first quarter rally was narrowly focused and, from our perspective, fragile. Cutting to the chase, we think both stocks and bonds are expensive. During the quarter, we used opportunities presented by Mr. Market to trim some of our lower quality positions and to add starter positions in a few high quality businesses. We also added to our short-term, high-yield fixed income holdings, sources of return that we expect to show less volatility but results equal to or better than the broad equity market indices.
2012-05-07 Mixed Data and Patience is a Virtue by John Buckingham of AFAM
The labor report issued by the U.S. Bureau of Labor Statistics found that nonfarm payroll employment rose by 115,000 in April, and that the unemployment rate dropped to 8.1%. The improvement in the jobless rate came about only because 342,000 folks left the workforce, so there was little cause for cheer, even though the rate stood at 9.0% in April 2011 and 9.9% in April 2010. Employment increased in professional and business services, retail trade and health care, but declined in transportation and warehousing, while the private sector added 130,000 jobs and government payrolls fell by 15,000.
2012-05-04 Stocks Cheap? Not so Fast! by Mike Paciotti of Integrated Capital management
Markets seem to have forgotten that which ailed us just 4 months ago. Talk of another Lehman style meltdown by a major financial institution has given way to positive earnings results, record profit margins and a much publicized recovery in the US. Equities, have now taken center stage once again with many major asset management firms proclaiming their attractive nature. Over the course of the next few paragraphs, we will examine this argument in greater detail by deconstructing equity market returns into component pieces.
2012-05-03 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
As markets regroup from their phenomenal start to the year, certain groups have transformed the conversational dynamic. Focusing as I do upon longer term demographics, I have noticed a shift from traditional consumer cyclical brands toward epic population issue sectors, such as agriculture, healthcare, energy and infrastructure. Beyond the obvious significance of these topics, trading machinations within those secular themes have transformed during the last year. One notices a steadier stochastic pulse to equities within these sectors, emblematic of a longer attention span.
2012-05-03 A Troika of Problems by Team of BondWave Advisors
The troika of the International Monetary Fund (IMF), European Union (EU), and European Central Bank (ECB) has continued to prescribe austerity. But at the end of what is now a lengthy cycle of agreements and ever-increasing austerity measures, the debt still remains significant and much of the region has either been plunged into recession or is heading that way. We discuss these ongoing problems and provide additional insight on the US Treasury, Corporate and Municipal Bond Markets.
2012-05-01 Why MLPs Belong in Your Portfolio by Geoff Considine (Article)
One would think that an asset class yielding 7% and carrying less volatility than do equities would be popular with investors. Yet, despite those attributes, master limited partnerships (MLPs) remain unknown or ignored by large numbers of investors. The case for MLPs is compelling, so it's time for a deep examination of the special properties of this asset class.
2012-05-01 The Income Hunt: Opportunities Abroad by Russ Koesterich of iShares Blog
When it comes to fixed income portfolios, investors are often too reliant on domestic debt issues. However, as Russ explains, today there are a number of reasons why US investors should consider looking outside their own country particularly toward emerging markets for their fixed income needs.
2012-05-01 Bernanke: Be Humble! by Axel Merk of Merk Funds
To Bernanke, being humble means to keep strong monetary policy support to avoid deflation. This humbleness creates a lot of debt whether that be out of thin air on the Feds balance sheet, or across the economy as consumers, businesses and the government alike are enticed to borrow evermore money. What we consider monetary largess, as well as fiscal unsustainability, may ultimately lead to deterioration of the US purchasing power. We have encouraged investors to take a diversified approach to cash. A basket of hard currencies or gold might serve to mitigate the risks of a declining dollar.
2012-04-27 TIPS for Value Investors: Whos Afraid of Negative Yields? by Jeremie Banet and Mihir Worah of PIMCO
Why wasnt the recent TIPS auction a blockbuster among Main Street investors? We believe they were frightened away by the -1.08% real yield. We would argue that the negative real yields that are explicit in TIPS also represent the implicit discount rate for ALL financial assets in the U.S. Moving away from TIPS into nominal yield is a bet on inflation being less than 2% for the next five years and less than 2.25% for the next 10 years a pretty bold bet!
2012-04-27 Happy (Third) Anniversary: Now What? by Jon Quigley of Advanced Investment Partners
During the trading day on March 6th, 2009, the S&P 500 Index hit its intraday bottom of 666.79. In the ensuing three years the Index has advanced over 100%. Along the way, weve witnessed the collapse of some of the older and more hallowed names in the financial industry buh-bye Lehman Brothers, so long Merrill), endured the most severe recession in at least 25 years, suffered through incredible spates of market volatility, and gathered a few gray hairs (or lost some hair) along the way.
2012-04-27 Bond Market Reflections Spring 2012 by Bruce A. Weininger of Kovitz Investment Group
Faced with the prospect of loaning money out for eight years knowing that our best case return over that time was 2%, we decided that, for a while anyway, wed rather hold onto to cash in hopes that pricing will become more rational over the coming weeks or months.
2012-04-26 Shareholder Letter and Commentaries by Robert Horrocks of Matthews Asia
How the markets behave in the near future, including the size and duration of any pullback, is unknowable. However, we remain confident in the long-term growth and prosperity of Asia. Therefore, our approach, in the midst of what are admittedly absorbing macro discussions, has been to focus on finding good businesses, rather than try to speculate on events. As much as we all like to discuss the big issues of the day, the real excitement and challenge comes in discovering businesses whose future prospects are underappreciated by the average view of the investment community.
2012-04-26 One Step Closer: Fed Keeps Rates Low But Gets More Hawkish by Liz Ann Sonders of Charles Schwab
The Federal Reserve's Open Market Committee (FOMC) made no change to short-term interest rates, but provided no hints that a third round of quantitative easing (QE3) was in the offing. As usual, the committee repeated its comment about keeping the Fed's balance sheet under review and being willing to act "as appropriate," while also confirming its pledge to keep rates "exceptionally low" through 2014. For the third consecutive meeting, there was one dissenterRichmond Federal Reserve Bank President Jeffrey Lackerwho believes the first increase in rates will be necessary in 2013.
2012-04-25 Avoiding Equity Market Exposure by Team of American Century Investments
The year 2012 finds the search still on for income and capital appreciation with acceptably low volatility. Many investors remain leery of stocks and are also interested in opportunities that possess low correlation to equity markets. In addition, the low interest rate environment presents difficulties for those trying to achieve total return goals by relying on fixed income investments. Given these issues, some may wish to learn more about the techniques utilized by many equity market-neutral (EMN) strategies.
2012-04-24 Fixed Income Commentary First Quarter 2012 by John E. Villela, David W. Seeley and Barbara J. McKenna of Longfellow Investment Management
The ever‐changing regulatory environment must be watched closely. The new, onerous capital requirements directed at the broker‐dealer community will make it more costly for broker‐dealers to hold inventory on their balance sheets. This will affect the cost of liquidity by making transactions more expensive in the marketplace. In addition, potential changes to money market regulations, which could include allowing the net asset value to float, could force a number of market participants to seek alternative fixed income solutions such as cash or short duration strategies.
2012-04-24 Rising Rates? Why Municipal Bonds May Weather the Storm by Tom Dalpiaz of Advisors Asset Management
A rising interest rate environment over the next few years is an investment scenario to which many investors now subscribe. The prospect of rising rates often prompts investors to think along the following lines: Interest rates are going rise and thats bad for bonds, so Ive got to cut back or stay away completely. But what if we suggested that investment grade, intermediate muni's might weather a rising rate storm comparatively well? We believe there are a number of factors worth considering that could help municipal bonds lessen the negative impact of generally rising interest rates.
2012-04-24 A Risky Business by Russ Koesterich of iShares Blog
In todays low yield environment, fixed income investors face a stark choice: accept lower income or take on additional risk to generate incremental yield. In assessing these two options, investors must start with their own tolerance for risk and investment objectives. For those willing to take on additional risk, I continue to advocate reducing duration risk, for which investors are not being adequately compensated, and modestly increasing exposure to spread products. I currently see opportunities in Investment Grade US Corporate Debt and Emerging Market Bonds.
2012-04-24 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
As markets regroup from their phenomenal start to the year, certain groups have transformed the conversational dynamic. Focusing as I do upon longer term demographics, I have noticed a shift from traditional consumer cyclical brands toward epic population issue sectors, such as agriculture, healthcare, energy and infrastructure. Beyond the obvious significance of these topics, trading machinations within those secular themes have transformed during the last year. One notices a steadier stochastic pulse to equities within these sectors, emblematic of a longer attention span.
2012-04-23 Decoding Duration to Better Understand Your Portfolio by William G. De Leon and Ravi K. Mattu of PIMCO
Duration is often used as a shorthand way to communicate the interest rate risk of a fixed income portfolio. We frequently encounter duration quotations presented as though no subtleties exist. These quotations average duration exposures across maturities and across currencies, implicitly assuming that yields across maturities and currencies are equally volatile and perfectly correlated. We approach the task of understanding interest rate risk with a more complete view of the risk dynamics driving interest rate sensitivity.
2012-04-20 Maybe Diversification Is Not All It's Cracked Up To Be by Chuck Carnevale of F.A.S.T. Graphs
As I began digging into the many faces of diversification, I quickly learned that it is a much more complex concept than at first meets the eye. I feel I learned that there is no one-size-fits-all or even a set of universally applicable rules or principles. To a great extent, diversification turns out to be a very personal issue. How much or how little depends more on your goals and objectives, the knowledge and experience you possess, the time you can allocate to your investment portfolio, and of course, your tolerance for risk. Some of us need a great deal of diversification.
2012-04-20 Whats Ahead for the Fed? by Team of Neuberger Berman
Although growth could slow from here, we do not believe economic conditions will deteriorate enough to provoke further accommodative measures from the Fed. The Fed may be on hold for the time being, but we also believe that Bernanke is acutely aware of the potential consequences of reversing monetary policy too quickly. As a result, interest rates may stay lower for longer. In this type of yield-constrained environment, we continue to favor segments like high yield fixed income and emerging market debt, which both offer attractive sources of income and upside potential.
2012-04-20 Preferred Securities First Quarter 2012 Review and Outlook by Team of Cohen & Steers
Preferred securities continue to offer a compelling total return proposition. Treasury yields are at or near historic lows, and the Federal Reserve appears committed to holding interest rates steady for the foreseeable future. At the same time, with preferred yields near 7%, the yield spread between preferred securities and Treasuries remains far wider than its long-term average, and few other investments offer as much income.
2012-04-20 Closed End Funds First Quarter 2012 Review and Outlook by Team of Cohen & Steers
. With borrowing rates likely to remain low for an extended period, we believe the yield advantage of leveraged closed-end funds will continue to draw investor interest. As a result, we see potential for the broad closed-end fund market to trade at even narrower discounts or even premiums to NAV. In addition, the recent success of new issues should allow the closed-end fund IPO window to remain open in 2012. At the present pace, we do not believe new supply will pressure pricing in the secondary market or impede discount narrowing.
2012-04-19 New Breed of Managed Futures Funds May Offer Downside Protection...and Upside Opportunity by Team of Emerald Asset Advisors
The search is on for strategies and portfolio managers that can generate return streams uncorrelated to traditional equities and fixed income. Whether it's due to the low return and high volatility equity markets of 2011 or the historically low government bond yields that persist even today, investors are scratching their heads wondering where to turn. A variety of alternative investment styles are available, many of which take an absolute return approach and aim to generate low market correlation, or at least, relatively low correlation to the broad equity markets.
2012-04-19 Price and Waistline Stability Prove Elusive as Inflation Creeps Up by Scott Colyer of Advisors Asset Management
The long-time trends are firmly in support of consistent price inflation during the history of the US. Inflation is a natural inclination for people, businesses, politicians and central banks. Given the Feds ultra-easy monetary policy aimed at creating inflation, we will eventually see it. Higher inflation requires investors to rethink where they invest. Cash and fixed income do little to cope with inflation and actually can be losers if held at times of higher than normal inflation rates. We think investors should take advantage of current bargains in real estate and equity asset prices.
2012-04-18 Balancing Perception, Reality, Equities and Fixed Income by Team of Franklin Templeton
Never underestimate the power of perception to influence peoples fiscal behavior. Perception is such a significant influence, in fact, that economic tea-leaf readers have developed a myriad of surveys and indicators to monitor individuals perceptions of the investing environment because perceptions canand domove markets. When sentiment is negative, investors tend to shift out of assets they perceive as risky and into assets they perceive as safe. Ed Perks, portfolio manager of Franklin Balanced Fund and Franklin Income Fund, is well aware of the role perception plays in the markets.
2012-04-17 10 More Years of Low Returns by Lance Roberts of Streettalk Live
Ten more years of low returns in the stock market. If you are one of the millions of baby boomers headed into retirement-start saving more and spending less because the stock market won't bail you out. I will explain why this is the likely future ahead for investors. In this weekends newsletter I wrote that "If you put all of your money into cash today and dont look at the market for another decade you will be better off..."I realize that this statement is equivalent to heresy where Wall Street is concerned but there is one reason behind my apparent madness - the power of reversion.
2012-04-12 Equity Market Review & Outlook by Richard Skaggs of Loomis Sayles
Looking out to year-end, Congress and the White House will be required to act on a long list of expiring tax measures and a debt ceiling increase is necessary as well. As we saw in 2011, compromise is very difficult to achieve and the elections introduce another level of uncertainty. However, the markets current attractive valuation builds in some of these risks. Beyond our shores, there is always the possibility of disappointment in Chinas growth trajectory, and further serious challenges with weaker members of the euro zone should be anticipated.
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.
2012-04-11 A Balancing Act by Mark Mobius of Franklin Templeton
The balancing act between inflation and growth that economies often face is perhaps even more pronounced in the emerging markets world: stimulate growth too much, and inflation could flare, but stamp out inflation too hard, and growth could freeze. The fire of inflation seems to have moderated and some central banks have taken actions to stimulate growth. I believe the fundamentals in many emerging markets look supportive of these actionsas long as it doesnt tip out of balance. Inflation is a big challenge, and I believe it will probably be a very important consideration going forward.
2012-04-09 And That's The "QUARTER" That Was... by Ron Brounes of Brounes & Associates
Europe hopes the latest (bailout and reg) moves will help it get its act together. (Good luck with that.) China applies the brakes. Labor looks strong, but can it continue? The Fed debates the need for more stimulus (without any consensus). Facebook moves closer to IPO (and investors beg to participate). The world lectures Iran and finally takes harsh measures (stand by to help Saudi). Investors hope to keep the mo going for another quarter, while being tempted to take profits along the way. Can we finally start focusing on Obama vs. Romney?
2012-04-06 If You Think All Utility Stocks Are The Same - Think Again by Chuck Carnevale of F.A.S.T. Graphs
Utility stocks, especially regulated utility stocks share certain characteristics that differentiate them from the typical dividend growth stock. On the plus side, utilities are thought of as predictable stocks with low volatility characteristics. Utility stocks also tend to provide a higher current yield than many dividend growth stocks. On the other hand, all of this consistency comes at a sacrifice of growth. Since the typical utility has a significant portion of their businesses regulated, their ability to grow earnings and dividends is restricted.
2012-04-04 Time Heals All Wounds by Robert Stimpson of Oak Associates
The US stock market enjoyed a strong first quarter of 2012. Fueled by better economic data and a calming of fears over Europe, the stock market surged higher. For the first quarter, the S&P 500 rose 12.6%. Oak Associates accounts did much better, gaining on average more than 17%. The strongest performing sectors of the market were financials, technology, and consumer discretionary. These three groups are the most cyclical and their strong performance bodes well for a broader economic recovery through 2012.
2012-04-03 Fewer, Richer, Greener: Why Jeremy Grantham is (Partly) Wrong by Laurence B. Siegel (Article)
Is the human experience getting better or worse? This is a big question investors are rarely asked to confront, yet its answer has profound consequences for market returns.
2012-04-03 Senior Loans Attractively Priced Relative to High Yield by OppenheimerFunds, Inc. (Article)
By restoring confidence in the global financial system, the European Central Bank's Long Term Refinancing Operation has allowed global bond investors to participate in attractive opportunities around the world.
2012-04-03 Overcoming Financial Repression with High Yield Bonds by Peter Ehret of Invesco
In this current low-interest rate environment, we see value in the high yield market, especially as the asset class has proven to provide relative attractive returns not only when compared to treasuries and investment grade corporate bonds but also when compared to the typical inflation-hedging asset classes such as equities. Furthermore we feel the strong fundamentals in the asset class additionally bolster the positive story for high yield bonds. In summary, we believe that allocating a portion of ones investment portfolio into high yield bonds may help investors.
2012-03-29 Asset Allocation Committee Outlook by Team of Neuberger Berman
The resurgence of risk appetite witnessed in late 2011 has continued, with most major equity indices up in double digits for the year-to-date. In contrast, fixed income indices have posted very modest and, in some cases, negative returns in the first quarter. Much has been accomplished in the U.S. and globally that has contributed to the now six-month-old equity rally. However, concerns remain. Given this picture, the Asset Allocation Committee's core view remains steadyunderweight bonds, overweight equities.
2012-03-28 Challenges and Change in Brazil by Team of Franklin Templeton
Brazils economy is grappling with some interesting challenges right now, such as shifts in monetary policy to cope with a possible economic slowdown and preparing to host two major events on the international stagethe 2014 FIFA World Cup Brazil and the Olympics in 2016. Marco Freire, Franklin Templetons CIO, Brazil Fixed Income for the Local Asset Management team based in Sao Paulo, isnt sharing any locals-only secrets about either event, but hes happy to share his insights on how Brazil is approaching these challenges, and to clear up some common misconceptions about Brazils markets.
2012-03-27 The demise of risk-on / risk-off and the emergence of heteroscedasticity by Jason Doiron of Sentinel Investments
I estimate that I inadvertently watch 12 hours of financial news programming per day. Too much television? perhaps, but for a portfolio manager it has become an occupational necessity. One of the greatest benefits to watching this much television is that I can recite verbatim every commercial that plays on CNBC with no clue which company is sponsoring the ad - pig on a skateboard anyone? The other benefit is that I am provided with a front row seat to a rogues gallery of pundits who describe the complexities of the financial markets through sound bites.
2012-03-27 Uncovering Equity Yield Traps by Team of American Century Investments
As the low interest rate environment persists, uncertainties continue even as new marketplace concerns begin to emerge. This observation is especially applicable to investors that are desperate for current income opportunities. In their search for equity investments, many will opt to screen for opportunities using current yield as the main filtering criterion. In situations such as this, those in hot pursuit of rich rates find themselves at risk of falling prey to nasty yield traps. Although yield traps exist in the fixed-income space, this piece focuses on yield traps involving equities.
2012-03-26 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Europe takes a well-deserved back seat to the global headlines as all eyes shift to China to see how the country deals with its recent economic slowdown. Consumer activity is on the hot seat domestically as a key confidence gauge is released and analysts closely dissect personal income and spending data in light of the sudden pickup in the labor market. The markets continue to test key levels as investors weigh the low yields in fixed income against the current risk in equities. Hows that speaking tour treating you, Dr. B.? Any Ron Paul sightings?
2012-03-23 Closed End Funds - February 2012 Review and Outlook by Team of Cohen & Steers
The U.S. economic picture has brightened since the fall of 2011, and we expect the trend to continue. We are also encouraged by progress in Europe, as economic austerity measures will likely weigh meaningfully on the regions growth. In this period of extended easy monetary policy by the Fed, we believe the yield advantage of leveraged closed-end funds will continue to draw investor interest. The success of recent IPOs should bode well for closed-end fund issuance in 2012, although we do not believe new supply will pressure pricing in the secondary market or impede discount narrowing.
2012-03-23 Is There Still Income in Fixed Income Today? by Joni Clark of Loring Ward
The extraordinary performance of fixed income investments in the past few years resulted from a combination of slow economic growth, low inflation and aggressive intervention by the Federal Reserve. These unusual factors are unlikely to be repeated over the next 30 years, and these unexpected returns simply cannot reoccur.
2012-03-22 Regulated Energy: Rise and Shine by Josh Olazabal, John Devir and Jennifer Seo of PIMCO
Regulated energy companies natural gas pipes, gas utilities and electric utilities have generally been seen as the sleepy cousins of more exciting energy subsectors like exploration and production, or coal extraction and production. But we have witnessed a number of events and regulatory developments in recent years that we believe are re-energizing the regulated energy subsector, more clearly distinguishing it from other members of the energy sector family and providing the potential for an abundance of opportunity for astute investors.
2012-03-21 Reflections: Expect the Unexpected by John Gilbert of GR-NEAM
The tides of financial returns ebb and flow, and for the moment, they are flowing. Since the financial crisis of 2008-2009, the deflationary forces of excessive indebtedness prevail for a while, and then are beaten back by the determination of popularly elected governments to reflate. The financial markets no longer reward skill, so much as they react to the relative strength of governments will to offset contraction.
2012-03-21 Why Convertible Bonds Should Be Part of Your Asset Allocation by Gary D. Halbert of Halbert Wealth Management
Im going to let you hear from Greg Miller about convertible bonds. Not only will Greg tell you how they work, but also why they can be an important diversification technique in your portfolio even now when other types of bonds are falling out of favor. I believe that many of you will want to have convertible bonds in your portfolio before long. The interest rate increases weve seen over the last couple of weeks may be a sign that the long bull market in traditional bonds is rolling over to the downside. Convertible bonds offer opportunity even during periods of rising interest rates!
2012-03-20 New Normal Still Part of the Vernacular by John Buckingham of AFAM
Have to say that I chuckled a bit when I read in Saturdays New York Times that most professional investors think that a black swan event is possible, even as a black swan was described as an unlikely event that too few people plan for! The comments accompanied a piece entitled, A Forecast for Low Returns, in which several investment pros put forth the argument that people should plan for single-digit investment returns for the next five to as many as 20 years.
2012-03-19 Did You See The 10-Year? by John Petrides (Article)
This week the US 10 year Treasury note spiked from 2% yield on Monday to 2.4% by the end of Wednesday. Around the office we were marveling at this move. Given the recent volatility in the equity market, that might not seem like much to stock investors, but to those in the fixed income world thats quite a change. The sudden spike in Treasuries has several implications: 1. Those investors who rushed into U.S. Treasuries over the past four months out of fear and panic (presumably not in hopes of achieving income) in search of safety, actually have an unrealized loss in their position!
2012-03-16 ProVise Bullets by Team of ProVise Management Group
Lets take a few moments to talk about GDP, the economy in general, and investor psychology. the GDP figures for the fourth quarter were revised from 2.8% to 3%. This marks the tenth consecutive quarter of growth, and given everything we know at this point its likely that the first quarter of 2012 will also reflect growth. In other words, we will have 11 consecutive quarters of growth. Fortunately the concept of a double dip recession has faded. Make no mistakethere will be another recession at some time in the future, but it will clearly not be a double dip recession.
2012-03-15 Where to Look for Dividends? Try Outside the US by Russ Koesterich of iShares Blog
With the dividend corner of the US equity market now crowded and expensive, Russ gives three reasons why investors might want to consider looking abroad for dividend income. More Reasonable Valuations: Outside of the US, dividend paying stocks still appear cheap and are trading at a significant discount to the broader equity market. More Attractive Yields: Non-US dividend companies are offering more enticing yields. Outperformance in a Slow Growth Environment: high dividend paying stocks tend to outperform during periods of slow growth like the one were experiencing this year.
2012-03-15 Everyone Hates Stocks ...and That's Why You Shouldn't by Bill Mann of Motley Fool
I dont tend to put currency into market moves, particularly short-term ones. But it has to be said that the tenor of the news regarding economies worldwide has been unambiguously bad. Why in the world would stocks go up in the face of such misery? Havent people heard about whats going on in Greece? Of course they have -- its why so many rushed out of risk assets last October and November. But while the caterwauling has done its job in spooking people, the underlying facts belie the news cycle: the American economy is booming.
2012-03-14 Why U.S. Investors Should Look Beyond Dividend Yield by Patrick O'Shaughnessey of O'Shaughnessey Asset management
Many investors are fed up with yields on fixed income securities and are in search of higher yield. As a result, U.S. stocks with high yields have become very popular with individual and professional investorsbut we believe that investors are looking at the wrong kind of yield. Though dividend yield works very well internationally, investors in U.S. stocks should instead focus on shareholder yield, a factor we have long advocated that has provided considerably stronger returns for U.S. stocks for more than 80 years.
2012-03-13 Checking In With the Municipal Market by Team of Neuberger Berman
In 2011, many investors appeared concerned about the potential for widespread defaults in the U.S. municipal bond marketsomething that failed to materialize. Now, we check in with the municipal markets and find that the outlook is greatly improved; however, in the wake of recent robust performance, it may also be a good time to exert some caution.
2012-03-13 Home Prices and Inflation, Part 1 by Mike "Mish" Shedlock of Sitka Pacific Capital Management
Various charts show home prices are now back to levels last seen in September-October 2002. I posted such a chart constructed from the LPS Home Price Index (HPI) in LPS Home Price Index Shows U.S. Home Prices Accelerated Decline.
2012-03-13 The Strategic Times: What is the Yield Curve Saying and Should We be Listening? by Matt Lloyd of Advisors Asset Management
Many prognosticators continue to discount the shape of the yield curve and what bits of wisdom one might see in its steepness or flatness. Though not a perfect indicator from the past, it does represent some interesting expectations from institutional investors that should not go unaddressed. Though these numbers may not appear meaningful to the average investor, the institutional investor sees this as highly significant as it pertains to investor appetite, economic impacts and hedging of interest rate swaps and currency expectations.
2012-03-09 The Road to Hades Is Paved with Partisan Politics by Gregory Yencharis of Neuberger Berman
Over the last year, we have become more guarded on GARVEE bonds based on changing dynamics in the municipal market that have been driven largely by fiscal pressure and dysfunctional Washington politics. In this piece, we discuss why our views have changed and the assumptions we use in our proprietary stress test model that help the Neuberger Berman Municipal Research Team avoid potentially problematic bonds.
2012-03-08 And Thats The Week That Was by Ron Brounes of Brounes & Associates
New week; same old story. EU ministers continue debating the Greek bailout package which should (hopefully) come to resolution next week. Unemployment highlights a busy economic calendar as investors look to see how the solid weekly jobless claims releases translate into the key labor rate and nonfarm payroll data. Bring on Super Tuesday, right Mitt?
2012-03-02 Will the Bond Bubble Burst This Year? by Gary D. Halbert of Halbert Wealth Management
I dont know who first uttered this classic line The trend is your friend (until its not) but it is timeless. It seems especially appropriate today in light of the massive shift weve seen from stocks to bonds since the financial crisis and bear market of 2008-early 2009. Millions of investors have moved from stocks to bonds and consider themselves safe. Today, there are more people invested in US bonds (of all types) than ever before.
2012-03-02 Positioning Your Portfolio When You Dont Have All the Answers by Josh Thimons of PIMCO
Faced with difficult questions like the European debt crisis, portfolio managers have two possible courses of action: feign omniscience and seek to position portfolios for one outcome, or admit to not knowing the answer and seek to position portfolios to prosper in the most likely scenarios and hold ground in the least. We believe the latter is the better course because two extreme outcomes appear increasingly likely for almost all asset classes, which increases the risk involved in choosing the wrong answer.
2012-03-02 President Obamas 2013 Fiscal Budget Proposal: What is the Impact on Not-For-Profit Hospital Bonds? by Tony Wong and Mary Jane Minier of Invesco
On February 13, 2012, President Obama released his proposal for the countrys 2013 fiscal budget. The $3.8 trillion plan, as proposed, calls for $360 billion in cuts to Medicare and Medicaid over a 10-year period. Under the budget proposal, hospitals and other medical providers will see lower Medicare and Medicaid reimbursement levels. According to Moodys Investor Services, the proposed cuts would pose an unprecedented threat to the not-for-profit hospital industry given that on average Medicare makes up 43% of gross revenues and Medicaid accounts for 12%.
2012-02-28 Credit Counts: The New Municipal Bond Market by Joe Deane, Julie Callahan & David McMahon of PIMCO
Today, the primary emphasis in security selection must be placed upon creditworthiness and the relative value of credit spreads. When the spread on a bond more than compensates an investor for its underlying risks, the bond becomes an attractive candidate, PIMCO believes. Investors with the resources and process in place to conduct proprietary credit research may have a strong competitive advantage.
2012-02-27 And Thats The Week That Was by Ron Brounes of Brounes & Associates
A few retailers (Abercrombie & Fitch, Nordstrom) take center stage in earnings season as investors get another glimpse into the recent holiday activity. Likewise retail sales highlights the economic calendar and offers some follow-through from the season. Fed minutes depict the mindset of the policymakers. And, of course, there will be news from Greece.
2012-02-24 The Greek Debt Crisis by Karen Dunn Kelley of Invesco
Bailout package brings answers, but more questions remain European leaders have agreed on another bailout package for Greece, allowing the country to avoid a disorderly default on a 14.5 billion debt payment due March 20. The Invesco Fixed Income team and I were not surprised to see Europe move to avoid an unstructured default, as we believe this would have been the worst-case scenario for investors. But we also recognize the uncertainties and the challenges that remain. Time will tell whether this bailout puts an end to the Greek debt crisis or whether it simply delays an inevitable default.
2012-02-23 Muni Outlook Q&A with Portfolio Manager Alan Kruss by Team of American Century Investments
Municipal bonds (munis) are back in the bond market spotlight, but for different reasons than a year ago (when widespread defaults were projected, and muni funds experienced heavy outflows). Muni performance has rebounded strongly since then, which has triggered follow-up questions about the muni market outlook. We posed them to Alan Kruss, Vice President and Municipal Portfolio Manager at American Century Investments.
2012-02-22 Closed End Funds - January 2012 Review and Outlook by Team of Cohen & Steers
The U.S. economic picture has brightened meaningfully since December, and we expect the trend to continue, albeit at a modest pace. We are also encouraged by progress in Europe, but continue to monitor developments closely, as the issues there are complex and will take considerable time to resolve, while economic austerity measures are likely to weigh on growth. In this period of extended easy monetary policy by the Federal Reserve, we believe the yield advantage of leveraged closed-end funds will continue to draw investor interest, as demonstrated by the IPO in January.
2012-02-21 Good News Cant Keep a Lid on Investor Fear by Kristina Hooper of Allianz Global Investors
The outlook for the stock market keeps getting brighter, but investors are still letting fear cloud their judgment. In the United States, the jobs picture a rather bleak scenario less than a year ago has improved substantially. The euro-zone debt crisis has also improved. We havent seen any real contagion from Greece, as evidenced by sovereign debt yields. And despite prominent investors such as Warren Buffett and Jeremy Grantham favoring stocks over bonds, a lot more money flowed into bond funds in January. This disconnect reveals a continued tug-of-war between fear and fundamentals.
2012-02-16 Hasenstab Sticks to His Guns by Team of Franklin Templeton
Michael Hasenstab, Portfolio Manager of the Templeton Global Bond Fund, doesnt scare so easily. As he reiterated recently, he actually sees times of market panic as opportunities to make investments where he sees long-term value. The key thoughts he shared: The challenge during periods of volatility is that, although investors can take a short-term hit, this volatility can create opportunity. Fears Europe will sink Asia appear overblown. China not likely to see a hard landing. The Eurozone drama continues to unfold.
2012-02-16 Currency Funds - Special Case International Bond Funds by Axel Merk and Kieran Osborne of Merk Funds
Investors may want to reduce their exposure to interest and credit risk in their international fixed income investments. One way to accomplish this may be to invest in international fixed income funds that have a commitment to the short end of the yield curve and to high credit quality securities. Currency funds may be considered special cases of international bond funds, as many typically invest in international fixed income securities of short duration to gain currency exposure. As such, currency funds tend to focus on currency risk while seeking to mitigate interest and credit risk.
2012-02-14 The Safety-first, Goals-based Approach to Financial Planning by Wade Pfau (Article)
Little of what is taught in traditional investment textbooks is of value in personal financial planning. Risk is not standard deviation; it is the probability and consequences of not meeting one's goals. That real-world perspective animates a new book by Zvi Bodie and Rachelle Taqqu that implores advisors and their clients to lock in the funding of their essential expenses before worrying about their discretionary goals.
2012-02-14 A Dejected Asset Class Finds Its Way in 2012 by Chris Maxey of Fortigent
Investor interest is acutely focused on the developed world, specifically Europe and the US. All the while, developing countries continue to be better positioned fiscally, with lower debt and better long-term growth prospects. Despite the outlook, stock markets in emerging markets are largely at the mercy of their counterparts in Europe and the US, suffering in lockstep as opposed to embracing the decoupling phase that was supposed to have begun in 2007. According to the IMF, emerging and developing economies grew 6.2% in 2011, compared to a 1.6% growth rate in advanced economies.
2012-02-10 Current Market Volatility? Too Quiet by Russ Koesterich of iShares Blog
In horror movies, the time to worry is when things become eerily quiet. Last Friday, the Chicago Board Options Exchange Volatility Index (VIX), hit its lowest level since last July. This is the financial equivalent of eerily quiet. Assuming that volatility is set to rise, how should investors adjust their portfolios? First, remember that its the change in volatility that tends to impact asset prices. Investors would want to modestly lower their weight to market segments that are very sensitive to changes in volatility and raise their weight to less sensitive or lower beta instruments.
2012-02-10 A Stock for its Dividends - Revisited by Jesper Madsen of Matthews Asia
Since investors often turn to Asia looking for growth, they may overlook that the region offers a well-diversified universe of dividend-paying companies in terms of sectors and countries. This month Jesper Madsen revisits the notion that the Asia Pacific region should play an essential role for investors seeking yield and growth in income.
2012-02-10 Missed Opportunities? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Investors eased back into stocks to start the year. This is the start of a sustainable trend, but equities rarely go up in a straight line and near-term caution may be warranted. Another deadline is approaching for Congress and the President to make a deal. Something will get done, but any hopes for substantial action remain dim. Markets appear to be more comfortable with the European debt crisis and the risks associated with it. Central banks around the world are easing, which could help support international stocks in the coming months.
2012-02-08 What the Bond Market Knows That You Dont by Matt Tucker of iShares Blog
On the back of improving US economic data, equities have rallied off of autumn lows, and yet US Treasury yields have continued to surf bottom with the 10-year note trading below 2% for the first time on record. Why havent interest rates recovered in support of improving data? Do US Treasury investors know something that equity investors dont? The answer may lie across the pond in Europe. The European crisis intensified significantly in the fall, causing equity markets (and most risky assets for that matter) to sell off and US Treasury rates to fall, despite the August downgrade.
2012-02-07 Jeremy Siegel, Rob Arnott and Other Experts Forecast Equity Returns by Laurence B. Siegel (Article)
A forecast of the equity risk premium (ERP) tells you how much to save, how to allocate assets between equities and fixed income, and how much you can consume. Given its great importance, the CFA Institute recently convened a group of top-level academics and practitioners to forecast future ERPs - and to reflect on similar predictions they had made a decade ago.
2012-02-07 Neel Kashkari on PIMCO's Equity Strategy by John Heins (Article)
Bond titan PIMCO has been methodically building its equity-investing expertise. Here the architect of that effort, Neel Kashkari, and his first major hires describe their strategy and how they're uncovering value in today's market.
2012-02-01 A Slippery Year for Excess Returns by John West of Research Affiliates
Last year, securities prices moved like a school of sardines. That environment made life difficult for both active managers and the Fundamental Index approach. This month's Fundamentals examines what happened in 2011 and the opportunities for breaking loose this year.
2012-02-01 The Trouble with Seeking Core Fixed Income Alpha by Daniel Morillo of iShares Blog
A typical core fixed income bond fund managers alpha is often positively correlated with the returns of broad equity benchmarks like the S&P 500. That means an investors actively managed fixed income holdings may perform more like equities than bonds. How problematic is this? Daniel Morillo is here to explain.
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.
2012-01-30 And Thats The Week That Was by Ron Brounes of Brounes & Associates
All eyes will be on the Fed as investors hope to take the newfound insight from its meeting and translate that into profitable trading opportunities (is that the intent of the new strategy?). The ever-changing mindset of the consumer is again on display as McDonalds (1/24), Starbucks (1/26), and Procter & Gamble (1/27) headline the earnings season. Looking at the economic data, analysts get their first look at 4th quarter GDP and gain greater insight on the impact of those Thai floods and the success of the holiday season. And then theres Europeis Greece really back in the headlines?
2012-01-30 TIPS for Financial Repression by Mihir Worah of PIMCO
Treasury Inflation-Protected Securities got a boost last week after the Fed extended the period of time it is likely to maintain unusually easy monetary policy and moved toward adopting a formal inflation target of 2% for the Personal Consumption Expenditure Index. Bernanke said that the central bank was likely to allow deviations from this target if employment was not where the Fed thinks it should be. We think financial repression is likely to persist and real interest rates are likely to be lower than recent history would suggest for the foreseeable future.
2012-01-27 Adding to Our Pro-Muni Arguments by Team of American Century Investments
Last month, we outlined multiple reasons why investors and investment advisors should consider high-quality muni investments as core fixed income portfolio holdings. In support of owning funds vs. individual securities, we focused primarily on credit-quality issueshow we believe most of the muni market remains fundamentally sound and resilient, but pressured by the economic and fiscal environment. We think this has created a heterogeneous muni market with generally strong credit quality but dotted with potential credit risks and pitfalls in select areas that require professional vigilance.
2012-01-27 Preferred Securities Investment Commentary - December 2011 by Team of Cohen & Steers
In terms of preferreds broad performance potential, we note that bond yields are at or near historic lows, and that the Federal Reserve is likely to hold interest rates steady until 2013. In such an environment, the income offered by preferreds (78% or more) will be hard to come by, likely resulting in good investor demand in the year ahead. At the same time, the high income these securities produce is also likely to continue to factor meaningfully into their total return and dampen returns volatility.
2012-01-27 12 Trades for 2012 by Komal Sri-Kumar of TCW Asset Management
Earlier this month, I suggested that investors closely watch 12 macroeconomic and financial indicators in deciding whether the world economy is improving or worsening (12 Indicators for 2012, January 3, 2012). Some readers wrote to ask if I would discuss what those indicators would mean for investment strategies. That was the genesis of the present piece which is intended to be consistent with expectations on the economic and financial fronts.
2012-01-25 2011 Review and Outlook by Ronald W. Roge and Steven M. Roge of R. W. Roge
While there is plenty to worry about globally, particularly the European financial crisis, Iran, and domestic policy decisions, we can take some comfort that corporate earnings continued to grow and our economy is muddling through with positive GDP numbers. Traditionally, election years are positive for equities. Since 1928 there have been 21 Presidential elections with only three of those years producing negative returns for the S&P 500. Until we have more clarity on the U.S. election, domestic policy decisions and the European financial crisis we will remain cautious and flexible.
2012-01-25 Closed End Funds Investment Commentary December 2011 by Team of Cohen & Steers
The U.S. economic picture has brightened in recent weeks, a positive for equities and credit markets, and we expect slow sustained growth. However, Europe remains a risk. While recent fiscal, political and central bank initiatives to address the credit crisis in Europe are encouraging, the political landscape remains uncertain, and economic austerity measures will weigh on growth. With interest rates likely to remain near historical lows for an extended period, we believe that attractive spreads should continue to benefit the income-generating potential of leveraged closed-end funds.
2012-01-24 Must Bond Investors Fear Rising Interest Rates? by Andrew D. Martin (Article)
Thirty-one years ago, in 1981, the one-year Treasury reached its all time high of 14%. Today it hovers around 0.10%. Never before have interest rates fallen so far. Many economists and investment advisors, seeing nowhere to go but up, expect interest rates to climb from these historic lows. But that would not be the catastrophe that many bond investors fear.
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 European Sovereign Downgrades by Azad Zangana and Bob Jolly of Schroder Investment Management
Last Friday ratings agency Standard & Poors announced the credit rating downgrade of nine of the eurozones seventeen sovereigns. Though the downgrades could have a marginal negative impact on the cost of borrowing for these countries, the key issue is the implication for the EFSF. There is now a high risk that the EFSF will also lose its AAA rating, as the only way to avoid a downgrade would be either to increase the amount of collateral member states are offering, or to reduce the amount the fund is borrowing - both of which are detrimental for the eurozones stability.
2012-01-20 And That's The Week That Was by Ron Brounes of Brounes & Associates
So will Frances borrowing costs start tumbling now that the S&P has cut its rating below AAA? Illogically, thats what happened in the US. Now that the news is finally out in the open, investors can go back to monitoring Greece as it hopes to finally make a debt restructuring deal with private creditors. What say you, Germany? Earnings season moves forward and the banks look to reverse the pessimism initiated from JP Morgans disappointing report. Intel pushes some of the earnings attention over to the tech world and GE provides profit news from one of the nations key economic bellwethers.
2012-01-20 And That's The Week That Was by Ron Brounes of Brounes & Associates
So will Frances borrowing costs start tumbling now that the S&P has cut its rating below AAA? Illogically, thats what happened in the US. Now that the news is finally out in the open, investors can go back to monitoring Greece as it hopes to finally make a debt restructuring deal with private creditors. What say you, Germany? Earnings season moves forward and the banks look to reverse the pessimism initiated from JP Morgans disappointing report. Intel pushes some of the earnings attention over to the tech world and GE provides profit news from one of the nations key economic bellwethers.
2012-01-18 A Little Cold Water Thrown on the Recovery by John Buckingham of AFAM
The economic data out last week was hardly terrible, but the positive momentum seen in the past couple of months was slowed as the Commerce Department reported that higher prices for imported oil and a 7% drop in exports to Europe caused the U.S. trade deficit to expand sharply in November.
2012-01-18 The Bigger the Base, the Higher the Space by Pamela Rosenau of Hightower Advisors
Overall, people around the globe are underinvested or invested in the wrong asset classes. As data point continue to strengthen, coupled with the fact that income (and sustainability of income) are becoming a scarce commodity, a significant rally in the equity markets could ensue. As some technical analysts may suggest, the bigger the base, the higher the space. As U.S. blue chip stocks have lagged for more than ten years, they have built a base that has prepared these stocks for liftoff.
2012-01-17 Fixed Income Investment Outlook by Carl Kaufman and Simon Lee of Osterweis Capital Management
An incongruity developed during the 2nd half of 2011. As Treasuries continued their rally that began after the S&s, US equity markets also rose from their August lows. Normally, a rally in Treasuries implies that investors are in a risk off mode, fear of economic weakness causes investors to seek safe havens, like US Treasuries. Conversely, a rally in equities is perceived as a risk on mode, meaning that the sky is clearing and it is safe to invest again. With the Q4 rally in both the risk on and the risk off markets, the question arises: What is causing this anomaly?
2012-01-12 42 Dividend Contenders for Above-Average Total Return by Chuck Carnevale of F.A.S.T. Graphs
With interest rates hovering near all-time lows, investors needing income are faced with very limited choices. The traditional high yield available from bonds and other fixed income vehicles are no longer available to meet the needs of retirees needing income to live off. Moreover, it is almost a certainty that todays low yields are not adequate enough to fight inflation. Consequently, there is a growing investor interest in dividend paying common stocks, especially those that have a long record of increasing their dividend every year.
2012-01-12 It's Too Late by David Baccile of Sextant Investment Advisors
As we set expectations for 2012, the global financial markets are no less complicated but expected returns for most asset classes are even lower now than when we started 2011 making our jobs that much more difficult. The margin for error has narrowed. For fixed income investors, returns of 2 or 3% will probably look pretty good this year and next. Equity managers will need to be focused on stock selection with an emphasis on companies that possess very strong balance sheets, stable cash flows and price valuations with low expectations built in.
2012-01-09 Retail Trades of Municipal Bonds by Chris Shayne and Farshad Mashayekhi of BondDesk Group
ecember was a quiet month in the muni markets with no bankruptcies or defaults. Retail demand for individual municipal bonds was relatively strong in December, particularly considering it was the holiday season. Mutual funds had a very strong December, receiving $4.4B in net inflows (according to Investment Company Institute), which was easily the high-water mark for 2011. Median municipal yields fell consistently during December (and prices rose), largely due to the increased demand in the mutual fund market.
2012-01-09 Corporate Market Transparency Report: December 2011 by Chris Shayne and Farshad Mashayekhi of BondDesk Group
December was a relatively calm month on Wall Street, particularly compared to the extreme volatility of 2011. Concerns about Europe surfaced briefly, but by the end of the month all three major U.S. stock indices had recovered their losses. Corporate yields and spreads were essentially flat last month while transaction volumes were down slightly due to the holiday season. Demand for taxable (i.e., corporate) bond funds was moderate during December. According to the Investment Company Institute, mutual funds received $9.3B in net inflows vs. $15.5B during November.
2012-01-06 Dividend Champions a Rare Undervalued Opportunity by Chuck Carnevale of F.A.S.T. Graphs
We believe that based on earnings, 2012 is starting out with the stock market undervalued. We believe in the long-term ownership of great businesses purchased at sound and attractive valuations. Consequently, we view the stock market as merely the store that we shop at in order to buy the businesses we want to own.
2012-01-04 On Tap for 2012: More Bond Market Transparency by Matt Tucker of iShares Blog
In 2011, 102 new fixed income funds launched across exchanges in Europe, Canada, Asia and the United States. How will the landscape continue to evolve in 2012? Matt Tucker is here to provide a few insights, including his expectation that new fund launches will help to make the bond market more transparent.
2011-12-29 Following Fixed Incomes 2011 Fund Flows by Matt Tucker of iShares Blog
When it comes to fixed income market conditions, 2011 can be described as the year of unmet expectations. In this blog, Matt Tucker explains how that environment influenced fund flows and how investors used fixed income ETFs to respond to ever-changing market conditions.
2011-12-28 Delayed LDI Implementation: Making it Worth Your While by Rene Martel of PIMCO
With interest rates so low, many defined benefit plan sponsors have delayed implementing or expanding LDI programs, often using intermediate duration bond portfolios instead. Traditional intermediate duration portfolios may not offer the most attractive yields or the best credit match for pension liabilities, and may make the transition to long-term bonds difficult later. We believe plan sponsors in a waiting mode should consider switching to long duration portfolios with a synthetic overlay in an effort to reduce duration exposure.
2011-12-27 The Ten Best Articles You Probably Missed by Robert Huebscher (Article)
Great articles don't always get the readership they deserve. Here are 10 articles that you might have missed, but I believe merit reading.
2011-12-27 The Ten Most-Read Articles in 2011 by Robert Huebscher (Article)
As is our custom, we conclude the year by reflecting on the 10 most-read articles over the past 12 months.
2011-12-23 Twenty Years of Investing in Asia by Paul Matthews and Mark Headley of Matthews Asia
This month Asia Insight speaks with Paul Matthews and Mark Headley to get their thoughts on 20 years of investing in Asia. Why were you so convinced of Asias growth prospects at a time when few others were? Paul: As a young businessman trying to build an asset management firm focused on Asia ex Japan, the challenge for me was that Japan was 95% of the investment universe and also a majority of the market for asset gathering. While based in Hong Kong, I was given the task of looking for ways to build the business and so I was attracted to the markets that were open and growing.
2011-12-23 Closed End Funds Investment Commentary by Team of Cohen & Steers
With interest rates likely to remain near historical lows for an extended period, we believe that attractive spreads should continue to benefit the income-generating potential of leveraged closed-end funds. As for new closed-end fund issuances, we believe the IPO window will remain open, but not to the degree that could pressure pricing in the secondary market or impede discount narrowing as investors bid for above-average income.
2011-12-22 Value Traps and Investor Psychology by Team of American Century Investments
Many financial market participants are familiar with what is generally known as the two basic emotions felt by investors, greed and fear. Very often, over-enthusiasm is observed accompanying greed during bull markets and over-despondency is seen on the heels of fear during bear markets. Besides the cyclical aspects of investor psychology, there are other aspects of behavioral finance (another name for this branch of psychology) to explore that relate to value trap avoidance.
2011-12-21 Seeking Absolute Return: Finding Opportunity in Overly Hyped Alternatives by Team of Litman Gregory
This commentary references and updates views originally shared in our 2003 whitepaper on hedge-fund strategies. Today, we have similar concerns about a low-return environment for stocks in the years ahead. As we concluded eight years ago, hedge-fund strategies do have the potential to add value to a portfolio. However, finding funds that are skillfully managed and offered at a reasonable cost remains a difficult challenge.
2011-12-20 Concussed, The Year in Review by Doug MacKay and Bill Hoover of Broadleaf Partners
We remain biased to a slow growth environment for as far as the eyes can see, an environment which continues to favor innovators. At the same time, with concerns about a slowdown in China emerging and Europe likely already in recession, the Economic Cycle may deserve some increased attention as a driver of alpha in the portfolio, particularly with a global monetary policy bias towards easing and leading economic indicators in the United State now improving.
2011-12-20 Fixed Income in 2011: The Year of Opposites by Matt Tucker of iShares Blog
Fears of municipal bond defaults. Expectations of rising interest rates. Those were the conditions fixed income investors were positioned for heading into 2011. Instead, it turned out to be the year of opposites. Matt Tucker looks back at 2011 and studies how market expectations matched up with reality.
2011-12-19 Emerging Markets: Yesterday, Today and Tomorrow by Mark Mobius of Franklin Templeton
Almost every market move these days seems to be tied to the latest headline coming from Europe. And the U.S. political deadlock on deficit reduction, high unemployment and fear of a recession hiding under the bed are certainly not helping investor morale. But dont throw in the towel just yet. While the ongoing turbulence in the markets has investors feeling more than a little edgy, the story of robust and resilient growth in emerging markets seems cause for optimism.
2011-12-19 Changing of the Guard: Do European and U.S. Debt Woes Signal a Shift in the Economic World Order? by Team of Emerald Asset Advisors
Industrialized nations in the West have enjoyed decades of economic prosperity and generous social safety nets. However, recent events have made it clear that shifting demographics and huge debt burdens will make it increasingly difficult, if not impossible, for many industrialized nations to maintain the same standard of living for their citizens. It seems that many formerly emerged economies are now on the verge of submerging. As citizens and political leaders in Europe and the U.S. slowly awaken to this reality, economies in many emerging markets are moving ahead at full steam.
2011-12-16 De-stressing Balanced Fund Investing by John West of Research Affiliates
Balanced fund management has largely become a benchmark-hugging exercise, with asset allocations confined within a tight band. This month's Fundamentals examines what can be done to improve the added value investors can obtain from balanced fund investments.
2011-12-14 Idaho Municipal Bonds: The Gem State Shines by Phelps McIlvaine and Shannon Skinner of Saturna Capital
Here we examine the health of Idaho and its municipal bonds in the context of the U.S. market as a whole, in order to separate the facts from the hype. What we find is that Idahos staunch fiscal conservatism is serving its economy well in trying times, and that for Idaho resident investors, the tax-exempt returns from high-quality Idaho bond issues offer a relatively low-volatility way to take advantage of a bright spot in the muni market.
2011-12-14 The Credit Research Case for Using Muni Funds by Team of American Century Investments
We believe muni market credit quality remains generally high despite continuing changes and challenges, including the demise of the bond insurance industry (which has created a more heterogeneous muni market) and the slow economic recovery, which has put continued pressures on municipal budgets. However, we believe these challenges have made experienced, professional credit analysis more important than ever. One way for investors and advisors to access expert, experienced credit analysis is through the use of established muni mutual funds that have been through multiple market cycles.
2011-12-12 Europe Crisis: Not Over Yet! by Komal Sri-Kumar of TCW Asset Management
On Friday European leaders completed their 14th or 15th crisis-related summit meeting since the beginning of 2010. Fitting a pattern, the results were termed a success by the leaders. Wolfgang Schuble told Focus magazine that he was certain that the leaders will be able to handle the debt crisis in Europe with the agreed, far-reaching measures on institutional reform of the European currency union. A close examination of factors behind the agreement suggests, however, that the decisions may end up being another band-aid solution to the still festering crisis.
2011-12-09 Corporate Market Transparency Report: November 2011 by Chris Shayne of BondDesk Group
November was an extremely volatile month on Wall Street. Concerns about Europe caused a temporary free fall in the equity market, and later in the month American Airlines filed for bankruptcy. Not surprisingly all the turmoil drove up yields for corporate bonds as concerns about credit risk resurfaced. "A" rated corporates experienced the biggest increase, and we continue to believe that investors looking for yield should consider purchasing those bonds opportunistically. Demand for corporate bonds also increased in November, marking the fifth consecutive month buying activity has gone up.
2011-12-09 Municipal Market Transparency Report: November 2011 by Chris Shayne of BondDesk Group
Once again, the big muni news last month was another high-profile bankruptcy. Jefferson County, Alabama filed for Chapter 9 protection on November 9. Although this was the second consecutive month with a large municipal bankruptcy announcement, the retail markets were unfazed. In fact, November demand increased substantially over October levels, even with the light trading during Thanksgiving week. And municipal mutual funds also had a strong month, pulling in $2.9B in net inflows.
2011-12-08 Myth vs Reality in the Hunt for Fixed Income Alpha by Matt Tucker of iShares Blog
Many investors rely on active managers to oversee their fixed income holdings. The belief is that in opaque markets, information asymmetry exists among investors and a skilled manager can use this asymmetry to outperform the market. Thats the theory. Now, what's the reality? Matt Tucker is here to explain.
2011-12-07 4 Portfolio Moves for a Long-Term European Debt Crisis by Russ Koesterich of iShares Blog
In recent weeks, governments around the world have stepped up efforts to solve the European debt crisis. While Russ believes European leaders will address the outstanding issues in time to avoid a sovereign debt collapse, here are four investing ideas to consider if you expect the crisis to drag on. 1. Within your international equity exposure, overweight CASSH countries. 2. Within your international equity exposure, overweight emerging markets outside of Europe. 3.) Overweight safe-haven assets. And 4.) Within fixed income, overweight investment grade and munis.
2011-12-07 After the Flood: Surviving in a Sea of Debt by David Fisher and Olivia Albrecht of PIMCO
Since 2009, developed country governments have run fiscal deficits unprecedented outside of wartime, and their debt levels have reached epic heights. Investors accustomed to considering only the interest rate risk associated with their developed government bond holdings have been shocked to find that credit risk has become dominant in many cases. For investors in government bonds, inflation and currency debasement have the potential to be just as costly as outright default. Investors should consider focusing on GDP, or national income, as a measure of a countrys ability to service its debt.
2011-12-06 Sauta Clause by Jeffrey Saut of Raymond James Equity Research
December has been the best performing month of the year over the past 100 years with positive returns 73% of the time. And while last weeks 7.39% romp will likely not be duplicated quickly, the path of least resistance remains up according to our work. That said, while the DJIA bettered its 200-day moving average last week, the SPX and D-J Transportation Index did not. Consequently, a divergence currently exists that could lead to some sort of pause and/or pullback. Therefore, look for opening strength this morning followed by attempts to sell stocks back down.
2011-12-06 What Are Investors Up To? by Chris Maxey of Fortigent
With markets ebbing and flowing and making it virtually impossible to differentiate up from down, it has become all the more difficult to determine what qualifies as an attractive investment. While equity markets rallied into the end of November, volatility remains well above its long-term average, causing most investors to question their equity allocations. It should come as no surprise, then, that individual investors are anything but confident in the latest rally. Macroeconomic headlines and excessive volatility are dampening even the most hardened investors faith in financial markets.
2011-12-02 The Paradox of Active Fixed Income Management by Matt Tucker of iShares Blog
Amid this years volatile markets, many investors expected their fixed income holdings to be a source of stability in their portfolios. But some are finding the opposite has been true. In this blog, Matt Tucker explains how the Paradox of Active Management could be partly to blame.
2011-11-28 The Upshot: In Thanksgiving by Kristina Hooper of Allianz Global Investors
Despite a turkey performance from the stock market last week, U.S. investors still have a lot to be thankful for, namely a doubling of corporate profits in the last three years, improved labor market conditions and surprisingly strong consumer spending.
2011-11-21 The Upshot: Anxiety, Not Hard Evidence, Occupy Wall Street by Kristina Hooper of Allianz Global Investors
Stocks retreated despite positive economic news, suggesting even tangible proof of recovery may prove too little to overcome investor fear. With higher volatility over political handwringing expected, investors can exploit likely buying opportunities. Indeed, anxiety occupied Wall Street last week and trading was decidedly risk off: The S&P 500 gave up almost 4% and the Dow Jones Europe Index lost 5%, while the 10-year Treasury was driven down to 2.01%. But stock market performance belies an improving economic picture, a condition best illustrated by the latest government data.
2011-11-17 Supercommittee Update by Team of Charles Schwab
New this week: the real deadline for the supercommittee; why we think there's still hope for an agreement; President Obama's vow to veto legislation to "undo" automatic cuts if an agreement isn't reached. What are the different deadlines for the supercommittee, and what do they mean? November 23 is the deadline by which the supercommittee must put forward recommendations to cut at least $1.2 trillion from the deficit. However, the supercommittee must post its recommendations publicly 48 hours prior to November 23, meaning the true deadline for finishing its work is Monday, November 21.
2011-11-15 Capital Flows: Asias Quiet Revolution by Gerald Hwang of Matthews Asia
As markets evolve, so do regulations. The reflexive rebuke of capital controls once voiced by Western regulators has given way to a more flexible approach in times of extreme volatility. Asias regulators have observed the efficacy of volatility-dampening measures, and thus far, appear to have avoided the worst excesses. As fears continue over diminishing U.S. dollar power, Asias bonds remain attractive diversifiers for their yields and good credit ratings. However, one should never forget the volatile history of currencies in Asia.
2011-11-15 QE2 and Its Impact on Sterling Credit Markets by Ketish Pothalingam and Luke Spajic of PIMCO
The removal of government bond supply combined with the likely suppression of yields may encourage investors to seek out greater yield via investment grade bonds in the credit markets. The BoEs new round of QE could exacerbate the imbalance between supply and demand and leave a hole in supply that is highly unlikely to be filled by sterling credit issuance. The lack of issuance in the case of non-financials is generally due to strong corporate balance sheets, undrawn credit lines at banks and the rebirth of the loan market.
2011-11-15 Every Picture Tells a Story: Market Charts Looking Good by Liz Ann Sonders of Charles Schwab
With so much focus on the macro, I thought an update on the micro would be welcome. Several measures of sentiment, valuation and technical conditions show the market to be in pretty good shape. Macro headwinds persist, but the expectations bar has arguably been set low enough to be easily hurdled.
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.
2011-11-14 The Upshot: Fear vs. Fundamentals by Kristina Hooper of Allianz Global Investors
There is continued disparity between investor moods and a healthy corporate America. A vicious tug-of-war between positive economic data and negative news formed the backdrop for another tumultuous week in the financial markets. The tiebreaker was a more optimistic take on Europes ability to solve its debt problems, which enabled stocks to finish the week on a positive note with the S&P 500 gaining less than 1%. Looking at the stock market's progress so far in 2011, it has been a similar tale: volatility with little to show for it. The S&P 500 is up a modest 0.5% year to date.
2011-11-08 Corporate Market Transparency Report: October 2011 by Team of BondDesk Group
October was the stock market's best month in nearly a decade. As expected, the strong equity rally caused retail corporate bond yields to fall as concerns about credit risk receded. Bonds rated single A experienced the biggest decrease in yields, though yields for triple B bonds remained largely unchanged, providing continued opportunity for investors willing to own lower rated investment grade bonds. The buy/sell ratio increased to 1.9 in October, a modest increase over the 1.8 ratio in September but a material increase over the historical norm of 1.4.
2011-11-08 Municipal Market Transparency Report: October 2011 by Team of BondDesk Group
The big muni news last month was that Harrisburg, the capital of Pennsylvania, filed for Chapter 9 bankruptcy protection. But the incident didnt have much impact on the retail markets. In fact, trading activity in October recovered from the ultra low levels of August and September, though it was still a relatively quiet month. Mutual funds had a solid October, receiving $1.8B in net inflows according to the Investment Company Institute.
2011-11-05 Two High-Yield Choices by Chuck Carnevale of F.A.S.T. Graphs
This article is the second in a series of articles designed to elaborate on the proper utilization and understanding of the PE ratio as an important investing metric. Our first article in this series looked at how the PE ratio could be used to determine overvaluation. With this article we are going to review two companies where each is fairly valued and each has similar current PE ratios. Moreover, both companies offer yields above 3 % which is greater than is available on the 30-year Treasury bond (current yield 30-year Treasury bond 3.02%).
2011-11-01 The Danger in European Stocks by Geoff Considine, Ph.D. (Article)
European equity prices, depressed by fears of a sovereign debt crisis, are cheap to such a degree that William Bernstein, author of The Intelligent Asset Allocator, called them a true bargain. Income-oriented investors, in particular, may be tempted by 4.2% dividend yields and a market-wide P/E ratio of approximately 11. My analysis, however, contradicts Bernstein's and shows the underlying risk those investments carry.
2011-11-01 Crescendo? by Jeffrey Saut of Raymond James Equity Research
Websters defines the word crescendo as, The peak of a gradual increase; or a climax. And, thats the climatic feeling I got last Thursday when the D-J Industrials sprinted some 340 points on the European euphoria to close above 12000 for the first time since August 2, 2011. Such action caused one old Wall Street wag to exclaim, Buy on the cannons and sell on the trumpets! Clearly we bought on the cannons back on October 4th when the indexes broke below their respective August 8th and 9th selling-climax lows.
2011-11-01 ProVise Bullets by Team of ProVise Management Group
October is a month that has provided much drama in the stock market through the years and this year is no exception. The S&P 500 was up over 11%, which is the second best October in history, and ended a five month losing streak. The S&P 500 was up 17.1% from October 3rdthrough October 28th. Those 19 days were better than 9 of the last 11 calendaryears. Do you see why market timing is virtually impossible?
2011-10-31 Tiedemann Wealth Management 3 Qtr Market Commentary by Team of Tiedemann Wealth Management
Despite the ongoing debt crisis in Europe the news is not as grim for investors as it may seem. We believe that markets have more than discounted the risk of European recession as fallout from this crisis, which an inept political system has exacerbated. It marks the first time in many years that markets are questioning political leadership in developed world nations something they normally only consider when investing in emerging markets. We do not believe that the G-20 leaders will allow a major counterparty bank to fail, despite their apparent lack of coordination over the past few months.
2011-10-25 The Questions You Should Ask about PIMCO’s Total Return Fund by Martin Weil (Article)
When a manager's performance slips, the inevitable question is why. Was this a simple misjudgment on the direction of the markets or an incorrect selection of securities in the portfolio? On the other hand, is the slip indicative of a more serious process failure? When the manager in question is Bill Gross, the answers to these questions become crucial to money managers and investors across the country.
2011-10-25 Residential Housing: The Problem and the Solution by Robert Huebscher (Article)
If arresting the decline in residential housing prices is a precondition to a broader economic recovery, then the prospects of a double-dip recessions are more likely. Over the next year home prices will decline 5% to 7%, according to Laurie Goodman. She identified two key policy initiatives that would break what she termed an ongoing 'death spiral' in the housing market.
2011-10-24 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Earnings season rolls along as Citigroup, Wells Fargo, and Bank of America hope to send some positive messages from banking (that JP Morgan was unable to dodont hold your breath). IBM and Intel give investors a glimpse into the world of tech. A hectic week on the economic calendar leaves investor hoping to see a continuation of the rebound in manufacturing (from the post-Japan earthquake doldrums) and good news on the inflation front. The Fed Beige book grants another look into the data debated by the policymakers as investors speculate about future stimuli.
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.
2011-10-21 Closed-End Funds by Doug Bond of Cohen & Steers
In a volatile quarter for global capital markets, U.S. closed-end funds tumbled as investors factored in meaningfully lower expectations for global economic growth. We are expectating a challenging economic environment over the near term, including an increased likelihood that Europeand possibly even the U.S.may slip into recession. As such, we have moderated our allocation to equity funds, while increasing our investments in fixed income and gold. We believe we are well-positioned, with the flexibility to take advantage of price breaks that emerge across asset classes.
2011-10-20 Preferred Securities by Bill Scapell of Cohen & Steers
This is our review and outlook for the preferred securities market as of September 30, 2011. For the quarter, the BofA Merrill Lynch Fixed Rate Preferred Index had a total return of 3.1% and the BofA Merrill Lynch Capital Securities Index returned 6.2%. Year to date, the indexes had total returns of +2.1% and 2.4%. In general, we prefer nonfinancial sectors, such as utilities, pipelines, real estate, telecommunications and media. That said, we are also seeing new opportunities in U.S. bank trust preferred securities, many of which reached attractive levels following the recent selloff.
2011-10-20 Making the (Credit) Grade in Emerging Markets by Russ Koesterich of iShares Blog
While emerging markets are not without their share of macroeconomic problems, they are not experiencing the same sovereign debt problems as their developed market neighbors. In fact, the worlds sovereign debt problems are centered in developed markets such as Europe, the United States and Japan. Ive already mentioned this as a fact supporting emerging market equities. Its even more supportive of emerging market fixed income.
2011-10-19 Fixed Income Investment Outlook by Team of Osterweis Capital Management
We continue to favor short-term high yield securities.While the high yield market has generally been under pressure due to fears of lower economic growth, lower gross domestic product growth does not necessarily translate into weaker credit fundamentals. In light of all the uncertainty in the market, we have generally reduced our exposure to convertible bonds and have continued to favor bonds with high coupons that we think are likely to be refinanced before maturity.In addition we are keeping some cash on the sidelines so that we are in a good position to buy as future opportunities arise.
2011-10-18 Dan Fuss on the Liquidity Problem in the Bond Market by Robert Huebscher (Article)
Each morning, the traders at Loomis Sayles' bond desk rate the degree of liquidity in the bond market, with a rating of one being the worst and 10 the best. Ratings of one or two – as corporate bonds have been receiving of late – are an ominous sign, according to Dan Fuss. 'Liquidity is the God of the markets,' Fuss said, adding that he expects to deal with illiquidity for a while.
2011-10-18 Three Strategists Speak Out & Rare Apology From PIMCO by Scott Colyer of Advisors Asset Management
Quality in bond land is expensive and promises little return for a fair amount of risk. The Fed is punishing Treasury investors with historically-low yields. We believe the only way to generate a return in these markets is by price appreciation because these notes have very little in the way of coupon income. This lack means that they will trade more like zero coupon bonds when, and if, the Fed ever removes the buying pressure on that market. History has shown us that the market will move before the Fed does. Our discipline has thus far beaten our benchmark.
2011-10-17 Connecting the Dots by Pamela Rosenau of HighTower Advisors
The efficient frontier provides the optimal expected return for a portfolio for a given level of risk, or the lowest level of risk needed to achieve the optimal expected return. Over the years, investors have come to perceive that certain asset classes with higher risk premiums are more risky than others. We believe what many view as traditional asset allocation may be vulnerable going forward. In short, it is dynamic, not static. In todays negative real interest rate environment, investors will be well served by investing in certain asset classes perceived to be more risky.
2011-10-14 ProVise Bullets by Team of ProVise Management Group
Low interest rates have certainly hurt savers, even more so those who live on a fixed income. The current bubble in bonds will eventually pop, and many people will be surprised. But this ProVise Bullet is not about the risk in bonds today. Its more about the fact there is some good news as it relates to interest rates. First, mortgage rates are near an all-time low. A 30 year mortgage loan is available at an interest rate slightly above 4% and 15 year mortgage loans have been quoted at just a little under 3.57%. Even the IRS is getting into the act.
2011-10-12 Gold During Times of Market Turmoil by Frank Holmes of U.S. Global Investors
Jason Toussaint from the WGC provided an interesting perspective during our recent webcast. The WGC looked back at six incidences of market turmoil over the past few decades. In five out of the six periods during market turmoil, an allocation to gold preserved wealth by reducing the hit taken by the portfolio. On average, the portfolios with an allocation to gold were about 7 percent more buoyant. Only during the Dot-com Bubble did gold in a portfolio hurt its performance. These dramatic events happen infrequently. However, Its best to prepare for the worst and hope for the best.
2011-10-12 Investing in an Environment of Extremes by David Kelly of J.P. Morgan Funds
The volatility of the last few months along with very negative headlines have caused a stream of assets to leave equity funds and move into cash and high-quality fixed income assets. However, this has left assets at extreme valuations. Indeed, by the end of the Q3, U.S. stocks were selling at lower prices than at the end of any quarter in 21 years. 10-year Treasury yields were running below the core year-over-year inflation rate for the first time in 31 years. Long-term investors may want to be somewhat over-weight in equities and under-weight in fixed income relative to a normal portfolio.
2011-10-10 And That's The "QUARTER" That Was... by Ron Brounes of Brounes & Associates
Yes, the quarter was bad for the markets, but earnings season will go a long way toward revealing if companies are truly hurting. Many are thought to be sitting on plenty of cash, just waiting for calmer times to invest in operations (and hopefully human capital). Meanwhile, Dr. B. still claims to be ready to jump in with more stimuli if deemed necessary. As for Europecan they ever get their house in order? Their politicos may be just as bad as ours?
2011-10-07 Bearish Sentiment Abounds by Lance Roberts of Streettalk Live
The bears have control of Wall Street and have mauled stocks for the past five months. Now with bearish sentiment running amok, is it time to begin investing back into the market for "longer term" investors? Lately there have been numerous analysts and media outlets touting the cheapness of the markets based on forward earnings expectations. The problem with that premise is that it is highly likely that those expectations are too lofty considering the economic slowdown currently in progress. Furthermore, valuation models are horrible "timing" indicators for both traders and investors.
2011-10-07 On Teflon and Emerging Market Currencies by Andrew Foster of Seafarer Capital
Investors can distinguish between the fundamental health of EM credit which is, as some have suggested, strong and the still fragile currencies of those markets. Rapid unwinding of capital flows may do quick damage to local currency EM bonds, wiping out fixed income investors expectations for current income. EM credit denominated in U.S. dollars may be a viable alternative. EM currencies may offer desirable diversification, and they may even be a good investment but they remain speculative, and should not be considered a safe haven.
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.
2011-10-07 Corporate Bond Transparency Report by Chris Shayne of BondDesk Group
The equity market turmoil impacted yields for retail corporate bonds as expected, but the effect was not consistent across rating grades. Yields for 2nd tier investment grade (A, BBB) bonds increased substantially, while upper tier (AAA, AA) were largely unchanged. This was a continuation of the trend established in August.
2011-10-07 Municipal Market Transparency Report by Chris Shayne of BondDesk Group
September was another extremely quiet month in the retail market for individual municipal bonds. Median municipal spreads increased in September, continuing a trend that began last month. because Treasury yields fell faster than muni spreads widened. Comparably rated revenue bonds were generally yielding more than their general obligation counterparts, continuing a trend that began in August.
2011-10-04 Fixed Income ETFs and Yield: A Game of Catch Up by Matt Tucker of iShares Blog
Whats amazing to me is how many different types of yield existfor a bond or bond fund you could quote the yield a half dozen ways and each would be different. Understanding which yield to use can be confusing. Its easy to be enticed by what looks like the highest, especially in this low rate environment where investors are searching for ways to extract extra income from their bond holdings. I want to highlight three of the most common yields investors see for fixed income ETFs, explain how they are connected and show how they have a tendency to catch up with one another over time.
2011-09-29 European Banks Under Pressure by Team of American Century Investments
On the surface, the European banking sectors status in the fixed-income markets should be on the upswing. The Basel III Accord strengthened capital requirements for banks and also set stricter guidelines for liquidity and debt. Helping reduce the risk profile of the banking sector, and this would normally be attractive to fixed-income investors. However, bond investors have had the opposite reaction, shunning the bonds of European banks in recent months. The gap between bank bonds and government bonds recently rose to levels not seen since the height of the 2008 Financial Crisis.
2011-09-27 Reexamining Bill Gross' Decision to Sell Treasury Bonds by Geoff Considine (Article)
Bill Gross made headlines in February by asserting that Treasury bonds were not providing enough yield to make them worth the risk and reducing his allocation to zero in the PIMCO Total Return Fund. The subsequent rally forced him to admit his mistake in August, but by then his fund was trailing 90% of its peers and having its worst year since 1995. I will examine Gross' decision in retrospect, to illustrate its tactical and strategic costs and benefits for his shareholders.
2011-09-27 A Buying Opportunity in Investment-Grade Corporate Bonds by Chris Shayne, CFA (Article)
Given that yields on Treasury and high-quality corporate bonds are near 50-year lows, investors looking for relative value in fixed income should consider purchasing lower-rated investment-grade corporate bonds. As Gluskin Sheff's David Rosenberg said last Wednesday, 'if you have money to put to work, and are looking for a reward that more than compensates for the incremental risk involved at this juncture, credit is a good place to be looking.'
2011-09-27 Do Low Correlations Favor Active Managers? by FundQuest Investment Management & Research Group (Article)
There has been much debate regarding the challenges for active managers in market environments with persistently high correlations. Some argue that high correlations hinder active managers seeking to generate alpha through security selection. Indeed, in a recent study, we found that active managers were more likely to succeed in low-correlation environments.
2011-09-26 Its 11:01? by Jeffrey Saut of Raymond James Equity Research
Its 11:01 p.m., do you know where your children are? is a phrase that haunted me reminding my parents that I was out past my curfew. Similarly, investors asked themselves last week, Its 1101, do you know where your stocks are? as on Wednesday the Dow dove through last Mondays intraday low of 1188.36 and headed below the August 9th selling climax low of 1101.54. For 7 weeks I have discussed the importance of holding above the 1100 level, if our analogue to the October 1978 and October 1979 bottoming sequence is going to hold. So far, the correlation between then and now is remarkable.
2011-09-23 A Dual View of Operation Twist by Team of iShares Blog
On Wednesday, the Federal Reserve outlined its new Operation Twist program. The central bank will buy $400 billion of long-term Treasuries in an effort to lower long-term interest rates and spur lending and economic growth. The announcement came as no surprise: It had been clearly telegraphed by the Fed. Nonetheless, stock markets fell after the announcement and 10-year Treasury yields dropped to levels not seen since the 1940s. Two of our contributors weigh in to explain the markets reaction and the plans implications for equity and fixed income investors.
2011-09-22 More Focus on Fixed Income by Team of American Century Investments
G. David MacEwen, discusses how volatile market conditions, a population boom in the 65+ years category, and increasingly conservative investment behavior by those in that category as they approach retirement (including growing demand for more predictable outcomes) are shifting the focus of investment strategies toward fixed income. We strongly believe that the scheduled, mostly predictable payments of interest and principal from bonds are becoming progressively more attractive to a growing pool of investors and their advisors.
2011-09-22 Twist and Shout: The Fed, as Expected, Announced "Operation Twist" by Liz Ann Sonders of Charles Schwab
The Federal Reserve announced "Operation Twist," which was largely expected. The goal is to further reduce borrowing costs and push money via lending out into the real economy. Whether it will work is the big question because high interest rates are not the economy's problem. Ultimately, confidence has to improve before we're likely to enjoy any reasonable pace of economic growth. Whether this move by the Fed starts the confidence-healing process remains to be seen. But we suggest you keep your expectations relatively low.
2011-09-20 Counterparty Risk in Large Total-Return Funds by Robert Huebscher (Article)
We can add another to the list of concerns facing advisors: counterparty risk – a potential loss from the failure of a bank or broker-dealer. Underscoring this threat, DoubleLine's founder and chief investment officer, Jeffrey Gundlach, recently warned advisors to avoid all funds with counterparty risk. Heeding his warning, however, is not easy; it is virtually impossible to gauge the extent of counterparty risk in most funds.
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.
2011-09-10 Market Comment by Keith Goddard of Capital Advisors
Whether measured objectively through indicators for valuation, trend and risk; or subjectively by pondering all that might go wrong in the euro zone, we come to the same conclusion about the current market climate proceed with caution.
2011-09-08 Teaching to the Test by Neel Kashkari of PIMCO
Many managers are focused on beating benchmarks, rather than helping clients achieve their investment objectives. Clients save and invest their money for specific reasons, such as for retirement or childrens education and managers should focus on helping them meet those goals. Many managers are really closet indexers masquerading as active managers while charging premium fees for benchmark returns. Many equity managers deviate very little from their benchmark because they are terrified of potentially underperforming it.
2011-09-08 Bleak Outlook? MLPs May Help Cushion Against Market Volatility by Team of Emerald Asset Advisors
Professional investors spend a lot of time studying probabilities. That is because, just as the direction of the recent Hurricane Irene featured a "cone of uncertainty," the financial markets often change course without warning and can wreak havoc on investor portfolios. Alternative investments, including Master Limited Partnerships, may help limit damage from the inevitable financial storms that investors may face. In today's uncertain economy and volatile markets, MLPs - while not immune - can provide attractive yields and relatively low correlation to the stock and bond markets.
2011-09-08 Middle East/Africa: Economic Review August 2011 by Team of Thomas White International
According to the IMF, global economic prospects have taken a downturn in the wake of a weaker U.S. economic recovery, uncertainty surrounding the Euro-zones fiscal stability and relentless turmoil in the Middle East and North Africa (MENA) region. In recent weeks, the MENA region has been in the spotlight yet again, with the Libyan revolt against Muammar Gaddafis 42-year long dictatorship gaining momentum. The IMF has been keeping a close watch on developments in the strife-ridden country and is yet to determine the uprisings impact on the Libyan economy.
2011-09-02 8 Strong Growth Stocks Significantly Under-valued by Mr. Market by Chuck Carnevale of F.A.S.T. Graphs
We don't believe in investing in the stock market, we believe in investing in great businesses. Therefore, we tend to focus more on how the business is performing on an operating basis than we do on stock price volatility. True Worth valuation is what we monitor and measure most closely. Our rationale is based on the reality that any business, public or private, ultimately derives its value from the amount of cash flows and earnings it can generate for stakeholders. The bigger the income stream they can buy, the bigger the value they will eventually receive.
2011-09-02 Dividend Growth: Volatile markets revive an old investing strategy by Kevin Feldman of iShares Blog
Lately I've been hearing a lot about the new dividend growth strategy: Simply buy the right blue chip stocks featuring rising dividends and youll be on the path to a more secure retirement. With regular headlines like Top 20 High Yielding Dividend Aristocrats and 10 Dividend-Paying Blue Chips for Your Parents, its no wonder Im hearing people at dinner parties buzzing about Coke (KO), J&J (JNJ) and P&G (PG) in a way that reminds me of my grandparents stacking up their stock certificates to keep up with dividend checks from these venerable value giants.
2011-08-30 The Case for Active Management in a Volatile Market by Brandon Thomas (Article)
It's been an eventful few weeks, to say the least. The market volatility reminds us that active investment management is more crucial than ever.
2011-08-30 Why High-Yield Bonds Make Sense Today by Geoff Considine, Ph.D. (Article)
None other than Gluskin Sheff's Dave Rosenberg, the widely followed analyst who was been consistently bearish in the current market cycle, said last week that high-yield bonds are 'a good place to be right now.' Recent price declines have made them attractive in the short term, and their risk-adjusted returns make them attractive to longer-term strategic investors.
2011-08-30 No More Cowbell by David Baccile of Sextant Investment Advisors
Since 2008, fiscal and monetary authorities around the globe have been clamoring for more and more cowbell, government generated stimulus and financial support. But there are increasingly clear signs now that the effectiveness of more cowbell is on the wane while opposition to more cowbell is on the rise. In a world with no more cowbell, cash and high quality assets are good places to hide out in anticipation of greater opportunities to profit from market uncertainty. While it may be true that we should not fear the Reaper, a healthy dose of skepticism is essential.
2011-08-29 Instant Pudding by Tim Gramatovich, Ron Heller and Heather Rupp of AdvisorShares/Peritus Asset Management
We are in the midst of a prolonged stagnant economy and Europe is facing mounting issueshowever we believe the end result is a resetting of expectations and re-pricing of global equity markets rather than anything economically devastating. Credit bubbles, and the resulting deleveraging, take a great deal of time to heal and this time is no different. There is no instant fix. But with the transfer of debt to public balance sheets from private ones (thanks to QEs 1 and 2), we see corporate credit as more desirable than Government paper.
2011-08-26 A Private Matter: Income ETFs by Kevin Feldman of iShares Blog
As with all things in investing, theres no free lunch in higher yields; seeking higher returns means taking on higher levels of risk. Depending on your goals, time horizon and view of the macro economy, you may choose to take those risks but its important even given the understandable desire to generate income during a challenging market not to forget that theyre there.
2011-08-24 The Greatest Risk We Face: To Again Fall Into a Recession by Chuck Carnevale of F.A.S.T. Graphs
A spate of frightening headlines has led to two troubling declines in financial instruments. The first, of course, is the decline in equity prices that has everyone worried about their financial futures. The second troubling decline in financial instruments is the unprecedented drop in Treasury bond yields. This is troubling because frightened investors are fleeing to the safety of Treasury bonds at the precise time when the risk of owning them has perhaps been the highest in recorded history. This is especially true for the long bond, but also applies to shorter-term bonds.
2011-08-18 Where the Debt Crisis Could Spread by Russ Koesterich of iShares Blog
Investors are facing an unprecedented situation. Virtually all the major advanced economies the US, Japan and Europe have simultaneously undergone a significant fiscal deterioration, thanks to the after-effects of the financial crisis and worsening demographics. In addition, investors are wrestling with the implications of the recent US downgrade by S&P, as well as a slowing economy. Markets are rattled and many are wondering: what is the new riskless asset? A new index called the BlackRock Sovereign Risk Index provides just such a framework.
2011-08-17 I Love the Smell of Napalm in the Morning by Liam Molloy and Bethany Carlson of Galway Investment Strategy
The analysis performed by S&P was flawed. They made a $2 trillion mistake. S&P stated the mistake was not material and had no impact on the rating. Simultaneously they inserted a change in their assumption on the Bush tax cuts. For two years the assumption was the impact of the cuts was $900 billion over 10 years. Now reversing the cuts is worth $4 trillion over 10 years. This very significant change being revealed only after their mistake was pointed out is interesting. Guess $900 billion is not big enough to allow you to so clearly dismiss a $2 trillion mistake but perhaps $4 trillion is.
2011-08-17 Terminator 3: Rise of the Machines by Jeffrey Saut of Raymond James Equity Research
While people who live in glass houses should not throw rocks, I have to observe how the media has trotted out super-bear Robert Prechter at every major stock market low for the past decade. They featured him again last week. Combine such anecdotal gleanings with the aforementioned market valuation metrics and it suggests a downside inflection point may have been reached. And while the bottoming process should take weeks, many individual stocks have likely already bottomed.
2011-08-12 After the Downgrade - Evaluating S&Ps decision and possible opportunities for investors by Karen Dunn Kelley of Invesco
I want to highlight a few points that we believe give some much-needed context to this unprecedented situation. And I want to share some thoughts from my colleagues around Invesco, who are carefully monitoring both the risks and the opportunities presented by this downgrade.
2011-08-10 The Economic Recovery Has No Clothes by Kevin D. Mahn of Hennion & Walsh
What likely transpired yesterday was that investors finally siad, The economic recovery has no clothes, despite repeated claims by the Federal Government and certain economists to the contrary over the past 6-12 months. While historical research has shown that typical stock market recoveries generally precede economic recoveries by 6-9 months; perhaps it was too soon. While many encouraging signs pointing to a sustainable economic recovery have emerged over this timeframe in terms of corporate earnings GDP growth and M&A activity, many headwinds for the U.S. economy still exist.
2011-08-05 Advisor Alert - Placing This Week's Selloff Into Context by Frank Holmes of U.S. Global Investors
The major market indices were lower this week. The Dow Jones Industrial Average lost 5.75 percent. The S&P 500 Stock Index decreased 7.19 percent, while the Nasdaq Composite fell 8.13 percent. Barra Growth outperformed Barra Value as Barra Value finished 7.53 percent lower while Barra Growth decreased 6.88 percent. The Russell 2000 closed the week with a loss of 10.34 percent. The Hang Seng Composite Index finished lower by 6.80 percent, Taiwan fell 9.15 percent, and the KOSPI declined 8.88 percent. The 10-year Treasury bond yield closed 24 basis points lower at 2.56 percent.
2011-08-04 The Five Horsemen of the Economic Malaise by Craig Hester of Hester Capital Management
The unwinding of the economic malaise will take years, and it will be a painful - but necessary-process. There is much fear and anxiety reflected in the financial markets. Many of the world economies are in a state of disequilibrium, with too much debt, facing high unemployment and sluggish growth. Policy options are limited, and politicians lack the courage to act. But out of such times come opportunities. We live in a world of instant news and an acute short-term focus. One of the keys to investment prosperity is to manage money with a long-term perspective while balancing risk and return.
2011-08-03 Default? by Jeffrey Saut of Raymond James Equity Research
We have many great campaigners inside the D.C. Beltway, but far too few have the ability to govern given that their main concern is to get reelected. Maybe Warren Buffet had the right idea when he said, I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than three percent of GDP all sitting members of congress are ineligible for reelection. As for the Nations AAA rating status, I think we are in for a downgrade no matter what happens inside the Beltway as the pendulum always swings too far in each direction.
2011-08-02 A Winning Endgame by Robert Huebscher (Article)
Reducing our nation's debt burden is no longer only the rallying cry of Tea Partiers and fiscal conservatives. As the debate over the debt ceiling proved, it is now the goal of the president and many fellow Democrats. John Mauldin and Jonathan Tepper's book, Endgame, published earlier this year, makes a compelling argument as to why reducing the deficit is so critical and why we face a long, slow and ultimately painful period of deleveraging. I will explain their thesis and then provide the counterargument.
2011-08-02 Kings of the Wild Frontier by Bill Gross of PIMCO
The U.S. has averted a debt crisis, but there remains a stain on our reputation. Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit. In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at net present cost. Aside from outright default, there are numerous ways a government can reduce its future liabilities. They include balancing the budget, unexpected inflation, currency depreciation and financial repression.
2011-07-28 Investor Question: Greek Bonds in ETFs by Matt Tucker of iShares Blog
As the Greece situation continues to develop, Ive been hearing a lot of client questions about the exposure to Greek debt in some of our iShares fixed income ETFs. With good reason, too investors are wondering whether downgraded Greek bonds will be removed from the funds in which they currently reside. Its a fair question, and it really highlights some of the points I made in my last post on index construction. Of course, last time I focused on US indexes (which are fairly straightforward). The Greece example gives me a good excuse to cover index rules for non-US bond indexes.
2011-07-28 The Debt Ceiling by Geremy van Arkel of Frontier Asset Management
No one knows for certain what Congress will decide to do. Its actions could shock capital markets. However, the general theme of what Congress is trying to accomplish is fiscal responsibility. Long-term, this will be good for the financial markets and the creditworthiness of our government. The process of getting there, however, may cause short-term disruptions throughout the global financial markets. As portfolio managers, our concern is how developments in the capital markets affect our clients portfolios. We have significant experience navigating uncertain and difficult times.
2011-07-27 What a (Cash) Drag: Institutional Investors and ETF Cash Equitization by Kevin Feldman of iShares Blog
At first glance, cash equitization using an ETF is pretty straightforward. As opposed to carrying a significant cash position, an investor simply selects an ETF that closely approximates their target risk and asset class exposure to remain invested in the market. Typically institutional investors will implement a cash equitization strategy when cash is on the sidelines and waiting to be put to work. For example, at times large institutional clients are transitioning between managers. Rather than risking underperformance through cash drag they will invest in an ETF as an interim solution.
2011-07-26 On Your Mind: The Debt Ceiling, US Credit Rating and Potential Default by Team of Charles Schwab
We are disappointed in the continued inability of Washington to resolve the current short- and long-term debt issues. However, we do not believe now is the time to make major portfolio adjustments given US companies' continued strong earnings reports, few signs of a double-dip recession, and few signs that the bond market currently questions the fundamental ability of the US to pay its bills. Be prepared for more volatility as the political negotiations continue. Watch the VIX index for upward spikes indicating that investors are losing patience.
2011-07-25 Quarterly Letter by Team of Grey Owl Capital Management
We remain concerned about the global economy and suspect of broad asset class valuations.However, in a world of tens of thousands of securities there are always opportunities.Absent a significant market correction, we are likely to continue to hold cash or dry powder.We also continue to look to hold assets that can perform well in an inflationary environment, as dollar debasement seems to be the political path of least resistance out of our current problems.The politicians appear happy to solve the problems maana. We on the other hand are happy to make hay when the sun shines.
2011-07-23 Worried About the Future? by Kendall J. Anderson of Anderson Griggs
If you are worried about the current economic state of affairs you may be relieved by what research analysts are telling portfolio managers. First, they seem to be in agreement that businesses are doing fine, especially those that have a global market. Second, interest rates will be higher at some point in the future, and the majority of government debt is safe as far as the ability to pay interest on their borrowing. And most importantly, the earnings you should expect from your investments will be driven over time by the ability of companies to pay you with a little left over to reinvest.
2011-07-22 Why We Think the U.S. Wont Default on Its Debt by Team of American Century Investments
We believe its highly unlikely that the U.S. government will miss any of its scheduled debt payments in coming months, or that related market uncertainty and volatility will cause our money market funds to break the buck (be forced to transact share purchases and redemptions at prices less than the usual $1 per share). To help explain market behavior under unstable conditions, we often repeat the following adage: investment markets hate uncertainty. We tend to be leery of uncertainty because it can trigger investor skittishness, irrational behavior, and volatility.
2011-07-21 More on the Case for Mega Caps by Russ Koesterich of iShares Blog
While the recent June non-farm payroll report offered yet another reminder of the fragile and sluggish nature of the current recovery, we continue to believe that equities offer better prospects than fixed income. A combination of high margins, low inflation and some top-line growth will continue to support stocks. For the most part, the largest companies are cheaper, more profitable and more diversified than their smaller counterparts. In fact, US and global mega-cap companies remain one of the few unambiguously cheap asset classes, trading at roughly a 15% discount to the broader market.
2011-07-20 Cash Can Be Risky, Too by Kevin Feldman of iShares Blog
Young investors who keep their money in cash may think theyre playing it safe, but the strategy could cost them in the long run. A recent Bank of America-Merrill Lynch survey found that almost half (47%) of 1 ,000 affluent Americansdefined by Merrill as Americans with investable assets in excess of $250, 000describe themselves as conservative investors, meaning that they favored low to moderate risk investments intended to deliver modest but steady gains. Among young investors aged 18 to 34, that number soared to 59 percent. (As compared to 41% among investors aged 35-64.)
2011-07-19 The Debt Ceiling Debate & China by Russ Koesterich of iShares Blog
This week, our first call focuses on the ongoing drama over the US debt ceiling and its implications for the US Treasury Market. While the clock continues to tick towards an August 2nd deadline for raising the debt ceiling, Congress and the White House are still nowhere near a compromise. Next, heres a quick update regarding our view of China. While we remain, for now, neutral on China, and hold a negative view of emerging markets in general, our stance on China is starting to shift to a more constructive, or positive, view.
2011-07-18 Fixed Income Investment Outlook by Team of Osterweis Capital Management
The equity and high yield markets seem to be reacting to renewed fears of sovereign debt defaults in Europe and slower economic activity in the U.S. The duration and ultimate severity of our economic slowdown is still in question, as inflation fears seem to have temporarily abated and the yield curve in the U.S. is steep, which has historically preceded economic growth. We are avoiding highly leveraged companies and longer-dated bonds, which may be vulnerable if a double-dip recession were to occur. There seem to be many sellers of shorter-dated bonds from which to choose.
2011-07-15 We See This Slowdown as Temporary Too by Team of American Century Investments
We’re experiencing another mid-year economic slowdown, with renewed fears of a double-dip recession. Will the recovery regain momentum, like last year? The fixed income team, thinks so. Two years after the Great Recession ended, we’re still struggling to escape its lingering grip. Major facets of that struggle include the market and financial extremes the recession generated. U.S. economic growth and financial market benchmarks are striving to shift back to more normal/average levels. These cyclical shifts from historic extremes interest us as sources of potentially value-adding positioning.
2011-07-13 What Investors Should Know About Bond Index Construction by Matt Tucker of iShares Blog
Most people are familiar with the popular indexes in the market like the S&P 500 and the Dow. The majority of indexes people are familiar with are of the equity variety-their bond market cousins don’t have the same visibility with most investors. Today I want to talk about what bond indexes are and how they are put together, focusing on the US and then covering international in a future post. There are a large number of different US bond indexes out there, and they are all built a little bit differently, but the vast majority of them are rules-driven.
2011-07-13 Treading Water by Richard Michaud of New Frontier Advisors
While unemployment remains high, corporate balance sheets are healthier, Wall Street de-leveraging is proceeding, savings rates are up, and many strategists currently consider equities cheap.The lackluster performance of domestic equities in the quarter was associated with negative returns in financials, a symptom of the continuing de-leveraging process and new regulations worldwide. However, the underlying conditions for a long sustained business expansion do not seem in-place. A cyclical expansion, typically lasting roughly four years, seems a reasonable, though far from certain, scenario.
2011-07-12 Harold Evensky on the New Rules for Wealth Management by Robert Huebscher (Article)
If you don't have a copy of The New Wealth Management on your bookshelf, you should. From gauging the risk tolerance of your clients to measuring the performance of their portfolios, this book provides comprehensive guidance for virtually every aspect of a financial advisory practice. Harold Evensky, the lead author, spoke with me last week and highlighted some key themes in the newly released second edition.
2011-07-12 An End-of-Quarter Letter to Clients by Dan Richards (Article)
Given recent unrest in Europe and uncertainty about economic growth, many clients are looking to their advisors for direction. This template for an end-of-quarter letter is a starting point for your own letter to clients, one that can be a catalyst for a conversation about how to position portfolios.
2011-07-11 Hedge Funds Outperform Equity Benchmarks in Turbulent Markets by Clint Binkley of Greenwich Alternative Investments
Hedge funds navigated volatile markets to finish the month with a slight loss. “Market Neutral and Long-Short Equity funds both outperformed broad equity market indices for the month,” notes Clint Binkley, Senior Vice President. “Managers were fully occupied in negotiating the risk trade as investor sentiment changed dramatically over the course of the month. We continue to believe that in volatile markets actively managed hedge fund portfolios will provide superior results to index investing.”
2011-07-07 Lessons from Investor Behavior Studies: Better to Have Patience and a Plan by Team of American Century Investments
Recent studies raise important questions about investor behavior and the likelihood that investors will successfully reach their financial targets. It seems that the best way to increase the odds of investing success is to take a balanced approach, providing exposure to the broad asset classes without leaving investors overexposed to any single area. Risk and financial reward exist in relation to one another. But diversification works on the principle that the relationship is not linear—you have the potential to get more return for each unit of risk you take by spreading out your investments.
2011-07-06 The S&P 500 ends Q2, 2011 Fairly Valued, Year-end Target 1467 by Chuck Carnevale of EDMP
Individual companies derive their value from the amount of earnings and cash flows they are capable of generating for their stakeholders. The market will inevitably capitalize a publicly traded company’s shares based on the velocity and volume of earnings generated. A PE ratio of plus or minus 15 generally applies to the average company growing earnings between zero and 12% a year. The essence behind this valuation is the idea that any company that generates a profitable income stream is worth more than one times earnings.
2011-07-05 Fox in the Henhouse by Joseph Calhoun and Douglas Terry (Article)
In 1971, President Nixon ended the Bretton Woods gold standard currency system. That move set us on a path of debauching our currency through inflation. Ever since, we have counted on the Federal Reserve to preserve the purchasing power of our money. We have depended on the fox to protect our hens.
2011-07-02 China Opens World\'s Longest Cross-Sea Bridge by Frank Holmes of U.S. Global Investors
When the new Qingdao Jiaozhou Bay Bridge opened to traffic this week in China, it made the Guinness World Records for the longest cross-sea bridge in the world. The 26.4-mile long and 110-foot wide bridge stretches across the bay, linking the Huangdao district to the city of Qingdao and Hongdao Island. China spent 17 years planning and designing the engineering marvel to be able to withstand the bay’s high salt content and icy winters. Yet, it only took four years to build, with at least 10,000 workers on the construction team.
2011-07-02 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
The second quarter ended on a very positive note as equities enjoyed a late surge to bring the Dow into positive territory for the period (and the other indexes close to flat). Such performances didn’t seem likely just a few weeks ago, but positive news this week from Greece, signs of a rebound in manufacturing, and declining gas prices that helped ease a more fearful inflation picture put a damper on the recent negativity. Equities enjoyed their best week in two years. Let’s hope the mood lasts.
2011-06-28 An Important Challenge to ‘Stocks for the Long Run’ by Geoff Considine (Article)
Jeremy Siegel's dictum - to invest in stocks for the long run - faces a new challenge. A recent paper by Robert Stambaugh, a Wharton colleague, and Lubos Pastor of the University of Chicago says that once you take into account the uncertainty of estimating future returns, stocks are not nearly as attractive to retirement-oriented investors as Siegel has claimed.
2011-06-28 The End of QE2: What Does It Mean for Investors? by BlackRock (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.
2011-06-23 Fixed Income Commentary: High Yield Takes a Pause by Gino Nucci of TCW Asset Management
Given that the current credit cycle is but 30 months old (as compared to the more typical 60+ month cycle lifespan), TCW views current conditions as reflective of a mid-cycle correction and not a harbinger of a return to recessionary conditions. As such, current high yield bond spreads are attractive.
2011-06-23 Fixed Income Commentary: Recent High Yield Selloff: Caution or Opportunity? by Jamie Farnham of TCW Asset Management
The spring season has tested the mettle of the high yield market. A common inquiry on investor minds of late is whether this is a short-term bump on a longer journey or alternatively that risk is rising for high yield investors. This note touches on (i) relative value, (ii) fundamentals and (iii) the potential interest rate effect on high yield.
2011-06-22 We’re Still Patiently Positioned for a Flatter Yield Curve by Team of American Century Investments
In this Weekly Market Update, we discuss the steep Treasury yield curve and our yield curve flattener trade. This economic cycle-based, duration-neutral, mean-reversion strategy—and how it fits with our other active positions—helps illustrate the investment process and outlook of the fixed income team. The gap between short- and long-maturity U.S. Treasury yields has been at or near historically wide levels since 2009. It’s an interesting facet of the latest economic cycle. One of our active positions is tied to an eventual narrowing of this spread to a more historically average level.
2011-06-21 Understanding the Risk in Discounted Municipal Bonds by Evan Lamp (Article)
The market discount rule is one of those arcane regulations in municipal taxation that many investors and financial advisors ignore, either because they are unaware of its adverse consequences or because they don't know what to do about them. As the market discount rule grows in impact with the recent rise in interest rates, understanding this important topic is vital.
2011-06-21 Quick Update by James G. Tillar and Steve Wenstrup of Tillar-Wenstrup Advisors
Currently the stock market is rightly focused on the many risks emanating from the macro environment. The European debt crisis, inflation and social unrest in emerging markets, especially China, and our economy has slowed while unemployment remains elevated.Most of these conditions were peculating well before the stock market started its decline in early May. We took advantage of that period to reduce risk in our portfolios by selling some stocks, especially the more cyclically oriented companies. As aresult our portfolios are holding up better than their benchmarks in the current correction.
2011-06-20 Game Change for Bond Investors? by Scott A. Mather of PIMCO
Over the next three to five years, we argue that market behavior may be vastly different than what typical cyclical models would predict. Sovereign debt, which is at the core of our global financial system, is undergoing a seismic shift. Governments practicing financial repression may be transferring wealth from creditors (citizens) to debtors (governments) to the detriment of creditors, fixed income investors and savers.
2011-06-17 Time to Float? The Investment Case for Floating Rate Notes by Matt Tucker of BlackRock Investment Management
With QE2 winding down at the end of June, many analysts and investors are speculating that the end of the purchases may signal the beginning of a tightening cycle, creating concerns about rising interest rates. Since fixed rate bond prices decline when interest rates rise, this has prompted many investors to buy shorter duration securities to help protect their fixed income portfolios from rate increases. Another solution that investors may consider are floating rate notes (FRNs), which can help investors reduce their exposure to interest rate increases.
2011-06-13 Ouch by Jeffrey Saut of Raymond James Equity Research
While equity markets can certainly do anything, if the SPX declines to the lows registered in March of 2009, which is what Walter Zimmerman thinks, and if the current earnings estimates are anywhere near the mark, it would leave the S&P 500 trading at less than 6x earnings with a dividend yield (excluding any dividend increases) approaching 5%. I just dont believe this is in the cards, given my assumption the economy is NOT going to double dip. Amid such market machination I think investors should keep their heads screwed-on straight and begin compiling their buying lists.
2011-06-10 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Last summer, the markets encountered a (temporary) setback as debt problems in Europe threatened the global recovery and weaker data prompted thoughts of a double-dip. Well, after six consecutive down weeks, the pessimism has returned to the equity markets; of similar note, Greece still has yet to find its footing and the once promising labor rebound still has a long way to go. The Fed is about to end a controversial stimulus, but stands prepared to help again if situations warrant.
2011-06-07 Low Volatility Equity Solutions – Is Now The Time? by K.Sean Clark of Clark Capital Management Group
Correlations converging amid the market declines of 2008 called attention to the limits of relying on diversification between assets for portfolio protection. The desire for non-correlated returns among assets had led to a significant reduction in U.S. equity exposures and accelerated flows into non-U.S. equities and alternative strategies. But the correlations of these uncorrelated assets spiked under the extreme market stress of 2007 and 2008. This shows that for downside protection, buying assets with many different risk profiles is not a substitute for buying volatility to manage risk.
2011-06-07 Modern Portfolio Theory IS Harming Your Portfolio by JJ Abodeely of Sitka Pacific Capital Management
In a recent paper, Scott Vincent argues that the flawed foundation of MPT has allowed its advocates to control the language of the debate and set the stage for the obvious conclusion that passive index-based investing is inherently superior. And don’t think for a second that this debate is simply theoretical, academic, or unimportant– the basic tenets of MPT shape the decisions of nearly all investors in profound and often disturbing ways. YOUR money is almost certainly being managed with these ideas at the core. The traditional approach to asset allocation is built on false axioms.
2011-06-02 Still Chugging Along: The Market that Could by Team of Eagle Asset Management
The global economic recovery is moving along but there remain some areas of concern. Our managers’ discussion included such things as rising commodity prices, real estate problems and perhaps most interesting to readers, how they have investment portfolios positioned. Included in the roundtable were Bert L. Boksen (Small/Mid Cap Growth); James Camp (Fixed Income); Ed Cowart (Equity Income/Value); Todd McCallister (Small/Mid Cap Core); Jack McPherson (Small Cap Core Value); Eric Mintz (Small/Mid Cap Growth); Richard Skeppstrom (Large Cap Core); and Stacey Serafini Thomas (Small/Mid Cap Core)
2011-06-02 Expert Roundtable on Risk by Mark W. Riepe, Liz Ann Sonders, Randy Frederick, Rob Williams, & Brad Sorensen of Charles Schwab
The word "risk" has a negative connotation-something to steer clear of whenever possible. However, in the investing world, risk and performance are intertwined. Market sentiment can shift quickly depending on economic or political news, geopolitical events and even natural disasters and these shifts can sometimes send investors fleeing for safety or taking on more risk as they seek higher returns. Mark Riepe, led a roundtable discussing the concept of risk in investing, strategies for reducing portfolio risk, and investment suggestions tailored to both risk-seeking and risk-averse investors.
2011-06-01 An Investment in Infrastructure by Team of Columbia Management
Neglecting infrastructure can have tragic consequences. Think about the I-35 bridge collapse in Minneapolis, levees breaking in Missouri or the San Bruno gas pipeline explosion. These and many other examples illustrate the type of destruction that can occur if the country’s aging infrastructure is not addressed. At the same time, demand for new infrastructure is growing exponentially in emerging markets. Data highlighting the scale of construction, transport, logistics and communications development are so large they render relevant context difficult to comprehend.
2011-06-01 Next Big Thing: "Rent to Own?" Recreating the Ear of the Markets by Team of Institutional Risk Analyst
We feature a comment by Damien IslamFrenoy and David Cox, of Microsoft Banking and Capital Markets, about the need to restore context to information to better identify and manage risk. But first we make a few observations about the trends in the political economy. The first quarter of 2011 is now the best quarter since 2007 but does this mean that the future is assured? With an ROA<1% and ROE measured in single digits, the results are less than stellar. But the retrenchment of Americans away from housing assets and toward cash savings raises questions about the future of the banking industry.
2011-05-31 Weekly Commentary & Outlook by Scotty George of du Pasquier Asset Management
So what is the state of the economy and the financial markets? Poor. Whether it’s drought, weather disasters, human disasters, or economic uncertainty, the markets seem to be going nowhere. The most potent markets are driven by cash, confidence, and confluence. But with two bear markets in the last decade, behavior and attitudes have changed. There has been a drastic decline in consumer confidence brought on by the dot.com bubble and by the horrific events of 9/11 and their reverberations. No matter how accessible cash became, it only seemed to lead to some kind of disaster.
2011-05-28 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
While Memorial Day starts summer, many traders got a jumpstart on the season by skipping town early as volume was quite thin on the exchanges. Earnings announcements continued (though folks stopped paying attention long ago) and Tiffany and Guess both bested expectations, a nice sign for luxury retail. As the season comes to a close, the results spoke well for the state of Corporate America. For the quarter, profits increased by almost 6% to $1.45 trillion. The IPO world did not fare as well after investors thought the LinkedIn success of last week had ushered in a new “exuberance.”
2011-05-28 Schwab Market Perspective: Shifting Sentiment by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic headwinds are causing growth expectations to be reevaluated, resulting in choppier action in a majority of asset classes. The Fed is moving steadily closer to ending its purchases of Treasuries but we dont believe its a major event. Normalization of monetary policy still seems slow in coming, although we believe QE2 ending on schedule is nearly certain. Europe's debt crisis continues to plague the eurozone. Solutions appear to be limited and agreement is still anything but assured. Meanwhile, China's slowdown is also weighing on investors.
2011-05-26 The Case for More Monetary Elixir by Scott Minerd of Guggenheim
Ive noticed a critical mass of groupthink growing around the expiration of the Feds asset purchase program dubbed QE2. After tripling its balance sheet in 2.5 years, the conventional wisdom is that the era of quantitative easing should now give way to the era of inflation. As a result, the foregone conclusion is that U.S. interest rates will rise and bonds will underperform significantly. While I acknowledge the potential for rising rates, I dont think the expiration of QE2 is the catalyst that most believe it to be. In fact, I believe U.S. rates should remain at historically low levels.
2011-05-26 Protecting Bond Portfolios From Rising Rates by Team of Neuberger Berman
As the U.S. economy continues to strengthen and the prospect of inflation rises, investors are concerned the U.S. may potentially face a sustained period of rising interest rates. This matters to bond owners because changes in interest rates directly impact the market value of bonds and bond portfolios. With today’s fixed income markets now implying an increase in interest rates and higher volatility in credit spreads, a traditional buy-and-hold bond portfolio or a more traditional fixed income mutual fund strategy may not be as attractive to investors.
2011-05-24 Debt Ceiling Jeopardizes Dollar’s Reserve Status by Axel Merk of Merk Funds
While borrowing costs for the U.S. government have not yet risen, irreparable harm may have already been done to the U.S. dollar and its status as a reserve currency. Ironically, it’s not a plunging, but a rallying bond market that is a symptom of the problem. Most observers believe that a) the Treasury has a big bag of tricks to continue servicing the debt; and b) politicians will play a game of chicken, but eventually do what they always do: agree to spend more money. We don’t know how the bond market will react; but we do know that policy makers are playing with fire.
2011-05-24 What is conservative about Absolute Return, Market Neutral or Long/Short Mutual Funds? by Kendall J. Anderson of Anderson Griggs
The machine of Wall Street has convinced many individuals who believe they are prudent, conservative, investors that a mutual fund whose name or objective includes the terms Absolute Return, Market Neutral, Long/Short or hedged, will never lose your money. An individual whose fear of losing again from common stocks just can’t bear sitting on cash and earning a nickel of interest every three months 1k. The desire to increase returns is just too great. Before you fall for the hype there are a few things you should know. The most important item you should remember is that there is no guarantee.
2011-05-23 Spreads Edge out as Large Supply Continues by Stephen Smart of CCM
Secondary investment-grade and high-yield corporate bonds are still in favorable (albeit attenuated) trends, but are now past the seasonally “right” time of year for outperformance; most new nonfinancial issues are still being priced rich to secondaries. Investment-grade corporate bonds still look like they will probably outperform Treasuries over the next two-to-three year period, but I expect most of that outperformance will recommence later in the year – not in the May-October period.
2011-05-21 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
It’s beginning to look a lot like…summer. From college commencements to high school proms to nursery school graduations…soon kids will be home with nothing to do (but spend their parents’ hard-earned money); vacations start in earnest; and market volume usually takes a tumble (tee times during trading hours). As for this year…rising commodities have elevated food prices which makes dining out more expensive. Likewise, with gasoline prices pushing $4/gal, analysts worry about any ill-effects on travel plans and overall consumer activity. In fact, several retailers are already feeling the pinch.
2011-05-20 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
The funny thing about perpetual motion devices is that they give the impression of constant, and sometimes complicated, activity, but in reality they don’t actually go anywhere. Such is the state of global bourses, traversing an active up, then down, then up again pattern, yielding a great big net-nothing. The problem, though, with such market-driven perpetual motion is that unless the “axis of ascent” is rising it must either be neutral or falling. And in today’s climate since the run-up in markets dating back to 2008, many securities are doing just that, declining or going nowhere.
2011-05-18 Floating rate: Hedging the interest rate risk in your fixed-income portfolio by Team of Columbia Management
Following the Great Recession of 2008, many investors aggressively moved to cash and fixed-income securities in a classic flight to safety. In early 2009, we could point to a historic opportunity to capture significant total return. Much of that correction has already occurred and valuations across the fixed-income market have largely recovered. At this juncture in the business cycle, credit risk has declined dramatically, as evidenced by defaults that are running below long-term averages, robust new issuance and demand for bonds, and healthy corporate balance sheets and earnings.
2011-05-13 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Let the volatility begin. Commodities prices go up…equities follow. Commodities prices stumble…equities follow. These days, the supply/demand vs. speculation debate seems to be consuming investors’ mindsets as the major moves in metals, grains, and energy (both up and down) are leading the direction of stocks (both up and down). Earnings still remain solid, though more firms are warning about future results.
2011-05-10 Howard Marks on the Human Side of Investing-Q & A by Robert Huebscher (Article)
Howard Marks is widely regarded for his thought-provoking essays on the discipline and process of value investing. He is the chairman and co-founder of California-based Oaktree Capital, and he delivered the keynote address at the Value Investing Congress in Pasadena last week. Here are excerpts from the Q&A.
2011-04-25 Near-Term Turbulence Wont Upset Positive Equity Backdrop by Bob Doll of BlackRock Investment Management
Equities remain in the broad trading ranges they have been tracing for months, but made a strong move to the top of those ranges this past week. The big news event in the US was the S&P downgrade of the US outlook, causing investors to focus on the possibility of the US government losing its AAA rating, and making it likely the budget problems will become the preeminent issue in the 2012 campaign. The looming debt ceiling vote is the proverbial bargaining chip in the middle of the chasm between the two parties on deficit reduction.
2011-04-22 Could the U.S. Return to 1970s Style Inflation? by Scott Colyer of Advisors Asset Management
The U.S. appears to be at the crossroads of fiscal and monetary policy. Many are painting a very bleak picture of the future of the dollar, U.S. credit and the validity of the U.S. economy as the model for the world. Could the U.S. return to 1970s style of inflation? The answer is that, although the possibility is there, the probability that such a high level of inflation returning any time soon is actually very low. Is the Fed conducting monetary policy that is inflationary in nature? Yes they are, but let’s not forget why they are doing this. The Fed is engaged in the avoidance of deflation
2011-04-18 Approaching the Eraser by John P. Hussman of Hussman Funds
Market conditions in stocks continue to be characterized by a hostile syndrome of overvaluation, overbought conditions, overbullish sentiment, and rising interest rates, which has historically been associated with a poor return/risk profile, on average, across a wide variety of subsets of historical data. Though I question the ability of the economy to "pass the baton" to the private sector as government stimulus effects run off in the coming 8-10 weeks, I should emphasize up front that our present defensive position is not driven by those economic concerns.
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.
2011-04-13 Fixed Income Investment Outlook by Team of Osterweis Capital Management
Investors sometimes walk a fine line between either over-reacting to temporal changes, which ultimately don’t have a lasting impact on either the economy or the markets, or underestimating the impact of real risks that can bring about lasting and meaningful changes. Currently, the main areas of concern are the Japanese triple disaster, the Middle Eastern/North African “Arab Spring,” and inflation. While we do not believe the Japanese and Middle Eastern situations pose a real threat to financial markets long term, we do believe inflation may.
2011-04-12 Ten Trends that will Reshape the Fund Industry by Robert Huebscher (Article)
For advisors scouring among thousands of mutual funds, bargains and inefficiencies will be harder to find in coming years. Intense competition among funds for shelf space will not translate to lower fees, and the new class of broad asset allocation funds is unlikely to live up to its marketing promises. Those were among the surprising forecasts from Geoff Bobroff, with whom I met last week.
2011-04-11 Despite Near-Term Risks, Stocks Remain Resilient by Bob Doll of BlackRock Investment Management
The preponderance of the economic and market-related news skewed to the negative last week, with an additional earthquake in Japan, rising oil prices, an interest rate hike by the European Central Bank (ECB), escalating debt problems in Europe and increasing noise about the since-averted potential federal government shutdown. Despite this backdrop, however, US equities remained resilient and were roughly flat for the week, with the Dow Jones Industrial Average up marginally to 12,380, the S&P 500 Index down 0.3% to 1,328 and the Nasdaq Composite down 0.3% to 2,780.
2011-04-08 Financial markets don’t worry about government shutdowns — It’s when they come back we worry! by Colin Moore of Columbia Management
We examine the implications for the broad economy, financial markets and state and local budgets of a federal government shutdown. The probability of a “shutdown” this weekend is growing. There appears to have been little real progress in negotiations over the last few days. If anything, the debate about the current crisis has ballooned into an even greater battle about the size of and role of government. It is relatively easy to agree on a target $33 billion or $40 billion of expenditure cuts, it is MUCH more difficult to identify exactly which programs should be cut to meet that target.
2011-04-05 Is Alpha Dead? by Andreas Steiner (Article)
While beta has been declared dead several times in the past, alpha is a survivor. My diagnosis is that alpha, however, is in very critical condition itself, even under the most optimistic interpretation. A more realistic assessment is that alpha is dead.
2011-04-05 Letters to the Editor: GMWBs and the Permanent Portfolio by Various (Article)
A reader responds to our article, Understanding Variable Annuities with GMWBs, which appeared on March 1 and another reader responds to Geoff Considine's article, What Investors Should Fear in the Permanent Portfolio, which appeared on March 22.
2011-03-29 GMO's Market Outlook: 'Disappointingly Overvalued' by Robert Huebscher (Article)
Opportunities across US and foreign assets classes are unattractive, according to Ben Inker, the head of asset allocation at the Boston-based global money manager Grantham, Mayo, van Otterloo & Co. (GMO). Neither the equity nor fixed income markets hold the potential for investors to earn acceptable inflation-adjusted returns, Inker said.
2011-03-25 Unrest and Turmoil = Rising Oil Prices by Monty Guild and Tony Danaher of Guild Investment Management
Nine of the eleven nations sharing land or water borders with Saudi Arabia (SA0 have had demonstrations. Trouble is likely to surface in SA because much of the country’s wealth is located under lands where Shia Muslims are in the majority. The ruling House of Saud is Sunni Muslim. The distrust and bad blood between the two sects predates oil discovery and is not likely to be solved with oil money. The political events are about freedom from repression but also represent a basic struggle between these two Muslim groups for control of revenues from the huge oil fields in that part of the world.
2011-03-24 Mixed Fed Messages Reflect Murky Outlook by Team of American Century Investments
Mixed. Unsettled. Not altogether reassuring. Sounding a lot like the current state of the U.S. economy, that was the tone of the policy statement issued March 15 by the open-market operations committee of the U.S. Federal Reserve. It certainly didn’t provide comfort to those fearing that the Fed is in the process of fueling future inflation flames, nor did it offer any encouragement to savers hoping for higher short-term interest rates in the near future. What the statement did accomplish was help support the economic, inflation, and Fed policy outlooks of the fixed income team at ACI.
2011-03-23 As The World Turns by Scott Brown of Raymond James Equity Research
Japan’s earthquake/tsunami/nuclear tragedy and heightened tensions in the Middle East and North Africa have led to some concerns about the global economy, and in turn, the strength of the U.S. recovery. A weaker Japanese economy and supply-chain disruptions are detrimental to U.S. growth, but moderately and only short-term in nature. Developments in the Middle East and North Africa are more uncertain, but are likely to keep oil prices relatively elevated. None of this is expected to jeopardize the U.S. recovery, but it could keep growth from being as strong as was hoped for just a month ago.
2011-03-21 Risks to the Global Economy Should Remain Contained by Bob Doll of BlackRock Investment Management
Escalating anxiety over the damage from the earthquake in Japan and resulting nuclear reactor problems as well as rising tensions in Libya and the Middle East resulted in an aggressive selloff in equity prices early last week. Despite an end-of-week rally, stocks were down for the week as a whole, with the Dow Jones Industrial Average falling 1.5% to 11,859, the S&P 500 Index declining 1.9% to 1,279 and the Nasdaq Composite losing 2.7% to 2,644. The events of the last several weeks serve as a reminder about how quickly potential risks can turn into downside reality.
2011-03-21 Inflation Ready To Make Its Grand Entrance by Chris Maxey of Fortigent
Stock markets struggled in recent weeks due to a host of macroeconomic concerns, from earthquakes in Japan to uprising in the Middle East. This is causing a move in the markets that is similar, but different to what is typical during the third year of a Presidential cycle. Generally, markets rally in the first portion of the year before trading essentially flat in the second half. In the first two months, markets were adhering to this same pattern, but the aforementioned macro concerns derailed that rally. This does not mean markets will be unable to stage a recovery.
2011-03-18 What Inflation Means to You: Inside the Consumer Price Index by Doug Short of Doug Short
The Fed justified the current round of quantitative easing "to promote a stronger pace of economic recovery" The Fed is trying to increase inflation, operating at the macro level. But what does an increase in inflation mean at the micro level, specifically to your household? Let's do some analysis of the Consumer Price Index, the best known measure of inflation. The Bureau of Labor Statistics divides all expenditures into eight categories and assigns a relative size to each. The pie chart below illustrates the components of the Consumer Price Index for Urban Consumers.
2011-03-17 5 Dividend Champions to Work Your Money as hard as You Worked for It! by Chuck Carnevale of EDMP
You worked hard over your lifetime to build a nest egg in order to fund your retirement. Doesnt it make sense that now that youre retired your money should work as hard for you as you worked for it? When you were working, you were accustomed to receiving a raise in pay each year. Why should that end now, just because you are retired? It doesnt have to, because investors today have the good fortune and opportunity to invest in blue-chip 'Dividend Champions' (companies that have increased their dividend every year for at least 25 years) which are trading at historically low valuations
2011-03-15 U.S. Government: Evermore Reliant on Foreign Investors by Kieran Osborne of Merk Funds
Despite the Fed recently surpassing China as the largest owner of U.S. government debt, the U.S. remains heavily reliant on foreigners to fund the government’s ongoing fiscal largess. Geithner’s Treasury Department has firmly focused new issues at the mid to longer end of the yield curve. Despite the Treasury taking advantage of the ultra-low interest rate and funding environment, there are substantial refinancing issues over the near term; moreover, many of these maturing issues are foreign owned.
2011-03-14 Weekly Investment Commentary by Bob Doll of BlackRock Investment Management
Risk assets experienced a setback last week in the face of rising tensions in Libya and the Middle East. Additionally, the massive earthquake that hit Japan on Friday resulted in a sharp downturn in Japanese equities on Monday and increased investor unease. For the week, the Dow Jones Industrial Average lost 1.0% to 12,044, the S&P 500 Index declined 1.3% to 1,304 and the Nasdaq Composite fell 2.5% to 2,716. The human costs of the earthquake in Japan are obviously foremost in everyone’s mind at this time, but the potential economic and market implications are also being weighed by investors.
2011-03-11 The Seven Immutable Laws of Investing by James Montier of GMO
This dearth of assets offering a margin of safety raises a conundrum for the asset allocation professional: what does one do when nothing is cheap? Personally, I’d seek to raise cash. This is obvious not for its uninspiring near-zero yield, but because it acts as dry powder – a store of value to deploy when the opportunity set offered by Mr. Market becomes more appealing. And this is likely, as long as the emotional pendulum of investors oscillates between the depths of despair and irrational exuberance as it always has done. Of course, the timing of these swings remains as nebulous as ever.
2011-03-10 Stock picking is dead? Long live stock picking by Robert McConnaughey of Columbia Management
A recent frontpage story in The Wall Street Journal was titled “Macro Forces in Market Confound Stock Pickers.” The article quoted a prominent Wall Street strategist as saying, “Stock picking is a dead art form.” The article is now prominently displayed on my office bulletin board as I believe it (and similar articles and research notes) marks a high in skepticism regarding active investing. I also believe these sentiments will be proven dramatically wrong in the months and years to come, as certain active investors take advantage of the inefficiencies that this very skepticism is causing.
2011-03-08 Letters to the Editor and a Final Thought on VAs with GMWBs by Various (Article)
We received a record number of letters in response to Robert Huebscher’s article, Understanding Variable Annuities with GMWBs, and to Peng Chen’s response, The Real Flaws – A response to 'Understanding Variable Annuities with GMWBs,' which were published last week. We also provide a final thought on this subject.
2011-03-07 Investment Commentary by Bob Doll of BlackRock Investment Management
A tug of war is taking place in the markets, with crosscurrents of good economic reports on the positive side and a continued rise in oil prices from the conflicts in the Middle East on the negative side. Last week, US equities were up modestly, with the Dow Jones Industrial Average rising 0.33% to 12,169, the Nasdaq Composite advancing 0.13% to 2,784 and the S&P 500 adding 0.10% to close at 1,321.
2011-03-04 And That's The Week That Was… by Ron Brounes of Brounes & Associates
Unlike Egypt’s Mubarak, Libya’s Gadhafi is not going down without a strong fight. With tensions escalating throughout the region, the world’s oil supply and crude prices soared above $104/barrel over the past few days to levels not seen in 29 months. While optimists point out that Saudi Arabia has been quick to pick up the slack for any shortfall out of Libya, others worry that a prolonged crisis limits its ability to do so indefinitely. The bigger pessimists fear that the uprising could spread to Saudi (Anyone think it may be time to reduce our dependency on foreign oil?)
2011-03-03 Multi-Asset Real Return: Assessing & Exploiting Price Pressures in their Many Forms by Kevin Kearns, Laura Sarlo and James Balfour of Loomis Sayles
An asset manager’s challenge is to preserve and grow the purchasing power of investors’ portfolios under a variety of economic conditions. Understanding the breadth of global inflationary or deflationary trends that can occur, and the ways different assets might perform in these environments, is critical to this objective. Based on our research, we have determined that no single asset class can protect investors from inflation. On the contrary, we believe the flexibility and diversification offered by a multi-asset-class strategy is necessary to help weather changing inflation regimes.
2011-03-01 Understanding Variable Annuities with GMWBs by Robert Huebscher (Article)
It's very tempting: a variable annuity with minimum lifetime payout that can increase - but never decrease - based on market performance. That temptation comes in the form of an increasingly popular variable annuity rider known as a guaranteed minimum withdrawal benefit. We explain the flaws in a widely publicized study by Morningstar/Ibbotson, and provide our own analysis of the product.
2011-02-25 And That's The Week That Was… by Ron Brounes of Brounes & Associates
First Tunisia was stricken with political unrest and investors barely noticed. Then Egypt suffered through a revolution which initiated a change in leadership, and the markets offered a collective yawn. Now Libya faces mass protests and traders are on edge. So what’s different in this case? One word…OIL. Libya is the first major oil producing state to encounter the violent turmoil that threatens a major shift in power. It produces 1.6 million barrels of oil a day and crude prices surged in the immediate aftermath of the revolution on fears of a production slowdown.
2011-02-22 Toward an Understanding of Risk - Part 2 by Robert Huebscher (Article)
How should clients think about risk in their portfolios? Advisor Perspectives put that question to a cross-section of prominent advisors and academics. Their answers encompassed diverse opinions and underscored how crucial that question is to the investment process. In part one of this series, which appeared last week, we heard from seven practitioners in the financial planning community. This week, we hear from seven well-known academics, including two Nobel Prize winners.
2011-02-20 December 2010 Semi-Annual Report by John P. Hussman of Hussman Funds
For the third time in a decade, the Federal Reserve has embarked on a policy that addresses structural economic problems by provoking speculation in asset prices. The first two attempts were ultimately followed by stock market declines greater than 50% each. As we enter 2011, the stock market remains in what we view as an already strenuously overvalued advance, which has driven our estimates for S&P 500 Index total returns to less than 3.2% annually over the coming decade. My expectation is that this attempt to create “illusory prosperity” will end no better than it has in the past.
2011-02-17 Responding to the Stubbornly Steep U.S. Treasury Yield Curve by Team of American Century Investments
Disciplined, active investment managers are constantly on the lookout for capital market extremes, which can provide value-adding opportunities for investors. One such market extreme has been developing in the U.S. Treasury market for the past three years, reaching historic levels in 2010 and earlier this year. We’re talking about the very wide, stubbornly persistent gap between short- and longer-maturity U.S. Treasury yields.
2011-02-15 Toward an Understanding of Risk by Robert Huebscher (Article)
How should clients think about risk in their portfolios? Advisor Perspectives put that question to a cross-section of prominent advisors and academics. Their answers encompassed diverse opinions and underscored how crucial that question is to the investment process.
2011-02-15 The Stuxnet Paradigm by Michael Lewitt (Article)
Michael Lewitt discusses the situation in Egypt, the economy, rising risk appetites in the market, sovereign debt and municipal bonds. 'It might be very easy,' he writes, 'to be impressed by the 'two years and thousands of man hours' that Ms. Whitney spent researching the fiscal condition of the 15 largest states. What in the world required so much time and effort? It shouldn't have taken nearly so long to determine that these states are in severe financial trouble and that their options for dealing with it are limited.
2011-02-13 Rich Valuations and Poor Market Returns by John P. Hussman of Hussman Funds
At present, my view on monetary policy is that the inflation outlook following the completion of QE2 will be quite unstable, because small changes in interest rates are likely to induce very large changes in the willingness of individuals to hold base money. Any external upward pressure on interest rates beyond a fraction of a percent will have to be rapidly offset by a large reduction in the outstanding monetary base in order to avoid a deterioration in the value of money relative to goods and services (i.e. inflation).
2011-02-11 Yelling Fire in a Crowded ‘Muni’ Theatre by Andrew Clinton of Clinton Investment Management
Municipalities have the unique power to raise taxes and service fees, while cutting non-essential services, in order to create revenues sufficient to pay debt holders. There are over 50,000 individual municipalities across the country. Over the course of decades, there have been very few instances of default. The economy's improvement should bolster state and local finances now and in the future. I firmly believe investors seeking safety of principle and attractive tax-free cash flow should look to capitalize on the current market uncertainty as they are being well compensated to do so.
2011-02-09 Testing the Wisdom of Ben Graham’s Formula (part one) by Chuck Carnevale of EDMP
Ben Graham’s formula for valuing a company V* = EPS x (8.5 + 2g) established a solid foundation for future value investors to build upon. The small “g” in the formula represents your reasonably expected 7 to 10 year growth rate. Consequently, Ben Graham’s formula was forward-looking. In this article we looked at modern historical performance in order to test the validity of this famous value formula. Remarkably, the formula proves itself to being very precise when applied in the real world to businesses that grow earnings between zero and 5% per annum.
2011-02-09 How to Play in 2011 by David A. Rosenberg of Gluskin Sheff
At the start of every year I remind myself that each individual year has its own story. For example, 2007 taught us that it never hurts to take profits after the market doubles and that if something is too good to be true (housing and credit bubble) it probably is. The 2008 lesson focused on capital preservation strategies and the urgency of managing downside risks. 2009 it was vital not to overstay a bearish stance in the face of massive fiscal and monetary stimulus. Last year’s lesson was how to handle the many post-stimulus market swings that are inherent in a post-bubble credit collapse.
2011-02-08 Optimizing Your Fixed Income Allocation by Geoff Considine, Ph.D. (Article)
Here's a little-known fact: The traditional 60/40 portfolio, when using the aggregate-bond index for its fixed-income allocation, has a 99% correlation to the returns of the S&P 500. One way to overcome the limited diversification value offered by the aggregate index is to use a risk-parity approach. In this article, I explore the concept of risk parity in asset allocation and how it provides value for portfolio management.
2011-02-08 Conundrum Investing by James G. Tillar and Steve Wenstrup of Tillar-Wenstrup Advisors
The range of possible outcomes for the economy and market is still wide. We believe QE2 is simply a continuation of a boom-and-bust regime. Fundamentals are good now but are unlikely to be sustainable. Printing money to support asset prices cannot go on forever and usually ends in disaster like it did after both the technology and housing busts. Therefore, we dont believe this is a time to be aggressive. We are maintaining our strategy of emphasizing steady-growth businesses, with strong balance sheets, healthy dividends, attractive valuations and exposure to emerging economies.
2011-02-02 Devil’s Bargain by Bill Gross of PIMCO
Money has become the economic and political wedge for profound changes in American society. Perhaps the most deceptive policy tool to lessen debt loads is the “negative” or exceedingly low real interest rate that central banks impose on savers and debt holders. Old-fashioned gilts and Treasury bonds may need to be “exorcised” from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint.
2011-01-31 The Investment Outlook: An Overview by Milton Ezrati of Lord Abbett
This is the first of a four-article series on the macro considerations behind Lord Abbett’s fixed-income and equity outlooks. This first installment offers an overview. The three pieces that follow will, in turn, take up the reasons behind 1) the general preference for credit-sensitive fixed-income issues; 2) the positive overall stance on equities; and 3) the call for a thorough capitalization mix within equities.
2011-01-31 Duration: Not the Whole Story by David L. Waldman of Loomis Sayles
Our analysis has shown that drawing on a broad set of quantitative tools to assess a portfolio’s perceived interest rate sensitivity can enhance the decision making process. At Loomis Sayles, iRate Beta is one of many resources—including other analytics, fundamental research and trading insights—for portfolio managers to consider when making investment decisions. By arming portfolio managers with a comprehensive perspective on their portfolios’ Treasury sensitivity and risk, we believe managers will be better positioned to consider various investment and hedging strategies.
2011-01-31 Investment Commentary by Bob Doll of BlackRock Investment Management
At present, most investors appear to have increased their expectations for global growth and for growth levels in the United States. The words “double dip” have virtually vanished from investors’ vocabularies and while we agree with the generally optimistic tenor of the conversation, we are also somewhat uneasy about the positive shift in sentiment and growing sense of complacency. As last week’s events remind us, there are a number of risks to be wary of, including one we have not yet mentioned — monetary tightening in emerging markets.
2011-01-29 Q410 Market and Economic Commentary by Mike Timm of Granite Investment Advisors
We remain positive on equities. Valuations on large capitalization stocks remain attractive. Though smaller cap companies outperformed large cap stocks in 2010, we believe the valuation gap will close in 2011 in large part because many of the large cap names have significant sales exposure to emerging economies around the world. In fixed income, we continue to favor corporate securities with maturities shorter than five to six years, cushion bonds, step-up bonds, and selected non-investment grade bonds. We expect rates to continue to rise over the next eighteen months.
2011-01-28 Pie in the Sky by John Browne of Euro Pacific Capital
Investors would be well-advised to retain a jaundiced view of all political statements, especially those of central bankers and politicians positioning themselves for the next election. In 2011, investors should focus their eyes not on the sky, but at the brick wall our Union is fast approaching.
2011-01-25 Fourth Quarter 2010 Market Review & Outlook by Steven Roge of R.W. Roge
Our outlook for 2011 remains cautious, as we were last year. We will continue with most of our 2010 strategies for 2011, with the exception of bonds and municipal bonds which may present some difficulty going forward. We have already lowered our allocation to bonds in the third quarter, lowered our bond duration, and are currently lowering these variables even further, especially in the municipal bond area.
2011-01-24 Investment Commentary by Bob Doll of BlackRock Investment Management
A number of factors bear close watching for investors, including the potential for additional Chinese policy tightening, ongoing weakness in the housing market and ongoing European sovereign debt issues. The overall strength of the economy, however, suggests to us that a repeat of the environment of fear that surfaced last year when the Greek sovereign debt problem developed is unlikely. We believe the strength in profit margins coupled with a less-hostile regulatory posture from D.C., should spur increased confidence, which should lead to a pickup in employment.
2011-01-20 James Tobin’s Advice; Look 'Anywhere insight may be found' by Kendall J. Anderson of Anderson Griggs
For 99% of all investors in the United States, risk control can be simplified by separating your funds into buckets of “risk-free” and “risky” assets. Just remember that “risk-free” cannot be substituted with investments that are almost risk free. With FDIC Insurance coverage of $250,000.00 per person, and unlimited amounts available from the U.S. Treasury, the ability for most investors to incorporate risk free investments into their portfolios is easily accomplished.
2011-01-18 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Today, bond and stock inventors sit at the edge of a new paradigm, indeed, where inexpensive money has yielded about as much as possible from corporate balance sheet expansion, while lower interest rates no longer offer high yield or capital gains probabilities to fixed income investors. The difficulty today, however, is that stocks are at a significant inflection point where the likelihood of perpetual sustainable upside gains is limited.
2011-01-18 How High is High? (To Whom?) by Jeffrey Saut of Raymond James Equity Research
The current buying stampede is legend with the DJIA experiencing no more than three consecutive days on the downside over the past 93 sessions. This, combined with numerous other negative indicators, continues to leave me cautious in the short-term on both stocks and commodities, but not bearish. As for buy ideas, as stated I do like Tech.
2011-01-18 Fixed Income Investment Outlook by Team of Osterweis Capital Management
As for our strategy, we continue on a steady course of balancing major risk aversion while opportunistically seeking returns. Although there are no longer any soft pitches like there were in late 2008 and early 2009, we feel that there are still enough bond issues from well-run companies that offer reasonable returns without going too far out on the risk or duration curves. We do not believe it is prudent to lower quality standards or to take excessive duration exposure at this time in order to increase returns. We believe there will be better opportunities for that in the future.
2011-01-15 Trading Secrets by Tad Rivelle of TCW Asset Management
Treasury yields are lower today than they were in the early 1930s. This is despite a paucity of evidence that prices are deflating, or that the U.S. is the beneficiary of a flight-to-quality. Furthermore, the low rates have continued notwithstanding QE2, a program of thinly disguised “money printing.” Our belief is that low rates are the product of a zero rate policy that is distorting Treasury pricing. This “artificial” propping up of Treasury pricing will last until such time that bank balance sheets are substantially repaired. As such, our outlook for Treasuries is decidedly negative.
2011-01-13 Post Time by Michael Dana of Dana Investment Advisors
The financial markets by themselves do not recognize time. It doesn’t matter if it is August 9 or January 2. Time does, however, matter to investors. There are always tax considerations, window dressing, estate planning and numerous other factors that coincide with the end of the year and the beginning of a new year. For many (particularly mutual funds or investment advisors) it is a horse race. Anyone in the investment business is judged on performance. In order to retain and attract new clients one must consistently outperform the popular market indexes. So here we are again: it’s post time.
2011-01-13 TW3?! by Jeffrey Saut of Raymond James Equity Research
“That Was The Week That Was,” also known as TW3, was a satirical TV comedy first broadcast on the BBC in November of 1962 and subsequently moved to America. The program was radical in that it chronicled events of the previous week and broke new ground in lampooning the establishment. It was also the first show to demonstrate it was truly television by allowing the cameras and boom microphones to be seen, giving the program an exciting and modern feel. I revisit TW3 this morning because despite last week’s holiday-like environment there were some pretty amazing headlines.
2011-01-12 Equity Market Review and Outlook by Richard Skaggs and Thomas Davis of Loomis Sayles
Global equity markets continued the uptrend that began in the third quarter and finished the year with solid gains across all major equity categories. Such a powerful second half of 2010 seemed improbable just last summer, when concerns over a potential double-dip recession dominated investor thinking. Other macro issues, such as the ongoing financial challenges within the European Union, remain unresolved. However, these macro concerns have remained manageable in the eyes of equity investors.
2011-01-10 The Key Asset Classes For 2011 Will Be: Oil, Gold, And Stocks by Monty Guild and Tony Danaher of Guild Investment Management
Investors are moving from bonds to stocks and the huge cash balances at money market funds will likely find their way into stock and commodity markets in 2011. This means inflation and commodities prices are likely to rise faster than wages, and those living on fixed incomes or bond interest will be affected the most, due to the fact that their money buys them less of everything; both luxuries and necessities. However, the ramifications of this inflationary trend are also serious for wage-earners. In every inflationary period in recorded history, wages have risen more slowly than inflation.
2011-01-05 Market Review & Outlook by Doug MacKay of Broadleaf Partners
In 2011, we remain optimistic, believing the economy will progress from its recovery phase into expansion territory sometime during 2012. A more favorable regulatory and political environment should be a positive for corporate America, which may finally begin to spend its huge accumulated cash hoards, not solely by returning it to shareholders in the form of stock buybacks and dividends, but by also hiring new employees and upgrading their capital equipment as demand trends improve. A continued trend of bond market outflows and equity inflows should also prove constructive for the stocks.
2011-01-04 The White Hurricane by Jeffrey Saut of Raymond James Equity Research
I believe that in the short-term, the odds are not tipped decidedly in investors’ favor. The Volatility Index is down to “complacency levels” last seen in April. Ditto, Investors Intelligence data shows advisory sentiment approaching the bullish extremes of October 07. Meanwhile, stock market leadership is narrowing, internal momentum is waning, and every macro sector except Utilities is overbought. Correlations between various asset classes are decreasing, implying that investors are becoming increasingly selective. All of this suggests more caution is warranted as we enter the new year.
2011-01-04 The 2011 Economic Outlook – Credit Given Where Credit Is Due by Paul Kasriel of Northern Trust
With regard to 2011 real GDP growth, we now expect Q4/Q4 growth of 3.3% vs. 3.0%. An upward revision of 2011 Q4/Q4 real consumption growth to 2.9% from 2.5% in November is the primary factor accounting for the upward revision to the real GDP growth forecast. We are more optimistic about 2011 real GDP growth primarily because QE2 implies that the Fed will be purchasing all of the additional Treasury debt issued in conjunction with the Obama-McConnell tax and unemployment insurance compromise. We currently see more upside risk to our 2011 real GDP growth forecast than downside risk.
2011-01-04 Understanding Recent Municipal Bond Market Volatility by Steven Permut of American Century Investments
Municipal bonds have fallen in price recently. The price drop is not due to a new significant credit event or default, but rather, the decline is being driven by a host of other factors such as rising interest rates and a lack of liquidity stemming from increasing municipal supply, uncertainty surrounding the extension of Build America Bonds and the Bush tax cuts, and reduced investor demand. While municipal bond price volatility may continue into the beginning of 2011, we believe that municipal bonds still offer value over a long-term time horizon.
2010-12-31 2011: A Look Ahead by Bob Doll of BlackRock
As a way of discussing our economic and market views for the coming year, we present our 10 predictions for 2011: 1. US growth accelerates as US real GDP reaches a new all-time high. 2. The US economy creates two to three million jobs in 2011 as the unemployment rate falls to 9%. 3. US stocks experience a third year of double-digit percentage returns for the first time in more than a decade as earnings reach a new all-time high. 4. Stocks outperform bonds and cash. 5. The US stock market outperforms the MSCI World Index.
2010-12-31 Heads you lose, tails you lose. by Scotty George of du Pasquier Asset Management
Despite 2 year gains in financial valuations, most major global bourses remain in a downtrend as we enter 2011. Year-end improvements in market performance have not erased the erosive cycle trend decline begun in late 2006. Some argue that the past two years represented the regeneration of a new bull cycle in financial markets. However, empirical macro data, as well as a longer term perspective about the duration of bull markets, indicates that last year’s bull was simply a second intermediate upleg within a much longer bear market. No turnaround in the secular trend just yet.
2010-12-25 The Skinny On Thursday’s Data Flow by David A. Rosenberg of Gluskin Sheff
We got a flurry of U.S. data releases on 12/24 that, at the margin, added some comfort for the growth bulls. Initial jobless claims came in roughly as expected at 420k on a seasonally adjusted basis for the week of December 18, down 3k from the prior week. The 4-week moving average is at 426k and this time last year it was sitting at 479k, so the pace of firings has clearly receded sharply. The issue at this time is really one of hiring and going beyond part-time help.
2010-12-22 Understanding Risk Parity by Brian Hurst, Bryan W. Johnson, and Yao Hua Ooi of AQR Capital Management
The outperformance of Risk Parity strategies during the recent credit crisis has confirmed the benefits of a truly diversified portfolio. Traditional diversification focuses on dollar allocation; but because equities have disproportionate risk, a traditional portfolio’s overall risk is often dominated by its equity portion. Risk Parity diversification focuses on risk allocation. We find that by making significant investments in non-equity asset classes, investors can achieve true diversification – and expect more consistent performance across the spectrum of potential economic environments.
2010-12-22 The Year in Review by Doug MacKay of Broadleaf Partners
For 2011, we believe this trend of bond outflows and equity inflows will likely continue, overwhelming any concerns about valuations or fundamentals. In the short run, I've come to realize that fund flows, or investor desires for specific favored asset classes over others - tends to exacerbate price movements in both directions, often for much longer than most expect. I see great things for the stock market in 2011. While an improving economy will help, a shakeout in bonds may be just what the doctor ordered to get investors truly interested in stocks again.
2010-12-13 Weekly Investment Commentary by Bob Doll of BlackRock
Recent economic data has continued to be generally positive, with highlights including some decent consumer spending figures. In addition to accelerating growth trends in the US, most areas of the world have also shown signs of economic improvement in recent weeks. The concern about the European debt situation has been relatively muted as of late, and while these issues will likely continue to surface into the New Year, the difference between the Greek debt crisis of a few months ago and what is happening today is that now the global economy as a whole appears to be on firmer footing.
2010-12-13 Bullish Sentiment Nears Extreme Levels As Investors Pile Into Equities by Chris Maxey of Fortigent
According to EPFR Global, a research provider that aggregates mutual fund flows, the week ending December 8th saw investors allocate $13.7bln of new capital to stocks funds while only investing $146mln in fixed income funds. Domestic bond funds experienced withdrawals of more than $1bln. Interestingly, money market funds picked up more than $32bln in new funds, the highest total in 22 weeks. Whether this is a wise time to jump back into equity securities remains a hotly debated issue but based on several metrics, this may not be the most opportune time to increase equity exposure.
2010-12-07 Markets Rebound Despite Poor Jobs Report by Chris Maxey of Fortigent
Earlier in the fall, pessimists were pointing towards a slowing ISM index as a surefire harbinger that a “double-dip” recession was on the way. That did not happen, fortunately, and manufacturing activity has since rebounded. Several subcomponents also provided encouraging data. In particular, the employment index finished the month at 57.5, a clear-cut sign that manufacturers are continuing to hire in order to keep up with growing demand. Somewhat less positive was the prices paid index, which remained elevated at 69.5 in November.
2010-12-06 The Dangers of Rebalancing by Michael Edesess (Article)
Every portfolio should be rebalanced to its targeted asset allocation, we are taught. Indeed, there may be no other precept as routinely and studiously practiced among financial advisors. But does rebalancing either increase expected return or reduce risk? If so, why? The answers to those questions reveal that it may be prudent to rebalance, but not for the reasons you think.
2010-12-06 Research-driven Market Insights from Janus: 4Q Market Perspectives by Janus Investments (Article)
Offer clients research-driven market insights. Every quarter, Janus equity and fixed income teams share their insight and outlook on global market sectors and key macroeconomic indicators in Janus' Market Perspectives Series. We thank Janus Investments for their sponsorship.
2010-12-04 Decoupling, Further Defined by Andrew Foster of Matthews Asia
Emerging market equities— particularly those sectors most associated with decoupling themes—are now subject to elevated valuations. It appears that some investors have grown overly convinced that decoupling is a one-way, short-term bet. Don’t bet on it. Instead, take your time, and set any expectations for decoupling over the longest horizons.
2010-12-03 Fundamentals and the Stock Market by Matthew Rubin of Neuberger Berman
Is continued discomfort in the stock market justified? It can be argued that the economy is relatively weak, and with high unemployment, the weak housing market and a new focus on fiscal restraint, few expect rapid expansion anytime soon — not exactly a bullish sign for an asset class that is supposed to benefit from expansion. However, from a number of vantage points, stocks are displaying what we consider attractive characteristics that suggest the benefits of maintaining substantial exposure to equities in the current environment.
2010-12-01 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.
2010-11-30 Investment in Life Settlements: Certainty in Uncertain Times by J. Mark Goode (Article)
Life settlements are not directly correlated with traditional bond and equity markets and have the potential to yield above-market returns in the intermediate and long terms. Unlike the equity and bond markets, the returns on life settlements are uniquely tied to mortality.
2010-11-29 Valuation Opportunity by Milton Ezrati of Lord Abbett
Because the fears forged during the 2008–09 crisis still linger, investors continue to avoid equities. For a while, extreme caution drove almost all new flows of funds into cash and U.S. Treasury bonds. As these flows drove down Treasury and agency yields, investors sought returns in more credit-sensitive bonds, but still, they largely avoided equities. The pattern has by now distorted valuations enough to present a special opportunity in stocks, even after their impressive rise from spring 2009.
2010-11-29 Ripeness is All by Jeffrey Saut of Raymond James Equity Research
Shakespeare once wrote, “Ripeness is all.” And timing is “all” when it comes to Wall Street as any whipsawed investor will tell you.
2010-11-23 Why Three Top Bond Managers Like Equities by Robert Huebscher (Article)
You'll rarely - perhaps never - hear a fund manager say that market conditions do not favor investing in their chosen asset class. That's why it was so remarkable when several prominent managers recently admitted that they favored equities over their own discipline - fixed income.
2010-11-23 Seeking Beta in the Bond Market: A Math-driven Investment Strategy for Higher Returns by Georg Vrba, P.E. (Article)
Investors seeking permanent exposure to the bond market should invest in high-beta funds during up markets and low-beta funds during down markets. This simple strategy provides consistent long-term returns that are considerably higher than what a static investment in bond funds would achieve.
2010-11-15 Weekly Investment Commentary by Bob Doll of BlackRock
Last week’s market correction was, in many ways, somewhat overdue. Both stocks and commodities have experienced significant price appreciation and the US dollar had become oversold, so it should not be surprising to see some sort of reversal in these trends. The risks of a double dip recession are in the process of vanishing. As the recovery continues to move along, our outlook is that the trend of risk asset prices moving higher is likely to continue.
2010-11-12 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
Investors surveyed the landscape in the aftermath of two major market moving events (Fed stimulus and midterm election), retreated from their recent optimism, and booked profits heading into the homestretch of the year. Despite the overall success of another earnings season, investors fretted over the global progress (or lack thereof) from the G20 meeting of world finance ministers and news that China may have inflationary problems on its hands.
2010-11-10 Corporate Bonds March to Their Own Drummer by Chris Shayne of BondDesk Group
During the first week of the month traders bet big on QE2, purchasing Treasuries with abandon and dropping long term yields. On October 8th, 10-year yields hit a new low for the year, falling all the way down to 2.38%. But for reasons that arent completely clear, things changed in mid-October.
2010-11-09 The FDIC ambushes the Fed, and gains a beachhead in Basel by Christopher Whalen of Institutional Risk Analyst
This week The Institutional Risk Analyst is on the road. We were in Merriville, IN last night to give a talk entitled "A New Deal for the American Economy." The well-attended event was sponsored by the School of Business at Indiana State University and City Securities in Indianapolis.
2010-11-06 Equity Valuation, Earnings and Relative Yield: A Compelling Point in the Cycle? by Richard Skaggs of Loomis Sayles
Large-cap US stocks, as represented by the Dow Jones Average, quadrupled in the 1980s and again in the 1990s. Given this historical perspective, the market’s long pause since 2000, accented by calamitous financial events, particularly in 2008, has left investors impatient and fearful. That said, investors would be wise not to wallow in this sentiment and overlook the long history of stocks returning to good form following lengthy periods of underperformance. The S&P 500 Index could be on the cusp of a positive long-term cycle based on its valuation, earnings and relative yield.
2010-11-02 Tax Location in Today’s Uncertain Environment by Glenn Frank (Article)
The tumultuous political climate in Washington has heightened anxiety around the country, and the uncertainty left when Congress adjourned without tackling any of the looming tax changes has left taxpayers and investors wondering just what is in store for 2011. Though the crystal ball remains cloudy, and while taxes may rise for no one, everyone, or just the wealthiest Americans, steps taken today can help tax planners and their clients be better prepared - no matter what the politicians do.
2010-11-02 Letter to the Editor by Various (Article)
In a letter to the Editor, a reader highlights a few generalizations in a recent article on that, he says, unfortunately cast the entire universe of 529 plans in a uniformly unpleasant light.
2010-11-01 Quantitative Easing Measures Likely to Help Economy by Bob Doll of BlackRock
For the past couple of years, deflationary pressures and deleveraging risks have been front and center in the debate over the future direction of economic growth, and as the pending arrival of additional easing measures shows, these forces are still highly present. The worst of the deleveraging situation is now in the past, however, and the future growth impact of deleveraging will be less than it was over the past two years. The falling dollar higher commodity prices and the addition of more quantitative easing should prime the pump for inflationary pressures to begin increasing.
2010-10-29 BlackRock’s Rieder: The US Faces a Structural Dilemma by Roberth Huebscher (Article)
The U.S. economy faces a structural dilemma with high unemployment that cannot be addressed with conventional policy measures, according to Rick Rieder. Rieder is the CIO of Fixed Income for BlackRock. The 'bond bubble' will not burst, he said, and the high-yield market now offers attractive yields.
2010-10-29 Cliff Asness: Understanding Managed Futures by Robert Huebscher (Article)
In a portfolio with equities and fixed income, managed futures offer strong diversification value and high returns, according to Cliff Asness. Asness is the founder and Managing Principal of AQR Capital Management, a provider of managed futures products.
2010-10-29 And That's the Week That Was... by Ron Brounes of Brounes & Associates
October 2010 comes to a close and, despite little movement in the key indexes for the week, equities experienced another solid month. Earnings, Fed-Speak, and midterms gave investors more than enough to keep themselves busy and next week promises more of the same. Add a few major releases (manufacturing, labor) to the mix, and investors/traders can expect little sleep over the course of the week. (For that matter, neither can parents and siblings of newborns…pic attached.)
2010-10-28 What the G-20 Achieved by Komal Sri-Kumar of TCW Asset Management
A key item on the agenda last weekend during the meeting of G-20 finance ministers was the U.S. desire to have member nations' current account deficits and surpluses limited to 4 percent of GDP. A country with a bigger surplus (e.g., China) would have to let its currency appreciate. The United States, however, cannot insist on deciding on the size of QE2 based purely on domestic considerations, accuse Chinese authorities of currency manipulation, and expect other countries to provide a level playing field for American exports all at the same time.
2010-10-25 Market Rally Continues by Bob Doll of BlackRock
Over the long term, modest levels of growth should be enough to allow corporate earnings to continue to make gains and push markets higher. However, because stock markets have advanced so strongly over the past several weeks (at least in part over expectations of additional easing), we may be looking at a classic 'buy the rumor, sell the news' scenario that could cause a near-term setback at some point later this year. In any case, the economic, earnings and valuation backdrop makes for an attractive longer-term case for equities.
2010-10-25 'Janitor's Job!?' by Jeffrey Saut of Raymond James Equity Research
Eight of the S&P 500's macro sectors are currently overbought. The two that are not, Financials and Telecom, are a neutral value. Meanwhile, 88 percent of the SPX's stocks are above their respective 50-day moving averages. Equity markets are going to reach some kind of trading top over the next few weeks. Any pullback, however, will be a buying opportunity. Therefore, instead of randomly 'buying' right here, Saut prefers to wait and see which stocks resist the envisioned decline.
2010-10-22 Fed Forces Interest Rates Lower by Jim Ulland of Ulland Investment Advisors
Demand for fixed income securities is so great that companies with strong credit ratings, like IBM and Microsoft, can issue debt at record low interest rates. It is therefore remarkable that trust preferred securities issued by the largest U.S. and European banks continue to yield upwards of 7 percent. Because of these historically wide spreads, a defensive growth strategy using trust preferred securities earn vastly superior returns than any combination of CDs, cash, money markets, muni-bonds, corporate or government securities.
2010-10-18 Fixed Income Investment Outlook by Team of Osterweis Capital Management
Low yields, high corporate debt issuance, increased monetary stimulus and the rising dollar do not mean that growth will accelerate any time soon; the outlook of a slow and meandering recovery still holds. Corporations continue to rebuild balance sheets and margins at the expense of hiring and investment. While this bodes well for future debt repayment, the outlook is not rosy for job seekers. When the job outlook does change, however, and the economic pulse quickens, the era of low interest rates could end quickly.
2010-10-18 Smorgasbord by Michael Dana of Dana Investment Advisors
Now that the economy is truly now global, countries are adamant about protecting their currencies so that they can be competitive in the world market. The Bank of Japan just announced plans to limit the surging value of the yen against the dollar and the yuan. This will make their imports more attractively priced in the world market. Ben Bernanke at the Fed is considering phase two of quantitative easing for the same purpose. The exchange rate for currencies will continue to rest on the shoulders of the U.S. for some time.
2010-10-18 Market Rally Contines by Bob Doll of BlackRock
Over the long term, modest levels of growth should be enough to allow corporate earnings to continue to make gains and push markets higher. Because stock markets have advanced so strongly over the past several weeks, however, we may be looking at a classic 'buy the rumor, sell the news' scenario that could cause a near-term setback at some point later this year. In any case, the economic, earnings and valuation backdrop makes for an attractive longer-term case for equities.
2010-10-18 'Gone in 60 Seconds' by Jeffrey Saut of Raymond James Equity Research
The likelihood of the QE2 has risen dramatically since Ben Bernanke's Jackson Hole speech. This is being reflected by the 'stubborn rally' in most asset classes. If Bernanke did not think QE2 was needed, he surely would not allow such speculation because he does not want to surprise the various markets. Any ensuing pullback will be mild and contained above the 1130 - 1150 level on the S&P 500. Nevertheless, Jeffrey Saut is cautious, which he has not been since April.
2010-10-12 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 Capitulation to Uncertainties – Does a Bond Bubble Really Exist? by Frank Wei of FundQuest
The recent near-record low in Treasury yields may be largely attributable to investors' capitulation to today's unusual and uncertain economic environment. While investments in Treasury bonds involve less uncertainty than other asset classes, their valuation is typically rich when yields are low. There remains a vast amount of potential for more lucrative investment opportunities in this low-yield environment, with only slightly more risk involved.
2010-10-11 Quantitative Easing Prospects Lift Stocks by Bob Doll of BlackRock
Despite the fact that Treasury yields have moved lower in recent weeks, the Fed's actions will help reduce deflationary risks and will help global economic growth. Stock markets and commodity prices have been pricing in inflation; those markets have it right in that central banks will do what is necessary to fight deflationary forces. The intentions of central bankers are quite clear at present, and this appears to be a case where the old saying 'don't fight the Fed' seems prudent advice: From an investment perspective, risk assets should continue to grind higher.
2010-10-06 And That's the Week That Was... by Ron Brounes of Brounes & Associates
The economy remains unsteady as an uncertain labor picture continues to limit consumer activity. And yet, corporations have accumulated trillions of dollars in cash and money markets yielding near 0 percent have forced managers to seek other options. Looking ahead, the Fed's stimulus debate wages on although many expect a more limited bond buying program than the $1.7 trillion one offered last year. As for the markets, companies still have lots of cash looking for a home and hopefully equities have more room to run.
2010-10-05 Thinking Bond Market Bubble? Consider Short-Term Bonds by RidgeWorth Investments (Article)
The current market environment - characterized by historically low interest rates and money market reform - has created an opportune time to invest in short-term bonds. RidgeWorth believes investors with excess cash reserves earning near zero percent, as well as those invested in long-term bonds who may be most impacted by a rise in rates, will be well served to consider an allocation to short-term bonds. We thank RidgeWorth for their sponsorship.
2010-10-05 Do Past 10-Year Returns Forecast Future 10-Year Returns? by Bill Hester of Hussman Funds
The argument that above-average long-term returns typically follow periods of poor past long-term returns is not wrong, it's just incomplete.
2010-10-04 Is it Feasible to Have Your Cake and Eat it Too? by Chris Maxey of Fortigent
Suggesting that the bond markets are in a bubble is dangerous at this point in the economic cycle. The intervention of the Federal Reserve into the government bond markets will inherently depress yields, while a lack of clarity around economic growth will encourage individuals and corporations to refrain from embracing excessive spending. This in turn could lead to stagnant growth and further desire to hold less risky assets. For now, bond investors can sleep well knowing that sometimes, just sometimes, you can have your cake and eat it too.
2010-10-02 Schiff Responds to Dudley, Fed by Peter Schiff of Euro Pacific Capital
NY Fed President William Dudley's outrageous statements Friday closely conform to recent pronouncements from other Fed officials and confirm that a massive round of dollar devaluation is poised to begin. Seemingly overnight, the Fed appears to have altered its mandate, ditching its former goal of "price stability" in favor of "moderate price inflation." While no one is under the illusion that the Fed has kept prices stable over the last century, it used to be that the governors would at least pretend to fight inflation. Low inflation used to be the aim, now it's the enemy.
2010-10-01 Insolvency Too by Niels C. Jensen, Nick Rees and Patricia Ward of Absolute Return Partners
On 1st January 2013, Solvency II, a new directive governing capital adequacy rules in the European insurance and life insurance industry, will come into effect. Going forward, European insurers will have to be able to pass a 1-in-200 years' event stress test, which has been designed to give the industry enough of a cushion to withstand even the most severe of bear markets without being forced to sell. Risky asset classes such as equities, commodities and other alternative investments will be assigned much higher reserve requirements than less risky asset classes such as bonds.
2010-09-27 Hemlines and Investment Styles by Howard Marks of Oaktree Capital
High quality, large cap stocks have good potential over a range of possible scenarios, and are more attractive than bonds, which will do well in periods of economic weakness or deflation but poorly during periods of market strength or inflation. Treasury bonds and other high grade bonds currently have all environmental factors in their favor, but are priced rich. For them to do well from here, with yields so low, everything has to work out the way the bond bulls hope. Given current yield spreads, high yield bonds should outperform high grade bonds in most foreseeable long-term environments.
2010-09-27 Weekly Investment Commentary by Bob Doll of BlackRock
The macroeconomic backdrop seems improved compared to one month ago. Economic data has moved from 'bad' to 'less bad' (if not to 'good'), and the rhetoric from Washington, D.C. has recently focused on some pro-business and tax policies. Optimism is growing that with the upcoming midterm elections, investors may be seeing some more equity-friendly policies in the works. BlackRock remains optimistic that the economy will avoid a double-dip recession, and stocks should continue to grind higher.
2010-09-24 Cash Kindling by Robert Stimpson of Oak Associates
The US stock market’s potential resurgence is tied to a renewed and sustained wave of capital spending from corporate America. While consumers delever, most corporate balance sheets are tremendously well capitalized, with high levels of cash, profitability and low debt. High uncertainty levels about the economy seen today are likely to dissipate, thereby creating a more conducive environment for making spending decisions. The stock market’s next chapter will be written by corporations spending the cash they have accumulated. This should unfold over the next 4 to 6 quarters.
2010-09-23 Was it really a Lost Decade? by Kevin D. Mahn of Hennion & Walsh
Many have claimed that the decade of the 2000s was a lost decade for stock investors. When you look at the returns of the S&P 500 index over the decade, it is hard to challenge the validity of this claim. For the period of December 31, 1999 through December 31, 2009, the S&P 500 index had an annualized simple price return of -2.72 percent. A look at returns in categories beyond U.S. large-caps, however, including emerging markets, bonds, and U.S. mid-caps and small-caps, reveals that other types of investments actually had positive returns.
2010-09-22 The Rule of 72 by Jeffrey Bronchick of Reed, Conner & Birdwell
The 'rule of 72' allows the lay investor to determine how long it will take for him to double the value of his investment. It is calculated by dividing the number 72 by the annual yield of an investment. For example, if one divides 72 by the current 10-year Treasury bond rate of 2.7 percent, the formula generates an output of 26.6 years to double one's money. Under almost any definition of an intelligent investment plan, that seems like a very long time. If you cannot earn a rate of return above the 3 percent after-tax cost of debt for 10 years, then you should quit.
2010-09-20 Stay in the Pocket by John Petrides (Article)
Those with a long-term investment time horizon should be considering stocks right now, due to the market's long-term capital appreciation potential. With regard to fixed income, investors should first consider active management versus passive (bond funds), and should consider income sources from other areas, such as REITs and MLPs, rather than just bonds for income, as well as diversifying their holdings among corporate, high yield, convertible and floating rate bonds.
2010-09-20 Weekly Investment Commentary by Bob Doll of BlackRock
Absent any significant economic disappointments, stocks are likely to continue to make gains in the weeks ahead. Although investors have begun to re-enter the markets, however, most still have lower-than-normal levels of equity exposure in their portfolios and are waiting for clearer signs that the economy has regained strength before rebuilding their stock positions. Nonetheless, equity valuations are attractive and, looking ahead, stocks appear likely to outperform Treasury bonds and cash over a two- to three-year time horizon.
2010-09-14 Identifying Opportunities in the Municipal Bond Market by RidgeWorth Investments (Article)
Ridgeworth Investments shares its perspective on the muni bond market in a recent white paper entitled "Identifying Opportunities in the Municipal Bond Market" which outlines the historical benefits of municipal bonds, the changing market dynamics in 2009 as well as RidgeWorth's outlook for municipal bonds in 2010 and potentially beyond. RidgeWorth concludes that despite a challenging market environment, munis still offer attractive investment opportunities. We thank them for their sponsorship.
2010-09-14 Latest Bond 'Bubble' Fears are Overblown by Team of American Century Investments
Despite considerable discussion in the financial media about the existence of a bond market bubble, the fixed-income team at American Century Investments finds little evidence to support this claim. Bond bubble proponents base their argument largely on record flows into fixed-income investments, bonds' extended outperformance over stocks, and record low interest rates. However, a confluence of economic headwinds argues for a prolonged period of low interest rates and inflation, while investor demographic and behavioral finance trends also appear to favor further bond inflows.
2010-09-13 Weekly Investment Commentary by Bob Doll of BlackRock
Last week saw a drop in jobless claims, a narrowing of the trade balance and an increase in wholesale inventories, all of which suggests that the economic recovery remains intact. Although market performance has improved slightly over the past couple of weeks, stocks remain in a trading range. Ultimately, stocks will break out of their current stalemate, either to the positive side or to the negative. BlackRock is in the former camp, but acknowledges that investors will need to see clearer evidence that the double-dip scenario will not emerge before that can happen.
2010-09-11 The Last Half by John Mauldin of Millennium Wave Advisors
Mauldin provides another excerpt from his forthcoming book. He argues that growth in government spending comes at the expense of private sector growth. Fiscal stimulus will not work in the current environment, because we are now at the end of an unprecedented debt cycle. The preferred solution is for a country to grow its way out of debt, but that requires running a trade surplus, which cannot be accomplished by all countries simultaneously.
2010-09-10 Municipal Bond Market August 2010 Q&A by Andrew Clinton of Clinton Investment Management
In their quarterly commentary, Clinton Investment Management answers questions regarding municipal bond market conditions. As the U.S. economy stabilizes, they argue, higher interest rates will likely follow. That is not to say, however, that investors should avoid fixed income, let alone municipal bonds. As an asset class, fixed income, and tax-exempt bonds in particular, have proven to be a stabilizing force in asset allocations during what has arguably been one of the most challenging three-year periods in financial market history.
2010-09-10 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Labor Day…Religious holiday…hardly worth coming to work at all this week. After some early fears about European financial institutions being more “stressed” than initially reported, investors (who chose to work this week) focused on some positive signs in the economy. On light volume, stocks traded relatively flat, while fixed income investors struggled to digest all the new supply (treasury and corporate). By next week, the summer doldrums should be long forgotten and investors can once again get back to work and focus on the keys to the markets.
2010-09-07 Why Active Fixed Income in Today’s Environment: Webcast by Janus (Article)
The recent financial crisis and fear of continued under-performance has driven many investors to passive fixed income strategies. Help clients understand the interest rate sensitivity and potential for lower yields that could results from investing in passive fixed income strategies. We thank Janus for their sponsorship.
2010-09-07 Weekly Investment Commentary by Bob Doll of BlackRock
Equity markets have been shaky in recent months, but the tightening of financial conditions that occurred in the spring and summer appears to be reversing somewhat, which should act as an important stabilizing force. At present, stocks are attractively valued and are on the cheap side - the S&P 500 Index is trading at 11.5 times forward consensus earnings, and the dividend yield for stocks is close to the yield of the 10-year Treasury bond. While no dramatic breakout of the current trading range should come any time soon, the path of least resistance for stocks continues to be up.
2010-09-01 A Schizophrenic Market by David Baccile of Sextant Investment Advisors
On the surface it seems the markets are experiencing a relative period of calm with equity prices about flat year-to-date and up around 10 percent versus a year ago. The credit markets have also stabilized since the second quarter when it appeared that one or more of the European countries could be forced into defaulting on their debts. However, a look beneath the surface shows some very deep and turbulent cross-currents.
2010-09-01 Land of Confusion … Bubbles and Omens Dissected by Liz Ann Sonders of Charles Schwab
Charles Schwab is sticking with its view that the recovery is square root shaped (a 'V' followed by a stall), and there's little question that we've entered the stall phase. In addition to the havoc the stall has wreaked on stock market volatility, it's taken yields on Treasury bonds to near all-time lows. This, of course, has generated a very strong upward price move in bonds (as bond prices and yields move inversely) and much talk about a 'bond bubble.' That could be the case if yields move higher, which could trigger a swift move out of bonds as an asset class.
2010-08-31 Why Mid-Cap? by RidgeWorth Investments (Article)
RidgeWorth Investments has published research detailing six distinct reasons why investors should consider a specific allocation to mid-caps. Specifically, it explores historical performance, evaluates current conditions that favor mid-caps as well as examines how mid-caps have performed during different points in market and economic cycles. Finally, the research looks at the incremental benefit of adding an allocation of up to 40% of mid-cap stocks to a portfolio of solely large and small cap stocks. We thank RidgeWorth Investments for their sponsorship.
2010-08-31 Risk vs. Risk by Herbert Abramson and Randall Abramson of Trapeze Asset Management
The best stock market returns occur when interest rates are relatively low and supportive of under-owned equities, with lots of cash on the sidelines to fuel a rally. Markets are currently at or inflecting up from 'floors' or buy points. Probabilities remain high that markets will rise significantly from here even if we have another temporary setback. Accordingly, Trapeze Asset Management remains fully invested (even using some leverage in margin accounts) while continuing to have no short positions, particularly with the prevailing low valuations.
2010-08-31 Boston! by Jeffrey Saut of Raymond James Equity Research
While the various markets can certainly do anything, it's typically not the snake you see that bites you; and currently the media is replete with stories about the Hindenburg Omen. When so many people are asking the same 'Hindenburg Omen' question, it is typically the wrong question. Meanwhile, the equity markets have been see-sawing, buffeted by deflationary worries from the bond market. The counterpoint to those lower bond yields is copper, which has broken out to the upside in the chart, suggesting no economic double-dip.
2010-08-30 Weekly Investment Commentary by Bob Doll of BlackRock
While the recovery has been slow, we have made significant progress. On a real basis, U.S. gross domestic product has regained 70 percent of what was lost during the recession and on a nominal basis, GDP has regained all of it, meaning that the United States is in a nominal expansion. In any case, investors in U.S. stocks can expect continued volatility ahead. The S&P 500 Index has remained in a rough trading range of between 1,020 and 1,120. While a dramatic breakout from this range is unlikely for now, as economic conditions slowly improve, the positive forces should win out.
2010-08-24 Bonds or Stocks - Who is Right? by Chris Maxey of Fortigent
Over the past several months, bond and equity markets have been on starkly divergent paths. Investors are growing increasingly concerned that perhaps the bond market knows something that the stock market is overlooking. One reason for this divergence is corporations. Emerging from one of the most severe recessions in the last century, companies are more than willing to hoard cash and favor a 'wait and see' approach before resuming expansion. Meanwhile, individual investors continue to sell equities in favor of fixed income securities.
2010-08-24 Crowded Trade by Jeffrey Saut of Raymond James Equity Research
Equity markets remain mired in a wide-swinging trading range. In such an environment, stock selection, combined with the ability to sell mistakes quickly, should be the key to portfolio performance. There are also reasonable investment alternatives to the sidelines.
2010-08-23 Weekly Investment Commentary by Bob Doll of BlackRock
The sharp pullback in bond yields throughout the past couple of weeks suggests that fixed income markets are discounting a return to recession conditions. In contrast, the relative resilience of the stock market suggests that equities are discounting a milder slowdown in the pace of recovery. BlackRock believes that fixed income markets are overly pessimistic, but acknowledges that it will take some time to work all of this out, meaning that stocks are likely to remain in a trading range.
2010-08-23 Markets Are Pricing in the 'New Normal' by Charles Gave of GaveKal
Either the upcoming U.S. elections, in a repeat of 1994, will bring about a Congress able to reduce the pace of government spending, thus triggering a massive sell-off in government bonds and a significant rally in equity markets, or the expansion of the U.S. government will continue, in which case investors in U.S. government bond markets will likely thrive in a repeat of what happened in Japan over the past two decades. You can guess which outcome the biggest fixed income investment houses are rooting for.
2010-08-20 EM Corporate Debt: Ready for Prime Time by David I. Robbins and Javier Segovia of TCW Asset Management
Emerging Market corporate debt is rapidly growing into a significant asset class backed by the world’s fastest-growing economies. These bonds benefit from strong fundamentals, improving credit quality, declining default rates and superior prospects for economic growth across most of the emerging world. One of the most compelling aspects is their consistent outperformance relative to other fixed income asset classes since 2002. Currently, they offer a yield pick-up over comparably rated corporate issues in the U.S., despite the fact that they frequently enjoy stronger credit fundamentals.
2010-08-19 An Investment Strategy for a Market in Transition by Dan Fuss, Kathleen Gaffney, Matt Eagan and Elaine Stokes of Loomis Sayles
The world is entering a period of rising interest rates on a secular basis. While inflation is not a concern in the near term, the seeds of inflation are likely being planted now, even though it could take quite some time for them to overcome powerful disinflationary forces at work today. If anything, the recent events in Europe and the deceleration of global growth suggest interest rates could remain low for longer than anticipated. The economy will likely grow at a disappointingly meager pace, but it will grow nonetheless.
2010-08-18 Pay No Attention to the Headlines by Christian Thwaites of Sentinel Investments
Market valuations are attractive, especially after the recent correction to below 1,100 on the S&P. What should work is buying companies with strong and sustainable cash flows and proven management. What will not work is chasing risk, and investing in companies that dilute shareholders and operate with high leverage. Don't look for an immediate catalyst. This is a market where stealth, opportunity buying and stock picking work. If you hear the word 'momentum,' run.
2010-08-16 Investment Commentary by Bob Doll of BlackRock
The outlook for stocks will be highly dependent on the direction of the economy. Despite last week's decline in both equity prices and Treasury yields, financial markets are signaling that the worst of the deflation scare is ending and that renewed recession is unlikely. A strong current of skepticism is likely to persist for some time, and volatility levels will likely remain elevated, but as long as the economy does not retreat back into recession, stocks should be able to continue to make gains.
2010-08-10 Public Pension Showdown: Actuaries vs. Economists by Charlie Curnow (Article)
Public pensions are severely underfunded, at least according to the economists. Actuaries disagree, and at stake is nearly $2 trillion. We look at why these groups arrive at such different valuations, and which one is likely to be correct.
2010-08-09 Weekly Investment Commentary by Bob Doll of BlackRock
Many risks remain to the current cautiously optimistic outlook, including the failure of the housing market to stage a meaningful recovery, the need for ongoing consumer deleveraging and the move toward fiscal austerity in many markets. As long as the economy does not fall back into recession, however, equity markets should be able to grind higher over time. Economic growth of around 2 percent should be enough to allow corporate earnings to continue to grow, and that backdrop, combined with still-attractive valuations, should make for an equity-friendly environment.
2010-08-03 Fear and Trembling Marked the Year's First Six Months by Whitney George of The Royce Funds
In roughly two years, we have moved from a market collapse to a market malaise driven by heightened fears concerning Greek debt. A slow-growth economy could lead investors to focus on two areas - high-quality companies and fast-growing companies. Any business that looks to be capable of swimming ahead of the pace of the economy as a whole is going to be in high demand, and this could benefit small-caps that boast strong balance sheets, high returns on invested capital and the ability to generate free cash flow.
2010-07-29 conceptual categories by tom brakke of the research puzzle
How do you organize your thinking about investments? This is not idle musing. It is helpful to know how your asset exposure ratios originated, and even more important to figure out whether they are still valid. Our tendency is to keep shoving our exposures into the same dated categories, even after the world has changed. That approach tends to lag the evolution of the markets, and given the nature of organizations and the quite infrequent reviews of allocation policy, the policies often lag badly.
2010-07-28 Grey Owl Capital Management's Q2 Letter by Team of Grey Owl Capital Management
The equity and fixed income markets are still modestly overvalued. In addition, the economic recovery may only have been a mirage that the slow dwindling of the government stimulus will reveal. The majority of Grey Owl's equity portfolio is made up of 'high quality' companies – those with consistent earnings growth and low financial leverage. Japanese-style deflation and 1970s-style stagflation are both possible given the slow private sector growth, increasing government regulations, growing government debt loads, and expansive monetary policy.
2010-07-27 Stress Test Zombies: Reverting to the Global Mean by Christopher Whalen of Institutional Risk Analyst
Some of the big American zombie banks - Citigroup, JPMorgan Chase and Bank of America in particular - are seeing positive results from the Fed's net interest margin drip. Many, however, are reverting back to the global mean for performance due to the zero-interest rate policy maintained by the central bank. In the end, the carry trade enhancement allowed by low interest rates amounts to a subsidy for credit losses by banks that comes out of the pockets of savers.
2010-07-26 Weekly Investment Commentary by Bob Doll of BlackRock
A sustained, albeit subpar, economic recovery is in the cards. Neither critical equity sectors nor credit spreads are signaling that the recovery has been derailed, which suggests that the cyclical recovery in corporate profits is not over. Still, the US economy continues to face significant headwinds, giving us reason to believe that the move higher in equity and other risk asset prices will likely be a long, hard grind characterized by continued volatility.
2010-07-22 California Municipal Markets - Confusion, Misconceptions and Reality by Jon Davis of HighMark Capital Management
There have been dramatic changes to the California municipal bond market over the last several years, creating new challenges for today's investor. Current state budgetary stress in California and across the U.S. may lead to a greater likelihood of possible ratings downgrades or defaults. Meanwhile, pension and entitlement obligation shortfalls will add additional pressure to future budgets. These trends have made fundamental credit analysis, valuation analysis, and a diversified portfolio vital.
2010-07-21 Fixed Income Investment Outlook by Team of Osterweis Capital Management
It is unlikely that the Federal Reserve will soon reverse its easy-money policies amidst worries about the European government debt crisis, meager job growth and low inflation in the U.S. In light of all these concerning developments, Osterweis continues to take a conservative approach by focusing on securities that will experience less volatility in the current unpredictable environment. These include short duration bonds and certain 'cushion' bonds, which are longer-term, high coupon bonds that will likely be refinanced in the near term, well in advance of their maturities.
2010-07-20 Martin Leibowitz’ Failed Defense of the Endowment Model by Michael Edesess (Article)
The latest book from Martin Leibowitz, one of the most respected thinkers in the investment industry, attempts to justify the endowment model of investing. As Michael Edesess writes in this review, Leibowitz's defense is highly problematic, and that should concern any advisor utilizing a Yale-like strategy.
2010-07-20 The Opportunity in Build America Bonds by Jeff Westergaard (Article)
While the unique aspects of Build America Bonds (BABs) and recent Treasury Department actions are meaningful, the risks to investors have been over-emphasized. BABs remain an attractive vehicle for investors and issuers, and the market for them is likely to grow.
2010-07-20 Don't Bet the Farm! by Jeffrey Saut of Raymond James Equity Research
Following the 90 percent downside days of June 22nd, 24th, and 29th quickly came a 90 percent upside day. On July 13th another 90 percent upside day was registered. Such sequences often mark the beginning of a rally. If so, the bulls' case would be dramatically bolstered with a decisive move above the SPX's 200-DMA at ~1112, with a subsequent confirming upside breakout above the June 21st intra-day reaction high of 1131.23. Until this occurs, Jeffrey Saut is content to remain flat in trading accounts, yet continue to position favorable stocks for investment accounts.
2010-07-19 Weekly Investment Commentary by Bob Doll of BlackRock
Stock prices have corrected sharply since mid-April and have remained in a broad trading range for the past several weeks. Equity markets appear to be caught between a number of positive and negative forces. Over time, the positive forces should win out and stocks should grind higher, but it would not be surprising to see equity markets remain in their current trading range until there is more clarity around the severity of the current economic slowdown.
2010-07-16 Global Government Spending Hits the Tipping Point... by Jason R. Graybill and Neil D. Klein of Carret Asset Management
A combination of spending cuts and tax increases could weigh on economic growth. This is important to bond investors over the short term, as global deleveraging will create slower global GDP growth and provide lower levels of inflation. In the longer term, governments will probably use their printing presses to inflate their way to lower debt levels while investors will demand greater returns relative to the interest rate and credit risks they assume. Thus, with an outlook towards higher rates in the years to come, Carret remains focused on short-duration, high quality portfolios.
2010-07-16 Value in the Agency Mortgage Market: Modern Carry by Mitchell A. Flack of TCW Asset Management
'The road to hell is paved with carry.' We investors find ourselves facing a most unusual mortgage-backed securities market. Mortgage prices are now at or near all-time high dollar prices. And with mortgage rates also near all-time lows, are we not at the precipice of the mother of all refinance waves? Will negative convexity hit us like a Mack truck and mortgage investors suffer poor returns? The simple answer is a resounding no. While we still are walking down that proverbial 'road paved with carry,' the nature of that carry has changed.
2010-07-14 Second Quarter Commentary by William H. McAfee of WHM Capital Advisors
Gains in productivity are likely to translate into continued improvement in corporate earnings. Earnings surprises in this environment will benefit investors who have patiently invested in equities, even in the current downturn. In the mid-term, large-cap companies have done a very successful job of raising cash and paying down debt, giving them opportunities to capitalize on a slower growth environment. Smaller companies dependent on bank debt are still likely to face risks as bank lending is likely to stay depressed as real estate concerns continue to pervade bank portfolios.
2010-07-14 The Battle for Investment Survival and Our Five-Year Forecast by Kendall J. Anderson of Anderson Griggs
The S&P 500 has gained 52 percent since the March 2009 lows. Although this seems extraordinary, the current recovery is still slightly less than average compared to historical bear markets. An average recovery would have the markets appreciate more than 25 percent from this level over the next two years. Meanwhile, the potential return on equities over the next five years is just slightly above the normal returns for U.S. stock markets. All of this, combined with low interest rates, suggests that it would seem logical to remain in common stocks.
2010-07-13 Cage Match by Jeffrey Bronchick of Reed, Conner & Birdwell
Contrary to public opinion, there is enormous opportunity for an investor today to focus on the business and valuation details of a particular investment while everyone else is running around trying to tie the world together into some neatly gift-wrapped strategy that can be easily quantified and traded by a computer algorithm. Yes, it can be frustrating when everything seems to go down on a day when the market goes down, but no one said this is easy. And when it gets that easy, you should be selling into it.
2010-07-13 Our Muni Market Perspective: The Sky is Not Falling by Team of American Century Investments
The muni market sky is not falling. Municipal credit downgrades and defaults are indeed likely to increase in the months ahead, even as the U.S. economy regroups and moves forward. It may seem odd that muni credit quality faces continued challenges at a time when businesses and other sectors of the economy are going ahead, but that's just an unfortunate feature of a lagging market, one that municipalities share with the labor market. In the long run, municipal bonds as an asset class still have credit quality second only to U.S. Treasury bonds.
2010-07-12 Weekly Investment Commentary by Bob Doll of BlackRock
With 20/20 hindsight, it seems clear that investor expectations for the economy and earnings were too optimistic during the first four months of 2010, but overall sentiment also grew too pessimistic in the subsequent couple of months. The current low levels of Treasury yields are unsustainable. Either yields will move higher as investors become more risk tolerant or economic fundamentals will deteriorate. The former is more likely, however, and as long as our view about the economy holds, equity markets will be able to grind higher in the months ahead.
2010-07-12 A Man Lived by the Side of the Road ... by Jeffrey Saut of Raymond James Equity Research
Currently, the question du jour is whether the economy is going to slip back into recession; aka ...the dreaded double-dip. While there is always the chance of a double-dip, they are pretty rare. Interestingly, all three double-dips since 1880 were characterized by a mild first recession followed by a more severe secondary recession. Plainly, what we experienced in the 2007 – 2009 recession was anything but mild. Accordingly, the odds of another recession are low. There is always the risk, however, that we will 'talk' ourselves into a recession.
2010-07-12 Keeping a Level Head by Jonathan A. Shapiro of Kovitz Investment Group
A downward bias toward stocks was evident throughout the quarter. This was a marked, but not unexpected, change from the seemingly straight up rise stock prices made from the year earlier (March 2009) lows. The potential for global fallout from Europe's fiscal crisis and its impact on the worldwide economic recovery served as the largest drag on the equities markets during the quarter. Other negatives included inconsistent readings in the U.S. on job growth, consumer-related sales and housing.
2010-07-09 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Enough with the rumors and innuendoes…the optimism and concerns…the favorable forecasts and downgrades…the fundamental number crunching and the charting…Let the earnings season begin. For weeks, some analysts have spoken of stronger comps and feared disappointments. Others looked at the economic recovery and continued to believe that enhanced manufacturing activity is just now beginning to show up in the profit numbers. The waiting is over…Alcoa kicks off the season on Monday.
2010-07-07 Paper Gold vs the Dollar? Interview with James Rickards by Christopher Whalen of Institutional Risk Analyst
This commentary features an interview with James Rickards, senior managing director for market intelligence at Omnis, Inc., about the dollar and the outlook for the U.S. currency in the global economy. Mr. Rickards' career spans the period since 1976. He was a first-hand participant in the formation and growth of globalized capital markets and complex derivative trading strategies.
2010-07-06 Happy Birthday, America! by Jeffrey Saut of Raymond James Equity Research
Since the 'flash crash' low of May 6, 2010, we have had a Dow Theory 'sell signal' (5-20-10), a sell-signal from my proprietary intermediate trading indicator (the first since December 2007), the monthly stochastic-indicator has turned negative, a downside violation of the 12-month moving average has occurred and most indices have broken below spread triple-bottoms in the charts. Last week we even got a 'death cross' when the S&P 500's 50-day moving average (DMA) crossed below its 200-DMA. All of this suggests that a cautious stance on stocks is warranted.
2010-06-29 Jeff Gundlach: The US will 'Politely Default' on its Debt by Robert Huebscher (Article)
Jeff Gundlach's keynote address at last week's Morningstar conference documented the immensity of U.S. debt obligations and the lack of choices available for alleviating that burden. As he has stated in the past, he does not view inflation to be a threat in the capital markets today. He cited six options open to policy makers, but believes a seventh - some form of default - is most likely.
2010-06-29 Market Insights by Christian Thwaites of Sentinel Investments
Christian W. Thwaites takes a deeper look at some of todays big issues. He answers the question Inflation or Deflation, investigates the Eurozone collapse and explains the plight of the U.S. consumer. As the summer begins, Thwaites gives his outlook on the market and some simple rules to follow for a strong financial future.
2010-06-28 Investment Commentary by Bob Doll of BlackRock
We entered 2010 expecting a modest cyclical recovery countered by the structural problems that faced most of the developed world. For the first part of the year, the cyclical recovery did dominate, but in recent months, structural problems (especially those in Europe) began to win out and risk assets have been struggling. Now at the mid-year point, we thought it would be a good opportunity to take a look back at the predictions we made at the beginning of the year to see where we stand.
2010-06-24 No Surprises from the Fed by Liz Ann Sonders of Charles Schwab
The Federal Open Market Committee surprised no one with its decision to keep the Fed funds target rate in a range between zero and 0.25 percent, where it's been since December 2008. The new statement marked the first time since the economic recovery began last summer that the Fed had to slightly dial back its language about the pace of the recovery. Stocks rallied immediately after the announcement, but in light of rampant intraday volatility lately, it's way too soon to judge if there will be any longer-term impact.
2010-06-23 Deconstructing the Great Inflation Myth by Jason Doiron of Sentinel Investments
Inflation does not seem to be a serious risk, at least in the near term. Significant decreases in the velocity of money are offsetting the impact of any increase in the money supply as a result of fiscal and monetary stimulus. Capacity utilization remains at about 74 percent of potential output. And about 17 percent of workers are still either unemployed or underemployed.
2010-06-22 Inexpensive Protection Against Rising Rates by Geoff Considine, Ph.D. (Article)
As is too often the case, the biggest risks are those that we discount. The possibility of a surge in interest rates appears to be today's ignored risk, despite the warnings of many experts, including David Einhorn, Bill Gross, and Seth Klarman. We discuss an inexpensive strategy to protect your portfolios from the tail risk of rising rates.
2010-06-22 Market Changes Affect the Role Fixed Income May Play in Client Portfolios by Janus (Article)
Investment consistency, sector allocation and credit analysis are three of the critical ingredients of successful fixed income management. Janus shares their views on these important topics and how to use this information in your discussions with clients. We thank them for their sponsorship.
2010-06-22 Odds of a Double-Dip Recession Remain Low by Bob Doll of BlackRock
Equity markets should be able to make additional gains over the course of this year. This outlook is not so much a forecast of significantly improving economic news as it is an expectation that many of the risks facing investors will fade over the coming months. The direction of financial regulatory reform in the United States should become clearer and the slowdown in Chinese growth should result in a soft landing. The uncertainty surrounding European sovereign debt, however, remains the chief wild card.
2010-06-17 Assessing Investment-Grade Bonds by Team of Litman Gregory
Investment-grade bonds are likely to generate average returns in a 1 percent to 2 percent range in most scenarios over the next five years. That is markedly lower than any historical rolling five-year average annual return number since the mid-70s. Forward-looking scenarios project that bond yields and inflation higher than their current levels and capital losses due to rising yields will cut into income from coupon payments.
2010-06-15 'May Momentum Killers' Supported Economic, Rate Outlooks by Team of American Century Investments
Now that stocks are suffering a bona fide correction this quarter and Treasury yields are again pricing in low inflation expectations in the near term, the case for a long, slow, grinding economic recovery with continued low interest rates for months to come is a lot easier to make than it was seven weeks ago. Money market and FDIC-insured accounts should provide the most predictable path with the least price fluctuation. Investors who want more yield and return should consider high-quality short-maturity bonds and bond funds.
2010-06-14 Twelve Weeks Later, The Recovery Remains On Track by Bob Doll of BlackRock
Equities have already priced in the likelihood of somewhat slower economic growth in the coming months. Volatility measures will remain high because markets still remain subject to many risks, not the least of which is the high degree of uncertainty surrounding the European debt crisis. In any case, the bulk of the current correction should be behind us, while the positive macro backdrop and improving valuations will provide a floor for equity prices. Investors will need to remain patient, since it will still take some time before base-building can allow markets to regain ground.
2010-06-08 Dan Fuss: What Keeps Bond Managers Up at Night by Dan Richards (Article)
Highly respected fixed-income manager Dan Fuss of Loomis Sayles recently spoke with Dan Richards about what keeps bond managers up at night. Fuss identifies the critical issues bond investors face. We provide a video and a transcript of the interview.
2010-06-07 Extraordinarily Large Band-Aids by John P. Hussman of Hussman Funds
The fundamental problem with the global economy today is that we have not accepted the word 'restructuring' into our dialogue. Instead, we have allowed our policymakers to borrow and print extraordinarily large band-aids to temporarily cover an open wound that will not heal until we close the gap. That gap is the difference between the face value of debt securities and the actual cash flows available to service them. The way to close the gap is to restructure the debt. This will require those who made the bad loans to accept the associated losses.
2010-06-07 China's Housing Bubble, To Be or Not To Be? by Chris Maxey of Fortigent
Market forecasters are worried about the state of the Chinese real estate market, with one publication after another declaring that an asset bubble is only moments away from popping. Clearly the recovery in the Chinese real estate market is impressive, perhaps curiously so, but the dynamics of the Chinese market indicate that an asset bubble is nowhere to be found…for now. From an affordability standpoint, the price-to-income index is on the rise, but well below the levels seen in the U.S., the UK and even India.
2010-06-03 Fundamental Strength Should Beat Out Heightened Uncertainty by Bob Doll of BlackRock
In previous business cycles, when credit market pressures surfaced at a time when the yield curve was steep, the economy experienced brief slowdowns, but not recessions. If that is also the case today, then what we are looking at should be a temporary slowdown in growth, but not a double-dip recession. Nervous investors and slowly receding uncertainty levels will keep market volatility high over the coming month. However, should the labor market recovery continue, the backdrop of strengthening corporate profits and a recovering economy should push equity prices higher.
2010-06-01 Three Ways to Improve Safe Withdrawal Rates by Geoff Considine, Ph.D. (Article)
Using Monte Carlo analysis, Geoff Considine examines three ways safe withdrawal rates can be increased beyond the baseline 4% guideline. He compares and quantifies the benefits of increasing diversification beyond equities and bonds, increasing allocations to fixed income, and employing tactical asset allocation.
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.
2010-05-25 Sovereign Default Risk — the Next Concern by Eric S. Ende of First Pacific Advisors
In this letter, first published on April 26, First Pacific argues that it was government intervention last year that stabilized the stock market and allowed credit markets to begin functioning again. Not surprisingly, however, deficit spending has led to sharp increases in the amount of outstanding government debt compared to the size of economies. Around the world we should see lower debt ratings for weaker countries, accompanied by partial defaults. Please note that events, prices and outlook may have changed since this letter was first published.
2010-05-24 Correction Should Be Nearing Completion by Bob Doll of BlackRock
The worst of the downturn should be behind us, but it will likely take some additional time before markets can repair themselves. Looking ahead, one positive factor is that market valuations have become more attractive in recent weeks, as prices have dropped while earnings have increased. Over time, additional clarity around the situation in Europe and financial market reform in the US should provide a measure of stability; and a sense that the economic recovery remains on track should help spark a turnaround in the recent aversion to higher-risk assets.
2010-05-18 Jeremy Grantham Guarantees Gold will Crash by Robert Huebscher (Article)
Jeremy Grantham, the investor celebrated for his ability to spot and exploit bubbles in asset classes, guaranteed yesterday that the current bull market in gold will end. His proof? He bought some - for his own account - at the end of last week. That comment was tongue-in-cheek, but he went on to identify two asset classes likely to go into bubble territory.
2010-05-18 Sovereign Debt Crisis Drives Volatility Higher by Bob Doll of BlackRock
Investors have grown increasingly concerned about the potential for contagion from Europe, fearing credit issues could affect other markets. While European Union rescue plans do not address the underlying fundamental issues facing Greece and other countries, however, immediate liquidity risks should be contained in the short term. On a relative basis, U.S. markets have benefited from the uncertainty, as investors have continued to view the United States as a higher-quality haven for their assets. This makes U.S. stocks more attractive than those of other developed markets.
2010-05-18 Understanding Recent Negative International Bond Returns by Team of American Century Investments
This year so far has been a challenge for U.S. investors in high-quality, unhedged international bonds, continuing a downtrend for this sector that began in December of last year. Fortunately, the long-term strategic reasons for holding international bonds remain intact, including inflation protection from a potentially weaker dollar as the U.S. budget deficit grows, and diversification benefits versus traditional domestic fixed income.
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.
2010-05-04 Timely market insights: Sector reviews and quarterly perspective on the financial markets by Janus (Article)
Janus provides sector reviews and reports on quarterly market performance in a new commentary. While economic recovery is in place, the firm says, its magnitude is uncertain. Topics covered include winners and losers in the energy sector, Chinese growth from within, the evolution of internet-related media and communications, and the financial impact of health reform. We thank Janus for their sponsorship.
2010-04-30 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Goldman’s Fabulous Fab may not seem so fabulous these days, at least, not to the grandstanding Congresspersons and federal prosecutors. During the week, investors should have had plenty to cheer about: earnings remained strong, the economy continued in rebound mode, the Fed offered some positive comments and kept rates unchanged at low levels. However, equities plummeted as news from the EU raised some additional concerns about the global economy and the perpetual bailouts of other European countries (Spain and Portugal). And, as for Goldman Sachs…memories of 1990 Drexel Burnham?
2010-04-27 Writing in Plain Speak by Wendy J. Cook (Article)
Wendy Cook specializes in helping advisors write newsletters and create presentations, and in this guest contribution she shares a number of tips to improve your writing skills. Cook is passionate about writing, and her article covers topics such as the importance of brevity and how to tailor content to your audience.
2010-04-23 Reports of Our Recovery Are Greatly Exaggerated by John Browne of Euro Pacific Capital
From all outward appearances, it seems that a grim chapter in U.S. economic history has come to an end. The economic position of the United States and the member states of the European Union, excluding Germany, however, is not as healthy as our media and politicians would have us believe. The danger is even greater when measured against the relative security and economic success of China, India, Brazil, Australia, Canada and New Zealand. In these countries, economic growth and financial responsibility are real. At home, the reports of our recovery are greatly exaggerated.
2010-04-23 Fixed Income Investment Outlook by Team of Osterweis Capital Management
The consensus is that we are well past the crisis point and will gradually see more economic sunshine. While Osterweis generally agrees, there are a couple factors that are prompting the firm to keep a conservative posture. In particular, they are concerned with China’s large trade surplus and the prospect of rising interest rates in the U.S. While the market may remain buoyant for some time as the economy recovers, Osterweis does not believe there is much opportunity cost at this time in taking a more conservative posture and waiting for the next good buying opportunity.
2010-04-20 Months-Long Equity Rally Pauses by Bob Doll of BlackRock
Stocks have rallied in an almost uninterrupted fashion over the past couple of months, but the tenor of Friday's news adds an element of uncertainty. This backdrop, combined with various signs of excess in the markets, suggests that a period of profit-taking may be coming, perhaps sooner rather than later. In any case, however, the recovering economy, low inflation, strong corporate earnings and reasonable valuation levels should be enough to cause any sort of correction to be short-lived.
2010-04-20 Investment Implications for Government Policy and Intervention by BlackRock, CFA Institute Reprint w/ Curtis Arledge (Article)
Government intervention has stabilized the economy, but policymakers must be careful to draw down their interventions before inflation occurs. Although residential real estate has seen its worst days, a wave of high-yield bonds and loans will soon mature, and the banking system must rebound enough to absorb that bubble. Despite these uncertainties, the range of yields and total annual returns among fixed-income sectors provide investors with multiple opportunities. We thank BlackRock for their sponsorship.
2010-04-20 A Short-Term Buying Opportunity for Long-Term TIPS by Michael Brennan (Article)
Fixed income investors should consider a short-term buying opportunity for Treasury Inflation Protected Securities (TIPS) with maturities of ten or more years, writes Michael Brennan in this guest contribution. The 10-year TIPS should have a total return anywhere from 30 to 40 basis points greater than the comparable nominal Treasury bond.
2010-04-19 playing in the street by tom brakke of the research puzzle
At one time there was a quaint notion that if your clients did well over time, you'd do well over time, especially if they thought you helped quite a bit along the way. Instead of maximizing the long-term value of their businesses, the goal of Goldman Sachs and other firms has become the production of short-term profits (and the accompanying compensation) at any cost. The firms act as if there is an inexhaustible supply of gullible clients, and for too long investors (and citizens, given that 'too big to fail' is still the way of the world) have proven them right.
2010-04-16 Our Quarterly Review by Jonathan A. Shapiro of Kovitz Investment Group
With only a few temporary setbacks, the stock market has continued its move higher since touching its most recent low in early March 2009. Much hand wringing has been done over the S&P 500's approximately 75 percent move since that time, but lost in translation is the fact that prices last March implied a pending financial and social breakdown. These panic-driven prices bore little resemblance to actual or going concern business values, and measuring from that point clearly overstates and exaggerates the return. The worries facing the U.S. and many other regions are still prevalent.
2010-04-14 Will Inflation Reemerge as a Dominant Force? by Kendall J. Anderson of Anderson Griggs
The current monetary policy of developed nations is to reinvigorate consumer demand through massive monetary stimulus. There is no doubt that this policy will have its intended effect and revitalize the private sector. Increasing demand from the private sector, along with the fiscal demands of new government obligations, however, could easily create a round of inflation where the aggregate demand of government and the private sector will exceed available supply. There is therefore a real possibility that inflation will be higher in the next 10 years relative to the past.
2010-04-13 Stocks Reach 18-Month Highs by Bob Doll of BlackRock Investment Management
Continued evidence of improvements in the economy and expectations for strong first-quarter earnings helped push stocks up nearly 8 percent for the year, to their highest levels in 18 months. BlackRock expects stocks to continue to grind higher over the course of the year, and for corporate earnings to become the main driver of equity prices. Over the longer term, the most significant investment issue will likely be the cyclical tailwinds of accommodative fiscal and monetary policy and the secular headwinds of massive budget deficits, high levels of debt and continued deleveraging.
2010-04-09 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Heading into the first official week of reporting, several companies already raised earnings projections and shed a bit more optimism on the quarter just passed. Still the 'too far, too fast' naysayers believe the decent expected earnings results are already built into the market and Dow 11k does not justify the current level of corporate or economic activity. In short…Greece continued to struggle; treasury supply was absorbed reasonably well; oil pushed higher (then lower); Greenspan and Rubin got grilled; Bernanke hedged his bets.
2010-04-06 Paul McCulley Discusses PIMCO's Cyclical Outlook by Paul McCulley of PIMCO
In an interview, PIMCO Managing Director Paul McCulley discusses his firm's cyclical economic outlook and its impact on investment strategy. PIMCO's cyclical outlook revolves around two core tensions in the global economy. The first is the huge disparity in the rate of recovery between highly leveraged developed countries and relatively balanced developing countries. The second tension is the resistance to cyclical recovery in the developed world due to deleveraging and other headwinds.
2010-04-06 Ben Bernanke: The REPO Man and Castles Made of Sand by Christopher Whalen of Institutional Risk Analyst
Without the implicit backing of the U.S. Treasury and Federal Reserve System, the remaining large dealers of over-the-counter assets and derivatives could not function in the post-crisis marketplace. This reality is most visible in the tripartite market for repurchase agreements or REPOs, the basic tools Wall Street uses to finance its working capital book. Now that it's April and the Fed's quantitative easing purchase program is ending, it seems fair to ask: What trick is Fed Chairman Ben Bernanke going to perform next to maintain the stability of market prices?
2010-04-05 Labor Market Turnaround by Bob Doll of BlackRock
The March payrolls report likely signaled the start of a long-awaited rebound in the employment picture, which should benefit the broader economy. As fiscal and monetary stimulus begins to fade over the coming months, the economy is going to require some self-sustaining mechanisms to kick in, and growing employment levels would certainly be beneficial. Over the course of the next year, we expect the economy to successfully shift from a recovery to an expansion. Investors should continue overweighting equities and credit-related fixed income assets and underweighting cash and Treasury bonds.
2010-04-01 And That's the Quarter That Was... by Ron Brounes of Brounes & Associates
Ron Brounes' recap of the prior quarter's market activity.
2010-03-30 Not a Lost Decade for Diversified, Balanced Portfolios by Joni L. Clark, CFA, CFP (Article)
Did the last ten years really demolish the foundations of Modern Portfolio Theory and classic investing principles? How did portfolios that stuck to the principles of effective diversification and buy-and-hold investing actually perform during the so-called "Lost Decade?" The answers to both questions is an unqualified "no," writes Joni Clark of Loring Ward in this guest contribution, based on her analysis of a DFA-based strategy.
2010-03-29 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Last week's data revealed continued economic recovery, even though housing continues to lag, an alarming trend given that future Fed moves could negatively impact the sector. Optimists still hope that dismal housing numbers reflect poor winter conditions, however, and will reverse themselves in the coming months. As the first quarter comes to a close, expect managers to rebalance positions, take some profits and even lock in losses for tax purposes. The new month will bring a plethora of economic data, highlighted by the unemployment rate late in the week.
2010-03-23 Barron's' Pension Warning Doesn't Change Our Pension Outlook by Team of American Century Investments
A recent Barron's magazine piece about unfunded public pension liabilities painted an otherwise solid bond sector with a broad negative brush. While pension liabilities are a serious problem for state and local governments, they are neither a new problem nor an immediate problem, and they are not the most pressing issue that municipalities face in the post-recession environment, according to American Century Investments credit research director David Moore. Despite unfunded pension liabilities, no state runs a serious risk of default on its general debt obligation.
2010-03-23 Employment Gains Likely by Bob Doll of BlackRock
The jobs-shedding phase appears to have ended, but new jobs are still not being created. Unemployment claims have declined in March, however, and so this scenario may soon reverse. Temporary employment has increased, and many firms have discussed plans for permanent hiring. Factoring in census hiring, payrolls may increase by more than 200,000 this month. Once jobs growth commences in earnest, corporate earnings should also increase and investor uncertainty should diminish, and this should drive the next cyclical bull market in equities.
2010-03-22 Useful Frameworks For Investment Analysis by David Edwards of Heron Financial Group
The S&P 500 rallied in March to an 18 month high, but is still below pre-recession levels. The daily volatility of the stock market has declined to levels not seen since the summer of 2006. The overall stock market, however, is still slightly overvalued. Corporate earnings and Federal Reserve policy over the next year will determine whether current levels are sustainable, and whether the U.S. avoids another double-dip recession. Sound frameworks for investment analysis will be crucial.
2010-03-16 The Trifecta - Okun's Law and Unemployment - Is the Law of Supply & Demand Obsolete? by Kendall J. Anderson of Anderson Griggs
Okun's law explains the relationship between unemployment and real output, and calculates the gap between real GDP and potential GDP. Based on current GDP growth forecasts, the law predicts a one-half percentage point decline in unemployment this year and a full-point decline in 2011. Despite very positive returns, however, investors continue to allocate to bonds instead of stocks. The laws of supply and demand tell us that this is unwise.
2010-03-15 Market Rebound Continues by Bob Doll of BlackRock
Equity markets notched positive returns again last week, as the Dow Jones Industrial Average climbed 0.6% to 10,625, the S&P 500 Index advanced 1.0% to 1,150 and the Nasdaq Composite rose 1.8% to 2,368. Economic growth should continue to improve, which should provide a boost to investor confidence. Additionally, merger and acquisition activity has picked up strongly in recent weeks, as have corporate share buybacks, trends that help promote an equity-friendly environment. On balance, equity markets should endure ongoing periods of volatility, but the cyclical bull market has further to run.
2010-03-12 And That's the Week That Was... by Ron Brounes of Brounes & Associates
. Let the rally continue. As the country (world for that matter) celebrated the one year anniversary of the market turnaround (bull market sounds too encouraging), investors took time to reflect on just where we have been and where we may be going. Buyers emerged again (though on a smaller scale…
2010-03-11 Headlines Fail to Derail Munis by Team of BlackRock
Municipal bonds of all maturities enjoyed positive returns in February, outpacing their U.S. Treasury counterparts. Money market rates remain low, however, encouraging investors to move further out on the municipal curve to capture yield. While state and local governments continue to face fiscal challenges and worries over bond defaults, Moody's released an updated default rate study that continues to point to the relative safety of municipals.
2010-03-09 What's Next for the High Yield Market by Team of Pioneer Investment Management
The economy can achieve 3 to 4 percent growth in 2010. This growth rate, along with low interest rates, should provide a favorable environment for riskier fixed income asset classes such as high yield. Corporate profit margins, cash flows and productivity are all near record levels relative to prior cycles, and balance sheets are relatively healthy. This puts companies in a good position to capitalize on the recovery. A strategy that balances high yield, equity, convertible and bank loan securities is prudent, given the anticipated investment environment.
2010-03-09 Underwater in the Housing Market by Team of American Century Investments
The number of negative equity mortgages, situations where the borrower owes more on their mortgage than the current market value of the home they bought, increased substantially since the housing bubble burst in 2007. While these homeowners continue to make payments, there is a weak correlation between how badly their mortgages are underwater and foreclosure rates. This is also a problem because many middle and lower income people use their homes as their most important source of retirement savings. In addition, negative equity may diminish labor mobility at a time of high unemployment.
2010-03-09 Equities Notch Weekly Gains by Bob Doll of BlackRock
Last week was strong for risk assets, and equities in particular, as the broad U.S. averages entered positive territory for the first time since early January. All sectors were positive, with materials up the most at 6 percent. A profits-led recovery seems to be unfolding, which will lead to increases in capital expenditures, and eventually, employment. After six negative weeks, flows in equities have been positive for three weeks running. Accommodative liquidity conditions and a healing economy support a pro-growth investment stance.
2010-03-08 Turning Cautious by Scotty George of du Pasquier Asset Management
The current global rallies in stocks seem to be short-cycle upswings within the existing secular bear trend. Low interest rates are leaving no other suitable alternative for investors, and high grade fixed-income opportunities are few and far between. Interest rates may rise, however, before year end as global debt continues to mount. Investors should therefore look for an above-average exposure to cash in the short term while waiting for downward movement in stocks in the long term.
2010-03-02 Recovery Continues, But Jobs Data Critical by Bob Doll of BlackRock Investment Management
The economic recovery remains intact, but data remains mixed and outlooks are still uncertain. Employment trends remain the most critical economic data, because the labor market is the mechanism that sustains and reinforces growth. At present, corporate earnings and balance sheets are supportive of companies increasing their payrolls. Trading remains uneven, but higher-risk assets still hold long-term upside potential.
2010-03-02 A Day in the Life of a Fixed Income Analyst by Elisabeth Colleran of Loomis Sayles
This article follows a day in the life of Elizabeth Colleran, a fixed income credit analyst covering global telecommunications. News headlines, market movements or new deal offerings can quickly reshape the day of a fixed income analyst. While their day-to-day focus is on company and industry modeling, SEC filings, discussions with company management and industry developments, they must be prepared for whatever is hitting the tape. Reaction time is critical.
2010-03-02 Asset Allocation for Grantham’s Seven Lean Years by Geoff Considine, Ph.D. (Article)
Followers of Jeremy Grantham know his consistently accurate long-term forecasts well, as well as his ability to identify and avoid asset bubbles and steer clients into high-performing asset classes. Grantham's prescience is remarkable but not irreplicable. Geoff Considine shows that his Monte Carlo simulations nearly match Grantham's forecasts, and he reviews the implications for asset allocations.
2010-02-26 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Ron Brounes' weekly recap of market and economic news.
2010-02-25 structured myopia by Tom Brakke of the research puzzle
Structured myopia, the institutionalized focus on a narrow range of sectors, makes no sense for the individual investor or the biggest firm, but it is everywhere. Equity investors rarely pay attention to fixed income markets. Developments in fixed income bond and credit markets often presage changes in equity markets, however, as the recent financial crisis showed.
2010-02-23 Fixed Income Investment: What's the Index Doing for You? by Jason Brady of Thornburg Investment Management
The Barclay's Capital Aggregate Bond Index is comprised of thousands of securities picked not due to their size or relevance, but to their presence in the market. It is reconstituted monthly and consists of reasonably large bond issues denominated in U.S. dollars, with 75 percent of its issues backed by the government. Its combination of high negative convexivity, low yield, and long duration, however, makes it an imperfect model for investors seeking fixed income exposure.
2010-02-23 Stock Market Performance and Inflation by Team of American Century Investments
The world is awash in liquidity as a result of the recent financial crisis and subsequent risk of deflation. Many investors are concerned that this \"cheap money\" will result in rising inflation. Historical S&P 500 data suggests, however, that the highest price to earnings ratios occur when inflation is between 1 percent and 6 percent.
2010-02-23 Interest Rates, Inflation and the PIMCO Total Return Fund by Robert Huebscher (Article)
The current generation of financial advisors has never experienced rising interest rates, but that will change, based on the forecasts we collected in our survey last week. We review our survey results and look at the implications for the largest bond portfolio, the PIMCO Total Return fund.
2010-02-16 Boom and Bust by Michael Lewitt (Article)
The US and global economies are "trapped in a cycle of boom and bust as a result of fiscal and monetary policies from which there is no easy escape," says Michael Lewitt of Harch Capital Management. Lewitt believes the S&P will rally to 1,200-1,250, but says the long-term prognosis is "somewhere between grave and terminal." We are privileged to provide this excerpt from Lewitt's monthly newsletter and encourage our readers to subscribe to it directly.
2010-02-14 Growing Problems in the Residential Real Estate Market (Part 2) by Team of American Century Investments
The problem of growing housing delinquencies has spread to states not originally affected in the sub-prime crisis and to higher-quality prime mortgages as the nation’s unemployment rate has reached double-digit levels. This commentary looks at the failure to-date of policy initiatives intended to stem defaults, and at the range of possible future policies.
2010-02-13 Winter Quarterly Commentary by Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management
Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management say in their winter quarterly commentary that the federal government will need to time its balancing of the budget just right in order to avoid either a repeat downturn or accumulating inflation. The Fed, meanwhile, will also need to withdraw monetary stimulus at just the right time.
2010-02-11 Fixed Income Investment Outlook January 2010 by Team of Osterweis Capital Management
Osterweis Capital Management says in its fixed income investment outlook that increased investor appetite for risk drove up prices of high-yield bonds, equities and other financial assets in 2009. Investors may want to avoid Treasury bonds and other underweight longer-dated assets in order to avoid the impact of a possible interest rate hike.
2010-02-09 Q4 2009 Preliminary Bank Stress Ratings; OTC Derivatives: Is the DTCC Too Big To Fail? by Christopher Whalen of Institutional Risk Analyst
Christopher Whalen of Institutional Risk Analytics wonders whether The Depository Trust & Clearing Corporation, the post-trade financial services company that clears most of the free world's cash securities volume, is too big to fail. Big banks use centralized clearing provided by DTCC to lend credibility to over-the-counter derivatives.
2010-02-06 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Ron Brounes' weekly market and economic recap.
2010-02-02 Bonds for the Long Run by Jeffrey Bronchick of Reed, Conner & Birdwell
RCB is a classic value-based investor. They note that the 2009 rally has left them with fewer buying alternatives. However, they state, "equities as an asset class will outperform investment grade bonds of almost any stripe over the intermediate and longer term using January 2010 as our starting point…” They believe equities are valued “to do okay,” since 2009 and 2010 earnings do not represent a “normalized” environment. “Moving forward, the real fun in 2010 will be how investors react to the possibility of higher interest rates driven by a stronger than expected economy.”
2010-01-29 Quarterly Letter by Jeffrey Erber of Grey Owl Capital Management
Jeff Erber says the S&P is now 20-30% overvalued, but “with a no-end-in-sight loose monetary policy this rally could continue for quite some time. “ He discusses his firm’s investment process and add
2010-01-26 Weekly Market Update by Team of American Century Investments
2010-01-26 Stop the Presses! by Jeremy Grantham of GMO
Grantham’s commentary begins with his reflections on the proposed financial reform, the “Volcker Plan,” and the recent Supreme Court ruling on corporate campaign contributions. He continues with a fo
2010-01-26 The Ring of Fire by Bill Gross of PIMCO
Bill Gross reviews two recent analyses (the Reinhart/Rogoff book and the McKinsey study) of the plight of economies faced with large fiscal deficits. He says that these support PIMCO’s view of the Ne
2010-01-19 Steve Leuthold: The Market will Rally This Year by Robert Huebscher (Article)
Steve Leuthold is chairman of the $4.5 billion Leuthold Group and one of the most widely-followed market analysts. In his keynote presentation at last week's Fortigent conference, he offered an upbeat forecast for the first half of 2010.
2010-01-19 A Market for Contrarians by Robert Huebscher (Article)
Along with Steve Leuthold, Rob Arnott, Doug Kass and DoubleLine co-founder Joe Galligan were among the speakers at Fortigent's conference. These three speakers' bearish sentiment extended across a wide range of asset classes, opening lots of possibilities for those who prefer contrarian bets.
2010-01-14 Is Recovery Here to Stay? by William H. McAfee of WHM Capital Advisors
There are still high levels of uninvested cash sitting idly on the sidelines. Equity markets are likely to do well in 2010 as the perception of risk diminishes and cash flows out of low yielding mone
2010-01-09 The Same Old Bear: A Study of Bear Markets and Stock Returns Since 1926 by Patrick O'Shaughnessy of O'Shaughnessy Asset Management
2010-01-04 The Decade that Refused to go Quietly into the Night by Chris Maxey of Fortigent
2010-01-02 And That's the Week That Was by Ron Brounes of Brounes & Associates
2009-12-21 The Bumpy Road to Recovery by Paul Merriman of Merriman
2009-12-15 The Next Black Swan? Underfunded Public Pensions by Robert Huebscher (Article)
The plights of California and other states reveal an ominous threat our economy faces: underfunded public pension liabilities. We examine the size and scope of this problem, focusing on whether the underlying assumptions used to calculate liabilities are realistic.
2009-11-24 Dan Fuss and the Long-Term Outlook for Interest Rates by Robert Huebscher (Article)
Dan Fuss, the highly respected bond manager at Loomis Sayles in Boston, says we are in the early stages on a long-term rise in interest rates. His view was shared by two other panelists, Carl Kaufman of Osterwies and Margie Patel of Evergreen. If you accept this consensus, you must ask whether your fixed income allocation is appropriate.
2009-11-24 Interview: Brian McMahon of Thornburg Investments by Robert Huebscher (Article)
We speak with Brian McMahon, CEO and CIO of Thornburg Investment Management about the Thornburg Income Builder Fund (TIBAX) and the challenges of finding income-producing securities in today's markets.
2009-11-17 Federal Taxes & Municipal Bonds Historical & Current Perspective by Munder Capital Management (Article)
With income tax increases seemingly around the corner given the budget deficit and a potentially very expensive federal health care plan, the spotlight has returned to municipal bonds and the power of tax-free income. Municipal portfolio managers at the Munder Funds identify the attractiveness of municipal bonds based on projected budget deficits, current spreads over treasuries, and macroeconomic trends. We thank them for their sponsorship.
2009-11-17 Bruce Greenwald on Positioning First Eagle’s Funds by Robert Huebscher (Article)
Bruce Greenwald is a professor of finance at Columbia, the Director of Research at First Eagle Funds, and a leading expert on value investing. Last week we published part one of our interview, where he discussed the structural problems in the economy and his forecast for higher unemployment. This week he discusses the positioning of First Eagle's investments, and why Warren Buffett's purchase of Burlington Northern was a mistake.
2009-11-10 Bruce Greenwald on Structural Problems in the Economy and Unemployment by Robert Huebscher (Article)
Bruce Greenwald is a professor of finance at Columbia University, the Director of Research at First Eagle Funds, and perhaps the foremost expert on value investing. In part one of our two-part interview, he discusses the structural problems facing the economy, the parallels to the Great Depression, and the implications for the unemployment rate.
2009-11-10 3Q 2009 Financial Markets Review by Janus (Article)
At the end of the 3rd quarter, the S&P 500® Index posted its strongest back-to-back quarterly performance since 1975. While the economy continued to stabilize and the U.S. consumer showed signs of life, concern over the health of the consumer remained. Learn more about the key drivers of global financial markets from the perspective of the Janus investment team through this 3Q Financial Markets Review. We thank them for their sponsorship.
2009-11-03 Absolutely … Maybe by Robert Huebscher (Article)
Since Putnam introduced its absolute return funds earlier this year, over 4,200 advisors and $650 million in assets have flocked to the new financial products. Putnam's four funds seek to beat inflation by 100, 300, 500 and 700 basis points, and their performance over their first nine months (3.1%, 6.4%, 8.4% and 12.2%, respectively) was encouraging for their investors. Impressive as those results may be, the question is whether they are sustainable.
2009-10-27 Managing Downside Risk in Retirement Planning by Geoff Considine, Ph.D. (Article)
Boston University professor Zvi Bodie advocates a retirement investment strategy that offers investors some of the upside potential in equities tempered with downside protection against bear markets and a low-risk inflation hedge via heavy allocation to TIPS. Geoff Considine examines Bodie's strategy and shows that it will work very effectively, including in a bear market like the one just experienced.
2009-10-20 Life in and after the NBA Financial Planning for Professional Athletes by Robert Huebscher (Article)
During a 13-year career that began in 1987, Chris Dudley was called on to defend some of the greatest centers in NBA history - among them Shaquille O'Neal, Robert Parish, and David Robinson. While developing a reputation as an exceptional shot-blocker and rebounder, Dudley also devoted time to preparing for his post-basketball career - as a financial advisor - and he shares with us his thoughts about financial planning for the professional athlete.
2009-10-06 A Quarter-End Letter to Send Clients by Dan Richards (Article)
Last fall, Dan Richards began posting quarter-end letters that advisors could adapt for their own use. Many advisors have told him that they have received an outstanding response to the letters they sent as a result, and Dan provides a template for a third-quarter letter.
2009-09-29 Interview: Jeff Mortimer, CIO of Charles Schwab Investment Management by Robert Huebscher (Article)
Jeff Mortimer is Senior Vice President and Chief Investment Officer-Charles Schwab Investment Management, Inc. (CSIM). Mortimer has overall responsibility for approximately $240 billion in Schwab Funds and managed accounts. We spoke with Mortimer two weeks ago about the economy and why he believes the market has already priced in the bad news trumpeted by the media.
2009-09-15 Mohammed El-Erian: We Have Not Reached Escape Velocity by Robert Huebscher (Article)
Kicking off this year's Schwab Impact conference in San Diego, Mohammed El-Erian told an audience of nearly 1,000 advisors on Sunday night that the US financial system has not fully emerged from the financial crisis. El-Erian and his co-presenter, Larry Fink of Blackrock, addressed a range of topics, including the safety of the financial system, the future of regulation, and the outlook for inflation.
2009-09-08 Why Credit Matters: Fixed Income Investing in a Changed Landscape by Janus (Article)
The recent dislocation in the fixed income market is likely to transform how investors and asset managers approach fixed income investing for years to come. The corporate credit sector may now be the single most important sector in generating risk-adjusted outperformance. In Janus' recent brief, Why Credit Matters, they discuss the structural market changes that have occurred and the importance of fundamental, bottom-up credit analysis and robust investment risk management in navigating this changed landscape. We thank them for their sponsorship.
2009-09-08 Infrastructure Investing by Michael D. Underhill (Article)
With global markets improving, liquidity returning to the credit markets, and valuations improving, the infrastructure market looks promising. In this guest contribution, Michael Underhill argues that infrastructure assets,when chosen correctly, can diversify an investor's portfolio because of their low correlation with other asset groups, their consistent returns coupled with lowered levels of risk, and their potential for inflation-linked returns.
2009-08-25 The New Normal and Asset Allocation Merriman’s Response by Larry Katz, CFA (Article)
Larry Katz, Director of Research at Merriman, Inc., responds to Geoff Considine's article two weeks ago, What the New Normal Means for Asset Allocation. He has multiple objections concerning much of Considine's logic, and would not recommend his alternative portfolio to their clients.
2009-08-18 Actively Managed TIPS? by Robert Huebscher (Article)
When PIMCO talks, the market listens. But we mustn't forget that the bulk of PIMCO's revenue comes from actively managing bond portfolios so, when they claim that alpha can be earned by actively managing TIPS, a healthy dose of scrutiny is warranted. Our article shows why that scrutiny is justified.
2009-07-21 Q2 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe by Robert Huebscher and Mary Pitek (Article)
Each quarter we analyze changes in the Advisor Perspectives database - a $50+ billion universe of high- and ultra-high net worth assets managed by Registered Investment Advisors. Our analysis has three parts. We look at changes in asset allocation, the performance of the most popular mutual funds, and the mutual funds that showed significant gains or losses in popularity during the quarter.
2009-07-07 Riding the Stock Market Wave in the First Half of 2009 by Ron Surz (Article)
Ron Surz provides his award-winning market commentary, reviewing the first half stock market performance around the world. He looks at the past decade, to set expectations accordingly. Have markets become cheap enough yet? He concludes with a realistic and sobering look at our current debt problems - a cause for concern for both young and old.
2009-06-23 Letters to the Editor – Moving Average: Holy Grail or Fairy Tale? by Various (Article)
Ted Wong's article last week, Moving Average: Holy Grail or Fairy Tale?, drew a large number of questions and comments from readers.
2009-06-09 Changes in Asset Allocation by Robert Huebscher and Mary Pitek (Article)
Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on changes in asset allocation.
2009-06-09 Q1 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe by Robert Huebscher and Mary Pitek (Article)
Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on performance across the most popular mutual funds.
2009-05-26 Risk Control along the Glide Path by Craig L. Israelsen and Ron Surz (Article)
Timing matters, and it matters before and after retirement. In this guest contribution, Ron Surz and Craig Israelsen show that when money is being invested annually the sequence of returns matters,and it matters even more for portfolios in the distribution phase. The authors discuss the significance for target date fund and other retirement-focused investors.