More on Related Themes
2013-05-23 The Labor Force Participation Puzzle by David Kelly of J.P. Morgan Funds
Slow growth and mediocre job creation have been common themes used to describe the U.S. economy in recent years, as both the labor market and broader economy failed to produce the snap-back rebound many expected following the deep recession seen in 2008 & 2009. Despite that lackluster growth, the unemployment rate has now fallen to 7.5% after peaking at 10% in October of 2009, a much faster decline than expected, given average employment growth of less than 125,000 per month.
2013-05-22 If You Didn\'t Buy That Powerball Ticket... by Blaine Rollins of 361 Capital
So onward and upward. What signals should Bulls be on the lookout for? Change in breadth (Up v. Down Volumes, Advancers v. Decliners), Signs of distribution (Sharp down days accompanied by large % increases in trading volumes), Change in leadership away from RISKON sectors (don’t want SmallCaps, Financials, Industrials, Transports or Housing to lag)...
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 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.
2013-05-22 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Once again stock prices moved higher last week despite mostly poor economic data and a background in Washington DC of multiple scandals. The latter begging the question as to whether substantive policy actions are now off the table for the year.
2013-05-22 Is Japan's Economic Rebound For Real? by Daisuke Nomoto of Columbia Management
The two phrases “Abenomics” and the “BOJ’s Shock and Awe Monetary Easing” are all over the headlines about Japan. Prime Minister Abe unveiled his economic policy late last year calling for a 3% annual nominal gross domestic product (GDP) growth target and an aggressive monetary easing by the BOJ (The Bank of Japan) to achieve 2% inflation. The BOJ unleashed the world’s most intense burst of monetary stimulus last month promising to double the monetary base to 270 trillion yen ($2.7 trillion) by the end of 2014 to defeat deflation.
2013-05-22 The Benefits of Diversifying the Funding of a Gold Position by Team of AdvisorShares
The recent sell off in gold has sharpened the focus of even the most committed gold bugs, and has highlighted one of the key risks that many investors face when they access the gold market. Do you purchase Gold in dollar terms or something else? How do you look at Gold, as a currency or something else? For the purposes of this analysis, Treesdale Partners took a look at a gold transaction in foreign exchange terms.
2013-05-21 A CFA and Three CPAs Walked into a Room... by Mariko Gordon (Article)
It’s easy (and often enjoyable) to engage in abstract discussions on any number of topics. When it comes to making investment decisions, however, it’s critical that you and your team first have a shared level of understanding regarding the situation and facts. Let’s look at the benefits of describing a process, issue or opportunity concretely, before moving on to a broader discussion.
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 Capitalism and Democracy by Bill O'Grady of Confluence Investment Management
In the Italian elections, the party that showed the strongest results was the Five Star Movement, led by the comedian Beppe Grillo. Despite this strong showing, the party failed to form a government and refused to participate in any coalitions. This decision not to participate in the political process has been exhibited by other protest groups, such as Occupy Wall Street, the Israeli Tent Movement, and the Spanish “Indignant” movement.
2013-05-21 General Electric Looks Like It's Becoming The Shareholder-Friendly Company It Once Was by Chuck Carnevale of F.A.S.T. Graphs
General Electric (GE) was once revered as one of the bluest of all blue-chip companies in the world. During its glory days, GE was respected as an industrial conglomerate that manufactured some of the world’s best jet engines, locomotives, appliances and even the highly regarded General Electric light bulb. However, as best I can determine, the roots of General Electric’s ultimate demise were established in 1930 when the company, responding to the great depression, formed GE Finance in order to help their customers finance GE appliances over time.
2013-05-20 Alpha, Beta! by Jeffrey Saut of Raymond James
I had a somewhat lengthy conversation with Rich Bernstein last Friday. I have been on TV with Rich over the years, but have never really had a one-on-one talk with him. Recall that Richard Bernstein was the Chief U.S. Strategist at Merrill Lynch for years before becoming the eponymous captain of Richard Bernstein Advisors (RBA). I was speaking with Rich because I have developed an interest in a few of the funds he manages for various entities. Rich began by stating he is extremely bullish, believing we are in one of the biggest “bull markets” ever.
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 Finding Opportunity Far and Near by Frank Holmes of U.S. Global Investors
Would it surprise you to learn that a vast majority of equity valuation models state that stocks should head much higher over the next five years?
2013-05-16 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.
2013-05-16 Where Are the Bears? Evidence vs. Anecdotes in Assessing Market Sentiment Over a Full Market Cycle by JJ Abodeely of Sitka Pacific Capital Management
Imagine the stock market as a national park with just three kinds of animals: bulls, bears, and pigs. The saying “bulls make money, bears make money, pigs get slaughtered” conveys the idea that one can be bullish or bearish and be successful depending on the market environment, whereas greedy pigs are almost always set up for catastrophe.
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 Weekly Market Commentary by Team of Tuttle Tactical Management
We have been talking about some troubling divergences in the market for the past couple of weeks. These have worked themselves out--- Small and mid cap stocks are now outperforming the S&P 500 over the past week and month and Treasury Bond yields are coming back up.
2013-05-15 Pacific Basin Market Overview by Team of Nomura Asset Management
Pacific Basin equity markets continued to rally in April, led by Japan where the central bank announced that it intends to double the monetary base and inject liquidity into the markets. The MSCI AC Asia Pacific Free Index including Japan gained 4.9% while the MSCI AC Asia Pacific ex Japan Free Index closed 2.6% higher in April. (All performance figures are based on MSCI indices in U.S. dollar terms with dividends included unless otherwise stated.)
2013-05-14 David Rosenberg – My Love Affair with Bonds is Over by Robert Huebscher (Article)
The chorus of rate-spike-fearing inflationists has a new member. David Rosenberg, a stalwart advocate of fixed-income investing for the last quarter century, publicly declared on May 3 that his “love affair with the bond market has come to an end.” Prepare for a redux of 1970s stagflation, he said, and he advised investors how to construct portfolios to prepare for that scenario.
2013-05-14 Nassim Taleb on the Anti-Fragile Portfolio and the Benefits of Taking Risks by Ben Huebscher (Article)
As we recover from the most recent financial crisis, how we can we learn from the mistakes to best prepare for the future? Nassim Taleb tackled this very question in his latest book, Antifragile: Things That Gain From Disorder, which built off his previous works and applies the lessons learned to today’s biggest challenges. Taleb examined how small doses of volatility can help systems handle larger disruptors in the future.
2013-05-14 It\'s Not That Bad Out There by Brian Wesbury, Bob Stein of First Trust Advisors
Certain things, like the sun rising, or the tides shifting, can be counted on. It’s also true that when government shrinks as a share of GDP, things start to pick up.
2013-05-14 Who is Henry Singleton? by Jeffrey Saut of Raymond James
The year was 1974 and Teledyne (TDY/$77.56/Outperform), on a split-adjusted basis, was trading at about $0.05 per share. By 1986 it was changing hands around $75 per share. Unfortunately, back in 1974 I didn’t have enough money to buy more than 10 shares, having lived through the devastating bear market of 1973 1974 where the D-J Industrial Average (INDU/15118.49) lost 47% of its value.
2013-05-14 Inflation Update by Team of North Peak Asset Management
Basing investment decisions on inaccurate measurements of the inflation rate can result in investors unknowingly positioning their portfolios to lose purchasing power over time. This mis-measurement could be especially dangerous when yields are low. For example, evaluating a nominal 3% investment opportunity using an inaccurate 2% inflation rate indicates a marginally attractive 1% real return opportunity. However, if inflation is actually running at 5%, this becomes a deeply unattractive negative 2% real return investment.
2013-05-14 New Normal ... Morphing by Mohamed El-Erian of PIMCO
The New Normal has morphed to include consequential elements of a "stable disequilibrium." In the midst of notable multi-speed dynamics, the global economy as a whole is muddling along a road that will give way over the next three to five years to one of two stark alternatives: either sustainable global growth, institutional and political renewal in the West and safe deleveraging; or growth shortfalls that cause financial instability, fuel greater social tensions, accentuate political dysfunctions and complicate debt traps.
2013-05-13 Investment Bulletin: Global Equity Strategy by Team of Bedlam Asset Management
Equity markets remained strong and the portfolio continued to outperform well, with a monthly gain of 3.2% vs 0.6% for the index. After two decades of policy torpor, Japan’s government has rapidly adopted a trio of policies to kick start the economy: monetary and fiscal stimulus, plus a weak yen. This is shock and awe’ relative to GDP, being far greater than any experiment in any developed country since the Second World War.
2013-05-11 Three Reasons to Buy Gold Equities Today by Frank Holmes of U.S. Global Investors
A strong stomach and a tremendous amount of patience are required for gold stock investors these days, as miners have been exhibiting their typical volatility pattern. That’s why I often say to anticipate before you participate, because gold stocks are historically twice as volatile as U.S. stocks. As of March 31, 2013, using 10-year data, the NYSE Arca Gold BUGS Index (HUI) had a rolling one-year standard deviation of nearly 35 percent. The S&P 500’s was just under 15 percent.
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 The Importance of Being Different by Franois Sicart of Tocqueville Asset Management
In his latest essay, Francois Sicart, Founder and Chairman of Tocqueville Asset Management, writes about how superior investment managers outperform their market benchmarks -- by taking advantage of volatility, among other things -- as well as how to properly evaluate investment performance.
2013-05-10 2013 US Financial Markets: Part 2 - The TINA Hypothesis by Clyde Kendzierski of Financial Solutions Group
Contrary to the “Bernanke Illusion” (money market funds are a zero return investment), history indicates that money market funds are likely to provide investors with returns approximating inflation over the next decade. As I pointed out in our last letter, the markets are pricing in inflation levels significantly higher than the prospective total returns of 10 year TBonds. The small additional return achieved by corporate bonds or US stocks (at current prices) is unlikely to compensate a buy and hold investor with sufficient gains to justify the interim risks.
2013-05-10 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.
2013-05-10 3 Reasons to Explore the Frontier by Russ Koesterich of iShares Blog
Though frontier markets have outperformed developed and emerging markets so far this year, it’s not too late to explore the frontier. Russ offers three reasons to consider having a small strategic allocation to “pre-emerging” world equities.
2013-05-08 Screaming “Bear Market Rally\" by Bill Smead of Smead Capital Management
In the summer of 2009, I was a regular guest on CNBC shows like “Larry Kudlow”. We believe we were invited to participate in those panel discussions because we were the token “bull” in the conversation and I am obnoxious enough to state my piece against significant mental and verbal opposition. The US stock market had bottomed in March of 2009 and rallied explosively into the late spring and early summer. What reminded me of this is the news coverage and expert reaction to the recent collapse in commodity prices, especially gold and corn.
2013-05-08 Is Your Investing One Dimensional? by Jerry Wagner of Flexible Plan Investments
At the National Association of Active Investment Managers (NAAIM) Uncommon Knowledge Conference in Denver last week, a reporter from Financial Planning magazine asked us, “What is active investing’?” Many confuse the phrase with the simple act of running a mutual fund populated with stock picks within the strict guidelines of a prospectus, as opposed to running an index fund, where the manager simply buys and holds the shares making up a particular stock or bond index.
2013-05-08 Absolute Return Letter: In the Long Run We Are All in Trouble by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
In the long run we are all dead, said Keynes. Maybe so, but we could be in trouble long before then. Investors appear preoccupied with central bank policy. We argue that investors are quite right in keeping their eye on the ball but, to us, it looks as if they are focusing on the wrong ball. The real worries for the long term are demographics and negative real interest rates and the effect these factors may have on equity returns.
2013-05-07 Mutual Fund Companies Need to Prepare for a Changing Environment Fund Industry Turbulence Ahead by Paul Franchi (Article)
The mutual fund industry grew explosively from the 1980s on a rare tonic of a low-inflation credit expansion powered indirectly by international trade flows. That run reached a peak in 2008 when the application of quantitative easing (QE) served to prevent industry collapse with a softer form of transition, which continues today but must end when inflation returns.
2013-05-07 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 Investing for Income and Capital Appreciation by Giorgio Caputo, Rob Hordon, Ed Meigs, Sean Slein of First Eagle Investment Management
A Q&A with First Eagle Investment Management’s senior members and their market views and strategic insights.
2013-05-07 Quarterly Letter by Team of Grey Owl Capital Management
In his April 2013 commentary, PIMCO’s Bill Gross wrote, “PIMCO’s epoch1, Berkshire Hathaway’s epoch, Peter Lynch’s epoch, all occurred or have occurred within an epoch of credit expansion What if an epoch changes? What if perpetual credit expansion and its fertilization of asset prices and returns are substantially altered? What if a future epoch favors lower than index carry or continual bouts of 2008 Lehmanesque volatility ?”
2013-05-04 The QE Sandpile by John Mauldin of Millennium Wave Advisors
Sell in May and go away? What about "risk off?" And ever more QE? Today’s letter is a quick note and a reprise of a popular letter from yesteryear (with a bit of new slant), as I am at my conference in Carlsbad.
2013-05-02 Gold Recovers Amidst Uncertainty by John Browne of Euro Pacific Capital
The selloff in gold that captured the world’s attention in mid-April has revealed some truths about how the market trades and the sentiments of many of the investors who have piled into the trade over the past few years. While the correction does highlight a higher degree of uncertainty than many of the most ardent gold advocates had anticipated, it does not represent the historic "end of an era" reversal that the many in the media have so gleefully suggested. In many ways, the market has shown a resiliency that its detractors do not understand.
2013-05-02 The Great Gold Redemption by Peter Schiff of Euro Pacific Precious Metals
The most puzzling part of the investment business is seeing how the vast and largely economically illiterate masses interpret any given piece of news. Take the recent gold selloff: many large players were motivated to sell by news that Cyprus will have to liquidate its gold stockpiles to pay off acute debt obligations. But just a moment’s reflection shows this reaction to be knee-jerk. The real story behind Cyprus’ deal has much more profound ramifications - and they are positive for gold.
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 The Road to Omaha: Volatility or Wealth Creation by Bill Smead of Smead Capital Management
This is the last installment in our five part series called “The Road to Omaha”. In this series of missives we have looked at the keys to the investing success of Warren Buffett leading up to the 2012 annual meeting.
2013-05-01 US Economy to Get a Hollywood Makeover by Gary Halbert of Halbert Wealth Management
You may have heard that the government is going to make some major changes in how our Gross Domestic Product is calculated later this year. Your first thought might be that this is no big deal. However, I will argue today that it is a very big deal, the biggest in a decade, and you need to know why. So I hope you read what follows with more than a passing interest.
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.
2013-05-01 There Will Be Haircuts by Bill Gross of PIMCO
It has been the objective of the Fed over the past few years to make even more innovative forms of money by supporting stock and bond prices at cost on an ever ascending scale, thereby assuring holders via a “Bernanke put” that they might just as well own stocks as the cash in their purses. Gosh, a decade or so ago a house almost became a money substitute. MEW or mortgage equity withdrawal could be liquefied instantaneously based on a “never go down” housing market. You could equitize your home and go sailing off into the sunset on a new 28-foot skiff on any day but S
2013-04-30 The Most Underappreciated Threat to the Advisory Business by Bob Veres (Article)
Financial advisors have often heard the warning that their investment management services are going to become commoditized – so often, in fact, that you can forgive them for ceasing to pay attention. But if you don’t believe that an online algorithm can replace the sophisticated advice offered by a flesh-and-blood advisor, then check out the Wealthfront USA website.
2013-04-30 Stockman to America: Sinners, Repent! by Laurence B. Siegel (Article)
In a massive volume that melds economic history and social criticism, the former Reagan administration budget director David Stockman has documented countless ways in which America went astray over the last century. Most notably, he decried the corruption of free-market capitalism by those seeking effortless profits at the public’s expense. This is the source of his book’s title, The Great Deformation.
2013-04-30 Is May Really the Time to Go Away? by Chris Maxey, Ryan Davis of Fortigent
As investors near the witching hour of May, the oft-asked question once again comes to the foreground is it best to sell in May and walk away? This year could prove the exception to recent history, but a number of trends are beginning to take shape inside the market’s inner workings.
2013-04-30 ProVise Bullets by Ray Ferrara of ProVise Management Group
With the passage of the American Taxpayer Relief Act of 2012, a lot of people felt that things were set as it related to estate taxes. Apparently everyone believed that except the President, who has proposed several changes to estate tax law in his fiscal 2014 budget.
2013-04-30 Beyond Gold: 4 Reasons to Think Energy by Russ Koesterich of iShares Blog
While the sell-off in gold has dominated headlines lately, another commodity oil has also experienced price declines in recent months. But despite crude’s drop, Russ is still a fan of energy stocks for four reasons.
2013-04-30 Beware of the New Systemic Risk by Ashwin Alankar, Michael DePalma of AllianceBernstein
It felt like there was nowhere to hide from the market declines last Monday, April 15, when stocks, bonds and commodities fell in unison across the world, well before the Boston bombings that day. We believe that this failure of diversification was instigated by increasingly powerful multi-asset funds, many of which use leverage, which may have become a new source of systemic risk for investors.
2013-04-26 The Yin and the Yang of Commodity Price Trends by Team of Northern Trust
In recent weeks, financial press headlines have centered on the sharp drop in the price of gold. Of greater importance, however, are the significant price declines of oil, wheat, corn and copper. The S&P Goldman Sachs Commodity Index is down 6.1% year-to-date after a nearly steady reading in 2012 and gains exceeding 20% in both 2010 and 2011. It is essential to recognize the different nuances buried in these commodities’ price trends. First we will focus on the implications of declining commodity price trends and then discuss gold specifically in more depth.
2013-04-26 Why The Fed's Balance Sheet Matters Neosho Capital Takes On Alan Blinder by Chris Richey of Neosho Capital
We anticipate the Fed will begin slowing, but not eliminating, its QE purchases later this year, barring another severe downturn in the intervening period. As such, we expect macro-economic factors such as currency, interest rates, growth, and inflation to continue to be a significant influence on stock market returns and that the long-term benefits of active portfolio management and individual company performance will continue to be masked by these macro influences.
2013-04-26 A Playbook for Investors: How to Shoot, Score, Win by Frank Holmes of U.S. Global Investors
So, in the competitive spirit of the NBA playoff season, I’ve gathered a series of plays that investors can use to shoot, score and win during this year’s market. I’m happy to say they include all the elements of an exciting game, including a comeback kid, an upset and an underdog.
2013-04-25 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.
2013-04-23 Harsh Words on Gold by Christian Thwaites of Sentinel Investments
As a graduate trainee in a London accepting house in the fall of 1981, I was given the tour and history of my new, 130 year old bank. It was one of the banks that set the daily gold price and had large bullion deposits somewhere under its location at 114 Old Broad Street. But the tour stopped at the vault door. No one went further (probably someone did but it was beyond my pay grade) and further discussion discouraged. Such was the mystery of gold.
2013-04-23 Ugly Week All Around Bombings, Explosions and Selloffs by John Buckingham of AFAM
It was a miserable week, what with the Boston bombings, lockdown and shootout, the horrific fertilizer plant explosion in Texas and the ricin-laden letters sent to elected officials providing vivid reminders that we still live in a dangerous world. True, the week ended about as well as it could as Friday night’s incredible drama in Watertown brought some closure in Boston and the come-from-behind victory for the Red Sox on Saturday was right out of Hollywooda three-run go-ahead home run after Neil Diamond leads Fenway Park in a rendition of Sweet Caroline!
2013-04-22 Gold Market Free Fall: Time to Jump Ship? by Walter Stabell III of Invesco
The gradual fall of the gold market intensified this week as investors reacted to signals that the US Federal Reserve would wind down its stimulus bond-buying programs as well as reports that the Cyprus government could sell its gold reserves to fund the country’s debts.
2013-04-22 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
The end to another tax season; a hectic week on the earnings calendar; a number of key domestic economic releases; and ongoing developments on the global economic frontand yet, much of the country (and world for that matter) was focused on the events in Boston and the aftermath of the bombing that led to a massive manhunt and a shootout with police. Early in the week, the celebrated Boston Marathon came to an abrupt halt as terror again reigned throughout the country and nearby residents were sent into lockdown mode.
2013-04-22 Emerging Europe: Regional Economic Review by Team of Thomas White International
The European Bank for Reconstruction and Development (EBRD) was established in 1992 to help Russia and former communist states such as Poland, Hungary, and Czech Republic among others in their transition to market-based economies. In its January forecast, the London-headquartered bank sounded optimistic over the economic prospects of most of the countries covered in this review, which also include Turkey.
2013-04-22 Is There a Silver Lining to the Gold Price Plunge? by Jon Ruff of AllianceBernstein
It’s been a volatile week for gold prices, which tumbled by the most in 30 years. Although gold is still not obviously undervalued, we think the recent market moves make stock prices of gold miners look attractive when compared with prices of the precious metal.
2013-04-22 The Endgame is Forced Liquidation by John Hussman of Hussman Funds
Rule o’ Thumb: When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips.
2013-04-22 Gold Strategy Update by John Hathaway of Tocqueville Asset Management
Gold bullion prices have been subjected to a cleverly orchestrated bear raid in our opinion. Selling of paper Comex contracts on Friday, April 12th , and Monday, April 15th, totaled 1 million contracts, exceeding global annual gold production by 12%. The attack succeeded when the technical support in the low $1500’s/oz. easily gave way and led to waves of forced selling. The volume is without precedent and has all the characteristics of a panic liquidation driven by naked short selling.
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 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Stocks moved up nicely last week despite poor economic data and a huge decline in precious metals and other commodities.
2013-04-19 Are Gold Stocks Oversold? by Steve Land of Franklin Templeton
Gold bugs have been bugging out over a sharp decline in the price of gold, which hit a two-year low in April. Many gold-related stocks felt the sting. We think gold-related stocks could be oversold, and that there are still compelling reasons to own them.
2013-04-19 Gold Buyers Get Physical As Coin and Jewelry Sales Surge by Frank Holmes of U.S. Global Investors
Even with the gold price dropping, why are gold coins selling at a premium? It’s Economics 101: The coin supply is limited and the demand is high. This buying trend isn’t only occurring in the U.S. In Bangkok, Thailand, for example, crowds of buyers were filling stores, eagerly waiting in multiple lines to purchase gold jewelry and coins.
2013-04-18 Emerging Markets Investment Bulletin by Team of Bedlam Asset Management
The benefits of focusing on attractively priced, well managed and growing businesses, irrespective of their inclusion in an index, continued to aid fund performance. Thus it was virtually flat in March, capping a strong quarter in absolute and relative terms with a gain of over 10%, again beating the 5% gain by the index. These - achieved through a combination of a valuation discipline that sets the entry and exit prices and the focus on quality businesses. Not surprisingly, stock selection has been a consistent factor behind the outperformance, both this year and previously.
2013-04-18 Fortune's Formula by Jeffrey Saut of Raymond James
I reflected on mathematics, probabilities, and odds over the weekend after again reading the book “Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street,” by William Poundstone. The book centers on Claude Shannon, who in the late 1940s had the idea computers should compute using the now familiar binary digits 0s and 1s such that 1 means “on” and 0 means “off.”
2013-04-18 Inflation and Interest Rates by Scott Brown of Raymond James
The Federal Reserve began its first asset purchase program in the fall of 2008, during the depth of the financial panic. Some observers feared that the Fed’s actions would fuel higher inflation. However, the Fed is now well along in its third asset purchase program and inflation (as measured by the PCE Price Index) has remained low. In fact, Fed officials expect that inflation will trend at or below the 2% target for the next couple of years. That hasn’t stopped the inflation worrywarts from predicting that inflation is still “just around the corner.”
2013-04-17 Gold Is Crashing...And the Storm Begins by John Rothe of Riverbend Investment Management
The storm in the US stock market that I have been talking about for the past few weeks may have finally arrived. After weeks of poor economic data, we are starting to see the first crack in the current euphoria in the markets.
2013-04-17 In the Category of Sign Spinners by Blaine Rollins of 361 Capital
If you thought the plunge in Gold prices was tough on those long the precious metal, wait until you see the upcoming hit to the April Non-Farm Payrolls in the category of Sign Spinners...
2013-04-17 The Interest Rate Environment: Comparing High Yield Bonds and Bank Loans by Team of Hotchkis & Wiley
In its first quarter 2013 newsletter, "The Interest Rate Environment: Comparing High Yield Bonds and Bank Loans," Hotchkis & Wiley’s high yield team analyzes the behavior of the high yield market and the bank loan market in different interest rate environments to determine whether they can make sensible assumptions about the future.
2013-04-17 Present and Emerging Risks to the Gold Trade by Amit Bhartia, Matt Seto of GMO
The notion of gold as a hedge against systemic risks is flawed. We believe that the concept of gold’s role as an insurance policy needs to be narrowed significantly.
2013-04-16 All That Glitters Is Not Gold by Scott Colyer of Advisors Asset Management
This quote from Shakespeare’s Merchant of Venice is apropos given the nosedive in the gold markets today. In our 2013 Best Ideas piece we labeled gold a neutral as gold had not had a significant correction since 2008. Our research indicated a significant slowing of bullion purchases by gold Exchange Traded Funds (ETFs) in 2012 versus 2011. We looked for a correction and now need to contemplate whether we are in the end of the commodity bull market or merely a pause that refreshes.
2013-04-16 Gold in the Crosshairs by Peter Schiff of Euro Pacific Capital
In the opening years of the last decade, most mainstream investors sat on the sidelines while "tin hat" goldbugs rode the bull market from below $300 to just over $1,000 per ounce. But following the 2008 financial crisis, when gold held up better than stocks during the decline and made new record highs long before the Dow Jones fully recovered, Wall Street finally sat up and took notice.
2013-04-16 Tax Day as Polarizing as Ever by Chris Maxey, Ryan Davis of Fortigent
Tax season is once again upon the American population, and this year, just as in years past, people are less than enthusiastic. It is estimated that the average taxpayer contributed slightly more than $11,000 dollars to federal taxes in 2012 and those figures are on the rise. As might be expected in the current backdrop, however, not everyone shares the same opinion on taxes.
2013-04-16 2013 US Financial Markets by Clyde Kendzierski of Financial Solutions Group
In the fall of 2012 the S&P 500 came close to our forecast high (S&P- 1500) Last year we suggested that not only was the S&P likely to reach 1500, but also speculated that renewed bullish sentiment could take us back to the old highs of 1565. When the S&P touched 1563 a couple weeks ago, I started getting client calls complimenting my prescient forecast.
2013-04-16 All That Glitters by Jerry Wagner of Flexible Plan Investments
Gold prices officially fell into bear market territory on Friday. With a 4% decline that day, the current drop in the price of gold from its August 22, 2011 top crossed the negative 20% mark. Today as I write this, the precious metal is down another 10% plus.
2013-04-15 The Counter-Inflation Playbook Part 1 by Jeffrey Jones of Cornice Capital
One of the most important lessons I learned during my days at UCLA came from my freshman philosophy professor. He told us that should you find yourself engaged in a debate, the surest way to defeat your opponent is to attack his base principles. If those base principles aren’t fundamentally sound, any case built on top of it, no matter how convincing, is at risk of crumbling all at once.
2013-04-15 ProVise Bullets by Ray Ferrara of ProVise Management Group
There may still be people rushing to the Post Office this afternoon or evening to get tax returns in the mailbox. Of course, many others will file for an extension. The first extension is for six months and is automatic. However, when you file your extension, you have to send in the money you think you will owe and file form 4868. If you don’t file an extension, there is a 5% per month late filing fee. An underpayment could also be charged interest, and if the amount is significantly under what is owed there could be penalties as well.
2013-04-15 Is Gold Signaling a Secular Bull Market in Common Stocks? by Mark Ungewitter of Charter Trust Company
Gold is an asset that some people love to hate. Intelligent investors, however, should keep an open mind toward the shiny metal and the message it conveys.
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.
2013-04-15 Increasingly Immediate Impulses to Buy the Dip (or, How to Blow a Bubble) by John Hussman of Hussman Funds
A tendency toward increasingly immediate attempts by investors to buy every dip in the market reflects a broadening consensus among investors that there is no direction other than up, and that any correction, however, small, is a buying opportunity. As investors clamor to buy ever smaller dips at increasing frequency, the slope of the market’s advance becomes diagonal or parabolic. This is one of the warning signs of a bubble.
2013-04-12 How a Landslide Shifts Copper Supply by Frank Holmes of U.S. Global Investors
The U.S. mining industry was dealt a devastating blow as Kennecott Utah Copper’s Bingham Canyon Mine experienced a pit wall failure causing a massive landslide with rocks and dirt covering the bottom of the mine pit. It’s a miracle no one was hurt due to the vigilance of its owner, Rio Tinto. The landslide is just one example of how quickly and unexpectedly the supply and demand factors facing the red metal can shift, which underscores the need for nimble active management.
2013-04-10 Looking for Warm Milk and a Blanket by Blaine Rollins of 361 Capital
Conspiracy theory economists would say that the Government fudged the data weaker so that it could help sell $60-70 billion in U.S. debt this week. Whatever the outcome, last week we had a perfect storm of high expectations for the data + very below average March weather + the payroll tax hike impact + the upcoming sequester worry. Economic data will move violently from month to month, but unfortunately last week, it was mostly in the WEAKER THAN EXPECTED direction and investors did not hesitate to bring pain on risk assets.
2013-04-09 The Myth of the Casually Competent Investor by Steven Grey (Article)
The greatest trick the Devil ever pulled was convincing the world he didn’t exist.”-
Verbal Kint, The Usual Suspects. Under certain circumstances, a myth becomes so embedded in the popular mindset that it transcends the illusion of truth and assumes the gravity of gospel. The capital markets at the heart of the American economy rely on just such a fallacy: The Myth of the Casually Competent Investor.
2013-04-09 Investment Bulletin: Global Equity Strategy by Team of Bedlam Asset Management
Another good month and a strong quarter, with the portfolio gaining by 3.5% and 15.2% (net) respectively, outperforming the rises in the index of 1.8% and 14.0%. Conspiracy theorists could be forgiven for believing that most political/central bank action is designed to support equity prices. The Cyprus fiasco is an example: whatever the legal frameworks, from government guarantees of bank deposits to the repayment of sovereign bonds, all are merely non-binding statements of intent, thus a wake-up call to buy real, income-producing assets.
2013-04-08 The Theology of Inflation by John Mauldin of Millennium Wave Advisors
We begin this week with a simple pop quiz. Is inflation good or bad? Answer quickly. I’m sorry your answer is wrong. Or rather, we can’t know if your answer is right or wrong because we are not sure what is meant by the question. We may think we know and we may be right but we can’t be sure, because the word inflation has different meanings for different people in different places and different times. In fact, even the same people in the same place and time can’t agree on a precise definition.
2013-04-08 Ben Bernanke, the Rodney Dangerfield of Fed Chairmen by Paul Kasriel of Econtrarian, LLC
First it was 2012 presidential candidate Rick Perry, who wanted to deal with Ben Bernanke’s money-printing “Texas style”. Then 2012 presidential candidate Mitt Romney indicated that Ben Bernanke had better have his personal effects packed up and ready to move out of his Fed office by January 21, 2013.
2013-04-08 Cypriot Chaos Assists EU Centralization by John Browne of Euro Pacific Capital
Remarks by members of the European Union’s elite suggesting that banking deposit seizures may become standard practice appear to have heightened the risk of a European bank run and perhaps even a catastrophic collapse of the euro. Any threat to the euro is a threat to the European public’s conception of the Union’s manifest destiny. As such, I believe members of the EU elite may be purposefully leveraging the crisis to push for a centralized European banking system to cement the political framework of an EU superstate.
2013-04-05 Every Gold Coin Has Two Sides by Frank Holmes of U.S. Global Investors
Just as every coin has two sides, every data point that doesn’t meet expectations usually has an upside somewhere. For instance, although the gold price has fallen with the strengthening U.S. dollar, the yellow metal is appreciating in Japanese yen. So when negative news about the economy came out this week, along with the U.S. Labor Department reporting that the country added only 88,000 jobs in March, investors found reasons to be encouraged.
2013-04-04 Absolute Return Letter: The Need for Wholesale Change by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
The seeds of the next crisis have probably already been sown as a consequence of the lax monetary policy currently being pursued. Frustrated with the lack of direction from political leaders, most recently witnessed in the handling of the crisis in Cyprus which was a complete farce, central bankers from around the world are likely to demand change, but politicians will have to be pushed into a corner before they will respond to any such pressure. Hence nothing decisive will happen before the next major crisis erupts.
2013-04-04 Teachings from Recovered Markets by Richard Michaud of New Frontier Advisors
Domestic indices’ all-time record highs indicate that U.S. domestic equity markets have largely recovered from the 2008 Great Recession. It may have taken four years but it still seems a remarkable achievement given the Dow’s low of 6620 in March 2009. It is worth noting that prior highs were attained in an era with a poor savings rate and wide use of levered strategies. The last four years were widely characterized by a “low return” market mantra and fear of equities stoked by many doomsayers, pundits, and strategists who greeted every upturn with pessimism.
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 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.
2013-04-03 A Man in the Mirror by Bill Gross of PIMCO
Am I a great investor? No, not yet. To paraphrase Ernest Hemingway’s “Jake” in The Sun Also Rises, “wouldn’t it be pretty to think so?” But the thinking so and the reality are often miles apart. When looking in the mirror, the average human sees a six-plus or a seven reflection on a scale of one to ten. The big nose or weak chin is masked by brighter eyes or near picture perfect teeth. And when the public is consulted, the vocal compliments as opposed to the near silent/ whispered critiques are taken as a supermajority vote for good looks.
2013-04-02 Bernanke’s Motives Behind Quantitative Easing by Paul Franchi (Article)
We are at a turning point: away from one global monetary standard, to a yet-to-be-determined new form.
2013-04-02 Is the Vix Still an Adequate Measure of Risk? by Chris Maxey, Ryan Davis of Fortigent
The 30-day implied volatility index for the S&P 500 calculated by the Chicago Board of Options Exchange (CBOE), known as VIX, has long been used as an indicator of market sentiment. Commonly referred to as the “fear index,” the VIX often portends periods of stress in equity markets, as options traders price in higher volatility in the future. The shape of the VIX futures curve, in particular, has historically been used as an indicator of future volatility levels.
2013-04-02 Flying High on Borrowed Wings by Peter Schiff of Euro Pacific Capital
After selling off an astounding 56% between October of 2007 and March 2009, the S&P 500 has staged a rally for the ages, surging 120% and recovering all of its lost ground too. This stunning turnaround certainly qualifies as one of the more memorable, and unusual, stock market rallies in history. The problem is that the rally has been underwritten by the Federal Reserve’s unconventional monetary policies But for some reason, this belief has not weakened the celebration.
2013-04-02 Cypriots In The Streets by Peter Schiff of Euro Pacific Precious Metals
The news of the month comes from the large Mediterranean island of Cyprus, where Keynesian economic planning left the economy facing complete bankruptcy. The result was an unprecedented step forward in the financial collapse of the West: direct forfeiture of bank deposits. Despite official protestations to the contrary, this fallout will spread to a bank near you.
2013-04-01 U.S. Stock Market: Too Good to Be True? by Dawn Bennett of Bennett Funds
There is nothing worse than buying at the top of the market. Think back to the last two economic cycles. If you bought the US stock market or real estate in late 2007, you are way under on those purchases and that is after sweating it out for the last 5 years. Even with the 2009-2012 rebound, we have not seen real estate values or the Dow Index back to even. You have to ask yourself, how can this be?
2013-03-28 On the Fed, the Keystone Pipeline & the War On Jobs by Gary Halbert of Halbert Wealth Management
The Fed Open Market Committee (FOMC) met as scheduled last Tuesday and Wednesday to review monetary policy and its massive “quantitative easing” effort. The official policy statement released at the end of the meeting on Wednesday was little changed from those in previous months.
2013-03-28 Emerging Markets Investment Bulletin by Team of Bedlam Asset Management
The increases in the portfolio’s net asset value continue easily to beat the hardly exacting returns from the index. The fund has gained 10.4% gross for the year to date (to 22 March), vs. a 3.0% rise for the MSCI Emerging Index. This outperformance (replicated over rolling 1- and 3-year periods) has been achieved by choosing investments irrespective of index country or sector weightings or where they are listed, so long as they derive the majority of income and profits from developing countries.
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.)
2013-03-28 What Maslow and Rand Would Tell Investors Today by Frank Holmes of U.S. Global Investors
While gold’s performance in the short term has been counterintuitive, I plan to stick to my own advice. I simply feel safer with a small weighting in gold as insurance.
2013-03-27 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."
2013-03-26 How to Invest Like Buffett by Robert Huebscher (Article)
Listen to Jim Cramer or his cohorts on CNBC and you’ll hear statements like, “Don’t settle for the mediocre returns of a market index!” and “It’s not that hard for investors to pick stocks that will beat the market!” Unless you possess the skills of Warren Buffett, that’s not true. But in the book Think, Act and Invest Like Warren Buffett, Larry Swedroe says you indeed can invest like Buffett – just not by stock-picking.
2013-03-26 Throw the Book at Him by Jerry Wagner of Flexible Plan Investments
On February 2, Ground Hog Day, Punxsutawney Phil failed to see his shadow forecasting, and as legend has it an early spring. Yet on the first day of spring, I looked out my back window at a lake still more than half frozen with my view partially obscured by a wicked little snow flurry. So much for forecasts!
2013-03-26 In Gold, Not Cyprus, We Trust by Frank Holmes of U.S. Global Investors
Global investors had to muster the courage to keep calm as news of Cyprus’ proposed partial theft of all bank deposits took Wall Street by surprise, closed the country’s banks and drove the price of gold higher.
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.
2013-03-22 Cyprus Lifts the Curtain by Peter Schiff of Euro Pacific Capital
This week financial analysts, economists, politicians, and bank depositors from around the world were outraged that European leaders, more specifically the Germans, currently calling many of the shots in Brussels and Frankfurt, could be so politically reckless, economically ignorant, and emotionally callous as to violate the sanctity of bank deposits in order to fund a bailout of Cyprus.
2013-03-22 In Gold We Trust by Frank Holmes of U.S. Global Investors
Poorly thought out government policies hurt the formation of capital and destroy people’s trust in paper money. Leaders may have good intentions, but some of their actions show disrespect for private property and individualism. This only reemphasizes gold as an important asset class.
2013-03-21 Goldilocks Roars by Team of Bedlam Asset Management
Equity markets are producing supra-normal returns. To March 18th, the portfolio is up over 15% year-to-date, over 100 basis points ahead of the index. Many investors would be happy with such a gain over a full year rather than a mere twelve weeks, so are puzzled, the more so as respected pundits agree that the data makes for easy stories of rampant inflation, collapsing government credit and a prolonged global recession. Equity markets, however, are stubbornly refusing to follow the script.
2013-03-20 Is The Government Lying To Us About Inflation? Yes! by Gary Halbert of Halbert Wealth Management
On Friday, the Labor Department reported that the Consumer Price Index (CPI) jumped an unexpected 0.7% in February. This was above pre-report estimates and was the highest monthly reading since 2009. We should be very concerned, right? Let’s take a closer look.
2013-03-18 And That’s the Week That Was by Ron Brounes of Brounes & Associates
Move over Dow Jones, here comes the S&P. What few thought possible a year ago is coming to fruition as the major indexes continue to push toward record territory. The S&P 500 is close (but no cigar) to besting its personal high set in late 2007, before this whole banking mess emerged and sent equities into a tailspin. Confident investors seemed to be overlooking the numerous concerns (budget/sequester, payroll taxes, Europe, China) so they can participate in the record run.
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.)
2013-03-18 Finding the Sweet Spot by Mark Kiesel of PIMCO
Where is the investment “sweet spot” in today’s global financial markets? The uneven global growth outlook means there are opportunities and risks for both credit and equity investors.
2013-03-18 Currencies: A 1970s Flashback? by Milton Ezrati of Lord Abbett
Four decades ago, a currency war and significant Fed easing were followed by a bout of high inflation. Now investors are worried that history could repeat itself.
2013-03-15 China\’s Next Stop by Frank Holmes of U.S. Global Investors
Would it surprise you to discover that China is planning to add 800 miles to its subway system over the next two years? That’s the distance equivalent to building a network from Dallas to Chicago in less time than the U.S. Congress can resolve a budget!
2013-03-14 Newsletter by Harold Evensky of Evensky & Katz
In the latest edition of his client newsletter, Harold Evensky highlights a number of interesting bits of news, including a must-see destination for your friends, your kids and your grandkids, some advice from Warren Buffett, a tip from Albert Einstein and the latest data on hedge fund performance.
2013-03-14 Tightening the Noose: Can the SEC and Its New Chairman Be Tougher on Wall Street? by Team of Knowledge @ Wharton
Although the SEC has always been the federal government’s chief guardian of integrity in the financial markets, critics have a long list of grievances, including claims that the agency is too unsophisticated and too soft on wrongdoers. Assuming she is confirmed as the new SEC chairman, Mary Jo White will need almost superhuman skills to make the SEC more effective. Can she -- or anyone, for that matter -- accomplish this?
2013-03-14 Global Currency Battles: A Waiting Disaster or a Win for All? by Team of Knowledge @ Wharton
To many, Japan’s recent moves to devalue the yen looked like the spark that could ignite a global currency war -- a series of competitive devaluations that, last century, helped plunge the world into the Great Depression. Until now, central bankers have been resisting the urge to politicize exchange rates. However, while currency skirmishes can be dangerous and require monitoring, they are also necessary for establishing equilibrium in markets and will help in the global economic recovery, some experts say.
2013-03-13 Some Stunning Demographic Trends in Employment by Doug Short of Advisor Perspectives (dshort.com)
I spent much of yesterday reviewing the latest employment report from the Bureau of Labor Statistics (BLS). They have a wealth of employment data, much of which stretches back to 1948. My focus was the Labor Force Participation Rate (LFPR) with some specific attention to gender and age. The LFPR is a simple computation: You take the Civilian Labor Force and divide it by the Civilian Noninstitutional Population. The result is the participation rate expressed as a percent.
2013-03-13 Argentina on Sale by John Mauldin of Millennium Wave Advisors
(From Cafayate, Argentina) There are some who worry whether the path that Argentina has taken to monetary ruin on multiple occasions (and that it seems intent on taking again) is one that the US may also find itself on. That worry has crossed my mind a few times, I must confess. Today we will look at Argentina more in depth. From a monetary perspective, it deserves attention. And once again there will be opportunity.
2013-03-13 Dow--Then and Now by Frank Holmes of U.S. Global Investors
The Dow Jones Industrial Average is making record highs, knocking the 2007 peak off its pedestal, but investors aren’t celebrating.
2013-03-12 Gundlach: Investors are asking the Wrong Question by Robert Huebscher (Article)
If you're trying to assess the Federal Reserve's so-called exit strategy from quantitative easing, then you're asking the wrong question, according to Doubleline's Jeffrey Gundlach. Quantitative easing is a permanent policy tool, he said, and investors should be asking what that means for their investment strategy.
2013-03-12 America’s Criminal Crony Capitalism by Michael Edesess (Article)
Charles Ferguson believes that every prosecutorial tool at our disposal should be used to indict, fine severely, and imprison those whose transgressions contributed to the recent financial crisis – not just their companies, but the executives as individuals.
2013-03-12 The 2030 Increasing Inequality Scenario by Bill O'Grady, Kaisa Stucke of Confluence Investment Management
Last month we started looking at the 2030 alternative world development scenarios as laid out by the National Intelligence Council (NIC). The NIC forecasts the likely paths that are either currently underway or are forecast to occur in the future. In its most recent report, the NIC projects four possible global political and economic states based on expected trends. Last time, we presented the most likely best case scenario. This week, we will explore the third scenario, under which the world gets wealthier as a whole, but inequalities increase.
2013-03-08 Ride Over Bump in Gas Prices with These Investment Themes by Frank Holmes of U.S. Global Investors
U.S. oil independence is picking up steam. In December, the country lost its position as the world's largest importer of oil, with shale production climbing faster than expected. Net imports fell below 6 million barrels per day, domestic production increased more than 1 million barrels per day and demand declined by about 700,000 barrels per day.
2013-03-08 Spasmodic Stupidity: The Wile E. Coyote Congress by Cliff Draughn of Excelsia Investment Advisors
I predict the Ides of March will find us in a continued sequestration, and Congress will use the time between now and the debt ceiling deadline on March 27th to debate the merits of true tax reform as opposed to governing by crisis. In the end, though, the reform conversation will revert to governance by crisis, with another stop-gap measure to avoid government shutdown during Holy Week and Easter, which will tide us over to the elections of 2014. Do you expect any different?
2013-03-08 How to Keep Calm and Invest On by Frank Holmes of U.S. Global Investors
The market noise of today will not be going away. However, investors can gain confidence in the following wisdom of the crowd. As famous investor Benjamin Graham said, "The individual investor should act consistently as an investor and not as a speculator. Keep calm and invest on.
2013-03-07 After the Dow Record Close: What Comes Next? by Russ Koesterich of iShares Blog
After Tuesday's record setting Dow Industrials close, are US stocks still cheap? Can the market move higher? Russ answers these questions and more.
2013-03-06 Smooth Returns by Bill Smead of Smead Capital Management
Harry Markopolos was working for a hedge fund of funds and attempting to put a portfolio together that would "smooth" long-term returns. In the process of marketing what his company was doing, he ran into a client who already had a money manager doing that for him. The money manager the client used was Bernie Madoff. When Markopolous looked at the long-term track record of Madoff's client, he instantly knew that it was mathematically impossible to have a return that high with as little year-to-year variance in the return. We at Smead Capital Management would like to ask a few questions.
2013-03-06 An Infinite Amount of Money by John Mauldin of Millennium Wave Advisors
The three major blocs of the developed world are careening toward a debt-fueled denouement that will play out over years rather than in a single moment. And contrary to some opinion, there is no certain ending. There are multiple paths still available to Europe and especially the US, though admittedly none of them are bright and carefree.
2013-03-05 What Economists can Learn from Downton Abbey by Robert Huebscher (Article)
Economists warn that the U.S. economy could be heading toward one of two catastrophes: the two-decade long stagnation that has befallen Japan, or the hyperinflation that struck Zimbabwe and the Weimar Republic. Such cautionary tales alert policymakers to the failed efforts of their predecessors. But the most relevant comparison is rarely cited – to Great Britain in the 1920s, as depicted in the highly popular PBS series Downton Abbey.
2013-03-05 You’re The Cream of the Crop: Key Findings from the 2012 Advisor Perspectives Reader Survey by Jeff Briskin (Article)
Experienced. Results oriented. Focused on serving the needs of individuals and families. Confident in your abilities. Eager to expand your knowledge. If this sounds like you, you're not alone. These are the traits that stand out among Advisor Perspectives readers, based on the findings of our 2012 Reader Survey.
2013-03-05 The Sequester: A Second Quarter Worry by Russ Koesterich of iShares Blog
Now that March 1 has come and gone, what will the sequester mean for the US economy and markets? Maybe not much in the near term, but Russ explains why the second quarter will be a different story.
2013-03-01 Wait for Your Pitch in Today's Market by John West of Research Affiliates
Great hitting in baseball depends in part on waiting for the right pitch. In today's market, most asset classescoming off their impressive 2012 recordare "high and outside" the valuations necessary for future big league returns. Patience is the name of the game today.
2013-03-01 The Fed's Tightening Pipe Dream by Peter Schiff of Euro Pacific Precious Metals
Testifying before the US Senate this past Tuesday, Fed Chairman Ben Bernanke made an extraordinary claim about its bloated balance sheet: "We could exit without ever selling by letting it run off." What Bernanke means here is that the Fed could simply hold its Treasuries and agency bonds until they mature, at which point the government would then be forced to pay the Fed back the principal amount. Through this process, the Fed's unprecedented and inflationary position will be gradually and placidly unwound.
2013-03-01 One Chart May Explain Why Gold Stocks Are Lagging Bullion by Frank Holmes of U.S. Global Investors
It may be time for certain gold stocks to shine, writes Bryan Borzykowski in a Canadian Business article this week. He highlights many of the issues that have come to the surface over the past few years, including the bad decisions made by management, capital cost increases, and the birth of the gold bullion exchange traded fund.
2013-03-01 Greetings from Istanbul! by Frank Holmes of U.S. Global Investors
As I travel around Turkey, I am reminded how vital good government policies are to the health of a nation. Following a decade of fiscally responsible actions, Turkey is the picture of a growing prosperity. Perhaps Americas elected officials could take a tip from this vibrant country overseas.
2013-02-28 Jeremy Siegel on Why Stocks Are -- and Will Remain -- the Best Bet by Team of Knowledge @ Wharton
Though stock market volatility continues to rattle investors' nerves, the future looks bright for equities in the U.S. and many emerging markets, according to Wharton finance professor Jeremy Siegel. That's not so for bonds, which could become money-losing investments as rising interest rates drive bond prices down. In an interview with Knowledge@Wharton, Siegel says that investors should think about reducing their bond holdings, buying more stocks and keeping just enough cash for a rainy day and other liquidity needs, since interest rates on cash are near zero.
2013-02-27 Is This Market "For the Birds"? by Jerry Wagner of Flexible Plan Investments
Last week, the stock market hit one of those gusts of headwind that seemed to stop the 2013 rally in its tracks and push it backward. When that happens, as it is again today, it is like watching the gull traverse just a few feet in front of us on the beach. What happens in the short run can be progress or retreat.
2013-02-27 The Great Migration by Herbert Abramson, Randall Abramson of Trapeze Asset Management
We are value investors dedicated to creating portfolios for clients, whether growth (equities), income or a balanced blend of both, of undervalued securities with meaningful upside potential and a margin of safety to guard against permanent loss. For us, the bottom-up factors are the most compelling, but we are also mindful that we need to take account of the top-down macro factors. We know how the Crash of ꞌ08 and the accompanying recession created havoc for investors, including us, no matter how undervalued stocks were.
2013-02-26 Howard Marks’ Warnings and How to Protect your Portfolio by Geoff Considine (Article)
Howard Marks, founder and chairman of Oaktree Capital Management, wrote in a recent memo that the biggest danger to investors is their willingness to buy risky assets that are likely to provide low returns. Market conditions may not fully reflect current risk; option prices, for example, are very low. Some firms – notably PIMCO – recommend investors buy put options to protect their portfolios. I propose an alternative strategy that will be resilient to the potential shocks of increased volatility and higher interest rates, without incurring the cost of options.
2013-02-26 Five Ways to Improve Your Investing Decision Making by Robert Huebscher (Article)
Successful investing requires a contrarian mindset; anything else is, at best, a recipe for mediocrity. This is especially true for an investment committee, the core of an advisory firm's decision-making process. Five prominent advisors – Harold Evensky, John Hill, Steve Cassaday, Steve Kaye and Berk Nowak – are embracing unconventional approaches to ensure that their investment committees operate in the most effective ways possible.
2013-02-26 Global Investment Review First Quarter 2013 by Team of Bedlam Asset Management
At the beginning of last year the prospects for capital markets were grim yet the results surprisingly good: positive returns and modest economic growth. The cause was central banks in developed countries acting as a backstop for sovereign and other large debts, through direct purchasing funded by accelerated money printing. This also ensured low interest rates. Subsequently, mountainous debt problems are slowly being tackled, even as they appear to increase.
2013-02-26 A Permanent Investment by Jeffrey Saut of Raymond James
The Buying Power, and Selling Pressure, indicators continue to suggest no major top is in the works. Ditto the Advance/Decline line traded to a new high before the mid-week pullback, also confirming the upside. The major averages continue to reside above their respect 50-DMAs and 200-DMAs; and, those moving averages are rising, another bullish sign. Then there is Berkshire Hathaway (BRK.A/$152,009/Not Covered), which is somewhat of a proxy for the stock market, as it traded to a new all-time last Friday.
2013-02-26 2013, Losing the Bid by Bill Smead of Smead Capital Management
Many times in my 32-year career people ask me to comment on whether an established trend for a popular investment will stay intact. My answer is always the same. We don't know when the hot streak will end for the popular investment and we don't feel comfortable with popular securities. In our view, there is a dramatic difference in what you do with popular investments based on whether they areto use terms borrowed from Warren Buffett currency assets, unproductive assets, or productive assets. It has to do with the ability to sell and the liquidity you have when the popularity disappears.
2013-02-22 Muscle Memory or Muscle Training by Bill Smead of Smead Capital Management
Interest rates have gone down on US Treasury bonds off and on for 31 years. This means that the coupon you are being paid has been joined by significant capital gains. Jim Grant argues that the only thing going for bonds is how well handlers of money have done on them; Warren Buffett calls it "rear-view mirror investing".
2013-02-22 A Test of Strength for Gold by Frank Holmes of U.S. Global Investors
This week, we saw the gold bears growling louder and gaining strength, as the worlds largest gold-backed ETF, the SPDR Gold Trust, experienced its largest one-day outflows since August 2011. The Fear Trade fled the sector following the Federal Reserves meeting that revealed a growing dissension among some of its members over the central banks bond-buying program.
2013-02-21 Gold Miners- Back in the Abyss- An Update by JJ Abodeely of Value Restoration Project
Back on May 18th, 2012 I wrote a piece titled Jumping Into The Abyss: A Bull Case for Gold Mining Stocks. The miners had declined 40% from their August 2011 highs and for a variety of fundamental reasons like valuation and the relationship between mining costs and the price of gold and technical reasons, like sentiment, I felt the case to buy was compelling. The stocks subsequently rallied more than 30% over the following 4-5 months.
2013-02-19 Alan Greenspan on the Market and the Global Economy by Adam Jared Apt (Article)
During his six-decade-long career in financial services, Alan Greenspan was a central figure in seminal events that drove investment markets, from the savings-and-loan crisis to the dot-com bubble to the housing crisis. Now, nearing 87, he rarely speaks in public. But he did so last week, offering his forecasts for the U.S. and European economies.
2013-02-19 A Technical Look At The Current Market by John Rothe of Riverbend Investment Management
The S&P 500 Index has been rising consistently this year, leading many to wonder if this is the start of a new long-term bull market. Volatility has been low and market commentary from the financial media continues to be positive. Everything looks great right? Unfortunately, when we dig deeper into the underlying components of the market, we are actually in a high risk environment that may potentially harm investors who are too bullish.
2013-02-19 Jesse Livermore by Jeffrey Saut of Raymond James
"There were times when my plans went wrong and my stocks did not run true to form, but did the opposite of what they should have done if they had kept regard for precedent." So said Jesse Livermore, as chronicled in the brilliant book Reminiscence of a Stock Operator by Edwin Lefever; and, stock market historians will recall that Jesse Livermore is still considered one of the most colorful market speculators of all time.
2013-02-19 On Competitive Devaluations by Scott Brown of Raymond James
Aggressive monetary policy moves in recent years have been accompanied by a growing fear of a currency war. In a currency war, or competitive devaluation, countries attempt to weaken their currencies to boost exports, but each devaluation leads to counter devaluations. That's not what's going on now. However, whether a country is purposely devaluing its currency or is merely pursuing accommodative monetary policy is irrelevant, the consequences are the same. The recent meeting of G-20 finance ministers and central bankers highlights the lack of coherent policies to boost growth.
2013-02-15 Hyperinflations, Hysteria, and False Memories by James Montier of GMO
In the past, Ive admitted to macroeconomics being one of my dark, guilty pleasures. To some value investors this seems like heresy, as Marty Whitman1 once wrote, Graham and Dodd view macro factors...as crucial to the analysis of a corporate security. Value investors, however, believe that macro factors are irrelevant. I am clearly a Graham and Doddite on this measure (and most others as well).
2013-02-14 Is Inflation Around the Next Corner? Then What? by Pete Sorrentino of Huntington Funds
As the Federal Reserve Board reiterates its intention to keep interest rates near zero into 2015, it appears that the markets and many investors are growing complacent about inflation. Ever since the Financial Crisis of 2007-08, "headline inflation," as measured by the Consumer Price Index (CPI), has stayed low so far. Although it has threatened to break out at times, economic weakness has restrained the price growth that underlies inflation.
2013-02-12 The Milton Friedman Centenary: One Hundred Years of Surprisingly Little Solitude by Laurence B. Siegel (Article)
Milton Friedman was once a lonely voice for capitalism in a collectivist era, and seemed doomed to a hundred years of solitude. Instead, he arguably became the preeminent public intellectual of the hundred years that followed his 1912 birth.
2013-02-12 Consumers Less Enthused to Bail Out the Economy by Chris Maxey, Ryan Davis of Fortigent
Following recent recessions, it was commonplace to rely on American consumers to bail out the economy. The reliance on the American consumer was widely understood as the best remedy for an ailing economy. We are not as fortunate this time around and our dependence on consumers is one reason for the sluggish rate of recovery since 2008.
2013-02-12 Currency Wars? What Currency Wars? by Christian Thwaites of Sentinel Investments
There's much talk of currency wars right now. We think they're way overblown. The source of the problem lies with Japan, which has made explicit a strategy to lower the yen, increase domestic demand and increase inflation. It needs to do all three. The twenty year old balance sheet recession and deflation in Japan has been a costly error in targeting inflation and not much else.
2013-02-12 Don't Just Do Something, Sit There. by Jeffrey Saut of Raymond James
"Don't Just Do Something, Sit There" is the title of a book written by Sylvia Boorstein. I was reminded of the title when I received the following email from a financial advisor at another firm last week...
2013-02-11 Brazil: Infrastructure Push Creating New Opportunities Across Sectors by Team of Thomas White International
Both corporates and the federal government have started investing heavily on overhauling Brazil's infrastructure.
2013-02-11 When to Worry About Inflation by Russ Koesterich of iShares Blog
Though the Fed continues to flood the US economy with money, Russ explains why inflation isn't likely to be a problem until 2014 and what investors can do in the meantime to prepare.
2013-02-08 The Year in Review: 2012 by Richard Bernstein of Richard Bernstein Advisors
Politicians crave the spotlight, but it is unfortunate that investors watch the show. 2012, like 2011, was another year in which Washington theatrics scared investors. As a result, investors largely missed out on above average equity returns. Corporate profits and valuations, and not Washington, continue to be the primary drivers of equity returns. We think there are several important points to consider when reviewing 2012 performance, and when structuring portfolios for 2013.
2013-02-08 World War C: Neosho Capital On The Currency War by Chris Richey of Neosho Capital
This summer, Brad Pitt will star in a new film called "World War Z", an action-horror film about a post-zombie apocalypse Earth, hence the "Z" in the title. Zombie films are not our cup of tea at Neosho (we thought the genre was dead), so it is debatable whether we will see this film, but one thing is clear to us, we are perched on the precipice of "World War C", where "C" stands for "currency".
2013-02-08 Golden State Gets Upgrade by Frank Holmes of U.S. Global Investors
The turbulent clouds that settled upon California's bond market are beginning to dissipate, as the state's general obligation debt was recently upgraded to 'A' by Standards & Poor's. It has been almost a year since the rating agency has had a sunny outlook on the Sunshine State, but a series of improving economic data and better fiscal position have been turning things around.
2013-02-08 Out With the Dragon In With the Snake by Frank Holmes of U.S. Global Investors
Over 2013, we expect the Chinese government to continue its accommodative efforts, which should reinforce the equity rally. In addition, the new pyramid of power is focused on growth, as it seeks to improve and reform policies that will provide its residents with opportunities and social security, increase incomes and raise standards of living, which should encourage domestic consumption. Growth is set to be considerable over the next several years.
2013-02-07 Commodities: Correlating Trends with Opportunities by Mark Mobius of Franklin Templeton Investments
Commodity price inflation is both a social and an economic issue. In emerging markets in particular, food and energy costs take a deeper slice out of consumers' income, which can lead to the type of unrest that causes governments to topple. In addition to the potential impact of extreme weather on food supplies, central banks around the world are printing a flood of money, which could lead to inflated prices for other goods and services.
2013-02-07 Investing in a Low-Growth World by Jeremy Grantham of GMO
This quarter I will review any new data that has come out on the topic of likely lower GDP growth. Then I will consider any investment implications that might come with lower GDP growth: counter intuitively, we find that investment returns are likely to be more or less unchanged a little lower only if lower growth brings with it less instability, hence less risk. Finally I will take a look at the reaction to last quarter's letter, specifically about my outlook for lower GDP growth.
2013-02-07 We Have Met the Enemy, and He Is Us by Ben Inker of GMO
If modern portfolio management has a single defining urge, it is almost certainly diversification. We look for diversifying assets, strategies, and managers. A thoughtful investor can argue against almost any asset class stocks, bonds, hedge funds, private equity, commodities, you name it but arguing against diversification is like arguing against indoor plumbing. I dont want to sound like I'm calling for a return to chamber pots and outhouses, so I'm not actually going to argue against diversification.
2013-02-06 GDP Report Tanks - Is A Recession Looming? by Gary Halbert of Halbert Wealth Management
We will cover a lot of ground today. We begin with a new report from Goldman Sachs which argues that the US economy will remain the strongest in the world for many more years. The report rebuts claims that America is a nation in decline. Quite the contrary, say Goldman analysts who claim that there is a growing"awarenessof the key economic, institutional, human capital and geopolitical advantages the U.S. enjoys over other economies."
2013-02-06 What Happens When the Fed Loses Money by Zach Pandl of Columbia Management
The Federal Reserve's exit from ultra-easy monetary policy still looks very far offby most accounts, rate hikes will not begin for more than two years and asset sales for even longer. However, the exit strategy could matter for markets well before that point. Fed officials have said that they will consider the costs and risks associated with quantitative easing (QE) when deciding how long to continue their purchases, and one factor they will be looking at will be whether the program could "complicate the Committee's efforts to eventually withdraw monetary policy accommodation."
2013-02-05 Comparing Advisors to Jim Cramer: Measuring your Professional Alpha by Bob Veres (Article)
Jim Cramer, Suze Orman and other so-called investment pundits and gurus are constantly telling consumers that they can do a great job of managing their portfolios on their own. Let's look at what the research has to say about the various investment performance benefits that advisors should be able to give their clients during the accumulation phase of their lives – excess returns above what do-it-yourself investors could obtain on their own. I call those excess returns 'professional alpha.'
2013-02-05 Australia in the Asian Century by Team of Thomas White International
Early in 2011, The Economist magazine ran a cover story titled 'The Next Golden State.' The title, incidentally, referred to Australia. Today, Australias citizens enjoy some of the highest standards of living anywhere in the world. With a real income of $62,000 per person in 2012, the country ranked 13th worldwide. Five of the ten best livable cities in the world are in Australia. But, for all its advantages, the country's contribution to the world economy in absolute terms is small. It accounted for just over 1 percent of world GDP in 2011.
2013-02-04 2013 Annual Forecast by Clyde Kendzierski of Financial Solutions Group
It's that time again. January will be over by the time you read this which means we are out of holiday excuses or "just ramping up for the new year" reasons for not getting back to work. Having said that, I'd like to offer my excuse for the Annual Forecast getting to you in February instead of the first week of the year. Hand over my heart, we started early this go-round.
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.
2013-02-04 The Bernanke Shock by Peter Schiff of Euro Pacific Precious Metals
The financial world was shocked this month by a demand from Germany's Bundesbank to repatriate a large portion of its gold reserves held abroad. By 2020, Germany wants 50% of its total gold reserves back in Frankfurt - including 300 tons from the Federal Reserve. The Bundesbank's announcement comes just three months after the Fed refused to submit to an audit of its holdings on Germany's behalf. One cannot help but wonder if the refusal triggered the demand.
2013-02-04 Some Seasonal Blips by Christian Thwaites of Sentinel Investments
We had a week of big numbers last week of which GDP, Personal Income, Durable Goods, the Conference Board's Consumer Confidence, payrolls and the FOMC were the ones that had our attention. We went to print a little earlier this week, so missed the NFPs. But this is what came at us. First GDP. There's a spin to be told but here are the raw numbers with the center column the one that caught markets wrong-footed.
2013-02-04 A Reluctant Bear's Guide to the Universe by John Hussman of Hussman Funds
In recent years, I've gained the reputation of a "perma-bear." The reality is that I'm quite a reluctant bear, in that I would greatly prefer market conditions and prospective returns to be different from what they are. There's no question that conditions and evidence will change, unless the stock market is to be bound for the next decade in what would ultimately be a low-single-digit horserace with near-zero interest rates. For my part, I think the likely shocks are larger, and the potential opportunities will be greater than investors seem to contemplate here.
2013-02-01 Monthly Investment Bulletin by Team of Bedlam Asset Management
Financial discipline is collapsing and with it, trust in the value of money. Many heavyweight thinkers in America, such as Nobel laureate Paul Krugman have suggested that a solution to avoid national debt ceilings imposed by Congress would be to mint a trillion dollar platinum coin. Meanwhile, heavyweights close to policy makers in Britain and Japan have been musing whether their central banks should write-off the mountains of government bonds they have bought recently.
2013-02-01 2013 Economic & Capital Market Outlook by Gregory Hahn of Winthrop Capital Management
It took our country 229 years to accumulate $8 trillion in federal debt. It only took the next eight years to double it to $16 trillion. History shows that when a country accumulates debt at this rapid pace, economic growth languishes. Not surprisingly, Congress is pursuing policies that attempt to inflate the economy. Five years after the Financial Crisis, we really havent fixed much. Instead, we've issued more debt in order to pay our bills and sustain a quality of life society cannot afford long term.
2013-02-01 Dow To 14,000 and Beyond? by Frank Holmes of U.S. Global Investors
So will the Dow go beyond 14,000? Although you cant predict how hot the weather will be this summer, the clouds appear to be parting to reveal the sun today. Make sure your asset allocation positions your portfolio to shine.
2013-01-31 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 Elliott's Paul Singer On How Money Is Created ... And How It Dies by Team of TimeCapital
When we launched our series into the US Shadow Banking system in the summer of 2010 we had one simple objective: to demonstrate just how little the process of modern (and by modern we mean circa 2004 not 1981) money creation was understood.
2013-01-30 The Complicated Case of Mali by Bill O'Grady of Confluence Investment Management
On January 11, 2013, French President Francois Hollande announced the French military was intervening in Mali at the request of the government. The Mali military was reeling in the face of jihadist rebels from the north who were making rapid inroads toward the south. Although the U.N. Security Council had authorized an African-led military intervention in Mali to contain the rebels, it had been ineffective. Thus, France "piggybacked" off that resolution to justify its intervention.
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 What Budget Problems? by Christian Thwaites of Sentinel Investments
"Vickers falls on fear of peace." There's an apocryphal story of how on the day after D-Day, the stock of Vickers, a large defense contractor, abruptly fell. I can't find the source but it was a good story going around the City some, ahem, 30 years ago. Last week there was not a lot of price action in bonds until Friday when economic upticks replaced budgets as the main driver. We saw a one point correction in treasuries. The market is right to push budget concerns into the background for now.
2013-01-29 In Japan We Trust by Chris Maxey, Ryan Davis of Fortigent
In fewer than 60 days, one country has made a splash larger than all the others. No, we are not referring to the US, where Barack Obama was re-elected to a second term. Nor are we referring to China's recent transition of power. Instead, the country we reference is Japan. After decades of malaise, Japanese officials moved to embrace policies previously only accepted by Western officials.
2013-01-25 Prisoner of the Bureaucracy by John Mauldin of Millennium Wave Advisors
I wrote some time ago that Greece had a choice between Disaster A: staying in the euro; and Disaster B: leaving the euro. I have recently come back from four days in Greece, meeting with lots of people at all levels of society, and will share with you in this letter my analysis of their choices and the results. I'll also have a few things to say about what the developments in Greece might mean for the rest of Europe and the developed world.
2013-01-25 Resource Investors: Why You Can Expect Sunnier Days Ahead by Frank Holmes of U.S. Global Investors
During the current commodity supercycle, there have been occasionstoo many to countwhen investor psyche has been damaged by reports about slowing U.S. growth, a hard landing in China or a debt crisis in Europe. Yet just behind the gloom, significant and positive trends are taking hold, causing the storms to start dissipating.
2013-01-24 German Gold Claw Back Causes Concern by John Browne of Euro Pacific Capital
Last week the Bundesbank (the German central bank) surprised markets around the world by announcing that it will repatriate a sizable portion of its gold bullion reserves held in France and the United States. To many, the news from the world's second largest holder of gold signaled a growing, if clandestine, mistrust among central banks, possibly fueled by diverging policy goals. The Germans have attempted to tamp down the alarm by highlighting the myriad of logistical, practical and historical reasons that qualified the announcement as unremarkable.
2013-01-23 PIMCO's Secular Forum Preview by Mohamed El-Erian of PIMCO
It is almost time again for PIMCO's Secular Forum a critical part of the firm's investment process. This annual event, which takes place each May, brings together our investment professionals from around the world to debate and specify the key themes that we believe will affect the global economy and, consequently, our investment strategies over the next three to five years from asset allocation and relative value positioning to returns expectations and risk management.
2013-01-23 Developed Asia Pacific: Regional Economic Review - 4Q 2012 by Team of Thomas White International
Developed Asia Pacific economies witnessed mixed economic fortunes during the fourth quarter of 2012. While the group's largest economy, Japan, suffered from stubborn deflation and slumping trade due to a bitter territorial dispute with China, Singapore and Hong Kong managed to fare better.
2013-01-22 Dylan Grice: Witch Hunts, Inflation Fears, and Why I’m Bearish in 2013 by Michael Skocpol (Article)
For someone who started his remarks proposing to 'kill all the economists,' Dylan Grice can wax surprisingly sentimental, with a fresh, human take on monetary policy that leads him to some worrisome conclusions. Making a case for gold, cash, and other safe havens, Grice said the biggest threat to investors today is a problem that has plagued societies throughout history – mistrust.
2013-01-22 And That's The Week That Was by Ron Brounes of Brounes & Associates
Tragedy in Algeria brought another reminder about just how dangerous the world can be. Oil prices rose on the enhanced turmoil in the region as well as on news that supplies unexpectedly dropped in the recent gov report. Financials led earnings season in a mostly positive way, though several releases included reminders about the financial crisis and the greed factor of certain professionals. The favorable economic data was well received as S&P 500 index again hit a five-year high though even the optimists remain cautious as the budget negotiations yield little positive results.
2013-01-22 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Last week saw the markets continue to trade off of concerns over Apple, and just what might happen in Washington DC concerning the debt limit negotiations. Earnings season will hit high gear this week.
2013-01-18 Middle East/Africa: Regional Economic Review 4Q 2012 by Team of Thomas White International
According to the International Monetary Fund's Regional Economic Outlook report, countries in the Middle East and North Africa region are expected to grow at different rates. Oil exporting nations are cashing in on high energy prices and production, and are projected to expand 6.6 percent in 2012 before tempering in 2013. On the other hand, oil importers such as Jordan, Morocco and Tunisia among others are expected to clock growth just over 2 percent as the slowdown in the world economy and political tensions continue to hinder expansion for some of these countries in transition.
2013-01-18 2013 International Outlook by Colin Moore of Columbia Management
We continue our outlook for 2013 with a review of select international economies and financial markets. Similar to the U.S. the road to recovery will be bumpy and we expect financial markets to continue being affected by macroeconomic uncertainties. While the overall environment remains uncertain, some of the significant headwinds in 2012, e.g. the Chinese leadership transition and a complete disintegration of the eurozone, are perhaps less concerning for markets than they were a year ago.
2013-01-18 The Allure of Panda Coins by Teresa Kong of Matthews Asia
While I waited in another long line in San Francisco International Airport recently, I struck up a conversation with the gentleman behind me. It turned out we were both returning from research trips in China. But rather than being an investor of securities as I am, this fellow traveler was an investor in Chinese coins, specifically, panda coins.
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 4 Sensational Facts About Gold Investing That You Might Not Know by Frank Holmes of U.S. Global Investors
1. Gold has been a consistent performer over the decades. 2. Gold should remain a hot commodity in 2013. 3. Gold is the least volatile commodity on the table. 4. The last four years were better than you thought.
2013-01-16 Obama Claims We Don't Have A Spending Problem by Gary Halbert of Halbert Wealth Management
There's a lot to talk about this week. A lot of my contemporaries are offering their predictions for the New Year. But with our nation now over $16 trillion in debt and annual budget deficits over $1 trillion, I don't think there is any way to accurately predict what will happen this year. Another financial crisis could rear its ugly head just about any time.
2013-01-16 The Trillion Dollar Trick by Peter Schiff of Euro Pacific Capital
The birth, and the apparent death, of the trillion dollar platinum coin idea may one day be recalled as a mere footnote in the current debt crisis drama. The ultimate rejection of the idea (which was to use a loophole in commemorative coinage law to mint a platinum coin of any denomination) by both the President and the Federal Reserve seems to offer some relief that our economic policy is not being run by out-of-touch academics and irresponsible congressmen. In reality, our government has been creating more than one trillion dollars out of thin air every year for the past five.
2013-01-15 Gundlach’s Predictions for 2013 by Robert Huebscher (Article)
Don't expect the low volatility that characterized the capital markets in 2012 to continue. Global economic uncertainty remains, and markets are poised like a 'coiled snake' to reward or penalize investors in certain asset classes, according to Jeffrey Gundlach.
2013-01-15 Letters to the Editor by Various (Article)
Readers respond to two of Dan Richards' columns, Six Lessons for Advisors from the Mayo Clinic, which appeared last week, and, How to Turn Acquaintances into Clients, which appeared on December 4. A reader responds to Richard Vodra's article, Is Fracking a 'Happy Solution' to our Energy Needs?, which appeared on January 2.
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 Ice by Jerry Wagner of Flexible Plan Investments
Last week, the immediate snap-back reversal we were expecting lasted 3 days and then the rebound to new short-term highs that we also spoke about occurred as well. While it is always difficult in the very short term to tell if we are back on track, to me it looks like we remain pointing higher, expecting some short-term dips along the way.
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.
2013-01-15 It's Not What Happens That Matters by Bill Smead of Smead Capital Management
Late in 2008 and in early 2009, a group of what we like to call "brilliant pessimists" hit the airwaves with their economic theories. The prognosticators' vision of the future was and is predicated on the history of similar situations and the mathematical realities of the huge debt overhang from the prior ten years of profligate economic behavior. They put very effective names on their visions like "new normal" and "seven lean years". They marketed their visions incredibly well to the point of shaming anyone who might disagree with their theories.
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 Winter Quarterly Commentary by John Prichard of Knightsbridge Asset Management
While a last minute compromise may have been reached on taxes, it represents only a brief rest stop on a required road of repair. On the positive side, we should see less annual wrangling with tax rates having been made permanent, meaning they will not automatically change at some future date (but rather only when Congress feels like changing them), with many areas also sensibly indexed for inflation.
2013-01-11 Gold Strategy Investor Letter, Q4 2012 by John Hathaway of Tocqueville Asset Management
John Hathaway, manager of the Tocqueville Gold Fund (TGLDX), examines in his latest quarterly letter the macro factors affecting the price of gold and gold mining stocks. While such stocks have traded at a discount relative to historic norms, Hathaway remains bullish on gold and gold related equities, believing both could see new highs in 2013.
2013-01-11 Invest In Equities: Your Future Self May Thank You by Frank Holmes of U.S. Global Investors
Investors have had an illusion about the stock market since the financial crisis. With the barrage of negative headlines and abhorrence toward risk, investors seemed to feel that equities would not improve going forward. This turned out to be a mistaken belief.
2013-01-08 The Forecast for Risk in 2013 by Geoff Considine (Article)
With the new year upon us, pundits are issuing their forecasts of market returns for 2013 and beyond. But returns don't occur in a vacuum – meeting clients' goals requires an asset allocation that appropriately balances return and risk. So what follows are my predictions for risk across major asset classes, based on a theoretically sound approach that has proven to be reliable in the past.
2013-01-08 Another Lost Year for Active Management by Chris Maxey, Ryan Davis of Fortigent
There is no doubt that 2012 will be remembered by many investors, for reasons both good and otherwise. One group less likely to remember the good of 2012 is active managers. Across the universe of hedge funds and mutual funds, relatively few were able to outperform their comparative benchmarks. This continues a long running trend of active managers lagging their less active counterparts and raises many questions about the efficacy of active management.
2013-01-07 It's the Bond Vigilantes Stupid by Martin Pring of Pring Turner Capital Group
Most people are looking to the politicians in Washington to reign in the deficit by bringing spending under control. Based on their record this optimism seems severely misplaced. Nevertheless, the technical position of the bond market is suggesting that a more disciplined and powerful force is waiting in the wings. After a long 31-year vacation it may be time for the bond vigilantes (skeptical global bond investors who vote with their money) to return to town. The President has said a deal over the debt ceiling is non- negotiable but the non-partisan bond vigilantes may have a different view.
2013-01-04 Newsletter by Harold Evensky of Evensky & Katz
As always I hope you will enjoy this issue, as much as I have enjoyed putting it together. Most important though I wish one and all a very happy, prosperous and healthy new year!
2013-01-04 In 2013, Resolve to Follow the Money by Frank Holmes of U.S. Global Investors
During these first days of January, many adopt an out with the old, in with the new, approach to shed bad habits or extra pounds. Washington opted for its same ol strategy when averting the fiscal cliff, as the addictive nature of can-kicking is a transatlantic sport, according to The Economist. The short-term fix did nothing to control the unsustainable path of entitlement spending on pensions and health care nothing to rationalize Americas hideously complex and distorted tax code... and virtually nothing to close Americas big structural budget deficit.
2013-01-03 Treasury's Last Pillar Crumbles by Peter Schiff of Euro Pacific Precious Metals
With the return of Shinzo Abe and his Liberal Democratic Party to power in Japan, the market for US Treasuries may be losing its last external pillar of support. Re-elected on September 26th, Abe has quickly set a course for limitless inflation, saying Japan must "free itself from deflation and the strong yen." This is significant to the global economy as Japan is the largest foreign power left with a strong appetite for US Treasuries. If this demand falters, the Fed may be the only remaining buyer of new Treasury issuance.
2013-01-03 Money for Nothin' Writing Checks for Free by Bill Gross of PIMCO
It was Milton Friedman, not Ben Bernanke, who first made reference to dropping money from helicopters in order to prevent deflation. Bernanke's now famous "helicopter speech" in 2002, however, was no less enthusiastically supportive of the concept. In it, he boldly previewed the almost unimaginable policy solutions that would follow the black swan financial meltdown in 2008.
2013-01-03 More Skin in the Game In 2013 by Nassim Nicholas Taleb of Project Syndicate
In an opaque system, operators have an incentive to hide risk, taking upside without downside. And there is no possible risk management method that can replace having skin in the game particularly when informational opacity is compounded by informational asymmetry.
2013-01-03 Congress Avoids the Cliff by Selling Us Down the River by Peter Schiff of Euro Pacific Capital
With the possible exception of the New York Times' editorial board (and the cast of The Jersey Shore), everyone on the planet understood that the United States Government needs to cut spending, increase taxes, or both. Instead, after months of political posturing and hand wringing, the Federal Government has just delivered the exact opposite, a deal that increases spending and decreases taxes. The move lays bare the emptiness of budget legislation, which can be dismantled far easier than it can be constructed.
2012-12-28 The Year's Surprises in Gasoline, Oil and Resources Stock Prices by Frank Holmes of U.S. Global Investors
On Wednesday, I talked about three of the top 10 commentaries that were popular over 2012. Here are a few more to highlights.
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.
2012-12-28 Readers' Golden Nuggets Focused on Gold, Resources and Overcoming Negativity by Frank Holmes of U.S. Global Investors
The past few days Ive been counting down the most popular commentaries over the past year. China, commodities and bond fund popularity were big hits; so were the Surprises in Gasoline, Oil and Resources Stock Prices. Here are the top four.
2012-12-26 Gundlach's High-Conviction Investment Idea by Robert Huebscher (Article)
Count Jeffrey Gundlach among those who expect Japan's currency to collapse because it can't service its debt. Japan's challenges may parallel those that the US faces, and Gundlach feels strongly that they have created a compelling investment opportunity.
2012-12-26 Lessons from the Downfall of Lance Armstrong by Charlotte Beyer (Article)
The private wealth industry - where teams of elite advisors are trusted to safeguard the wealth of individuals and families and hold themselves to a fiduciary standard - can take several lessons from what happened at the Tour de France.
2012-12-21 The Outlook for Commodity Stocks by Doug Ramsey of Leuthold Weeden Capital Management
Popular sentiment holds that commodities remain in a secular uptrend, but commodity-oriented stocks (Energy and Materials) have been underperforming for more than a year-and-a-half. Were increasingly convinced their 2008 relative strength highs won't be challenged for a very long time. Yes, Emerging Market demand may rebound next year. But remember Econ 101, and the day your professor discussed supply? This side of the equation doesn't look as good. Among the two commodity-based sectors, Energy looks cheaper and appears much more washed out from a sentiment perspective.
2012-12-21 Year-End Capital Markets Forecast by Jason Hsu of Research Affiliates
What looks best for 2013? Given financial repression in developed marketspolicies that prolong negative real interest ratesemerging market local currency sovereign bonds are likely to outperform their developed market counterparts. For equities, both developed (ex-U.S.) and emerging markets offer more attractive valuations and better dividend yields than U.S. stocks.
2012-12-21 The Barbarous Relic Expresses an Opinion by John Gilbert of GR-NEAM
Gold has a long and varied history in economics and finance. Otherwise sensible people lose rationality and logic when conversation turns to the subject, with some rising to passionate romance, and others to apoplexy. It elicits neither for us, which allows us an attempt at a reasoned view. That is more important today than usual, because there is a message in gold's price behavior, and it is not an encouraging one. That message is that not only are rates of return low at the moment, but they may remain there for some time.
2012-12-21 Light at the End of the Tunnel for Gold by Frank Holmes of U.S. Global Investors
Intuition was telling me something was going on these past few days in the gold market. Our investment team was watching gold and gold stocks take a tumble for no obvious reason. It wasnt only us who felt this way: many analysts were caught off-guard. One comment from Barclays Research indicated that the week was unusually brutal with quite a few confused participants with some seemingly positive aspects of the market not having an impact.
2012-12-20 The Ghosts of Fiat Currencies Past by Frank Holmes of U.S. Global Investors
Nearly 600 paper forms of money created over the past several centuries are no longer in circulation, according to research summarized by Gold Silver Worlds recently. While the reasons vary from declarations of independence, monetary unions, war or hyperinflation, these ghosts of currencies past portray a haunting history for paper currencies backed only by the trust of a government.
2012-12-20 Don't Confuse Market Hiccups for Economic Heart Attacks by Matt Lloyd of Advisors Asset Management
The daily bombardment of moving toward an agreement on the fiscal cliff only to see a hesitation on the advancement is symptomatic of the tango that we have been bombarded with over the last several years. It does appear though that we are becoming a bit desensitized to the two-steps forward to two-steps back pattern we have been accustomed to in similar debt ceiling deadlines or budgetary standoffs. In looking at the markets move and comparing statements from the two parties involved, it does appear we are at least in the same ball field for negotiations.
2012-12-19 Imagine...a Better Future by Liz Ann Sonders of Charles Schwab
After a weekend of sadness and reflection, I wanted to write something more optimistic we'll go back to the future to learn and unlearn.
2012-12-18 Jeremy Siegel on 'Dow 15,000' by Robert Huebscher (Article)
Jeremy Siegel was one of very few individuals to have correctly predicted the strong performance of the equity markets over the last year. The Wharton professor and author of the renowned book, Stocks for the Long Run, forecasts continued strong performance for the year ahead.
2012-12-18 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.
2012-12-18 Israel: Natural Gas Bonanza Buoys Economy by Team of Thomas White International
From being an energy-deficient nation, Israel is poised to become a leading gas exporter in the region in the years ahead.
2012-12-18 Central Bank Insurance by John Mauldin of Millennium Wave Advisors
Possibly, the question I am asked the most is, "What do you think about gold?" While I have written brief bits about the yellow metal, I cannot remember the last time I devoted a full e-letter to the subject of gold. Longtime readers know that I am a steady buyer of gold, but to my mind that is different from being bullish on gold. In this week's letter we will look at some recent research on gold and try to separate some of the myths surrounding gold from the rationale as to why you might want to own some of the "barbarous relic," as Keynes called it.
2012-12-17 I'm Dreaming of a Green Christmas by Jeffrey Saut of Raymond James
While last week, and this week, often see distortions in individual stock prices due to tax loss selling, Santa Claus tends to arrive the following week. Indeed, the last week of the year, into the first two days of January, has a pretty good track record on the upside with a rally coming about 65% of the time. As stated in previous missives, I expect the same Santa rally this year driven by a "staged in" solution to the fiscal cliff. Most readers know that I have lived in the D.C. Beltway and have a good working knowledge of how our system works.
2012-12-15 A Face-Off Between Passive and Active Investing by Frank Holmes of U.S. Global Investors
Exchange-traded funds continued to attract assets in 2012 while money has been exiting mutual funds. Still a majority of assets continue to be invested in actively managed products: As of the end of 2011, of the nearly $13 trillion invested in funds, index and exchange-traded funds comprise only about 8 percent, according to the Investment Company Institute.
2012-12-13 Decoupling From the Eurozone by Scott Minerd of Guggenheim Partners
Recent positive data releases from the U.S. and Asia seem to indicate that global investors should not expect to be severely affected by the ongoing problems in the eurozone.
2012-12-13 The Fake Economy by Bill Mann of Motley Fool Funds
A random question for you (one that contemplates your breaking federal law, so be forewarned): Given enough time and ample resources, do you think you could create a reasonable facsimile of a $20 bill? I'd wager that given modern printing capabilities, a reasonably diligent and determined individual could create a fool-some-of-the-people copy of a $20 bill.
2012-12-13 3 Potential Scenarios for 2013 by Russ Koesterich of iShares Blog
Despite getting lucky in 2012, many of the major risks that economies and markets faced this year remain. With the current environment in mind, Russ K shares his 3 potential scenarios for 2013 along with potential investment strategies for each.
2012-12-11 Luck versus Skill in Investing: New Insights from the World of Sports and Beyond by Michael Skocpol (Article)
Skill exists in investing. Indeed, the most skilled managers today are likely the most skilled there have ever been. But there's more to it.
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.
2012-12-11 Tax Reform: A First Step by Clyde Kendzierski of Financial Solutions Group
I rarely use this space to rant about political issues, but the recent election made it obvious just how dysfunctional the American political process has become. The ongoing financial crisis in the US will never get fixed as long as both political parties remain focused on solutions that make the problem worse. The Democrats want to give people more money to spend, claiming this will grow the economy. The Republicans want to cut taxes, so that people have more to spend, claiming that will grow the economy
2012-12-11 Peak Oil or Peak Energy? A Happy Solution by John Mauldin of Millennium Wave Advisors
A consistent theme in this letter has been the connections between items that may seem to be far removed from each other but are actually linked at the very core. If you push on one end you get a reaction in what would seem to be the most unlikely spots. Today we explore the connection between the fiscal deficit and energy policy.
2012-12-11 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The stock market continues to have one eye on Washington DC and the other on the various global concerns of slowing growth and European disintegration. The net result was another quiet and slow week of trading.
2012-12-11 New York, New York by Jeffrey Saut of Raymond James
I have loved New York since working on Whitehall Street in the early 1970s. Every year I return around this time of the year to attend Minyanville's Festivus event to raise money for the financial education of underprivileged children. Last week I spent time attending said event, seeing institutional accounts, doing media, and renewing friendships. I was surprised, however, to see pumps still sucking water out of the subway.
2012-12-10 13 for '13 by Richard Bernstein of Richard Bernstein Advisors
Each December we publish a list of investment themes that we feel are critical to the coming year. We continue to believe that US equities are in the midst of a major bull market that could ultimately rival 1982's bull market. It is hard to be bearish when one considers the following.
2012-12-10 Have the New Paper Clips Arrived, Enid? by Christian Thwaites of Sentinel Investments
If there's one economic stat that spans the economic/political spectrum, it's jobs. Last week's NFPs had a headline of 146,000, way above estimates, and an unemployment rate of 7.7%, the best since December 2008 and a comfortable one point below a year ago.
2012-12-08 How Gold Miners Can Leverage the Price of Gold by Frank Holmes of U.S. Global Investors
Gazing into their crystal balls this week, Wall Street firms interpreted differing futures for gold next year. Morgan Stanley awarded gold the best commodity for 2013 while Goldman Sachs called the end of the metals hot streak. After seeing 11 consecutive years of positive performance from gold, one needs to be wary of research analysts price forecasts, as they have consistently underestimated the shifting dynamics driving the precious metal higher.
2012-12-07 The Keynesian Depression by Scott Minerd of Guggenheim Partners
Five years have passed since the beginning of the Great Recession. Growth is slow, joblessness is elevated, and the knock-on effects continue to drag down the global economy. The primary difference between today and the 1930s, when the U.S. experienced its last systemic crisis, has been the response by policymakers. Having the benefit of hindsight, policymakers acted swiftly to avoid the mistakes of the Great Depression by applying Keynesian solutions. Like the last depression, we are likely to live with the unintended consequences of the policy response for years to come.
2012-12-07 Saving for Retirement: Stage 1 by Team of Franklin Templeton
Most of us have certain expectations about our retirement. We may daydream of the golden years as a time to explore exotic locales, perfect a golf swing, or just relax. The reality is often quite different, particularly for those whove done more daydreaming than planning, or who have suffered setbacks to their portfolios in 2008-2009 and feel a sense of paralysis. Knowing where to begin can be confusing, and as with most things, overcoming inertia to take that first step certainly isnt easy.
2012-12-06 Ditching Before the Fiscal Clif by Peter Schiff of Euro Pacific Capital
Turn on the TV and this is what you'll hear: The US budget is heading for a fiscal cliff. If a deal isn't reaching in Congress by the end of this year, a combination of automatic tax hikes and budget cuts will sink America into economic depression. There is no escape. Of course, my readers know that the fiscal cliff is merely an example of the piper having to be paid. The problem isn't the bill, but that we ran it up so high in the first place.
2012-12-04 In Search of the Holy Grail by Niels Clemen Jensen of Absolute Return Partners
This month's letter focuses on the short to medium term factors that drive our asset allocation and portfolio construction. All research suggests that financial markets are not driven by economic fundamentals in the short to medium term, so why should the investment process be?
2012-12-04 Economics 101: Little Return without Risk by Bill Smead of Smead Capital Management
A tremendous amount of energy and effort has been expended in the US on behalf of wealthy investors to secure returns while reducing risk. Like any useful endeavor, it started out as a wise thing and reached its stride in the late 1990s as a way to deal with a massive asset misallocation. As Warren Buffett always says, What the wise man does at the beginning, the fool does at the end. It appears to us that the efforts to eliminate risk in the US capital markets have reached the foolish point.
2012-12-04 Strawberry Fields Forever? by Bill Gross of PIMCO
As John Lennon forewarned, it is getting harder to be someone, and harder to maintain the economic growth that investors have become accustomed to. The New Normal, like Strawberry Fields will take you down and lower your expectation of future asset returns. It may not last forever but it will be with us for a long, long time.
2012-12-01 The Significant Impact of U.S. Oil Production by Frank Holmes of U.S. Global Investors
The Eagle Ford shale formation lies south of our headquarters in San Antonio, Texas, giving the U.S. Global investment team a firsthand, tacit perspective on the oil and gas industrys growing natural resources phenomenon. Weve witnessed how the oil activity is boosting the local economy with solid-paying jobs, a healthy housing market and strong consumer sentiment, as oil giants such as Schlumberger and Halliburton take a bigger stake in the area.
2012-11-29 Small-Caps Pack Big Punch in Emerging Markets by Frank Holmes of U.S. Global Investors
In October, the International Monetary Fund painted a gloomier picture for global investors, as it projected slower growth due to slumping world trade and uncertainty in the West. Despite the forecast, big gains can still be unlocked in the faster-growing emerging markets. We believe the smaller stocks are holding the key.
2012-11-29 42 Days to the Fiscal Cliff! by Michael Martin of Financial Advantage
On the morning of the election, U.S. stocks sported a year‐to‐date return of 15%. Seven trading days later that figure had shrunk to 9.7%. What's going on?
2012-11-28 November 2012 Monthly Investment Bulletin by Team of Bedlam Asset Management
Equities have rarely been so attractive yet any investor acting on the perceived wisdom of the last 50 years would scoff and keep selling: the bad news will worsen for economic activity, growth in credit, wages, consumption, employment and in several countries, political stability. Few indices are glaringly cheap as measured by Cyclically Adjusted Price to Earnings multiples (CAPE: chart p.4) with many expensive, especially in many emerging markets.
2012-11-23 Five Amazing Global Consumer Trends by Frank Holmes of U.S. Global Investors
Fifth Avenue no longer the worlds most expensive retail location. China set to be the second largest luxury market by 2017. Viva Macau is gaming capital of the world. Inexpensive Indian Aakash 2 could revolutionize tablet industry. Emerging market residents don't need a bank account to pay with their mobile wallet.
2012-11-20 President Obama’s Re-Election and the Impact on the U.S. Economy by Eaton Vance Distributors, Inc. (Article)
President Obama’s re-election resolves a major element of uncertainty that has hung over the political landscape. But what kind of impact will his victory have on the economy and the markets, especially with the House still in Republican control? We posed that question to a roundtable of five investment professionals from Eaton Vance Management, Hexavest and Richard Bernstein Advisors.
2012-11-20 The Fallacies in Today’s Retirement Plan Assumptions: Putting the Hedonic Pleasure Index to Work by Bob Veres (Article)
Are you dramatically underestimating your clients' retirement lifestyle expenditures when you use Monte Carlo software? If you stop and look at a number of important assumptions hidden in the current models, you'll suddenly have a lot less confidence in the retirement plans you’re mapping out for your clients.
2012-11-20 Bumpy End To The Year by Christian Thwaites of Sentinel Investments
Europe would like to have America's problems. Here we have declining public spending, increasing receipts, falling debt to GDP ratios and unemployment 3% below the European average. This puts the Fiscal Cliff (and I was so hoping to avoid that clich) debate somewhat in context. It's serious enough to draw the attention of corporate CEOs, put a heavy dampener on business confidence, which we saw in the recent NFIB report, and postpone hiring plans and capital investment, which showed up in last week's Empire and Philly Fed surveys.
2012-11-17 Three Events That Sum Up the Week by Frank Holmes of U.S. Global Investors
India regained its title as the strongest performing market, overtaking the greater China area, as the country experienced a bounceback in demand due to improved sentiment during the festival season. The Federal Housing Administration reported that it has exhausted its reserves, possibly requiring a bailout from U.S. taxpayers for the first time ever in its nearly 80-year history. The global economic picture came into focus a little more this week with the announcement of Chinas new leadership.
2012-11-15 Rediscovering the Golden Beauty of Myanmar by Frank Holmes of U.S. Global Investors
Myanmar has been called "probably the best investment opportunity in the world right now," by legendary international investor Jim Rogers. In an interview with The Myanmar Times, he compared the country formerly known as Burma to China in the 1970s, when it started opening up to the world. "In 1962, Burma was the richest country in Asia. Then they closed and [now] it is the poorest."
2012-11-13 Bank Loans: Looking Beyond Interest Rate Expectations by John Bell and Kevin Perry (Article)
Portfolio managers of Bank Loan Strategies, John Bell and Kevin Perry, outline the major advantages and risks of bank loan investing and the roles that a bank loan allocation can play in a fixed income portfolio.
2012-11-13 Central Bank Insurance by John Mauldin of Millennium Wave Advisors
"If you want to enjoy life, go to Buenos Aires. If you want to do business, go to Sao Paulo," the saying goes. It is hard to get an impression of a country by going to a city of 20 million people. It is like visiting New York City and thinking you can understand the United States. But I never fail to enjoy myself in Brazil.
2012-11-09 Chart of the Week: Gold and an Ever-Growing Balance Sheet by Frank Holmes of U.S. Global Investors
While Americans were still submitting their ballots, gold rallied on the possibility of a President Barack Obama reelection. With presidential results confirmed, it appears that Ben Bernanke's job of hovering over the economy and dropping parachutes of money out of his helicopter is secure. "Gold could not have asked for a better outcome," with a second term for Obama, a Democratic Senate and Republican House, says UBS Investment Research.
2012-11-09 A Portrait of Two Presidents by Frank Holmes of U.S. Global Investors
On Friday, President Obama addressed the two topics that have been on many equity investors minds since election night: the economy and the dreaded fiscal cliff. In his speech, he delivered his familiar plan to combine spending cuts with increasing revenue by raising taxes on the wealthiest Americans. Thats how we did it in the 1990s, when Bill Clinton was president, says the president.
2012-11-08 Alternative Thoughts - All That Volatility For Nothing? by Lawrence Epstein, Josh Rowe of Orinda Asset Management
In 2011, the S&P 500 had one of the smallest price changes in its history, but investors experienced significant daily volatility. Stock investors experienced an extraordinarily tumultuous 2011 marked by the collapse of governments, standoffs over raising the national debt ceiling, and an escalation of the sovereign credit crisis in Europe. Markets rose and fell several percentage points in minutes on the barest of rumors from Washington and Brussels and frequent surprises in economic data around the globe.
2012-11-08 November Economic Update by Team of Cambridge Advisors
During the month of October, the S&P 500 traded within a 5% range. By the end of the month, stock returns for the S&P 500 reflected a loss of 1.8%. This decline is surprisingly low when you consider the stock market closed unexpectedly for two days and reopened after a major storm that caused extensive damage in highly populated areas along the East Coast. Treasury yields also did not significantly move during the month.
2012-11-07 US Olympic Swim Team and Warren Buffett: Buy and Hold by Bill Smead of Smead Capital Management
The US swim team has their own criteria for developing young athletes. We assume in every ten-year stretch that they support the swimming efforts of 25 to 30 young athletes in hopes of finding an occasional Mark Spitz or Michael Phelps. Most of them share the characteristics we described about Michael Phelps. The US Olympic team is the most successful swim team portfolio manager in the world. What can we learn from them as portfolio managers?
2012-11-07 Report Raises Questions About Central Bank Gold Holdings by John Browne of Euro Pacific Capital
For years I have cautioned that changes in the ownership of gold held in the vaults of key central banks around the globe may not have been accurately reported. A report issued last month in Germany has once again brought these issues to the fore. In today's environment of rampant money creation and questioning of central bank activities, such uncertainty is bound to spark the curiosity of an increasing number of investors.
2012-11-06 Asset Location: Nine Tips to Create “Tax Alpha” by Glenn Frank (Article)
With campaign season finally over, taxes are going to dominate the debate in Washington in the months ahead – however things shake out at the polls today. It's going to be confusing; it's going to be uncertain. But many of the most critical questions advisors will ask can be answered with an analytical approach to deciding where to 'house' assets – in taxable or tax-sheltered accounts.
2012-11-06 Six Technology Integration Disasters to Avoid by Jennifer Goldman (Article)
Technology integration is the Holy Grail for today's top-performing financial advisors. When applications talk to each other, advisors can run their practices more efficiently, save money and reduce the size of their staff. That all sounds great, but I'm writing to offer a word of caution: I've seen many such efforts end in disaster.
2012-11-06 The Absolute Return Letter: The Era of Kakistocracy by Neils Jensen of Absolute Return Partners
We are now five years into a crisis that just doesn't want to go away. Paraphrasing Charles Gave of GaveKal who wrote a supremely succinct paper on this topic only last week, policy makers continue to tamper with interest rates, foreign exchange rates and asset prices in general. They continue to permit deposit-taking banks to operate like casinos. They issue new debt to pay for expenditures when we are already drowning in debt. They just don't seem to get it. Albert Einstein once defined insanity as doing the same experiment over and over again, expecting a different result.
2012-11-05 Stream of Anecdotes by John Hussman of Hussman Funds
Analysts who interpret economic data as a stream of unconnected anecdotes are likely to find recent data encouraging, and will easily dismiss any concern about a U.S. recession on that basis. For our part, the internals of the economic picture new orders, backlogs, real income growth, and even the employment components of prominent economic surveys continue to deteriorate. Based on dozens of economic variables and methods that account for leading/lagging relationships (e.g. unobserved components estimates) our view remains that the U.S. economy has already entered a recession.
2012-11-05 Election's Impact on Investors by Chris Maxey, Ryan Davis of Fortigent
Next Tuesday's election will bring some clarity to the types of policies that will shape the fiscal and economic future of America. President Obama and Mitt Romney certainly share different visions on how the US should tackle middling growth, while addressing the longer-term issues of the US fiscal deficit and seemingly unsustainable entitlement programs.
2012-11-02 A Tipping Point for Gold Companies by Frank Holmes of U.S. Global Investors
Did you know that gold stocks tend to underperform during election years? As shown in the chart below, over the past quarter-century up until the prior election, the performance of the Philadelphia Stock Exchange Gold and Silver Index (XAU) was weak during the year of a presidential election.
2012-11-02 Who Will Lead America Over the Next Four Years? by Frank Holmes of U.S. Global Investors
If President Obama is reelected, it could be a negative for certain energy companies involved in natural gas fracking, says International Strategy & Investment (ISI). Conversely, a Governor Mitt Romney win could be significant for energy companies. In its Romney Portfolio ISIs rationale is that Romney and the GOP will try to do more to promote traditional forms of energy, including offshore drilling, approving the Keystone pipeline, and exploiting the nations coal resources.
2012-10-30 The Yield Hunt by Michael Lewitt (Article)
The high-yield market is not in danger of imminent collapse as some have argued. As long as defaults remain relatively low, and interest rates remain invisible, investors will continue to chase yield. But a few things could cause a sharp sell-off in the near future.
2012-10-29 The Quest for Certainty by John Mauldin of Millennium Wave Advisors
The last two weeks we have been looking at the problems with models. First we touched on what I called the Economic Singularity. In physics a singularity is where the mathematical models no longer work. For example, models based on the physics of relativity no longer work if one gets too close to a black hole. If we think of too much debt as a black hole of sorts, we may understand why economic models no longer work. Last week, in "The Perils of Fiscal Cliff," we looked at the use of fiscal multipliers by economists in order to argue for or against governmental economic policies.
2012-10-29 5 Ways for Incumbent Advisors to Get -- And Keep -- Their Clients' Vote of Confidence by Rob Isbitts of Sungarden Investment Research
Obama and Romney are asking for four years to deliver results -- ask your clients for three. First, a brief disclaimer: Nothing in this article is intended to be politically motivated. OK, with that out of the way, let's talk about a most critical issue in our industry that is easily forgotten in today's madcap, have-it-now, sensationalized world: investment evaluation horizon.
2012-10-29 The White Hurricane by Jeffrey Saut of Raymond James
I revisit The White Hurricane this morning because it potentially looks like another 100-year storm is heading pretty close to Manhattan. So in addition to dealing with the Benghazi scandal, Syrian atrocities, Euroquake, the "fiscal cliff," a stalled U.S. economy, softening earnings momentum, waning revenues, a dysfunctional government, the nastiest campaign I have ever seen, and who Taylor Swift should date next, Wall Street now has to contend with the potential of being flooded out.
2012-10-29 The Shifting Investment Environment: Picking Growth Stocks in a "Saturated" World by Virginie Maisonneuve, Katherine Davidson of Schroders Investment Management
Is the global economy close to reaching a tipping point? The impacts of our key themes (demographics, climate change and the emerging market supercycle) are combining with the ramifications of the global financial crisis to create an environment where growth is reaching a point of "saturation". In this world, focusing on the sustainability of growth becomes more important than ever. This is important for investors as the global economy painfully adjusts to new realities and follows a rocky path to normalization.
2012-10-26 Will South Africa's Struggles Overshadow its Potential? by Mark Mobius of Franklin Templeton Investments
Africa is a continent many investors bypass, but from my perspective as a long-term investor, I think that's a mistake. South Africa has faced some struggles recently, but I think they can be overcome, and a brighter future could be ahead there for its people. South Africa is the largest economy in Africa, and is the only country on the continent where I think the "frontier" market label doesn't apply. Some have added an "S" to the end of the "BRIC" acronym to include South Africa in the grouping of emerging market economies of Brazil, Russia, India and China.
2012-10-26 Don't Fear a Normal Gold Correction by Frank Holmes of U.S. Global Investors
Dont let the short-term correction fool you into selling your gold and gold stocks. The dramatic increase in money suggests that monetary debasement will continue, and in addition to all the above drivers, these are the positive dynamics driving higher prices for gold and gold stocks.
2012-10-25 October 2012 Newsletter by Harold Evensky of Evensky & Katz Wealth Management
Oh the joys of driving to a baseball game; sitting in endless traffic four miles from the stadium, inching past full lot after full lot, or not finding your car when it's time to go home (was it D-4 or 404 Green?). Now you can streamline your parking experience with ParkWhiz, a Chicago-based company that's recently gone national. This and other missives from Harold Evensky.
2012-10-24 Policy at a Crossroads by Investment Strategy Group of Neuberger Berman
On September 13, the Federal Reserve announced a third round of quantitative easing, dubbed QE3, in the hope of providing an additional boost to the slow U.S. economic recovery. Although this latest policy action reinforces the notion that the U.S. is prepared to support its economy for as long as needed, some economists question whether the stimulus can really make a difference. In this issue of Strategic Spotlight, we consider the recent effects of loose monetary policy and whether the Fed has "reached its limit."
2012-10-23 Chip Roame on the Next Big Problem by Robert Huebscher (Article)
The financial crisis decimated consumer wealth, and scandals such as J.P. Morgan's 'whale' and MF Global's collapse have plagued the investment industry. But the next challenge advisors and money managers face may be even worse.
2012-10-23 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Stocks remained sluggish last week as earnings guidance more than last quarter's reports put a damper on stock prices. In addition, the European summit was a failure and investors remain hesitant before the November elections.
2012-10-22 And That's the Week That Was by Ron Brounes of Brounes & Associates
Maybe a four day work week would make some sense? Well, at least, it would have been helpful this week. After a strong start in the equity markets (and a four-day winning streak), the anniversary of Black Monday brought horrid memories of past bearish times and stocks gave up all (most) of their early gains. Major techs reported poor earnings and the Nasdaq struggled more than most as weak PC demand continues to take its toll. Good news...one bad day does not a market make.
2012-10-22 More traction...Just Look Through the Earnings by Christian Thwaites of Sentinel Investments
Last week saw an important debate on how the US has fared in the post recession recovery. The short answer is, "not well" if measured by a return to GDP growth trends or per capita income. But the counter, as explained by Reinhart and Rogoff, is "faster than you would expect." We're in the second camp.
2012-10-22 Lessons from Black Monday by Peter Schiff of Euro Pacific Capital
25 years ago, on another Monday in late October, the financial world seemed to disintegrate in a heartbeat. Though the 205 point drop in the Dow last Friday (the technical anniversary of the '87 Crash) was somewhat reminiscent of its 108-point drop on Friday, October 16, 1987, the real action in '87 was on the Monday that followed. And while this Monday is not nearly as black, it is important that we use the opportunity to recall the circumstances that nearly sent the stock market into cardiac arrest.
2012-10-22 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 Fall Quarterly Commentary by John Prichard of Knightsbridge Asset Management
It was a busy quarter for central bankers. A surprise statement during July by European Central Bank President, Mario Draghi, moved markets: "Within our mandate, the ECB is ready to do whatever it takes to preserve the Euro... and believe me, it will be enough." These words sparked an immediate and sharp turnaround in European bond yields (down) and world equities. Not to be outdone, Fed Chairman Bernanke announced QE3 on September 13th, promising to continue purchasing bonds, thereby increasing the money supply, until employment conditions improve.
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.
2012-10-19 Chinese Stocks Looking Like a Bargain by Frank Holmes of U.S. Global Investors
This appears to be a good time to be investing in China, as stocks are historically cheap. Chinese stocks are also cheap compared to emerging markets.
2012-10-19 ECB Needs to Rescue German and French Banks More than European Periphery: Global Macro View by George Bijak of GB Capital
Whenever we talk about rescuing overleveraged Europe it is always about Spain, Italy, Portugal, Ireland, and Greece the European periphery loaded with debt that they cannot possibly repay. But a closer look at the recent IMF data reveals that German and French banks need rescue more than anybody
2012-10-18 Quarterly Review and Outlook - Third Quarter 2012 by Hoisington and Hunt of Hoisington Investment Management
Entering the final quarter of the year, domestic and global economic conditions are extremely fragile. Across the globe, countries are in outright recession, and in some instances where aggregate growth is holding above the zero line, manufacturing sectors are contracting. The only issue left to determine is the degree of the downturn underway.
2012-10-18 Investment Outlook 2013: "ABCD" Investing: Anything Bernanke Cannot Destroy by Cliff Draughn of Excelsia Investment Advisors
The Ben Bernanke and Mario Draghi concert gave the markets a double shot of their love in the month of September by promising to print as much money as needed to finance the debts of their respective countries. Ever since the financial fraternity party ended in 2008 and the world began deleveraging its massive credit hangover, the global markets have been hooked on the next shot of love from the central bankers.
2012-10-17 Great US Companies: Tomorrow's Foundation by Bill Smead of Smead Capital Management
Fears of a collapse in European economies and of a US recession subsided. Residential real estate appears headed for a comeback (Surprise?) in the US and nothing gives American consumers more confidence than knowing that their house is becoming more valuable.
2012-10-17 Banks Punished For Central Bank and Political Errors by John Browne of Euro Pacific Capital
In recent decades politicians have increasingly followed the Keynesian prescription of economic growth through continued government borrowing and the creation of undreamt of amounts of fiat money by central banks. To facilitate this process, the larger commercial banks have acted as the central banks' de facto distribution system, and as a result have grown ever larger while accepting progressively greater risks.
2012-10-17 Q3 Investor Letter by Team of HORAN Capital Advisors
At the beginning of the third quarter, investors following the "sell in May" strategy felt vindicated as the S&P 500 Index declined over 9.0% from May 1st to June 4th. The June 4th date turned out to be the intra-year market low and the equity rally was almost uninhibited throughout the remainder of the third quarter. We have been experiencing mixed global economic data over the past several months and in response, the Federal Reserve announced a third round of quantitative easing. While the market initially responded favorably, it ultimately declined through the end of the quarter.
2012-10-12 Chinas Pyramid of Power by Frank Holmes of U.S. Global Investors
We've been able to witness Chinas incredible growth, with GDP averaging 10 percent per year and more than 500 million people moving out of poverty over the past 30 years. Now after three decades of tremendous expansion, this new generation of leaders will have to carefully maneuver the country into the next decade, towing the line between maintaining the stability created during the previous Hu-Wen administration and continuing the political and economic reform necessary to adjust to the countrys slowing growth.
2012-10-11 Inflation Regime Shifts: Implications for Asset Allocation by Nicholas Johnson, Sebastien Page of PIMCO
Investors who are concerned about inflation should focus on increasing their exposure to asset classes that provide a positive beta to changes in inflation. We believe that asset prices are much more sensitive to inflation surprises than actual inflation levels themselves. Given the current macro environment, investors face the possibility that low growth and high inflation may coexist. Commodities provide a levered response to inflation. Investors can hold a relatively small amount of commodities to hedge a much larger portfolio.
2012-10-11 The New TIPping Point by Jeremie Banet, Rahul Seksaria, Mihir Worah of PIMCO
The Federal Reserve's QE3 program combined with more aggressive communication are likely to have implications for Treasury Inflation Protected Securities (TIPS).
2012-10-10 Return to Bretton Woods by Scott Minerd of Guggenheim Partners
The gold-convertible U.S. dollar became the global reserve currency under the Bretton Woods monetary system, which lasted from 1944-1971. This arrangement ended because foreign central banks accumulated unsustainably large reserves of U.S. Treasuries, threatening price stability and the purchasing power of the dollar. Today, central banks are once again stockpiling massive Treasury reserves in an attempt to manage their currency values and gain advantages in export markets. We have, effectively, returned to Bretton Woods.
2012-10-10 Beyond the Fiscal Cliff: the Dollar At Risk? by Alex Merk of Merk Funds
Looking beyond the fiscal cliff, we are afraid the greenback may be at risk no matter who wins the election. We examine the risk to the U.S. dollar in the context of the likely policies pursued under either an Obama or Romney administration.
2012-10-10 Will South Africas Struggles Overshadow its Potential? by Mark Mobius of Franklin Templeton Investments
Africa is a continent many investors bypass, but from my perspective as a long-term investor, I think that's a mistake. South Africa has faced some struggles recently, but I think they can be overcome, and a brighter future could be ahead there for its people. South Africa is the largest economy in Africa, and is the only country on the continent where I think the "frontier" market label doesn't apply. Some have added an "S" to the end of the "BRIC" acronym to include South Africa in the grouping of emerging market economies of Brazil, Russia, India and China.
2012-10-10 A Kid's Market by Jeffrey Saut of Raymond James
Last week a particularly wily Wall Street wag asked me, "Hey Jeff, do you know why everyone is underperforming the S&P 500?" "Not really," I responded. He said, "Because the S&P has no fear!"
That exchange caused me to recall an excerpt from the book The Money Game. I like this story...
2012-10-10 Pacific Basin Market Overview by Team of Nomura Asset Management
Regional equity markets remained largely directionless and volatile during the third quarter amid the summer trading lull. Government policy action towards the end of the quarter triggered the biggest market moves. However, the euphoria was short lived following the announcements of the European Central Bank's Outright Monetary Transactions and the Federal Reserve Board's third round of quantitative easing.
2012-10-10 Gold Strategy Investor Letter, Q3 2012 by John Hathaway of Tocqueville Asset Management
John Hathaway, manager of the Tocqueville Gold Fund (TGLDX), examines in his latest quarterly letter how "Gold and precious metals stocks rallied sharply in the third quarter." He believes the catalyst for this move was the "resumption of quantitative easing by the Fed and ECB in late August." Mr. Hathaway goes on to say that "The rally suggests that the lengthy correction which began in August of 2011 has been completed, setting the stage for a powerful new leg in the bull market for precious metals and related mining shares."
2012-10-09 Riding Into The Sunset or a Brick Wall? by Peter Schiff of Euro Pacific Precious Metals
A month ago, I presented the case for why Fed Chairman Bernanke would have strong motivation to launch another round of quantitative easing (QE) before the election. In short, it would save him his job. Now, I didn't predict with certainty that he would do so - only the few men at the FOMC knew that for sure - but it seemed likely. Shortly thereafter, Bernanke not only announced more stimulus, but promised to keep it flowing to the tune of an additional $40 billion a month until conditions improve.
2012-10-09 Global Investment Outlook by Team of Aberdeen Asset Management
Global growth remains positive but momentum is lacking. Central bank action has eased tensions. Markets are calmer but future direction is uncertain
2012-10-05 How Helicopter Ben Helps Jobs and, Inadvertently, Gold by Frank Holmes of U.S. Global Investors
The world's central bank leaders continue to spike the monetary punch bowl, with investors imbibing on gold once again. This flurry of gold buying prompts many curious investors and doubting media to ask me two questions: 1) How can demand for gold and gold stocks continue; and 2) How high can the precious metal go? To answer these questions, we need to look at the intentions behind the economic and political decision-making across several developed countries, analyze the causes, the effects, and the possible ramifications.
2012-10-04 When Career Risk Reigns by Neils Jensen of Absolute Return Partners
In this month's Absolute Return Letter we pick up the baton from last month. How does the current crisis actually affect financial markets? How do you overcome the low returns? What can you do to protect the downside risk in a high correlation environment? We argue that career concerns often lead to irrational decisions by professional money managers and that this provides opportunities for those who can afford to deviate from the norm.
2012-10-04 Nothing's Perfect by Jerry Wagner of Flexible Plan Investments
On September 21, the Apple iPhone 5 made its debut simultaneously on four continents. Its first weekend saw over five million in sales! And the current inventory was sold out within a week a perfect product introduction. Wellnot quite. Soon articles like iPhone 5′s Biggest Problems started showing up, talking about scratching, chipped exteriors, lens flares and others. Then there were complaints about its faulty Maps application that even drew a rare corporate apology last week. It just proves the point of this weeks Hotline: Nothings Perfect.
2012-10-04 Market Dimensions by James Damschroder of Gravity Capital Partners
An interesting and perhaps volatile fourth quarter is upon us. We have elections and the fiscal cliff straight ahead. Markets dislike uncertainly, making asset prices potentially marginally lower.
2012-10-03 Circle the Wagons on GLD by Bill Smead of Smead Capital Management
We spoke to two small groups in Spokane on September 21st, 2012. For better or worse, when I think of Spokane I think of my cousin Gary. It was 1981 and yours truly was a young stockbroker at Drexel Burnham Lambert. Gold had been in a wonderful bull market ride in the prior five to ten years. Gary was interested in participating in gold through a gold-mining stock traded on the Spokane Stock Exchange. Spokanes proximity to the Northern Idaho mining towns and closeness to the Canadian border made it a natural place for commodity traders and mining enthusiasts to gather to transact business.
2012-10-02 Woody Brock on Why to Own Stocks Now by Robert Huebscher (Article)
Dr. Horace 'Woody' Brock is the founder Strategic Economic Decisions and the author of American Gridlock. In a recent talk, he explained why investors should own stocks - particularly those with stable dividends - and why bonds are very risky in today's environment. This is the transcript; a video of this talk is also available.
2012-10-02 A Daily Reading Plan That Attracts New Clients by Dan Richards (Article)
Digesting news and sharing it with clients is part of every advisor's daily routine. Doing that efficiently, however, in such a way as to better position yourself with your clients, requires a structured approach that is far from obvious.
2012-10-02 When Centers-of-Influence Don’t Refer Clients by Beverly Flaxington (Article)
Everyone tells me I can sell more through relationships with attorneys and accountants. I have some that I know well. I refer to them, but they don't reciprocate. What am I doing wrong?
2012-10-02 Pottersville by Tony Crescenzi of PIMCO
The excessive use of debt fueled by money printing was the pathway to the global debt crisis. Fed Chairman Ben Bernanke, an expert on the Great Depression, understands the ravages of debt deflation and his every action has been to prevent it from occurring. Greater care must be taken in the future to ensure that our fiat based, fractional reserve system does not run amok. This is why regulators are demanding that banks raise capital, reduce their proprietary trading activities, and shift their business models closer to a utility-style model.
2012-10-02 Damages by Bill Gross of PIMCO
How could the U.S. not be the first destination of global capital in search of safe (although historically low) prospective returns? Studies by the CBO, IMF and BIS (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow, and the dollar would inevitably decline.
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 Typical Post-QE by Christian Thwaites of Sentinel Investments
We have typical post-QE market behavior. GTs sold off, then rallied. Equities rose, then flattened. The dollar sold off then strengthened. Gold crept up. Other commodities rose, yawned and gave up most of their gains. Earlier QEs took several months for this to play out. It now all happens in quick time.
2012-09-28 Gold Glitters by John Browne of Euro Pacific Capital
Just a few weeks ago, Mario Draghi, President of the European Central Bank, announced that he would do anything required to bailout the weakest members of the Eurozone and in so doing prevent the euro currency from dissolution. Two weeks ago, as signs of recession increased, Fed Chairman Bernanke announced he would do anything required to stimulate the U.S. economy, real estate, and the financial markets. But the biggest winners thus far that may have resulted from these newly communicated intentions are not the euro or the broad stock markets but rather gold and gold-related investments.
2012-09-28 The Permanent Portfolio Turns Japanese by Adam Butler, Mike Philbrick of Butler|Philbrick|Gordillo & Associates
Our last few articles dealt with the Permanent Portfolio, a widely embraced static asset allocation concept proposed by Harry Browne in 1982. To review, the simple Permanent Portfolio consists of equal weight allocations to cash (T-bills), Treasuries, stocks and gold to ward against the four major financial states of the world.
2012-09-28 Commodity Stocks: Improving Returns With No Extra Volatility by Frank Holmes of U.S. Global Investors
Not every investment is the same. Even within the commodities space, when looking at measures such as correlation, performance and risk, two indexes can have very different effects on a portfolios results.
2012-09-27 QE3: Better for Gold than the Economy? by Russ Koesterich of iShares Blog
The Fed's recent actions may not have much impact on the economy, but, as Russ explains, keeping interest rates low for an extended period may help support commodities, particularly gold.
2012-09-27 Gold Stocks or Apple: Which Holds a Place in Your Portfolio? by Frank Holmes of U.S. Global Investors
In a battle between the largest gold exchange traded fund and the biggest tech stock, which investment would get your vote? Would you choose gold because of the macroeconomic factors supporting the rise of the precious metal? Or do you put your money on Apple because of its overwhelming popularity?
2012-09-27 Its the (REAL, not the financial) economy, stupid! by Kane Cotton of Bellatore Financial, Inc.
The Fed is relying on the wealth effect. It can't directly bring down unemployment (i.e., part of the "real" economy), so it is focusing on the areas that it can affect, the financial economy and asset prices. Since both PCE and Core CPI inflation measures have been fairly low and are unlikely to become uncomfortably high in the near term due to the slack labor market, low capacity utilization and stagnant incomes, the Fed is again taking aim at asset prices.
2012-09-26 Bernanke Put: Beware of Easy Money by Alex Merk of Merk Funds
Central bankers around the world may be providing a backstop to the financial markets in much the same way Greenspan did during the "Goldilocks" years, but when the short-term euphoria wears off, will the negative repercussions be even more severe?
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 The Ramifications of a Robin Hood Tax by Frank Holmes of U.S. Global Investors
Chief Justice John Marshall, in 1819, once described policymakers' great influence, remarking, "The power to tax involves the power to destroy." With rising fiscal deficits and a desperate need to raise revenue, many nations have come up with various tax solutions to raise billions of dollars. One hotly contested idea in the U.S. and Europe lately, and once advocated by John Maynard Keynes during the Great Depression, is a financial transactions tax imposing a cost on buys and sells of stocks or bonds.
2012-09-24 Eating the Future by John Hussman of Hussman Funds
Every security on Earth works like this. The higher the price you pay for a given set of expected future cash flows, the lower your prospective future rate of return. Higher prices essentially take from future prospective returns and add to past returns. Conversely, lower prices take from past returns and add to future prospective returns.
2012-09-24 If youre a partisan Republican, skip this commentary by David Edwards of Heron Financial
In June after stocks slumped over concerns about Europe, we wrote "US stocks however, were a good value a month ago and a better value today. With the weak hands forced out by the recent 10% pullback, we are moving forward with investments in stocks." With two and half months remaining in the year, our "buying panic" forecast is starting to look prescient.
2012-09-24 Are Green Shoots Being Spotted from the Helicopter? by Martin Pring of Pring Turner Capital Group
Ben Bernanke's helicopter has taken off from the tarmac once again. This time the QE3 flight path is headed, as some commentators have suggested, to "infinity and beyond". It seems to be a route whose popularity is growing as more and more central banks are expanding their balance sheets at record rates. So far this cycle inflation has been relatively well contained but that may be about to change, at least in the commodity pits.
2012-09-24 South Korean Entrepreneurs Want Company by Team of Thomas White International
South Koreans, who have traditionally prized secure life-long employment at a chaebol, are increasingly setting out to establish their own companies.
2012-09-24 Clear Progress by Christian Thwaites of Sentinel Investments
Two weeks into a new era of ECB and Fed policy and it is a tie between the gains in equities, with the US and European broad indexes up around 2.2%. But it's the lack of follow-through and opacity of the ECB moves which are perhaps the most disconcerting and so, probably, the more short-lived. While both central banks reported easing in the form of securities purchases they had very different origins and aims.
2012-09-24 Who Deserves Blame (Or Credit) For Current Tax Policy? by Ryan Davis of Fortigent
U.S. Presidential candidate Mitt Romney received sharp criticism this week for his comments regarding the "47% of people who pay no taxes." Regardless of one's political stance, Romney's comments were instructive in highlighting a very real problem. The notion that Republicans or Democrats deserve blame for the current challenges is shortsighted, however, because both parties were contributing members to the current legacy.
2012-09-21 Managing Risk In Your Retirement Portfolio by J Michael Martin of Financial Advantage Inc
Traditional pensions are gradually disappearing from American culture. More and more of us will depend on our own investments to cover some or all of our living expenses during our "golden years." Prospective retirees' goals are pretty straightforward: to enjoy a satisfying retirement and to provide a meaningful inheritance for their families.
2012-09-21 The Volatility Risk Premium by Graham Rennison, Niels Pedersen of PIMCO
Amid elevated global macroeconomic uncertainty and market turbulence, investors are searching for ways to diversify portfolios with non-traditional asset classes. Volatility risk premium strategies aim to capture a return premium over time as compensation for the risk of losses during sudden increases in market volatility. We believe investors seeking to diversify their equity risk exposures should consider adding volatility risk premium strategies to their portfolios, albeit with appropriate diversification across major option markets, active risk management and prudent scaling.
2012-09-21 The Ramifications of a Robin Hood Tax by Frank Holmes of U.S. Global Investors
Could a transaction tax have unintended consequence for American banks? While the jury is still out on that answer, Hungarys example is a reminder to policymakers to comprehensively consider the rewards of collecting a Robin Hood tax along with the risks. Profits and bank credit growth rates across Hungary plummeted due to the hefty bank levies imposed.
2012-09-20 QE n+1 What The Fed Is Really Up To by JJ Abodeely of Sitka Pacific Capital Management
As I survey the news stories and other analysis on the Feds recent announcement, most fall short of describing what the Fed is really up to. Here is a hint: it's not really about employment. It's not really about "price stability" or really about growth either.
2012-09-19 Fed to Debase Dollar? by Alex Merk of Merk Funds
Is the Fed's goal to debase the U.S. dollar? The Federal Reserve's announcement of a third round of quantitative easing (QE3) might have been the worst kept secret, yet the dollar plunged upon the announcement. Is Bernanke intentionally debasing the dollar?
2012-09-19 Bank Loans: Looking Beyond Interest Rate Expectations by John Bell, Kevin Perry of Loomis Sayles
Fixed income investors may be stymied by the current mix of interest rate projections and global macroeconomic news. Interest rates remain near historical lows, and investors continue to move between risky assets and relative safe havens like Treasurys based on the latest market headlines. We believe that bank loans can be a compelling addition to fixed income portfolios in this environment and, more importantly, over the long term.
2012-09-19 Farmland: The New Gold? by Randy Bateman of Huntington National Bank
Yes, it's just 'dirt', but life on this planet wouldn't exist as it does today unless it didn't comprise a third of the world's surface. Unfortunately much of that 'dirt' is in areas too wet, dry, rocky, salty, devoid of nutrients, or covered by snow for agricultural production. With only 14 percent of the world's landmass considered fertile, and that shrinking at a significant pace, there's a realization that increased farm production is essential to satisfy the increasing demand for food products.
2012-09-18 Shock and Awe by Jerry Wagner of Flexible Plan Investments
Almost twenty years ago, the US initiated a campaign of "Shock and Awe" with its bombing campaign on the Iraqi capital city of Bagdad. I bring this up because some commentators are comparing the Federal Reserve announcement made last week (not to mention the shocking new Arab unrest and murder of our Ambassador!) to the "Shock and Awe" of the first day of the Iraq War. What made it "Shock and Awe" was that the new Fed policy differed, according to John Carney at CNBC, in three ways from past Fed actions.
2012-09-18 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Last week the stock market got all it wanted from the Central Banks of Europe and here at home. The money presses have been put on full power. The result was a continuation of the stock market rally along with commodities while bonds suffered a setback as investors swapped out.
2012-09-17 The Philosophy of Tops by Jeffrey Saut of Raymond James
The call for this week: To me the only question is if the stock market is going to correct its current overbought condition by going sideways, or if it is going to correct back to the 1400 - 1422 support. In either event I have been pretty confident that the Fed has already begun printing money. That has been eminently evident by the overall action in the commodity markets, the dollar, and the fact that stocks were unable to correct in the normal timing band for a daily cycle low. Indeed, I actually expected an easing of monetary policy out of last month's Fed meeting.
2012-09-17 Wall Street Up 20% Since the Occupy Movement Began by Team of Bespoke Investment Group
The group calling themselves "Occupy Wall Street" is marking its one-year anniversary today with another round of protests in downtown Manhattan. So how has Wall Street done since Occupy Wall Street began one year ago? As shown below, the S&P 500 is up 20%, while the S&P 500 Financial sector is up 25%.
2012-09-14 The Cure for Baldness by Neel Kashkari of PIMCO
Rarely does one find market commentators offering moderate, balanced investment advice these days. More likely one will find extreme headlines designed to capture maximum attention.
We believe it is worthwhile to take time to craft an investment strategy that can withstand a range of market outcomes.
In a lower-return world, we look to buy companies that are attractively priced and that can grow faster than the market as a whole, and we actively manage downside risks.
2012-09-14 When You Should Stop Buying Gold by Frank Holmes of U.S. Global Investors
Economists and politicians have debated the merits of gold for decades. In the last 10 years, the discussion has been even more hotly contested, as the price of the yellow metal has skyrocketed. Ron Rimbus, CFA, in a blog for the CFA Institute, is the latest person to take on the subject. Rimbus argues that the intrinsic value of gold is intricately linked to whats going on in the financial system, even after the end of the gold standard in 1971.
2012-09-14 Reconnaissance: Strategy Notes by Douglas Clark Johnson of Codexa Capital
The prominent US trade mission has been in Cairo at a particularly challenging moment politically. At-hand circumstances will remind these business leaders just how volatile the country can be, especially in the absence of growth. Egypt is probably the largest emerging market with the most uncertain economic direction, at least for the time being. We also take a closer look this week at Turkish-Iranian trade relations and policy developments in Indonesia.
2012-09-14 All Signs Pointing to Gold by Frank Holmes of U.S. Global Investors
So, gold investors, if you havent put in your orders, consider getting them in quickly, because the bulls are buying. Credit Suisse saw 'massive inflows' into gold exchange-traded products in August after experiencing significant outflows compared to crude oil and the broader market in March, April, May and July. August shows a clear preference toward gold.
2012-09-13 Put Your Money Where Your Mouth is: Polls versus Prediction Markets in Predicting Election Results by Kane Cotton of Bellatore Financial, Inc.
Did you hear? There's an election coming. Just kidding. I'm sure that, by now, most readers feel as if theyve been in a pinball machine, being bombarded from side to side with rhetoric from both political aisles as well as their PACs and the media. Today, we look at the current odds as they stand in two markets.
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 Ready, Set, Fed! Weak Jobs Report Raises QE3 Odds by Russ Koesterich of iShares Blog
Russ says the US Federal Reserve Open Market Committee has more reason to consider quantitative easing at this week's meeting, after the latest payroll report suggests the US economic recovery is likely to remain weak into the end of the year.
2012-09-11 Mondays! by Jerry Wagner of Flexible Plan Investments
In 1965, John Phillips penned Monday, Monday for the first album released by The Mamas and the Papas. The song was a melancholy downer. But it is perfect for summing up the experience for most investors over the last ten years. As you can see, if one had only invested on Mondays, the result would have fallen significantly short of investments for the full market period.
2012-09-11 US Stock Market Sentiment in a World of Wide Asset Allocation by Bill Smead of Smead Capital Management
Our long-time readers are aware that we are stingy when it comes to trading and big believers of keeping trading costs low at Smead Capital Management. Despite these natural inclinations, we do try to keep the pulse of sentiment in the US stock market.
2012-09-10 Performance Anxiety?! by Jeffrey Saut of Raymond James
In last week's verbal strategy comments I suggested participants study the chart pattern of the S&P 500 (SPX/1437.92) and then think about what it would feel like if you were an underinvested portfolio manager (PM), or even worse a hedge fund that is massively short of stocks betting on a big decline. The concurrent performance anxiety would be legend because not only would you have performance risk, but also bonus risk and ultimately job risk.
2012-09-10 As the Euro Tumbles, Spaniards Look to Gold by Peter Schiff of Euro Pacific Precious Metals
The unremitting deterioration of the eurozone's sovereign debt landscape continues to fuel uncertainties about the longevity of the euro as a strong currency. Such uncertainties are not only leading to capital flight from the EMU's periphery to the core and destabilizing markets worldwide, but they are also beginning to frighten southern European savers into seeking refuge outside their 10-year-old currency.
2012-09-10 Russia: Riding on the Fast Lane by Team of Thomas White International
The fall in oil and natural gas prices has prompted the Russian government to turn its attention to the country's hitherto ignored manufacturing sector.
2012-09-10 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Does a powerful upcycle necessarily have to be followed by a downcycle? Well, yes, if one believes in the notion of parabolic quantitative market theory. Given that you can't fill up a phenomenon greater than 100%, nor empty it more than zero, what happens when you reach a statistical "saturation point", when the laws of probability no longer engender positive outcomes?
2012-09-10 Back to School: Summer Vacation Ends for Central Bankers by Andrew Boczek of Sentinel Investments
The heady days of "Maestro" Alan Greenspan may be long gone. Nonetheless, most of us still take for granted that similarly wise men and women, aloof from the pressures of politics and short term market fluctuations, have the capacity to set the proper price of our most precious commodity: time. Or said another way, to set an effective interest rate policy that encourages either savings or spending, today or in the future, to help manage long term economic stability.
2012-09-10 Are Labor Markets the Key to Fed Easing? by Chris Maxey of Fortigent
Widely reported last week was anemic labor market growth in August. Some talking heads took this news in stride, assuming this would guarantee further market intervention by the Fed, but there is a danger in assuming any form of quantitative easing will alleviate the intermediate-term concerns of the market.
2012-09-07 The Fed's Campaign by Peter Schiff of Euro Pacific Precious Metals
This past Friday, as Fed Chairman Ben Bernanke delivered his annual address from Jackson Hole - the State of the Dollar, if you will - I couldn't help but hear it as an incumbent's campaign speech. While Wall Street was hoping for some concrete announcement, what we got was a mushy appraisal of the Fed's handling of the financial crisis so far and a suggestion that more 'help' is on the way.
2012-09-07 Chinas Next Act by Frank Holmes of U.S. Global Investors
World markets may not have to wait much longer for Chinese policymakers to act, as the government recently announced new infrastructure projects. According to Bloomberg, China approved 25 new subway construction projects, with related investments estimated to be more than 840 billion yuan. Railway, subway and construction stocks in China increased on the news. China is in much better shape than the rest of the world. A powerful rebalancing strategy offers the structural and cyclical support that will allow it to avoid a hard landing.
2012-09-06 Laboring a Point by Jerry Wagner of Flexible Plan Investments
Right before Labor Day each year we are treated to a major policy speech at the Federal Reserve Board's meeting of the Fed's Open Market Committee. In 2010, we were treated to suggestions from Chairman Bernanke that a new period of Quantitative Easing was near. And sure enough, the Federal Reserve announced QE2 on October 22nd of that year.
2012-09-06 How to Unscramble an Egg by Niels Jensen, Nick Rees,Tricia Ward, Thomas Wittenborg of Absolute Return Partners
This month we take a closer look at the root problems behind the current crisis. Too often root problems are confused with symptoms and the wrong medicine is prescribed as a result. We identify five root problems, all of which must be addressed before we can, once and for all, leave the problems of the past few years behind us.
2012-09-04 Civility by Jeffrey Saut of Raymond James
Webster's defines "civility" as: civilized conduct; especially: courtesy, politeness. But, there was no civility last Friday afternoon. The place, CNBC; the time 3:05 p.m.; the anchors Michelle Caruso-Cabrera and Bill Griffith; the show "Closing Bell"; the guests were myself, Bill Spiropoulos, Lee Munson, and Matt McCormick. The interview started off well enough with each interviewee responding to the anchors' questions.
2012-08-30 Opportunity Cost: Emotions by Matt Lloyd of Advisors Asset Management
Emotions may be keeping your clients in cash, putting their long-term goals at risk. Taking a snapshot of headlines and it is not hard to discern where investors' predispositions lay.
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.
2012-08-29 Is Inflation Returning? by Martin Feldstein of Project Syndicate
Inflation is now low in every industrial country, and the combination of high unemployment and slow GDP growth removes the usual sources of upward pressure on prices. Nevertheless, financial investors are increasingly worried that inflation will eventually begin to rise, owing to the large expansion of commercial bank reserves engineered by the United States Federal Reserve and the European Central Bank (ECB).
2012-08-29 Reconnaissance: Strategy Notes by Douglas Clark Johnson of Codexa Capital
The Non-Aligned Movement summit in Tehran is probably the most important conference hosted there since the 1979 revolution. Iran is doing its best to use the forum as an opportunity to assert its position in world affairs. In market activity, we think fundamentals in India call for less exuberance in gold than some would suggest. Our outlook for South Asia meanwhile recognizes valuation opportunities in the smaller markets of Sri Lanka and Bangladesh.
2012-08-28 Israel and the Evangelicals by Bill O'Grady of Confluence Investment Management
On several occasions, we have noted that Israel enjoys significant leverage over U.S. policy into the November elections. Often, it is assumed that this leverage comes from the influence of American Jews on the political system. Although not unimportant, the numbers, as discussed here, suggest that the Jewish vote is barely significant in only two states, New York and Florida. Even in these two states, capturing all the Jewish voters would not guarantee winning these states.
2012-08-28 Behavior Modification by Kendall Anderson of Anderson Griggs
The last few years have caused a number of us to modify our financial behavior. It is hard to believe that the financial crisis is over five years old. According to S&P Case-Shiller, the good times ended in June of 2006 when home prices peaked. By April of 2007 the big subprime mortgage lender New Century Financial Corporation filed for bankruptcy.
2012-08-28 Permanent Portfolio Shakedown Part 2 by Adam Butler and Mike Philbrick of Butler|Philbrick|Gordillo & Associates
In our Permanent Portfolio Shakedown Part 1 we investigated the history of the approach, tracing it back to Harry Browne in 1982. The company he helped to found, The Permanent Portfolio Family of Funds, has been running their version of the strategy in a mutual fund for almost 30 years, with fairly impressive results. Harry's thoughts about the portfolio are worth repeating in this second installment.
2012-08-28 The Gold Standard Gets Another Look by Peter Schiff of Euro Pacific Capital
As Republicans convene in Tampa to nominate Mitt Romney and hammer out their party platform, one of the planks that could attract the most attention is the Party's official position on the gold standard. As it is now being considered, the platform stops short of recommending a return to the gold standard, but does advocate a commission to consider the possibility.
2012-08-27 The Trend is Your Fickle Friend by John Hussman of Hussman Funds
Typically, the best that can be achieved with popular moving-average crossover systems is a moderate reduction in drawdown risk, but zero or negative incremental long-term return versus a buy-and-hold.
2012-08-27 Janitor's Job by Jeffrey Saut of Raymond James
Peter Drucker was a writer, consultant, and teacher who was deemed the father of modern management theory. His groundbreaking work turned management theory into a serious discipline, and he influenced or created nearly every facet of its application. He coined such terms as the "knowledge worker," which plays to the intangible capital theme often discussed in these missives.
2012-08-24 Is a Japan-Style "Lost Decade" Ahead for the US? by Sharon Fay of AllianceBernstein
The laborious pace of the US recovery has inevitably fostered comparisons with Japan. But we find several reasons why a protracted slump like Japan's is unlikely, as my colleague Gerry Paul argues. After five years of tepid growth, investors can be forgiven for wondering if the US is headed for a decades-long slump like Japan's.
2012-08-24 Large Cap Value: Review and Outlook by Richard Helm of Cohen & Steers
We would like to share with you our review and outlook for the U.S. large cap value market as of July 31, 2012. For the month, the Russell 1000 Value Index had a total return of 1.0%, compared with a total return of 1.4% for the S&P 500 Index.
2012-08-24 Gold: First Mover Advantage by Frank Holmes of U.S. Global Investors
This week, gold bugs were rewarded with the long-awaited positive momentum in the yellow metal, and on Friday, bullion rose to about $1,670. After falling below the 200-day moving average, gold had been stuck in quicksand for several months. With the jumps in the price this week, bullion swiftly rose above this critically important long-term moving average.
2012-08-23 No Recession Now - But When? by Lance Roberts of Streettalk Live
There have been a few calls as of late (Hussman, ECRI, Shilling) stating that we are currently in the next recession. Then there is everyone else. While the "optimistic" outlook is always more enjoyable to listen to - the problem is that the current "no recession" view is primarily predicated on current quarter growth rates looked at in isolation. These data points are then extrapolated into continuous future economic expansion.
2012-08-23 Wall Street Strategists Bearish for Remainder of the Year by Team of Bespoke Investment Group
Here we show an updated snapshot of where the various Wall Street strategists think the S&P 500 will end the year. Each week, Bloomberg surveys these strategists for their year-end S&P price targets. At the start of the year, the average year-end price target was 1,343.92. This would have corresponded to a 2012 gain of 6.86%. At its current level, the S&P 500 is up nearly double that at 12.4% year to date. So where do strategists as a whole currently think the S&P 500 will end the year?
2012-08-22 Relative Value by Bill Smead of Smead Capital Management
Everyone wants to wait for the perfect time to buy into the stock market or into any major investment market. They want to enter at historically cheap prices or at "absolute values". We at Smead Capital Management believe that these people are kidding themselves and everybody else. At the time of historical lows and "absolute value" those same folks are too mortified to pull the trigger and always come up with the reason that "it's different this time". Inertia rules the day.
2012-08-22 Mistrust Fuels Continued Gold Demand by John Browne of Euro Pacific Capital
In the face of growing fears of a renewed global plunge into economic depression and a climate of low apparent price inflation, investors might expect commodities and precious metals to be falling in price. Instead, gold continues to hover around a relatively high $1,640 an ounce and silver at $29. At the same time, central banks - including those of the ever more important China, Russia and India - continue aggressively to buy gold.
2012-08-22 The Faustian Bargain by Scott Minerd of Guggenheim Partners
In Goethe's 1831 drama Faust, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country's fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos. Today, governments that have relied upon quantitative easing (QE) instead of undertaking necessary structural reforms have arguably entered into the grandest Faustian bargain in financial history.
2012-08-21 The Profession's Faulty Assumptions: A Top Ten List by Bob Veres (Article)
In the financial planning profession, we make a lot of assumptions about the world in order to run spreadsheet models, retirement projections and sufficiency analyses, and generally determine how much a client should save and invest for the future. But many of the industry-standard inputs into our models are (how can I say this delicately?) garbage. Here are my top ten garbage inputs, with an explanation of how we might possibly improve on them.
2012-08-21 Permanent Portfolio Shakedown Part 1 by Adam Butler, Mike Philbrick of Butler|Philbrick|Gordillo & Associates
The Permanent Portfolio is an asset allocation concept first introduced by Harry Browne in 1982. The Permanent Portfolio Family of Funds website has this to say about the strategy, which they have been running in mutual fund format for about 20 years.
2012-08-20 The Magic of Compound Interest by Jeffrey Saut of Raymond James
When compound interest works in your favor, it is a blessing. But when it works against you, it is a curse. Just ask Washington Mutual, or General Motors. More recently ask Greece, whose "debt chickens" have come home to roost. When yields are double-digits the power of compound interest working against the borrower is awesome.
2012-08-20 And That's the Week That Was by Ron Brounes of Brounes & Associates
Once upon a time, Facebook and Groupon were prospective Wall Street darlings. Now both they are pushing all-time lows with analysts questioning their overall revenue models. For now, they are in the minority, as some decent earnings numbers and economic data brought back the "bulls" (at least those who arent on vacation) and sent the major indexes higher (again). Europe still has plenty of issues; the jury is still out on the Fed's next moves; and the campaign season is heating up.
2012-08-17 Evaluating the Wisdom of Buying Gold by Frank Holmes of U.S. Global Investors
At the end of January 2008, I posted a discussion about how the book The Wisdom of Crowds by James Surowiecki could explain gold's price climb. The book's premise was basically that "large groups of people are smarter than an elite few."
Even before the height of the global crisis, there was a "wise crowd" of investors who had been buying gold as a safe haven from currency risks and the trillions of dollars invested in derivatives, and as a way to recycle petrodollars.
2012-08-17 Fiscal Cliffhanger by Brian Horrigan of Loomis Sayles
In the famous 1955 movie Rebel Without a Cause, troubled high school student Jim Stark (played by James Dean) winds up playing a game of chicken with his classmates. The US economy is at risk of driving, so to speak, over a "fiscal cliff" starting January 1, 2013, an event that threatens to wreck the economy. There are fewer than five months to avoid going over this cliff.
2012-08-17 Love Trade Cools as Central Banks Gold Demand Heats Up by Frank Holmes of U.S. Global Investors
Although the Love Trade (purchasing gold for coins or jewelry) is on ice for now, a relatively new gold buyer has been warming up to gold. Central bank purchases hit a record high since the official sector became gold buyers three years ago. If this trend continues over the remainder of 2012, central banks will be entering a new territory of gold buying that has not been seen since the early 1960s and since the end of the Bretton Woods System in 1971.
2012-08-17 How Change Happens by John Mauldin of Millennium Wave
This is an encore appearance of the letter that is clearly the most popular one I have ever written, updated with a few thoughts from recent times (it was also part of a chapter in Endgame). Numerous reviewers have stated that this one letter should be read every year. As you read, or reread, Ill be enjoying a week off.
2012-08-15 Going for Gold: Lessons from London by Colin Moore of Columbia Management
Fiercely competitive professional athletes were able to join together for a common purpose of achieving gold for the U.S. Small teenagers were prepared to sacrifice family life to win gold for the U.S. If only our politicians could find a way to set aside traditional rivalries and find a team plan to reduce our debt and spur higher levels of growth on a equitable basis. Unfortunately, the opposite is occurring.
2012-08-15 "Curiosity" - Return of American Exceptionalism by Gary Halbert of Halbert Wealth Management
The IRS regularly issues something called Individual Tax Identification Numbers to people living in the US, but who are not eligible for a Social Security number. These illegal aliens working in the US received $6.8 billion in tax refunds last year by filing. A number of IRS employees recognized that this is/was tax fraud. We could end $2.5 billion in government waste like paying almost three times that much in tax refunds to illegal aliens to pay for invaluable missions like Curiosity.
2012-08-15 Preparing Portfolios for Inflation by Ronit Walny, Kevin Winters of PIMCO
Although disinflation has seemed the more likely scenario in recent years, PIMCO expects inflation to accelerate from recent levels over the next three to five years, but double-digit rates are unlikely. An understanding of the constituents of the Consumer Price Index can help us design portfolios that seek to better defend against inflation. The core building blocks of such portfolios are commodities, Real Estate Investment Trusts and Treasury Inflation-Protected Securities.
2012-08-14 Blind Faith by Michael Lewitt (Article)
Central banks are facing political and practical obstacles that will render it very difficult for them to deliver anything more than anodyne words and actions as summer moves into the always dangerous August holiday season. IPhones should be kept on alert at the beach through Labor Day.
2012-08-13 Which Way Will the Pendulum Swing for Gold? by Frank Holmes of U.S. Global Investors
One of the most fascinating aspects when watching a sporting event like the Olympics is the historical statistics highlighting the tremendous advances in athleticism over the years. In the spirit of the events this summer, BTN Research compared gold's advancement from the beginning of the games in Beijing to the London Olympics.
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 Morocco: Making its Mark by Team of Thomas White International
Unlike some of its North African neighbors, Morocco is not known for its petroleum reserves. But here, there is another type of oil that seems to have attracted the world's attention these days. Deep inside the country's southwestern desert lies an herbal oil extracted from the seed of a thorny tree. Argan oil, which gets its name from the Arganier tree, is said to work wonders on thirsty dry skin, and now is being sought after by the beauty-conscious men and women across far-flung continents.
2012-08-10 Citius, Altius, Fortius by Carl Tannenbaum of Northern Trust
Countries across the globe seek faster, higher, stronger growth. Central banks in the United States and Europe are both seeking new ways to stimulate economic activity. Recent news from the housing market has been encouraging, but the race to recovery is likely to be a marathon, not a sprint. Headwinds blowing from Europe and China will continue to present significant downside risks to U.S. economic growth.
2012-08-09 Reconnaissance: Strategy Notes by Douglas Clark Johnson of Codexa Capital
India's massive power failure was a gift to both investment bankers and asset managers. There will likely be a surge in infrastructure-related financing and investment activity directed at South Asia. We also look at sovereign wealth fund transparency; the UAE funds rank comparatively well. Our allocation guidelines for North Africa focus on Morocco, where we believe we will see sustained gains for both portfolio and direct investors once the European situation stabilizes.
2012-08-08 Stock Pickers: "Somebody I Used to Know" by Bill Smead of Smead Capital Management
Art has a tendency to express culture. One of today's catchiest songs does a great job of explaining the relationship between institutional/individual investors and US common stock picking. The song captures what has happened since the summer of 1999, when Warren Buffett warned investors about forward stock market returns because of a love affair that institutional and individual investors were having with US large cap stocks.
2012-08-07 A Second Wave of Capital Flight Reaches Eurozone Core by Thomas Kressin of PIMCO
During the first phase of the euro crisis, private capital flowed out of the "peripheral" countries to the core of the eurozone, but this shift had no adverse impact on the euro. Now, investors are taking their capital out of the eurozone altogether. The euro threatens to fall further, possibly leading to serious concerns about a devaluation spiral.
2012-08-03 Priced for Collapse by Peter Schiff of Euro Pacific Capital
Where is the gold price today? If you're like many Americans, you have no idea whether it went up, down, or sideways. Fortunately, I know my readers to be more informed - you likely know that after falling from almost $1900, gold has been trapped around $1600 since early May. But you may still be curious why despite continued money-printing and abysmal US economic reports, gold hasn't been able to hit new highs.
2012-08-03 Is Buy-and-Hold Dead? by Richard Bernstein of Richard Bernstein Advisors
If one searches in Google for Does buy-and-hold work?, more than 191 million results will appear.If one searches for Is buy-and-hold dead?, more than 81 million results will appear.However, if one searches for Successful buy-and-hold strategies, only about 9 million results will appear.Its pretty clear that the investing world believes that buy-and-hold strategies are basically dead and gone.
2012-08-03 2nd Quarter Small Cap Newsletter by Team of 1492 Capital Management
The stock market posted a strong start for the year but quickly surrendered most of its gains as the macro environment (European debt concerns and China’s slowing economy) caused near-panic selling pressure until the last week of the quarter.
2012-08-03 How to Avoid the Bursting of the Bond Market Bubble by Gary Halbert of Halbert Wealth Management
This letter is the first in a series that I hope you will take very seriously. U.S. interest rates are at record lows. Meanwhile, Obama and Congress are sky-rocketing the national debt. We all know this cant go on much longer.
2012-08-03 Hedging Against (and Profiting From) A Prospective Decline In The U.S. Dollar by Team of Emerald Asset Advisors
The U.S. dollar has remained the world's reserve currency due to several factors: 1. Its large circulation (roughly $1.1 trillion); 2. The denomination of many transactions (especially commodities such as oil and other natural resources) being in USD; 3. The stability of its political system; and 4. The lack of any other viable options. However, that may not always be the case.
2012-08-03 The Race for Resources by Frank Holmes of U.S. Global Investors
The world watched in awe as American swimmer Michael Phelps became the most decorated Olympian of all time. It's inspiring to see the incredible results of his tremendous sacrifice and commitment. Investing in global markets requires the same sort of stamina, especially at times like this week, when the month's reading on the manufacturing industry was not encouraging. The J.P. Morgan Global Manufacturing PMI of 48.4 for July was the lowest since June 2009.
2012-08-02 Q1 GDP Revised Upward; Q2 Growth Remains Sluggish by Team of American Century Investments
The 1.5% rise in gross domestic product (GDP) for the second quarter was in line with market expectations, while growth for 1Q was revised up slightly to 2.0%. The major U.S. equity markets fared well, with the Dow Jones Industrial Average closing above 13,000 for the first time since may. In other news, the Federal Open Market Committee (FOMC) meets this week, which could result in a third round of quantitative easing.
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.
2012-07-31 The Alternative to AUM-Based Fees: The Total Profitability Retainer Formula by Bob Veres (Article)
Many - perhaps most - advisors are overcharging a few of their clients and undercharging the rest. In other words, a small number of investment advisor clients are subsidizing the services that the others are receiving. Here's a way to address that.
2012-07-31 Beyond the Ultimate Death Cross by Georg Vrba, P.E. (Article)
Last week, I showed why the 'ultimate death cross' is not a bearish signal. But the methodology behind that signal - what's known as a 'golden-cross trigger' - can indeed offer a reliable guide to investors. And one can do even better with a simple improvement to the trigger that I have devised.
2012-07-31 Gold at ECB: Accident or Strategy? by Axel Merk of Merk Funds
When the euro was launched, the European Central Bank (ECB) held approximately 15% of its assets in gold. That ratio has remained reasonably stable, giving rise to a variety of chatter, including suggestions that it may displace the U.S. dollar. We pursue the question on whether the ECB's gold holdings are an accident or strategy.
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 Right Down the Middle by Michael Kayes of Willingdon Wealth Management
A tenuous moment occurs in our household every time we get down to the last piece of dessert. My kids fight over it, and I'm right there with them. When I was a kid, my mom had the perfect solution to this age old dilemma. She would allow the first child to cut the dessert and the other to choose which half they wanted. The interconnectedness between the process and the final outcome ensured fairness. A truly cooperative attitude like this seems nowhere to be found in our world today.
2012-07-30 Legends of the Fall 2012 by Nicholas Field of Schroder Investment Management
Are there any lessons from history for global stock markets, including emerging markets? Despite strong economic fundamentals, emerging stock markets have been negatively impacted by the global financial crisis and the European crisis. The outcome for all stock markets, including emerging markets, significantly depends on how these problems are resolved. In this context can previous crises, including the 1930's, give us any clues regarding timing?
2012-07-30 The Longest Yard by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Isaac Meng of PIMCO
As the global slowdown progresses, we can expect central banks to deploy more policy tools without limits to stem the pace of deleveraging. In Europe, quantitative easing using ESM bonds could prove to be another bridge that buys politicians more time, but does not solve the root problem. We expect real economic growth in China to be muted. While some stabilization is possible later this year, it is hard to foresee a sustained recovery.
2012-07-27 Secular Outlook: Implications for Investors by William Benz of PIMCO
For investors, the biggest challenge now is moving from a world of normal distributions, with expected occurrences around the mean, to one of bi-modal distributions where more extreme scenarios prevail. Key institutions, including governments and central banks, were previously stabilizing forces but are now helping to accelerate underlying, destabilizing trends in the global economy and financial markets.
2012-07-27 Who is Muhammad Lee? by John Scott of Saturna Capital
Who is this Muhammad Lee? (So named, as these are the most common first and last names in the world.)1,2 Where is he from? How many brothers and sisters will Muhammad Lee have in the future? What are the implications of his arrival for U.S. investors?
2012-07-27 Challenging the Paradigms of Investing by Frank Holmes of U.S. Global Investors
Global investors constantly need to be watchful of individual biases, impaired thinking and emotional reactions that can have an adverse effect on a portfolio. One of our values at U.S. Global Investors is to always be curious to learn and improve, and the Investor Alert was borne from a belief that shareholders want to understand the very subtle nuances of biases and misconceptions. I have selected a few that I believe challenge the paradigms of investing.
2012-07-25 Economic Review: Americas - 2Q 2012 by Team of Thomas White International
Among the developed economies in the region, growth forecasts for both the U.S. and Canada have been revised lower. Though the U.S. outlook has weakened, the Mexican economy has so far remained unaffected, as manufactured goods from the country remain competitive in export markets. Brazil is yet to see a recovery even after a series of monetary and fiscal measures taken since the second half of last year to support the economy.
2012-07-24 Never Lost?! by Jeffrey Saut of Raymond James
Wall Street folklore suggests that in 10 years any fool can make every mistake there is in the stock market and that a really smart person can do the same in half the time. I don't know how long it took me, but I have tried to learn from those mistakes and avoid repeating them! Indeed, everybody who finally learns how to make money in the stock market learns his own way. I like this tale.
2012-07-24 Investment Review & Outlook by Team of Cohen & Steers
The headlines in Europe were dominated by political uncertainty and prospects for a prolonged recession, amid signs of deteriorating economic conditions around the globe. The U.S. economy decelerated, as the positive effects of the mild winter wore off and both hiring and spending slowed. Treasury yields fell to all-time lows and oil prices plummeted roughly 30% from their February peak.
2012-07-24 Friday Decline Ruins a Solid Week in the U.S., AAII Flashing a Buy Signal by John Buckingham of AFAM
What was shaping up as a fine week ended with a really crummy Friday that included the horrific movie-theatre massacre in Colorado and, on an entirely different plane, yet another act (the Spanish region of Valencia asked for government help, while Madrid again lowered its economic projections) in the long-playing European sovereign debt crisis that caused yields on the 10-year Spanish bond to move further above the important 7% threshold.
2012-07-23 Quarterly Market Overview by Robert Carey of First Trust Advisors
While it is nice to get the news in real time, the need for speed on the information superhighway can lead to incomplete or erroneous reporting. Look no further than the current election campaign season where the finger pointing has already started between President Obama and Mitt Romney. Good thing the Internet has also brought us some fact-checkers to help sort things out. Helping to sort things out is what we strive to do for our clients, as well.
2012-07-22 And That's The Week That Was by Ron Brounes of Brounes & Associates
Tragedy in Colorado overshadowed earnings and economic news and even the Prez candidates could find common ground in expressing sorrow. The earnings numbers remain confusing at best (often better than downwardly revised projections); economic data depicts ongoing consumer concerns; Bernanke is attacked and attacks right back; and the markets settle not far from where they began the week. Coming up in the week ahead: New Home Sales (Wednesday), Durable Goods Orders (Thursday), GDP (Friday).
2012-07-21 The Lion in the Grass by John Mauldin of Millennium Wave
Today we'll explore a few things we can see and then try to foresee a few things that are not so obvious. This is a condensation of a speech I gave earlier this afternoon in Singapore for OCBC Bank, called "The Lion in the Grass." The simple premise is that it is not the lions we can see that are the problem; but rather, in trying to avoid them, it is often the lions hidden in the grass that we stumble upon that become the unwelcome surprise.
2012-07-20 July 2012 Newsletter by Harold Evensky of Evensky & Katz
FRANK SINATRA FAN?
Mena chided me for starting my last NewsLetter on a negative note so I thought Id repent this time and start with something more positive. Even if youre not a Sinatra fan, this lovely and moving piece of music by Andre Rieu," a renowned Dutch violinist, conductor and composer, and his orchestra is a tribute to Frank Sinatra with My Way on his Stradivarius violin at Radio City Music Hall New York.
2012-07-20 America's Competitive Spirit by Frank Holmes of U.S. Global Investors
We believe there are many great American companies to invest in. We like those that are growing their top line revenues and paying robust dividends. Currently 47 percent of the S&P 500 stocks pay a dividend yielding more than a 10-year Treasury, demonstrating the resiliency and strength of American enterprises.
2012-07-19 Chinas Growth Slows for Sixth Straight Quarter by Michael Sullivan of American Century Investments
Gross domestic product (GDP) growth in China, the world's second largest economy, dropped again on a year-over-year basis, from 8.1% last quarter to 7.6% for the second quarter. Growth is at its lowest level in three years. In domestic news, the major U.S. equity markets rallied last Friday and erased earlier losses to finish positive for the week.
2012-07-18 Short-Term Bullish...But U.S. Stocks Not Yet Cheap Enough to Deliver Even Average Long-Term Returns by Doug Ramsey of The Leuthold Group
Our investment disciplines currently mandate that we are near-term bullish with heavy (but not maximum) equity exposure across our tactical strategies. But the simple math that underpins long-term stock market returns doesnt currently support a long-term bullish stance (i.e., "buy and hold"). This view is contrary to prevailing market thought, in which stocks are viewed as having substantial near-term risk but good long-term return prospects.
2012-07-18 How to Look Past Negativity to See Opportunity by Frank Holmes of U.S. Global Investors
Among investors these days, a fellow commodity bull is about as rare as finding a positive story in the media, especially when you look at the results of metals and natural resources during the first half of 2012. Only four commodities on our periodic table pulled off a positive return. Wheat grew the most, rising 13 percent, followed by single-digit rises from corn, gold and copper.
2012-07-18 Readers Questions Answered by Mark Mobius of Franklin Templeton Investments
People who follow me know that one of my favorite things to do to really get to know a city is to walk or cycle the streets and interact with the locals. The great questions you readers submit are kind of like a digital version of that experience, providing me with invaluable perspectives and ideas from around the world. Thank you! Please read on for my answers to a few of your recent questions.
2012-07-18 Taking Short Cuts to Higher Returns with AQRs Capital Antti Ilmanen by Kendall Anderson of Anderson Griggs
On November 2-3 of 2011 the CFA Institute and CFA France sponsored the Fourth Annual European Investment Conference in Paris, France. Antti Ilmanen, Ph.D. was one of the presenters. The title of his Presentation was Understanding Expected Returns. This months letter is based on this presentation as it appeared in the June 2012 publication CFA Institute Conference Proceedings Quarterly.
2012-07-18 The LIBOR Mess: How Did It Happen - and What Lies Ahead? by Team of Knowledge @ Wharton
When regulators in the United Kingdom and United States announced a settlement with Barclays bank over its manipulation of LIBOR, the benchmark interest rate used around the world, there were plenty of reasons for jaws to drop. First and foremost was the whopping fine of $450 million, reflecting the seriousness of the case, along with analysts' predictions that LIBOR rates could influence interest rates on between $350 trillion and $800 trillion in loans and investments.
2012-07-17 Breaking Bad by Michael Lewitt (Article)
With our largest business and government institutions committing every conceivable act of legal or moral anomie, we have every right to ask who is going to protect the rest of us from those who have been entrusted with so much power and influence. The institutions that were supposed to be the lifeblood of our economy are the same institutions that inflicted the greatest harm on society. When the family has to be protected from the man who is supposed to protect the family, the family is in serious trouble.
2012-07-17 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 Dependence Day by John Browne of Euro Pacific Capital
The Fourth of July week brought unwelcome birthday gifts to the United States in the form of poor domestic jobs data and similarly gloomy information from other major economies. Amidst the heat and festivities, it has become difficult to deny that the economy is deteriorating. Politicians appear helpless, thrashing about for a solution and blaming everything and everyone but themselves.
2012-07-17 Impact of ETF Growth on Active Managers by Dmitriy Katsnelson, Ryan Davis of Fortigent
A paradigm shift away from active management has been in place for more than a decade. Active mutual funds held more than 19 times the amount of assets than passive strategies before the SPDR SPY ETF was launched in 1993. As seen below, they have gradually lost market share to passive vehicles, particularly in US Equities.
2012-07-17 The Mystery of Chinese Capital Flight by Bill OGrady of Confluence Investment Management
Capital flight is defined as the rapid withdrawal of assets out of a country for political, economic or geopolitical reasons. Since late last year, there have been steady reports indicating that capital flight has been occurring in China. China restricts its capital account; inflows of foreign capital are carefully regulated and private outflows face significant restrictions. Chinese citizens can legally transfer only $50k per year out of the country.
2012-07-16 Stocks, ETFs Send Mixed Messages by John Nyaradi of Wall Street Sector Selector
Major U.S. stock indexes and ETFs send mixed messages with difficult week ending in Friday rally. U.S. stock markets had been in steady decline until Fridays unexpected rally brought the S&P 500 (NYSEARCA:SPY) into slightly positive territory for the week.
2012-07-13 Looking Past Negativity to See Opportunity by Frank Holmes of U.S. Global Investors
Tremendous population growth, changes in government policies, development of new technologies, urbanization trends work the same way. Its what Jeremy Grantham called the great paradigm shift and they have equally dramatic effects on how we invest in commodities, change opportunities and adjust for risk. Smart investors look past the rampant negativity in the media to see these patterns and anomalies to determine where the opportunities and threats lie.
2012-07-12 Another Employment Report Disappoints by Michael Sullivan of American Century Investments
Employers added just 80,000 jobs, falling short of expectations for the June employment report and triggering declines in the equity markets. The unemployment rate was unchanged from May (8.2%). Additionally, the U.S. manufacturing sector contracted in June for the first time since July 2009.
2012-07-11 Gold to Outshine Dollar? by Axel Merk of Merk Funds
As the price of gold has gone up fivefold over the past 10 years, why would one buy it at todays prices? For the same reason an investor would buy any other asset: if one believed it would be a good investment now, that is if one believed it may appreciate in value and add portfolio diversification benefits. A key reason to hold gold today might be to prepare for the crisis tomorrow.
2012-07-10 Insights into the First Half of 2012 by Ron Surz (Article)
U.S. stock markets at mid-year have earned a respectable 9.5% return. A euphoric first quarter 12.6% gain gave way to a 2.8% minor setback in the second quarter. Foreign markets have not fared as well, earning only 3.4% over the first half of the year. The graph below provides the details, and adds a look at gold's performance.
2012-07-10 Investors fret about Europe, but US stocks up 8.6% on the year by David Edwards of Heron Financial Group
Investors have flooded back to European and US stocks on the surprise announcement that a single Eurozone wide agency, somewhat akin to the Federal Deposit Insurance Corporation (FDIC), will be established to backstop European banks directly, rather than lending through the respective governments of troubled banks.
2012-07-06 Business Investment Dwarfs Housing by Brian S. Wesbury of First Trust Advisors
Since 2008, the market punditry has focused on housing, housing and housing. Business news channels have housing experts who report on every housing number as if it were the golden key to all economic activity. People say we cant have a recovery without housing. Conventional wisdom has an obsession with housing.
2012-07-06 Are You Limited by Linear Thinking? by Frank Holmes of U.S. Global Investors
Dont be limited by linear thinking in your portfolio. As an alternative to low yielding Treasury bonds, consider resources stocks that pay dividends. Weve found that most materials, utilities and energy stocks in the S&P 500 Index pay a dividend higher than the 10-year Treasury: Materials and utilities companies yield an average of 2.3 percent and 4.1 percent, respectively, while energy stocks pay an average yield of 2.2 percent. Nonlinear thinkers have historically benefited from the inclusion of natural resources as part of a balanced portfolio.
2012-07-05 And That's the Quarter That Was by Ron Brounes of Brounes & Associates
So much for that Random Walk Theory. During the past two years, equities started strong before running into headwinds in the second quarter and Europe (namely Greece) was perceived to be the primary culprit. As another very solid first quarter came to a close, perhaps smart investors should have been looking at charts and reading the Greek press to predict another downturn.
2012-07-03 Don't Get Emotional by Michael Nairne (Article)
With the developed world mired in slow growth and the eurozone teetering on the brink of disintegration, to many investors the future seems bleak. Some are so disheartened they are abandoning the stock market as a hopeless endeavor. Yet, one of the abiding tenets of investing is that investor sentiment is rarely predictive of the future.
2012-06-29 U.S. Inflation Update: More Long-Term Threat than Near-Term by Team of American Century Investments
During the week of June 11-15, the U.S. governments Bureau of Labor Statistics (BLS) reported declines in May prices received by U.S. producers for their goods, as well as lower May prices paid by U.S. consumers. These May declines in the BLSs Producer Price Index (PPI) and Consumer Price Index (CPI) were largely the result of declining energy prices, particularly those for gasoline.
2012-06-29 Unmasking the Asian Giant by Frank Holmes of U.S. Global Investors
China is far from perfect: While actors can perfect their lines and use masks to captivate an audience, smart investors know better to use a wealth of information across numerous sources to guide investment decisions. Weigh the evidence and judge for yourself. As my friend, Investment Strategist Keith Fitz-Gerald recently said in an interview, A powerful China is coming, and we have two choices. Either we're at the table, or we're on the menu. To him this means, Good news from China is good news for the U.S.; bad news from the Chinese economy is bad news here.
2012-06-28 European Leaders Play With Fire by John Browne of Euro Pacific Capital
The world economy today stands at the doorstep of great change. A gathering crisis looms in Europe, splitting the Continent into two competing blocs. While leaders there face off against one another in a high stakes game of chicken, the rest of the world powerlessly watches the train wreck slowly unfold.
2012-06-27 An Ending Made For Gold by Frank Holmes of U.S. Global Investors
Over the past several months, the markets have tested investors conviction to gold. Since February, the price of the yellow metal has steadily stepped lower, rallying somewhat in May before falling again when Ben Bernanke disappointed by not providing the U.S. with more stimulus. Meanwhile, the dollar gained ground as global investors fled the euro.
2012-06-25 And That's the Week That Was by Ron Brounes of Brounes & Associates
Ahthe doldrums of summer. Sure Greece just completed crucial elections that could have dramatic impact on the euro-zone and the global economy; AND Spain just saw its interest rates rise above the key seven percent level into traditional bailout territory; AND JP Morgan, of failed hedging fame, just received a major ratings downgrade by Moodys Investors Services; AND Facebook disappointed the investment world with its disastrous IPO, a comedy of errors for most everyone involved
2012-06-25 Volcker Does Not Rule by Jeffrey Bronchick of Cove Street Capital
There are many reasons an interested observer can conjure as to why the US economy remains in a petulant quagmire, and some of them are actually not political in nature. Our mini-treatise today is on our particular favorite: the inanity of financial services regulation and the whipping boy of the month, Jamie Dimon of JP Morgan.
2012-06-25 Let's Twist Again by Kristina Hooper of Allianz Global Investors
It looks like the Fed is finally facing up to the facts. The U.S. economic recovery has stalled and policymakers have realized that they need to step in. Despite a favorable election outcome in Greece, a renewed commitment to austerity and staying in the euro zone, the Fed has lowered its outlook for growth and extended Operation Twist.
2012-06-25 Market Breadth Pretty Good, Save for Thursday by John Buckingham of AFAM
It would have been a nice week if it wasnt for the big plunge on Thursday as that days 250-point drop in the Dow Jones Industrial Average interrupted a solid stretch in which market breadth had been quite favorable. In fact, the other four days last week saw more advancing stocks than declining stocks, looking at the New York Composite Daily Breadth statistics from this weekends Barrons Magazine.
2012-06-23 Daddy's Home by John Mauldin of Millennium Wave Advisors
This week we will look at the recent action of the Fed and use that as a springboard to think about how effective Fed policy can be in an age of deleveraging. And we simply must look at Europe.
2012-06-22 An Ending Made For Gold by Frank Holmes of U.S. Global Investors
Hold tight to your convictions, gold investors. Review your allocation to gold and gold stocks to make sure it remains around 5 to 10 percent of your portfolio. That way the precious metal can act as a shock absorber to help protect from any unexpected bumps in the financial system.
2012-06-21 Rising China is a Misnomer...and Other Actionable Takeaways by Frank Holmes of U.S. Global Investors
Did you know that at the beginning of the 19th century, China made up the largest share of the worlds GDP? This makes the term Rising China a misnomer, as the country has been simply returning to, instead of rising to, super power, says former U.S. Secretary of State Henry Kissinger.
2012-06-21 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.
2012-06-21 50 Potential Investment Opportunities to Participate in the New Golden Age: Part Three by Chuck Carnevale of F.A.S.T. Graphs
In parts one and two of this three-part series I presented a case that focused on the long-term potential for a bright future of economic strength and growth. Moreover, I pointed out that I felt that the best of what our economic future holds goes mostly ignored, in favor of a focus on our problems. Therefore, I concluded that there exists a general pessimistic view of our future that I believe is wrong.
2012-06-20 Not-So-Indian Summer: 5 Reasons to Underweight India by Russ Koesterich of iShares Blog
Russ elaborates on his underweight view of India with a BlackRock Investment Institute list of five things wrong with the Indian economy, and shares how investors can be positioning portfolios as a result.
2012-06-20 Growth Versus Austerity: A U.S. Dollar Perspective by Axel Merk of Merk Funds
Austerity versus Growth? Which economic model is sustainable? If it werent for those pesky bond vigilantes, it may be only politics. Lets not get too excited that either path will work. Lets look at the implications for investors with a focus on the U.S. dollar.
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 The Known Unknowns by Ronald Roge of R. W. Roge & Company
On Friday, June 1, 2012 we had an all day investment strategy meeting. The purpose of this semi-annual meeting is to review our current portfolio strategy and evaluate it against the current state of the global economy...Easier said than done.
2012-06-18 Cohen & Steers Large Cap Value Strategy by Team of Cohen & Steers
We would like to share with you our review and outlook for the U.S. large cap value market as of May 31, 2012. For the month, the Russell 1000 Value Index had a total return of 5.9%, compared with a total return of 6.0% for the S&P 500 Index. For the year to date, the Russell 1000 Value Index had a total return of +3.5%, compared with +5.2% for theS&P 500 Index.
2012-06-15 The Right Formula for Markets by Frank Holmes of U.S. Global Investors
Last weekend, I had the chance to experience the thrill of Formula 1 Grand Prix du Canada in Montreal. Seeing the incredible fluidity and flexibility of every race car, it got me thinking about how F1 has evolved over the past 60 years. Cars are now aerodynamic like a jet fighter, designed with wings that use the same principle as an aircraft and tires that withstand tremendous forces. Even with all these incredible advancements in technology, rules and regulations have been streamlined to reduce costs and improve safety. Since 1994, there hasnt been a fatal accident in the motorsport.
2012-06-15 Speed Up or Slow Down--Don't Exit the Commodities Highway by Frank Holmes of U.S. Global Investors
A positive signal received this week came from Goldman Sachs, when the firm recommended stepping back into the markets in its latest Commodity Watch. Goldman is anticipating a 29 percent return for the S&P GSCI Enhanced Commodity Index over the next 12 months and suggests investors might want to increase their position in commodities.
2012-06-14 The US Economy Sitting on the Threshold of a New Golden Age: Part Two by Chuck Carnevale of F.A.S.T. Graphs
In part one of this multipart series on the US economy I offered the following basic opinion: The majority of the positive aspects underpinning the US economy are being mostly ignored by mainstream media in favor of the smaller, but more titillating, negative aspects. Consequently, I believe that many Americans, and since this is an investing blog, many investors, are holding a much more negative view of the strength of the American economy than is warranted. I offer massive outflows from equity funds into Treasury bonds as evidence supporting my thesis.
2012-06-12 The Problems with Trying to Benchmark Unconstrained Portfolios by Ken Solow (Article)
Benchmarking unconstrained, 'go-anywhere' managers is difficult. Common methods to determine an appropriate benchmark - such as an ex-post regression of how the fund was invested - can obscure the actions of the manager. Is the only solution to simply select an arbitrary benchmark and proceed accordingly?
2012-06-09 A Dysfunctional Nation by John Mauldin of Millennium Wave Advisors
European leaders launched the euro project in the last century as an experiment to see whether political hope could become economic reality. What they have done is create one of the most dysfunctional economic systems in history. And the distortions inherent in that system are now playing out in an increasingly dysfunctional social order. Today we look at some rather disturbing recent events and wonder about the actual costs of that experiment. What type of "therapy" will be needed to treat the dysfunctional family that Europe has become?
2012-06-08 The US Economy Sitting On The Threshold Of A New Golden Age: Part One by Chuck Carnevale of F.A.S.T. Graphs
In the past, Ive written numerous articles positing a long-term optimistic outlook for both our economy and the attractive future growth prospects of our great American businesses. Even though I hate to forecast the market in general, I have even presented evidence indicating that the general market as represented by the S&P 500 is currently reasonably priced and even slightly undervalued. My most recent contribution can be found here.
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.
2012-06-07 May Rout Leads to June Rally by David Edwards of Heron Financial Group
We got three exogenous events in May: Greek credit crisis resumed, with Greece likely to exit the Eurozone this summer. JP Morgan Chase lost $3 billion on Credit Default Swap trading. The FaceBook FacePlant. And on June 1st, the Labor department reported a minimal gain in jobs, which has economists worried anew about the United States returning to recession.
2012-06-05 Reynolds American Inc. - Reasonably Priced with a High Yield by Team of F.A.S.T. Graphs
Even though Reynolds American Inc. (RAI) has risen substantially off of its lows in 2009, the company looks reasonably valued at todays quotations. Therefore, the dividend growth investor looking for above-average dividend yield with moderate growth might want to look closer. The company claims to be transforming the tobacco industry, and maybe it can transform your income portfolio as well.
2012-06-04 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
More importantly than not, it is vital to focus upon a bigger broader landscape when evaluating the condition of ones portfolio, than to focus upon tinier exogenous noise as those factors which indicate the probability of outperformance. Too often, and with more frequency, I have seen micro-analysis paralyze investors decision-making, rendering them incapable of reasonable response.
2012-06-04 Job Drought, Greece Wipe Out 2012 Gains by Kristina Hooper of Allianz Global Investors
The U.S. employment report dominated headlines and put investors on watch for further threats to the recovery. In Europe, Ireland's adoption of the fiscal pact was not enough to counter worries about the escalating banking problems in Spain. But as long as the U.S. savings rate, which currently stands at 3.4%, continues to decline, the downside risk to U.S. economic growth is limited. In addition, the substantial drop in the price of oil should also help boost the economy. We maintain the view that the United States will achieve 2% economic growth this year.
2012-06-02 Economic Reality Bites by Peter Schiff of Euro Pacific Capital
Many people became convinced that data releases earlier this year indicated that "recovery" in the U.S. was imminent. But as I have been saying for months, this evidence would ultimately be shown to be as reliable as sightings of Bigfoot. Lots of people claim to say they have seen it, some even produce plaster footprints, but in the end all we have is a guy in an ape suit. The economic recovery, that has been discussed so loudly and often in recent months, will be shown to be similarly mythical.
2012-06-02 The Golden Wealth of Turkey by Frank Holmes of U.S. Global Investors
When I talk about the Love Trade, India and China are frequently discussed since the two countries have been dominating world jewelry demand. Turkeys love for gold, though, cannot be overlooked, as an estimated 5,000 tons have been accumulating in peoples homes for years. Turkey is now offering incentives for people to store their gold in the bank instead. By acknowledging the hidden wealth of the Eastern European nation, this move will allow banks to lend more money and ultimately improve the countrys current account balance.
2012-06-02 Will the ECB and Fed Follow Where China Leads? by Frank Holmes of U.S. Global Investors
Every month, policymakers track purchasing managers indices (PMI) around the world as they consider fiscal and monetary actions. To us, a PMI is a measure of health of companies around the world, because it includes output, new orders, employment and prices across manufacturing, construction, retail and service sectors. Historically, weve seen Chinas PMI number leading the year-over-year change in exports by three to four months, so when the PMI has increased, a few months later, Chinese exports have historically risen, and vice versa.
2012-06-02 First Deflation, Then Inflation. But the Timing? by John Mauldin of Millennium Wave Advisors
One of the more frequent questions I am asked in meetings or after a speech is whether I think we will have inflation or deflation. My ready answer is, Yes. Then I stop, which I must admit is rather fun, as the person who asked tries to digest the answer. And while my answer is flippant, its also the truth, as I do expect both outcomes. So the follow-up question (after the obligatory chuckle from the rest of the group) is for a few more specifics. And the answer is that I expect we will first see deflation and then inflation, but the key is the timing.
2012-05-31 Wall Street Food Chain by Bill Gross of PIMCO
Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of such previously sacrosanct debt represent a potential breaking point in our now 40-year-old global monetary system. Bond investors should favor quality and clean dirty shirt sovereigns (U.S., Mexico and Brazil), for example, as well as emphasize intermediate maturities that gradually shorten over the next few years.
2012-05-29 Europe Is Near Term Driver of Market Movements by John Buckingham of AFAM
Plenty of uncertainty surrounds developments in Europe, so Ive chosen to pen this Memorial Day version of our Market Commentary on Monday afternoon rather than the usual Sunday evening. Of course, had the U.S. stock markets been open today, we might have seen a modest advance, given that the equity futures were suggesting that gains of some 40 or 50 Dow Jones Industrial Average points would be in the cards when trading resumes.
2012-05-29 Amid Uncertainty, What is an Investor to Do? by Chris Maxey and Ryan Davis of Fortigent
Markets rebounded last week after a two-week slide. The S&P 500 and Dow Jones Industrial Average rose 1.7% and 0.7%, respectively, in a choppy trading period. Discussion of a potential Greek exit from the Eurozone rattled investors, while economic data in the US was modestly positive.
2012-05-25 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.
2012-05-25 There's No Place Like America by Frank Holmes of U.S. Global Investors
Investors arent endorsing U.S. equities today. With all the positive aspects mentioned above, todays low participation in the U.S. stock market is perplexing. Here are two more reasons to invest today: 1) About 620 companies in the S&P 1500 Index are growing their revenues at more than 10 percent; and 2) 428 stocks in the index have an annualized dividend yield higher than the 10-year Treasury.
2012-05-24 Blue-Chip Dividend Growth Stocks Todays Strong Option For Retirement Portfolios - Part 1 by Chuck Carnevale of F.A.S.T. Graphs
There is a confluence of factors that are painting a very odd picture of current investor behavior. Common sense and a careful analysis of the market dynamics between equities and bonds today would indicate that investors should be acting in the exact opposite manner than they are. Interest rates are hovering at a 100-year low, which creates two problems for investors. First, there is not enough return from bonds to fund a retirees income needs or to fight inflation. Second, investing in bonds with interest rates so low makes it riskier to own bonds today than it has been in over a century.
2012-05-24 Pocket of Strength: Turkey Retail Stocks Rally by Frank Holmes of U.S. Global Investors
To add alpha, we believe investors need to continually seek pockets of strength amidst todays mire of pessimism. One bright spot weve seen lies just east of Greece: Turkey. Many investors believe banks are the only investment play in Turkey. The sole question for those investors is to hold or not to hold banks. Heres what we think is a better strategy: Invest in undervalued, diverse, smaller companies that will benefit from a resilient consumer, low unemployment rate and sound government policies.
2012-05-24 Jumping Into The Abyss: A Bull Case for Gold Mining Stocks by JJ Abodeely of Sitka Pacific Capital Management
Gold mining stocks, as measured by the AMEX Gold Bugs Index (HUI), are down nearly 40% from their August 2011 high. Representative ETFs such as GDX and GDXJ as down similar amounts, if not more. Mining company stock prices look to be falling into the abyss.
While buying mining stocks here could certainly look foolish in the near-term, NOT accumulating positions, or selling them for that matter, is likely to be the bigger mistake over the long term.
2012-05-23 Greece Poised to Default & Exit the Euro by Gary D. Halbert of Halbert Wealth Management
Weve all heard horror stories about the global financial crisis that could unfold if tiny Greece defaults on its debts later this year. There are genuine fears that if Greece defaults, that leaves the door open to similar defaults by Portugal, Ireland and possibly even Spain. Some fear, in this nightmare scenario, that even Italy could default (although I doubt it). Will the ECB pony up even more taxpayer money for Greece this time around? Most agree that this will be decided largely by Germany.
2012-05-23 The Three-Part Case for Commodities by Russ Koesterich of iShares Blog
With both gold and broader commodity indices down significantly month to date, many investors are asking if they should lower or even remove their commodity exposure. I believe the answer is no.
First, its useful to put the recent weakness in perspective. Both gold and a broad basket of commodities are down roughly 10% over the past three months. While the losses represent a significant correction, they are in line with the performance of equity markets over the same time period. Even more importantly, here are three reasons for maintaining a strategic exposure to commodities.
2012-05-22 New Lows and a Dud IPO by Christian Thwaites of Sentinel Investments
We're testing all sorts of lows: 1) record low for GT10 auction last week 2) GT30 yield, same level as Dec 2008 3) European banks are at same price level as 1987...so 25 years of gains wiped out 4) euro stocks same level as March 2009, so all the gains gone 5) US safest and best place to be 6) China stocks at same level as 2006, since then the Chinese economy has doubled and 7) to cap it all we had an IPO that should never have happened. We're back in risk territory and markets don't want to extend or commit.
2012-05-22 Return to Normalcy: The False Argument of "Austerity" vs. Growth by Team of Institutional Risk Analyst
To rescue Europe, to reinvigorate the United States, and to set the global economy on a sustainable path toward expansion, the current debate offers a so-called "choice": either slash government spending or spend your way to growth. In Europe, German Chancellor Angela Merkel is one of the most prominent proponents of fiscal restraint -- in part because Germany is picking up the tab for the continent's debt crisis. And in the United States, economist and New York Times columnist Paul Krugman is the fullest-throated supporter of more government spending.
2012-05-22 Were Off to See the Wizard by Bill Smead of Smead Capital Management
In October of 2010 we explained in a missive called The Wizard of Oz that investors had put too much confidence in the ability of a group of Chinese National, US-educated economists to manage the China economy. Thanks to the writing of Ambrose Evans-Pritchard in The Telegraph on May 13th of 2012, we can see just how successful the Wizard has been in perpetuating the myth that China can be the first major world economy to defy business cycles.
2012-05-21 Global Shipping: Any Port in a Storm? by Sai Devabhaktuni and Gregory Kennedy of PIMCO
With the exception of LNG tankers, all three major shipping categories have been suffering from a supply glut. This, combined with higher fuel costs, has led many shipping companies into financial distress. Although banks have worked with ship owners through this down cycle, they have also pulled back from financing the industry. We believe downside risks are likely minimized in the shipping industry for new lenders and investors. Vessel values are depressed by rates that are sometimes below owners' operating costs and by an oversupplied market that suppresses secondary market values.
2012-05-21 Facebook IPO Not a Flop; Underwriters Priced it Right by John Buckingham of AFAM
he social media giant ended its first day of trading up a measly 23 cents, or 0.6% from its $38 offering price, and technical difficulties at Nasdaq delayed the opening of trading and impacted market activity throughout the day, I give kudos to the underwriters for actually pricing the deal as best they could to match the relatively limited supply to the unprecedented demand. Certainly, Facebook could eventually grow into its lofty valuation, but it is eye-opening to think the disappointing first day of trading still left the company with a $100 billion+ market capitalization.
2012-05-21 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Dell (5/22), HP (5/23) and Costco (5/24) release earnings next week, but no one seems to care much these days. The Greek crisis and ongoing EU contagion will weigh on investors as G8 leaders head to Camp David to debate fiscal responsibility. (Any opportunities to compromise, Germany?) Talks of harsh financial regs continue to heat up in the aftermath of JP Morgan. Did you guys cash-out of any Facebook (as a hedge), Mr. Dimon?
2012-05-18 How Gold Demand Remains Resilient by Frank Holmes of U.S. Global Investors
Demand for gold was relatively resilient in the first quarter of 2012, with global demand falling 5 percent. Marcus Grubb, managing director of investment, calls this slight quarter decline in demand noise in the context of 22 percent rise in the price of gold compared to first quarter of 2011. Also, gold demand was very strong in the first three months of last year. Gold faced a complex quarter, as you can see by looking at jewelry demand by country. There was a significant rise in demand for jewelry from Russia, Egypt, Indonesia, Taiwan, and China, compared to the first quarter of 2011.
2012-05-18 Blue-Chip Dividend Growth Stocks Todays Strong Option For Retirement Portfolios - Part 1 by Chuck Carnevale of F.A.S.T. Graphs
There are many pundits and prognosticators that never weary of attempting to convince investors on how risky it is to invest in equities, even high-quality dividend blue-chip paying equities. Invariably, they will always point to volatility as the evidence supporting their thesis that stocks are too risky of an investment for retirees. I believe this is a great travesty that is prominently promogulated upon an unwary investing public. The inevitable interruptions in the business cycle have conditioned people into believing that stocks are riskier than they really are, at least in my opinion.
2012-05-18 Sublime to Ridiculous by John Gilbert of GR-NEAM
There was a time when governments were held to account for the long-term consequences of their financial habits. Those days appear to be long gone, of course, to policymakers frenzied at the political urgency of producing rising employment. But there must be a price to pay for thumbing our noses at lessons previously learned. We look here at just how far government husbandry of the financial system has strayed over time, and how important the consequences are likely to be in years to come.
2012-05-18 Gold: The World's Friend for 5,000 Years by Frank Holmes of U.S. Global Investors
Investors have defriended gold recently in favor of the dollar, as Greek and French voters rejected austerity measures. Greeks have been responding to their escalating debt issues for a while by steadily pulling money from overnight deposits. I often say, money goes where it is best treated, and these deposits will need to find a safe haven.
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 Global Real Estate Securities April 2012 Review and Outlook by Team of Cohen & Steers
North America fundamentals are on a slow but positive trajectory. European economic challenges keep us focused on high-quality names. Policy easing trends likely to benefit Asia Pacific.
2012-05-18 International Real Estate Securities April 2012 Review and Outlook by Team of Cohen & Steers
European economic challenges keep us focused on high-quality names. Policy easing trends likely to benefit Asia Pacific.
2012-05-17 Restoring Trust by Kendall J. Anderson of Anderson Griggs
Conflicts always exist between clients and managers. Requiring full disclosure is a step in the right direction towards minimizing these conflicts. Rules alone will not be enough to restore trust between you and those of us who considered themselves professional advisers. My suggestion is that all advisers live their life, both professional and personal under an older rule than the current body of laws. That rule is Do unto others as you would have them do unto you.
2012-05-16 A Taylor-ed View of Dividends by Team of Franklin Templeton
The baby boomer generation, people born in the U.S. from 1946 19601, numbers some 78 million and is now moving into retirement. Taylor challenges this group in particular to think differently about their investments given the current economic climate. We are currently in a low-growth, very low interest rate environment and I really dont think thats going to change too much anytime soon. Dividends and dividend yield in the equity market matter a lot more than they did before..."
2012-05-16 Germany Faces Political Isolation by John Browne of Euro Pacific Capital
One month ago it appeared that Germany held the whip hand in its titanic struggle against those seeking to cure all economic ills with the snake oil of currency debasement. Now, it appears that the ground beneath its feet is being swept away in a flood of popular unrest and political exploitation. The recent elections in Europe, which highlight both the strong grass roots revolt against Germanic demands in Greece and France show that the cause of sound money and fiscal prudence to be a lonely and difficult endeavor.
2012-05-16 Africa: Investing in the Cradle of Civilization, Part 3: Ghanas Golden Opportunties by Mark Mobius of Franklin Templeton
This year could prove an interesting one for Africas west coastal country, Ghana. Presidential and parliamentary elections are slated to be held by year-end, the results of which are almost sure to impact the shape of the countrys future. President John Atta Mills has stated in the press that he will take all necessary constitutional steps to ensure the conduct of free, fair and transparent elections. Im encouraged by the economys 14% growth in 2011 (thats faster than China!), and would be pleased to see evidence of more positive momentum.
2012-05-16 The Facebook IPO: A Note to Mark Zuckerberg; or, With Friends Like Morgan Stanley, Who Needs Enemi by Dan Ariely of Predictably Irrational
I just received this letter from a friend in the banking industry. Dear Mark, Theres been a lot of ballyhoo recently about your IPO and your choice of investment bankers. Indeed, a war was fought by the banks to win your deal of the decade. As reported in the press, the competition was so intense banks slashed their fees in order to win your business. Facebook is only paying a 1% commission for its IPO rather than the 3% typically charged by the banks. Congratulations, Mr. Zuckerberg! On the surface it appears your pals in investment banking have given you a quite a deal!Or have they?
2012-05-15 Fancy Hut by Liam Molloy and Bethany Carlson of Galway Investment Strategy
Frontier markets are not going to wait 30 years to take the global economy by storm. The parallels drawn between Africa today and 1980s China are apt, but the pace of the emerging market life cycle is likely to be accelerated by technology, investment, demographics, and other factors. The lack of a one-child policy leads to more favorable demographics. Africas workforce will be the worlds largest by 2040, surpassing both China and India. The payment-with-infrastructure investment approach favored by China can mean better transportation, utilities, and communication for whole communities.
2012-05-15 Equity Investing: From Style Box to Global Unconstrained by Andrew Pyne of PIMCO
PIMCO sees greater potential benefit to global portfolios in strategies that are unconstrained by a benchmark, and with managers who think about absolute return at least as much as they think about relative return. We believe the style box approach resulted in too great a focus on returns relative to a very narrow index and led investors to have too short of an investment time horizon in which to evaluate their managers, and that the cycles of style performance and the narrow benchmarks in the style box world encourages manager turnover and undermines long-term portfolio return potential.
2012-05-14 Dont Paint Yourself into a Corner with Overly Defensive Strategies by Vadim Zlotnikov of AllianceBernstein
Popular strategies for hedging against deflation and hyperinflation are likely to be disastrous if the economic outlook grows more benign as we expect. With the economic and policy outlook still uncertain, investors fear two contradictory but equally negative possible outcomes: deflation/deleveraging on the one hand and hyperinflation/currency devaluations on the other. As a result, instruments that can deliver protection in one or the other of these scenarios have enjoyed substantial inflows. Many investors have snapped up Treasuries, REITs and high-dividend-yielding stocks for insulation.
2012-05-14 Adaptive Asset Allocation: A True Revolution in Portfolio Management by Adam Butler and Mike Philbrick of Butler, Philbrick, Gordillo & Associates
Modern Portfolio Theory has been derided by practitioners, academics, and the media over the past ten years because the dominant application of the theory, Strategic Asset Allocation, has delivered poor performance and high volatility since the millennial technology crash. Strategic Asset Allocation probably deserves the negative press it receives, but the mathematical identity described by Markowitz in his 1967 paper is axiomatic in the same way Pythagoras' equations describe the properties of right triangles, or Schrodinger's equations describe the positional probabilities of electrons.
2012-05-14 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Celebrations normally reserved for heroic events or political ascension have been breaking out during earnings season, as first quarter (2012) portfolio valuations accelerated and year-over-year comparisons show margin expansion. Doing what they do best, market pundits have been turning flax into gold, proclaiming that the recovery has begun. Another anecdotal elixir. One always wonders whether the chicken or the egg comes first. In this case, proclaiming it to be so precedes the actual fact.
2012-05-11 Spring Quarterly Commentary by John G. Prichard of Knightsbridge Asset Management
U.S. GDP rose at a disappointing 2.2% annual rate during the first quarter of 2012; so far this recovery has been too weak to reduce relative government debt levels through growth. A step toward austerity is next years fiscal cliff which features automatic spending cuts and tax increases. We have been told one-third of the entire tax code is expiring at the end of this year, with payroll, income, capital gain and dividend tax burdens all set to increase. Simultaneously, automatic cuts to defense and other discretionary areas of the Federal budget are set to take effect.
2012-05-11 Postcard from Shenyang, China by Hardy Zhu of Matthews Asia
When people think about China, they typically think about cities like Beijing or Shanghai. But there are a number of lesser-known cities with populations as big as (or bigger than) New York. My hometown of Shenyang is one of these cities. Largely left behind during the countrys economic reforms of the 1980s and early 1990s, Shenyang has more recently started to attract some attention for the comeback it has made.
2012-05-11 Looking to China to Fire Up its Economy by Frank Holmes of U.S. Global Investors
Following on the heels of renewed concern over Europes debt situation, China released its monthly economic data. Fixed asset investment, industrial production and retail sales all rose in April, yet growth was not as strong as analysts anticipated. Weak is the word to describe Chinas April figures, says CLSAs Andy Rothman in his Sinology Report. But China wants the ability to manage a stable decline to promote medium-to-long-term structural reforms as well as avoid a hard landing, says CEBM.
2012-05-10 Gold Takes It On the ChinWhats Next? by Frank Holmes of U.S. Global Investors
The market reacted strongly to the elevated debt crisis in Europe by liquidating positions in multiple asset classes. Gold fell 3 percent this week, losing its safe haven status as the dollar grew stronger and the 10-year government note headed lower. Seasoned advisors know the markets usually overreact to negative news; they also are very aware of golds normal monthly historical volatility. Throughout the past 20 years of monthly returns, the precious metal generally increased only 0.5 percent in May, and has historically declined in June and July.
2012-05-10 Staying Bullish by Herbert Abramson and Randall Abramson of Trapeze Asset Management
We believe we are in a new bull market, and bull markets thrive on climbing that proverbial wall of worry. Bullish sentiment is low and bearish sentiment high. Anxious retail investors, having suffered two ugly bear markets since 2000, continue to shun stocks, with money flowing out of mutual equity funds now for more than 5 consecutive years. The public is hugely underinvested. Cash on the sidelines is enormous. The fuel to ultimately power stocks higher as confidence returns.
2012-05-08 Why the Best Conductors Sent Us Home Early by Justin Locke (Article)
As a professional speaker, I focus on leadership and management. But I have a major handicap to overcome: the conventional wisdom that a core goal of leadership is to motivate greater effort.
2012-05-08 The Adjusted Gold/XAU Ratio as an Indicator of Forward Returns for Gold Stocks - An Update by Georg Vrba, P.E. (Article)
The latest data have a clear message for investors: gold stocks are attractively priced.
2012-05-08 Can You Make Great Sushi Out of Crappy Fish? by Mariko Gordon (Article)
What does it take for a tiny sushi restaurant in Tokyo to earn a Michelin three-star rating? The answer offers insights for stock-picking (really!). Here are seven suggestions for determining which analysts are most worthy of your attention.
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 Toto, I have a feeling were not in Kansas anymore. by Jeffrey Saut of Raymond James Equity Research
While most people know The Wizard of Oz as one of the most popular films ever made, what is little known is that the book was based on an economic and political commentary surrounding the debate over sound money that occurred in the late 1800s. Indeed, L. Frank Baums book was penned in 1900 following unrest in the agriculture arena due to the debate between gold, silver, and the dollar standard. I revisit the dollar/gold topic this morning because I think the most important chart in the world may be in the process of breaking down. The chart in question is that of the U.S. Dollar.
2012-05-04 Bullish on America by Andrew J. Redleaf of Whitebox Advisors
Todays crisis has nothing to do with the shadow banking system or any other sort of shadow. Todays crisis is all out in the bright sunshine and remarkably straightforward. The supposed danger is that some major economic power (i.e., not Greece) will become unable to access credit markets. Spanish or Italian or French bonds will decline so steeply as to imperil the banks that own them or appear to do so, causing a run on global financial institutions as severe as 2008s.
2012-05-04 Apple is a WantGlobal Resources are Needs by Frank Holmes of U.S. Global Investors
Investors seem to be overlooking the fact that Apples products are wants, not needs. Millions of consumers want an iPad and many want a computer, yet, every single person in the world needs global resources. We need companies to grow our food; we need oil, natural gas and coal to fuel our cities. And so do the other 7 billion people on the planet. To outperform the S&P 500 over the long term, we believe investors should overweight their portfolio to the global products and services that people need, not want.
2012-05-04 Do Emerging Markets Win, Place or Show in Your Portfolio? by Frank Holmes of U.S. Global Investors
The recovery in U.S. stocks is significant and helps restore confidence in equities. Were pleased to see markets improving, especially following a rough finish in 2011. Yet there lingers a persistent negativity toward emerging markets growth and commodities that prevents many investors from jockeying their portfolios into a position for growth. Rather, they remain spectators on the sidelines, with equity fund outflows continuing.
2012-05-03 How Big is Almost? by Andrew J. Redleaf, Blaise Morton, an Richard Vigilante of Whitebox Advisors
For decades the fondest wish of the finance professoriate has been to prove that money managers who believe they earn alpha are kidding themselves and their customers. The latest attempt, titled Active Portfolio Management and Positive Alphas: Fact or Fantasy? is the work of Cornells Robert A. Jarrow, a prestigious name in mathematical finance. Jarrow, based on some previous work with Philip Protter, sets out to prove that the source of all (or nearly all) alpha must be a true arbitrage. Since true arbitrage is vanishingly rare, he then argues alpha must be as well.
2012-05-02 Investments vs. Outvestments by Andrew J. Redleaf of Whitebox Advisors
This is a great time to invest. But you have to make sure you really are investing and not accidentally outvesting. The market is currently sorting credit into about four big categories. Three of those categories are priced roughly in reference to Treasuries (outvestments). Those are the categories in which we are not interested. The first category, obviously, is Treasuries themselves. Next, short-term paper of super-blue-chip firms. Third, bonds that are just on the border of being investments. Finally, all domestic bonds whose prices are detached from Treasuries.
2012-05-02 Its Good To Be The King by Chris Richey of Neosho Capital
The sovereign Greek debt default will ultimately lead to a sovereign Spanish debt default, and thus we tell you why sovereign debt should not be viewed as risk-free.
2012-05-02 Digbys Umbrella and a Dinner to Remember by Christian Thwaites of Sentinel Investments
The US economy is on a painfully slow road. It is recovering. Jobs numbers are better, even though some hiring in the first quarter may have been brought forward by mild weather. Production, manufacturing and exports, all signs of regained competitiveness in the US, are showing steady improvements. And the government sector is contracting. Not on purpose mind you, but jumping off a cliff and letting inertia do the work result in the same end. Above all of this, we have a Fed using every monetary policy at their disposal to try and promote growth and employment.
2012-05-01 Another Story of Too Much Debt: Investing During Unsustainable Economic Conditions by Brian McAuley (Article)
US-based investors cannot ignore the macro environment, and therefore must consider the consequences of our increasing indebtedness and its impact on capital markets. We can gain valuable insights into our fiscal problems from the housing bubble and the European sovereign debt crisis - lessons which every value investor should heed.
2012-05-01 Don't End the Fed, Mend the Fed by Paul Kasriel of Northern Trust
Congressman Ron Paul has written a book entitled End the Fed. I have to admit that I have not read his book. But I have read many of Congressman Pauls excellent (in my opinion) essays on monetary theory and policy. Congressman Paul likely argues in End the Fed that the Fed and other central banks have created monetary "mischief" in the past and are likely to continue to do so in the future. Because of this monetary mischief, I assume that Congressman Paul would like to replace the Fed and other central banks with some form of a gold standard. I share Congressman Pauls sentiments.
2012-05-01 Trading For Now, No Breakout Yet by Christian Thwaites of Sentinel Investments
Markets seem to be taking the broader economic news in their stride. The FOMC confirmed its policy, so no new buying but also no unwind on the balance sheet. The demand for safe assets remains very high and that leads us straight to MBS where we maintain a very over-weight position. Equities are drifting higher, which we like as we increased the position some weeks ago. It helps that positive surprises outnumber negative surprises by 3:1 so far this earnings season. The market tends to overreact to news which suggests there's lack of conviction. But at least there's no over-valuation.
2012-05-01 Tuesday Never Comes by Bill Gross of PIMCO
The current acceleration of credit via central bank policies will likely produce a positive rate of real economic growth this year for most developed countries, but the structural distortions brought about by zero bound interest rates will limit that growth and induce serious risks in future years. Gradually higher rates of inflation should be the result of QE policies and zero bound yields. Focus on securities with shorter durations bonds with maturities in the 5-year range and stocks paying dividends that offer 3%4% yields. Real assets/commodities should occupy an increasing percentage.
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.
2012-04-28 A Gold Standard? by John Mauldin of Millennium Wave Advisors
Here is a speech by Jim Grant to the New York Federal Reserve. The always erudite Grant takes us back in time to the very beginnings of the Federal Reserve, to show us how far we have strayed from the original intent. Grant argued for a return to the gold standard in the very halls of fiat money! It seems the New York Fed is asking some of its critics to come and speak.
2012-04-27 Yes, They Do: Low Interest Rates Do Make Stocks Cheap by Chuck Carnevale of F.A.S.T. Graphs
Im inspired to write this article because I am so frustrated by the plethora of all the so-called expert market prognosticators that continuously bombard the public with negative forecasts. I consider this to be both erroneous and irrational. When the markets are doing well, we are immediately inundated with articles talking about how the market has surely topped and a big drop is imminent. The real truth of the matter is that nobody really knows. Not the Fed, nor any of the so-called experts. Pessimism is pervasive, but optimism is, in fact, more accurate and rational in my opinion.
2012-04-27 What are ETF and Mutual Fund flows telling us? by Kevin Mahn of Hennion & Walsh Asset Management
On the ETF front, while we did see some positive net flows into bond-oriented ETFs (notably High Yield Bonds), we also observed significant funds flowing into domestic and international emerging market equity products. In terms of outflows, or redemptions in this case, funds were flowing out of a wide variety of Morningstar categories, albeit only slightly on the bond-oriented front. I believe that the divergence in fund flow information for the first quarter of 2012 may primarily be related to the types of investors who generally invest in the products.
2012-04-27 Sell in May and Go Away? Not this Year by Frank Holmes of U.S. Global Investors
One catchy investing maxim thats popular this time of year is sell in May and go away, the notion that investors should cash in their investments and take the summer off. We believe its a much better market this year. After following a similar trajectory as the previous year from October to the beginning of March, improving economic data pushed the S&P 500 over 3 percent higher in March 2012 after trending sideways during the same time period last year.
2012-04-24 Is 2012 the Year for Hedge Funds? by Chris Maxey of Fortigent
Prior to the financial crisis, hedge funds were largely viewed as alpha generating, high return seeking, portfolio diversifiers. In 2008, that model came under attack from multiple angles fraud, illiquidity, and poor returns being the primary culprit. Ever since that time, the value proposition of hedge funds and alternative investments remains in question, causing some to wonder if this is a make or break year for the space. There is reason to think the environment for hedge funds and active managers is improving.
2012-04-24 The Dutch Debacle and the Market Ramifications by Monty Agarwal of MA Capital Management
The Dutch governing coalition collapsed on Saturday when far-right politician Geert Wilders pulled out of budget cut talks, saying it was not in the Netherlands interest to meet the deficit limit of 3% imposed by the new European fiscal pact. Highlighting widespread voter anger over EU-imposed budget cuts, Mr. Wilders said he could not allow Dutch citizens to "pay out of their pockets for the senseless demands of Brussels". "We dont want to follow Brussels orders. We dont want to make our retirees bleed for Brussels diktats," Mr. Wilders said.
2012-04-24 Real Career Risk by Bill Smead of Smead Capital Management
Real career risk is too many people doing what you do for a living. Granthams problem is that every day three million brilliant people get up and spend most of their waking hours trying to practice wide asset allocation. Most of those three million brilliant people have strong backgrounds in economics and lean on their ability to make macroeconomic predictions. Too many people are doing the same thing at the same time for a living. Therefore, they need to either move to another town or wait patiently for most of the other bright people to take up another profession.
2012-04-24 The Weight of AAPL and Mixed Data in the U.S. by John Buckingham of AFAM
Last week was quite an interesting week, with investor darling Apple Computer shedding another 5.3% of its value after losing 4.5% in the week prior, the latest economic numbers generally coming in a bit weaker than expected and first quarter earnings reporting season getting off to a solid start. Happily, though there was no shortage of daily volatility, the major market averages all ended in the green, which rebounded by 1.4%. While Apple is not a Dow component, it presence in the Russell 3000 and the S&P 500 did not help those indexes, each of which turned in returns of less than 0.7%.
2012-04-24 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Dr. Bernanke and friends get together again to set monetary policy and will discuss oil and gas prices and the effect on inflation as well the newfound labor slowdown. Still, no one expects any additional stimulus moves at this time and the policymakers should reiterate their intent to keep the funds rate at near-zero percent well into 2014. The future of Europe remains atop the headlines as France holds crucial national elections and the IMF convenes for its semi-annual soiree.
2012-04-21 A Little Bull's Eye Investing by John Mauldin of Millennium Wave Advisors
Bull's Eye Investing was the book that really helped establish this letter. It dealt with a host of investing ideas, secular market cycles, value investing, alternative investing, and more. I have taken that material, updated it, and written a new book, part of the Little Book series done by Wiley, called The Little Book of Bull's Eye Investing Finding Value, Generating Absolute Returns, and Controlling Risk in Turbulent Markets. I have waited to announce this one until it is off the presses and being shipped. Here is the introduction and part of the first chapter of the book.
2012-04-20 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 Small Cap Outlook 1Q12 by 1492 Investment Team of 1492 Capital Management
While weve seen the markets advance nicely, we think the market could gain more than 25% this year as the U.S. economy continues to move ahead and the rest of the world is in stimulus mode. Most importantly, there are still plenty of bears calling for recession, despite an ongoing barrage of better economic statistics. No doubt the remainder of the year will give the stock market plenty to ponder like the U.S. Presidential election, ongoing European debt crisis fallout and concerns about Chinas economic growth. Read on to understand why were so bullish on the U.S. stock market.
2012-04-20 Weighing the Evidence of Oil and Gold Stocks by Frank Holmes of U.S. Global Investors
We believe in thinking contrarian and keeping a close eye on historical trends to discover inflection points, as stocks tend to eventually revert to their means. For example, in March 2009, we noted significant changes signaling the market had hit rock bottom; following that time through the end of the first quarter, the S&P 500 Index rose more than 100 percent. Todays extreme divergence in oil and gold stocks and their underlying commodities presents a rare opportunity: what these stocks need now are investors to take advantage of it.
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 Huge Dilemma: Do You Protect Your Job or Your Clients' Money? by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I feel like a broken record. Jeremy Grantham, John Hussman, and Lance Roberts of Streettalk Live surely feel the same way. I have been preaching the "low returns for a decade" concept for quite some time. It is very tough preaching caution, when caution is routinely tossed to the winds. Yet history has proven time and time again, that such times are precisely when caution is warranted, even though timing the precise moment is simply impossible.
2012-04-18 Stock Picking in a World of Profit Margin Mean Reversion by Bill Smead of Smead Capital Management
We feel investors should avoid capital intensive companies which are tied to commodities or emerging markets. As interest rates rise and capital becomes dear, those who eat capital lose and those with strong balance sheets and who generate high and consistent free cash flow, should win. As Buffet, Grantham, Hutchinson and Stein pointed out, someone loses in the reversion to the mean of profit margins when compared to GDP. Lastly, dont be fooled by those who are bearish on the stock market because of their belief in profit margin reversion.
2012-04-18 Ride the Wave of Crude? by Brad Sorensen of Charles Schwab
Crude-oil prices have moved steadily higher over the past several months, but the move may not be sustainable.
Geopolitical tensions are unpredictable, but the response in demand to rising prices has become more rapid, and we see other downside risks.
Investing directly in the energy sector may not be the best way to try to benefit from rising oil prices, given new investing options, along with companies' various costs and sources of revenue.
2012-04-18 Quirky Tales and Waves of Change by Doug MacKay and Bill Hoover of Broadleaf Partners
While almost all commodities (ag, chemicals, and energy) have tended to move up and down together in price, oil has always beat to a different drummer, likely as a function of the ebb and flow of geopolitical concerns and the physical location of most known reserves. I would guess, however, if natural gas is in such abundance domestically, it could very well be the case around the globe. The prospect for $200 oil might be as remote as NASDAQ 5000.
2012-04-17 The Rebalancing Problem by Michael Nairne (Article)
Selling winning asset classes to buy losers runs counter to human nature. But doing so with discipline can increase the potential return of a portfolio while critically maintaining its risk profile. The rebalancing premium is an important and often overlooked addition to returns of properly managed portfolios.
2012-04-17 Muppet Capers by Michael Lewitt (Article)
Investors enjoyed strong stock market and credit market gains during the first quarter of the year, but storm clouds may be forming on the horizon. Corporate profits have likely peaked. Stocks may be the best house in a bad neighborhood, but houses in that neighborhood appear to be fully priced for now. There are also some troubling signs in the bond markets, particularly the long end.
2012-04-17 The Unemployment Rate: A Coincident Recession Indicator by Georg Vrba, P.E. and Dwaine van Vuuren (Article)
For what is considered to be a lagging indicator of the economy, the unemployment rate provides surprisingly good signals for the beginnings and ends of recessions. We have developed a model that uses unemployment figures to produce these signals and to determine the probability of when a recession may start.
2012-04-17 Investor Question: Gold or Gold Miners? by Russ Koesterich of iShares Blog
The Fed may be the best friend gold investors ever had. The most important factor for gold is actually not inflation or the dollar, but rather the level of real interest rates. In fact, the relationship between gold and real rates is so critical that since 1990, the level of real rates explains roughly 60% of the annual performance of gold. Gold generally does best in an environment in which real rates are low to negative as this means no opportunity cost to holding gold. Since 2003 when gold began its long-term outperformance we have been in just such an environment.
2012-04-17 How to Invest in the Best Equity Region in the World by Monty Agarwal of MA Capital Management
I believe that over the next several years, the single best region to buy and hold patiently will be Africa. Africas biggest lure are its vast hordes of natural resources. It is home to: 13% of the global reserves for oil, 50% of proven gold reserves, 50% of proven iron ore reserves, and 60% of cobalt. China, perhaps one of the hungriest consumer of natural resources and a savvy investor, is buying up mining rights and signing land deals everywhere in Africa. Here are a few more metrics that look very attractive for Africa.
2012-04-17 Earnings on a Hot Plate by Chris Maxey of Fortigent
While the economy has displayed fits and starts of entering a sustained recovery over the past several years, there has been no doubt about the ability of companies to reshape their balance sheets and refocus their businesses. In the midst of first quarter earnings season, there are some concerns that the corporate hot streak will come to an abrupt end, but the reduction in earnings expectations since late last year appears to be favoring another positive earnings season.
2012-04-17 Mind the Gap by Liam Molloy and Bethany Carlson of Galway Investment Strategy
There is almost always a gap between price and value. Over the next few years price volatility is likely to be the source of the gap as sentiment waffles from overly exuberant to downright pessimistic. In the era of the 24-hour news cycle, high frequency trading, and an ever shortening investor attention span, prices move fast. Markets are emotional creatures and have a tendency to boom and bust. There have been occasions when underlying changes of value have gone unrecognized for sustained periods, and the gap was not primarily a function of price volatility.
2012-04-17 Quarterly Review and Outlook First Quarter 2012 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
From both economic theory and historical experience the answer is clear; austerity is the solution to too much debt. McKinsey Global Institute examined 32 cases where extreme leverage caused financial crises since the 1930s. In 24, or 75% of these cases austerity was required, which McKinsey defines as a multi-year and sustained increase in the saving rate. Public and/or private borrowers took on too much debt because they lived beyond their means, or they consumed more than they earned. Thus, to reverse the problem spending had to be held below income, increasing the saving rate.
2012-04-14 The War for Spain by John Mauldin of Millennium Wave Advisors
The inflection point that I thought the ECB had pushed down the road for at least a year with their recent 1 trillion LTRO is now rushing toward us much faster than Draghi had in mind when he launched his massive funding operation. So, we must pay attention to what Spain has done this week which, to my surprise, seems to have escaped the attention of the major media. It may be considered a tipping point when the crisis is analyzed by some future historian. And then we'll get back to some additional details on the US employment situation, starting with a few rather shocking data points.
2012-04-13 Groundhog Year by Rick Lear of Sloan Wealth Management
This week the titles were again of debt crisis in Europe. But Europe was not the only recurring item. Many other aspects seemed strikingly familiarlike they just happened last year.and the year before. This year, The EM guys still like Emerging Markets, the folks taking TARP money are still on the front page of paper, the guys selling proprietary products still have charts to support their products, trouble in Middle East, North Koreans may have nuclear weapons, the bond guys still like bonds, the stock guys still like stocks, perm-a-bears still gloomy and Washington still a mess.
2012-04-13 Wheres the Beef for Gold Equities? by Frank Holmes of U.S. Global Investors
If you plan on shopping for bargains in the gold miner department, youre going to fight a crowd. Numerous global investors have been pounding the table for gold stocks, including Marc Faber who said gold shares have become extremely oversold and could rebound in the next few days and Global Portfolio Strategist Don Coxe, who reiterated that gold equities are undervalued compared to the precious metal. A big buyer has been the miners themselves. Mergers and acquisitions in the mining sector have been at an all-time high over the past two years. Theyve been willing to pay a premium too.
2012-04-10 Allocating to Real Assets: Why Diversification Matters by Cohen & Steers (Article)
One way to extend the long-term purchasing power of a traditional stock and bond portfolio is through an allocation to real assets. But individually, categories like commodities, natural resource equities and REITs can be volatile. Cohen & Steers meets the challenge with a focus on broad asset-class diversification.
2012-04-10 Down the Rabbit Hole of Cognitive Dissonance by Mariko Gordon (Article)
What you see is not always what you get. It is easy to misinterpret signals and leap to the wrong conclusions, and it is vital to keep working until you get to the truth.
2012-04-10 Managing Expectations: Why Gold Should Thrive by Frank Holmes of U.S. Global Investors
It was a challenging week for gold investors. Although the yellow metal has been on a spectacular 11-year bull run, some think golds heyday is over. This March, there seemed to be one main driver eight thousand miles away negatively affecting gold prices. I often say that government policy is a precursor to change, and fiscal policy strongly affected the Love Trade in India last month. To trim its current account deficit, Indias finance minister proposed doubling the customs tax on the precious metal. As a result, gold imports into the worlds largest gold market fell 55 percent.
2012-04-10 Which Stocks Win on Main Streets Comeback? by Bill Smead of Smead Capital Management
We are very excited about the next three to five years because we believe it is likely that Main Street will start to compete with Wall Street for capital and economic growth will accelerate. Unemployment rates would fall in that scenario and pent-up demand for goods and services could come out of the woodwork among average American households. What we mean by saying this is that capital will begin being demanded for business activities. As capital gets demanded for business activities ranging from housing to business expansion, the cost of capital will rise and bond prices would fall.
2012-04-09 Pigs and Panics! by Jeffrey Saut of Raymond James Equity Research
As stated, this is a key week for the equity markets and we continue to wait and see how the equity markets resolve themselves on a short-term basis, a trading stance we have been in for weeks. Meanwhile, for investors, I met with a portfolio manager last week whose investment style I think is suited for the current stock market climate. The investment style of Troy Shaver, PM of Dividend Asset Capital, sub-advisor to Goldman Sachs Rising Dividend Growth Fund (GSRAX/$15.05), is to invest in companies that increase their dividends by 10% per year on average for 10 years in a row.
2012-04-09 Strong Fundamentals Drive Best First Quarter Since 1998 by Douglas Cote of ING Investment Management
The best first quarter since 1998 was marked by strong fundamentals and reduced volatility and global risk.Could it be that the vicious cycle of the past few years has been broken? Could we have entered into the type of virtuous cycle in which positive data beget more positive data, as has marked prior sustained bull markets? Sell in May and go away and other bear strategies that have worked in prior years will likely be ineffective this year, driven in large part by strong fundamentals and global risks that have been excessively discounted.
2012-04-06 Managing Expectations: Why Gold Should Thrive by Frank Holmes of U.S. Global Investors
Its been a challenging week for gold investors. As I often say, investing, like life, is about managing expectations. Over the past 11 years during golds spectacular bull run, investors should remember that price action can go both ways. What helps is to look at the historical rise and fall of gold. For example, looking at the past decade of one-day 5 percent drops in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5 percent in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.
2012-04-05 NewsLetter - April 2012 by Harold Evensky of Evensky & Katz
Although we continue to believe in the tenets of Modern Portfolio Theory, the concept is Buy-and-Manage not Buy-and-Forget. As a consequence, we made numerous adjustments to our strategic allocations over the years. And, consistent with our buy-and-manage philosophy, for the last few years weve been studying investment markets and have come to believe that long-term future returns are likely to be even lower then we estimated in 2002, market risk will be higher and the benefits from diversification less (i.e., correlations will be higher).
2012-04-05 BRICS Plan for the Future by John Browne of Euro Pacific Capital
Last week, the leaders of Brazil, Russia, India, China, and South Africa met in New Delhi for their fourth annual "BRICS" summit. The meeting brought together five countries that together represent 43% of the world's population and 18% of the world's GDP. When the gathering concluded on March 29, the coalition subtly issued its latest challenge to the increasingly desperate bankers and politicians of the West. They announced more definitive plans to establish a BRICS-focused development bank, to be solely funded by the BRICS countries themselves.
2012-04-04 What Goldmines and Landmines Lie Ahead for Investors in Burma? by Patricia Higase of Link Road Capital Management
The events of the last few months in Burma, in particular the countrys decision to float its currency and allow foreign press to observe elections were unprecedented and clearly a divergence from the past. It appears the difference in this election in Burma to previous times is that parties involved are more economically driven. Aung San Su Kyis decision to move ahead for the people despite her dissatisfaction with the way the elections were conducted was another signal of a more practical approach to moving the country forward.
2012-04-04 Drilling Into Fuel Prices by Team of Franklin Templeton
Gasoline, deodorant, dishwashing, liquid, eye glasses, crayons.What does this list of seemingly random items have in common? They are all made from refined crude oil.1 So even if you dont feel pain at the gas pump, you probably rely on more products made with or from crude oil than youd think. And of course even non-oil based products are generally shipped via fuel-consuming transport vehicles, so youre bound to feel the pinch in the form of fuel surcharges or price hikes sooner or later.
2012-04-03 Disappointing Ending to a Great Quarter, No Reason to Alter our Bullish Stance by John Buckingham of AFAM
Though we were reminded the last couple of weeks that equity prices dont simply go straight up and we know that a 3% to 5% pullback is overdue, we remain optimistic about the long-term prospects for our broadly diversified portfolios of undervalued stocks. Our rationale remains unchanged. Economic data has been improving (Q4 GDP Growth came in at 3.0%, while Gross Domestic Income increased 4.4%). Valuations are generally not rich, especially considering the incredibly low interest rate environment and the strength of corporate balance sheets.
2012-04-02 1Q 2012: Why The Rally Can Last by Chuck Royce of The Royce Funds
We're seeing one of those rare occasions when one of our predictions for the market as a whole worked out almost exactly the way we thought it would. For a while now, we have been noting the disjunct between the very negative and alarmist headlines and the more optimistic view our own analyses and contacts with managements were revealing. It seemed to us as early as last September that the economy was in better shape than the conventional wisdom was suggesting.
2012-04-02 The Manufacturing Renaissance by Kristina Hooper of Allianz Global Investors
While unemployment remains elevated, the U.S. manufacturing sector has quietly staged a dramatic turnaround, one that could be a pillar of support for the economic recovery. Jobs shipped overseas decades ago are now returning home. Productivity has grown significantly thanks to advances in technology and favorable exchange rates with Americas trading partners. The cost of labor per output in the United States has decreased. Manufacturing in this country may never return to its golden years, but it is certainly experiencing a rebirth of sorts.
2012-03-30 Stocks, Bonds, and the Efficacy of Global Dividends by Ehren Stanhope, CFA of O'Shaughnessey Asset management
First, we look at the prospects for the two assets classes that comprise a majority of investors portfolios: stocks and bonds. Second, we review one of the most tried-and-true investment strategies that has been a part of the investment lexicon since the beginning of the modern investment era: dividends. But we do so with a caveat global dividends. Finally, we review the results of two strategies back to 1977 to demonstrate the applicability of our approach. We think you will find the results both eye opening and compelling.
2012-03-30 Does China Hold the Winning Ticket? by Frank Holmes of U.S. Global Investors
Some bears may think the odds of China being the winner among emerging markets in 2012 are also remote. Over the past few years, Chinese stocks have lagged compared to its emerging market peers. However, the Periodic Table of Emerging Markets perfectly illustrates: last years loser can be this years winner. Historically, every emerging country has experienced wide price fluctuations from year to year. Over time, though, each country tends to revert to the mean.
2012-03-30 Singapore Gateway to Southeast Asia by Mark Mobius of Franklin Templeton
Viewing the region from the now 20-year old seat of our Singapore office, what we see in Southeast Asia is a generally favorable combination of rising per-capita incomes and a relatively young population, a recipe with the potential to fuel the appetite for a wide variety of consumer goods. The challenges Southeast Asian markets face must not be easily dismissed, but overall I am optimistic about the regions long-term growth potential.
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.
2012-03-29 Stocks: Still a Bargain by Russ Koesterich of iShares Blog
With global stocks up approximately 25% from their fall low and many market watchers endorsing equities in recent weeks, its hardly surprising that investors are wondering if stocks are still a good bargain. While some measures of sentiment notably abnormally low volatility levels could be interpreted as flashing yellow caution signs, valuations and fundamentals still favor global stocks over the long term. Currently, equities look reasonably priced. Developed market equities are trading at around 14.5x trailing earnings, while large emerging markets are trading at roughly 12x earnings.
2012-03-27 GMO: Two Questions We Can't Answer by Robert Huebscher (Article)
Its reputation was built on stellar returns achieved with long-term bets on undervalued asset classes. Current market conditions, however, pose two unanswerable questions for GMO – leaving the firm with an uncertain strategy for its equities and fixed-income allocations.
2012-03-27 Jack Bogle: The Triumph of the Index Fund by Robert Huebscher (Article)
Jack Bogle has spent his career selling investors on virtues of index funds. In a talk last week, he spoke triumphantly, as if the battle is all but over.
2012-03-27 Investors Still Not Showing Stocks Much Love, U.S. Numbers Pretty Good by John Buckingham of AFAM
Given that the equity markets have been overdue for at least some sort of a pullback, we cant complain too much about the modest three-day selloff that occurred midweek, especially when stocks bounced back nicely on Friday. True, the Dow Jones Industrial Average fell over 150 points on the week, but losses in the other major indexes were generally smaller and with the equity futures on Sunday night signaling that trading in the new week will get off to a decent start, we might argue that last weeks action was a pause that refreshes as opposed to a warning shot across the bow.
2012-03-27 The Great Escape: Delivering in a Delevering World by Bill Gross of PIMCO
When interest rates cannot be lowered further or risk spreads significantly compressed, the momentum begins to shift, gradually yields moving mildly higher and spreads stabilizing or moving slightly wider. In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form. We favor high quality, shorter duration and inflation-protected bonds; dividend paying stocks with a preference for developing over developed markets; and inflation-sensitive, supply-constrained commodity products.
2012-03-27 Bernanke's Problem with the Gold Standard by Axel Merk of Merk Funds
In his new lecture series, Federal Reserve (Fed) Chairman Ben Bernanke is going out of his way to discuss the "problems with the gold standard." To a central banker, the gold standard may be considered "competition," as their power would likely be greatly diminished if the U.S. were on a gold standard. The Fed, Bernanke argues, is the answer to the problems of the gold standard. We respectfully disagree. We disagree because the Fed ought to look at a different problem.
2012-03-27 Buy Commodities, Sell Brands by Bill Smead of Smead Capital Management
Warren Buffett was quoted the other day saying, We like companies which buy a commodity and sell a brand. We thought it would be very helpful to unpack his thought and put it into the context of today. We believe these current circumstances are framed by the historical over-pricing of commodities, the coming economic contraction of China, the successful cleansing of the income statements of US households and the inevitable rebound in housing in the US. We will look at the makeup of our portfolio companies which buy a commodity and sell a brand to consider their upside in this environment.
2012-03-26 Patience by Jeffrey Saut of Raymond James Equity Research
I continue to exercise patience with the equity markets while I sit on the cash raised over the past number of weeks. Unlike many, I consider cash an asset class. Indeed, to assume the investment opportunity sets that are available to you today are better than ones that will present themselves next week or next month is nave. To take advantage of those opportunity sets one needs to have some cash. For those wishing to be more aggressive, it looks to me as if the U.S. dollar is in the process of breaking down.
2012-03-26 Did Steve Jobs Despise Shareholders? by Charles Lieberman of Advisors Capital Management
Last week, Apple announced it will initiate a $2.65 per share quarterly dividend and a $10 billion share repurchase program. Clearly, since the passing of Mr. Jobs, management has focused more of its attention on shareholders, something uninteresting to Mr. Jobs. He wanted to make "cool things" and everything else was secondary. Mr. Jobs didn't have much patience for people, as revealed in his recent biography; I would imagine the same went for shareholders. For a man who seized on technological opportunities, Steve Jobs' ignorance for shareholders missed some great financial ones.
2012-03-26 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Hard data hasnt been collected, but its a safe bet that we waste more food and energy resources than we think. A green boom is a common dialogue amongst some communities but, not universal. In fact, green technology is often a luxury that only wealthy nations can talk about. And yet with so much money being wasted, there are no permanent solutions for spreading the bounty. Alternative energy and agricultural science are in their gestational periods, historically, and far from being the immediate solution to environment mis-management.
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 Large Cap Value Strategy February 2012 Review & Outlook by Team of Cohen & Steers
Our near-term outlook for the U.S. economy and markets is increasingly favorable, as several of our long-term concerns appear to be easing. Economic indicators are strengthening, the danger of a eurozone collapse has receded and earnings reports for 2011 have been good. Valuations remain attractive, if somewhat less so than a few months ago, and investors are poised to put their considerable cash balances back to work. Cyclical names and sectors are most likely to lead the rally over the next few months.
2012-03-23 Gold and China: Where the Bulls and Bears Square Off by Frank Holmes of U.S. Global Investors
To paraphrase the great Steve Martin, todays investors are very passionate people and passionate people tend to overreact at times. An overreaction is exactly whats happened in gold and global markets in recent weeks. While market bulls have been sniffing out data points to support their case, market bears have continued to take a glass-half-empty approach. Gold and China are two areas that have been caught in the bear trap this week, but we believe the gold and China bulls still have room to run.
2012-03-22 Why Gold Can Go the Distance by Frank Holmes of U.S. Global Investors
Golds been knocked down lately, but several enduring factors have conditioned the yellow metal for an inevitable comeback. Since the beginning of 2012, gold has trailed its precious metals peers, gaining only about 6 percent compared to double-digit returns for silver and platinum. At the end of February, gold was especially hard hit, following Ben Bernankes announcement that there would be no additional quantitative easing and the European Central Bank offering additional LTRO loans to banks.
2012-03-22 Dont Wait Too Long to Inflation-Proof Your Portfolio by Kevin D. Mahn of Hennion & Walsh
Most media outlets, in addition to the Fed, focus on core inflation readings. We think that this could be very misleading because mainstream America does not have the luxury of excluding food and energy from their everyday lives. Hence, if food and energy prices are rising (and not being picked up by the core inflation readings), Americans are likely to have less disposable income, unless commensurate increases in wages occur to offset the price increases. Less disposable income generally leads to lower overall consumer sentiment/confidence which translates into lower consumer spending.
2012-03-22 Brazil Retail Sector Riding the Wave of Middle Class Growth by Team of Thomas White International
Even in the late 1990s, Brazil was just like any other emerging economy, characterized by extremes of wealth and abject poverty with no social class dividing the bridge between. A decade and more down the line, the effervescence in the middle cannot be missed. Yes, the great Brazilian middle class defined as those who earn between $690 and $2,970 a month has arrived and is here to stay. If Brazil has made a name in the global retail sector, it had better thank these late comers, empowered with good purchasing power and access to credit.
2012-03-20 Jeremy Grantham: This Time is Different by Michael Edesess (Article)
Jeremy Grantham is a paradox. A man who has said many times, 'This time it's different are the four most dangerous words in the English language,' is now saying - loud and clear - this time it really is different.
2012-03-20 Is There a Bubble in Treasuries? by Mike "Mish" Shedlock of Sitka Pacific Capital Management
Both Sides of the Case; Explaining the 2011 Treasury Rally (It's Not What You Think); Where to From Here? People have been calling a bubble in treasuries for at least a decade. The shocking result, especially to hyperinflationists, has been a stair-step decline in yields for 30 years. That's quite a long time.
2012-03-20 LOSE CASH by Jeffrey Saut of Raymond James Equity Research
I do expect stocks to be higher by year end. Last Tuesdays upside breakout turned out to be the first 90% Upside Day of this year. To negate that action would require a sell-off on heavy volume that results in a closing price below the previous rallys closing high of 1374.09 on the SPX. Still, the stock market may have enough forereach to tag 1420, but in my opinion the games not worth the candle. For investors not sharing my counsel, I continue to like the strategy of buying stocks that have recently declined for one-off reasons where the bullish fundamental story is still intact.
2012-03-19 The Fed's March Madness by Brian S. Wesbury and Robert Stein of First Trust Advisors
The best currency to be in over the next year or so is the US dollar. Yes, the Fed is loose, but everyone already knows that. Its priced in. The issue today is whether the Fed tightens policy faster than investors previously thought. And that looks increasingly likely. Momentum is now shifting toward the US, with some global investors looking at equity returns sweetened by currency gains. Add higher US bond yields and emerging markets should be even more willing to buy US assets. A self-sustaining, virtuous cycle is emerging, the kind that often forms in long-term bull markets.
2012-03-19 Stocks: More Room to Run by Bob Doll of BlackRock Investment Management
While it is important to remain cognizant of the risks facing the markets, our overall view toward stocks remains constructive. Since the current rally began last autumn, we have seen some market pullbacks, but they have been brief and shallow, likely because many investors remain underweight equities and have been using pullbacks to buy on price dips. Now that bond prices are falling, we believe investors as a whole will finally begin to move out of Treasuries and into stocks. As such, as long as the macro fundamentals remain reasonably good, we believe equities should grind higher from here.
2012-03-16 The Heart of March Madness by Frank Holmes of U.S. Global Investors
Everyone agrees that its unethical to put the firms interest ahead of its clients. More importantly, a self-serving financial attitude is a breach of fiduciary duties. It may be possible that Goldman Sachs has moral issues, but not all financial firms are morally bankrupt. Nor are thousands of executives and professionals employed in the industrymoms, dads, uncles, aunts, daughters, sonswho are hard-working and acting in the best interest of their customers.
2012-03-15 Mr. BRIC Trade is on Our Side by Bill Smead of Smead Capital Management
A recent article in "The National" quoted Jim O'Neil as saying that current supply and demand for oil indicates that $80 to $100 per barrel for Brent Crude would be a fair price. O'Neil is a very savvy economist for Goldman Sachs, who coined the phrase BRIC trade back in 2001. Since that qualified him as an investment "Wayne Gretsky", we believe his thoughts are worthwhile. O'Neil argues that there are no winners in a war over Iran's nuclear capability. Therefore, he argues that the $25-35 premium in the price per barrel, would disappear by summer. We agree wholeheartedly.
2012-03-15 Stress Tests No Sweat by Peter Schiff of Euro Pacific Capital
The Federal Reserve ran another "stress test" on major financial institutions and has determined that 15 of the 19 tested are safe, even in the most extreme circumstances: an unemployment rate of 13%, a 50% decline in stock prices, and a further 21% decline in housing prices. The problem is that the most important factor that will determine these banks' long-term viability was purposefully overlooked - interest rates.
2012-03-15 Why Our Recession Call Stands by Lakshman Achuthan and Anirvan Banerji of ECRI
Many have questioned why, in the face of improving economic data, ECRI has maintained its recession call. The straight answer is that the objective economic indicators we monitor, including those we make public, give us no other choice.
2012-03-13 Concentrated Equity Triple Play Higher Returns, Lower Risk, Lower Correlations by C. Thomas Howard, Ph.D. (Article)
Concentrating a portfolio on a few choice assets dramatically increases an investor's chance of superior performance. Nonetheless, most advisors and investors shun portfolio concentration as unacceptably risky. To a great extent, this is driven by the myth that adequate diversification is impossible unless one holds many stocks - a myth I will debunk.
2012-03-13 The Ambergris Factor! by Jeffrey Saut of Raymond James Equity Research
I had a meeting with two PMs from Switzerland that had 10 questions they wanted answered. 1. Would you buy cyclical stocks or defensive stocks? I would buy cyclicals because I dont believe we are going to see another recession in the U.S. for the near future. 2. 2011 was a risk on/risk off year, so is it a top down or bottom up strategy for 2012? Last year you only had to get two things right. You had to raise cash in March/April and put it back to work during the bottoming sequence of August October. One always needs to employ a bottom up strategy combined with a top down view.
2012-03-09 Appreciating China to its Fullest by Frank Holmes of U.S. Global Investors
While most analysts dont expect another moon shot rise in China's GDP this year, a 7.5 percent growth rate still exceeds most emerging economies and all developed nations. Advanced economy growth is expected to be meager, slowing from 1.6 percent to 1.3 percent in 2012, according to The Conference Board. For long-term investors learning to appreciate the finer points of the country, we believe China is somewhat like fine wine; it only gets better with age.
2012-03-09 Why Warren Buffett is Wrong About Gold by Russ Koesterich of iShares Blog
One of the more vocal and visible proponents of the anti-gold view is Warren Buffett, who recently reiterated his long held view that gold does not belong in an investment portfolio as it produces no income and has no intrinsic value. With all due respect to Mr. Buffett, this argument ignores two crucial facts: gold helps to diversify a portfolio and, if only by an historical fluke, it is a recognized store of value.
2012-03-08 Global Forecast Update: Growth Upgraded, But Problems Remain by Azad Zangana and Keith Wade of Schroder Investment Management
We have upgraded our forecasts for global growth in response to better data and a further easing of policy. In particular, the success of the European Central Banks (ECB) long term liquidity operations and surprising resilience of Germany mean that we expect the recession in Europe to be shallower than before. However, it is still a weak picture. We do not see US activity taking off as the de-leveraging process has further to run. Much of the recent improvement in growth reflects an inventory cycle as the factors which held the economy back last year fade and go into reverse.
2012-03-08 Bernanke Spooks Gold by John Browne of Euro Pacific Capital
Regardless of who wins the reserve currency race, a key issue will be the gold conversion price. To accommodate the world economy without being recessive, many have concluded that the price of gold would need to be far higher than it is today. In any case, if China continues to pursue a path towards a fully convertible Yuan, investors might be wise to pursue a buy and hold strategy. This of course discounts the possibility that their holdings are not confiscated by debtor governments with plummeting fiat currencies.
2012-03-08 If Israel Bombs Iran How Could Stocks & Stock Markets React? by Paul Dietrich of Foxhall Capital Management
The probable results of Israel bombing Irans nuclear sites would be oil and gold prices skyrocketing, the stock market could drop precipitously and Iran would almost certainly retaliate by sending missiles raining down on Israel, close the Straits of Hormuz and even attack oil tankers or U.S. naval vessels, as they have threatened to do. Americans could also see a spike in terrorism directed against Americans and American interests overseas and here at home.
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?
2012-03-07 The Labors of Hercules Were Never This Tough by Neil Dwane of Allianz Global Investors
Theres no shortage of insight on the ever-expanding debt drama in Europe. Despite the deluge of information, there are still a few key points to consider. Banks and hedge funds could file lawsuits against Greeces government. Protection against the ISDA declaring a default on Greeces debt could prove to be inadequate. This could mean that things may be worse than we imagine. Markets have rallied this year on positive sentiment that Greeces default has been contained. Are we being too complacent? Still, with solutions being drafted, now might be a good time to buy European equities.
2012-03-07 Winning the War in Europe by Scott Minerd of Guggenheim
Given my view on the global liquidity glut, it probably will come as no surprise that I remain bullish on U.S. investments, including equities, high yield bonds, bank loans and other risk assets, as well as art and collectibles. I believe the United States has entered a period of self-sustaining economic expansion, driven primarily by the aggressive monetary policy of the Fed, which is now being reinforced by the ECB. U.S. growth is necessary to reduce domestic unemployment and to provide support to the struggling economies in Europe and Asia.
2012-03-07 The Truth Behind High Gasoline Prices by Gary D. Halbert of Halbert Wealth Management
While the latest report on 4Q GDP came in a bit better than expected, most economists agree that growth in 2012 will not be as good as the 4Q of last year. Following that, we look at some remarks from Fed Chairman Ben Bernanke in his recent Senate testimony. While he defended quantitative easing, it doesnt sound like the Fed is going to do QE3 anytime soon.
2012-03-06 Fed Takes 'Goldilocks' Approach to Tepid Economy by Kristina Hooper of Allianz Global Investors
Ben Bernanke's not-too-hot, but not-too-cold outlook spells low rates through 2014, but there's no QE3 in sight. He cautioned that while the unemployment rate has decreased faster than the Fed anticipated over the last year, the job market remains far from normal. Despite a more optimistic consumer outlook, investors have largely stayed on the sidelines. This is where the Fed's Goldilocks approach to monetary policy should prove beneficial.This level of certainty highlights certain truths that will help investors make better decisions. Investors will be punished for being savers.
2012-03-06 The Recovery of the US Economy Continues by John Buckingham of AFAM
The Dow Jones Industrial Average closed above 13,000 on Tuesday for the first time since May 2008. While there is no significance to the number from where we sit, The LA Times devoted front-page real estate in Wednesdays paper to the accomplishment and The WSJ ran a story titled, Dow, on A Tear, Leaps to 13000. One might think that the media coverage would perhaps provide a little prodding to get back into the market for those sitting on the sidelines, but the 3% pullback on the week in the Russell 2000 small-cap stock index suggests instead that many saw it as a reason to reduce risk.
2012-03-06 Why Buy the Cow? by Peter Schiff of Euro Pacific Capital
The communist revolutions in the 20th century sought to nationalize the wealth generated by privately held industries back to the exploited workers on whose backs the profits were supposedly derived. America has made the rejection of this idea and its support of free market principles the centerpiece of its economic narrative. However, as a result of our current and proposed tax policies towards corporate shareholders, our government collects a portion of industrial output that would inspire envy in even the most rabid Bolshevik.
2012-03-06 Defining Risk: Warren Buffetts Three Kinds of Investments by Bill Smead of Smead Capital Management
In his 2011 letter, Warren Buffett explained the purpose behind investing, the real definition of risk, and the three types of investments which congregate the marketplace. We believe Mr. Buffett struck at the core of the problem that most investors are having. They are defining risk primarily by what happens in the next twelve months, while the Oracle of Omaha is thinking in five to ten-year time frames, at a minimum. These short time frames are combined with eyes locked on the rearview mirror, inhibiting investors from participating in wealth creation as we look out into the future.
2012-03-05 Is Popularity Ruining Indexing? by Bill Smead of Smead Capital Management
Scarcity creates value in economics. In our view, what is scarce today is an equity manager doing long-term/long duration equity analysis and institutions/individual investors willing to employ them. Since 33% of the stock market is indexed and most of the other 67% works in very short analytic time frames, we believe the market must be as inefficient as it has ever been. Time is the ally of the long-duration common stock investor and we believe more so now, because indexing is getting too popular and investing in short durations is at epidemic levels.
2012-03-03 Unintended Consequence by John Mauldin of Millennium Wave Advisors
This week we wonder about the consequences of the European Central Bank (ECB) issuing over 1 trillion in short-term loans to try and postpone a banking credit crisis and lower sovereign debt costs for certain peripheral countries in Europe. What if, instead of holding the European Monetary Union (EMU or Eurozone) together, that actually makes a breakup more likely? That would certainly fall under the rubric of unintended consequences, and be worth our time to contemplate in this week's letter.
2012-03-02 Fed Done: So Is Gold by Brian S. Wesbury of First Trust Advisors
The bottom line is that even though Bernanke wants to make the case for QE3, he cant.In fact, better news on the economy has cut the Fed off from doing more massive easing projects.In the end, we believe the Fed has finally run out of justification for its excessively easy monetary policy.As the quarters ahead unfold, the prospects of more ease will continue to wane.This is good news for stocks which do not do well with accelerating inflation but, it is bad news for gold.Gold is done.and so is the Fed.
2012-03-02 Austerity Korean-Style by Sang Yoo of Matthews Asia
Europe is undergoing its own version of austerity, where (ironically) the region actually is running budget deficits of 4.3% of GDP on average, spending more than it raises in taxes. These deficits run as high as 8.2% in Spain and 8.4% in the U.K. Meanwhile, as the U.S. calls for more stimuluseven with its own budget deficit at 8.7% of GDPit is interesting to look back at Korea and the crisis that began there 15 years ago this July.
2012-03-02 Will Oil Continue Heading Higher? by Frank Holmes of U.S. Global Investors
We expect there to be corrections in the price of oil throughout 2012, just like the ups and downs commodities experience from year to year. While the world is hungry for energy, theres no free lunch on the Periodic Table of Commodities, and historically, from year to year, commodities fluctuate. Crude oil, for example, has seen its share of ups and downs: In 2008, oil lost 53 percent; in 2009, it increased a substantial 78 percent. While oil may remain elevated, use these higher prices to your advantage by owning natural resources companies that benefit from higher prices.
2012-02-29 Dirt Economics: Demographics Matter! by Shane Shepherd of Research Affiliates
Generations ago, people had large families, ensuring an adequate supply of labor to work the farm and provide a comfortable retirement. Now, families are small and we face a mountain of debt and soaring deficits. This months Fundamentals examines the implications for the economy and investors portfolios.
2012-02-29 A Tailwind for Gold? Low Rates by Russ Koesterich of iShares Blog
In recent months, the Fed and the ECB have been lowering-or maintaining low-interest rates in an effort to support growth. One unintended beneficiary of the aggressive easing by the developed worlds central banks: Gold. Historically, the most important driver of gold returns has not been inflation or the dollar, but rather the level of real interest rates. In the past, environments with interest rates at or below the level of inflation have been very supportive of commodities, and particularly gold. Todays rate environment fits this bill and so should that of the near future.
2012-02-28 De-Fence by Bill Gross of PIMCO
Over the past 30 years, an offensively minded Federal Reserve and their global counterparts were printing money, lowering yields and bringing forward a false sense of monetary wealth.
Successful investing in a deleveraging, low interest rate environment will require defensive in addition to offensive skills.
The PIMCO defensive strategy playbook: Recognize zero bound limits and systemic debt risk in global financial markets. Accept financial repression but avoid its impact when and where possible. Emphasize income we believe to be relatively reliable/safe; seek consistent alpha.
2012-02-27 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
As I have written, the early-season rally is growing tired and overextended. While there is nothing specific which might have accounted for last weeks stall, the evidence is clearer that relative strength quotients in equities are growing outside sustainable levels. Usually, such valuations precede a reversal in equity direction. Last week also saw a continuation of mediocre earnings acceleration patterns. The number of companies that actually beat analysts estimates is at its lowest since the credit crisis in 2008.
2012-02-27 South Africa: Resource Nationalism Gaining Political Currency by Team of Thomas White International
Increasing government control over natural resources is not a new trend. Governments in most emerging countries, including established democracies such as India and Brazil, directly or indirectly control most of their mineral resources. But in the case of South Africa, the consequences of such decisions can reverberate far and wide. The country has one of the worlds biggest reserves of natural resources, currently valued at $2.5 trillion.
2012-02-27 In Dividends We Trust Payout Ratios Low By Historical Standards by John Buckingham of AFAM
Dividends, dividend and more dividends. It would seem that everywhere we look these days, we find investment professionals singing the praises of dividends. And why not, given that interest rates continue to rest (and I do mean rest) at microscopic levels, while the yields on most of the major equity market averages exceed that of the 10-year U.S. Treasury. More importantly, perhaps, there is plenty of room for payouts to increase going forward given that the percentage of annual earnings distributed to shareholders for S&P 500 companies stood at a record low level of 30% in 2011.
2012-02-25 The Emotions of Fear and Apathy Create Good Buying Opportunities by Frank Holmes of U.S. Global Investors
One of the reasons money has found its way back to the market is that low interest rates and a bubble in bonds have upped the attractiveness of equities relative to other asset classes. In fact, many large-cap equities come with a higher yield. This means that investors can wait for the growth, while receiving the income. Overall, it looks like the markets dark clouds are lifting and we could be in for a period of sunny skies in the months ahead.
2012-02-24 Large Cap Value Strategy - January 2012 Review & Outlook by Team of Cohen & Steers
January was a quiet but strong month for equities. Investors moved away from defensive sectors and into somewhat riskier names as sentiment about the global economic outlook improved. There was no bad news from Europe. Indeed, global markets expressed relief that Europes banks now have access to additional liquidity through the Long-Term Refinancing Operations program (LTRO) announced in December. The U.S. economy continued to show self-sustaining growth that, while modest, allayed fears of recession.
2012-02-24 Convertibles Market 2011 Review and 2012 Outlook by Ellen Gold and Ramez Nashed of Invesco
U.S. GDP growth slowed in 2011 as the European financial crisis, U.S. legislative gridlock, the persistently weak housing market, and sustained elevated unemployment weighed on consumer confidence and consumer spending. These factors are expected to persist and, while we are cautiously optimistic that they should improve throughout 2012, this is by no means certain and the path could be turbulent. Given this potentially volatile economic backdrop, the convertible bond sector may be considered a risk controlled avenue to gaining exposure to the equity market.
2012-02-24 Global Commentary: Investors Want to Gains to Continue by Bill McQuaker of Henderson Global Investors
Although the start of the year has been encouraging, significant risks remain, especially from Europe, specifically Greece as it seeks to secure the next tranche of its bailout funding. The improvement in economic data, particularly from the US, however, provides some grounds for optimism, particularly as equities, despite their recent rally, appear inexpensive. Investors will be looking to see whether the global market momentum can be maintained: January last year began on a similar positive note, only to give way to weakness later in the year as structural economic problems resurfaced.
2012-02-24 Schwab Market Perspective: Two Steps Forward... by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
US stocks and economic data appear to be moving at least two steps forward for every step back, which we believe leads to a strengthening trend for bothalthough there are inevitable bumps along the way. We believe the agreement in Washington to extend the payroll tax through 2012 may be the last substantial economic-related agreement before the election, but there are major issues looming. The Fed continues to believe another round of easing may be appropriate, which we think could be dangerous and that they should be looking to move in the other direction.
2012-02-22 Will Greece Survive the Ides of March? by Mike "Mish" Shedlock of Sitka Pacific Capital Management
As a point of curiosity, the Greek 1-Year Bond Yield touched 682% today, now down to a mere 666%. Bloomberg quotes the open as 566%, if correct, the one year yield soared 116 percentage points from the open to the high. Deal "Really" Finalized? Open Europe says Many questions around the second Greek bailout remain unanswered.
2012-02-21 David Rosenberg: "Searching for Certainty in a Sea of Uncertainty" by Katie Southwick (Article)
David Rosenberg is known for his bearish outlook, and he has not yet seen anything in recent economic news that persuades him to change his tune. Contrary to prevailing "bullish complacency" and the widespread belief that central banking systems "have the answers to the ongoing global debt deleveraging cycle," in the United States Rosenberg sees monumental deficits, flat growth, an underlying trend of deflation, and current fiscal policies that will limit future flexibility. In other words, trouble remains on the horizon.
2012-02-21 Gundlach: The Two Questions that Matter Most by Robert Huebscher (Article)
Two questions stand out amid the complexity of the current economic and market environment, according to Jeffrey Gundlach, both of which relate to critical elements of fiscal and monetary policy and should guide portfolio construction for investors.
2012-02-21 Inflation Held in Check by Fear by John Browne of Euro Pacific Capital
Out of control money supply creates inflation. In light of the trillions of synthetic dollars that have been injected into the economy by the Fed over the past five years, most observers had expected prices to spiral upward. But in making these determinations, many of us forgot to factor in the supply side of the supply/demand equation. Inflation remains low now because of game changing events that have reduced the demand for money. So beware of the recovery. Any wakening of animal spirits in the U.S. will likely stir the threat of inflation, which may very well short-circuit the recovery.
2012-02-18 The Enduring Popularity of Gold by Frank Holmes of U.S. Global Investors
For thousands of years, pharaohs, explorers, rulers and investors have been attracted to gold, as the precious metal has been a vital tool in building and protecting wealth. While gold naysayers focus on the day-to-day fluctuations in price, I believe gold equities and bullion will continue to enjoy maximum popularity, as the Oracle of Omaha puts it, for years to come. The allure of goldwhether it is from Fear or Lovecannot be underestimated.
2012-02-18 The Cancer of Debt and Deficits by John Mauldin of Millennium Wave Advisors
We will explore some options to actually resolve the deficit and debt crisis. Cutting spending or raising taxes have consequences, but not all cuts and not all taxes are the same. For those who have been wanting more specific solutions from me, I am going to address the issues surrounding taxation and offer my thoughts as to what we should do.
2012-02-17 Economic Insights: Around the World of Investing Opportunity by Milton Ezrati of Lord Abbett
Europe seemingly creates new financial and economic concerns daily, while in the United States, fiscal questions and election uncertainties trouble the outlook. Still more dangerous issues surround the military and diplomatic maneuvering in the Persian Gulf. And these are just a sample of the sources of investment concern. But even as all this prompts people to hide in cash and the usual safe havens, such as U.S. Treasury bonds, these investment choices pay such poor yields that presumed safety comes at tremendous cost. Investors, then, must consider riskier investments.
2012-02-16 Weekly Market Update: Introduction to Alternative Investments by Team of American Century Investments
Alternative investments (or alts as they are commonly known) have exploded in popularity in recent years. What began as specialty investment strategies utilized by only the most sophisticated institutional investorssuch as pension plans and university endowmentsare now readily available to retail investors through a number of mutual funds and exchange-traded funds. Here we try to explain alts appeal in broad terms, discussing how these strategies are used and what role alts may play in an individual investors portfolio.
2012-02-16 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.
2012-02-15 February 2012 Newsletter by Jim Tillar, Steve Wenstrup and Tim Roesch of Tillar-Wenstrup Advisors
So far in 2012 the stock market rally that began in the gloom last October continues to power ahead producing one of the best starts to a year in over a decade. The primary reason for the rekindling of animal spirits is the efforts of the ECB and our Fed. While we applaud these move that reduced the chance of another financial crisis in the short term, we question the speculative response by the stock market because long-term solvency issues still need to be addressed.
2012-02-15 Not in My Lifetime by Bill Smead of Smead Capital Management
The weak dollar and international economic fears have sparked multi-year bull markets in gold, oil and most major commodities. This has forced asset allocators at the largest institutions, consulting firms, registered advisory firms and financial advisor networks to over-emphasize all aspects of the capital eaters and the longer-term Treasury bonds which compete for these dollars. In effect, the Federal Reserve Board caused the last of the unbelievers to give up in early February because it does not appear that rates will rise in our lifetime.
2012-02-14 The System will Hold Together... by Jeffrey Saut of Raymond James Equity Research
The implications are that things are likely going to get a little less fun for investors for a while with the major averages transitioning from a steep price rise to more of a sideways to downward pricing structure. This does not mean you cant make money. On the upside, my algorithms show that our fundamental analysts Strong Buy ratings on 7.6%-yielding CenturyLink (CTL/$38.02) and non-yielding Whiting Petroleum (WLL/$50.89) are setting up for a potential upside breakout. Meanwhile, our analysts Underperform rating on ViaSat (VSAT/$45.22)is being confirmed by my algorithms to the downside.
2012-02-14 Savers Are Not A Special Class by Christian Thwaites of Sentinel Investments
The self-reinforcing struggles between risk appetite and liquidity continued this week. Since the FOMC meeting, LTRO kicking in, easier policies from the ECB and a run of good economic numbers, we're in rally territory for equities here and abroad. The good news is that this has not come at the expense of other asset classes...so gold, bonds, US$, commodities are all holding up well. The liquidity push cannot have come at a better time. Private sectors are still building precautionary savings and public deficits are closing...
2012-02-14 What a Difference 3 Years Make by Kristina Hooper of Allianz Global Investors
Three years removed from the Styxian depths of the financial crisis, investors are now in much better shape. Back in 1980, when Ronald Reagan was running for president, he struck a chord with the voting populace by asking the seminal question, Are you better off now than you were four years ago? Much of the electorate ran through a mental checklist and decided that they were worse off. As a result, voters pulled the proverbial ripcord, ousted the incumbent and Reagan was elected our 40th president. Investors should be asking themselves a similar question today.
2012-02-13 Around the World of Investing Opportunity by Milton Ezrati of Lord Abbett
Among those choices, credit-sensitive fixed-income instruments would seem to offer superior returns with reasonable security. Opportunities also present themselves in the equity markets. In the developed markets, North America seems to offer the best risk/reward balance. Though stock valuations are better in Europe and Japan, the former still needs to deal with its debt crisis and the likelihood of recession, while the latter faces the very fundamental matter of severely aging demographics as well as the immediate adverse impact of an expensive currency.
2012-02-11 The Answer We Dont Want to Know by John Mauldin of Millennium Wave Advisors
This election is ultimately about dealing (or not dealing) with the deficit, and putting the country on a path to a sustainable budget deficit, one that is less than the growth rate of the country. As I have argued elsewhere, and will argue in future letters, that is the paramount issue. Not dealing with the deficit runs the very real risk of the bond market treating us just as it is treating Italy and any other country that gets to the point where its debt is unsustainable.
2012-02-10 Theres Value in Russias Future by Frank Holmes of U.S. Global Investors
Increasingly, Russian companies have begun paying dividends, with some companies paying as much as a 10% annual dividend. As interest rates around the world will remain low or even negative for years to come, dividends offer investors the opportunity to earn income with the potential of appreciation. Although political risks remain, we believe Russia continues to be a hotbed of opportunity for emerging market investors.
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.
2012-02-06 The Value in Fear by Milton Ezrati of Lord Abbett
It is hardly an insight to note that markets today are beset with fears. What is less widely acknowledged and critical to investment strategy, however, is that the level of anxiety has driven market segments to different extremes of valuation. On the one side, widespread fear has driven up the prices of the usual safe havens, such as U.S. Treasury bonds, gold, even the debt of other presumably stronger governments. On the other, the anxiety has severely held back relative pricing on equities and credit-sensitive bonds. This divergence presents potentially remarkable investment opportunities.
2012-02-06 Time to Get in the Game by Kristina Hooper of Allianz Global Investors
Recent data on job growth, unemployment and manufacturing activity offer compelling reasons for investors to get off the sidelines. Private job growth continued with a gain of 257,000 jobs, signaling a very constructive trend weve seen for a number of months. Public sector job shrinkage also continued and should be a welcome sign given the need to reduce government debt. The unemployment rate fell to 8.3% in January. Arguably, investors should be willing to take on more risk when they feel their employment is more secure. And the feeling of greater job security might soon be on the horizon.
2012-02-03 The U.S. Economy Marches On To An Unsteady Beat by Team of BondWave Advisors
Despite the misgivings by the Fed about the recovery, and with much of Europe teetering on recession, domestic economic data continues to suggest moderate expansion in both output and employment. We discuss this situation along with the positive performance of the Treasury, Corporate and Municipal bond markets.
2012-02-03 Thunderstorm First, Then Rising Pressure by John Gilbert of GR-NEAM
The developed world is riskier than it was, and should be valued accordingly. That is a dour conclusion, but avoiding it does not mean that one can outrun it. Perceptions of what makes risky assets attractively valued need to be adjusted for the context. Valuation levels that were attractive when the world was less indebted are attractive only at lower levels since valuations have not yet anticipated eventual inflation. Those that will do the best are those that benefit from inflation and the negative real interest rates that result, since ultimately that is the choice governments will make
2012-02-03 In the Bullring With Gold by Frank Holmes of U.S. Global Investors
We anticipated that the Year of the Dragon would spur an increase in the buying of traditional gifts of gold dragon pendants and coins. Gold buying did hit new records, says Mineweb, with sales of precious metals jumping nearly 50 percent from the same time last year, according to the Beijing Municipal Commission of Commerce. This should serve as a warning to all of golds naysayers. Gold bullfighters bewareyou now have to fight the gold bull while fending off a golden Chinese dragon.
2012-02-02 ProVise Bullets by Team of ProVise Management Group
If you dont think there is a huge disconnect between government spending and government revenues, perhaps some of the following facts will convince you. This information is important given discussions in Congress during the month of February regarding extending the payroll tax holiday to the end of the year, and how that will be paid for. For the fiscal year ending Sept 30, 2011 government spending equaled 24% of GDP, taxes collected were 15% of GDP. Combine the two and you can understand why the country is moving in the wrong direction.This cannot be sustained and it will require sacrifice.
2012-02-02 2011: The US Year by Richard Bernstein of Richard Bernstein Advisors
The market generally proves the consensus wrong, and 2011 certainly adhered to that historical precedent because the consensus "must owns" at the beginning of 2011 generally underperformed during the year. What is somewhat startling to us, however, is that conviction has yet to be shaken. The consensus continues to favor commodities, emerging markets, and "any-bond-but-treasuries".
2012-02-01 Life and Death Proposition by Bill Gross of PIMCO
When interest rates approach zero they may transition from historically stimulative to potentially destimulative/regressive influences. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short/intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation. We can't put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering.
2012-01-31 Lacy Hunt on the Roadblock to Recovery by Robert Huebscher (Article)
'The fundamental key to prosperity is not governmental financial transactions, or even private sector financial transactions,' according to Lacy Hunt, the widely respected economist at Hoisington Investment Management, with whom we spoke last week. 'The key to prosperity is the hard work and creativity of our individuals in businesses.'
2012-01-31 Q4 2011 Market Commentary by John G. Prichard of Knightsbridge Asset Management
The proposed restructuring for private creditors of Greece has been called voluntary. Who voluntarily takes 30 cents on the dollar? The government authorities involved have insisted that any deal be deemed voluntary to avoid triggering credit default swaps (CDS) written on Greek debt. These CDS could accurately be called insurance contracts that are supposed to pay out if the Greek government defaults or changes the terms of its debt. The ISDA, the entity who decides these things, has more or less already said they wont consider the default a default.
2012-01-31 Sunday Bloody Sunday: Hoping For a Giants Win by Liz Ann Sonders of Charles Schwab
The "January effect" stock-market indicator bodes well for the rest of year.
A "golden cross" occurrence would also add fuel to the market bulls' fire.
Sentiment looks frothy in the near term, but the "wall of worry" remains intact.
I think the market is vulnerable to a pull-back in the near term, but likely remains in a bull market, with further gains to come. It's also worth noting that February has not been a great month for the stock market historically. But, if the Giants win on Sunday, my mood will improve.
2012-01-31 Do Unresolved 2011 Economic Ailments Portend a Similar 2012? by Team of Managers Investment Group
Now updated through 4Q. This compendium provides an historical perspective of economic data compared to today's results, and provides comments on any developing trends. We also include a synopsis of financial markets results. The OTOTM Chart Book is designed with easy-to-read graphics to tell a story and help you visualize the changes taking place in today's economy.
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 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
In recent discussions with clients, I have answered questions about good new versus bad news and short-term versus long-term probabilities. As my readers are aware, I have become increasingly bearish in my asset allocations, a factor which derives from a combination of very short-term information along with macro, secular data. In short, my analysis quantifies policies, valuations, and fundamentals which have dragged down the prospects for global earnings acceleration (in the near-term). Notice that I refer to these statistics as decelerators, not necessarily absolute impediments.
2012-01-30 Fourth Quarter Investor Letter by Mark Bennett, David Templeton and Nick Reilly of HORAN Capital Advisors
We have our reservations about world economic output, but stand by our past comments about slow U.S. growth without a recession. We do believe equities offer attractive return opportunities for the foreseeable future in the context of historical valuation and relative valuation. We acknowledge the structural issues prevalent in developed economies and the risk that comes with debt hurdles, demographic challenges and potential deflation, but there are many data points that make us optimistic about equity returns in 2012 and for long-term strategic investment allocations of capital.
2012-01-30 Fed Rings Dinner Bell for Equities by Kristina Hooper of Allianz Global Investors
The Fed's decision to keep short-term rates at historical lows and to provide greater visibility on monetary policy is likely to beckon stock investors to take on more risk. Plus, what you may have missed in the GDP report. Investors hungry for yield may have gotten the sign they needed to increase stock portions of their portfolios. On Jan. 25, after a Federal Open Market Committee meeting, Fed Chairman Ben Bernanke surprised the capital markets by announcing that the central bank planned to keep short-term interest rates historically low into late 2014 and possibly beyond.
2012-01-27 Waist Deep in the Big Muddy by Peter Schiff of Euro Pacific Capital
As long as interest rates remain far below the rate of inflation, the U.S. economy will fail to equitably restructure itself for a lasting recovery. As a secondary effect, U.S. savers will likely continue to suffer from a lack of yield and a weakening currency. In the end, the collapse of the U.S. economy will be that much more spectacular due to the great lengths we have gone to postpone it.
2012-01-27 Dissecting Todays Bull Market by Russ Koesterich of iShares Blog
So whats a tactical investing idea for the current cyclical bull market? Well, lets look at the investment implications of the Feds announcement this week. First, it suggests that nominal rates and real rates will stay low for a long time. This further buttresses the case for gold. Second, if US interest rates are going to be anchored at zero for an extended period, people are going to need to take some risk in one form or another to generate a decent return.
2012-01-24 Michael Lewis on the True Depth of the Crisis in Europe by Larry Siegel (Article)
Michael Lewis is a financial writer and author, most recently of Boomerang: Travels in the New Third World, in which he reported on the European debt crisis from several of the affected countries. In this interview, he discusses a range of topics, including the future of Wall Street and the challenges of great financial writing.
2012-01-24 Contrarian Concern Too Much Bullishness? by John Buckingham of AFAM
While we expect volatility to remain elevated this year, and we have to concede that the markets have come a long way quickly, we see no reason to alter our 1400 year-end S&P 500 price target. Of course, that level actually might be a little low, considering where we stand today, but we focus our attention on the companies in which we are invested. After all, we own businesses like International Business Machines (IBM - $188.52), Intel (INTC - $26.38) and Microsoft (MSFT - $29.71), all of which posted impressive Q4 results last week, and not index funds.
2012-01-24 The Global Economic Outlook: Diverging Paths by Thomas D. Higgins of Dreyfus
The global economy can weather a mild eurozone recession, but is too fragile to absorb a severe financial shock such as a breakup of the euro. Higgins expects Central and Eastern Europe are likely to be most negatively affected by a eurozone recession, followed by the UK, the US and other advanced economies, given their respective trade dependencies. The least vulnerable regions would be Asia and Latin America. Long-term value in popular safe havens such as U.S. Treasuries and gold, preferring to focus on U.S. non-financial corporate credit as well as emerging market local currency debt.
2012-01-24 The Plain Facts by Herbert Abramson and Randall Abramson of Trapeze Asset Management
We believe that, while Europe will suffer a recession in 2012 on its painful path to recovery, with or without Greece, the U.S. and Canada will likely see accelerating growth this year, as will China, India and Latin America. In fact, global growth should be above 3%, supported by record high total household wealth in the world, which has doubled since 2000. China and India provide half of the worlds economic growth. And manufacturing in India and China grew in December and should continue to do so from renewed government stimulation.
2012-01-24 Africa: Opportunities and Challenges in a Growing Economy by Team of The Royce Funds
As the South African economy continues to mature and other, even less developed, economies begin to thrive, we will keep our attention focused on company fundamentals, corporate governance, and what we think are attractively undervalued businesses with the potential to grow in the global economy. As the bulk of Africa's economies are frontier markets, still progressing toward the status of developing economies, the continent as a whole represents long-term opportunities that will require patience and diligence. Its resources and demographics are likely to make it well worth the wait.
2012-01-23 Debt and Deleveraging: A Five-Pronged Solution by Mike "Mish" Shedlock of Sitka Pacific Capital Management
Citing the latest report on "Debt and Deleveraging" by the McKinsey Global Institute, Ambrose Evans-Pritchard proclaims a light at the end of the tunnel and that America overcomes the debt crisis as Britain sinks deeper into the swamp. However, there is a big difference between alleged "light at the end of the tunnel" and "America Overcomes Debt Crisis" as Pritchard claims. US consumers may be one-third of the way through, but US debt-to-GDP ratios are low only because unsustainable government spending has taken up the slack.
2012-01-23 Who's Afraid of the Big Bad Sovereign Debt Wolf? by Monty Guild and Tony Danaher of Guild Investment Management
Last Friday, the sovereign debt of nine European nations was downgraded by S&P. Now, there are only four European nations whose sovereign bonds carry the highest AAA rating: Finland, Germany, Luxemburg and the Netherlands. Since the sovereign debt refinancing and potential default problem still goes unsolved, we foresee the markets having to keep digesting more waves of bad news. Yet the fear created by such news is diminishingnot because of a shortage of negative news headlinesbut because European banks are more protected by the many lifelines that central banks keep throwing them.
2012-01-23 Focus Shifts from Fear to Fundamentals by Kristina Hooper of Allianz Global Investors
Kristina Hooper, head of portfolio strategies, highlights last week's rally in stocks as a launching point for investors to overcome anxiety and regain focus on valuations, corporate earnings and improving macroeconomic conditions.
2012-01-23 Animate and Repress by Christian W. Thwaites of Sentinel Investments
Europe is in a state of suspended animation, neither moving nor acting on policy. After weeks of spurious deadlines, the markets settled into quiet acceptance that Greece is a hopeless case but that, for now, imminent collapse is not in the cards. Some of the best performing bond markets this week have been the worst of the worst...Ireland, Italy and Greece long bonds are up over 5%. It's not all good. Greek CDS have virtually ceased to exist and notional amounts on the peripherals have shrunk. No one wants to stand behind a restructuring, posing as PSI haircut, masquerading as default.
2012-01-23 Willful Optimism in the Face of Pessimism by Robert Horrocks of Matthews Asia
The U.S. has an unemployment problem, Europe is insolvent and Chinas banking system and property developers face the prospect of rising bad loans. The only thing that appears to be sustainable in investors minds is depression. Indeed, this has led to ongoing pessimismand perhaps too much of it. This month Robert Horrocks, PhD, takes a dissenting view on all the negativism as central banks in Europe, the U.S. and Asia appear to be shifting to more accommodative stances as inflationary pressures subside.
2012-01-21 Staring into the Abyss by John Mauldin of Millennium Wave Advisors
Europe's leaders are committed to keeping both the euro and the eurozone as it is. But for it to do so, everything must change, as the wonderful quote from the 1958 Italian novel suggests. This is no easy task, as no one wants a change that will impact them negatively; and there is no change that will allow things to stay the same that does not impact all severely, as we will see. In the third part of a continuing series, we look at the actual options that are available on the menu of choices, or as one group called it, the menu of pain.
2012-01-20 Emerging Consumers Drive Gold Prices: Who Knew? by Amit Bhartia and Matt Seto of GMO
Conventional wisdom has it wrong. The prevailing view is that the rapid rise of gold prices over the past 10 years has been caused by monetary authorities in the developed world debasing their currencies. By this logic, investors in the developed world have hedged debasement risk by pouring money into gold, both in the form of direct purchases and via ETFs. We believe that gold is an emerging markets asset as much as it is a bet against the Fed and that much of the rise in gold prices has been driven by purchases by emerging consumers, who are driven primarily by financial repression.
2012-01-20 It May Take a Dragon to Breathe Fire into Markets by Frank Holmes of U.S. Global Investors
Ive found many people are particularly energized about predicting a hard landing for Chinas economy, but I believe the country is no sinking ship. China isnt fast-approaching an iceberg in the dark of the night like the Titanic. Beijing has long been anticipating the ice chunks and subtly adjusting the rudder around inflation without steering the economic ship too far off course.
2012-01-19 Inflation: Wheres the Beef? by Team of American Century Investments
With inflation seemingly in check, we reevaluate the near- and longer-term inflation environment, and discuss implications for investor portfolios. It is easy to understand why this topic intrigues so many. Depending on your perspective, inflation can be said to be rising fairly rapidly from low levels seen just a few years ago; or it could be said to be quite restrained, given the calls in recent years for runaway inflation as a result of unprecedented U.S. monetary and fiscal policies and a number of pronounced global economic imbalances.
2012-01-19 Mission Impossible: Why Chinas Soft Landing Will Look like the One We had in the US in 2007-2009 by Bill Smead of Smead Capital Management
Last week the Federal Reserve Board released the minutes of its meetings in 2006. There were discussions of the current economy, numerous credit tightening moves and a consistent belief in the idea that the US and its policy makers could engineer a soft landing from our real estate bubble. The landing that we had from our real estate bubble was the hardest landing since the Great Depression. Now we believe all the pieces are in place for a hard landing in the China real estate markets.
2012-01-18 Americas Economic Review: Fourth Quarter 2011 by Team of Thomas White International
As the year 2011 ended, the clouds of pessimism about the economy lightened across the Americas region, as key data trends suggested that earlier fears of a steep downturn were unfounded. Financial markets stabilized as investors turned more optimistic about the outlook for 2012. Concerns over external risks, particularly about the European fiscal crisis, also calmed down as hope was renewed that enduring political solutions will be found for the fiscal challenges facing the developed countries.
2012-01-18 The Bigger the Base, the Higher the Space by Pamela Rosenau of Hightower Advisors
Overall, people around the globe are underinvested or invested in the wrong asset classes. As data point continue to strengthen, coupled with the fact that income (and sustainability of income) are becoming a scarce commodity, a significant rally in the equity markets could ensue. As some technical analysts may suggest, the bigger the base, the higher the space. As U.S. blue chip stocks have lagged for more than ten years, they have built a base that has prepared these stocks for liftoff.
2012-01-18 Rock Bottom: Housing May Have Already Hit It by Liz Ann Sonders of Charles Schwab
A comprehensive (read: long) and chart-filled update on housing suggests the bottom may largely be in. Pricing may have more downside and real mortgage rates need to decline further, but most other metrics are flashing green. New themes: housing becoming "local" again, and for now, renting is trumping buying.
2012-01-17 GMO: Something's Fishy in China by Robert Huebscher (Article)
A wide gulf separates the two most prominent views regarding China's future. Faced with slowing economic growth, one side says its leaders will deftly navigate a soft landing, while the other claims it will face an implosion similar to those that befell Japan 20 years ago and the US in 2008. Count GMO, a firm that has built its reputation on its ability to identify a bubble about to pop, in the latter camp.
2012-01-17 A Nobel Laureate’s View on the US A Debt Problem, but an Unemployment Crisis by Dan Richards (Article)
Peter Diamond is a professor emeritus at MIT and the winner of the 2010 Nobel Prize in Economics for his work on unemployment and labor market policy. In this interview, he discusses the degree to which US unemployment is a structural problem and whether it can be reduced through fiscal stimulus. This is the transcript of the interview.
2012-01-17 A Society Moving Toward The Brink? by Chris Maxey of Fortigent
With economic growth stagnating, global indebtedness remaining stubbornly high, and unemployment refusing to budge, pressure on governments and ordinary citizens is mounting. Financial crises are notoriously difficult to recover from, but the longer-term sociological problems created by such severe declines in output pose a major headwind to the economy in 2012 and beyond.
2012-01-17 The Impact of the Falling Dollar by Jonathan A. Shapiro of Kovitz Investment Group
Regarding the progress of the businesses we own, a useful metric we track is the Price-to-Value ratio. Conceptually, this statistic measures the current price of a portfolio company to its intrinsic value, conservatively estimated through our multiple valuation techniques. For example, Wal*Marts current P-to-V Ratio is 80%, determined by taking its roughly $60 stock price divided by our current fair business value estimate of $75. This implies, based on what we know today, Wal*Mart is roughly 20% undervalued, providing approximately 25% upside from current levels (not including dividends).
2012-01-17 On the Fed, Stocks, the Election & More on the 1% by Gary D. Halbert of Halbert Wealth Management
We look at the Feds latest Beige Book report that came out last week, which showed that the economy improved in all 12 Fed Districts. We also ponder the question of whether the Fed is ramping up to do a QE3. Next, with everyone wondering if were facing another roller coaster ride in the stock market this year, I will bring you some interesting facts about what stocks have historically done in presidential election years. Finally, I dug a little deeper over the last week to find some fascinating information on the so-called Top 1% of wealthiest Americans.
2012-01-14 The End of Europe? by John Mauldin of Millennium Wave Advisors
The peripheral countries have no choices that allow them to grow and prosper without first suffering (for perhaps a long time) some very real economic pain. Leaving the eurozone has severe consequences; but the economic pain of leaving would go away sooner and allow for quicker adjustments, than if they stayed. However, the initial pain would be worse than the slow pain they'd suffer by staying in the euro. Their choice is, simply, which pain do they want or maybe, which pain do they think they want? Because whatever they choose, they are not going to like it.
2012-01-13 Fed Plays PR Games by John Browne of Euro Pacific Capital
The world was taken by surprise recently by the Fed's announcement that it would publish some of its economic forecasting that forms the basis for its strategy. The Fed claims that the move will vastly increase so-called transparency, which has become a buzz word for honesty and virtue. However, the new policies do nothing to remove the cloak of secrecy that conceals still many of its most significant activities. This myth will do little to lure investors back into the markets but as an unintended consequence will reveal just how profoundly the markets are currently guided from the top.
2012-01-13 What the Next Decade Holds for Commodities by Frank Holmes of U.S. Global Investors
What will happen over the next 10 years? I believe the supercycle of growth across emerging markets will continue with rising urbanization and income rates. This bodes well for commodities, especially copper, coal, oil and gold, and well continue to focus on companies that will benefit the most from these much-needed resources.
2012-01-12 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 Global Investment Outlook by Team of Aberdeen Asset Management
Policy makers globally face the challenge of supporting growth while managing debt levels, and still remaining aware of inflation. The Eurozone crisis is a further complication, and has the potential to make matters more difficult. That being said, there is still growth in the world economy, though perhaps more disparate than in previous cycles. Given the inter-connected nature of countries in the globalized world, there are few areas truly insulated from turmoil. However, there are safer-havens where clearer policy frameworks and the ability to enact solutions more robustly are helpful.
2012-01-12 Emerging Europe: Fourth Quarter 2011 Economic Review by Team of Thomas White International
The European Bank for Reconstruction and Development was established in 1992 to help the former communist states in their transition to market-based economies. The EBRDs mandate includes investments in Russia and its satellite states such as Poland and Hungary. The Czech Republic, which was the first country to complete the transition process successfully, has come out from under the EBRD umbrella. According to the banks latest forecasts, GDP growth in the central and eastern European region will be approximately 4.5 percent in 2011 and about 3.2 percent in 2012.
2012-01-12 Anticipating the Golden Cross by Frank Holmes of U.S. Global Investors
One trigger where we generally see money move in and out of the market is based on the golden cross, which identifies when the 50-day short-term average crosses above the 200-day long-term average of a stock or index. Over the past 20 years, the golden cross of the S&P 500 Index resulted in surprisingly bullish data. Of the nine times this event has occurred in those 20 years, the S&P 500 averaged a 23 percent increase before the market reversed.The lone exception to this trend was the unusual and very volatile market in 2010-2011. Even then, the S&P 500 only lost a third of a percent.
2012-01-11 From Divergence to Nemesis, More 2012 Economic Scenarios by Russ Koesterich of iShares Blog
A new outlook from the BlackRock Investment Institute offers five economic scenarios for 2012. Russ describes how this outlook lines up with his expectations for the year.
2012-01-11 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Happy New Year to everyone and it was for stock investors. The stock market, at least here in the United States, ended on a positive note last year and has started on a positive note this year. As the charts above illustrate, the New Year saw a first week gain of over one percent for the Dow Jones Industrial Average. while the NASDAQ Composite jumped 2.65% in the first four trading days of 2012.
2012-01-10 Gundlach on the Key Risk for Bond Investors by Robert Huebscher (Article)
Watch out if you own a bond fund that underperformed its benchmark by 2% or more last year, as most did. Rather than put their careers at risk by suffering a second year of poor performance, those fund managers will turn to indexation, according to DoubleLine’s Jeffrey Gundlach. And since the Barclay’s Aggregate Index holds nearly 35% of its assets in Treasury bonds with near-zero yields, its investors will endure poor returns.
2012-01-10 2011: The Famine That Followed the Feast That Followed the Fiasco by Ron Surz (Article)
Ron Surz provides his award-winning commentary on the US and global markets.
2012-01-10 Chaos Theory by Neel Kashkari of PIMCO
How developed nations address their fiscal deficits will have broad implications for equity markets. Debating a future of inflation vs. deflation is radically new territory for investors. The chaotic nature of the choice facing societies is whipsawing equity markets and dominating bottom-up factors. Equity investors seem to be pricing in a combination of outcomes, with the largest weighting going to a goldilocks, mild inflation scenario. But the markets large daily swings reflect jumps back and forth as investors update the probabilities of very different destinations.
2012-01-09 The January Barometer by Jeffrey Saut of Raymond James Equity Research
Its amazing that equity markets have rallied in light of the strong U.S. dollar. That action suggests that stocks are not ready for the pullback I have been expecting following last Tuesdays upside blow off. Still, while the Dow Industrials and Dow Transports have tagged new reaction highs, the SPX and NDX have not. Such divergences always leave me cautious, especially since we are past the seasonally sweet spot for stocks. At some point we are going to get a profit-taking event, whether it is from last Tuesdays intraday high or the 1300-1320 overhead resistance zone remains to be seen.
2012-01-06 Wal-Mart - The Worlds Greatest Retailer, After a Long Hiatus, is a Solid Buy by Chuck Carnevale of F.A.S.T. Graphs
We are going to start the new year off by looking at Wal-Mart which we believe is a blue-chip growth and dividend income selection that can be purchased at a sound and attractive valuation. We believe it is currently fairly valued. Therefore, it represents a very attractive candidate for the long-term investor interested in above-average capital appreciation, with an attractive dividend yield that is greater than the 10-year Treasury bond yield and potentially growing at double-digit rates.The company represents an ideal long-term buy-and-hold investment for the prudent fundamental investor.
2012-01-06 Pioneering Frontier Markets by Mark Mobius of Franklin Templeton
While emerging markets were considered a niche or exotic investment when I started investing in the late 1980s, many investors are now familiar with them and Im seeing more and more investors turning to emerging markets as a way to diversify their portfolios. Yet, emerging markets themselves are not a homogeneous zone. Within the emerging markets universe, we believe frontier markets as a whole have begun to take an impressive lead in terms of growth.
2012-01-06 And Thats The Year/Quarter That Was... by Ron Brounes of Brounes & Associates
Global geopolitical events continue to impact all investments markets. Just when Europe seemed to be taking positive steps to move passed crisis mode, along come Spain, Italy, and Hungary to remind investors that the road to recovery will be paved with many bumps along the way. A nuclear Iran presents huge concerns and additional sanctions could cause new crude supply challenges that may prompt inflation to resurface. The recent favorable labor releases woke the consumer from hibernation in time for the holidays, but will the enthusiasm last once the season ends?
2012-01-06 What Will 2012 Bring? by Monty Guild and Tony Danaher of Guild Investment Management
In 2011, financial news was dominated by the turmoil in Europe. Looking ahead, the ongoing crisis will be addressed by a global money printing jamboree and coordinated funding from central banks in the developed world, including the Fed. When the money starts rolling off the presses, the liquidity infusion will create some genuine buying opportunities for American, European, and Asian stocks, as well as selected commodities. Liquidity infusions are like a rising tide of money available to buy assets. Buy stocks, commodities, and primarily gold to protect the buying power of their assets.
2012-01-06 Have Winds Shifted to Provide Relief to Investors? by Frank Holmes of U.S. Global Investors
We believe the winds are shifting to bring needed relief to global investors. Weve seen improving economic data from the U.S. lately, and this positive news from the worlds largest economy, along with an improving Chinathe worlds most populated countryoffsets the negativity in Europe.
2012-01-05 True Reflections on 2011 and 2012 by Liz Ann Sonders of Charles Schwab
The Dow Jones Industrial Average (DJIA) managed a gain for the year in 2011, but very few investors were cheering.
With inflation settling down, the upward boost to real gross domestic product (GDP) is likely being underestimated.
Although the eurozone crisis may keep volatility elevated short-term, 2012 is looking like a better year.
2012-01-04 Fundamentals March on Despite Global Risks in 2012 by Douglas Cote of ING Investment Management
The two primary drivers of market performancefundamentals and global risksacted in opposition in 2011. It is critical to understand the hierarchy of influence of these drivers in order to understand the current market and to forecast its future direction. Although spikes in global risk may make headlines and cause temporary shocks to investor confidence, the markets path ultimately comes down to the strength of the underlying fundamentals. We expect 2012 will mark the third consecutive year that fundamentals relentlessly march forward despite ample global risks.
2012-01-04 Towards the Paranormal by Bill Gross of PIMCO
The New Normal, previously believed to be bell-shaped and thin-tailed in its depiction of growth probability and financial market outcomes, appears to be morphing into a world of fat-tailed, almost bimodal outcomes.
A new duality credit and zero-bound interest rate risk, characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion. Until the outcome becomes clear, investors should consider ways to hedge their bets.
2012-01-03 US Recession - An Opposing View by Dwaine van Vuuren (Article)
A large number of reputable analysts and companies are forecasting a new U.S recession on the immediate horizon. Attracting the most attention is ECRI, which made a public recession call on September 30th and several television reaffirmations since. But an examination of a broader range of other composite economic indicators shows that sole reliance on ECRI's forecast would be misplaced.
2012-01-03 We Were Too Optimistic by Brian S. Wesbury and Robert Stein of First Trust Advisors
When government tilts toward redistribution, the growth rate of potential GDP slows down.This hurts job creation.We should have more fully accounted for this in our forecast last year. Some will ask: Then how can you forecast 3% growth in 2012?The answer is relatively simple.1) The Fed is even more accommodative today than it was last year.2) Government spending will be basically flat in 2012 for the third consecutive year.3) Technology continues to advance. These developments mean the tailwinds are stronger at the same time the headwinds are diminishing.
2012-01-03 The Year of the Dragon by Jeffrey Saut of Raymond James Equity Research
Since the day after Thanksgiving I have stuck with the strategy that the Santa Claus rally had begun. On November 25th the SPX was changing hands around 1158. We are now 100 points higher. Consequently, I would not chase the dragon right here since I anticipate that an upside blow off is due ...
2012-01-03 And Thats The Week That Was by Ron Brounes of Brounes & Associates
As January goes, so goes the market for the year. While most investors look beyond such hype, many surely will be pulling for a strong start to the new year. Despite summit after summit, emergency call after emergency call, bailout after bailout, stimulus after stimulus, the European debacle appears no closer to resolution (and is maybe getting worst). Italy is hurting; Hungary could be next; Germany and France are calling the shots. Iran presents a new threat to the oil markets as a blockage at the Strait of Hormuz threatens real damage to the energy supply/demand picture.
2011-12-31 Collateral Damage by John Mauldin of Millennium Wave Advisors
The economic travails of much of the West are reaching a decisive stage as the year ends. In 2008, we predicted sluggish recovery and a long period of low growth for the West in a two-speed world. This picture does not now properly reflect the downside risks. The policy of "kicking the can down the road" is failing, as the intensifying crisis in the euro zone and the failure of the G20 summit in late October clearly demonstrate. As to December's European summit, we describe its impact later in this paper.
2011-12-30 Refueling Options at Hertz by Dan Ariely of Predictably Irrational
I got this picture this week. What is interesting about this price menu it is that the Fuel and Service priced at $9.29 is so off the scale (and so outrageous) that perhaps it makes the pre-paid option for $3.65 look attractive. After all it is about 1/3 of the price if the Fuel and Service.
2011-12-30 Beyond Beasts and Bossa Nova:The Brazilian Boom by Team of Guild Investment Management
What does all this mean for those who wish to invest in Brazil? It means that when it is time to buy Brazil and the time isnt here yet you will want to consider banks and credit card companies as a way to capture the wave of consumer cash since many consumers go abroad to buy personal and pricey consumer goods. To take advantage of rising internal Brazilian spending you will probably want to consider autos, housing, and big ticket durables that will not fit into the luggage of shoppers returning from spending trips abroad.
2011-12-30 Is the Gold Super Cycle Still Intact? by Frank Holmes of U.S. Global Investors
Golds short-term and long-term drivers remain intact. Money supply in the worlds largest countries is expanding by roughly 18 percent. Countries like the U.S. and Europe are continuing to print paper, while holding interest rates near zero, as they grapple with debt issues.
2011-12-30 Case for Sustained $100 Oil by Frank Holmes of U.S. Global Investors
China, along with other emerging markets, and the European Central Bank are in the early stages of a global easing cycle, primarily by cutting interest rates to spur growth. Also, the Federal Reserve should remain stimulative. These government actions set the stage for sustained, or perhaps higher, demand for oil. Geopolitical threats remain on the horizon, and could also be a positive catalyst for oil.
2011-12-29 On the Sharia and Islamic Finance by William Maeck of Seafarer Capital
The practice of banking according to Islamic principles, or the Sharia - the moral code and religious law of Islam - is relatively unknown within developed nations. However, in many parts of the developing world, Islamic banking is a burgeoning industry. It deserves closer scrutiny not only because it is bringing new and otherwise un-banked customers into the fold, but also because it serves as an alternative model for finance and it may manage certain types of risk better than conventional Western models.
2011-12-29 2012 Offers Few Reasons for Optimism by John Browne of Euro Pacific Capital
In 2011, politicians of the U.S. and EU set their economies on a rendezvous with economic and financial disaster. If one assumes as I do that no leader on either side of the Atlantic has the courage to face the music, then there can be little reason for optimism in 2012.
2011-12-29 What Can We Expect in 2012? by Frank Holmes of U.S. Global Investors
As we prepare to bid farewell to 2011 and welcome 2012, its undoubtedly important for investors to start the new year off with as much knowledge about the markets as possible. I saw a great visual over the holiday weekend that captured the effects of the financial crisis. The sky-high leverage ratios of Morgan Stanley, Bear Stearns, Lehman Brothers and Goldman Sachs caused part of the economic weakness, but Nomura points to the policy mistake which forced Lehman Brothers to declare bankruptcy as the reason GDP plunged so significantly.
2011-12-28 PIMCOs Scott Mather Discusses the Global Implications of the Eurozone Crisis by Scott A. Mather of PIMCO
The ECB does not want to be a bridge to an unsustainable and adverse economic destination. They would rather force politicians to address the critical problems of the currency union now.
Greece will continue to have an unsustainable debt load until policymakers can come up with a credible plan to generate economic growth.
Ultimately, the eurozone countries and many other developed economies have very similar problems: unsustainably rising debt loads coupled with structurally weak and imbalanced growth.
2011-12-23 Chart of the Week - Struggling Copper Supply by Frank Holmes of U.S. Global Investors
As Chinas appetite for commodities slowed this year, much of the worlds copper demand went with it. Despite this softening in demand, Macquarie Research thinks the red metal could see a rebound in 2012 because copper mines are struggling to supply the marketplace with adequate reserves. Macquarie says, Global copper mine output has continually disappointed forecasts and, more importantly, market needs over a number of years now, despite the strong financial incentive not only from high copper prices but also high by-product prices.
2011-12-23 Banking Reform: Hopefully Britannia Creates A Wave by Monty Guild and Tony Danaher of Guild Investment Management
The British government has set in motion this week a future overhaul in the way that individual banks do business. British banks will be required to separate their basic lending and deposit operations from investment activities involving trading and speculation on behalf of clients and the banks themselves. This should mean that the deposits of retail customers will be shielded and protected from bank investment and trading ventures.
2011-12-20 Gundlach on the Key Threat to Global Economies by Robert Huebscher (Article)
If class warfare is to be the dominant theme in next year’s presidential campaign, it will revive the premise of Ernest Hemingway's 1937 novel, To Have and Have Not, which he wrote in the midst of the second downturn of the Great Depression. That was also the title Jeffrey Gundlach gave his conference call with investors last week, during which he warned that wealth inequality will threaten European and domestic economies. Last week also saw Morningstar pass over Gundlach as a candidate for its fixed-income manager of the year award, so we’ll look at whether that decision made sense.
2011-12-20 Dennis Gartman Explains His Call on Gold by Robert Huebscher (Article)
Dennis Gartman has been publishing his daily commentary, The Gartman Letter, since 1987. He's been in the news lately because of a call he made last week on the price of gold. In this interview, he discusses the reasons behind that forecast.
2011-12-20 By The Side Of The Road by Jeffrey Saut of Raymond James Equity Research
For months I have stated, While I guess we could talk ourselves into a recession, like the aforementioned hot dog folks, most of the finger-to-wallet ratios I monitor are not pointing towards a recession. To be sure, railcar loadings (especially intermodal) have been pretty strong for the past few months. State tax receipts are up year-over-year. East Coast port traffic, both inbound and outbound, remains perky. And, one of the best walk around indicators, namely foot traffic at the casual dining restaurants because it is the most discretionary of all consumer purchases, is still positive.
2011-12-20 Has Gold Lost Its Luster? by Josh Kapp of Columbia Management
In the last few days, the price of gold appears to have found some footing on improved macroeconomic data and a weaker dollar, together with apparent support from physical demand. While recent volatility may have dented confidence in golds safe haven status, golds appeal may ultimately balance on moves toward austerity vs. stimulus. As we head into the new year, the scales appear to be tipped to austerity.
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.
2011-12-19 Americas Best Companies are Cheap - So Merry Christmas and a Prosperous New Year! by Chuck Carnevale of F.A.S.T. Graphs
Investors have been fleeing US equities at unprecedented levels. Yet, I believe there is compelling evidence that suggests that this may be the best opportunity to invest in high-quality U.S. common stocks that we have seen in many years. The list of 100 stocks presented in this article represents only a sampling of the many companies that are selling at valuations which are lower than their fundamentals justify. The only logical reason that I can come up with for this, is extreme pessimism.
2011-12-19 Somali Sense of Humor by Christian Thwaites of Sentinel Investments
The fifth review on the Greek financing package makes grim reading: 1) bank deposit outflows equivalent to 15% of GDP 2) privatization sales proceeds revised down to less than 3% of GDP 3) GDP to fall more in 2011 than estimated and again next year, bringing the cumulative shrinkage to 15% but 4) debt to remain at over 140% for most of the next decade, assuming a 4% paid rate not the 34% market rate and 5) labor productivity deteriorating. In another sign of euro dysfunction, the Bundesbank refused to participate in a general IMF trust for the eurozone.
2011-12-16 Making Sense Of The European Chaos by Monty Guild and Tony Danaher of Guild Investment Management
Developments in Europe have dominated the worlds economic headlines in recent days and have obscured some good news from China. In this weeks newsletter, we will cover the background of these important events and their meaning to global investors. We are recommending using the gold market decline to add to gold positions, we continue to hold other long term positions.
2011-12-16 'January Effect' Begins Now by Frank Holmes of U.S. Global Investors
Followers of The Stock Traders Almanac are probably familiar with the January Effect that shows how small-capitalization companies have historically crushed large-cap stocks during the first month of the year. According to Yale and Jeffrey Hirsch, small-caps have delivered a forceful blow to their larger counterparts in 40 out of 43 years from 1953 through 1995.
2011-12-16 Striking Portfolio Balance with Gold Stocks by Frank Holmes of U.S. Global Investors
Back on August 22, I wrote that gold was due for a correction and that it would be a non-event to see a 10 percent drop in gold. I wrote, This would actually be a healthy development for markets by shaking out the short-term speculators. This mornings gold price of $1,590 is about 15 percent from the high, which is a little greater than predicted, but a non-event just the same. I believe the long-term story remains on solid ground.
2011-12-15 Eastern Europe Financial House Stronger than Debt-Ridden Neighbors by Frank Holmes of U.S. Global Investors
For some Eastern European investors the geographic proximity to the eurozone has been too close for comfort, with the Russian MICEX Index declining about 20 % year-to-date. However, stronger fiscal and monetary stances in Eastern Europe compared with its western neighbors warrant a 2nd look. Eastern European countries generally have experienced higher GDP growth along with less debt, so financing costs have less of a negative effect on GDP than in Western Europe. In most of Eastern Europe, every one percent increase in the cost of funding only detracts about 0.5 percentage points from GDP.
2011-12-13 Can this be Serious? by Robert Huebscher (Article)
Of the hundreds of investment books that we are asked to review, a recent one stood out for its utter audacity: '401(k) Day Trading: The Art of Cashing in on a Shaky Market in Minutes a Day,' by Richard Schmitt. The premise of this book is as preposterous as its title. But it raised two important questions, meriting this review.
2011-12-12 Rethinking Asset Allocation: PIMCOs Strategy for a Changing World by Mohamed A. El-Erian, Vineer Bhansali and Curtis Mewbourne of PIMCO
Alpha generation is a distinct component of the strategy because it is critical to actively seek opportunities in all global markets in this challenging environment.
Explicit tail risk hedging is essential to prepare for more frequent significant downturns, both to mitigate their effects and to potentially benefit from them.
The strategy is positioned to navigate a world of muted growth in the Western economies, significant market volatility, recurring balance sheet issues and continued income and wealth convergence of the emerging world with the developed world.
2011-12-12 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Markets continue to be whipsawed by headlines out of Europe which much of the time are confusing and contradictory. Overall, however, the stock market here in the United States continues to outperform other global markets, and as evidenced by the
charts below showed gains for the week. Last week saw the Dow Jones Industrial Average gain 1.4% while the NASDAQ Composite moved higher by three quarters of a percent.
2011-12-10 Neither a Quick nor Comprehensive European Fix by Mohamed A. El-Erian of PIMCO
European leaders still need to do a lot more, and quickly, if they are to catch up and get ahead of the crisis. Accordingly, and regrettably, the specter of volatility caused by European headlines will not recede for long. Investors need to continue to watch and worry about Europe.
2011-12-09 Markets Rolling Look For More Of The Same by Monty Guild and Tony Danaher of Guild Investment Management
During the last two weeks, global markets have moved their way to higher ground and indications point to a healthier finish than expected to an otherwise sickly 2011. We see several developments supporting a continued equity market rally. They have to do with measures taken in China, Europe, and by central bankers around the globe. The Canadian and Singapore dollars are well-managed currencies in countries with conservative banking systems. They are good candidates for continued long- term appreciation versus the Euro and U.S. dollar.
2011-12-09 2012: Politics Versus Fundamentals by Richard Bernstein of Richard Bernstein Advisors
Assessing the prospects for a coming twelve-month period is always a challenge. We rely on our broad arsenal of fundamental barometers for profits, sentiment, momentum, and our cyclical indicators to help us identify whether markets are correctly aligned relative to their economic and profits cycles.
2011-12-09 Wont Get Fooled Again by David Baccile of Sextant Investment Advisors
We sit today on the eve of the Great European Summit. The Summit to end all summits with Germany and France promising to deliver a magical array of policies and elixirs sure to cure the ills facing the 17-member currency union. Despite the potential peril that would accompany any less than a successful summit, stock market investors seem content to demonstrate a willing suspension of disbelief. Even some bond investors seem to be taken in by the recent news out of Europe.
2011-12-09 You Can't Print More Gold by Frank Holmes of U.S. Global Investors
As central banks print money and increase supply, currencies become devalued. Whereas in the recent past, one currency may be reduced in value compared with other currencies, this time there is global competitive devaluation as excess liquidity is put into the system. Historically, this excess liquidity has made its way to riskier assets, i.e. stocks and commodities. Gold is generally a benefactor of this flight to riskier assets as many investors see it as a store of value. This chart illustrates the interconnectivity of gold and global money supply growth.
2011-12-08 Will a Eurozone Recession Put a Damper on the World's Fragile Economic Recovery? by Team of Knowledge @ Wharton
If large parts of Europe fall into a recession, as many experts are predicting, it is likely to have negative, although varied, effects on economies around the world, including those -- like the United States -- that are struggling to recover from the global financial crisis. As European leaders hammer out yet another package of solutions this week, Wharton faculty weigh in on the impact of a eurozone recession, as well as the pros and cons of the recovery measures that are up for debate.
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 Asset Class Correlations by Team of Bespoke Investment Group
The charts below highlight the rolling six month correlations for the S&P 500 relative to oil, US Treasuries, and gold. There has been much discussion recently regarding the extreme correlations within global financial markets. In fact, the correlation between the S&P 500 and US Treasuries was recently at a record inverse extreme.In recent weeks, however, the extreme correlations between the S&P 500 and all three asset classes has eased somewhat, with the inverse correlation between the S&P 500 and gold moderating substantially.
2011-12-06 The Quality Conundrum by J.J. Abodeely, CFA, CAIA (Article)
We are witnessing the end of a remarkable and confounding era for stocks, best described by the 'quality conundrum' investors faced for much of the last two years. During that time the combined outperformance of low-quality stocks alongside the underperformance of high-quality stocks was unprecedented in the last 30 years. Now, we are embarking on an era where high-quality stocks will likely significantly outperform low-quality stocks, resolving this conundrum.
2011-12-06 Small-Cap ETFs: Tail or Dog? by Mariko Gordon (Article)
Now that ETFs represent anywhere from 30% to 40% of small-cap trading volume, the creature that was created to shadow its master has become bigger than the index itself. Let's look at the impact of this rapid growth and the three important questions it raises.
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 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The past few weeks have seen a rollercoaster ride for stocks. Despair over the European sovereign debt crisis has been replaced, for now, with optimism that the authorities there have finally decided to act. Both the Dow Jones Industrial Average and the NASDAQ Composite had stellar weeks. Both indices gained more than 7 percent for the week. Of course, this just reclaimed the losses from the previous couple of weeks, but the averages are once again positive for the year and given the level of pessimism and uncertainty supports our notion of just how undervalued this stock market is.
2011-12-06 Adding Some Holiday Gloss to a Not-So-Super Month by Team of BondWave Advisors
November began with a European shakeup that did little to bolster the confidence of investors. Fear raged as Greece and Italy threatened to roll back efforts made by the ECB and IMF. In the US, all eyes were on the supercommittee, which was tasked with reducing the deficit over the next 10 years. BondWave Advisors discuss the US economic indicators that brought a coat of gloss to the pessimism and provide additional insight into the US Treasury, Corporate and Municipal Bond Markets.
2011-12-06 Life Finds a Way by Neel Kashkari of PIMCO
Even the most sophisticated risk management models can't protect against scenarios we've never even contemplated. In this New Normal economic environment of slow economic growth, high volatility and enormous macro risks we don't believe ignoring major downside risks is prudent for equity investors.
We believe investors are best served by employing a combination of three strategies to actively manage downside risk in equity portfolios to hedge against the risks they can see, and equally importantly, the risks they can't see.
2011-12-05 Timber: Favorite of the Big Money by Douglas Clark Johnson of Codexa Capital
Retirement funds, life insurers, and other major institutional investors with a long-term view have been high-profile investors in timber. The benefits the asset class brings to portfolio composition include low correlation with more conventional asset classes, as well as the renewable nature of the investment.
2011-12-05 Economy Improving, Stocks Cheap by Brian S. Wesbury and Robert Stein of First Trust Advisors
Remember the big fat zero jobs reports back in August? The US was supposedly teetering on the brink of another recession, or maybe depression. Democrats wanted more government spending stimulus. Republicans said President Obama was the equivalent of a zero. With all this negative sentiment, the Dow fell 250 points that day. But something happened on the way to the bank. One month later, that big fat zero was revised up to a +57,000, the next month it was revised up again to +104,000. All that recession talk in early September was highly misleading.
2011-12-02 Are Stars Aligned for a Year-End Rally? by Frank Holmes of U.S. Global Investors
Correlations will decrease along with volatility as we get more clarity on the eurozone crisis and see signs of stability in the global economy. Volatility fell this week, with the CBOE Volatility Index (VIX) declining 20 percent. This could be related to the news that November U.S unemployment unexpectedly dropped to 8.6 percent, U.S. auto sales in November were the strongest in more than two years, and preliminary data on holiday retail sales appears to be strong. According to Bloomberg News, Black Friday sales hit a record high this year, with consumers spending $11.4 billion.
2011-12-01 Week in Review: Worst Thanksgiving Week for Equities Since 1932 by Team of American Century Investments
The continuing European sovereign debt crisis and the failure of the Joint Select Committee on Deficit Reduction to reach an agreement on the U.S. budget deficit weighed on the major equity indices, with the S&P 500 Index down 4.69%, and the Dow Jones Industrial Average down 4.78%. The European debt crisis continues to take center stage. While the peripheral countries of Greece, Portugal, and Ireland have dominated headlines for months, the bigger core countries of Italy, France, Germany, and Spain were the main acts this past week.
2011-12-01 Return of the Comandante's Gold by Frank Holmes of U.S. Global Investors
Back in August, we discussed the precarious proclamation that Venezuelan President Hugo Chavez was shipping his countrys gold reserves home for safekeeping. On Friday, we learned Chavezs chosen transportation method for Operation Gold was through the air after the first shipments arrived to much fanfare in Venezuela. Some believe Chavezs announcement of Operation Gold was a catalyst for the August run up in gold prices, but there is no way to be sure. However, the impact could be significant if other countries employ a similar strategy.
2011-11-30 Flex 5, a Tactical, Practical Portfolio for Todays Volatile Markets. by Charles Gelineau of PGA Financial
Volatility has increased dramatically and is expected to continue. It is an extraordinary drag on returns due to the disproportionate impact of losses versus gains. Traditional asset allocations are flawed 5 ways. Style-pure funds are inflexible with extreme exposure to systematic risk and no escape hatch.Flexible funds, by design, can go defensive or opportunistic resulting in better odds for attractive capture ratios. Flexible funds is a practical, tactical replacement for traditional allocations. With flexible fund portfolios, advisors can potentially Improve investment returns.
2011-11-29 Jeremy Siegel on Why Stocks are 'Extremely Attractive' by Robert Huebscher (Article)
Jeremy Siegel is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania. His book, Stocks for the Long Run, now in its fourth edition, is widely recognized as one of the best books on investing. We spoke to him last week about equity valuations and the prospects for the economy.
2011-11-29 Is 2012 Destined to be a Repeat OF 2008 for Banks? by Chris Maxey of Fortigent
Mounting concerns in Europe and the failure of Congress supercommittee weighed on investor sentiment during the holiday-shortened week. As expected, the congressional supercommittee failed to negotiate a $1.2 trillion deficit reduction by Wednesdays deadline. The move triggers automatic cuts to the federal budget starting as early as this year. Near-term effects are mostly in the form of program non-renewals for example, the expiration of 99-week unemployment benefits, the payroll tax cut, and other Recovery Act stimulus.
2011-11-28 And That's The Week That Was by Ron Brounes of Brounes & Associates
While traders, investors, and politicos prepare for their Thanksgiving travel plans, the week should be anything but dull. HP highlights the earnings reports as shareholders try to figure out the future of its PC biz. The Fed releases minutes from the last policy meeting so economists can view the dissension in its midst in determining if and when Bernanke and Co. will act again. GDP headlines the economic releases and some analysts expect a slight downward revision to the initial 2.5% reported expansion rate in the third quarter.
2011-11-28 And That's The Week That Was by Ron Brounes of Brounes & Associates
Black Friday results take center stage as retailers report sales data and analysts extrapolate what one days business means for the season. A rebound in consumer activity could bring new confidence to the markets. A positive showing from manufacturing and labor would also help sentiment. Then again, any newfound confidence may be overshadowed by the super-committee. Any sane politicos left? What say you, Newt, for your 15 minutes in the limelight?
2011-11-28 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.
2011-11-26 Breakup Of The EuroGreece Will Be The First To LeaveGermany Leaks A Bombshell Proposal by Monty Guild and Tony Danaher of Guild Investment Management
In our opinion, global stock markets are beginning to price in a breakup of the Euro-Zone currency.Some will quit under pressure or be forced out and possibly some will quit because they do not want to pay part of the bill to bail out less conservative more spending oriented sister states. We anticipate that Greece will be the first to leave the Euro. The Greeks are perceived to be thumbing their nose at their European neighbors, and the Euro community could use Greece as an object lesson for other countries who might consider the role of non-cooperation.
2011-11-26 With Rising Wages, Will China Remain a Manufacturing Hub? by Frank Holmes of U.S. Global Investors
In 2010, countries such as Hong Kong, Japan, South Korea and Germany depended on China for data processing, apparel, and iron and steel exports. Chinas largest import partners in 2010 were Japan, South Korea, the U.S., Germany and Australia. For those companies not already doing business in China, theres one dominant factor that shows they should start: the vast domestic market. Companies may be able to find a cheaper workforce in Bangladesh, India or Sri Lanka, but being located in China allows convenient access to what is rapidly becoming the worlds largest consumer market.
2011-11-25 Changing the Rules in the Middle of the Game by John Mauldin of Millennium Wave Advisors
Angela Merkel is leading the call for a rule change, a rewiring of the basic treaty that binds the EU. But is it both too much and too late? The market action suggests that time is indeed running out, and so well look at the likely consequences. Then I glance over the other way and take notice of news out of China that may be of import.
2011-11-23 Manipulated U.S. Rates See Saw Gold Prices by John Browne of Euro Pacific Capital
The Super Committee has followed the path of least resistance and maximum irresponsibility. Given the likely after-effects, the outcome should be judged as criminal dereliction of duty. It should now be crystal clear to even the most casual observer that a solution to the U.S. debt crisis will not come from within, but will be imposed, perhaps brutally, from without.
2011-11-22 Morningstar’s Attempt to Predict Performance by Robert Huebscher (Article)
Few question that skillful mutual fund managers exist, but virtually all attempts to identify them ex ante have failed. Last week, Morningstar took up the challenge with its Analyst Ratings, which aim to identify funds with the 'long-term potential for superior risk-adjusted performance.' Given the futility of such efforts over the last several decades, advisors should approach this new effort with skepticism.
2011-11-22 Investment Trends in the Financial Advisory Profession by Robert Huebscher (Article)
Advisors are optimistic about the returns Treasury bonds will provide over the next decade, but they are less sanguine about the projected performance of US equities. Their inflation expectations are consistent with the historical data. These findings and many others arise from our study, Investment Trends in the Financial Advisory Space: Key Implications for the Investment Management Industry, a research report now available from Advisor Perspectives.
2011-11-22 A Bond-Based Financial Planning Framework by Stan and Hildy Richelson (Article)
Plain vanilla bonds have proven themselves to be the best investments available, and we wholeheartedly agree with Andrew Mellon's prescient late-1920s observation that 'gentlemen prefer bonds.' We believe that ladies should, too.
2011-11-22 Greece: High Flying Drachma by Axel Merk of Merk Funds
The worst-case scenario for Greece, should it be unable to secure further bailouts, might be that it would have to live within its means. Presently, spending only the money coming in is considered unbearably brutal. If Greece could only leave the euro, it could install its own printing press, inflating its sorrows away. Any economist will object: its complicated. But it isnt: Greece could introduce a high-flying New Drachma, quite literally.
2011-11-21 Investment Outlook: November 2011 by Team of Aberdeen Asset Management
Financial crisis continues to dominate the political agenda: a credit crunch looms as Europes banks shrink balance sheets, growth momentum is diverging among different regions, investor focus on global fiscal policy will intensify in 2012 and abundant liquidity via central bank easing is likely to prevail for some time. Economic data has tended to surprise analysts over the last few weeks, encouraging the view that growth may not be as weak as some were predicting only a month ago. However the picture is very different among different regions around the world.
2011-11-18 Big Shift in Gold Demand by Frank Holmes of U.S. Global Investors
In 1970, according to the latest World Gold Council (WGC) report, half of the worlds gold was purchased in two regionsNorth America and Europe. Ten years later, that figure jumped all the way to 68 percent during a period of high inflation, a weak economy and spiking gold prices. At the same time, China and India (broadly represented in the chart as East Asia and Indian Sub continent) saw their combined share of gold demand diminish from 35 percent to 15 percent.
2011-11-18 The Gold Triple Play - Volatility, Currencies and Europe by Frank Holmes of U.S. Global Investors
Resurgent investment lifted global gold demand 6 percent from the previous year to just over 1,000 tons during the third quarter of 2011, according to the latest Gold Demand Trends Report from the World Gold Council (WGC). The potent cocktail of inflationary pressures in the emerging world and the European sovereign debt fiasco left investors searching for a safe haventhey looked for it in gold.
2011-11-17 The Holiday Spending Outlook Reflects Continued Consumer Caution About the Economy by Team of American Century Investments
Santa may not be especially generous, but at least hes planning on adding a little extra compared to last year. That outlook is according to the National Retail Federation. And while this forecast is not one to get retailers especially excited about the season, it is the second best outlook for growth in spending in the past five years. The major challenge for retailers will be that, while spending is forecast to increase slightly, consumers will be price-conscious and bargain-drivenmeaning that generating profit growth off any sales increases will be a difficult challenge.
2011-11-17 Its All Very Taxing by Howard Marks of Oaktree Capital
But what is the fair share? How is it to be determined, and by whom? When Senator Reid says, its time for millionaires and billionaires to pay their fair share, he implies they havent been doing so thus far. How does he know? Whats the standard? If theres an objective standard for ones fair share, why does it only seem to be those from the left side of the political spectrum who say its not being paid? And if there isnt an objective standard, how can the fair share be determined? The truth is, fairness is almost entirely in the eye of the beholder.
2011-11-17 Why The Price Of Oil Has Risen From About $75 To About $100 Over The Past Six Weeks by Team of Guild Investment Management
Many veteran observers seriously question the intelligence of ongoing policies that ignore domestic resources and keep the US sending billions of dollars a year to countries that dislike the US and actively seek Americas decline. After it's recent rise, we recommend investors take profits in oil. It can go higher but we like taking profits after a rapid rise. Also, a mechanism is being put in place that will allow financially-responsible Eurozone countries to force irresponsible members to either make necessary changes in their approach to government spending or to leave the Euro currency.
2011-11-17 South Africa's Incredibly Shrinking Gold Production by Frank Holmes of U.S. Global Investors
Finding evidence to pop the talk of a gold bubble is much easier than finding a needle in a haystack. There are enough needles of evidence out there to fill a pin cushion. The latest Gold Demand Trends Report from the World Gold Council contained two salient visuals of how the dynamics of the global gold market have shifted from the West to the East over the past 40 years. Today well take a look at supply, and tomorrow well dive into demand.
2011-11-16 As Alternative Investments Move into the Mainstream, Advisors and Investors Need to Choose Wisely by Team of Emerald Asset Advisors
We believe that having a piece of an overall portfolio that is committed to liquid alternatives is a critical component to long-term portfolio stability, capital preservation and growth. No one wants a repeat of 2008, or anything close to it. There are an abundance of liquid alternative choices available, some of which have proven themselves through various market cycles and environments. They have gone from Wall Street to Main Street for good reason. Embrace the opportunity, and you and your clients may just sleep a bit better at night during these volatile times.
2011-11-16 It Ain't Over Till It's OverAnd Thats Not Happening Soon by Team of Guild Investment Management
Dont expect the current crisis of budgetary deficits and spending restraints to stop any time soon. Instead, think in these realistic terms: the era of fiscal restraint and spending limits has come, and will be with us for ten to twenty more years. It is obvious to veteran observers that Europe and America are facing hard choices that will result in slow growth and increased suffering for the people. And for that we have our incompetent legislators past and present to thank. They have misused their mandates, grossly exceeded their budgets, and are loath to correct wayward behaviors.
2011-11-15 Michael Aronstein on Today's Key Macro Trends by Robert Huebscher (Article)
Michael Aronstein is the president and chief executive officer of Marketfield Asset Management. Since its inception in 2008, his fund has returned 31% while the S&P has been down 15%. I spoke with him about the key macroeconomic and strategic issues facing investors today.
2011-11-15 A Strategy with a 25-year Record of 25% Returns by Robert Huebscher (Article)
Indiana-based SBAuer Funds launched its inaugural mutual fund in December of 2007, after having established a successful track record with a separately managed account business. I spoke with Bob Auer, who has employed the same stock selection system used by the fund for the last 25 years, over which time returns have averaged 25% annually.
2011-11-15 It's All Greek to Me by Michael Lewitt (Article)
As one who has written that there is little chance of a long-term solution to Europe's problems without a radical rethinking of global economic policy, the Europeans still have little choice once they peer over the cliff to realize other than to step back and buy some time before taking the inevitable leap. For, in the end, they have no other options than to jump.
2011-11-15 Are Gold Prices Correlated to the Real Federal Funds Rate? by Georg Vrba, P.E. (Article)
The price of gold depends on many variables, among them the real federal funds rate, which is the federal funds rate adjusted for inflation. But the real federal funds rate, or RFFR, alone does not explain variation in gold prices. One must also look at the change in the RFFR for a full understanding.
2011-11-15 In a World Dependent on Crude, is Natural Gas the Savior? by Chris Maxey of Fortigent
It will be a busy week in the US with reports on inflation, retail sales, industrial production and housing starts. Inflationary pressure is likely to show further signs of easing in October, particularly as food costs continue to stabilize. Retail sales were quite strong in September, but gains for October are expected to be more muted. Earnings season is winding down, with quarterly reports expected from UniCredit, Dell, Home Depot, Walmart, Target, Vivendi, Dollar Tree and Gap. The only major central bank to meet this week is the Bank of Japan, which is unlikely to change rates.
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.
2011-11-14 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Incredibly low interest rates are telling us a story that few seem able to decipher. For well over a year, interest rates on cash deposits have been near zero, while the reward for being a long-term Treasury investor has hovered below 3%. The last time rates coalesced around 2% was more than a generation ago. Concurrently, the economy has lost buying power, jobs, and valuation. As every global bourse in my universe struggles to gain upside traction, a worldwide decline in sentiment, earnings acceleration, and pricing power has diminished the foundation of free-exchange and capital markets.
2011-11-12 Where is the ECB Printing Press? by John Mauldin of Millennium Wave Advisors
There is too much debt in many southern countries; France is not far from having its own crisis if they do not get back into balance. And if they lose their AAA rating, then any EFSF solution is just so much bad paper. The path of least resistance, and I use that term guardedly, is for the ECB to find its printing press. Perhaps they can borrow one from Bernanke.
2011-11-11 Get Paid to Play Gold by Frank Holmes of U.S. Global Investors
With money markets and Treasuries yielding next to nothing these days, investors are finding income in new places. One area those investors should consider is gold mining. With gold rising in value, mining companies are reaping record profit margins, yet the stock prices are depressed due to lack of investor interest. A solution for both gold companies and investors may be dividends, specifically gold-linked dividends. Several top-tier gold producers that are benefiting from higher gold prices have begun to share a portion of their profits with shareholders via a dividend payout.
2011-11-11 The Beginning of the End of Fiat Money by John Browne of Euro Pacific Capital
Last week, the G-20 meetings did not produce an expanded bailout fund for the eurozone. While this may bode well for the long-term solvency of the member-states (moral hazard and all), it has also triggered a market reaction that I expect to help destabilize the common currency. Yesterday's market moves suggested that this development is good for the dollar and bad for gold. Allow me to step back from the stampeding herd to evaluate whether they are, in fact, moving in the right direction.
2011-11-11 The Many Factors Fueling a Return to $100 Oil by Frank Holmes of U.S. Global Investors
The IEA says trends on both the oil demand and supply sides maintain pressure on prices. We assume the average IEA crude oil import price remains high, approaching $120 per barrel (in 2010 dollars) in 2035 (over $210 per barrel in nominal terms). Thats a distant projection but it certainly illustrates why you should consider investing a portion of your wealth in oil.
2011-11-10 Alternative Investments in Focus by Team of American Century Investments
We recently conducted a survey of financial professionals to better understand their view and use of alternative investments. Alternative investments are defined as those outside the traditional big three of cash, bonds, and stocks. These alternatives include commodities, real estate, and inflation-linked securities, among many others. Alternatives have surged in popularity in recent years, as investors and their advisors seek out new and potentially more effective ways to diversify and reduce risk in traditional balanced stock, bond, and cash portfolios.
2011-11-10 Aflacs (AFL) Fair Value PE Ratio Should Be Double, and So Should Its Price by Chuck Carnevale of F.A.S.T. Graphs
This is the third in a series of articles that have been designed to provide investors greater insights into the proper understanding and utilization of the PE ratio as a valuation measurement tool. With this iteration were going to look at Aflac to identify significant undervaluation. The first article in this series looked at Amazon as an example of overvaluation. Our second article looked at SCANA Corp. and Darden Restaurant Group as examples of fairly valued companies; however, we further introduced the concept of the earnings growth rate as a relative component of future return.
2011-11-10 The Drachma is Dead: So Is the Welfare State by Brian S. Wesbury of First Trust Advisors
A weak currency cannot replace a strong currency. In other words, the existence of the euro will force the countries of Europe to confront budgetary problems fiscally, not monetarily. No wonder governments are collapsing across the continent. The Greek government, and some misguided economists, think the failure of the welfare state could be averted if Greece would only devalue its currency. A de-valuation is just a default by another name. It puts most of the burden on creditors, savers, and income earners, who face the pain and loss of reduced purchasing power.
2011-11-09 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The stock market took a breather last week given the number of so-called macro issues to deal with as well as the usual stuff such as Federal Reserve Board meetings and employment reports, etc As the charts above illustrate, both the Dow Jones Industrial Average and the NASDAQ Composite dropped around 2 percent for the week, but remain positive for their year to date performance.
2011-11-09 Three Great Paragraphs from Peter Lynch by Kendall J. Anderson of Anderson Griggs
Since the stock market is in some way related to the general economy, one way that people try to outguess the market is to predict inflation and recessions, booms and busts, and the direction of interest rates. True, there is a wonderful correlation between interest rates and the stock market, but who can foretell interest rates with any bankable regularity? There are 60,000 economists in the U.S., many of them employed full-time trying to forecast recessions and interest rates, and if they could do it successfully twice in a row, theyd all be millionaires by now.
2011-11-09 Seasick: Hanging on the Rail by Cliff W. Draughn of Excelsia Investment Advisors
For the past 22 months the question has lingered: when will Greece default? The markets are beginning to learn from the prior three Euro-crises what to expect from European policymakers. In the end it will be what Germany wants, as they are seemingly content to amputate the leg of Greece six inches at a time. Even prior to this past weekends summit, German Chancellor Merkel complimented now former Prime Minister Papandreou for stepping down but implored the new Greek policymakers to carry out the Brussels decisions completely and immediately.
2011-11-08 Politics, Taxes and the Markets by Robert Huebscher (Article)
One of the most engaging speakers at last week's Schwab IMPACT conference was Andy Friedman, who offered some provocative predictions about next year's elections and what we can expect from the deficit super committee.
2011-11-07 And That's The Week That Was by Ron Brounes of Brounes & Associates
Any more surprises, Prime Minister Papandreou? Then again, will you even still be in office next week (is lame duck supposed to be hyphenated?). Europe, unfortunately, continues to earn more than its fair share of global headlines and rest of the world seems content to stand back and watch. With the G-20 meeting now in the rearview mirror, the sales tactics must move to a different venue as Europe seeks much-needed investments in its rescue fund. A slow week on the domestic economic calendar gives investors too much time on their hands to dissect the mindless gibberish out of Europe.
2011-11-07 Euro Drama Offsets Winning Earnings Season by Kristina Hooper of Allianz Global Investors
Stocks gave back gains last week with help from Europe, but there are ample reasons to stay upbeat on equities: 7 out of 10 U.S. companies are beating earnings estimates so far in the third quarter, and the private sector continues to add jobs. Stocks finished the week downbut definitely not outas a strong earnings season is cause for optimism in the face of a pervasive European debt crisis.
2011-11-05 The Political Season Heats Up by Monty Guild and Tony Danaher of Guild Investment Management
U.S. presidential elections are a year away, while France and many other countries will be staging elections within the next twelve months. We can expect continued volatility as politicians around the globe say things to benefit their re-election chances which can have a negative impact on stock prices globally over the short run. This has made and will continue to make the tried and true method of buying and holding specific stocks for the long term a difficult road to travel anywhere in the world.
2011-11-04 The Story of MF Global - Capitalism Works by Brian S. Wesbury of First Trust Advisors
The $41bil bankruptcy of MF Global, led by CEO Jon Corzine, is obviously front page headline news these days. While there are many things to learn from MF Global, the idea that capitalism failed is not one of them. There is, of course, the lesson that serving customers and earning money the hard way is the best way to create wealthmaking proprietary bets to try and strike it rich is not. The idea that someone understands the market better than the market itself is an age old problem, created and supported by blind ego. This problem-ego-has taken down companies before and will again.
2011-11-04 Buyer's Remorse by Hardy Zhu of Matthews Asia
Autumn has traditionally been a strong season for housing sales in China, and September and October are usually dubbed the golden and silver months. But press reports this year have called September copper and October iron in light of sagging sales figures. Sales dropped 49% over last year in the 14 major cities it tracks. Transaction volume in many major cities retreated even further. Due to weak sales and tighter loan quotas from banks, many developers have lowered prices in attempts to expedite sales. In Shanghai, prices for some units have declined 20% to 40%.
2011-11-04 3 Drivers, 2 Months, 1 Gold Rally? by Frank Holmes of U.S. Global Investors
Combine the central bank purchases of gold with the fact that we are now entering the strongest months of the year for gold. While the spot gold price has differed from the S&P/TSX Composite Index of gold equities during the first 10 months of the year, their historical pattern is very similar during the last two months. November has historically been the strongest month of the year for gold equities, with mining stocks increasing 8.1 percent.
2011-11-03 Households Continue to Reduce Debt and Embrace Frugality by Team of American Century Investments
Many things are different about the current economic recovery compared with past. One of the most important differences is the lack of any meaningful resurgence in consumer spending. Households continue to reduce their debt levels, which can be good for our long-term economic outlook. But in the near term, deleveraging means consumers cannot play the same role they have of driving strong economic growth by a surge in spending that satisfies their deferred consumption during the downturn. Well take a look at how households and consumers are faring in their efforts to reduce debt.
2011-11-03 Dressing Up a Default for Halloween by Team of BondWave Advisors
Politicians in Europe spent October trying to juggle three balls: 1) avoiding an unavoidable Greek default, 2) keeping a Greek default from cascading into Italy and Spain, and 3) shoring up the European banks before a Greek default. BondWave Advisors discuss the details of the Greek situation in our November Fixed Income Report and provide additional insight into the US Treasury, Corporate and Municipal Bond Markets.
2011-11-03 Third Quarter Letter by Team of Grey Owl Capital Management
We fully expect markets to remain manic and co-dependent. The market cant live without Ben, so a few weeks of weak data and no intervention and well have a selloff. Likewise, as soon as rumors of the next hundred billion dollar intervention surface, traders wont be able to buy equities quickly enough. The situation in Europe is a mirror image. Thankfully, in a world of 20,000+ individual securities there are always pockets of opportunity. We must be prepared for our individual ideas to trade with the market for periods of time, but over the long-haul good things happen to cheap stocks.
2011-11-02 Debarred from Certainty by Christian Thwaites of Sentinel Investments
The innocent pre-2008 are days gone. Expect volatility. Markets distrust most of the news and theres little conviction in any one direction. Vanilla investors are on the sidelines. Day to day trading is mostly position covering and range bound investing. Thats fine with us. The more algos and high frequency trading noise, the easier to spot fundamental anomalies. The challenge is to keep fluid between seemingly different but highly correlated markets.
2011-10-31 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.
2011-10-29 European Summit: A Plan with No Details by John Mauldin of Millennium Wave Advisors
The market reacted like yesterdays announcement was the Second Coming of the Solution to End All Solutions. But if you look deeply there is more to the market "melt-up" than simple euphoria and relief. What you find is a very disturbing unintended consequence that will come back to haunt us. The finger points to derivatives and credit default swaps. This week, we look at gamma and delta and other odd entities that may be behind the real reason for the market response, as we march inexorably toward the final chapters of the Endgame.
2011-10-28 U.S. Corporate Third Quarter Profits Looking GoodSo Far by Monty Guild and Tony Danaher of Guild Investment Management
The events of the past few days have proved our case that more QE will be coming. In Europe, they will not let their banking system fail and will provide the necessary liquidity to backstop their banks. They can either nationalize banks or recapitalize the banking system with new capital from several countries. The bottom line is that liquidity will be added and central banks balance sheets will expand. Growing use of QE is bullish in the short to intermediate term for stocks in the U.S. and emerging markets, and it is bullish for gold, oil, wheat, and the currencies we have recommended.
2011-10-28 Et tu, Berlusconi? The Daunting (But Not Always Insuperable) Arithmetic of Sovereign Debt by Rich Mattione of GMO
This paper sets itself two tasks. The first is to construct a simple model that would arithmeticize the dynamics of sovereign debt so as not to get hung up with all of the acronyms and programs designed to save the world. The second is to put this into the context of the European sovereign debt problem and hazard some opinions as to which options can work, and which cannot. Grand solutions may yet come, but they probably will not come soon enough. Now is the time to separate the daunting from the insuperable, and to fix both sets of nations.
2011-10-28 How China Drives the Global Economy by Frank Holmes of U.S. Global Investors
The Chinese economy is not a bubble, but that does not mean a significant slowdown wouldnt affect the global economy, especially natural resources. This is because Chinas economic transformation over the past few decades has cast the country into the forefront of demand. PIRA Energy Group says that, in 1990, Chinas share of oil and GDP was less than 5 percent; its share of world energy was just under 10 percent. Since then, Chinas share of energy, GDP and oil has risen dramatically, with each expected to be approximately 28 percent, 21 percent and 16 percent, respectively, by 2025.
2011-10-28 The Impact of Seven Billion People by Frank Holmes of U.S. Global Investors
On October 31, the world symbolically welcomes its 7 billionth. The real date the world hits that number is up for debate, but it has been symbolically chosen by the United Nations as a way to emphasize the effects a growing population will have on the globe.
2011-10-27 Is It Time for a Trading Tax? by Team of Knowledge @ Wharton
To its advocates, the idea is a no-brainer: Charge a tiny tax on each stock, bond or derivative trade to raise badly needed revenue, discourage dangerous short-term speculation and make Wall Street help clean up its own mess. But critics of the financial transaction tax concept say that it would actually make the financial markets less efficient, hurting ordinary investors by raising costs. Wharton faculty and investment experts weigh in.
2011-10-27 Happy Diwali by Frank Holmes of U.S. Global Investors
Whats significant to gold investors is that India makes up a considerable part of the worlds population that has a strong cultural bond with gold. This Love Trade identifies a key differentiator between the East and the West. Whereas in the U.S., we separate gold jewelry from investments in gold, in the eastern hemisphere in countries such as India and China, gold is one and the same. No matter the formjewelry, coins, bars or statuesgold is an investment. With half of the worlds population in this part of the world, this concept is what we believe will drive the long-term shift in demand.
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.
2011-10-24 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Big oil takes center stage in earnings as Exxon-Mobil and Chevron make a run at record profits. Amazon.com gives an early glimpse into the holiday season. Euro-zone leaders try to make progress on the rescue plan and France and Germany have sworn that the matter will be rectified by mid-week (or at least a course of action will have been set). The initial release of third quarter GDP highlights the economic releases. Somehow 9.1% growth rate (like Chinas) is not likely to be in the cards.
2011-10-24 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
The Fed, and a majority of global state treasuries, have made the decision that keeping money inexpensive is at least one of the tools they can use both to sustain economic growth. This policy has been a boon to those with money, and a severe hindrance to those without. A vexing conundrum exists when monetary policy is designed to promote the flow of money into dynamic expansion but the spigot gets blocked because psychology and momentum are running in the opposite direction. In the meantime savings rates have nearly disappeared, along with whatever savings the losers in this game had.
2011-10-24 The Valley of Debt: Will You Walk Away from the Fed and Its Money? by Tad Rivelle of TCW Asset Management
Regardless of your philosophy, financial crises do test the mettle of the investor and judged this way, the past three years have been among the most challenging period in decades. Perhaps because crises mean different things to different groups of investors, we have lived with the ultimate traders market, one alternately characterized by the risk on or the risk off. Interestingly, the level of the Dow Jones is within just a few points of where that index started the year. Had you just returned from the Antarctic, you might have concluded that 2011 was a snoozer.
2011-10-24 Beige Book Should Leave Investors Less Blue by Kristina Hooper of Allianz Global Investors
The Feds Beige Book, which provides a more holistic view of the economy than any individual data point, confirmed what weve seen in recent economic reports: the U.S. economy grew slightly in September and the first week of October. Also positive were the latest industrial production numbers: U.S. industrial production increased for the third straight month helped by rising demand for autos, planes and electronics. This offers further evidence of a disconnect between sentiment and dataone that could spell opportunity.
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.
2011-10-21 How to Succeed at Auctions by Herbert Abramson and Randall Abramson of Trapeze Asset Management
We believe weve suffered more from the illiquidity and greater volatility of many of our smaller cap holdings, but thats where we are finding the best values with the greatest potential. When the markets recover, that same illiquidity should boost performance on the way up. Maybe sooner than is believed.
2011-10-21 Do Bullish Investors Have an Ace in the Hole? by Frank Holmes of U.S. Global Investors
You may not be able to count cards at the blackjack table, but counting historical trends of the stock market and discovering inflection points are not only legal strategies, they are essential to successful investing. One card worth counting is the Purchasing Managers Index (PMI), which measures the manufacturing strength of any given country. A rising PMI indicates a growing economy and is considered a leading indicator.
2011-10-19 Equity Investment Outlook by Team of Osterweis Capital Management
During the third quarter, the stock market plunged as investors hopes for a sustained U.S. economic recovery dissipated and fears of a world-wide economic slowdown and possible U.S. double-dip recession increased. The U.S. faces several major structural headwinds including a moribund housing sector, high unemployment, bank credit restraint, and a growing and worrisome federal debt. Underlying these and other problems is the depressing effect of the end of the debt super cycle.
2011-10-19 Welcome to the Machine: High-Frequency Trading Domination by Liz Ann Sonders of Charles Schwab
Market volatility has spiked, starting with 2010's flash crash and culminating in this year's wild August, bringing asset-class correlations up with it.
High-frequency trading and the use of leveraged exchange-traded funds (ETFs) are the primary culprits, but the impact isn't all bad.
What are regulators doing and saying about the phenomenon?
2011-10-19 U.S. Dollar and Euro - Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
With so many global dynamics playing out, and the worlds financial markets fixated on the political process (or lack thereof) in the Eurozone, driving market sentiment around the world, it may be a good time to take a deep breath, take a look back at where weve come from, and assess the likely implications going forward. Specifically, what are the implications for the U.S. dollar and currencies globally? With continued expansionary monetary policy here in the States, and lack of such policies elsewhere, the divergence in monetary policy is likely to further erode the U.S. dollar.
2011-10-19 All That Glitters Is Not a Cash Equivalent by Jerome M. Schneider of PIMCO
The latest volatility has investors asking questions about the securities they own, in particular probing any exposures to European issuers.
Cash investors often over-allocate to money market and bank investment vehicles, while the most attractive risk-adjusted opportunities might fall just outside of this space.
We currently see opportunities in short-dated, non-financial BBB-rated corporate bonds, along with dollar-hedged bonds and bills issued by sovereigns with solid balance sheets.
2011-10-19 Emerging Europe: Economic Review September 2011 by Team of Thomas White International
A leading economic sentiment indicator for the Central and Eastern European region recorded its lowest reading in more than two and a half years amid an uncertain outlook for the region and the continuing debt crisis in the Euro-zone, according to a news report published in Bloomberg. Europes failure to find a way out of the debt crisis amid a slowing global economy has clouded the outlook for the whole Eastern European region, which is dependent on exports for much of its growth. Hungary recorded the biggest fall in economic expectations, then Poland, according to the Bloomberg report.
2011-10-18 Gundlach: Markets Aren’t Cheap Enough Yet by Robert Huebscher (Article)
Prices for risky assets are straddling the extremes of two potential outcomes. A 'hurricane' may hit, in the form of a blow-up in Europe or a move to put the US federal government on an austerity program, driving prices lower. Or world economies will plod along, in which case optimistic pricing makes sense. But prices should be 'truly cheap' against those parallel problems, according to Jeffrey Gundlach, and that is not yet the case.
2011-10-18 Wrong by Jeffrey Saut of Raymond James Equity Research
Near-term overbought is our short-term call, yet we think the lows are in for the year. Regrettably, we also believe there has been so much technical damage that the May 2nd intraday high of 1370.58 marks the high for the year. Nevertheless, we are buyers of favored stocks on weakness given our sense that there will be no recession and that earnings will continue to surprise on the upside.
2011-10-18 Economic Data Receives Another Dose of Positive News by Chris Maxey of Fortigent
Not only was key economic data, such as retail sales, better than expected, but also the start of earnings season brought about a number of positive corporate earnings surprises.An important caveat is that analysts earnings estimates were routinely cut over the past several weeks, leading to a lowered bar and higher likelihood of upside surprise.Regardless, markets appear pleased by the news, at least for the time being. Over the latest week, each of the major indicators, excluding consumer sentiment, came in above consensus.
2011-10-18 Volatility Rears its Ugly Head by Jeremy Blackman of Hester Capital Management
The major debate in the financial markets today revolves around whether or not the U.S. is going to experience a double-dip recession. We do not expect a recession, but if that does happen it should be a shallow one. We remain cautiously optimistic that the politicians in the US and Europe will eventually do the right thing as the consequences of not acting in a prudent and responsible manner are not pretty. We anticipate that markets will continue to be volatile until Europe finds resolution for its problems and until politicians across the globe learn to compromise across party lines.
2011-10-17 Europe: Just Getting Warmed Up by John P. Hussman of Hussman Funds
At present, the S&P 500 is again just 10% below the high it set before the recent market downturn began. In my view, the likelihood is very thin that the economy will avoid a recession, that Greece will avoid default, or that Europe will deal seamlessly with the financial strains of a banking system that is more than twice as leveraged as the U.S. banking system was before the 2008-2009 crisis.
2011-10-17 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.
2011-10-17 Weakening Ties Between Data and Sentiment by Kristina Hooper of Allianz Global Investors
Surprisingly strong economic data shows a weakening link between investor attitudes and economic realities, suggesting fears of a recession may be overstated, writes Kristina Hooper, CFA, CIMA, head of portfolio strategies at Allianz Global Investors.
2011-10-15 Can 'It' Happen Here? by John Mauldin of Millennium Wave Advisors
The beginning of the end of the Weimar Republic was some 89 years ago this week. There is a stream of opinion that the US is headed for the same type of end. How else can it be, given that we owe some $75-80 trillion dollars in the coming years, over 5 times current GDP and growing every year? Remember the good old days of about 5-6 years ago (if memory serves me correctly) when it was only $50 trillion? With a nod to Bernankes helicopter speech, where he detailed how the Fed could prevent deflation, I ask the opposite question, Can it (hyperinflation) really happen here?
2011-10-14 Europe Moving In The Right Direction by Monty Guild and Tony Danaher of Guild Investment Management
The rally in European and world stock markets that began on October 5th appears to be continuing for several practical reasons. Many stocks just got too cheap. Europes policymakers have expressed language the markets want to hear. Ans Chancellor Merkel and President Sarkozy have given the world reason to believe that Europe will gradually implement a comprehensive program to recapitalize European banks. The combination of these factors has made us feel more constructive about markets. Don't forget gold, our advice continues to be buy the dips and take some profits on spikes.
2011-10-14 Which Gold Miners Have Largest Upside? by Frank Holmes of U.S. Global Investors
Since hitting $1,900 an ounce through the beginning of October, gold has declined nearly 11 percent. Over the same timeframe, the NYSE Arca Gold Miners Index lost almost 13 percent. Thats a closer performance correlation than the roughly 3-to-1 gold equities to bullion ratio weve historically seen and could mean the miners are finally closing the gap. Looking over the next year or so, we believe the smaller gold miners are especially poised to outperform this time. As TD says, on a rebound, we expect the best performing equities to be among the ranks of the explorers and developers.
2011-10-14 Portfolio Strategy by Bradley Turner of Chess Financial
In previous newsletters, we have discussed the tendency of investors to extrapolate recent experience, and how this causes them to act most decisively near inflection points. Today, investors are selling assets they perceive to be risky to buy assets they perceive to be safe. Along the way, they seem to have forgotten that even safe havens can fall victim to speculative excess. How long this trend will continue is unknowable. However, the longer it persists, the more likely it is that risk assets will prove to be the better investment.
2011-10-14 The Bottom Line #6 by Paul Azeff and Kory Bobrow of Euro Pacific Capital
What we can learn from the past is that in the current environment, being nimble, buying at major fear-induced selloffs and, even more importantly, selling into strength, is a strategy that will outperform the buy-and-hold crowd. For nimble traders, volatility represents opportunity. Having someone by your side to help calm the fear and quell the exuberance helps the returns a lot. Its when you have volatility like weve seen of late, or after the Great Depression, or experienced in the Japanese market over the last 20+years, when you really need a good execution strategy to stay profitable.
2011-10-14 The Other Keynes by Bill Mann of Motley Fool
We are buying stocks for two reasons. First, we see a market environment in which there are enormous disconnects between how much companies are worth and how much they're selling for. That's the easy reason and the one entirely in our control. Put simply, where there is fear, there is opportunity. But the second reason is far more important: We are buying stocks because we can. Thanks to patient, long-term-oriented shareholders, our funds have seen extremely mild levels of redemptions. That means we still have capital to put to work at a great time to be putting capital to work.
2011-10-14 Fall 2011 Quarterly Commentary by Jonathan A. Shapiro of Kovitz Investment Group
The world is a mess. There, we said it. Yet we continue to hold stocks and even look to purchase more of them. Why would we do this if we just admitted what we admitted? The answer lies in the critical distinction between having an investment philosophy and having a market outlook.
2011-10-14 Case Study: Buyouts Crystallize Value in the Market by Frank Holmes of U.S. Global Investors
Theres value in the market. Thats the message the market is sending through the recent strategic acquisitions in the energy and gold mining spaces.
This week it was announced that Sinopec, a large Chinese oil and gas company, is purchasing Canadian energy company Daylight Energy for $2.1 billion in cash. The deal was struck at a whopping 120 percent premium to Daylights share price prior to the announcement and a 43.6 percent premium over the 60-day weighted average price, according to Reuters.
2011-10-14 Fall 2011 Quarterly Commentary by Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management
We are left with depressed equity valuation in the US and Europe. Stocks are not supposed to be this cheap in the face of interest rates and inflation this low. In fact, stocks have tended to trade at more like 20 times earnings in the context of todays 2% inflation and 2% ten year Treasury yields, roughly 50% higher than todays valuation. Alan Greenspans Fed Model, which compares forward earnings yield (inverse of P/E) to 10 year Treasury yields, suggests US stocks are the most compelling vs. Treasuries in over fifty years.
2011-10-13 Prediction? Pain by James Moore of PIMCO
Recent Federal Reserve activity has pushed down the long end of the yield curve, spiking the present value of plan liabilities and widening the funding chasm.
The pain of the pension community shows up most obviously in funded status estimates.
High and increasing levels of implied equity risk premium in pension plans suggest sponsors expectations are increasingly optimistic about future contributions from risk assets.
2011-10-13 Pointing Fingers: Can Europe and the U.S. Work Together to Solve the Financial Crisis? by Team of Knowledge @ Wharton
Even as U.S. officials and investors watch Europe struggle to shore up its financial system and avert another shock to the global economy, signs of a subtle transatlantic "blame game" have surfaced. Experts from Wharton and elsewhere note that although there are no immediate answers to the mounting crisis -- and its impact on capital markets in the U.S. -- it's clear that any finger pointing needs to be replaced by a sense of urgency and mutual cooperation before solutions can be found.
2011-10-12 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
There is one certainty about todays markets: nothing is certain. Traversing the economic landscape is akin to walking across a room with a trap door looming unseen. It is not just equities which pose this risk. Austerity programs worldwide are forcing interest rates down, and bid prices to fall as well. In effect, waiting until maturity is ones greatest hope for financial recapture in a bond portfolio. As strongly as capital gains drove bond investing during a period of declining rates, strategic options dont exist anymore as long as interest rates remain pegged to these low levels.
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 The Euro is Dead. Long Live the Euro by Axel Merk of Merk Funds
To ensure the European sovereign debt crisis doesnt go to waste, the markets have kept policy makers and bankers on their toes. The naysayers of a European turnaround have become so overwhelming that it is stunning Europe hasnt submerged into the Atlantic Ocean yet. It appears that German Chancellor Angela Merkel, is about to turn the tide. A month ago, we turned cautious on the euro. However, in a world where policy makers are throwing billions and trillions at the problems, market fundamentals can quickly change. And so it is that our assessment of the outcome for the euro has changed.
2011-10-11 Managed Futures are not a New Asset Class by Michael Kitces (Article)
The focus on finding investments that have a low correlation to equities has grown to such an obsession that we're willing to name anything that has a low correlation as 'a new asset class.' While some alternatives truly have their own investment characteristics unique from stocks and bonds, other alternatives - like managed futures - simply represent an active manager buying and selling existing asset classes.
2011-10-11 The Global ‘Old Normal’ by Michael Nairne (Article)
Amidst a torrent of dismal economic news and plunging stock prices, investment horizons have become increasingly short-sighted. The new normal of faltering growth and painful deleveraging appears to be only too true. However, investors capable of taking a long-term, global view will find forces at work that will likely drive resurgent world growth akin to that which occurred in the decades right after World War II.
2011-10-07 U.S. Awakening To Its Domestic Energy Potential? by Monty Guild of Guild Investment Management
Geologists have known about major reserves of oil and natural gas within the continental U.S. for a very long time, but the ability to access these massive energy reserves was limited in the past. These resources lie in and under rock, miles below the surface and were thought to be impossible to bring to the surface economically. This has all changed with new technologies developed over the past decade. The word is getting out to the public about the extent of these energy producing fields that are located in many areas of the country.
2011-10-07 Despite Skeptics, Can Gold Continue to Glimmer? by Russ Koesterich of iShares Blog
In recent weeks, a number of market watchers and media headlines have declared that the gold bubble is finally bursting and the gold rally is over. I disagree. First, Ive never believed that gold was in a bubble. Second, I believe that prices for the precious metal are likely to remain high for the foreseeable future. As I pointed out in a recent post, Why Gold Prices Are So High, there are three long-term factors supporting gold. 1) The negative real interest rate. 2) Gold tends to do best when fiat currencies depreciate. And 3) Uncertainty over the endgame of the US deficit.
2011-10-07 Point of Maximum Pessimism? by Niels C. Jensen of Absolute Return Partners
The current level of pessimism is quite overwhelming, in particular in Europe where the eurozone crisis has taken its toll on investor confidence. This has led to valuation levels we haven't seen since the dark days of 1981-82, just before we embarked on the 1982-2000 bull market - the biggest of all time. It is our view that investors will be amply rewarded if they begin to buy European equities at current levels, although it is a strategy that shall require both a solid stomach and some patience.
2011-10-07 Can Markets Find the Road Back to Positive Territory? by Frank Holmes of U.S. Global Investors
Can markets find the road back to positive territory? This week, wed like to point out three reasons investors should consider remaining in equities or reassessing whether to sit on the sidelines: 1. Investor sentiment is signaling the market is overextended to the downside. 2. Stocks are trading well below historical valuation trends. 3. S&P 500 dividend yields are higher than the 10-year Treasury yield.
2011-10-07 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.
2011-10-06 Global Investment Outlook: October 2011 by Team of Aberdeen Asset Management
Global growth momentum continues to decline but is worst in Europe. Solvency of national governments and now banks is creating fears of a crisis. Coordinated policy action is key to stemming adverse market reaction. Although economic data has continued to demonstrate slower business activity, this is most obvious within Europe which has suffered from fiscal contraction as well as diminishing export demand from the emerging world. Unemployment levels remain elevated, and the reluctance to create new jobs is proving the Achilles heel of policymakers efforts to kick start private sector demand.
2011-10-05 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
A fixation with tangible metals is both forward looking as well as reflective melancholy. Because the price of commodities had risen in the past, people might expect it to do so again. In the case of commodities trends lose their appeal when everyone already knows that the valuations have become inflated. In todays case we have been in a twelve year commodities price expansion. While some might try to eke out the last few cycles of profit within that trend, others wonder how much greedier can the trend enthusiasts be. There are no linear cycles that last forever and no free lunches.
2011-10-05 Million Dollar Question: Dollar and Recession Risk Up Together by Liz Ann Sonders of Charles Schwab
Recession fears have mounted, but the picture is still mixed and it's not yet conclusive.
The US dollar is winning the "least ugly" currency contest, but isn't helping stocks or commodities.
Short-term, a stronger dollar is a negative for riskier assets but not necessarily longer-term, if history's a guide.
2011-10-04 Jeffrey Gundlach: Preparing for the Coming Crisis by Katie Southwick (Article)
Speaking at a luncheon in New York last week, Jeffrey Gundlach, the founder and chief investment officer of DoubleLine Capital, gave investors advice on how to survive pending crises at home and abroad. After outlining the current state of U.S. debt and tax policy, Gundlach advised against European investments, favoring the U.S. dollar and owning U.S. government bonds as a hedge against credit.
2011-10-04 Moneyball Investing by F. Sean Bonner (Article)
In capital markets, emotions often rule the day, to the benefit of those who best remain well grounded in theory and math. The same holds true in baseball, as the new movie Moneyball reminds us.
2011-10-04 The Adjusted Gold/XAU Ratio as an Indicator of Forward Returns for Gold Stocks by Georg Vrba, P.E. (Article)
While the recent bull market took gold prices to new highs, the prices of gold-mining companies lagged. Some claim those companies are now drastically undervalued, and we can investigate that claim by examining the relationship between gold and gold-mining prices.
2011-10-04 Currency: The Hidden Portfolio Risk by Peter Schiff of Euro Pacific Capital
In the spirit of sharing our favorite dollar-alternatives, I recently sat down with Axel Merk, founder and president of Merk Investments, who is a well-known authority in the international currency arena today. That conversation resulted in a new report, entitled Peter Schiff's and Axel Merk's Five Favorite Currencies for the Next Five Years, which is now available for free download. In a world where gold is in the quadruple-digits and the S&P has downgraded US debt, we both feel it's high time every American consider diversifying his or her portfolio to mitigate currency risk.
2011-10-03 Six Pac(k)in' by Bill Gross of PIMCO
Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor.
There is only a New Normal economy at best and a global recession at worst to look forward to in future years.
If global policymakers could focus on structural as opposed to cyclical financial solutions, New Normal growth as opposed to recession might be possible.
2011-10-01 Tough Choices, Big Opportunities by John Mauldin of Millennium Wave Advisors
There is a pattern, and the United States is no different than Greece or Ireland or Italy or Japan or any other country in history. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang! confidence collapses, lenders disappear, and a crisis hits. There's a limit to how much the bond market is going to let us borrow. As we approach that limit and we're not there yet, we have time, thank God we can make choices about how we want to deal with the problem. But the problem is too much debt and too high a deficit.
2011-09-30 Are You Properly Positioned for the Return of the Economic Vitality of America by Chuck Carnevale of F.A.S.T. Graphs
It has been my observation over my last four decades of studying the stock market that investors have a penchant for projecting into the future what is currently happening. In other words, when the market is behaving badly, they tend to believe it is going to continue to behave badly far into the future. And as I reflect on this, it occurs to me that every bull market has ended with a bear market, and conversely, every bear market has ended with a bull market. The most important attribute to remember about free-markets is that they self adjust. Most know this as the law of supply and demand.
2011-09-30 Commodities and Conservation in the Caspian by Mark Mobius of Franklin Templeton
What country is the worlds largest producer of petroleum? No, its not Saudi Arabia but Russia. Oil and gas are important to Russias economy, as are a whole host of natural resources such as nickel, palladium, diamonds, etc. Because of what have been higher commodity prices, Russias economy is growing at a fast pace, projected by IMF to grow 4.3% this year, interest rates have come down from their peak in 2008, unemployment is lower, foreign reserves have risen to over US$500 billion as at July 2011, and Russian equity markets have generally done well since 2008, even considering declines.
2011-09-30 The Coming Euro Bail by Monty Guild and Tony Danaher of Guild Investment Management
If the optimists are to be believed, Europe will come to grips with its critical financial problems and conduct a massive restructuring of the banking system and bail out the irresponsible countries that overspent. If the pessimists are correct, the world is a mess and will stay that way. We are moving toward the optimistic side. We see that Europe is finally recognizing that the all-is-well charade is no longer working. Investors are too smart and more cynical than in the past. European banks need capital. If they get it, investors may see a sizeable stock market rally in much of the world.
2011-09-30 Don't Panic on Metal Tumble by John Browne of Euro Pacific Capital
Given the swift rise of gold and silver during the first half of 2011, precious metals were due for a correction especially following the parabolic increases that we saw in August. Markets never go up in a straight line, and often the biggest downward movements occur in bull markets. These sharp movements are common in gold, especially during short periods of financial panic. For instance, gold fell more than 25% in the second half of 2008, and almost 15% from February to April 2009. Yet after the dust settled in those earlier corrections, gold resumed its upward march with even more gusto.
2011-09-30 Extreme Divergence Between Coal Rocks and Stocks Unwarranted by Frank Holmes of U.S. Global Investors
Coal was relatively flat for the quarter, but whats interesting is that coal companies were severely discounted. Over the last two years, coal stocks and the commodity have closely tracked each other, until this summer, when worries about a global slowdown caused coal stocks to fall off a cliff, not once, but twice, in August and again in early September. This extreme divergence between coal companies and the commodity seems unwarranted when the long-term drivers of coal remain supportive.
2011-09-30 Is a More Integrated Europe the Answer? by Andrew Goldberg and David M. Lebovitz of J.P. Morgan Funds
Germany has voted for an expanded EFSF to stabilize the European Sovereign debt crisis, an important step towards reducing near-term concerns. However, broader problems still loom. In recent weeks, mounting skepticism has exacerbated fears of recession in developed economies, sending risk assets plunging and volatility soaring. In the following update on the situation in Europe, well consider: The underlying issues plaguing Europe, A summary of steps taken to address them thus far, A look at possible next steps and solutions and a few thoughts on investing in such difficult times.
2011-09-28 The Latest (Secret) Rescue Plan For Europe by Gary D. Halbert of ProFutures Investments
Europe is preparing to go down a similar path as the US took in 2008 huge bailouts and a possible Euro-TARP to restructure its ailing banks. I hope it turns out better for Europe, but I am not optimistic. The possibility of a controlled default by Greece on 50% of its debt has numerous potentially disturbing ramifications. For example, what does that mean for Ireland and Portugal? Or Spain and Italy for that matter? Think unintended consequences. All of this suggests that October could be another very rough environment for the global equities markets. Keep your seatbelts fastened!
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 Markets Struggle to Reconcile Macro and Micro by Chris Maxey of Fortigent
It was a difficult week from a number of standpoints, not the least of which was the growing number of downside risks that rose to the surface. A broad number of financial markets broke down this week, including copper, the Hang Seng and precious metals. Struggles in those markets came from any multitude of reasons, including the acknowledgement of slower growth ahead from the International Monetary Fund and the US Federal Reserve.
2011-09-27 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
When the Federal Reserve Board runs out of tools to fix the economy, its an even worse scenario. They are not simply useless, they become irrelevant. And so, last week the Fed meekly bought more long-term treasuries in an effort to salve the economy by keeping interest rates, all across the time spectrum, low. Instead, what they wrought was disdain, confusion, and declining confidence. Ive said it before. Low interest rates today are analogous to giving free drinks at closing time. You can lead a horse to water, but you cant make him spend.
2011-09-26 Not Over by a Longshot by John P. Hussman of Hussman Funds
Unless we observe a robust improvement in market internals from current levels, which appears doubtful given further confirmation of oncoming recession, the broad ensemble of data we observe doesn't offer much latitude to establish a constructive position based on, say, weak technical reversals or other scraps that the markets might toss out in the near term. The first 13 weeks of a recession are among the most predictably hostile periods for equities in the data. We'll take our evidence as it comes, but the primary risks - recession, default and global credit strains - continue to increase.
2011-09-26 Reflections and Outrage by Bob Rodriguez of First Pacific Advisors
Here is address given at the 2009 Morningstar conference which has just as much relevance now as it did then. Last years performance was a terrible one for the market averages as well as for mutual fund active portfolio managers. It did not matter the style, asset class or geographic region. We managers did not deliver the goods and we must explain why. In letters to shareholder will this failure be chalked up to bad luck, an inability to identify a changing governmental environment or to some other excuse? We owe them more than simple platitudes, if we expect to regain their confidence.
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.
2011-09-26 A Whiff of Volcker by Brian S. Wesbury and Robert Stein of First Trust Advisors
Equities will soon shrug off last weeks news. The economy is not in a recession and while European problems are a real issue, US banks have plenty of capital to sustain the system in case of further crisis. Despite all the dour language and the volatile market reaction, we like the downward move in gold. What it says is that the Fed will no longer follow a path of policy that seemed to print money with no regard for any historical lessons. As Paul Volcker showed us, tighter money can be in a countys best interest. Gold investors should look out below. But, for equities, this is a good sign.
2011-09-24 Catastrophic Success by John Mauldin of Millennium Wave Advisors
Rick Perry touched the third rail of Social Security and called it a Ponzi scheme, which of course immediately made him the leading candidate in the shoot the messenger category. Behind the rhetoric, I look at some actual numbers. Not the unfunded liabilities, thats too easy. Lets look at what a heartless, uncompassionate man President Roosevelt was when he started Social Security. And of course, we must start off with the results of the FOMC meeting, which has me feeling not at all amused. What are they thinking? Apparently, they are seeing the results from another, alternative universe.
2011-09-23 Germany and the Euro Bailout Fund by Monty Guild and Tony Danaher of Guild Investment Management
Last week, five important central banks offered one-time funding lines to large commercial banks. Why? Access to capital from money markets was drying up and liquid first aid was needed. The commercial banks were having a hard time borrowing dollars needed to repay loans in U.S. currency made by U.S. money market funds that decided not to renew the loans. U.S. money market funds had been huge lenders to large European banks. Now, bad news about Europes sovereign debt situation is scaring U.S. money market institutions away. The greater fear is trumping higher returns.
2011-09-23 Twist Paves the Way for QE III by Peter Schiff of Euro Pacific Capital
But many of those who oppose QE3 do so because they believe the economy doesnt need more stimulus not because the stimulus itself is causing the economic weakness. As a result when the economy deteriorates, support for QE III could grow. In the end QE3 will likely be far more popular than another bank bailout, which may be on the table if the Fed fails to rescue the banks it may be pushing over the edge with Twist. But our zombie economy does not need to be perpetuated by more QE. It must be allowed to die so that a living, breathing, self-sustaining economy can replace it.
2011-09-23 Extreme Moves Leave Markets in Rare Territory by Frank Holmes of U.S. Global Investors
Many investors have used gold and other commodities as a haven from recent volatility, buoying prices while equities sunk, but even those investments werent immune to the wave of selling. The U.S. dollar, in contrast, was up 2.2 percent. Much of the dollars rally came after the Fed announced the creatively named Operation Twist. The Fed will sell $400 billion of short-term securities and buy an equal amount of long-term debt. The goal is to push down long-term interest rates, which would spur economic activity.
2011-09-22 The Dangerous Phase by Bill Mann of Motley Fool
A falling stock market is one of the few arenas where the human instinct of flight is a net negative. Two homilies that you hear over and over from investors are 'dont catch a falling knife" and 'wait out the uncertainty.' Consider this: August had the biggest monthly fund outflows since March 2009. It's easy to forget now, but there was nothing to signify that March was the bottom. In fact, the news during that month was horrible. People who deployed capital into the market in March 2009 were doing something extremely uncomfortable, when every sinew screamed at them to run.
2011-09-21 Liquidity Crisis? A Currency Perspective by Axel Merk of Merk Funds
In 2008, the global financial system faced a potential meltdown when funding seized up for investment banks, ultimately leading to the failure of Lehmann Brothers. Three years on, we have got plenty of problems, but as we shall argue - investors may want to differentiate between a financial meltdown and insolvency. While complaining about policy makers and bankers may generate animated water cooler discussions, lets take their human (and fallible) nature as a given, and discuss implications for investors. In this context, we assess the U.S. dollar, currencies and equities.
2011-09-20 Ya Gotta Believe! by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Lupin Rahman and Isaac Meng of PIMCO
Central banks around the world consider easing monetary policy amid concerns of a global economic slowdown.
At least one major central bank, however, appears to be taking an opposite stance: China. Policymakers there are concerned about inflation, excessive credit and property speculation.
In other emerging nations, central bankers are generally poised to ease, but have less ammunition than they did after Lehman collapsed.
2011-09-20 Letter to the Editor by Various (Article)
A reader responds to Dennis Gibb's article, The Risks of Exchange-Traded Products, which appeared last week.
2011-09-17 Twist and Shout? by John Mauldin of Millennium Wave Advisors
What in the wide, wild world of monetary policy is the Fed doing, giving essentially unlimited funds to European banks? What are they seeing that we do not? And is this a precursor to even more monetary easing at this next weeks extraordinary FOMC meeting, expanded to a two-day session by Bernanke? Can we say 'Operation Twist?' Or maybe 'Twist and Shout?'
2011-09-16 ProVise Bullets by Team of ProVise Management Group
In our opinion, Congress and the President need to do two things. The first is to develop a long-term, permanent solution to the Tax Code and to remove regulations that are, at best, postponing the decisions of employers to hire, and in some cases, driving jobs overseas. Heres what we would do if we were leaders in Congress: we would identify each and every one of the parts of the package where there is common agreement and pass them as quickly as we possibly could.
2011-09-16 Crises Ahead As U.S. Banks Fight Against Needed Overhaul by Team of Guild Investment Management
Banks are supposed to be conservative institutions that do prudent analysis of credit risk, make loans accordingly, and buy government bonds. In the initial years of the 21st century, the banks were far from prudent and conservative. They were gamblers, and when they lost, the taxpayer had to bail them out. The banking sector is currently hard at work trying to stop implementation of the Volcker rule, a key provision in a needed financial overhaul legislation targeting the over-speculation madness.
2011-09-16 Fall 2011 Market Review by Owen Murray of Horizon Advisors
After the volatility in the capital markets over the past few weeks, it is easy to forget that the market was just a hair from its 52-week high as recently as July. Then, a flurry of events has made the once happy days of spring feel like a distant memory. With the debt ceiling debate going into the eleventh hour, Standard and Poors announcing a debt downgrade, and the euro-zone debt crisis seemingly reaching a crescendo, confidence has been severely impacted and concerns over the durability of our recovery have been raised.
2011-09-16 Sell your Bonds and Gold and Buy Dividend Growth Stocks Before it is Too Late by Chuck Carnevale of F.A.S.T. Graphs
Although we generally believe in the soundness of the principle of diversification, we also believe that extraordinary times require extraordinary measures. Any historian of markets or economies would agree that financial markets are currently far from behaving ordinarily. We intend to point out several markets that are behaving both inefficiently and completely out-of-sync from sound and prudent economic principles. Therefore, we will argue that certain sacred cows that would and should apply during normal circumstances need to be questioned and challenged in these very uncertain times.
2011-09-16 The Trend is Our Friend by Gene Peroni of Advisors Asset Management
I am bullish about the outlook for growth stocks because the trend is our friend. A comparison of the Russell 3000 Growth Total Return Index versus the Russell 3000 Value Total Return Index performances from October 15, 2008 to August 31, 2011 finds the RAG up 61.16% versus the RAV up 33.65%. These are both respectable showings, but the growth index is winning by a considerable margin of 27.51%. While this is not a call to abandon equity value strategies, it is a powerful argument for including growth as part of an overall equity allocation.
2011-09-16 The Bottom Line #5 by Paul Azeff and Kory Bobrow of Euro Pacific Capital
Today marks the third anniversary of the death of Lehman Brothers, not the first, nor the last, bank or broker-dealer to require emergency meetings of exalted officials to take place over a weekend, but it is the only one that resulted in a complete loss for shareholders and significant losses for bondholders. Whether you see this as the example of the officials getting it right or stunningly wrong really depends on where you sit, and it should color your perspective on everything that has occurred since.
2011-09-16 A Yuan, Euro and Dollar Walk Into a Bank... by Frank Holmes of U.S. Global Investors
Currency markets have been the pawns in central bankers chess games around the world in recent weeks, as each country looks to gain the slightest edge in todays economy. Weeks ago we saw an intervention from the Bank of Japan, which tried to stop the yens downward slide. Last week, the Swiss National Bank moved to improve the Swiss francs stature. Also recently announced was that the Hong Kong dollar will no longer be pegged to the U.S. dollar. Given the important role paper currency plays, weve developed a quiz so you can test how much you know.
2011-09-16 Is the End Near for the Eurozone? by Team of Knowledge @ Wharton
Warning signs are flashing red. Bond markets are projecting a 98% chance of default on Greece's debt. Stock prices for French banks, heavily invested in that debt, have plunged 10% in recent days. Has the European debt crisis hit the breaking point, with Greece -- and perhaps others -- soon to exit the eurozone? Or, will officials once more cobble together new agreements that keep Greece in the club and prevent a huge contagion effect likely to cripple an already slowing global economy? Wharton finance professors Franklin Allen and Bulent Gultekin offer their insight.
2011-09-16 Perfect Storm Creates Tidal Wave of Gold Demand by Frank Holmes of U.S. Global Investors
In the East, gold is not only celebrated, acquired, worn or displayed during holidays or special occasions; it is seen as an everyday symbol of wealth. Increases in demand from China and India have driven a 7.5 percent increase in demand for gold jewelry during the first half of the year despite a 25 percent increase in the price, according to a report released this week from GFMS. However, much of Indias potential gold demand remains untapped.
2011-09-15 Six Reasons to Sell Economy, Buy Stocks by Frank Holmes of U.S. Global Investors
Money supply is a key lubricant of the economy and financial markets. Historically, if money is growing faster than nominal GDP, the excess money has found its way to other uses such as investment in stocks, commodities and other financial assets. The risk/reward profile for owning stocks appears positively skewed. While bond investors have enjoyed a 30-year bull market, equity investors can now use long-term mean reversion to their advantage by buying those undervalued companies that are flush with cash, reward their shareholders with a dividend payment and have envy worthy balance sheets.
2011-09-13 The Risks of Exchange-Traded Products by Dennis Gibb (Article)
Every major financial crisis has been foretold by timely but ultimately ignored warnings. At the end of mania, the rush to secure more fees, investment performance and status trumps common sense. In the last few months, the drumbeats of warnings from financial journals and regulators about exchange-traded funds have been sounding. Few seem to be listening.
2011-09-13 Balance Grasshopper by Jeffrey Saut of Raymond James Equity Research
Over the weekend Greece did not default, although for over a year I have expressed the view that Greece has to default; a stance I continue to embrace. This morning, however, rumors are swirling again about a Greek default along with hints that Germany is not going to prevent it. That leaves the pre-opening futures down over 20 points, which would represent a retest of the selling-climax lows. While I am hopeful this will be a successful retest, consistent with the October 1978/1979 bottoming sequence, if 1100 is decisively broken it would imply the rally from the March 2009 lows is over.
2011-09-13 Fear and loathing at Bank of New York Mellon by Team of Institutional Risk Analyst
In our last issue, we presented the case for the insolvency of the parent of Bank of America Corp, even though the subsidiary banks remain profitable and well-capitalized. This week, we ponder the situation at Bank of New York Mellon, where like BAC the operational performance of the depositories does not tell the whole story. Despite the high profile thrashing meted out to BAC and BK both by the NY AG in the Countrywide put-back settlement, markets may not fully appreciate just how deep is the rising kimchee swirling around BK.
2011-09-12 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
September has been a wild ride for global markets, and October is expected to bring more of the same. On the horizon is a key inflection point at which portfolio allocation might either protect or bury any portfolios. As global economic recovery sputters there is a new urgency about either continuing on a portfolio path of growth, or reverting altogether to a default cash position. Within each scenario, however, is a psychological uneasiness that borders on shock and awe. It is much more difficult to manage clients downside risk appropriately, than to pick winners when all stocks are rising.
2011-09-10 China Fears Much Ado About Nothing by Frank Holmes of U.S. Global Investors
There are many questions surrounding the global market but the Chinese economy remains headed toward the moon. The country, of course, remains vulnerable to external forces but we believe the economys strong momentum will be enough to carry the country through, should volatile times persist.
2011-09-09 Examining Systemic Risk in the Banking System by Team of Litman Gregory
When we spoke over two years ago, we discussed credit default swaps as speculative derivative instruments, the risks these presented to the financial system, and the need to better mitigate these risks. Can you comment on the progress the industry has made in reducing the systemic risk they pose to the financial system and talk about the risks they continue to pose? Derivatives, as such, were never entirely the problem. But, in some senses, they were symptomatic of a much deeper problemwhich is why we had created a system that was highly leveraged, highly complex, and highly networked.
2011-09-09 Merk sells Euro to buy Australian Dollar by Axel Merk of Merk Funds
Given that many know Merk Investments as "euro bulls", arguing that the euro can thrive despite all the turmoil in the Eurozone, we wanted to share with our investors and the public that in our hard currency strategy, currently with over $700 million in assets, we sold over U.S. $90 million worth of euros late Thursday to re-allocate to the Australian dollar. This re-allocation was an acceleration of a recent trend to deploy euro holdings elsewhere. The strategy is now underweight in euros. Our move was motivated by recent European Central Bank (ECB) and U.S. Federal Reserve communication.
2011-09-08 Developed Asia Pacific: Economic Review August 2011 by Team of Thomas White International
Developed Asia Pacific countries faced increasing headwinds to economic growth during August. Lukewarm growth figures in developed Western economies such as the U.S. and the European Union are troubling the growth prospects of many export-oriented markets such as Singapore, Japan and Hong Kong. Despite some support from emerging markets, export orders for Singapore and Hong Kong have slowed down substantially. In Japan the current account surplus slid, while the Singapore government revised its export growth figures down for the rest of the year.
2011-09-08 Middle East/Africa: Economic Review August 2011 by Team of Thomas White International
According to the IMF, global economic prospects have taken a downturn in the wake of a weaker U.S. economic recovery, uncertainty surrounding the Euro-zones fiscal stability and relentless turmoil in the Middle East and North Africa (MENA) region. In recent weeks, the MENA region has been in the spotlight yet again, with the Libyan revolt against Muammar Gaddafis 42-year long dictatorship gaining momentum. The IMF has been keeping a close watch on developments in the strife-ridden country and is yet to determine the uprisings impact on the Libyan economy.
2011-09-08 Global Overview: September 2011 by Team of Thomas White International
The recovery in global equity prices towards the end of August could cover only part of the decline during the first half of the month and most markets have now given up all of their gains from earlier this year. Gold prices surged to a new high, and U.S. treasury yields fell despite the rating downgrade, as investors preferred safer assets. On the other hand, select barometers of global industrial activity, like copper prices, declined. Nevertheless, most developed economies continue to expand, though at a restrained pace, and are expected to gain speed during the second half of the year.
2011-09-07 Keep Calm, Carry On by Scott Minerd of Guggenheim
The markets overreaction has created an incredible opportunity in U.S. equities. In particular, I see value in high-dividend stocks. Many companies with strong cash flows and stellar credit ratings pay more in dividends than the yield on their bondsa situation that hasnt existed for such a large number of stocks since the 1950s. Without doubt, Europes problems indicate that further turbulence, even a retest of recent lows on the S&P 500, cannot be ruled out. Nevertheless, for investors with 2- to 5-year horizons, price dips represent buying opportunities.
2011-09-07 A discrepancy in earnings affecting corporate, commodity and debt by Matt Lloyd of Advisors Asset Management
There is a rising disconnect in the marketplace between perceptions and forecasts. It is occurring predominantly in the corporate earnings sector; however, we notice it in the commodity markets and the debt markets. For the last couple of months we have noticed a rising discrepancy between the top down earning analysts as compared to the bottom up analysts and CEO forecasts. We would typically side with the bottom up analysts as a general rule. However due to some interesting dynamics, we are leaning even more to the side of the bottom up estimates.
2011-09-06 Byron Wien Reflects on His List of Surprises by Laurence B. Siegel (Article)
Byron Wien is a senior managing director and vice chairman of Blackstone Advisory Partners, the largest alternative investment firm in the world with $140 billion under management. Each year, for the last 26 years, he has published a list of 10 'surprises' investors should expect in the capital markets and the economy. In this interview, he reflects on his list for 2011 and what see sees ahead.
2011-09-06 And That's The Week That Was by Ron Brounes of Brounes & Associates
When volume is as light as it was this week, two things can happen: 1) investors return from the holiday and seek value from the exaggerated downward moves, or 2) investors who were missing in action this week jump onboard and accelerate the selling. With little data of substance to analyze, fickle investor seek new answers.
2011-09-04 Its All About the Jobs and Gold by John Mauldin of Millennium Wave Advisors
If somehow a Republican appeared in the White House tomorrow, there is no magic he (or she!) could bring with him/her to fix the unemployment problem. There are just some things the private sector will have to do for itself, and the sooner the government stops getting in the way, the sooner will get things fixed. But it will take a long time, no mater what. For the record, I think you should own about 5% of your net worth in gold, as insurance, not as an investment.
2011-09-03 How to Find Opportunities from Blood, Debt & Fears by Frank Holmes of U.S. Global Investors
For the long-term investor, the risk/reward profile for owning stocks appears positively skewed. Equity investors have suffered through one of the most difficult decadesrivaling even the Great Depressionwhile bond investors have enjoyed a 30-year bull market. Long-term mean reversion is a powerful tool that investors can use to help them attain their long-term goals.
2011-09-02 The Dilemma of the Yen by Taizo Ishida of Matthews Asia
Last month, Japan took steps to help its economy ride out the surge in the yen. What the market may be overlooking, however, is that thus far Japanese companies are managing relatively well under the new 80-yen regime. The most recent operating margins appear to be a bit higher than the historical average of 4.5%. Nobody can accurately predict where the yen will go from here, but its current strength is a double-edged sword. While it can make Japanese exports less competitive, the strong yen also boosts Japans purchasing power abroad.
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.
2011-09-01 ProVise Bullets by Team of ProVise Management Group
In the widely anticipated comments from Federal Reserve Chairman Ben Bernanke at Jackson Hole, WY, he acknowledged that, for a number of reasons, the recession was deeper than originally thought. The recovery has been more modest than he would like, notwithstanding the fact that we have had nine months of economic growth since the recession ended, albeit anemic growth. Unfortunately, the media focused on more of the negative parts of his comments. Fortunately, investors heard optimism. Why did investors see something different than the media?
2011-09-01 Q2 2011 Bank Ratings; FSOC Memo on Bank America by Team of Institutional Risk Analyst
We present our view on Bank of America (BAC Q2 2011 Bank Stress Rating: B) from the perspective of a fictional analyst named Herbert Gold working at the Fed. He has been asked to write the briefing for the Financial Stability Oversight Council, the vehicle created by the Dodd-Frank confidence in bureaucracy legislation to liquidate insolvent financial firms. But before we delve into a fanciful exposition on the importance of a parent-only analysis of a bank holding company, let's check on developments at IRA and the new Q2 2011 bank stress index (BSI) ratings for the US banking industry.
2011-08-31 Be-Ratings Wars. by Jonathan Leidy of Portico Wealth Advisors
S&Ps US downgrade was an unmistakable watershed event, causing everyone from the President to the proletariat to take a long, hard look at the lackluster numbers that have typified the US economy for months. Perhaps equally noteworthy during the tumult, however, was the sheer quantity of contradictions, ironies, and paradoxes that arose throughout the downgrade process. They sprung from all sides, ranging from the subtle to the downright staggering, and yielded a portrait of a country desperate for direction. What follows is a chronicle of these incongruities.
2011-08-30 New-Fangled Love Songs by Bill Gross of PIMCO
Liquidity concerns may affect all European peripheral bond markets unless the European Central Bank counters the rush for the exits with an enlarged daily checkbook.
In the U.S., discord between rich and poor has led to lower, not higher, Treasury yields as approaching recessionary winds force the Fed and private investors to favor bonds.
We prefer investing in the cleaner dirty shirt countries of Canada, Australia, Mexico and Brazil, along with non-dollar currencies that have strong trade ties with the Asian continent.
2011-08-29 A Reprieve from Misguided Recklessness by John P. Hussman of Hussman Funds
Over the past three years, Wall Street and the banking system have enjoyed enormous fiscal and monetary concessions on the self-serving assertion that the global financial system will "implode" if anyone who made a bad loan might actually experience a loss. Because reversing this mantra is so difficult, policy makers are likely to continue fitful efforts to "rescue" this debt for the sake of bondholders. The justification for those policies will therefore have to be coupled with rhetoric that institutions holding these securities are too "systemically important" to suffer losses.
2011-08-29 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
A number of factors have conspired to make investing not the same game it used to be, not the least of which is the excessive need for speed and immediacy of information. Keep in mind that before the internet, fortunes were also won and lost. The difference is access and acceleration of information digested. The human brain just isnt wired for that type of speed when processing data. As a result, many investors are unprepared for the impact of exogenous events upon their plan. When the market moves at a snails pace, it is unacceptable, when it moves at warp speed it is too fast.
2011-08-29 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
A number of factors have conspired to make investing not the same game it used to be, not the least of which is the excessive need for speed and immediacy of information. Keep in mind that before the internet, fortunes were also won and lost. The difference is access and acceleration of information digested. The human brain just isnt wired for that type of speed when processing data. As a result, many investors are unprepared for the impact of exogenous events upon their plan. When the market moves at a snails pace, it is unacceptable, when it moves at warp speed it is too fast.
2011-08-29 And That's The Week That Was by Ron Brounes of Brounes & Associates
One positive week does not constitute a trend (wishful thinking). The economic calendar is quite hectic next week with key news from manufacturing and labor. Though recent results have been lackluster at best, many analysts have predicted a rebound in the months to come. Hopefully, some favorable signs of such strength will present themselves as early as next week (starting with decent nonfarm additions and a reduction in the jobless rate). If not, maybe Bernanke can come to the rescue again. QE3 anyone?
2011-08-29 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.
2011-08-29 Stocks Undervalued by 65% by Brian S. Wesbury and Robert Stein of First Trust Advisors
Market turmoil and a cycle of shrill headlines and worrisome breaking news convinced many to evacuate the equity markets. That was a mistake. The odds of recession are low, but the stock market seems to have priced one in, anyway. We use a capitalized profits model to value stocks, dividing corporate profits by the 10-year Treasury yield. We compare the current level of this index to that from each quarter for the past 60 years to estimate an average fair-value. Not only are 10-year yields low (2.2%), but corporate profits are growing strongly.
2011-08-27 The End of the World, Part 1 by John Mauldin of Millennium Wave Advisors
It is only a matter of time until Europe has a true crisis, which will happen faster BANG! than any of us can now imagine. Think Lehman on steroids. The US gave Europe our subprime woes. Europe gets to repay the favor with an even more severe banking crisis that, given that the US is at best at stall speed, will tip us into a long and serious recession. Stay tuned.
2011-08-26 Boomers Are Going To Be A Real Drag by Lance Roberts of Streettalk Live of Advisor Perspectives (dshort.com)
Many may scoff at the Fed's report that stock prices will not recover to their 2010 highs until 2027. The migration of "baby boomers" into retirement, combined with sustained high unemployment, low savings rates and a weak economy, does not bode well for strong financial markets into the future. While there are hopes that the economy will recover in spite of the abundance of factors building against it, the reality is that we may be dealing with the "Japanese Experience".
2011-08-26 Oceans 2011: Venezuelan Gold by Frank Holmes of U.S. Global Investors
Now might be a good time for Daniel Ocean to start assembling his gang of 11. Venezuelan President Hugo Chavez announced last week that he was ordering the countrys ample gold reserves back to Caracas for safe keeping. Not a bad idea given the global geopolitical environment, but with some 211 tons of 400-ounce gold bars to be moved from bank vaults in London, President Chavez has a logistical nightmare on his hands.
2011-08-26 Valuation Gap Makes Gold Miners Attractive But All Miners Arent Created Equal by Frank Holmes of U.S. Global Investors
Goldwatchers were reminded golds volatility works in both directions this week, with prices falling more than $100 an ounce in just one day. We forecasted the selloff last week, explaining a 10 percent correction would be a non-event. Once again the CME Group hiked the exchanges margin requirements for gold investment to shake out overleveraged speculation. This is a positive for long-term investors.
2011-08-25 German Court Wields Huge Economic Power by John Browne of Euro Pacific Capital
With investors now emerging from a state of panic after the harrowing losses of late July and August, stock markets are now rising and gold is finally falling after a record run that pushed its price north of $1,900 per ounce. The buoyant mood is largely undergirded by the hope that on this Friday, August 26th, Fed Chairman Ben Bernanke will announce another round of stimulus to stop the U.S. economy from slipping back into another recession.
2011-08-25 There They Go Again by Peter Schiff of Euro Pacific Capital
Picking up where they left off in 2008, the media is in the midst of a campaign to ignore and undermine the presidential candidacy of Ron Paul. Political pundits just do not know what to do with a candidate who fails to fit into the blue and red boxes that form the simple narrative of American politics. They are perturbed by the grass roots nature of the campaign, by the strange honesty and earnestness of the candidate and his supporters, and the odd mixture of conservative values and liberty-minded policies. And like most adolescents, they reject what they don't understand.
2011-08-25 Deflation or Inflation? The Answer is Gold by Frank Holmes of U.S. Global Investors
There are tectonic plates pushing against each other in Washington these days, and Im not talking about the 5.8 earthquake felt along the East Coast. Rather, it is a product of the governments rising levels of debt and a printing press pumping out money and weakening the dollar. In an excellent video, James Turk and James Rickards converse about golds role in this monetary issue. They discuss the tension building between natural deflation coming from the depression and inflation coming from policy. Eventually there will be a break, and the outcome is either deflation or hyperinflation.
2011-08-25 Will the U.S. Economy Face Recession in 2011? by Scott Colyer of Advisors Asset Management
The question I am now most often asked is, Will the United States slip into a second economic recession this year? The risks have definitely risen such that the current soft patch in the U.S. economy may translate from slightly positive GDP to a negative reading. Investors are faced with a huge opportunity to buy risk assets at a great entry point. We believe that the probabilities are that the markets will be significantly higher in the future. Market participants are net short this market and cash on the sidelines is at record highs. That is a recipe for a rare opportunity.
2011-08-24 Much Ado About Debt: Dollar vs. Euro by Axel Merk of Merk Funds
A key reason for recent market turmoil may be the long overdue untangling of important debt-driven interdependencies between the U.S. and Europe. Not only has the Feds ultra-low monetary policy taken away any incentive to engage in meaningful reform in the U.S., but the easy money also spilled far beyond U.S. shores, providing European banks with hundreds of billions of reasons not to shore up their capital bases. With volatility riding high, investors appear to be chasing emotions rather than facts.
2011-08-23 A Cautionary Note to my Fellow Gold Bugs by Emilio Vargas (Article)
The volume of missives I receive regarding the evolving debt-bubble collapse rises with the price of gold. The best time to buy gold was in 2001. Don't fall in love with gold now that the crisis is breaking and the price is going vertical.
2011-08-23 Letters to the Editor by Various (Article)
A reader responds to our article, Jeremy Grantham Guarantees Gold will Crash, which appeared on May 18, 2010. Another reader responds to Michael O. Kokesh's Letter to the Editor, published last week, which was in response to Paul Kasriel's July 26 commentary, Washington Had a Spending Problem.
2011-08-23 And Thats The Week That Was by Ron Brounes of Brounes & Associates
As another successful earnings season winds down, investors have all but forgotten the solid second quarter showings and are focusing on the sudden economic downturn. So much for the nice results and strong outlooks from energy, health care, retail, and certain techs. Investors are choosing instead to trade based on the political bickering, the seemingly never-ending European woes, and the short-term negative effects of Japan. Many corporations across various sectors remain cash-rich and are weighing their options as they pursue new opportunities: acquisitions, dividends, share buyback.
2011-08-22 Libertarian-Style Investing Would Overweight Canada by David John Marotta of Marotta Wealth Management
Libertarians and economists both recognize that countries with more economic freedom experience higher GDP growth. That growth translates into higher stock returns for investors savvy enough to look for governmental fiscal restraint rather than government stimulus. The Heritage Foundation Index of Economic Freedom uses a systematic measurement of economic freedom to evaluate countries worldwide. Their conclusions clearly show that economic freedom and higher rates of long-term economic growth go together. Investors can use the study to select countries for their foreign stock allocation.
2011-08-22 The Neverending Story of a by Frank Holmes of U.S. Global Investors
Gold continued to make headlines last week, reaching nearly $1,900 an ounce on Friday before resting around the $1,850 level. Golds 15 percent rise to new nominal highs over the past month has rekindled gold bubble talk from many pundits. Long-term gold bulls have been forced to listen to these naysayers since gold reached $500 an ounce. If you would have joined their groupthink then, you wouldve missed golds roughly 270 percent rise since. That said, gold is due for a correction.
2011-08-19 Gold's Sun Also Rises in the East by Frank Holmes of U.S. Global Investors
During the second quarter, golds rising value didnt deter Chinese and Indian buyers. In its webcast, the World Gold Council (WGC) said these predominant drivers of gold demand accounted for 52 percent of bars and coins and 55 percent of jewelry demand. Chinas demand grew 25 percent, while India saw an increase of 38 percent. WGC attributes this growth to increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals.
2011-08-19 The Silver Lining for Markets and the U.S. Economy by Frank Holmes of U.S. Global Investors
There is a silver lining: Despite all the negative news out there, the global economy will continue to grow. In fact, the U.S. economy has had several positive developments recently. The four-week average for unemployment claims dropped to 402,000 during the week ending August 13. There is still a large chunk of America unable to find a job, but that group has shrunk 13 percent since August 2010 and is about 40 percent of peak 2009 levels.
2011-08-19 Paper Currencies Finally Redeemed for Gold by John Browne of Euro Pacific Capital
The basic unwillingness of politicians to face economic and financial realities has caused the United States and European Union to face currency collapse. The politicians are content literally to paper over the problem with massive amounts of newly printed currency. This means that savvy investors, facing major real losses, are turning increasingly to gold. In essence, even though currencies are no longer on a gold standard, they are increasingly being redeemed for gold in the marketplace.
2011-08-17 The Common Stock Commandments of Claude N. Rosenberg, Jr. by Kendall J. Anderson of Anderson Griggs
Through the years of our parents and grandparents markets there were a few voices of reason to help guide them. One of these voices was Claude N. Rosenberg, Jr. whose legacy is kept fresh through RCM, formerly Rosenberg Capital Management, a global asset manager and a company of Allianz Global Investors. Over the years he shared his thoughts with his writings. I have chosen to highlight a few of these ideas that he called his Common Stock Commandments that I consider timeless and can guide you just as he did years ago to your parents and grandparents.
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.
2011-08-17 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The volatility in share prices was quite extraordinary last week on a daily basis. However, when the week was over and as the charts below indicate the Dow Jones Industrial Average had declined by just 1.5% while the NASDAQ actually fell by less than one percent. Given this mornings strong opening (Europe is quiet due to a religious holiday), all of last weeks losses have now been reversed, which is hard to believe.
2011-08-17 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The volatility in share prices was quite extraordinary last week on a daily basis. However, when the week was over and as the charts below indicate the Dow Jones Industrial Average had declined by just 1.5% while the NASDAQ actually fell by less than one percent. Given this mornings strong opening (Europe is quiet due to a religious holiday), all of last weeks losses have now been reversed, which is hard to believe.
2011-08-16 Is Gold in a Bubble? by Art Patten of Symmetry Capital Management
Back in 2010, we wrote that we viewed gold as overpriced, but were unwilling to lie down in front of what appeared to be an early-or mid-stage bubble. Good thing we didnt, as spot gold is up about 40% since. It might be time to revisit the trade though. In May of this year, Michael Darda of MKM Partners observed that the commodities rally was getting a bit long in the tooth when compared to earlier bubbles like U.S. housing and the Nasdaq. In late July of this year, Doug Short provided an eye-catching overlay of the recent gold price run-up on the bubble and bear markets seen in recent years.
2011-08-16 Krugman\'s War Cry Won\'t Avert Depression by Michael Pento of Euro Pacific Capital
Mr. Krugman believes that we can grow our way out of this recession like we have in the past few. Unfortunately, we are dealing with a completely different animal. In every past recession the government under the guidance of Keynesians, decided to put off deleveraging in return for artificial growth. Well, that tab has come due. Since these economists keep trying to spend like its WWIII, we are moving inexorably closer to causing Great Depression II. If policymakers and economists fail to understand that the progenitor of a depression is debt, they will also be unable to provide a solution.
2011-08-15 Global Overview by Team of Thomas White International
Economic outlook softens further as the fiscal crisis in the developed countries escalates. While the European debt crisis continues unabated, the unprecedented downgrading of U.S. debt has shaken investor confidence across the globe. Policy responses to the growing crisis so far are widely perceived to be ineffective, as deep ideological and political divisions make compromises inevitable. Monetary policy is also constrained as central banks have limited tools left to effectively address the slowdown in economic activity.
2011-08-15 Are We There Yet? The Value Restoration Project Resumes by JJ Abodeely of Sitka Pacific Capital Management
The declines in the stock market over the last three weeks have done a lot of damage to most investors portfolios. This would merely be an inconvenience if it meant that future returns could be expected to be robust enough to compensate for the losses. Investors in the stock market may rightly be viewing this recent decline of about 12% over the last 16 trading days as a painful, but necessary, correction in prices which will once again bring value back to the market.
2011-08-15 Driving Buffalo over a cliff by David Edwards of Heron Financial Group
Who wins from the volatility of last week? High frequency trading firms that can effectively manipulate the markets by placing thousands of one sided trades on individual stocks, or even more effectively on thinly traded ETFs, to force the market one way or the other. There are no uptick rules and no margin requirements preventing these firms from setting up an initial position, manipulating the market in the right direction, and closing out the trades with a profit a few minutes later. Who loses?Pension plans, endowments, mutual funds, individual investors and corporations.
2011-08-15 Fed Looking in Wrong Tool Shed by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Fed made history again last week when it specifically committed to near-zero short-term interest rates through at least mid-2013. This commitment was a first for the Fed, and while it can always renege, the bar for doing so is now very high. The Fed also said it had discussed a range of policy tools to strengthen the economy. If theyre the ones the Fed has been leaking to the media, count us as unimpressed. One option would be to launch QE3, modeled after round two that ended in June. Trouble is, other than boosting commodity prices, QE2 had little visible affect on the real economy.
2011-08-13 The Beginning of the Endgame by John Mauldin of Millennium Wave Advisors
In short, there are no easy solutions. We have just about used up all our rabbits in the hat as far as fiscal and monetary policy are concerned. We now need to focus on what we can do to get out of the way of the private sector, so it can find ways to create new businesses and jobs. And that means figuring out how to get money to new businesses, because that is where net new jobs come from. But that takes time...
2011-08-12 Robert Rubin, Bank America and the fate of the dollar by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we take a look at the latest week of inaction and indecision on the part of the leaders of the G-20 nations. Never has doing absolutely nothing taken so much time and garnered so much market and media attention. If the nothing doing dance by Barack Obama, Nicholas Sarkozy and Angela Merkel reaches a much higher frequency, life as we know if is definitely going to change big time. And that change may include altering the international role of the dollar, a change regarding which neither Congress nor the American people have been consulted.
2011-08-12 Gold is Antidote for Treasury Trap by John Browne of Euro Pacific Capital
Last week Fed Chairman Bernanke raised eyebrows and denied history when he asserted in front of Congress that gold doesn't qualify as money. Yesterday he took the unprecedented step of announcing that the Fed would keep interest rates near zero for at least the next two years. In very short order thereafter it required much more of the money that he believes in (U.S. dollars) to buy the money that he doesn't believe in (gold). It was beyond unusual for the Fed to make such an explicit time commitment on monetary policy.
2011-08-12 Got Volatility? by Monty Guild and Tony Danaher of Guild Investment Management
The world markets have clearly stated that they want growth, and through growth, balanced budgets. Unfortunately, growth is not in the economic cards for Europe or the U.S. over the next few months. Rather, both regions will have stagnation, inflation, fear, turmoil, and two deeply opposed world views will be bandied about in political pronouncements. It does not matter what political view you have. If one wishes to survive and prosper, one must be very alert.
2011-08-12 Insider Buying Trends. Should You Follow Suit? by Scott Colyer of Advisors Asset Management
Current headlines are suggesting that recent market hits have created a buying opportunity. Yesterday, Bloomberg reported that Insiders Buy Stocks at Highest Rate Since 2009. The scare this morning still surrounds the European banking system which is being tested, much like those in the US were tested in 2008. Back then, the U.S. instituted a number of actions to return confidence to our banking system. A combination of TARP and a guarantee by the FDIC of all bank obligations overcame the market attacks. The ECB does not have FDIC, so its looking on how to shore up confidence.
2011-08-12 After the Downgrade - Evaluating S&Ps decision and possible opportunities for investors by Karen Dunn Kelley of Invesco
I want to highlight a few points that we believe give some much-needed context to this unprecedented situation. And I want to share some thoughts from my colleagues around Invesco, who are carefully monitoring both the risks and the opportunities presented by this downgrade.
2011-08-12 Chart of the Week - Which Luxury Brands Do Best in China? by Frank Holmes of U.S. Global Investors
Rising incomes in China are also affecting sales of gold jewelry. Year-over-year sales have outpaced the other five categories of the retail sector. CEBM forecasts wealthier consumers to drive sales of gold and jewelry products up 55-60 percent on a year-over-year basis in 2011. In addition, Chinese citizens have purchased nearly 91 tons of gold bars and coins in 2011, more than double the 2010 total, according to the Financial Times.
2011-08-12 Buy, Sell or Hold? Relax and Don't Panic by Frank Holmes of U.S. Global Investors
There was more blood in the streets Monday as the world continued to digest S&Ps downgrade of US debt, the two-week market selloff, and the likelihood the US economy could possibly slide back into recession. These concerns, combined with continued political/economic struggles in the eurozone from socialist policies, have created a potent concoction of fear across global markets and sent volatility skyrocketing Monday to its highest level since the May 2010 Flash Crash. While many investors are running for the exits, others have chosen to ride the wave of volatility or buy depressed shares.
2011-08-11 Indians Celebrate Holiday with Offerings of Gold by Frank Holmes of U.S. Global Investors
No country in the world has a richer history with gold than India. One of golds strongest cultural bonds is with the holy Hindi month of Shraavan. The Varalakshmi Vratham, the festival of offering prayers to the symbol of prosperity and wealth, is said to be incomplete without a touch of gold. Many thought consumers would be priced out from participating this year, but the World Gold Council (WGC) has teamed up with local jewelers in India to offer discounts and small installment plans to those seeking to include gold in their puja.
2011-08-11 Market Flash: "Everybody Stay Calm" by Jason B. Leach of Cravens Brothers Wealth Advisors
In the wake of this debt crisis sell-off, our political leaders need to come up with long-term structural ideas not only for budget cuts and tax reform, but for jobs, housing, education, infrastructure, real Wall Street reform, and a comprehensive energy policy. Our nation is at the point of maximum pain and the time has come for big, structural solutions, not temporary fixes. Washington must be wrested from the rule of the banking oligarchs and all manner of lobbyists during this process or we will be digging out of the holes we have put ourselves in for much longer than we would like.
2011-08-10 Run, Ride or Buy? What Should Investors Do? Dont Sell on Mondays! by Frank Holmes of U.S. Global Investors
With trillions of dollars in debt acting as a ball-and-chain for much of Europe, the U.S. and the rest of the developed world, must detoxify their balance sheets before hitting the ground running. On the other hand, emerging market economies carry low levels of debt and operate like a cash business, making them the final frontier for strong economic growth. A key reason is emerging market governments have the long-term policies in place to facilitate growth of their economies.
2011-08-10 Despite Recent Darkness, Long-Term Picture Brighter for Equities by Bob Doll of BlackRock Investment Management
A review of some of the data provides valuable perspective on the recent extreme market volatility. The recent weeks correction has taken US equities down about 18% from their April high. About 11% of that decline has come in the past three days. In comparison, when equity markets began to price in a double-dip recession last summer, US stocks fell 17%, a decline of virtually identical magnitude. Following sharp reversals of this sort, we have in the past seen the market quickly recover 33% to 50% or more of its losses.
2011-08-10 Unprecedented Fed to the Rescue by Mohamed A. El-Erian of PIMCO
After Mondays gut wrenching 635 point fall, the Dow Jones index surged an impressive 430 points on Tuesday. In the process, investors experienced a wild 640 point intra-day roller coaster! Gold prices set another record while Treasury yields fell sharply, with the 2-year closing at an eye popping 0.2% and the 5-year at an equally stunning 1.0 percent. Tuesdays combination of unusual, if not unprecedented, market moves had a lot to do with the Fed. Once again, the institution came to the rescue of an equity market under severe pressure, and did so in a bold manner.
2011-08-10 Global Investment Outlook: Aberdeen's monthly outlook for economies and markets. by Team of Aberdeen Asset Management
Eurozone crisis threatens financial stability
Global industrial production momentum may be turning back up
Fiscal policy and sovereign indebtedness is the major medium-term issue
Monetary policy remains accommodative with emerging countries becoming less restrictive
2011-08-10 A Sputnik Moment by Bill Mann of Motley Fool
Our greatest tendency, one we hope you share, is to buy aggressively when market blowouts occur. Such blowouts tend to happen in the face of some really big thing. In the last few weeks, the markets have faced the following really big things: political wrangling over raising the U.S. debt ceiling, the potential collapse of the Eurozone (even following its six separate crisis-ending actions over the last two years), a rating cut of U.S. debt, and rising unrest and inflation in China. Its a scary time. Horrifying, actually. How have we responded to this? We are buying.
2011-08-10 Rumours by Jeffrey Saut of Raymond James Equity Research
When asked how he made his money, Mr. Rogers answered, I sell euphoria and buy panic. Currently, gold and Treasuries are gapping on the upside; and, stocks are gapping on the downside. The implication, though I believe gold is in a secular bull market, suggests positions should be sold in metals and the freed-up cash should be used to buy sound stocks with decent dividend yields. The weeks ahead will determine if this is the correct strategy. All said, IMO it is too late to panic. The time raise cash, was months ago. Now it is time to selectively redeploy that cash into select equities.
2011-08-09 Does Government Intervention in Financial Markets Slow Economic Growth? by Michael Edesess (Article)
As we saw with the Dodd-Frank legislation and the Consumer Financial Protection Bureau, the question underlying the debate over financial regulation is whether it stifles economic growth. Leo F. Goodstadt's book, Reluctant Regulators, provides useful insights from the experiences of Hong Kong and China. It also causes us to ponder whether our measurement of economic growth is fundamentally flawed.
2011-08-09 Can American Become Greece? by Keith C. Goddard, CFA (Article)
Investors face four possible implications from the recent downgrade of America's long-term credit rating by Standard & Poor's: 1) Lower prices for financial assets; 2) Higher volatility in the asset markets; 3) Greater potential for trend-following investment strategies, and 4) Attractive opportunities in 'blue chip' stocks.
2011-08-09 How Conservative Investing Threatens Retirement by Dan Richards (Article)
Just as the Great Depression left a generation with a poverty mentality that still persists, the two bear markets of the last 10 years risk shaped an entire generation's attitude to investing. That's a key finding from a survey of affluent Americans commissioned by Merrill Lynch and released earlier this year, and it raises important implications for how financial advisors should deal with conservatively-minded investors.
2011-08-09 Implications of the Debt Downgrade by David A. Rosenberg of Gluskin Sheff
As we had suggested in recent weeks, a U.S. downgrade was going to likely be more negative for the equity market than Treasuries, and that is exactly how the week is starting off. The reason is that history shows that downgrades light a fire under policymakers and the belt-tightening budget cuts ensue, taking a big chunk out of demand growth and hence profits. It is not just the United States the problem of excessive debt is global, from China to Brazil to many parts of Europe. And lets not forget the Canadian consumer.
2011-08-09 S&P Downgrade and Municipal Market Insights by Tom Dalpiaz of Advisors Asset Management
Here is some perspective from Municipal Separately Managed Accounts (SMA) Land about the S&P downgrade and the municipal bond market: Moodys and Fitch have retained their AAA ratings on U.S. Government debt. This action by S&P was not entirely a surprise and was foreshadowed to a large degree. The rating agencies had negative trends on U.S. Government debt for a few months and S&P, in a mid-July report, laid out in three scenarios the actions they might take depending on how the debt ceiling increase was handled by Congress.
2011-08-09 Inevitabilities - One Down, More to Come by Rob Arnott of Research Affiliates
With government sponsored post-retirement safety nets increasingly looking not so safe, the implications for U.S. retirement assets are vast. According to the Investment Company Institute, the U.S. retirement market stood at $18 trillion at the end of the first quarter 2011, or 37% of household net worth. This pool of assets will soon be asked to do much, much more. Unfortunately, this greater load sharing comes at a time when capital markets are priced to deliver shockingly anemic returns. But we can start planning for the burden now.
2011-08-08 Buy Stocks Like Cans of Tuna Fish! by David Edwards of Heron Financial Group
Following the positive jobs report today, stock prices swung between gains and losses, and closed at the low for the year. Where have we seen this before? April-July 2010. In that time frame, stocks fell 15.6%, erasing all the gains of that year, but still closed out 2010 with a gain of 15.1%. Our forecast for 2011 remains at plus 8%, which would be 13.7% above current levels. So what are we doing this week and next? Buying stocks!
2011-08-05 Is Todays Selloff a Sign of Market Capitulation? by Matt Lloyd of Advisors Asset Management
The paralysis that has dominated the markets has only been enhanced by the recent market movements. For those who have a longer-term time frame and are underweight risk assets in general, current levels still appear attractive. The one characteristic that has been missing from the benign sell-off in the second quarter was a market capitulation. Yesterday actually had a feeling of that; however, it may require more of the flushing of the system before that occurs. Calling a bottom would be foolish. Being a successful investor, buying low and selling high, has always been easier said than done.
2011-08-05 Portfolio Commentary Q211 by Jay Compson of Absolute Investment Advisors
The Fund's overall positioning and exposures have changed very little over the past few months as our managers continue to see almost all asset classes priced to deliver unsatisfactory long term returns. There is no real change in overall thoughts from our previous commentary except to add that many of the issues and risks we have discussed are starting to become more significant and weakening fundamentals are finally becoming more apparent to investors. Ironically, the things that have created short term rallies of late are largely noise and are less positive than they were 3-6 months ago.
2011-08-05 Dow Down 500, But Fundamentals Still Strong by Brian S. Wesbury and Robert Stein of First Trust Advisors
Major stock market indices are down 4-5% today as investors move into panic mode. There is no single piece of news driving the sell-off; rather the market seems to be gathering downward momentum on its own. Selling is creating more selling. Like 1987, the sell-off does not appear to be driven by fundamental factors. In fact, the fundamentals suggest the market is undervalued and getting more so as it drops. Many investors assume (or wonder) if the sell-off is indicating deep economic problems. However, there is no evidence that this is true.
2011-08-05 Denominators Matter! What the Price of Gold Tells Us About the Value of Other Assets by JJ Abodeely of Sitka Pacific Capital Management
In an environment where holding either U.S. dollar cash or a broad market portfolio may be detrimental to real wealth preservation, more active asset allocation is required. Portfolio managers who have a broad toolbox of assets to choose from, nimbleness and flexibility, and an eye on the denominators that show us real value, will be in an enviable position to capitalize on the next great bull market in stocks.
2011-08-05 The Center of Gravity Shifts Slowly by Andrew Schiff of Euro Pacific Capital
To an extent not fully appreciated by the investing public, financial markets are influenced by human emotion just as much as they are by economic data, corporate earnings, and dividend yields. Of all human motivations, fear is perhaps the most powerful. When people get scared, the fight or flight instinct forces us to take action. Simple dangers prompt simple responses. If we unexpectedly encounter a bear on our driveway, we immediately run into the house and call animal control. But its harder to know what to do when financial danger stalks the stock market.
2011-08-05 Special ProVise Bullet by Ray Ferrara of ProVise Management Group
It isnt different this timeits simply a different story. On a fundamental level we believe there will be continued growth in the economy and thus in the market. Maybe the growth will not be as great as most of us would like, but there is still growth. Our crystal ball cant tell us when the market will find a bottom, but it will find it and then recognize the fundamentals in place. Only the investor who panics and sells will, at the end of the day, lose money.
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 Gold is the True Reserve Currency by Michael Pento of Euro Pacific Capital
The reliance upon the U.S. dollar as the worlds reserve currency and safe haven asset has created a perverse, but deeply entrenched, mindset among global investors. In fact, many believe the major financial players have no alternatives to owning U.S. debt and dollars. They argue that the market for U.S. dollars and Treasuries is the only financial pool large enough to handle the massive liquidity that sloshes around the globe on a daily basis. This idea makes a mass exodus from U.S. debt holdings seem impossible.
2011-08-04 Gold Bugs Rejoice by Frank Holmes of U.S. Global Investors
Many felt disbelief when they saw gold prices breach $1,675 an ounce in early trading, but you werent dreaming. Gold danced above $1,675 into the wee hours of the night before settling in at $1,663.45 this afternoon. Since pulling back to $1,487 an ounce on July 1, gold has surged nearly 12 percent. Over the past 10 years, golds normal volatility has been about 15 percent, so weve seen nearly a years worth of price movement in just 34 days! Does this mean were due for a correction? Possibly. Gold could easily correct 5-10 percent but I dont think thats what will happen.
2011-08-03 Training Wreck Waiting to Happen by Bill Smead of Smead Capital Management
Someday soon, as the charade of uninterrupted GDP growth catches up with the Totalitarian Communist Government, we believe the entire Chinese banking system will have to be recapitalized to the tune of over $1.5 trillion. At that point, there wont be enough money to lend for new projects to even maintain existing GDP. In our opinion, there will be an economic contraction in China lasting three to four years. Whether China is to become a truly great economy will be determined by what they do in the aftermath of the coming economic train wreck.
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 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.
2011-07-30 The 2011 Gold Season is Just around the Corner by Frank Holmes of U.S. Global Investors
September has traditionally been the beginning of the gift-giving season for gold. This is the time of year when gold jewelers are the busiest. The Muslim holy month of Ramadan begins in August and concludes with generous gift-giving in early September. Then its Diwali, known as the festival of lights in India, Christmas in the U.S., and Chinese New Year. The key to this seasonal strength over the past few years has been demand from China and India.
2011-07-30 Could a U.S. Debt Downgrade Trigger a Financial Crisis? by Neel Kashkari of PIMCO
A downgrade of U.S. credit could spark a new financial crisis. Would the impact be as great as when Lehman Bros. failed? Treasurys have been defined for decades as the risk-free financial instrument; faith in them is far stronger than it was in debt of Lehman. U.S. Treasuries are a $14 trillion market. Lehman had approximately $600 billion of liabilities before it failed, less than 5% of the size of the Treasury market. These factors suggest that a U.S. downgrade has the potential to be as bad, or perhaps worse, than the Lehman shock.
2011-07-29 Gold Faces Short-Term Price Trap by John Browne of Euro Pacific Capital
Gold appears set on a very strong upward path. However, in the short term, if global recessionary forces re-emerge and/or investors become euphoric over the US dodging a debt default, gold could face a significant price correction. If governments inflate wildly in a futile attempt to avert a pending depression, leading to stagflation, then gold should rebound in priceMy forecast should not be construed as an appeal for investors to sell their gold and try to time their way back into the market. Rather I would suggest that there may be some discounted buying opportunities in the coming months.
2011-07-27 From Asset Allocation Nirvana to Asset Allocation Nightmare by Bill Smead of Smead Capital Management
We believe the next 10 years will be about money moving back into non-cyclical US large cap stocks and domestic companies which enjoy lower commodity prices and the repatriation of money from highly risky asset classes with poor odds. Being widely asset allocated today prepares folks for an under-performance nightmare In our opinion, bonds are expensive, commodities are outlandish, small caps trade at a huge premium and as Chinas economic contraction occurs, the crowd will flee emerging markets.
2011-07-26 Investing with a View of Significant Inflation by Bob Kargenian (Article)
Almost all the analysis we read has concluded that, with the Fed seemingly printing money out of nowhere, the inevitable consequence must be significantly higher inflation. We're not convinced, but we have identified which strategies are likely to best protect clients if inflation accelerates.
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 Name That Tune?! by Jeffrey Saut of Raymond James Equity Research
Last week saw the U.S. Dollar Index decline by ~2.6% and gold tag a new all-time high of $1610.70. The real star of the week, however, was Sugars Surge of 7.87%. I cant imagine the President would want to go down in history as the Captain whose watch saw America lose its AAA status. Accordingly, I would continue to cautiously favor the upside, on a risk-adjusted basis, for if the debt ceiling is not raised we see another downside "hit." And this morning it looks like another hit, at least on a short-term basis, as our elected leaders continue to talk to the wind.
2011-07-25 Simple Arithmetic by John P. Hussman of Hussman Funds
For most countries in Europe, government revenues typically run between near 40% of GDP, while government spending presently runs several percent ahead of that. In Greece, government debt now represents about 150% of GDP at interest rates between about 10% for very short and very long-maturity debt, to about 25% annually on 2-year debt. The overall average yield on Greek debt is close to 15%. The problem is that 15% interest on 150% of GDP works out to 22.5% of GDP in interest costs if the debt actually has to be rolled-over without restructuring it.
2011-07-22 ETF Mythbusting: Short Selling SLV by Noel Archard of iShares Blog
Short selling of SLV shares in the secondary market does not reduce the amount of silver held on behalf of Trust investors, nor does it increase the number of shares issued by the Trust. In order to establish a short position in SLV, a short seller must borrow the necessary shares of SLV from an existing holder, which means that the short seller also has an obligation to return those shares to the lender at a later time. In order to return the borrowed shares to the lender, the short seller must either purchase shares of SLV in the secondary market, or
create new shares of SLV.
2011-07-22 2011 Halftime Report: Oil and Copper by Frank Holmes of U.S. Global Investors
Last week we recapped commodities performance for the first six months of the year and offered our outlook on gold. This week, were discussing our outlook for two other commodities that are poised to have an exciting back half of the year.
2011-07-22 And That's the Week That Was... by Ron Brounes of Brounes & Associates
While Obama and the Republicans seem to getting closer to making a deficit reduction deal (just dont mention tax hikes), plenty of naysayers lurk in the background, preparing to derail it. Additionally, lots of infighting has emerged as Conservatives worry that their leaders are giving in on taxes and Dems fear Obama is not requiring nearly enough on the tax front in return for spending cuts. The markets reacted positively to news the two sides are talking and virtually everyone thinks the debt ceiling will get raised before the deadline (except maybe some Tea Partiers).
2011-07-21 Sector Insights - Focus: Materials & Processing by James R. Margard, Peter M. Musser and Carlee J. Price of Rainier Funds
There has been a trend in the last decade for companies to increase in size through M&As, with a focus on removing competition, growing larger, and cutting costs to achieve economies of scale. In businesses that are commodity-oriented, scale is vital to success. This consolidation is occurring in part because it is becoming increasingly difficult to add economic value in this sector of the market. An agricultural revolution is underway, which is advantageous to many companies in the agricultural chain. Demand in the emerging world in particular is providing opportunities to grow revenues.
2011-07-21 The Shape of Market Bubbles (with a Footnote on Gold) by Doug Short of Advisor Perspectives (dshort.com)
In my weekly updates of major worlds markets, one of the charts includes an overlay of the amazing bubble in the Shanghai Composite Index. In this commentary we'll build an overlay of four major bubbles across market history to see the variety of shapes a bubble can take. But first let's take a long view of the index.
2011-07-21 Kovitz Investment Group, LLC Summer 2011 Quarterly Commentary by Jonathan A. Shapiro of Kovitz Investment Group
People tend to suffer greater pain from losing a given amount of money than they experience pleasure from gaining the same amount. The typical investor is therefore a pain avoider who shuns certain stocks when there is any hint of trouble. This tendency results in consistent overreaction to bad news that we believe creates opportunity. Inefficient pricing results from the excessive focus on short-term that we believe sets up a unique time arbitrage. By capitalizing on situations where uncertainty is high, but risk is low, we can put ourselves in a position to earn above-average returns.
2011-07-20 Golds Value Made Powerful by the Dollar, Euro and Yen by Matt Lloyd of Advisors Asset Management
In reviewing the weekend headlines and data points released, it appears the gold rush fever is alive and well. It is almost as if a sequel to Shakespeares Merchant of Venice is about to be revived for reality TV... One might expect to read: It appears that what ever side of the Atlantic you lay, gold and gold only appear the play. Gold has crossed over $1600 per ounce, a mere 125% increase over where it stood a little over 2 years ago.
2011-07-19 Since when did Debts and Deficits become One and the Same? by Chris Maxey of Fortigent
By early August, the US Treasury will run out of room under the debt ceiling and risks defaulting on its debt. There is growing concern, as evidenced by recent reports from Moody’s and Standard & Poor’s, that a deal will either not get done in time or will not suffice in fixing what is turning into a runaway fiscal freight train. Politicians are determined to play a quick and easy game of Russian roulette with the debt, not realizing that their attempts to undermine each other’s credibility in advance of next year’s elections are extremely dangerous.
2011-07-19 Staring at the Ceiling by Liz Ann Sonders of Charles Schwab
Everyone's focused on the debt-ceiling negotiations, impacting everything from market action to consumer confidence.
Default remains unlikely, but investors are wondering about portfolio positioning in the event the unthinkable occurs.
Behind the scenes, the news isn't all bad, as some economic readings and most corporate earnings releases have been pleasant surprises.
2011-07-19 A Palinized Nation - No Direction, No Leadership, No Clue by Cliff W. Draughn of Excelsia Investment Advisors
America is being palinized by total lack of leadership and responsibility from both political parties on Capitol Hill. The discussion of whether the US should default on our government debt if Congress is unable to pass a budget compromise and raise the debt ceiling by August 2nd, 2011 is absurd. The result of the impasse is a gradual erosion of trust by individuals, corporations, and foreign debt holders. How did we arrive at this point of lunacy, where our leaders are actually talking about the USA defaulting on our debts? Luke 23:34: Father, forgive them for they know not what they do.
2011-07-18 Matter over Mind by Herbert Abramson and Randall Abramson of Trapeze Asset Management
As the markets declined in the quarter, stocks became significantly oversold from the negative psychology resulting from the negative headlines. A mindset of fear. CNBC recently reported that investors were more concerned about the economy than at any other time during the past five years; a CBS poll found that 39% of Americans believe the economy is in a state of permanent decline. The mind can play tricks. But when perceived risk is so great it is typically reflected more than warranted in depressed share prices. The news doesn’t have to be good, just not as bad as everyone believes.
2011-07-18 Chairman Bernanke: A White Knight or one of the Four Horsemen? by Matt Lloyd of Advisors Asset Management
There are some underlying forces that we believe to be a better indicator of the future than the headline risks that pop up every hour. Chairman Bernanke’s announcement that more support is needed affirms our view that they will remain accommodative for some time and analysts’ estimates have risen, even though top-down analysts have dropped a bit. The amount of liquidity continues to rise even as markets are up year-to-date. At the end of the day, anxiety and apprehension are key components in the building of the wall of worry.
2011-07-16 Commodities 2011 Halftime Report by Frank Holmes of U.S. Global Investors
Commodities don’t all perform in the same way. In any given year, a particular commodity will go gangbusters and outperform the group. However, that commodity will typically come back to Earth and underperform the following year or the year after that. This is why active management is important when investing in commodities. Active managers can benefit from rotating from winners to laggards or by investing in the companies which produce, farm or mine commodities most effectively.
2011-07-15 The Fraying European Union by Monty Guild of Guild Investment Management
Gold, oil and food prices will rise much higher in an inflationary climate where pivotal currencies are depreciating and astronomical sums of money are being infused into sick economies. The U.S. banking crisis of 2008 was by no means a first-of-its-kind. The most immediate previous example was in Japan in 1990, a crisis that generated a long-term economic malaise. Now, the U.S. and Europe are following precisely in Japan’s ill-fated footsteps.
2011-07-15 It Ain't Money If I Can't Print It! by Peter Schiff of Euro Pacific Capital
I have been forecasting with near certainty that QE2 would not be the end of the Fed's money-printing program. My suspicions were confirmed in both the Fed minutes on Tuesday and Fed Chairman Ben Bernanke's semi-annual testimony to Congress yesterday. The former laid out the conditions upon which a new round of inflation would be launched, and the latter re-emphasized – in case anyone still doubted – that Mr. Bernanke has no regard for the principles of a sound currency.
2011-07-15 On Brazilian Investment by Andrew Foster of Seafarer Capital
In my last commentary, I presented some basic evidence that suggested that Brazil’s long-term record of capital investment is not particularly impressive. Specifically, Brazil’s rate of “fixed capital formation” was cumulatively 16.9% of GDP over the past two decades. This is the lowest rate among the vaunted “BRIICS” emerging markets; it also falls below that of the U.S. at 18.2%. In my view, this figure is both surprising and disappointing. It’s surprising because a developing country such as Brazil should have great scope for productive investment.
2011-07-15 Sine Cera by Bill Mann of Motley Fool
I had a talk with a renowned short-seller who accused me of having too little imagination in considering the set of known facts about a potentially fraudulent company. In some ways hes right. In practice, if I find myself saying "hmm" Im just going to move on to the next idea. We do something I like to call "looking for ghosts," to try to find inconsistencies that even hint at things. Not that long ago a Chinese chicken producer came to pitch us on participating in its offer. The company had nice-looking financials, so nice that its gross margins were double those of Charoen Pokphand.
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.
2011-07-13 Bernanke: Money for Nothing and Dollars For Free by Axel Merk of Merk Funds
Bernanke firmly embraces the U.S. dollar as a monetary policy tool; in our analysis, he has worked on weakening the dollar in both word and action. In the past, Bernanke has testified that going off the gold standard has helped the U.S. recover faster from the Great Depression than other countries that held on to the gold standard for longer. Bernanke has argued that a weak dollar is not inflationary (we disagree) The action of buying government securities by a central bank causes such securities to be intentionally overvalued; rational investors may look overseas for less manipulated returns
2011-07-12 Inflation Field Manual: A Guide for a Changing World by American Century Investments (Article)
This client-approved executive summary by Senior PM Robert Gahagan and Senior PM William Martine, CFA examines the competing forces at work that will affect inflation for the months and years to come. It also provides an analysis of inflation-hedging assets in different market environments, and suggests strategies for protecting a portfolio from inflation risk.
2011-07-12 The Real Story behind Bond Yields by Michael Nairne (Article)
One of the most important questions that individuals should ask before making any investment is 'Am I being paid enough for the risk of this investment?' I analyze the returns available today from government bonds and answer this important question for this asset class.
2011-07-12 The Titanic Has Sailed by Michael Lewitt (Article)
It was entirely predictable that the U.S. equity market would rally on the news that Greek would not default this month, but it does little to convince me that the long-term outlook for European sovereign debt or the global economy has improved. Markets - particularly the equity markets - are trying to pretend that the global economy is experiencing a self-sustaining recovery. A hard look at the economic numbers would tell an objective observer that no such recovery is occurring.
2011-07-12 Back in the Uptrend by Gene Peroni of Advisors Asset Management
June did not present a meaningful technical departure from the preceding five months. This does not mean that June was uneventful; it had its fair share of peaks and valleys, the most dramatic of which occurred during the gravest worries that Greece might default on its debt. It was not the first time this year that the stock market was rocked by blazing headlines reporting devastating or monumental events. In March, stocks were driven lower following the Japanese tsunami. Whether a financial woe or a natural disaster event, the effects have been similar thus far in 2011.
2011-07-08 What Happens Next? by Niels C. Jensen of Absolute Return Partners
If Portugal and Ireland, and eventually also Spain and Italy, increasingly get dragged into this crisis – and everything I see on the horizon suggest they will – the €400 billion the ECB has pumped into the banking sector in those countries so far will be pocket money compared to what will be required going forward. At some point the creditor countries will say enough is enough. And if the politicians don’t know when to say no, the electorate will do the job for them. The ECB’s strategy for now seems to be one of buying time.
2011-07-08 Don't Miss Your Chance to Catch a Bull Market by Frank Holmes of U.S. Global Investors
Many people missed the market’s enormous appreciation during the latest equity bull market because they were late to the game or chose to sit on the sidelines. The sideline is a crowded place these days as investors have been reluctant to fully embrace equities. Household savings for the past 12 months totaled $711 billion, the highest level ever recorded in dollar terms. You can see from the chart that’s roughly double the amount of savings recorded following the Tech Bubble. In fact, household debt-to-savings ratios are currently at levels so low, they’ve not been seen since the mid-1990s.
2011-07-06 Greeks Buy Time for Insolvent Bankers and Delusional Politicians by John Browne of Euro Pacific Capital
Last week, the Greek parliament voted by a narrow margin to pass an economically crippling austerity plan of some $40 billion in return for some $159 billon of fresh liquidity injections. Although many hailed the event as a needed first step on a long road to recovery, I believe the austerity program will make a bad situation worse. It is a flawed solution that stems from a false premise: that Greece should continue to be part of the euro zone, and continue to use the euro as its currency. To return to national economic viability Greece must abandon its use of the euro currency.
2011-07-05 Essential Summer Reading - Desperate Households and More by Michael Shamosh (Article)
Summer reruns don't have to be boring and predictable. If we use a little imagination, televised repeats can depict the problems facing our economy and markets, and the storylines can become tantalizingly uncertain.
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.
2011-07-05 Oh what fun the Behavioral Economist Will Have by Kendall J. Anderson of Anderson Griggs
Dr. Meir Statman, a Finance professor at Santa Clara University, delivered a presentation in may at the 64th CFA Institute Annual Conference held in Edinburgh, Scotland. His presentation was based on his book What Investors Really Want. I have been a fan of Dr. Statmen from the first time I heard him tell a story about investors making the same mistakes over and over again. Here is what Dr. Statman says are the four desires that investors to make major mistakes: to get high returns, to play and win the beat-the-market game, to banish fear, savor hope, and avoid regret and to pay no taxes.
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.
2011-07-01 Eye on Washington: Oil and Food Price Manipulation by Monty Guild of Guild Investment Management
We have been saying for some time that the developing world is now exporting higher-priced products abroad and contributing to inflation. A recent WSJ article and video discusses how higher wages and higher commodity costs are resulting in the end of low cost goods from China. We recommend that investors repurchase Malaysian equities as their market looks poised to move higher. U.S. equities also look like they are set for a rally that could last four to six weeks, so we recommend them for a trade. We also remain committed to our bullish recommendations on Japan and India.
2011-06-28 Passing Fad or Enduring Legacy? The Case for Owning Gold in Good Times and Bad by Team of Emerald Asset Advisors
Gold has been one of the few shining stars during a challenging 10+ years for most investors. In May, gold breached $1,500 an ounce, a new record. In fact, since bottoming out at $252 an ounce in 1999, gold has been enjoying a steady long-term bull run. This has prompted some prognosticators to warn that the "gold bubble" is ready to burst. On the other side of the coin, the more bullish "gold bugs" view the rally as confirmation of their long-held belief in the value of owning gold. Today, gold is still viewed by many as a somewhat exotic investment with little value.
2011-06-27 Brief Update by John P. Hussman of Hussman Funds
Despite the brief reprieve of market concerns Thursday on tentative agreement over Greek aid, we saw little change in the value of Greek debt. While there is a great deal of short-term attention on day-to-day developments on this front, credit spreads effectively indicate expectations of certain default within a roughly 2-year window, but very small risk of near-term default. Until we observe a firming in market internals and in leading economic measures, we expect that enthusiasm about Greece may provoke short-lived market spikes and short-squeezes, but little of durable effect.
2011-06-27 Higher Commodity Prices and the End of Economic Growth Without Inflation by Mihir P. Worah of PIMCO
Global inflationary patterns may shift amid higher commodity prices.
We expect commodity prices to be generally rising going forward, though with volatility and differentiation among commodities.
Emerging markets going through a particularly commodity and energy intensive phase of growth may affect what developed-world consumers pay for commodities.
Currencies are another factor. If developed-world policymakers attempt to make their economies more competitive via a cheaper currency, that could lead to higher inflation for those that are net importers.
2011-06-25 Playing Cat and Mouse with Global Oil by Frank Holmes of U.S. Global Investors
Oil markets took another dose of global geopolitics this week when the International Energy Agency (IEA) unexpectedly announced that it would be releasing 60 million barrels of oil from strategic petroleum reserves (SPR) around the globe. Thursday’s surprise announcement gave oil prices a 4.5 percent hair cut and oil prices closed Friday at $91.25, down 20 percent from their April 29 peak.
2011-06-24 What’s Driving Platinum? by Frank Holmes of U.S. Global Investors
Following a substantial 90 percent increase since the financial crisis, platinum prices have been sluggish. During the first six months of 2011, the metal gained only a few basis points. Platinum has significantly lagged silver (up 15.72 percent) and gold (up 7.72 percent), but has outpaced palladium, its closest relative. In recent days, the market has discounted the metal because of weaker car sales in the U.S. According to the WSJ, Japan’s earthquake shut down car production, and higher vehicle prices and continued bad news about the U.S. economy prevented consumers from purchasing cars.
2011-06-24 International Energy Association To Sell Crude Oil From Government Stockpiles by Monty Guild of Guild Investment Management
Today, the U.S. and IEA decided to sell 60 million barrels of oil over the next month, supposedly to make up for the 1.5 million barrels a day that was produced by Libya. This is a political maneuver which will have a short term effect on oil and gasoline prices. The authorities announced that this is meant to help the consumer, but it’s obvious that they also wanted to punish the speculators. The IEA has previously said that targeting the speculators will backfire, yet here they are doing just that. We find that hard to grasp that the consumer will get more than very temporary help.
2011-06-22 High net worth families still “scared to death” of stocks by David Edwards of Heron Financial Group
US earnings reports start the second week of July. Research in Motion’s negative pre-announcement this week is the only earnings miss worth mentioning. Earnings among financial service stocks are under pressure. Without junky mortgage backed securities to sell, not much profit on Wall Street these days. Excluding financials, earnings are expected to grow 11% in Q2, though year over year revenues are expected to be flat. Most economists expect GDP growth to accelerate in the second half of the year as the Japanese supply chain issues are sorted out and commodity prices moderate.
2011-06-21 The World Held Hostage by Credit Default Swaps? Alford on the FOMC: Watch what they say by Team of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we feature a comment from Richard Alford on the state of thinking inside the Federal Open Market Committee regarding monetary policy -- at least based on what folks at the Fed say in public. We also comment on the latest financial bailout, in this case the apparent salvation of the European and US banks in the CDS market from taking a hit in the restructuring of Greece.
2011-06-21 School Daze, School Daze Good Old Golden Rule Days by Bill Gross of PIMCO
The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets. Fiscal balance alone will not likely produce 20 million jobs over the next decade. Government must take a leading role in job creation. A growing number of skeptics wonder whether college is worth the time or the cost.
2011-06-21 Euro: Safer than the U.S. Dollar? by Axel Merk of Merk Funds
Which one is safer: the euro or the U.S. dollar? Before jumping to a conclusion one way or the other, let’s look at different sides of the respective coins. We have been warning for years that there may be no such thing anymore as a safe asset and investors may want to take a diversified approach to something as mundane as cash. We believe Greece has rather serious issues, but concerned investors may want to take a closer look at their dollar holdings for potential “contagion” risks.
2011-06-20 Overseeing Systemic Risk: The 10 most systemically risky financial firms in the US by Viral Acharya, Thomas F. Cooley, Robert Engle and Matthew Richardson of VoxEU
As part of the US policy response to the global crisis, the Dodd-Frank Financial Reform Act calls for regulators to identify systemically risky financial firms – the sort that took the US financial crisis global. But how to identify these firms remains unclear. Some claim the task is impossible. This column begs to differ and names the 10 most systemically risky financial firms in the US.
2011-06-20 Hard to Take a Bone from a Dog by John Browne of Euro Pacific Capital
Only by enacting massive reforms of major entitlements, which includes cuts to Social Security and Medicaid benefits, and reductions in military and domestic spending, will America be enabled once more to balance its books, generate real wealth, and issue sound currency.
But given all that we know of how politics works in America, how many elected officials will grab the bone from the dog's mouth and pull? Regrettably, I can't assume many are up for the challenge. As a result, we must assume the worst for the U.S. dollar.
2011-06-17 The Exodus by Bill Smead of Smead Capital Management
Prices of residential real estate in Vancouver have skyrocketed. Over 70% of these purchases were from Chinese Nationals driving prices high. Compared to average household income, Vancouver is nearly twice as expensive as New York. Gordon Chang of Forbes wrote an article titled “Chinese Entrepreneurs Are Leaving China”. Here is how Gordon began to explain the phenomena:“China’s rich, driven by a sense of insecurity, are taking money out of their country. Many are actually preparing to move elsewhere" There is an exodus of the best and brightest business people coming out of the country.
2011-06-17 An Investor’s Road Map by Tim Shirata of Guild Investment Management
It looks as if banking regulators are finally showing some backbone. Here in the U.S. and in Europe, they are demanding less leverage. This will likely spread as there is no question that many large global banks are in trouble. The problem is that they are not addressing leverage from derivatives. It is too little and too late, especially after the moral harm created by the bank bailouts. To us, the big question remains this: what about controlling and clearing derivatives through a central exchange so the world of derivative holders and writers can clearly know the risks involved?
2011-06-17 Is Gold About to Have Its Status Upgraded? by Frank Holmes of U.S. Global Investors
Central banks have been on a gold buying spree. Mexico, Russia and Thailand, were adding to their gold reserves. And in 2010, central banks became a net buyer of gold for the first time in 21 years. Central bank gold buying could soon be matched with other global banks if gold’s quality as an asset gets upgraded to Tier 1 status by the Basel Committee on Banking Supervision. The BCBS is an international banking supervisory committee that provides a forum for determining global standards to ensure that banks all around the world have adequate capital.
2011-06-17 Will Gold Equity Investors Strike Gold? by Frank Holmes of U.S. Global Investors
While the party continues for gold bullion prices, stocks of gold companies have been a no-show. The NYSE Arca Gold Bugs Index (HUI) has fallen more than 13 percent year-to-date and the Philadelphia Gold & Silver Index (XAU) has toppled more than 16 percent. Companies such as High River Gold Mines, Jaguar Mining and NovaGold Resources are off 45 percent from 2007-2008 highs. This has been exacerbated in recent weeks making it a hot topic of discussion among investors. This chart shows gold equities of all market capitalization sizes were holding up quite well until late April.
2011-06-16 China is World's Largest Energy Consumer by Frank Holmes of U.S. Global Investors
World consumption of energy has increased 5.6 percent in 2010, according to BP’s Statistical Review of World Energy. This is the largest increase since 1973, which happened to be a memorable year in energy history. At the time, the U.S. was by far the largest consumer of energy, devouring 1,812 million tons of oil equivalent (mtoe)—more than 30 percent of the world’s total—as the country faced an energy crisis, oil embargo and record high oil prices. In 2010, another pivotal moment occurred in energy history: The country consuming most of the world’s energy was no longer the U.S., but China.
2011-06-16 The Good Old Days by Liam Molloy and Bethany Carlson of Galway Investment Strategy
The news of late indicates we are indeed in the midst of an economic slow patch (as we were this same time last year). This cyclical pause occurs in the context of a secular de-leveraging here in the US, which results in a healthy albeit modest expansion. The lack of job creation in the most recent BLS report and a general longing for “better days” has left many nostalgic for the good old days. The problem is the old days were just awful. Many of the gripes today really are nothing new. The great wealth disparity between rich and poor is an example.
2011-06-15 GOLDRelic or Real Money? by J Michael Martin of Financial Advantage
In the past 10 years, the price of one ounce of pure gold has risen from less than $300 to $1,500, far outpacing the return on stocks and bonds. And yet, in most gatherings of professional investors it is not respected. Why is that? What drives the price of gold, anyway? And is gold really an appropriate investment in the 21st century? We set out to better understand this unique metal. Well explore the reasons that some consider gold an important asset class with unique and valuable investment characteristics, while many professionals regard it as a sort of investment sideshow.
2011-06-14 Bruce Berkowitz - Ignoring the Crowd on Financials by Sam Parl (Article)
Bruce Berkowitz has said that his deep value and contrarian investing style will not guarantee short-term results, but he promises his shareholders will be rewarded for their patience over the long term. Last week, he explained why some of his positions - especially those in the financial services sector - are among the best opportunities in the market.
2011-06-14 The Consequences of Policy Failure by Michael Lewitt (Article)
Investment performance for the rest of the year will be determined by the macro-economic views of investment managers. While microeconomic factors are always extremely important in charting investment strategies, they are particularly important today as the U.S. and global economies continue to fight their way through the detritus of the global debt crisis. A compelling case can be made for weaker 2Q112 growth based on a combination of factors.
2011-06-14 A Cautionary Tale from the World's Most Influential Economist by Dan Richards (Article)
Raghuram Rajan was recently cited by The Economist as having the most important ideas for the post-crisis world. In this interview, he identifies key policy issues the Obama administration must confront. This is a transcript of the interview.
2011-06-14 Who's Afraid of the Big Bad Debt? by Kerry Pechter (Article)
Not Warren Mosler, bond trader, racecar dabbler, Senatorial candidate and recent author of The Seven Deadly Innocent Frauds.
2011-06-13 Americas: Economic Review May 2011 by Team of Thomas White International
In North America, the U.S. and Canada saw contrasting economic trends during the first quarter. While first quarter GDP growth in the U.S. slowed when compared to the previous quarter, growth accelerated in Canada. The U.S. housing market remains weak while the housing recovery in Canada started last year, and the labor market has also seen a similar divergence. However, the economic outlook for the two countries is expected to converge more in the coming quarters. As growth accelerates in the U.S., Canada may find it difficult to maintain its first quarter growth pace.
2011-06-13 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 Searching for the Market's 'Sweet Spot' by John Derrick of U.S. Global Investors
One of U.S. Global Investors’ “sweet spots” is investing in global small-and mid-cap companies. We generally define these companies as having a market capitalization between $1 and $10 billion. Ten billion sounds like a lot but is relatively small compared to market caps of companies such as Apple ($301 billion), Johnson & Johnson ($181 billion) and Coca-Cola ($149 billion). We like small and mid-cap companies because they tend to be less volatile than micro-caps, but still nimble enough to grow at faster rates than large companies.
2011-06-10 World's Greatest Infrastructure Projects by Frank Holmes of U.S. Global Investors
Cities around the world take turns owning the title for the tallest skyscraper, the longest bridge or the deepest mine. Covering nearly every continent of the world, here’s our current list, which I’m sure will change over the next few years.
2011-06-09 Is Peru's Humala Jekyll or Hyde for Mining? by Frank Holmes of U.S. Global Investors
The Peruvian stock market has had a very strong reaction to the recent outcome of the country’s presidential election. With Keiko Fujimori’s surprise loss to Ollanta Humala, many Peruvian stocks saw share prices sink before quickly recovering the following day. Grana y Montero, a large engineering company in Lima, reached a three-month high shortly before the election, and then plummeted 20 percent just after. We digest the outcome and discuss the implications a shift in Peru’s government policies would have on the country’s economy and largest industries.
2011-06-09 Taking Advantage of Cyclical Highs and Lows by Matt Lloyd of Advisors Asset Management
As we find ourselves in the throws of an economic soft patch, the anxiety to investors seems only to be a sniffle versus an outright sneeze or full-fledged cold. Many are wondering as to why the accumulation of the slowing economic news is having such a muted impact and cause many to extrapolate that a “coming to Jesus” meeting is around the corner. As we stated last week, the conundrum of negative outlook on Treasuries by three credit rating agencies is being trumped by slowing economic metrics. It is also influenced heavily by the majority of investors believing rates will rise.
2011-06-08 Gold at $1,500 an Ounce: Speculation or Fundamental Demand? by Team of American Century Investments
We believe gold’s performance in recent years and current price above $1,500 an ounce reflect solid fundamental demand, rather than speculative fervor. A key driver of gold demand in the current environment is buying by central banks around the world. In addition, it appears that investors looking for a hedge against both the falling dollar and broader economic uncertainty have been buying gold for its diversification benefits. Jewelry demand in India and China are other, underappreciated positives.
2011-06-07 New Challenges for the Endowment Model by Robert Huebscher (Article)
The multi-billion dollar endowments of elite institutions like Harvard, Yale, and Princeton are supposed to never be strapped for cash, but that's not how things played out during the financial crisis, when all those schools and many others were forced to raise liquidity under adverse market conditions. The endowment model, despite those failures, is still basically sound, according to Luis Viceira, but it needs several key improvements before institutions and individuals can rely on it.
2011-06-07 Why Jim Rogers is Bullish on Gold by Dan Richards (Article)
The veteran investor Jim Rogers explains why he is bullish on gold and the US dollar, and offers his thoughts on Asian economies why he chose to move his family to Singapore. This is the transcript of the interview.
2011-06-07 Why Jim Rogers is Bullish on Gold (Video) by Dan Richards (Article)
The veteran investor Jim Rogers explains why he is bullish on gold and the US dollar, and offers his thoughts on Asian economies why he chose to move his family to Singapore. This is the video of the interview.
2011-06-07 Letters to the Editor - On the WikiLeaks of the Economics Profession by Various (Article)
This is a follow-up to last week's exchange between Guy Cumbie and Michael Edesess, which concerned Edesess' article two weeks ago, Letter to the Editor On the Wikileaks of the Economics Profession.
2011-06-07 The Tough Transition by Cole Smead of Smead Capital Management
Stock market participants seem to be having a great deal of difficulty handling temporary economic weakness. This weakness is highly likely to be a combination of higher gasoline prices and the disruptions that supply chains suffered at the hands of the Japanese Tsunami. We are not surprised by this temporary weakness and if it hadn’t been caused by this combination it would have come to pass anyway.
2011-06-06 David Kotok on Central Bank Credibility; Bob Eisenbeis: Did the Fed Print Money with QE? by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we republish a comment by Robert Eisenbeis, Chief Monetary Economist of Cumberland Advisers, "Did the Fed Print Money in QE1 and QE2?" Eisenbeis, who was Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta prior to joining Cumberland, corrects a puzzling comment on the Fed published last week in the Wall Street Journall by George Melloan. We assumed that Melloan and the Wall Street Journal editorial staff were aware of the rules of monetary quantum mechanics, but maybe not.
2011-06-03 Five Misconceptions Squashed by Niels C. Jensen of Absolute Return Partners
DSK is not the only one in need of a bailout! As the sovereign crisis intensifies - and it will - bond yields in some countries will go higher. But they won’t go higher everywhere. Demographic as well as technical factors (e.g. Solvency II) will drive ever more money towards bonds, and that money will have to go somewhere. Germany, Switzerland and Scandinavia are probably the safest bets in terms of where sovereign bond yields could fall further. You should also expect high quality corporate bond yields to trade through sovereign yields in many countries. The trend has already begun.
2011-06-03 Can Less Deliver More? The Case for Concentrated Equity Strategies by Team of Emerald Asset Advisors
"Don't put all your eggs in one basket" is such a widely held notion within the financial services industry that it's almost blasphemous to suggest an investment strategy that questions this premise. But what if researching multiple baskets of stocks was too distracting and too much to manage? Could focusing your attention on a single, smaller basket of investment ideas produce better results? Some investment professionals-Warren Buffett among them-believe concentrated equity portfolios offer the opportunity for better risk-adjusted returns.
2011-06-03 Economic Whiplash by John Mauldin of Millennium Wave Advisors
The political winds in Europe are shifting. The crowd that runs the various member countries today will not long survive the changes. There will be new politicians with different mandates as it becomes clear that the costs of the bailout are going to fall on the backs of the solvent countries and that austerity is going to mean hellishly bad deflation, high and rising employment, and depression in the indebted countries. And with the US economy slowing down, it might not take much to push us over the edge.
2011-06-03 Natural Resources Q&A with the Global Resources Fund Team by Frank Holmes of U.S. Global Investors
This week Frank Holmes and the co-managers of the U.S. Global Investors Global Resources Fund (PSPFX), Evan Smith and Brian Hicks, participated in a special webcast for the Peak Advisor Alliance. Here are some candid portions of the Q&A: Q. How are interest rates currently affecting commodity prices? A. The magic number for real interest rates is 2 percent. That’s when you can earn more than 2 percent on a U.S. Treasury bill after discounting for inflation. Our research has shown that commodities tend to perform well when rates fall below 2 percent.
2011-06-02 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 10 Reasons to Think about Munis and Professional Bond Management by Tom Dalpiaz of Advisors Asset Management
Municipal (muni) bonds remain a very workable asset class – one worthy of investment in spite of the recent uncertainty and volatility of the past six months. Properly done, munis can provide dependable, attractive levels of after-tax income with modest expected volatility for conservative investors. Here are 10 reasons to think about munis and professional bond management right now: 1. Munis make sense for top tax bracket investors. 2. Muni bond credit quality challenges are real, but muni bond issuers have the resiliency and tools to help remedy their difficult budget situations. Continued.
2011-06-01 What’s Gold Really Worth? by Kevin Feldman of BlackRock Investment Management
Determining an exact value for gold isn’t easy—but the pressure to do so is diminished by the fact that gold shouldn’t be a short-term investment. The drop in silver’s price earlier this month suggested that some major market players had decided that silver had risen far above a reasonable valuation. In the aftermath, some writers argued that the price drop of about 27% for the week of May 2nd was a reasonable correction. Since some investors still link gold and silver some market observers and gold investors wondered if gold, down about 4 percent last week, was also due to plummet.
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.
2011-05-28 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 Railway Revolution Builds China's Consumer Culture by Frank Holmes of U.S. Global Investors
China is building the world’s largest network of high speed rails. Since opening the first high speed line between Beijing and Tianjin in 2008, the country has laid down more than 4,600 miles of new tracks. This is three times more than Japan, where the bullet train was invented. Once completed near the end of this decade, the high speed rail system will connect more than 250 Chinese cities, span 18,641 miles and reach roughly 700 million people. Currently, the high speed rail network connects about one-third of China’s cities. That figure is set to nearly double over the next two years.
2011-05-27 On Stockpiling and the Commodity Cycle by Andrew Foster of Seafarer Capital
Commodity prices have been in a secular bull market for the better part of a decade–subject only to temporary, albeit violent corrections. Three main explanations have been offered for the trend. The first is that demand from emerging markets is fueling price increases, as the developing countries consume tremendous amounts of raw materials in pursuit of growth. The second is that the dollar is being debased, which in turn is stoking inflation in hard assets. The third argument is that the world is facing a crisis of limits: commodity prices are surging as finite resources are being depleted.
2011-05-27 Abu Dhabi by Mark Mobius of Franklin Templeton
Abu Dhabi is the capital of the United Arab Emirates (UAE), the federation of seven emirates including Dubai. The UAE’s combined economy is large compared to its relatively small size—it has a population of around five million, of which 1.6 million live in Abu Dhabi. Per capita GDP in the UAE is more than US$40,000, and that number is significantly higher for Abu Dhabi, mostly because of the incredible earnings from oil and gas. Each day, Abu Dhabi produces more than 2 million barrels of oil, and its oil reserves are now estimated at nearly 98 billion barrels, the sixth largest in the world.
2011-05-27 All That Glitters by Richard Bernstein of Richard Bernstein Advisors
It is hard to find anything in the current financial landscape that has caught investors’ attention as much as gold. We were proponents of gold at times over the past decade. However, the rationale for investing in gold has changed in the last three years. The story was once a fundamental one, but today’s general enthusiasm seems more emotionally-based. Gold prices might rise further, but we prefer to sit out the current rally in favor of more fundamentally-based investments that tend to perform well during periods of sizeable nominal growth.
2011-05-26 How Quickly They Forget by Howard Marks of Oaktree Capital
Asset prices fluctuate much more than fundamentals. Rather than applying moderation and balancing greed against fear, euphoria against depression, and risk tolerance against risk aversion, investors tend to oscillate wildly between the extremes. They apply optimism when things are going well in the world (elevating prices beyond reason) and pessimism when things are going poorly (depressing prices unreasonably). If investors remembered past bubbles and busts and their causes, and learned from them, the swings would moderate. But, in short, they don’t. And they may be forgetting again.
2011-05-26 Everything from Oil to Silver: Are Speculators Causing Too Much Volatility? by Team of Knowledge @ Wharton
Allegations that traders manipulated oil prices in 2008 are reinforcing the buzz -- at the gas pump and elsewhere -- that speculators are driving up the price of oil, triggering wild price spikes and nail-biting volatility. Fingering speculators is a popular pastime these days, but experts at Wharton and elsewhere say the blame is often misplaced. Although speculation can affect prices, most of the recent price swings in oil and other commodities are happening for fundamental economic reasons.
2011-05-25 Bull Case Nobody Makes by Bill Smead of Smead Capital Management
We feel compelled to make a US stock market bullish case which feels as good to this writer as avoiding tech stocks did in late 1999. It is so lonely that it is divine. Andy Grove, former Intel CEO, college prof John Maynard Keynes said, “When everyone knows that something is so, it means that nobody knows nothin’.” We believe the majority has put their assets into investments that will provide defeat, insecurity and failure. Out of this comes a very optimistic bull case which is available to those who have courage to look foolish in the short run and avoid today’s popular asset allocation.
2011-05-25 Making Sense of Gold by Frank Wei of FundQuest
After being neglected, gold has been on a spectacular run since the beginning of the new century. As compared to the struggling stock market of the past decade, the run looks even more impressive. Meanwhile, with its popularity as an investment on the rise, many investment vehicles such as gold ETFs have been created and introduced to the investor public. Formerly dealt with by central banks and large institutional investors exclusively, gold is now more available as an investment for average retail investors. The following commentary will examine several key aspects of gold as an investment.
2011-05-24 Inflation—Which Prices Aren't Changing by Robert J. Horrocks of Matthews Asia
Inflation has been one of the big buzzwords in Asia's markets this year. Wages, interest rates and prices for commodities, assets, goods and food have all been on the rise. The problem with much of the discussion is that it treats inflation in all these areas as though they were the same—a single phenomenon that is an unqualified evil. In my view, not enough has been done to distinguish between cause and symptom. Perhaps this is because when one does try to distinguish between cause and symptom, the topic of inflation becomes much more complex.
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.
2011-05-21 The Dollar and Oil Debate on CNBC Europe by Frank Holmes of U.S. Global Investors
This week in London, I joined CNBC Europe’s Commodities Corner to discuss an earlier post regarding my Three Reasons to Believe in $100 Oil. Of the three reasons I gave, most striking to this group was my belief that higher oil prices will continue because of a weakness in the dollar. What I explained during the discussion was that a falling dollar causes short-term volatility. As the demand for a particular commodity increases and the dollar weakens, or vice versa, investors need to deal with an exaggerated movement in the price. However, I stressed the short-term nature of these events.
2011-05-21 Asian Tiger Sinks Teeth Into Gold by Frank Holmes of U.S. Global Investors
The World Gold Council (WGC) released its quarterly “Gold Demand Trends” report this week and, as always, it was filled with fascinating data on the strength of the global gold market. Gold demand grew 11 percent to 981.3 tons during the first quarter of 2011, worth $43.7 billion at quarter-end’s price levels. The increase was driven by a significant rise in demand for gold as an investment, up 26 percent from a year ago, as emerging markets look to protect their assets from rising inflation. Demand for gold bars and coins was up 62 percent and 42 percent, respectively.
2011-05-20 What’s Eating You? Global Inflation and Your Portfolio by Matt Tucker of BlackRock Investment Management
Headlines have been filled with news about inflation, from rising commodity, precious metals and gas prices to higher prints of the consumer price index. Traditionally investors have looked to US real estate, commodities and US TIPS to help protect against inflation. As news of rising foreign inflation reaches the US, investors may now be asking if they need to think this in the context of their portfolios. Is global inflation different than US inflation? Could investing in assets that help protect against global inflation increase a portfolio’s efficiency? Am I missing an opportunity?
2011-05-20 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Last week, I wrote about a phenomenon in global markets “at the top” as being almost like perpetual motion inertia, constant movement, seemingly ending up static. Why does that exist, and what can we do to enhance its portfolio benefit and to reduce its incumbent risk? I believe that today’s risk derives from overvaluations created from “efficiencies” which magnify profitability, but don’t reflect declining top line revenue or demand. Indeed, as stock prices have migrated upwards, relative strength quotients within my proprietary measurements have disconnected, instead moving downwards.
2011-05-19 Cause or Effect: ETF Trading Volume Impact on Volatility (and Vice Versa) by Noel Archard of BlackRock Investment Management
If you read Russ Koesterich’s blog post from Monday, May 12th, you already have an idea of what has been going on with the price of silver. The commodity was up over 150% over the prior 12 months before going through a downward correction and shedding 30% of value. Our iShares Silver Trust (SLV) became a focal point during the course of the week as volatility spiked, and the usual questions popped up about how people use ETFs, and whether or not ETF trading volume is caused by price volatility, or if it’s in fact a contributor to the volatility.
2011-05-19 Central Banks and Gold: Still Net Buyers by Kevin Feldman of BlackRock Investment Management
There are a number of reasons why gold and silver don’t move in concert, but one notable reason is the purchasing of gold by central banks. In 2010, for the first time in 20 years, the world’s central banks bought more gold than they sold, perhaps a reflection of anxieties following the global economic crisis and a sense of gold’s historical reputation as a repository of value. Over the past three years, Europe’s central banks really haven’t sold any gold at all; between December 2010 and February 2011, they collectively sold a whopping .2 tons of their gold, according to a recent report.
2011-05-19 The Good, the Bad and the Uncertain by James G. Tillar and Steve Wenstrup of Tillar-Wenstrup Advisors
Recently the financial media has been focused on the end of QE2, the process by which the Fed has been minting new funds to buy back U.S. Treasuries to pressure interest rates down. While they have been successful in driving rates down, the additional borrowing has put additional strains on the rising debt limits the legislature must continually approve. Regardless of whether the Fed officially ends QE2, as of June 30th it will not end the Fed’s Treasury buying spree as they will continue to repurchase Treasuries using the proceeds of maturing mortgages they took over in the financial crises.
2011-05-18 Oman by Mark Mobius of Franklin Templeton
I recently visited Muscat, the capital of Oman. Oman has a very strategic position in the Middle East, controlling the tip of the Musandam peninsula even though the peninsula is separated from the rest of Omanby land belonging to the United Arab Emirates (UAE). That tip points right into the Straits of Hormuz, which is the choke point for oil leaving Saudi Arabia, Qatar, Iran, Kuwait, Iraq and the UAE from the Persian Gulf to the Arabian Sea, leading to the Indian Ocean. On a clear day, you can see Iran from the tip of the peninsula. Oman’s military, therefore, has to protect that waterway.
2011-05-17 Dylan Grice on Japan's Coming Hyperinflation by Robert Huebscher (Article)
The Japanese scenario haunts US policy makers, who recall that country's two-decade miasma of lethargic growth and escalating fiscal deficits with apprehension. What scares them most, perhaps, is the potential endgame Japan now faces: an insolvent government crippled by uncontrollable inflation. While Japan's current situation closely parallels the experience of other countries that went on to confront hyperinflation, according to Dylan Grice, we shouldn't expect a crisis in the near term.
2011-05-17 The Smooth Illusion by Michael Lewitt (Article)
In retrospect, the Federal Reserve's interminable zero-interest policy and its quantitative easing programs are likely to be seen not only as ineffective but damaging to the prospects for sustainable long-term economic growth. A number of asset classes are beginning to exhibit bubble-like behavior, something that would be far less likely to occur were interest rates normalized.
2011-05-17 Are we at a Market Detour or merely a Speed Bump? by Matt Lloyd of Advisors Asset Management
The market has been predisposed to a positive bias over the last quarter. This is in light of what we see as a bit of rolling over in the economic metrics and various global forces. The market has somewhat disregarded the impacts of natural disasters, the European Central Bank (ECB) turning generally hawkish and placing the rating of U.S. Treasuries on negative outlook. A few years ago, any of these events would have proven to be a detour to the markets road to higher levels, currently they are merely speed bumps.
2011-05-17 Breakdown: Commodities Tumble … For Good? by Liz Ann Sonders of Charles Schwab
'When in doubt, get out' has become the mantra for commodities traders the past couple of weeks. Sentiment had become too one-sided (and may need to ease even further). Is risk-on, risk-off trading finally coming to an end, and can fundamental analysis prevail? We've written a lot about the 'risk-on, risk-off' trading environment prevalent over the past several years. Risk on is basically when investors have been feeling better about the global economy and about the markets, so they buy and embrace more risky assets. Then, when fears rise investors essentially avoid all risk—risk off.
2011-05-13 The Institutional Gold Rush by Peter Schiff of Euro Pacific Capital
I've worked on Wall Street my entire life, and one thing I've learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people's money to stick their necks out alone-if their investments go bad, at least they can point to everyone else who fared just as poorly. For this reason, these funds are often lagging in their perception of crucial market changes. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years.
2011-05-13 Bernanke Double Talk Creates Opportunity by John Browne of Euro Pacific Capital
Fed Chairman Bernanke’s remarks at his historic first press conference were met by a tidal wave of skepticism. Although many of the mainstream outlets characterized his performance as “serious” and “masterful," most rank-and-file Americans were left with a very different impression. Any casual glance at the broad internet coverage of the event shows that the public is deeply skeptical of Mr. Bernanke and the actions he is taking. If that skepticism runs more than skin-deep, it could herald a fundamental change in American politics and a restoration of sound finance in America.
2011-05-13 Congress, The Fed Reserve, and Markets by Cliff W. Draughn of Excelsia Investment Advisors
I never did particularly care for Alice in Wonderland, watching her go down rabbit holes and discover the characters of the White King and Queen, Humpty Dumpty, Cheshire Cat, and the Mad Hatter. But when watching the ongoing budget debates I feel as if the American people are Alice and we are being subjected to a world of budgetary nonsense, spoken in a language that is incomprehensible. The American people know they are being held hostage in a strange place where our Congress orchestrates a Mad Hatter tea party for which the entertainment is kicking the can of debt down the road.
2011-05-13 Postcard from Vietnam by Teresa Kong of Matthews Asia
The use of both the U.S. dollar and Vietnam’s currency, the dong, is widespread in Vietnam. Just as easily as you might pay for a new pair of jeans with cash or with credit in the U.S., you could do so in either dong or dollar in Vietnam. Over the last two decades, currency depreciation, in combination with bouts of hyperinflation, has led to Vietnam’s use of the U.S. dollar and gold as primary stores of wealth. Unlike China, which has experienced appreciation relative to the U.S. dollar over the last two decades, Vietnam has seen a drastic depreciation of its currency over the same period.
2011-05-13 Visiting a West African Gold Mine by Frank Holmes of U.S. Global Investors
This week I’m back on the continent of Africa. Along with 20 analysts from investment firms around the world, I spent a total of 17 hours traveling to Tasiast, Mauritania, kicking the tires and checking out Kinross Gold’s open pit operations there. Kinross is among the top 10 gold mining production companies in the world. According to the CPM Gold Yearbook 2011, the company produced 2.2 million troy ounces of gold in 2009, nearly 3 percent of the world’s total.
2011-05-13 Three Reasons to Believe in $100 Oil by Frank Holmes of U.S. Global Investors
After selling off nearly 14% last week, oil prices finished this week slightly higher at $99.65 per barrel. While the end result was a net positive, the volatility continued. Oil reached $104/bbl, then fell to around $96, before nesting just below $100. As an investor, this volatility can be difficult to handle. Throw in the uncertainty of today’s geopolitical environment, and investors feel the need to downsize their positions in commodity investments, such as oil. Markets could remain volatile in the short-term, but here are three long-term indicators to support $100+/bbl oil prices.
2011-05-12 The Value of Gold Company Stocks and Gold’s Role in a Diversified Portfolio by Team of American Century Investments
Two questions we’ve heard a lot lately are “Why haven’t the stocks kept pace with the metal?” and “What’s the right amount of gold for my portfolio?” The recent disparity in performance between gold bullion and gold mining stocks is largely down to concern about higher costs to extract and refine the metal. Compare those fears with conditions in 2009 and 2010, when gold mining stocks did very well as the price of gold bullion surged, while changes in production costs were comparatively tame. This meant better top-line revenue and margin figures, making for attractive stock performance.
2011-05-11 The Strong Bond Between India and Gold by Frank Holmes of U.S. Global Investors
Casey Research’s BIG GOLD newsletter recently published a great interview that I’d like to share with you. BIG GOLD editor Jeff Clark interviewed Shanta, the mother of U.S. Global consultant and longtime friend Jayant Bhandari, on how strong the cultural bond between gold and Indians is, especially women. "When it comes to supply and demand, what you’ve been told about gold jewelry is wrong. That’s a strong statement, but I’ve got a firsthand account to back it up."
2011-05-11 Supreme Moment by Bill Smead of Smead Capital Management
Kairos - is an ancient Greek word meaning the right or opportune moment (the supreme moment). The world of value investing and portfolio management includes mean reversion and patience. Speculative episodes typically go on for much longer than expected. This fact forces us to take a stand by avoiding overvalued common stocks and owning undervalued shares. Everyone would love to make their adjustments at the “Kairos”. We believe that the greatest existing misallocation of capital in the world today is based on over-confidence in the uninterrupted growth of emerging markets.
2011-05-10 Inflation Field Manual: A Guide for a Changing World by American Century Investments (Article)
We examine the competing forces at work that will affect inflation. On the one hand, a whole host of factors are currently constraining inflation. On the other hand, US monetary and fiscal policies and a number of global economic imbalances suggest an environment of high and rising inflation. The outcome of this debate is important for financial assets, whose performance turns on the difference between expected and actual inflation-it is when inflation surprises to the upside that stocks and nominal bonds typically underperform and inflation-protected assets do best.
2011-05-10 What is the greatest investment risk? The risk that money won’t be there when you need it! by David Edwards of Heron Financial Group
Stocks rallied in April, closing at the high for the year and the highest level in three years. With stocks up 9.1% through April 30th versus our 2011 forecast of 8%, we see stocks as fully to slightly overvalued. In fact, given the lack of substantial “new” news to push stocks one way or the other, we expect a 10% trading range that could last through the summer and into the fall. On February 28th, David Edwards commented on Bloomberg Radio that “the S&P 500 could fall 10% in the next six months,” but that he wouldn’t change his strategy because he expected a 20% rally on the other side.
2011-05-09 Me, Lord Marlboro and the Dow!? by Jeffrey Saut of Raymond James Equity Research
While the intermediate/long-term internal stock market energy remains fully charged for a move higher, the markets short-term energy still needs some time to rebuild. This probably means another week, or two, of consolidation and/or attempts to sell stocks down before we begin another leg to the upside. Even so, I dont think any selling will gain much downside traction, implying the zone between the S&P 500s (SPX/1340.20) 50-day moving average (DMA) at 1320 and the 1340 level should provide support for stocks.
2011-05-09 Inflation Threat? by Milton Ezrati of Lord Abbett
Any serious discussion of inflation today must separate short- from longer-term prospects. For the short run, the risks of a generalized inflation remain small, recent increases in commodity prices notwithstanding. For the longer run, the risks rise. Perhaps recent commodity price hikes anticipate this longer-term potential, though there are other explanations. But whatever the specifics, the fundamental risks lie almost entirely with policy in Washington, that is, how the Fed treats the excess liquidity in markets today and how the federal government deals with its huge budget deficits.
2011-05-07 Muddle Through, or Crisis? by John Mauldin of Millennium Wave Advisors
This week I finish the two-part letter on the Endgame and give you my thoughts on the economy over the next five years. This is the second part of a speech I gave last week at the Strategic Investment Conference in La Jolla. It is a rather bold forecast, and fraught with peril and likely errors, but that is my job here. I must offer one large caveat! If the facts change so will my forecast, but this is the view into my very cloudy crystal ball as I see it today. As always, remember that those of us in the forecasting world are often wrong but seldom in doubt. Read accordingly.
2011-05-07 Don’t Turn Out the Lights on Commodities Just Yet by Frank Holmes of U.S. Global Investors
The prices for many commodities suffered the worst week in recent memory this week. Oil prices dipped below $100 per barrel, gold fell below $1,500 an ounce and silver gave back much of the past month’s gains by falling to the $35 an ounce level. The prices for other commodities such as sugar, tin, nickel, aluminum, lead and copper also pulled back. Immediately, headlines on websites such as Marketwatch, Bloomberg and SmartMoney read “Has the Commodity Bubble Popped?” and “Imploding Commodities Complex.” In our opinion, not likely.
2011-05-06 Silver Takes it on the Chin by John Browne of Euro Pacific Capital
This week saw the type of downside volatility in the precious metals market that will be remembered for years to come. For those of us who have been long gold, and silver in particular, the memories will not be pleasant. While many had been expecting a pullback in silver, when the violence did come it was still shocking. Silver shed one third of its value in less than one week. And while gold was pulled down by the general sell off in all commodities. the yellow metal shed only 6.5% during the carnage. Those mild losses should remind us that gold is not just another commodity.
2011-05-06 Silver and Gold, Silver and Gold by Doug MacKay and Bill Hoover of Broadleaf Partners
Silver and gold may still look good as decoration but the metals have also lost some luster in the dental profession (gold vs. porcelain crowns) and for anyone who uses a digital camera instead of old guard film. (Silver is used in film processing.) As most know, silver shot to new highs last week amidst a frenzy for precious metals and perhaps, their perceived inflation hedging capacities. This week, the story was a bit different, with the metal experiencing one of the most stunning drops since the Hunt Brothers tried to corner the silver market back in the early 1980’s.
2011-05-06 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
As the 10-year anniversary of 9-11 approaches, American have all too vivid memories of that dreadful day and the frightening uncertainties that have remained because of the elevated terror risks. This week, one uncertainty was lifted as Osama bin Laden, the 9-11 mastermind, was killed in a successful military operation in Pakistan. While his death does not eliminate the risk of future attacks, it brings much-needed closure to many and a newfound sense of country pride for the US military and intelligence community.
2011-05-05 The Rising Financial Gold Market by Frank Holmes of U.S. Global Investors
When the University of Texas Investment Management Corporation (UTIMCO) took possession of more than 20 tons of gold worth $991.7 million earlier this year, its gold stockpile became larger than the official gold holdings of about 28 countries combined. UTIMCO manages the second-largest endowment in the U.S. However, UTIMCO’s gold holdings pale in comparison to the top five countries: United States, Germany, Italy, France and China. These countries hold approximately 19,000 tons combined, about two-thirds of official holdings at the end of 2010, according to the World Gold Council.
2011-05-04 Economic Update by Justin Anderson of Cambridge Advisors
Stocks pushed through volatility early in the month to post another respectable gain for the month of April. The S&P 500 was up 3% in April and is now up 9% year to date. Bond yields for the month were slightly lower but very close to where they started at the beginning of the year at 3.3% for 10 year Treasury bonds. Gold and oil prices reached new highs again during the month, mostly due to inflation concerns. GDP growth slowed to 1.8% during the first quarter. This was the seventh straight quarter with positive economic growth but it was less than the 20 year average of 2.5%.
2011-05-03 ProVise Bullets by Ray Ferrara of ProVise Management Group
The news of Osama bin Laden’s death was cheered around the world – especially in the United States. Although it took 10 years to bring him to justice, his death brought a sense of victory in the war against terrorism. Our thanks go out to our intelligence gatherers, who diligently compiled leads from a variety of sources, and the team of Special Forces who carried out the risky mission inside Pakistan.
2011-05-03 The Dollar: It’s Payback Time! by Axel Merk of Merk Funds
It’s payback time for Ben Bernanke. In some ways, this should neither surprise, nor scare anyone. Unfortunately, it might do both. In any open market, information is absorbed into asset prices, including exchange rates. Indeed, exchange rates may be the best pricing source to assess the impact of the relentless involvement of policy makers’ “print and spend” mentality in the markets. When trillions are spent, markets are likely to move. However, an unintended consequence has been that a broad range of assets are now moving more and more in tandem, giving investors fewer options to diversify.
2011-05-03 Lucky People by Jeffrey Saut of Raymond James Equity Research
Since last June my unencumbered observation has been, You can get cautious from time to time, but dont get bearish. That mantra has served us well, especial since last September, because beginning on September 1, 2010 the senior index has not experienced anything more than a one- to three-session pause/pullback making today the 174th session in its upside skein. Such a stampede is unprecedented in my notes of over 40 years. Still, It looks like its going up to me.
2011-05-02 Warm Milk and Sweet Dreams by Herbert Abramson and Randall Abramson of Trapeze Asset Management
There is a lot of scary noise out there. MENA turmoil, the Japanese nuclear crisis, European debt, U.S. debt, debasing of the U.S. dollar, commodity prices, higher inflation, a potential left wing coalition government in Canada and Donald Trump as U.S. President. Understandably, our clients, and individual investors generally, are fretting. Confidence levels are low and risk aversion has become paramount. Surveys show that individual investors believe the odds of a one-third stock market drop is over 50% in any given year where true odds are closer to 2%. Investors are too fearful.
2011-05-02 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
As we have been saying for some time, U.S. economic growth is stuck in the slow lane.We have seen a serious slide in the American standard of living over the past three years, since the beginning of the recession.The slide can be measured in many ways.Food stamps recipients have increased by 48 percent and the cost of the program ballooned by 80 percent.Medicaid recipients are up 17 percent and programcosts are up36 percent.Welfare recipients are up 18 percent, and program costs up24 percent. That isnt the kind of growth thats good for any economy!
2011-05-02 Bernanke and the Teflon Fed by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Fed acts like an academic institution, but it operates in a political environment and it is really good at navigating the landscape. Alan Greenspan (Chairman 1987-2006) was one of the most successful politicians ever to set foot in Washington DC. He never won an election, but was called the “maestro.” His critics could not scratch his Teflon coating. Lately, he has come under attack for the housing bubble. And even though it is clear that 1% interest rates back in 2004 had a huge role in causing over-investment in housing, the Fed and Greenspan have once again come through unscathed.
2011-04-29 How a Falling Dollar Affects Gold by Frank Holmes of U.S. Global Investors
Statements by Chairman Ben Bernanke on April 27 shouldn’t have surprised investors. Following the Fed’s press conference, the Fear Trade continued. Gold hit a new high while the dollar fell further, touching a three-year low on Thursday. As gold investors know, the metal has historically been negatively correlated with the dollar, meaning when the greenback is weak, gold tends to be strong. That correlation is reaching an extreme, widening substantially over the last year. Spot gold prices on the COMEX closed above $1,527 yesterday while the U.S. Trade Weighted Dollar Index tumbled to 73.32.
2011-04-29 Bernanke Falls Flat by John Browne of Euro Pacific Capital
Despite loud huzzahs from a variety of boosters who proclaimed that Chairman Bernanke spoke with gravitas and wisdom at the first ever Federal Reserve press conference, the wider investing public clearly saw the performance as unconvincing. During and immediately after the proceedings the prices of gold and silver rose strongly to new highs as the U.S. dollar plummeted. The affair seemed to solidify the understanding that Bernanke and his cohorts have no intention whatsoever to reverse the current trend of inflation and a weakening dollar.
2011-04-29 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
With Dr. B. explaining “moderate pace”, earnings season moved forward and the results have been quite appealing thus far. About half of the S&P 500 companies have reported and the quarter looks to be on track to be record-setting and the seventh straight period of double-digit gains. Of note, solid revenue growth is replacing “cost-cutting measures” as the primary driver of the strong season. Exxon Mobil, RD Shell, and Chevron are all benefiting from higher oil prices and better refining margins. One down note…Research in Motion (Blackberry) seems to be struggling against rival Apple.
2011-04-29 Quarter 1 Letter by Team of Grey Owl Capital Management
QEII is set to end no later than June 30th. Prominent money managers disagree on the impact. PIMCO’s Bill Gross thinks yields are bound to rise as the largest net buyer of Treasuries moves to the sidelines. Gross has sold all of the US Treasury holdings in the flagship Total Return Fund. Jeff Gundlach, formerly of Trust Company of the West and now with DoubleLine Capital, believes the opposite. According to him, yields will fall in the short term because quantitative easing is inflationary. When QEII stops, bond buyers will require lower yields as future inflation expectations recede.
2011-04-29 Coal Use in China Shines Light on Growth by Frank Holmes of U.S. Global Investors
International coal prices hit $124 per ton this week, the highest levels in five months, as strong demand from reconstruction projects in Japan and reduced supply from flood-ravaged Australia has made coal supply tight. The floods in Queensland, Australia cut the country’s output of coal by 15 percent and other big coal producers such as Indonesia, South Africa and Colombia are experiencing similar production cuts due to floods of their own.
2011-04-28 The Fed Meets the Press by Liz Ann Sonders of Charles Schwab
The Fed's meeting ended with no surprises on rates or outlook.
But the first-ever news conference added some clarity, context and transparency to the Fed's thinking.
The Fed has just begun its long process toward monetary policy normalization—and that's a good thing.
2011-04-26 Ethics Among Thieves by Michael Edesess (Article)
'Inside Job' is a thoroughgoing indictment of the financial industry that has its virtues but relies on some unsavory vices. On the one hand, through interviews, congressional testimony, and other video, the film exposes cronyism, corrupt ethics, and excessive power at the core of the financial industry. On the other, the movie at times unfortunately feels more like a polemic than a hard-hitting, fact-finding investigative reporting piece.
2011-04-26 No Child Left Behind... Until They Are Teenagers, At Least by Chris Maxey of Fortigent
News of a potential downgrade to the US credit rating caused a sudden sell off in the equity markets, but positive earnings reports led to a rebound. By the end of the week, the S&P 500 index and the Dow Jones Industrial Average both closed higher by 1.3%. S&P took the unusual step of placing the US on credit watch negative, indicating that there is now a 1-in-3 chance of an outright downgrade to the US credit rating in the next two years. The announcement by S&P resulted in a severe equity market sell off on Monday morning before investors remembered S&P’s previous track record.
2011-04-26 Rude Crude by Jeffrey Saut of Raymond James Equity Research
Oil that is, black gold, Texas Tea; yet, rude crude still feels a bit stretched in the short-term given that West Texas Intermediate (WTI) is ~30% above its 200-day moving average (DMA). Indeed, over the past few weeks oil has become almost as extended above its 200-DMA as it was in July 2008, and we all know how that ended. Not that I am predicting a similar collapse in the price of Texas Tea, but rather that a consolidation/pullback period is likely, which could provide the backdrop for another leg up in stocks (even the energy stocks).
2011-04-26 Africa: Challenges and Outlook by Mark Mobius of Franklin Templeton
In this post, I will discuss what I think are Africa’s key challenges. Corruption is a major problem in Africa. However, accusations of corruption against African governments could also be lodged against entities in the developed world that seek to buy the influence of these governments. One important development has been the Cardin-Lugar amendment to the Dodd-Frank finance reform bill in the U.S., requiring that oil, natural gas and mining companies registered on the New York Stock Exchange disclose any payment made to a foreign government for the purpose of the commercial development.
2011-04-25 Is the Stock Market Rally Justifiable? by Charles Lieberman of Advisors Capital Management
We begin with the U.S. Treasury budget, which is a mess, running a deficit of about $1.5 trillion this fiscal year, with huge deficits projected into the future. Politicians seem more anxious to shift blame rather than act to reduce these projected deficits. So, entities as blind as S&P are able to foresee a possible need to downgrade the credit rating. The U.S. is emulating the spending of Greece, Ireland, Spain and Portugal. None of these countries has its budget in order. Now, they must pay interest rates that are bringing the Greeks ever closer to default and a formal restructuring.
2011-04-23 The 'Miracle' of Compound Inflation by John Mauldin of Millennium Wave Advisors
Investors will face the “zero bound” in interest rates for a while longer. They can sit on their cash and earn nothing. They can fret and wring their hands about a ramp-up in inflation, but the evidence so far does not support it. They can stay in the US dollar, in which case they can watch their dollars weaken relative to the rest of the world. Travelling in Sicily or Rome validates how strong the euro is relative to the dollar. All you have to do is buy a dinner or hotel room.
2011-04-22 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
2011-04-22 Silver Set to Soar as Paper Folds? by John Browne of Euro Pacific Capital
As a result of active “demonetization” efforts by the IMF and its member central banks, gold and silver have experienced the type of volatility that has given conservative investors reasons not to perceive the metals as dependable cash alternatives. Instead gold and silver have become known as the asset class to hold as a hedge against inflation. However, during the 1990’s, when inflation was in general much higher than it has been since the turn of the millennium, gold and silver prices drifted lower and stagnated.
2011-04-22 Don’t Fear a Pullback in Prices by Frank Holmes of U.S. Global Investors
The S&P credit agency sent shockwaves through the global financial system on Monday. This sent markets lower and the prices of commodities such as oil rocketing back above $110 per barrel and both gold and silver to new highs. It should be clear the S&P announcement was just a warning, the rating was affirmed at AAA. The fears quickly subsided and U.S. markets hit fresh three-year highs. Essentially there’s only a one-third chance of a downgrade and anyone who’s ever listened to the weather man knows that a 33 percent chance of rain means you probably don’t need your umbrella.
2011-04-22 And That's the Week That Was... by Ron Brounes of Brounes & Associates
What do those guys know at S&P anyway? Sure China has been warning us for years, but is the largest US creditor really going to cut us off just because our politicos can’t get along? (Don’t answer that.) This week, the gov got a wakeup call from the rating agency that it’s time to get our budgetary house in order. Investors reacted negatively (briefly), but then decided to focus more on iPhone sales and other positive developments. Let’s see what Dr. B. and friends have to say next week. Enjoy the long weekend.
2011-04-21 Equity Market Review and Outlook by Richard Skaggs and Thomas Davis of Loomis Sayles
The global equity bull market continued in the first quarter despite significant global strife. Most major US indices posted total returns of about +5.0% to +8.0%. Continuing the trend since the March 2009 low, small cap and mid cap stocks outperformed their larger brethren. US markets were among the best in the world, although the MSCI World Index also posted a solid gain of 4.9%. Emerging markets were among the weaker equity asset classes. As the returns demonstrate, however, emerging market stocks remain the winners by a wide margin over the past five- and ten-year periods.
2011-04-21 Africa: Opportunities in Nigeria, Ghana and Kenya by Mark Mobius of Franklin Templeton
Those who are optimistic about Africa say that after many years of colonialism, it is beginning to demonstrate its potential. The continent does have its detractors, who say that while it may have been free of colonial rule for 60 years, the continent continues to battle poverty, corruption, AIDS and armed conflict. However, while Africa does have challenges, I am encouraged by another side of Africa that is gradually emerging with the development of capital markets, consumerism and technology.
2011-04-20 Understanding Your Capital by Doug Short of Doug Short
For many years financial planners embraced the image of a three-legged stool to explain sources of retirement income: Social Security, Pensions, Personal Savings. Of course, as we all know, for most people the stool now has only two legs, making it a rather wobbly support. Over the past few decades, private pensions have essentially disappeared. They may still be available for government and some union employees, but pensions in the world of private business are generally available only to a shrinking number of older workers who were grandfathered into a now closed system.
2011-04-19 Four Ways to Make Recommendations Stick by Dan Richards (Article)
All too many client conversations are monologues, with the advisor talking and clients listening. Even when you ask if clients have questions, they say 'no.' If you want clients to buy into your recommendations, you have to engage them in conversation.
2011-04-19 Gangs of New York by Jeffrey Saut of Raymond James Equity Research
I love New York City! Still, as I walked from the airplane into the terminal last Monday, I got the feeling I was traveling back in time, La Guardia is in need of a refresh. All in all, I felt like I was in a third-world country, not the greatest city in the world. Nonetheless, my trip started with a couple of hedge funds. At noon a segment on Breakout." From there, it was off to see some PMs before the next media hit at Fox Business with, Brian Sullivan. While I am kindred spirits with these media anchors, by far the highlight of last Monday was dinner with President Bill Clinton.
2011-04-19 The Bell Tolls in Washington by Chris Maxey of Fortigent
Earnings season brought about a week of choppy trading in the equity market, resulting in the S&P 500 index falling 0.6% and the Dow Jones Industrial Average dropping 0.3%. Economic data throughout the week was mixed, but the impact of higher gas prices is being felt across the economy. Small businesses recorded a severe hit to sentiment last month after the small business optimism index sank from 94.5 to 91.9. A host of concerns, from declining sales expectations to trepidation about the future of the economy, were culprits behind the weakening.
2011-04-19 Middle East/Africa: Economic Review March 2011 by Team of Thomas White International
The turmoil in the Middle East region continues, with Libya exploding into civil war, and troops from the Gulf Cooperation Council being called in to suppress the protests in Bahrain. In terms of the economic repercussions, stock markets in the MENA are estimated to have lost around $140 billion in market capitalization during the last month. According to the Arab Monetary Fund, the market capitalization of 16 Arab bourses was valued at $862 billion on March 4, compared with $1.002 billion on January 25, a day before the political crisis in Egypt triggered upheaval across the Middle East.
2011-04-19 Rear View Mirrors by Richard Michaud of New Frontier Advisors
It was another positive quarter for U.S. equity investors. The market’s resilience in the face of the Fukushima earthquake, Middle East rebellions, and euro uncertainties was remarkable. The U.S. economy continued to demonstrate significant signs of recovery with new jobs in March and a 1% drop in the unemployment rate since November. While European markets were up 6.5% in dollar terms, Asian indices were down 2%. Bond market was mixed, with treasuries down and diversified indices flat. Oil prices were up over 16% while the dollar fell 6.4% relative to the euro but up 1.3% to the yen.
2011-04-19 Standard & Poor’s Downgrade Outlook on US Sovereign Debt – Initial Reflections by Asha Bangalore of Northern Trust
S&Ps changed in its outlook on US debt to negative but reaffirmed the AAA rating of the nation's debt. Todays market response to this action includes equity prices viewing this in negative light. The markets response is not entirely consistent with a downgrading of sovereign debt because the decline in rating implies that the financial situation of the federal government is less secure and there are doubts creeping in about the federal governments ability to meet its debt obligations. If this was the case, the dollar should have declined and Treasury security yields should have risen.
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.
2011-04-16 Will China's Economy Overheat? by Frank Holmes of U.S. Global Investors
China’s GDP growth continued at a blistering pace during the first quarter of 2011, rising 9.7 percent from the previous year. Once again this outpaced many forecasts and reignited the discussion of China’s overheating economy. While its robust growth may raise a few eyebrows, the economy isn’t in danger of “red-lining.” Andy Rothman points out that the first quarter growth figures “[aren’t] dangerously high given the GDP growth rate and strong income growth” After rising nearly 8 percent during 2010, inflation-adjusted urban incomes rose 7.1 percent during the first quarter.
2011-04-15 Will Precious Metals Survive the Double Dip? by John Browne of Euro Pacific Capital
It is rare for precious metals to appreciate in parallel with the broader stock market. Yet, this has been the case in the two years since the stock market began coming back from the 2008 financial crisis. Although metals have outperformed US equities over that time frame, it is noteworthy that stocks have gone up at all. Since January 2, 2009, the S&P is up about 50%. While gold is up 68% and silver is up a staggering 267%. With rising interest rates, oil at over $100 a barrel, and the recovery running out of steam, many investors are wisely asking if the markets are set for a sharp pullback
2011-04-15 Concerned About Inflation? by Brad Sorensen of Charles Schwab
Inflation has become a bigger topic of discussion among investors and in the media as of late. While we have noted in numerous publications that we don’t believe inflation is a near-term concern due to a number of factors, investors are wondering how to position themselves should inflation start to take hold. First, despite common perception, gold has not historically been a very good hedge against inflation. Due to the possibility of gold prices being a bit extended after the recent run, we don't recommend gold as an investment for those concerned about inflation.
2011-04-15 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
Though Reps and Dems came together to find $39 billion in budget cuts to avoid a government shutdown, the mood in DC is far from amicable and no one is singing kumbaya. On the heals of Tax Day, Prez O submitted his plan to rein in the deficit by $4 trillion over 12 years that includes spending cuts AND tax hikes aimed at biz and the well-off. While a bipartisan commission praised the proposal as a "solid, responsible plan," would-be Presidential candidates lined up to offer their opposing views, particularly against anything resembling a tax increase.
2011-04-14 U.S. Dollar – Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
We believe that continued U.S. dollar weakness may be a consequence of the diverging monetary approaches central banks are taking around the globe. While many international central banks have been on a tightening path, raising rates (i.e. Australia, Brazil, Canada, China, India, Norway, Sweden, to name a few), the U.S. Federal Reserve has been conspicuous in its continued easing monetary policy stance. Indeed, while other central banks have been shrinking the size of their balance sheets, the U.S. Fed’s balance sheet continues to expand on the back of ongoing quantitative easing policies.
2011-04-12 A Top Value Manager Looks Outside the US by Robert Huebscher (Article)
David Winters, manager of the Wintergreen Fund, began his career working for Max Heine, where Seth Klarman and Michael Price also worked. In this interview, Winter discusses the why he believes many of today's best opportunities are outside the US and how he is hedging against the threat of inflation.
2011-04-12 Been Down So Long It Looks Like Up To Me by Michael Lewitt (Article)
"The budget crisis is a crisis of leadership," writes Michael Lewitt in the latest issue of the HCM Market letter. "There is no intellectual mystery involved in cutting the budget - entitlement spending must be reduced through the adoption of tighter eligibility standards... The markets will also have to evaluate whether Congress and the Obama administration can make any meaningful progress on budget reform, which will mean tackling the entitlement issue. The failure to rein in federal deficits remains a profound threat to the dollar and interest rates."
2011-04-12 Equity Market Review & Outlook by Richard Skaggs and Thomas Davis of Loomis Sayles
The global equity bull market continued in the first quarter despite significant unrest across parts of Northern Africa and the Middle East, a massive earthquake in Japan, sovereign debt issues in Europe, and inflationary pressures in certain emerging economies. US markets were among the best in the world, although the MSCI World Index also posted a solid gain of 4.9%. Emerging markets were among the weaker equity asset classes. As the returns demonstrate, however, emerging market stocks remain the winners by a wide margin over the past five and ten year periods.
2011-04-12 No Help by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
If the objectives of QE2 were to: a) raise interest rates; b) slow economic growth; c) encourage speculation, and d) eviscerate the standard of living of the average American family, then it has been enormously successful. Clearly, with the benefit of hindsight these results represent the Fed’s impact on the U.S. economy, regardless of their claims to the contrary. Why the Fed would believe the economy could benefit from the addition of $600 billion in reserves to a banking system that already had over $1.1 trillion in unused, but potentially inflationary reserves on hand defies understanding
2011-04-12 Private Mortgage Insurance Endgame by Team of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst we feature a comment on the XBRL pilot program at the Securities and Exchange Commission by Daniel Roberts CEO of raas-XBRL. First let's focus briefly on some related technical developments at the IRA HQ in Torrance, CA. Both of these data points directly impact investors, regulators and other consumers of financial data. And we feature a reader comment on the endgame of the private mortgage insurers at Fannie Mae and Freddie Mac, namely stuff the taxpayer.
2011-04-11 Charles Plosser and the 50% Contraction in the Fed\'s Balance Sheet by John P. Hussman of Hussman Funds
Last week, an unusual event happened in the money markets that should not escape the attention of investors. The yield on 3-month Treasury bills plunged to less than 5 basis points. As I noted this past January in Sixteen Cents: Pushing the Unstable Limits of Monetary Policy, a collapse in short-term yields to nearly zero is a predictable outcome of QE2, based on the very robust historical relationship between short-term interest rates and the amount of cash and bank reserves (monetary base) that people are willing to hold per dollar of nominal GDP.
2011-04-08 Important Recent Developments by Louis-Vincent Gave of GaveKal
It seems obvious to us that we are approaching a tipping point. The rise in commodity prices and risk assets does not seem to be compatible. Neither does the rise in commodity prices, equity prices, and inflation expectations and overly easy central banks. The recent surge in certain currencies to two standard deviations above their purchasing parities should also have economic consequences. So the situation does not seem stable from a bottom-up perspective. And from a top down perspective, it seems obvious that the recent period of exceptionally easy fiscal policies should come to an end.
2011-04-08 Why High Oil Prices Are Likely Here to Stay by Frank Holmes of U.S. Global Investors
A number of forces continued to push oil prices higher this week, reaching their highest levels in the U.S. since September 2008. One factor fueling the run has been the continued decline of the U.S. dollar. Oil and the dollar historically are negatively correlated. This means that a rise in oil prices generally coincides with a decline in the dollar, and vice versa. The U.S. dollar has seen a dramatic decline since the beginning of the year as oil prices have moved some 30 percent higher. This could be due to fact that roughly two-thirds of the U.S. trade deficit is related to oil imports.
2011-04-08 Spotlight: Pivotal Peru Election by Frank Holmes and Jacek Dzierwa of U.S. Global Investors
Peruvians will take the first step in electing their new president on Sunday. The top-two finishers in this round will compete in a runoff election next month. The outcome is meaningful to improving the quality of life in Peru, continuing its strong historical GDP growth and making the most from its ample natural resources. Politics in Peru have a history of surprises and this year’s surprise is how left-wing candidate Ollanta Humala is leading in the polls, though one-third of Peru’s population is still undecided. Several local news services show Humala well ahead of opponents.
2011-04-07 Inflation and the U.S. Bond and Stock Markets by Jim O'Shaughnessy of O'Shaughnessy Asset Management
With the Federal Reserve well into QE2 in its response to the recent economic crisis and recession, we thought it would be an ideal time to review the effects of inflation and deflation on the returns of US bonds and stocks. The adjusted monetary base for the United States has exploded over the last several years. As a result many economists and investors expect inflation to increase in the coming years. Let’s review the history of US inflation and the returns for U.S. stocks and bonds and see what it can teach us about the returns of stocks and bonds during a variety of inflationary periods.
2011-04-06 Let Them Eat Crude by Robert Stimpson of Oak Associates
World events over the past month have received a lot of media attention, but few accounts have emphasized the long-term effects on equity markets. The revolts in Tunisia, Egypt, Libya, unrest in Bahrain and Yemen, and the earthquake in Japan are significant for equity investors going forward. While most of the media have focused on the human aspect of the events, the influence of food inflation, rising oil prices, and the state of the US dollar have been overshadowed by the regime changes and nuclear disaster in Japan.
2011-04-06 Sell in April and Go Away? by Monty Guild and Tony Danaher of Guild Investment Management
Heading into April 2011, we thought it timely to hoist up for consideration a point in stock market lore that says sell in May and go away. According to the Stock Traders Almanac, the market has been strongest over the years from November 1 to April 30. That stretch of time has seen average returns of 9.2 percent from the Dow Jones Industrial Index since 1950 compared to an average loss of 1.2 percent from May through October. By this standard, the current surge in the markets that took off at the beginning of September 2010 is a good bit ahead of schedule.
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.
2011-04-05 Inflation Worries? Commodities May Help by Team of Emerald Asset Advisors
Many of you may remember the movie This classic shed some interesting light on the world of commodities. Commodities include natural resources, industrial metals, precious metals, and agricultural products. Or, as Duke explained to Billy Ray Valentine, "Commodities are agricultural products...like the coffee you had for breakfast...wheat, which is used to make bread...pork bellies, which are used to make bacon, which you might find in a BLT sandwich. And then there are other commodities, like frozen orange juice...and gold. Though, of course, gold doesn't grow on trees like oranges."
2011-04-05 Does a Weak Dollar Cause Inflation? by Axel Merk of Merk Funds
Should investors be concerned that a weaker U.S. dollar causes inflation? The price at the gas pump should be a stark reminder that a weaker dollar may contribute to higher prices. Yet, economists tell us that food and energy inflation does not count. Why do economists have such a baffling sense of logic? Are economists really aliens in disguise, locked up in ivory towers? Let’s shed some light on the logic and why it may not merely be strange, but wrong.
2011-04-04 Will the Real Phillips Curve Please Stand Up? by John P. Hussman of Hussman Funds
Much of the intellectual basis for the Federal Reserve's dual mandate "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates" is based on the Phillips Curve. The curve, named after economist A.W. Phillips, is understood as a "tradeoff" between inflation and unemployment. The idea is so engrained in the minds of economists that it is taken as fact. High unemployment, is associated with low inflation risk, and in that environment, policy makers can pursue measures targeted at increasing employment, without consequences for inflation.
2011-04-04 The Revolving Door at the Fed of New York; Dick Alford on False Dichotomies in Monetary Policy by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we feature a comment by Richard Alford on the false dicotomy between discretionary and rules-based regimes when it comes to monetary policy. But first we want to do a little review of the latest disgorgement of documents by the Fed. Listening to the debate between the "borrow and spend" camp led by Paul Krugman et al and the cut the deficit camp led by the Tea Partiers in Congress and around the nation, we are reminded again of the film "The Matrix" and its predecessors.
2011-04-02 Expert Roundtable on Inflation: Should You Be Worried? by Mark W. Riepe, Liz Ann Sonders, Rob Williams, Michael Iachini & Brad Sorensen of Charles Schwab
Inflation is a rise in the general level of prices of goods and services; your money buys less. With oil and other commodity prices rising, the Federal Reserve's current easy monetary policy and the economy picking up, many investors are worried about inflation. Mark Riepe, head of Financial Research and president of Charles Schwab Investment Advisory, led a roundtable discussing why Wall and Main Street may have different perspectives on inflation. The roundtable also covers our inflation outlook, ways to protect your investments and inflation-savvy investments you might want to consider.
2011-04-02 The Plight of the Working Class by John Mauldin of Millennium Wave Advisors
Although the headline unemployment number went down to 8.8%, the only way you can get to that number is by not counting the millions who have dropped out of the employment pool, too discouraged to look, but who will take a job if they can get one. If you go back and take the number of people in the labor force just two years ago, the unemployment picture is back over 10% (back-of-my-napkin math).
2011-04-01 ProVise Bullets by Team of ProVise Management Group
Here we are at the end of the first quarter of 2011 and we watched the markets move basically upward for the first six weeks of the year, advancing as much as 8% in some cases. Then, uncertainty escalated around the world beginning in mid February. First, there was the fall of the Tunisian and Egyptian governments, along with unrest in other Arab countries. Then in mid March, Japan suffered its earthquake. Meanwhile, the U.S. government kept itself running by passing a series of continuing resolutions, while the politicians still could not come to grips with an approved budget and deficit.
2011-04-01 The Golden Mean? Looking at SMid-Caps by Steven McBoyle of The Royce Funds
Our nearly four decades of asset management experience have led us to an interesting alternative to the typical combination of small-cap and large-cap allocations that exists somewhere in between in an often-underappreciated zone of the equity market. We think that the smid-capsmall-cap to mid-capuniverse, that zone with market caps currently between $2.5 billion to $15 billion, combines many of the attractive performance attributes of the small-cap segment with some of the liquidity and business stability characteristics more traditionally associated with larger enterprises.
2011-04-01 The Bedrock of the Gold Bull Rally by Frank Holmes of U.S. Global Investors
Naysayers started calling gold a bubble back when prices hit $250 an ounce and though gold’s bull market has tossed and flung the bubble callers around for almost a decade now, their voices have only gotten increasingly louder as prices broke through $1,000, $1,200 and now $1,400 an ounce. However, gold prices appear asymptomatic of the signs generally associated with financial bubbles.
2011-03-31 The New Retirement ...Are You Ready? by Ronald W. Roge of R.W. Roge
Gone are the days when you worked for a company for 35 years and received a gold watch and a monthly pension plan payment for life. Today those old fashioned Defined Benefit Pension Plans have been replaced with 401(k) Defined Contribution Plans and IRAs. These accounts require you, not your company, to determine how much to save, how to invest and manage those savings. It also requires you to assume all of the risk yourself.
2011-03-30 “Agri”-vation by Scotty George of du Pasquier Asset Management
Recent events in the Middle East, combined with weather, have put tremendous pressure upon raw materials prices. The fear is that cyclical pricing pressure might become secular (generational) trends, accelerating inflation in energy prices, foodstuffs, and industrial components, thus undermining a tenuous uptick in consumer spending, global trade, and consumer confidence. While Wall Street rejoices that something, anything, has stimulated trading activity and profit margins, the world watches as surpluses contract and statistics become human convoys of disaster.
2011-03-29 American Consumer Sputtering in Q1 by David A. Rosenberg of Gluskin Sheff
The U.S. consumer spending and income report for February was a bit of a mixed bag. First, personal income in the U.S. did eke out a 0.3% MoM gain in February, but it was below expected and failed to keep up with the rise in inflation, which are largely, but not exclusively, being driven by food and fuel prices (accounting for half the increase). The personal consumption expenditure (PCE) price deflator rose 0.4% MoM and as such real income - straight up, net of taxes and excluding personal transfers - fell 0.1% in the first contraction since last September.
2011-03-29 The Inflation Knuckleball by Michael Pento of Euro Pacific Capital
For the past 40 years or so, every country on the planet has relied on fiat money. To a very large extent, this means that the national economies are far more exposed to the whims of their central bankers than they have been in the past. So, if central bankers go off their meds, the danger to the currency becomes profound. Unfortunately, at America's Federal Reserve, it seems the inmates are now running the asylum.
2011-03-27 QE2 - Apres Moi, le Deluge by John P. Hussman of Hussman Funds
As rules of thumb go, "the trend is your friend" historically performs better than "don't fight the Fed". While the market tends to perform better when both are true, the exception is the overvalued, overbought, overbullish, rising-yields syndrome, which is uniformly negative regardless of the random subset of historical data one examines. There is certainly a tendency for "unpleasant skew" featuring a persistent series of marginal new highs for some period of time, but on average, those are ultimately overwhelmed by steep and abrupt losses that finally clear this syndrome.
2011-03-25 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.
2011-03-25 What's Driving Russia's Outperformance? by Frank Holmes, John Derrick and Tim Steinle of U.S. Global Investors
All ten sectors of the S&P 500 Index increased this week. The best-performing sector for the week was energy which rose 4.08 percent. Other top-three sectors were technology and materials. Financials was the worst performer, up 0.50 percent. Other bottom-three performers were utilities and healthcare.
2011-03-24 Bernanke Ducks as Food Prices Shoot Higher by Peter Nielsen and Bryce Fegley of Saturna Capital
As rising food prices gain prominence in media headlines worldwide, Federal Reserve chairman Ben Bernanke now finds himself deflecting accusations that the Fed's $600 billion "QE2" Treasury buying program is the main culprit of global food price inflation. In his February 18, 2011, speech to governors of the Group of Twenty in Paris,1 Bernanke completely rebuffed these claims and offered up other explanations as well, but nowhere in his speech did he concede any possibility that the Fed's QE2 program is playing a role.
2011-03-23 A Crime Called Private Mortgage Insurance; Alex Pollock on the Political Finance of Covered Bonds by Team of Institutional Risk Analyst
This week in The IRA Advisory Service, we review the Fed's latest stress test exercise and discuss what it means for the banking industry and the US economy. While the US central bank did not provide results for specific institutions, the assumptions in the Comprehensive Capital Analysis and Review (CCAR) are more instructive than the Big Media seems to notice. Indeed, a close reading of the CCAR document provides a compelling argument for why the Fed should not be supervising financial institutions.
2011-03-23 In Search of Value by David A. Rosenberg of Gluskin Sheff
Within the space we do favour large-caps, strong balance sheets, high-quality, low P/E stocks, and commodities, especially energy. But among all the worries, we still see this as an overvalued market and we believe in buying low and selling high. We know that many pundits like to use short-term market measures of valuation using year-ahead or trailing earnings or cash flow, which at times seems a little disingenuous for an asset class that is inherently long-term in duration. Be that as it may, perhaps we can shed some light on why patience may still be virtuous here.
2011-03-22 What Investors Should Fear in the Permanent Portfolio by Geoff Considine, Ph.D. (Article)
Over the last decade, the assets of the fund PRPFX have swelled from $50 million to more than $10 billion. The concept underlying that fund, Harry Browne's Permanent Portfolio (PP), has rewarded PRPFX investors with attractive risk-adjusted returns. Those investors, however, may want to rethink their exposure - especially if PRPFX is the core of a retirement-oriented strategy.
2011-03-22 There are Still So Many Unknowns by David A. Rosenberg of Gluskin Sheff
There are still many unknowns with regard to the global macro picture, but what we do know are the following 10 things: 1. There are more upside than downside risks to the oil price. 2. Japan was already the number-one importer of liquefied natural gas (LNG) and this status will be accentuated as replacements for a damaged nuclear grid is sought. 3. Nuclear energy development takes a near-term hit here by the politics of the Japanese crisis but not a permanent hit. 4. The aftershock in Japan will be related to contaminated food supply so we can expect to see more inflation on this score too.
2011-03-21 This Is, Because That Is by John P. Hussman of Hussman Funds
The market action of the past two weeks contrasts with the generally uncorrected advance of recent months. I suppose it's possible for investors to characterize the recent decline as a "panic" if they press their noses directly against their monitors, but in that case, they really do have a short memory. The pullback has been negligible relative to the action of the past several months, and is indiscernible in the big picture. As of Friday, the market remained in an over valued, bullish, rising-yields syndrome that has typically been cleared much more sharply than anything we saw last week.
2011-03-21 Equity Market Bounce-Back -- Don't get Too Excited by David A. Rosenberg of Gluskin Sheff
Between the put-to-call ratio and the 40% share of stocks trading below their 50-day moving average, the U.S. stock market became hugely oversold. Plus we had the skew from the quadruple-witching session. And the cease-fire announced in Libya and the FX intervention to reverse the yen’s strength provided some fodder for the shorts to cover. But trend lines have been broken, portfolio managers have little cash to work, and according to a ML-BAC survey, we had a net 67% of global portfolio managers overweight equities against their position. Plus, the world is still a very uncertain place.
2011-03-19 How the VAR Model and Japan’s Tragedy Affect Investors by Frank Holmes of U.S. Global Investors
The threat of disaster from the damaged Fukushima nuclear power plant unleashed a ferocious sell-off of Japanese equities, but the damage to other major markets has been limited. Already experiencing a slight pullback prior to the events on March 11, U.S. equities and emerging markets have held up quite well. The MSCI Emerging Markets Index has only pulled back 2 percent since the earthquake and the S&P 500 Index only 3 percent.
2011-03-19 The End of QE2? by John Mauldin of Millennium Wave Advisors
The Fed committed to buying $600 billion of Treasuries between the beginning of QE2 in November and the end of June. June is 3 months away. What will happen when that buying goes away? The hope when QE2 kicked off was that it would be enough to get the economy rolling, so that further stimulus would not be deemed necessary. We’ll survey how that is working out, with a quick look at some recent data, and then we go back and see what happened the last time the Fed stopped quantitative easing.
2011-03-19 What the Heck is Going On??? by Team of Emerald Asset Advisors
In recent weeks, the capital markets have weathered a bout of volatility not seen for quite some time. What are the main causes and how does this volatility affect our strategies and your portfolios? While there are many flashpoints around the world, we will highlight the "Big 3" (Japan, the Middle East, and federal budget issues) that have made the most headlines, and those which we believe have had the greatest and most recent impact on volatility.
2011-03-19 Oil's Piracy Premium by Frank Holmes of U.S. Global Investors
Over the past 30 years, the International Maritime Organization (IMO) has successfully lowered the risk of pirate attacks in other regions around the world. With the recent escalation of piracy around Somalia, governments and worldwide organizations including the United Nations are now working in concert with the IMO to curb these attacks. Their theme for 2011, “Piracy: Orchestrating the Response,” represents an increased awareness of the world-wide political changes required to reverse this trend.
2011-03-18 The Southern Classic IRC, A Reason for Ben Graham to Smile & Can Share Prices Diverge from Value? by Kendall J. Anderson of Anderson Griggs
The belief that share prices can at times diverge from underlying business value is the driving force behind security analysis as practiced by active investment managers. My example is not to lay out a case to buy or sell shares of IBM. Instead, it is to look at the value the market has placed on IBM over many years and let you decide if the price has diverged from the value of IBM as a business. To be fair, and to honor the many professional investors and students of investing who do not believe in active management, I at least need to give you their beliefs.
2011-03-15 Mason Hawkins and Staley Cates on Today’s Opportunities for Value Investors by Robert Huebscher (Article)
Southeastern Asset Management's Mason Hawkins and Staley Cates, two of today's most respected value investors, discuss their portfolio and the principles behind their Graham and Dodd methodology. They explain why they like certain commodity-based companies and why they disagree with Bruce Berkowitz on the opportunities in the financial sector.
2011-03-15 Running on Empty by Michael Lewitt (Article)
Despite the increasing undercurrent of negative news creeping into the financial markets, the stock market remains strong. HCM expects equities to continue to perform well for the foreseeable future (i.e. through the end of June) although most of this letter will discuss the reasons why it shouldn't. In some ways, this market is a lot like Charlie Sheen. It pretends to have tiger blood and the powers of a warlock, but deep inside it is suffering from an addiction to a substance (i.e. debt) that will ultimately kill it.
2011-03-14 Anatomy of a Bubble by John P. Hussman of Hussman Funds
Over the past decade, investors have seen near-parabolic advances in a variety of assets, followed by crashes. These have included dot-com stocks (which peaked and crashed well before the general market peak in 2000), technology stocks, housing, commodities, and stocks in a variety of emerging markets. These experiences have made investors somewhat more attuned to the destructive potential for speculative bubbles in various assets, but has also created something of a "casino economy" where a great deal of resources are directed in hopes of participating in these bubbles.
2011-03-14 Interest Rates Are on the Launch Pad by Michael Pento of Euro Pacific Capital
A few months ago, the recovery cheerleaders reached a crescendo when expanding consumer credit stats and surging US trade deficits provided them with “evidence” of an economic rebound. In declaring victory, they overlooked the very nucleus of this past crisis: namely, the enormous debt levels and bubbling inflation that created fragile asset bubbles. In reality, only a reduction in US debt levels or increase in the value of the dollar would have signaled a budding recovery; but, thanks to the Federal Reserve and Obama Administration, there is virtually no way those results will ever be seen.
2011-03-14 Achilles by Michael Dana of Dana Investment Advisors
Since the beginning of the Republic, the US has been invincible, overcoming many disasters. The US was first made aware of its Achilles heel during the 1970s oil embargo. Fortunately, the Middle East agreed to pump more oil, and the negative impact on the economy was short lived. The ensuing financial crisis pushed oil back to $32 per barrel in 2009. The global economic recovery has once again caused heavy demand and rising prices for the liquid gold. Now, however, we add tensions in the oil producing countries in the Middle East and we have a perfect storm brewing.
2011-03-12 Inflation and Hyperinflation by John Mauldin of Millennium Wave Advisors
Companies and households typically deal with excessive debt by defaulting; countries overwhelmingly usually deal with excessive debt by inflating it away. While debt is fixed, prices and wages can go up, making the total debt burden smaller. People can’t increase prices and wages through inflation, but governments can create inflation, and they’ve been pretty good at it over the years. Inflation, debt monetization, and currency debasement are not new. They have been used for the past few thousand years as means to get rid of debt. In fact, they work pretty well.
2011-03-12 Domestic Equity Market by Frank Holmes of U.S. Global Investors
The figure below shows the performance of each sector in the S&P 500 Index for the week. Four sectors increased and six decreased. The best-performing sector for the week was utilities which rose 1.5 percent. Other top-three sectors were telecom services and consumer staples. Energy was the worst performer, down 4.0 percent. Other bottom-three performers were materials and technology. Within the utilities sector the best-performing stock was Constellation Energy Group which rose 6.8 percent. Other top-five performers were Exelon, First Energy, DTE Energy, and Duke Energy.
2011-03-11 Europe: Economic Review February 2011 by Team of Thomas White International
Various data released in Feb. confirmed once again that the economic recovery in Europe is gaining momentum. Nevertheless, investor sentiment on the continent, and indeed everywhere in the world, remained largely subdued during the month due to the growing political uncertainty in the Middle East and N.Africa region. Since rising food, raw material, and crude oil prices have already pushed up inflation to worrying levels in most parts of Europe, the recent surge in oil prices amid the protests in Libya and some MiddleEastern countries eclipsed encouraging signals about the Euro-zone economy.
2011-03-11 Americas: Economic Review February 2011 by Team of Thomas White International
Rising energy prices, due to the political upheavals in the Middle East, are becoming the primary economic risk for the Americas region. While the subdued inflationary trends will provide banks leeway to hold interest rates, they may be forced to advance their rate hikes if prices rise at a faster rate. In contrast, several of the emerging economies are expected to slow down this year. These economies may see interest rates rising faster, which may slow their pace of expansion even more. Also, higher interest rates will likely keep their currencies stronger and may restrict export growth.
2011-03-09 2011 Year-End Price Targets by Team of Bespoke Investment Group
Each week, Bloomberg surveys the head equity strategists at the major Wall Street firms for their year-end S&P 500 price targets. At the start of 2011, the average S&P 500 year-end price target for these strategists was 1,371. This would have resulted in a gain of 9.02%. Since the start of the year, five strategists have increased their year-end targets, Goldman Sachs , Barclays, Bank of Montreal, HSBC and UBS. These increases put the average year-end price target at 1,401, which would result in a gain of 11.40%. With a YTD gain of more than 5% already, the S&P 500 is nearly halfway there
2011-03-09 Gold or Goldilocks? by Kevin Feldman of BlackRock Investment Management
After a roller coaster January, gold prices have been soaring to nominal highs again of late. Given the recent rise in price, I thought this would be a good time to revisit the case for having a small amount of gold in your portfolio. Investors flocked to gold in 2009 and 2010 because of worldwide concern over the stability of the financial system, and as a result the precious metal’s price skyrocketed, passing $1400 an ounce. Last month, Barron’s warned its readers that the gold rush is over. Suggesting investors were likely to search for assets with greater expected returns than gold.
2011-03-09 iShares Bi-Weekly Strategy Update Part 2 by Russ Koesterich of BlackRock Investment Management
Recently, silver prices have benefited more than gold from the economic rebound. The relative gap between gold and silver suggests that it may be time for a pause in silver’s run. One of the many ironies of markets last year was the extent to which inflation occupied investors’ attention, despite its near universal absence. While inflation has recently accelerated in emerging markets and a few developed ones, inflation was and is still largely absent in the developed world. Yet, record low inflation did not stop investors from worrying about it.
2011-03-08 Ed Hyman: The Key Threat to Economy Recovery by Robert Huebscher (Article)
Ed Hyman is not worried about China, quantitative easing or fiscal deficits. Equity market performance this year will be strong, he predicts, and the US economic recovery will proceed. But there is a caveat in his outlook – and it is an immense one.
2011-03-08 The Clued-in, the Clueless, the Oblivious and the Conflicted by Michael Edesess (Article)
I’ve now read perhaps 10 books about the financial crisis. Maybe I’m a junkie, but each has given me new information or a fresh way of looking at events. 'All the Devils Are Here' offers a treasure trove of information about company behavior during the crisis, notably Fannie and Freddie, Goldman Sachs, Merrill Lynch, AIG, Countrywide, and Ameriquest.
2011-03-08 Consumer Confidence Turns Back Down by David A. Rosenberg of Gluskin Sheff
According to an RBC consumer outlook poll, one in three U.S. households is already “significantly” cutting back on spending because of rising gasoline prices. And this was a survey taken at a time when the national average price at the pumps was around $3.20 per gallon ― wait and see what happens when it costs four bucks to fill up the tank ― that is the pain threshold for 41% of the consumer sector as per this poll.
2011-03-07 Toryism, Socialism and Housing Reform: Real and Imagined by Christopher Whalen of Institutional Risk Analyst
This commentary is background for the presentation entitled "GSEs: The Future Role of Government Sponsored Enterprises in the US," at the Global Association of Risk Professionals event on Tuesday, March 8, 2011, in New York. The Obama Administration recently advanced some proposals to reform several government agencies that control the market for housing. Treasury/HUD plan is really a menu of possible options, eliminating what would not work and making it clear that change will happen slowly, if at all.
2011-03-07 Random Post-Employment Thoughts and Consensus On Oil Impact by David A. Rosenberg of Gluskin Sheff
The consensus is that the U.S. labor market is healing. That may well be the case but the slack in the job market remains huge allowing for a structural rise in the unemployment rate. Only 15% of the recession job losses have been recouped despite the fact that expansion has surpassed the downturn. The consensus is that the world economy has gotten used to high levels of oil prices so this latest run-up in crude poses little risk to the economic outlook. But it is change that matters to growth, not levels. As for the macro impact, do not understate the potential for economic contraction.
2011-03-07 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
The case for gold and energy-related price spikes is rooted, in part, by good intentions hedging against dollar fluctuations, inflation risk, and political discord. But unlike a level of rational speculation one might expect to see, one has to wonder whether the market’s players are overdoing their hand just a bit. Simply, the world of commodities gambling has been turned into a shootout. While oil production and distribution (as with gold) has been spiking over the last 3 years, real demand has only turned up modestly.
2011-03-04 Fed and ECB - A World Apart by Axel Merk of Merk Funds
The U.S. Federal Reserve and the European Central Bank are divided by a common goal: price stability. Fed Chairman Bernanke has made it clear in his recent testimony and speeches that the Fed would react should food and commodity inflation lead to an increase in core inflation. The Fed is ready to R E A C T. We are not aware of any central bank that is proud of reacting, but rather acting preemptively to mitigate inflationary concerns; a central bank may often be forced to react, but to do so by design puts the cynical view that central bankers are too far behind the curve into a new light.
2011-03-04 On Regulation by Howard Marks of Oaktree Capital
You can tell businesspeople precisely what to do, but you can’t make the economy or companies comply with policies and social aims. Regulations are limited in their scope and effect, and like a balloon, when you push in one place, self-interested behavior pops out in another. Those who enact regulation are rarely able to anticipate and control the response of those being regulated or the second-order consequences of the rules. Bubbles will lead to crashes, and the willingness to dispense with regulation and rely on free markets will never be complete, regardless of regulation’s limitations.
2011-03-04 Are Emerging Markets Still by Team of Emerald Asset Advisors
Political unrest in Egypt, Libya, and elsewhere in the Middle East, along with surging food prices around the world, has provided fresh reminders of the inherent risks of investing in emerging markets. Indeed, while the U.S. stock market has been inching steadily upward in recent months, emerging markets have been struggling. Year-to-date through February 28, the MSCI Emerging Markets Index is down -3.79%, while the S&P 500 Total Return Index has gained 5.88%.
2011-03-03 What Happens If There is No QE3? by David A. Rosenberg of Gluskin Sheff
“who picks up the slack if the Fed stops its bond-buying program?” The answer is hardly complicated since we have a template for this. It is a very simple guidepost. Last year, from April 23rd through to August 27th, the Fed allowed its balance sheet to shrink from $1.207 trillion to $1.057 trillion for a 12% contraction as QE1 drew to a close. Go back a year to the Federal Open Market Committee minutes and you will see a Federal Reserve consumed with forecasts of sustainable growth and exit strategy plans. A sizeable equity correction coupled with double-dip fears were nowhere to be found.
2011-03-03 Multi-Asset Real Return: Assessing & Exploiting Price Pressures in their Many Forms by Kevin Kearns, Laura Sarlo and James Balfour of Loomis Sayles
An asset manager’s challenge is to preserve and grow the purchasing power of investors’ portfolios under a variety of economic conditions. Understanding the breadth of global inflationary or deflationary trends that can occur, and the ways different assets might perform in these environments, is critical to this objective. Based on our research, we have determined that no single asset class can protect investors from inflation. On the contrary, we believe the flexibility and diversification offered by a multi-asset-class strategy is necessary to help weather changing inflation regimes.
2011-03-02 Random Market Thoughts by David A. Rosenberg of Gluskin Sheff
Only time will tell if yesterday’s market action was a true watershed. It was the first time since last July that the stock market was down on the first day of the month. Till yesterday, the opening days in January and February had already accounted for over half the year-to-date gains in the S&P 500. It was also the first time since the last leg of the bear market rally began six months ago that “good” news failed to ignite equity prices. Yesterday we saw auto sales shoot up 6.7% to 13.4 million units, which was the best level since August 2009, and we also saw the ISM inch higher.
2011-03-01 Subsuming the Efficient Market Hypothesis by Keith C. Goddard, CFA (Article)
A recent article highlighted important gaps in the efficient markets model (EMH) that limit its practical applications. It encouraged a search for a new theory of markets that builds upon EMH by rendering it as a special case within a broader, more general theory. Mordecai Kurz’ Rational Belief Equilibrium is such a theory.
2011-03-01 Simon Johnson on the Unconscionable Risks We Face by Dan Richards (Article)
Simon Johnson is a professor of economics at MIT and was the chief economist for the International Monetary Fund. In this interview, he explains why the underlying factors which led to the financial crisis remain unresolved. This is the transcript; a video is also available.
2011-02-28 Oil that is by Jeffrey Saut of Raymond James Equity Research
“Oil that is, black gold, Texas tea,” Jed Clampett (Buddy Ebsen) got rich in the hit series The Beverly Hillbillies by discovering oil on his property. Similarly, investors have become enriched recently by owning oil stocks. Verily, crude oil has surged from ~$84 per barrel in mid-February into last week’s peak of $103.41 with an ascent for most oil stocks. As stated in Friday’s verbal strategy comments, “Libya is particularly troubling because I think there is a fifty-fifty chance that Gaddafi, rather than cede power, will begin blowing up Libyan oil pipelines – it’s either me or chaos.”
2011-02-28 Random Thoughts by David A. Rosenberg of Gluskin Sheff
The combination of sharply higher oil prices, the global food crisis, the accelerating geopolitical risks abroad, and the switch in the United States from fiscal stimulus to restraint — all will serve to complicate the macro and market outlook further. Valuation may not be at an extreme, but most measures of market sentiment are. And some folks are beginning to notice that the wheels are starting to fall off the tracks.
2011-02-28 Morgan Opens Gold Window by John Browne of Euro Pacific Capital
Earlier this month, J.P. Morgan made an important announcement: the bank would now accept gold as collateral for loans. The move appears to have been well-timed, the price of gold and silver climbed steeply, based largely on political turmoil in the Middle East. But why should Morgan’s decision be of interest to anyone outside the bank? It can be argued that J.P. Morgan is the world’s premier major bank. As such, its decision to accept gold as collateral offers a rare glimpse into the very private financial decision-making of some of the largest and most sophisticated investors in the world.
2011-02-28 Pushed to Extremes by Scotty George of du Pasquier Asset Management
Among the economic havoc wrought by turmoil in the Mid East and severe weather around the globe has been the impact upon inflation and upward pressure on prices for raw (and core) materials. Today, most economists and market analysts fear that this confluence of factors could accelerate inflation in energy prices, foodstuffs, and industrial materials, thus undermining a nascent uptick in consumer spending, global trade, and consumer confidence.
2011-02-26 When Irish Eyes Are Voting by John Mauldin of Millennium Wave Advisors
Mauldin reviews the Irish economy, citing a recent Vanity Fair article by Michael Lewis. Ireland's housing bubble caused prices to rise approximately 500%. More than 20% of the Irish workforce was employed in construction. Irish banks financed this, using selling bonds to other European banks. The Irish government made good on those debts, burdening its taxpayers. The end results is excessive debt for the EU, which appears to be unsupportable. On the crisis in the Middle East, Bahrain is the key country to watch out for.
2011-02-25 What Really Drives the Market by David A. Rosenberg of Gluskin Sheff
Well, we used to say there were four key drivers: 1. Fundamentals; 2. Fund flows; 3. Technicals; 4. Valuation; Then we introduced another one last week: 5. The Fed’s balance sheet; Now that is not going to be included in any of the Graham & Dodd textbooks, that is for sure. But since Dr. Bernanke embarked on his non-traditional monetary maneuvers two years ago, there has been an 86% correlation between the S&P 500 and the movement in the Fed’s balance sheet. And now there is a sixth: 6. Corporate earnings surprises Yes, this works with a 90% historical accuracy rate.
2011-02-24 Will the Oil Price Be a Game Changer? by David A. Rosenberg of Gluskin Sheff
First Tunisia. Then Egypt. And now Libya. What makes Libya different from a market’s perspective is that we are now talking about an oil exporter in the sudden grips of political upheaval. In this domino game, the next critical country we have to keep an eye on is Bahrain. The risk of further unrest is rising, especially with sectarian issues in full force in Bahrain. This means that oil prices at a minimum will retain a geopolitical risk premium. Bottom line: there is still more near-term upside potential than downside risk for the oil price (and most energy stocks).
2011-02-23 Don’t Know Much about Geography, Don’t Know Much Trigonometry, But Sarah Palin Does Know Her ... by Paul Kasriel of Northern Trust
On November 8, 2010, Sarah Palin commented that the Fed’s quantitative easing monetary policy was tantamount to printing money out of thin air. Sarah Palin may not know much about geography, but she does know her Fed policy. I would phrase quantitative easing a little differently. It is the Federal Reserve creating a specific amount of credit figuratively out of thin air. Theoretically, the Federal Reserve can create an unlimited amount of credit out of thin air. Of course, there would be dire economic consequences if the Fed were to create an unlimited amount of credit out of thin air.
2011-02-23 Right Brains and the Dismal Science by Herbert Abramson and Randall Abramson of Trapeze Asset Management
It has been said that successful investors need to employ not only the left side of their brains which is the analytical or scientific part but also the right side which is the centre for creative thinking. Thats because much of investing has to do with the unpredictable, the down cards, variables about future demand, growth, political policy changes, psychological responses, weather, oil spills, and so forth. Value investors dont want to pay for the down cards, but want to buy so cheaply in the here, that there is little or no risk of losing, and the hereafter can take care of itself.
2011-02-23 Right Brains and the Dismal Science by Herbert Abramson and Randall Abramson of Trapeze Asset Management
It has been said that successful investors need to employ not only the left side of their brains which is the analytical or scientific part but also the right side which is the centre for creative thinking. Thats because much of investing has to do with the unpredictable, the down cards, variables about future demand, growth, political policy changes, psychological responses, weather, oil spills, and so forth. Value investors dont want to pay for the down cards, but want to buy so cheaply in the here, that there is little or no risk of losing, and the hereafter can take care of itself.
2011-02-22 Bruce Berkowitz on the Exceptional Value in the Financial Sector by Robert Huebscher (Article)
Fairholme's Bruce Berkowtiz, US stock-fund manager of the decade, discusses his large position in the financial sector and why he believes the big bets he is making do not amount to Russian roulette. He also comments on his recent nomination of former Florida Governor Charlie Crist to the board of St. Joes.
2011-02-22 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
I believe the markets are extended and at risk of consolidation. If one is compelled to invest, I would urge caution, patience, and dollar-cost-averaging rather than an “all-in” philosophy at this time. The big picture for financial securities is long-term positive but short-term precarious.
2011-02-22 The Clock Has No Hands? by Jeffrey Saut of Raymond James Equity Research
Recently, if you threw a brick out of a Wall Street window, it would go up! This stampede has not given up since it began on September 1. Indeed, the DJIA has not experienced anything more than the perfunctory 1 – 3 session correction since this stampede began, not giving anyone an easy entry point. I was pretty constructive on stocks until the beginning of this year when I wrong footedly, like my gray-haired lunch friends, turned too cautious. Still, in this business you have to play the odds; and currently I just don’t think the odds are favorable enough to be aggressively bullish.
2011-02-22 Revolution and Oil Do Not Mix by Charles Lieberman of Advisors Capital Management
The Middle East uncertainty is already roiling markets, driving up the price of crude and gold. Longer-term, whatever new regimes ultimately emerge in power, they will need to remain large oil producers. How else will they be able to obtain the revenue they need to feed their people and to help their economies? Even Iran remains a large exporter of oil to pay for the global expansionist policies of the mullahs. It is the disruptive intermediate term that is so uncertain. We can only watch and hope that it passes quickly with little bloodshed.
2011-02-22 Fiscal Contraction is Coming ... This is a Key Theme by David A. Rosenberg of Gluskin Sheff
Well, if you haven’t yet heard, major budgetary restraint is coming our way in the second half of the year, and so we would recommend that you enjoy whatever fiscal and monetary juice there is left in the blender. There isn’t much that is for sure. The weekend newspapers were filled with reports of how the conservative wing of the Republican party have banded together to ensure that spending cuts will be in the offing. The state and local governments are already putting their restraint into gear.
2011-02-18 Breakfast with Dave by David A. Rosenberg of Gluskin Sheff
The Treasury market retains a nice bid here and equities now look a bit wobbly or at least engaging in a pause. European bourses are in the red column for the most part and Asia was mixed with Japan, Hong Kong, and Korea posting gains but China and India were both clocked for a 0.9% and 1.6% loss, respectively. Even though China raised reserve requirements by a half-point again, the oil price is receiving support from concerns over the spread of social unrest in the Middle East towards Libya and Bahrain.
2011-02-17 The News is Not All Bad, Though There are Several Caveats by David A. Rosenberg of Gluskin Sheff
If there is anything to be worried about it is really that the equity market has easily climbed so many walls of worries. Is the outlook that much devoid of risks or do we have tremendous complacency on our hands? To be sure, the news is not all bad, though there are several caveats: Deere and Comcast beat their earnings estimates; The Fed lifted its real GDP forecast; The latest retail sales data were soft but there is momentum in the payroll-tax cut; etc.
2011-02-16 The Cocktail Theory by Jeffrey Saut of Raymond James Equity Research
“How can you be sure that the pullback, you have wrongly been expecting, is for buying?” Since 1940 there has never been more than one 10% or greater pullback in a bull move; we had a 17% pullback last year between April’s high into June’s low. Moreover, the retail investor is nowhere close to fully embracing this rally, which is typically what occurs around intermediate/long-term stock market “tops.”
2011-02-15 David Laibson on the Hidden Challenges of Aging Clients by Dan Richards (Article)
In this interview, Harvard economist David Laibson discusses his research into the challenges of helping elderly clients with their financial planning. He also discusses how to overcome the procrastination and laziness that often result in inferior investment decisions. This is a transcript of the interview.
2011-02-15 Journey to the Center of the Average by Mariko Gordon (Article)
Averages, while comforting in their simplicity, often do more to hide the truth than reveal it. This article is inspired by a recent conversation with author and statistician extraordinaire, Kaiser Fung, who shares my suspicion of this often-abused mathematical construct.
2011-02-15 India: Kingdom of Dreams by Mark Mobius of Franklin Templeton
Throughout my travels, I have visited some countries that never cease to amaze me every time I go back, and India is definitely one of them. The country is changing and growing at an incredible pace. In 2010, India’s economy grew by 9.7%, and for 2011 the IMF projects GDP growth to be 8.4%. From 2005 to 2010, India’s economy grew around 6% to 8% each year, an impressive feat for such a large economy. Looking ahead, from 2011 to 2030, EIU forecasts GDP growth to average 6.5% a year, which would make India the fastest-growing large economy in the world during that period.
2011-02-15 What Is In the Market and What Isn’t by David A. Rosenberg of Gluskin Sheff
Inflation is priced into the market. This is not where the surprise will be and it is surprises that move markets. This is very good news for the bond market from a contrarian stand point. What isn’t being discounted is the degree of fiscal austerity that is coming down the pike, and likely sooner rather than later.
2011-02-14 Fiscal Drag Coming and No More QEs by David A. Rosenberg of Gluskin Sheff
In an otherwise uneventful weekend, what did come out is that fiscal stimulus is about to turn towards restraint in a significant fashion. Even the White House recognizes the need for fiscal discipline and is on the precipice of unveiling a much more austere budget. And this will coincide with massive tax hikes and spending cuts at the lower levels of government too. The surgery is much more preferable now than becoming a banana republic down the road.The future of QE2 is looking more certain ― it will live to see June of this year but the chances of a QE3 are remote.
2011-02-14 Financial Disconnect by John Browne of Euro Pacific Capital
The printing of fiat money is likely to be able to sustain a false economic recovery for some time. But, eventually, the cost will be a rapid erosion of the value of the US dollar – not just in real terms, but also against almost every other foreign currency. Despite possible short-term corrections, gold and silver holdings are likely best to shield investors from the perils that lie ahead.
2011-02-12 And That's the Week That Was... by Ron Brounes of Brounes & Associates
And don’t let the door hit you on the way out! As the Mubarak regime comes to a close, oppressed Egyptians look forward to better times ahead. (Unfortunately, turmoil remains a constant in this region.) The markets reacted favorably to the “peaceful?” end of the conflict and also to the news of some pretty significant biz transactions. Dr. B. lashed out at Congress (and got an earful in return). Earnings season moved forward with mixed results. And the Dow enjoyed an eight day winning streak and then started another one as the week came to a close.
2011-02-12 Ignorance is Confidence: Fedtalk or Newspeak? Andrew Jackson on Repealing a Central Bank by Christopher Whalen of Institutional Risk Analyst
In this issue Richard Alford, Christopher Whalen and members of the Herbert Gold Society opine on the Fed's attitude toward veracity and transparency in an age when confidence is the paramount policy concern. In the process of seeking to restore and maintain confidence, in the financial system and in the Fed as an institution, the Board of Governors in Washington led by Chairman Ben Bernanke seem to follow the last of the three slogans of the Ministry of Truth in George Orwell's book, 1984: "Ignorance is Strength."
2011-02-11 Reiterating Our Investment Thesis for 2011 by David A. Rosenberg of Gluskin Sheff
For 2011, not only do I still favor credit, especially the spread compression left in the high-yield space, but relative value portfolios, hybrids with a decent running yield and exposure to Canadian dollars. The resource sector is also attractive, especially oil, with a long-term view towards buying these companies on dips and not just for the commodity price uptrend. Corporate bonds, especially BB-rated product. Hedge funds, with low correlations with the direction of the market or the economy. And precious metals as a hedge against periodic bouts of currency and monetary instability.
2011-02-10 Betting Against the House; Is This the Time to be Going Long? by David A. Rosenberg of Gluskin Sheff
Housing starts are at around 550k annualized units right now and household formation averages in the 1.1 to 1.2 million range. At what point do you think this dovetails and a housing recovery takes place? Great question. This is one overextended U.S. stock market, that is for sure. We have a dividend yield on the S&P 500 of 1.8% with a 10-year bond yield at 3.7%. The dividend yield, by the way, is where it was at the market peak in October 2007. The cyclically-adjusted P/E ratio on the S&P 500 is now 23.3x, where it was back in May 2008. At the lows, it was trading at 13.3x.
2011-02-10 Inflation: Say Goodbye to Buying Power by Monty Guild and Tony Danaher of Guild Investment Management
Economy watchers see its growing presence in official government statistics. Yet you won’t hear government officials admitting it. It’s too politically unpleasant — and threatening — to do so. Official spin and fantasy aside, the reality is that inflation is here and here to stay for quite a while. That means the buying power of the dollar is declining and being experienced on a daily basis.
2011-02-10 FPA Crescent Fund Q4 2010 by Steven Romick of First Pacific Advisors
We do not have a strong view as to what will transpire over the intermediate-term with respect to the economy or securities markets, nor do we have a great love for the opportunities the markets have to offer. In general, we require more upside than the market currently permits, because the downside (for reasons discussed) is not inconsequential. Taking a look at the S&P 400 Midcap Index gives some idea as to why that may be the case. Midcap stocks have increased 129% since the 2009 trough. That kind of move generally sucks the oxygen out of the room as far as good risk/reward investments go.
2011-02-09 Why the US employment situation matters more than any other indicator right now by David Edwards of Heron Financial Group
Americans are in a tough spot, but American business is in great shape with record profits, strong balance sheets and solid revenues from international operations. The stock market is getting frothy, as typified by increasing M&A activity. In 5weeks, the S&P 500 is up 5% on the year, and our forecast for the whole year is 8%, which gives us that “walking on thin ice” feeling. We’re not in the position to jump out of the market. We would turn bullish if we got sustainable job growth of 250K/month or better.
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 Give ‘Em Credit; Looking at Sales, Not Just Earnings by David A. Rosenberg of Gluskin Sheff
Across many indicators, this goes down as a horrible recovery, especially in view of all the stimulus. Of course things look much better than they did in the “double dip” risk days of last summer but absent the impact of the GDP deflator’s collapse and the decline in the savings rate, Q4 real GDP would have actually come in closer to +0.5% SAAR than the posted +3.2% print. We are hearing how great S&P 500 sales are doing so far for Q4 — up 7.7% and beating estimates by the highest margin in 5 years. We scoured the data and found almost all the growth in sales is coming from outside the US.
2011-02-07 Jobs Data Redux and Inflation Spasm Ahead by David A. Rosenberg of Gluskin Sheff
The labor market in the US is not improving. Lost in the debate over the weather impact was the benchmark revision to 2010 — overstated by 215k or 24%. The economy generated 909k jobs last year -insignificant considering that the population grew around 160k/month. The level of employment today is where it was in 2003. There have only been a handful of times in the past when both food and energy prices were rising so sharply in tandem. Since almost 25% of the CPI basket is in food and energy directly, it would seem logical to assume that we are going to get headline inflation in coming months.
2011-02-04 The Cause and Evidence of Inflation by Michael Pento of Euro Pacific Capital
The fate of the US dollar in the future may not be all that different from the fate of Enron shares in 2001. In the 1990s, Enron was one of the most respected corporations in America, and the share price soared. But once the accounting scandal broke, and Enron’s profits were proven to be illusory, the purchasing power of its shares plummeted. Eventually, the shares became worthless.
2011-02-03 Regime Change: A Global Domino Effect? by Monty Guild and Tony Danaher of Guild Investment Management
We are bullish for commodities, stock markets, and for income-earning real estate. It will be most felt in those countries where governments are stable and democratic. For stock investments throughout the world, we base our recommendations on careful study of individual companies and industries, always keeping in mind that companies and sectors are at differing stages of growth. We recommend continuing to hold shares of growing companies in Canada, South Korea, and the U.S. We favor technology, metals, auto and auto-related, agriculture-related, and energy, including oil and coal.
2011-02-03 Q4 2010 Market Commentary by Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management
All in all, it should be a year of recovery, both economically and for the equities markets. The market undoubtedly will once again climb the proverbial wall-of-worry with negatives and risks including: Unresolved euro currency issues, government debt growth, federal and municipal, and municipal solvency issues. We also believe that consensus 2011 real GDP growth, currently expected to be about 3.5%, a number that has moved up in the past few months, is supportive of a 16-multiple for the market as seen to the left. Therefore we must believe P/E’s are going higher rather than lower.
2011-02-03 Feb 2011 Absolute Return Letter by Niels C. Jensen of Absolute Return Partners
We celebrate the Chinese New Year - the year of the rabbit - by taking a closer look at what is now the second largest economy in the world. We embrace the longer-term opportunities which present themselves, but we also discuss some of the near term challenges, which include uncomfortably high inflation combined with surprisingly weak economic growth towards the end of 2010. Enjoy the read!
2011-02-02 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.
2011-02-01 Why Public Funding of Venture Capital Has Failed by Dan Richards (Article)
Josh Lerner is a professor at the Harvard Business School, with a joint appointment in finance and entrepreneurial management. In this interview, he discusses his research on why public-funded venture capital sometimes succeeds but other times fails. This is a transcript of the interview.
2011-02-01 Egypt, Dollars and History by Brian S. Wesbury and Robert Stein of First Trust Advisors
When the Fed prints too many dollars, the inflation that results often shows up in commodity prices first. When it lifts energy commodities, countries and regions of the world which export oil typically benefit and have largesse to throw around. Egypt is an oil producer and a large refiner. So, rising energy prices are neutral to slightly positive for the nation’s economy. Food prices are a different story.
2011-01-31 Market Ripe for Correction by David A. Rosenberg of Gluskin Sheff
The stock market headed into this post-Egypt action terribly overbought and a correction was overdue. It is incredibly ironic that 18 months ago, President Obama gave his first foreign policy speech at the University of Cairo (the Investor’s Business Daily dubs it the “ill-conceived Muslim outreach speech” in today’s editorial), and now, Egypt is burning. Oil, gold and TIPS should be on anyone’s “buy list” if the turmoil does spread within the Arab world.
2011-01-26 Set the Bar High by Vitaliy Katsenelson of Investment Management Associates
The world today is riddled with unique economic, political, and demographic risks. Finding attractively priced assets that will perform well in spite of these challenges is excruciatingly difficult. For investors, though, one segment of the market – the highest-quality stocks – still offers attractive risk-adjusted returns.
2011-01-25 Beyond the Efficient Market Hypothesis by Michael Edesess (Article)
John Cassidy's 2009 book, "How Markets Fail," drives the final nail in the coffin of the Efficient Market Hypothesis. Well, perhaps the penultimate nail - as I'll explain. It is the most compelling argument I have read that we need a new and improved theory of markets, a theory that subsumes the efficient market hypothesis, much as Einstein's relativity theory subsumed Newtonian physics.
2011-01-25 Zombie IPO: Is American International Group the 'Blood Doll' of Wall Street? by Christopher Whalen of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we return to the zombie dance party to check in on the queen of the prom, American International Group ("AIG"). First a question: Vampires are all the rage now in popular culture, so allow us to offer a macabre metaphor for AIG. Do you know what a "blood doll" is? A girl who craves to be the regular victim of or willing donor to a vampire. But hold that thought.
2011-01-25 A Reality Check by David A. Rosenberg of Gluskin Sheff
We will probably end up with a few years of stable to moderately deflating consumer prices once the effects of the latest commodity surge starts to fade. It appears that we are in the process of seeing another down-leg in national home prices. Equities are wildly overbought and may suffer the same fate before long, with all deference to the recent leg-up in valuations. The U.S. unemployment rate is unlikely to come down much, if at all, if real GDP growth does not accelerate beyond 3%. If it couldn’t do it in 2010, then we have no idea why it would be the case in 2011.
2011-01-25 Bernanke’s Golden Dismount by Michael Pento of Euro Pacific Capital
Benjamin Bernanke has been a very, very good friend to gold investors. However, some of those who have benefited from his largesse now fear that the recent selloff in gold indicates an imminent end to Bernanke’s monetary high-wire act. Most assume that a cessation of the Fed’s stimulative efforts, if it were to occur, would spell the end of gold’s bull run. But a closer reading of Bernanke’s economic philosophy and the Fed’s own recent history, shows that once a central banker begins a strenuous routine, it is very hard, if not impossible, for them to dismount.
2011-01-25 Advisor Perspectives Announces First Venerated Voices Awards by Advisor Perspectives (Article)
Advisor Perspectives, a leading publisher serving financial advisors and the financial advisory community, today announced its first Venerated Voices™ awards, recognizing the market commentators who were most frequently read by advisors during 2010. Awards were issued in three categories: The Top 25 Venerated Voices™ by Firm, The Top 25 Venerated Voices™ by Author and The Top 10 Venerated Voices™ by Commentary.
2011-01-24 Muni Update by David A. Rosenberg of Gluskin Sheff
The unfunded liability that has to be closed at the lower levels of government is estimated to be $1 trillion and the combined deficit that has to be closed for this year is far higher than we initially thought at $135 billion. Second, there is reportedly talk in Congress of a broader bankruptcy bill that would give the states the power to adjust their pension obligations and rework union contracts. However, no bailouts are coming and the GOP is adamant about that. Staff cuts, service reductions, and tax hikes are coming in this critical 12% of the economy. Count on it.
2011-01-24 The Great Debt Shift by John Browne of Euro Pacific Capital
If one were asked to describe the major global economic changes that have unfolded since the financial crisis began, a good starting place would be the massive shift of debt from the private to the public sector. Attempting to arrest a deepening crisis, governments all around the world have bailed out businesses and companies by transferring bad debts to the public books. Although these moves have provided some current stability (after all, governments are much less likely to default), the long-term consequences may be dire.
2011-01-22 And That\'s The Week That Was by Ron Brounes of Brounes & Associates
With another corporate earnings season moving into high gear and equities riding a seven week winning streak, a healthy bit of skepticism (not necessary pessimism) has crept into the investor mindset. Some analysts still want to see more revenue growth as opposed to cost-cuts in the earnings reports. Others fear that “the trend is your friend” may be a nice guide, but investors may be disregarding the ongoing debt issue in the EU and the rise in interest rates throughout emerging markets.
2011-01-21 What Will Turn Me More Bullish On Tthe U.S.A. by David A. Rosenberg of Gluskin Sheff
Here's a list of ideas: An energy policy that truly removes U.S. dependence on foreign oil (shale case, coal, nuclear). A complete rewrite of the tax code that promotes savings, investment, and a revamp of the capital stock. A credible plan that reverses the runup in the debt to GDP ratio. A massive mortgage write-down by the banks. A creative strategy to put people to work instead of paying them to be idle ... and more
2011-01-20 Word on the Street: Cautious Optimism by Eagle portfolio managers of Eagle Asset Management
The general consensus among Eagle managers is that companies are more optimistic than they have been in many years. Businesses are starting to loosen their purse strings, albeit slowly and deliberately, to take advantage of competitive opportunities. Eagle managers continue to believe independent, diligent research is paramount in selecting stocks right now and that this likely will prove to be an excellent opportunity for long-term investors.
2011-01-19 Breakfast with Dave by David A. Rosenberg of Gluskin Sheff
In more than 20 months, the equity market has managed to turn in the same performance it took 60 months to achieve in the last bear market rally. Strip out the financials, and indeed, the entire equity market is now behaving as if the destruction of debt and household balance sheets either never happened or that the aftershocks are completely yesterday’s story. Governments around the world, especially in the U.S.A., have managed to convince nearly everyone that prosperity is here and will persist to perpetuity. But … if it is too good to be true, it probably is. This is an illusion.
2011-01-19 Quarterly Newsletter by Bob Carey of First Trust Advisors
As big proponents of owning stocks over the past two years, we are pleased to report that our sentiments have proven to be both accurate and lucrative. Believe us when we say that we caught our share of flack for being so optimistic. The S&P 500 posted a total return of 93.1% from the bear market bottom on March 9, 2009, through December 31, 2010. When you expand to include small- and mid-caps, the returns are even better. But here is the encouraging part: those investors who opted out of stocks and did not return after they bottomed have a chance to reconsider.
2011-01-18 Jeffrey Gundlach: The Greatest Investment Opportunity of 2011 and 2012 by Robert Huebscher (Article)
In June of 2007, against a backdrop of strong equity and corporate bond performance, Doubleline's Jeffrey Gundlach was one of the first to warn investors that sub-prime mortgages were 'a total unmitigated disaster, and they are going to get worse.' In an equally bold statement, last week he identified the asset class he considers the greatest investment opportunity for the next two years. Again, it was one for investors to avoid.
2011-01-18 Pundits Call For A Correction, But Where Is It? by Chris Maxey of Fortigent
Equity markets trended higher for the seventh consecutive week, raising concerns about the potential for a long overdue correction. The S&P 500 Index was up 1.7% and the Dow Jones Industrial Average rose 1.0%. Economic data proved to be somewhat mixed, but largely supportive of the move higher in equity prices. Retail sales, for instance, which reached an all-time high in December, increased 0.6% in the month, slightly below economists’ expectations for a 0.8% gain.
2011-01-18 A Market Story by Robert J. Horrocks of Matthews Asia
It is not the headline rates of growth in Asia that excite me—it’s the profit-making opportunities within those economies that are necessary to sustain reasonable rates of growth and support the changing lifestyles of Asian households. And that, I hope, is a sentiment with which both the old and the reformed Scrooge might embrace.
2011-01-18 China and the Dollar by Brian S. Wesbury and Robert Stein of First Trust Advisors
The US should not take this week’s visit as an opportunity to lecture the Chinese about the yuan. If we do, Fed Chairman Ben Bernanke may find himself on the receiving end of a lecture about the importance of price stability and how to run a central bank. And he would deserve it.
2011-01-18 Headwinds Ahead by David A. Rosenberg of Gluskin Sheff
It is difficult to understand why it is that everyone is so whipped up about U.S. growth prospects. Even the latest set of data points has been less than exciting. Retail sales, payrolls, and consumer confidence have all been below expected and all of a sudden we see that jobless claims are moving back up. We have federal fiscal support, which at the margin is subsiding. And we have massive monetary support, and on this the Fed is going to be facing much more intense congressional scrutiny going forward. At the same time, about half of last year’s GDP growth was inventory accumulation.
2011-01-18 Bubble-Liscious by Cliff W. Draughn of Excelsia Investment Advisors
In the world of investing there is no substitute for taking action. Therefore, as your advisor, I seek to understand our bias and attempt to make rational and prudent decisions. Savvy investors understand the risks inherent in their assumptions and adopt a more businesslike approach to investing by reducing and hedging risk. Investors are typically surprised when facing a loss, and the psychological power of losses far outweighs the power of gains. Therefore remember the critical rule of compounding: Don’t lose money
2011-01-17 Is Bank America the Most Sued Company in America? Sol Sanders on Charting the Arab Dark by Christopher Whalen of Institutional Risk Analyst
With more than half of Tunisia's population under 30, increasing unemployed youth want more. It remains to be seen who will come out on top in Tunis. But across North Africa - from Egypt to Morocco - underground religious Muslim opposition festers. Alas! in Tunisia, as elsewhere, the Iranian mullahs' total corruption and Saudi Arabian hypocritical lifestyle notwithstanding, the Islamicists' appeal is growing.
2011-01-17 Adding Up the Inflation Carnage; US Consumer Hitting an Air Pocket by David A. Rosenberg of Gluskin Sheff
This is just the fifth time in modern history that BOTH food and energy prices have risen at a double-digit annual rate for any length of time ― 1979, 1980, 1996, and 2008. At this rate, the energy bill is going to create a drag U.S. household spending power by $60 billion this year. Beneath the veneer of all the enthusiasm is the reality that real organic incomes are under pressure.
2011-01-15 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.
2011-01-14 Creating an Illusion of Prosperity by David A. Rosenberg of Gluskin Sheff
The question really today is still one of sustainability. If the Fed and our public officials were as comforted as the financial markets now seem to be over the sustainability of the recovery, then after a full year into it the central bank would not have embarked on another monetary experiment and the government would not have dipped into Social Security as a means to put more change in people’s pockets for spending purposes. Money, as an aside, that isn’t really ours.
2011-01-11 The Two Elephants Facing the US Economy by Michael Lewitt (Article)
The consensus has reached the conclusion that financial markets will enjoy a strong start to 2011. This is reason enough to approach the markets with caution as the year begins. When everybody is leaning to one side of the boat, the vessel is far more likely to tip over, particularly if it hits an unexpected wave.
2011-01-11 2010: A Truth Odyssey by Ron Surz (Article)
I review some of the lessons learned in the last two years. I review the last year, discuss 2008's lessons, and conclude with my traditional review of the longer-term history of U.S. markets over the past 85 years.
2011-01-10 Financial markets scarily “normal” – what can we expect in 2011? by David Edwards of Heron Financial Group
As the first 5 days of January go, so goes January! As January goes, so goes the year! That’s the theory, anyway. US stocks gained 1.2% in the first week of the new year, on top of the 6.7% gained last month. That’s a year’s return in 6 weeks, which makes us think “too far, too fast.”
2011-01-10 Global Instability by David A. Rosenberg of Gluskin Sheff
With inflation in China over 5%, Chinese policymakers are going to spend 2011 in restraint mode. Count on it. We are in the throes of a global currency war and late last week we saw Brazil move aggressively to rein in the real’s strength by imposing reserve requirements on domestic banks’ foreign exchange positions. We have food prices surging and this is very likely going to cause social strife in the emerging market world - India, China and Indonesia come to mind. The Eurozone sovereign debt situation is looking increasingly tenuous.
2011-01-10 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.
2011-01-08 And That's The Week That Was by Ron Brounes of Brounes & Associates
So was the holiday season really as strong as most retailers claimed? So is inflation about to rear its ugly head? Next week should help answer these questions as some key data will be released. After the disappointing same-store sales numbers, investors are eager to see the December retail sales report; the recent run-up in crude price may begin to work its way into the PPI and CPI data. Investors also look to start a new equity market winning streak to keep hope alive that January turns out to be a positive month (and the rest of the year will follow suit).
2011-01-08 Forecast 2011: Better than Muddle Through by John Mauldin of Millennium Wave Advisors
Mauldin reviews his prior-year forecast. He was right on currencies and gold, but missed the bull market in equities. For 2011, he likes gold relative to the euro, pound and yen, but is less bearish on the pound than he was a year ago. He fears the Kamchatka volcanoes (in Russia) will trigger a spate of bad wealth which will lead to scarce resources and inflation. He is optimistic about the job market and employment, and forecasts that the US economy will grow 2.5-3% in 2011. He fears, however ,that structural problems in the work force will leave many untrained for employment.
2011-01-07 Will The Tea Party Congress Bring Recovery? by John Browne of Euro Pacific Capital
If the Republicans make good on their campaign promises, we will see cuts in government spending and an end to fiscal stimulus. Given that short-term stock market performance is very much dependent on such government assistance, the current rally is hard to fathom. Meanwhile, gold and silver have experienced a counterintuitive correction (although to be honest, pundits are making much more of this 4% pullback than the size of the move merits). Could it be that the markets now believe that fiscal restraint in Washington is the best pathway to growth?
2011-01-06 Some Risks Worth Factoring In For The Year Ahead by David A. Rosenberg of Gluskin Sheff
Home price declines are an added significant risk to household wealth and spending. The Dallas Fed just published a report concluding that home prices have potential to decline more than 20% from here. Perhaps the banks can handle that, but the implications for the household wealth effect, consumer confidence and spending are hardly constructive.
2011-01-06 2011: Year of the Yellow Brick Road by Axel Merk of Merk Funds
As far as gold is concerned, the continued concerns over sovereign solvency - not the eurozone in particular, but globally, combined with the U.S drive to achieve growth at any cost, make the yellow metal worth considering. What's in your vault? Is your yellow brick road made of dreams or gold? Just because policy makers are dreaming, doesn't mean investors need to.
2011-01-06 Descending a Mine Shaft in the Kazhakstan Steppes by Mark Mobius of Franklin Templeton
Kazakhstan is becoming increasingly important to us as an investment destination. It has vast natural resources such as oil, gas, copper, uranium and a host of other minerals. As a result of the billions of dollars pouring into the country to develop those resources, we believe Kazakhstan has become the economic engine for Central Asia. We have been investing in both the petroleum and mining sectors in Kazakhstan, and the purpose of this visit was to take a closer look at the mining sector.
2011-01-05 And That's The 'Year' That Was by Ron Brounes of Brounes & Associates
While the consumer has emerged from hibernation, an improved labor picture would boost this favorable trend. The Fed hopes that QE2 will help build on the recent economic momentum, though many doubters surely remain. Earnings comparisons get more difficult in the coming quarters, though analysts expect improved revenue growth to contribute to the positive results. The tax “compromise” means a continuation of the bullish mindset in equities (for now). Developments abroad will impact the domestic markets as the EU looks to move beyond its debt issues, and China leads the global recovery.
2011-01-05 A Rare and Dying Breed by Team of Beacon Pointe
Despite the rapid ascent of index funds and ETF investing during the past decade, we contend that carefully researched and selected active strategies offer the best opportunities for our clients to achieve their investment objectives while taking the least amount of risk possible. Our conviction is based on past experience, and our analysis of manager performance in the context of "active share", an objective new measure introduced by Yale School of Management's Cremers and Petajisto in a 2006 academic paper discussed below.
2011-01-05 Off With Our Heads! by Bill Gross of PIMCO
American politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion-dollar annual deficit. Meanwhile, policy stimulus is focused on maintaining current consumption as opposed to making the United States more competitive in the global marketplace. Dollar depreciation will sap the purchasing power of U.S. consumers, as well as the global valuation of dollar denominated assets.
2011-01-05 What The Bulls May Be Ignoring ... At Their Peril ... Plus Some Ideas For 2011 by David A. Rosenberg of Gluskin Sheff
The bullish case is pretty well established right now and there is no sense repeating them but what may be ignored are these half-dozen. Nothing of course says that the market can’t keep going up over the near-term. risks, I list. Just as the onus was on the double-dippers last summer given the sentiment and market action, the onus now is clearly on the V-shaped enthusiasts.
2011-01-04 The 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 Getting a Grip by David A. Rosenberg of Gluskin Sheff
We can expect a showdown between the House Republicans and the Administration over the debt ceiling in Q2. At stake could be a good dose of spending restraint as ‘pay-go’ rules make a sudden reappearance after being neglected by the lame-duckers last year. There is always the reality of the payroll tax cut coming to an end in December and how that will crimp personal income in 2011. Of course, there is always the prospect of a Q4 corporate spending binge as the bonus depreciation allowance expires. The last 3 quarters of 2011 are going to be very interesting
2011-01-03 New Year Fraught with New Risks? by Chris Maxey of Fortigent
With 2010 officially behind us, it is time to consider what risks and opportunities lay ahead for investors for 2011. Just as 2010 proved to be the year of the sovereign credit crisis, 2011 will not be forgotten as a year without its own potholes. From the economic side of the ledger, the biggest concern remains employment. Despite improving economic growth and a Federal Reserve that has shown a penchant for doing everything in its power to stimulate the economy, employment growth is virtually nonexistent since the recovery began.
2011-01-02 And That\'s The Week That Was by Ron Brounes of Brounes & Associates
While 2010 offered great portfolio returns and renewed confidence for many investors (including individuals), they should not forget the reasons for the troubles that led up to the financial debacle. Hopefully, 2011 will bring more of the same in terms of stronger corporate earnings, improving economic data, and stellar market returns. One key thought for the new year…Those who forget the past are doomed to repeat it. Let’s not let that happen in the new year.
2010-12-31 The Enigma Decoder by Ronald W. 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 problems. We have already lowered our allocation to bonds in the third quarter, lowered our bond duration, and may lower it further, especially in the municipal bond area. We are still formulating our strategy as we gather more information.
2010-12-31 Pessimism was not the Winning Bet in 2010 by David Edwards of Heron Financial Group
The easy money has been made, particularly in certain economically sensitive sectors. Returns in bonds could be flat or even negative over the next several years. We’ve substantially increased our exposure to boring old consumer staples, utilities, REITs and telecomm stocks, which offer dividend yields starting at 4% and ranging up to 12%. We expect US GDP growth to range between 2-3% over the next 4 quarters. In that environment, we would forecast gains in the S&P 500 of 8-10%, but now we wonder whether December’s 6.9% gain has already accounted for most of 2011’s stock market returns.
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.
2010-12-29 2011 Here We Come! by Monty Guild and Tony Danaher of Guild Investment Management
There are two major trends in place that set the stage for world economics in 2011. The first is China’s continued rise. Although the U.S. remains the most powerful economic force on earth, China will soon be replacing Europe as the second most powerful economic force. China’s power is not built on sheer size alone: indeed, China’s statesman-like behavior during the current economic crisis in U.S. and Europe has highlighted its maturity and greatly enhanced its image. The second major trend going into 2011 is the rise of inflation.
2010-12-28 The Ten Most-Read Articles in 2010 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. In decreasing order, based on the number of unique readers, those are...
2010-12-27 A Fed-Induced Speculative Blowoff by John P. Hussman of Hussman Funds
Why are Treasury yields rising despite hundreds of billions of Treasury purchases by the Federal Reserve? There are two possibilities in the current debate. One is that the Fed's policy of purchasing Treasuries has scared the willies out of the bond market on fears of higher inflation, and that the policy is a failure. The other is that the policy has been such a success at boosting the prospects for economic growth that interest rates are rising on anticipation of a better economy. From our standpoint, neither of these explanations hold much water.
2010-12-23 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
Investors should continue to hold gold for long-term investment. Food and food-related shares remain a favorite of ours and we believe that oil-related investments have promise. For long-term investment, we do not like the U.S. dollar, Japanese yen, British pound, or the Euro. As we mentioned in our September 14th letter, we like the Singapore, Thai, Canadian, Swiss, Brazilian, Chinese, and Australian currencies. In summary, investors should continue to hold shares of growing companies in India, China, and Colombia. We believe U.S. stocks can rally further.
2010-12-23 No, Krugman, You're Eating America Alive by Neeraj Chaudhary of Euro Pacific Capital
Here we go again. This week, Paul Krugman, the 2008 Nobel Prize winner in economics and the go-to guy for progressives who need a morale boost, launched another misguided attack on Austrian School economists. From his New York Times soapbox, he referred to the free-market Austrian “hard money” philosophy as a “zombie idea” that is inexplicably eating the brains of the voting public.
2010-12-23 Ten Reasons To Be Cautious For The 2011 Market Outlook by David A. Rosenberg of Gluskin Sheff
1) In Barron’s look-ahead piece, not one strategist sees the prospect for a market decline. This is called group-think. 2) The weekly fund flow data from the ICI showed not only massive outflows, but in aggregate, retail investors withdrew a RECORD net $8.6 billion from bond funds during the week ended December 15. 3) Bullish sentiment has now reached a new high for the year and is now the highest since 2007 ― just ahead of the market slide.
2010-12-23 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Anyone reading this commentary needs to get home for the holidays (or for some Chinese food and a movie for those non-Christmas celebrators). A few numbers, some last-minute window-dressing, announced global transactions, and a race to end with double-digit gains. Let’s close 2010 on a high note. Have a nice season and a very happy new year
2010-12-22 Here We Go Again! by David A. Rosenberg of Gluskin Sheff
Market sentiment is as overly optimistic now as it was pessimistic at the July-August lows. Eurozone fiscal deflationary shock. Anti-inflation policy restraint in emerging Asia. Widespread cutbacks at the state and local government level. Debt ceiling issue triggers major rounds of market volatility. Tax breaks that are temporary tend to have marginal economic impact with few multiplier impacts, hence GDP revisions will likely be to the downside post-Q1. Another downleg in home prices undercuts confidence and spending (with around two years’ supply of total vacant inventory backlog).
2010-12-21 All That Glitters by Howard Marks of Oaktree Capital
I have ave no doubt: gold is the ideal investment. It serves as a reliable store of value, especially in challenging and uncertain times. It’s a hedge against inflation, since its price rises in sympathy with the general level of prices. It exists without the involvement of man-made constructs such as governments. And it’s desired and accepted all around the world (and always has been.) The supply of gold is finite. It can’t be created out of thin air. Thus it’s not subject to dilution or debasement, as is paper currency when governments decide to print more.
2010-12-20 Things I Believe by John P. Hussman of Hussman Funds
1) Investors dangerously underestimate the risk of an abrupt and possibly severe equity market plunge. 2) Agreement among "experts" is not your friend. 3) Downside risk tends to be elevated precisely when risk premiums and volatility indices reflect the most complacency. 4) We did not avoid a second Great Depression because we bailed out financial institutions...
2010-12-20 Stimulus or Restraint? by David A. Rosenberg of Gluskin Sheff
The bond bears and equity bulls are placing much of their faith in the $858 billion tax package in the U.S. Most of this “stimulus” only prevented the federal government from acting as a contractionary economic force in 2011. How much of the tax cuts will go into saving and imports remains to be seen. We think the “stimulative” effects are over exaggerated. What we don’t see discussed that much are the spending cuts coming our way and these indeed will show up directly in GDP.
2010-12-17 Staying the Course No Longer Works! by Harold Evensky of Evensky & Katz
'Staying The Course No Longer Works,' and 'Modern Portfolio Theory is Dead,' have been popular headlines with the financial media. It sure sounds good; after all, why would any investor willingly subject their portfolio to the massive losses of 2008 and early 2009? So does that mean that long term strategic investing is out the window? One of our core beliefs is that to earn market returns an investor needs to be in the market.
2010-12-17 Elections Have Consequences - II by Brian S. Wesbury of First Trust Advisors
Two major developments over the past 24 hours poignantly highlight the fact that “elections have consequences.” First, late last night the House passed the Senate version of the tax deal negotiated by Republicans and President Obama (see article). As we have expected for many months, but after some final tense moments of doubt, the Bush-era tax rates on incomes and investments have been extended for two years. Under pressure of an election, Congress has admitted that “lower tax rates are better for the economy than higher tax rates.”
2010-12-17 Whole Foods vs. Twinkies: 2011 Outlook by Jeffrey Bronchick of Reed, Conner & Birdwell
Our “Outlook” usually falls back on a “normalized” sense of equity returns in the mid- to high-single digits for the long run, from which we add to or subtract from factoring in current valuations in the portfolio and the market as a whole. We think between reasonable economic activity, operational competence and generally solid capital allocation strategies, we can expect the value of our holdings to appreciate at least in line with a normalized “forecast,” and then we get our boost from purchasing this value and/or growth at 20% to 50% of our estimate of intrinsic value.
2010-12-17 Kicking the Can Down the Road by John Mauldin of Millennium Wave Advisors
A collapse of a major European bank could trigger counterparty mayhem in the US banking system, at least among our major investment banks. The ECB is now earnestly continuing to kick the can down the road, buying ever more debt off the books of banks, buying time for the banks to acquire enough capital. If the ECB were to keep this up, even in a deflationary, deleveraging world it would eventually bring about inflation and the lowering of the value of the euro against other currencies. One country after another in Europe is coming under pressure. This week the debt of Belgium was downgraded.
2010-12-16 Next Phase of China's Development by David A. Rosenberg of Gluskin Sheff
Considering that China has now exceeded the United States for two years running in terms of motor vehicle sales, it is not 100% the case that the country is exclusively reliant on fixed investment and exports for its economic success. Inch by inch, the consumer is comprising an ever-greater share of GDP. China is also largely responsible for the extended bull market in resources.
2010-12-15 Europe Remains a Clear Downside Risk by David A. Rosenberg of Gluskin Sheff
Europe remains a clear downside risk for the global economic outlook with the problems spreading to Spain and Portugal. Contagion risks are being underestimated by Mr. Market who has been myopically focused on irresponsible fiscal expansion in the US and recent hopes that QE2 would morph into QE3. As some proof that the recent economic data flow are over-rated, and likely exaggerated by seasonal influences, the Fed barely raised its macro outlook and actually seemed to dampen its view of the housing sector.
2010-12-14 Looking Back at a Year of Policy Mistakes by Michael Lewitt (Article)
As we approach the end of 2010, the global economy remains captive to a boom-and-bust cycle resulting from years of pro-cyclical monetary, fiscal and regulatory policies. With very limited exceptions, the same policies that contributed to the 2008 financial crisis remain in place. The only difference is that government balance sheets are far more leveraged than they were heading into that crisis.
2010-12-14 Letter to the Editor by Various (Article)
A reader responds to our article, Black Gold, Texas Tea, which appeared on November 30.
2010-12-13 Perception versus Reality by David A. Rosenberg of Gluskin Sheff
I've been a secular bond bull and am not yet changing my view of the fixed-income market, but the perception that the economy will grow vigorously is now extremely strong. I think it will only grow about 2% next year and that core inflation will continue declining. These are the primary downside risks: 1. The U.S. Treasury market becomes unglued. 2. Further sharp increases in energy prices. 3. Renewed fiscal problems in Europe. 4. Bad inflation news out of emerging markets. 5. U.S. state & local cutbacks become more severe. 6. Latest down-leg in home prices accelerates.
2010-12-13 Wall Street Gives Uncle Sam Too Much Credit by Michael Pento of Euro Pacific Capital
I think the rising cost of money will become the story of 2011. Its effect on consumers, the real estate market, and government borrowing costs will be profound. Apparently, most major brokerage firms have no fear of soaring interest rates causing our economy to implode. However, it's clear to me that the bond market has already started to crack due to inflation and massive oversupply from the Treasury. Prudent investors should think twice before overlooking what could be the initial holes in the biggest bubble in world history – the full faith and credit of the United States.
2010-12-13 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The impact of the tax deal on the economy is positive. The absence of wide spread tax hikes is good but not sufficient to cause our economy to grow. For this we need more trade agreements, less regulation and a reduced presence in the private sector by the US government.
2010-12-11 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
The great compromiser…or the great traitor…depends of which party loyalist you ask. Taxes dominated the news this week as O and the Republicans reached a compromise on extending the Bush tax cuts, much to the disappointment of Dems. Investors like certainty and welcomed the move as it meant capital gains and dividends would continue to be taxed at 15% for the next two years. Oil surged on prospects of economic growth, though the threat of inflation again resurfaced. So, Obama…any interest in hiring Karl Rove as an advisor?
2010-12-11 U.S. Tax Cuts Extended - This Is Bullish For Stocks by Monty Guild and Tony Danaher of Guild Investment Management
The tax breaks will mean even more QE…and the bond market seems to agree with us. This weeks’ poorly bid U.S. Treasury auctions says that while investors agree that tax breaks are good for encouraging economic growth, they also drive government deficits higher. Bond offerings from the U.S. Treasury are going to go up, and the Fed had better buy the Treasury’s bonds, because it is apparent investors don’t want them. QE is here to stay.
2010-12-09 Come On Rich! Our Take On Richard Bernstein’s Themes for 2011 by David A. Rosenberg of Gluskin Sheff
It is extremely difficult to judge what part of the economic cycle we are really in. If you look at the unemployment rate, the workweek, the industry CAPU rate, the levels of consumer confidence, housing starts and sales, you would think we were still in a recession. But if you looked at profit margins and the ISM index, you would come to the conclusion that we were mid- or even late-cycle.
2010-12-08 Second Take on The Latest Financial Stimulus Announcement by David A. Rosenberg of Gluskin Sheff
There wasn’t really that much “new” information in the Obama announcement, except for the fact that the President ended up repealing everything he said he stood for during the election campaign, like reducing the extreme income bifurcation that was exacerbated during the Bush era. Then again, who is going to risk a renewed contraction in the economy and then take the blame? How can anyone take the U.S. seriously when the country fails to get enough votes over the weekend to bring the deficit reduction package recommended by the White House debt-reduction panel to the House and Senate floor.
2010-12-07 Splitting Hairs by Scotty George of du Pasquier Asset Management
Federal debt, personal debt, political gridlock and global currency imbalances are systemic problems. It was difficult and time-consuming getting into these predicaments, and will be equally as difficult getting out. I am seeing indications in my quantitative database that we are in the early stages of cyclic deterioration, a period during which the rate of capital gains probabilities declines and market valuations perform indiscriminately in a non-correlated way. We should be prepared for the opposite of what we expect or want.
2010-12-07 Apple, Google, NewsCorp and the Future of Content: Interview with Michael Whalen by Christopher Whalen of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we speak to Michael Whalen, award winning composer and new media observer about the outlook for the business of creating and delivering content. Since graduating from Berklee College of Music, Michael has taught a business for music class than has saved thousands of young atists from making terrible mistakes with content and other contractual rights. Think Frank Zappa and Warner Brothers. And yes, Michael is IRA co-founder Chris Whalen's younger brother.
2010-12-07 Looking at the Tax Compromise Measures by David A. Rosenberg of Gluskin Sheff
The just-announced comprise tax measures along with the Fed’s pump-priming, have pretty well extinguished double-dip risks, notwithstanding the myriad of other headwinds. This amounts to a new stimulus measure. If the U.S. government opts for a series of fiscal measures that could end up adding as much as $750 billion to the existing large public debt burden, the fixed-income market is not exactly going to like it. Elsewhere, EU finance ministers ruled out an immediate aid package for Portugal or Spain (putting the onus on the ECB to restore calm).
2010-12-06 A Most Important Rule by John P. Hussman of Hussman Funds
A decline in bond prices has modestly improved expected returns in bonds, but not yet sufficiently to warrant an extension of our durations. Precious metals have become more overbought, and while we are sympathetic to the long-term thesis for gold, intermediate term risks are now elevated. Finally, we have observed a further deterioration in market conditions for stocks.
2010-12-06 Behavioral Finance by Charles Lieberman of Advisors Capital Management
Why do investors always do the opposite of what they should do? Individuals tend to chase performance, following recent trends until they go over the edge of the cliff. They always fight the last war. It is a proven prescription for investment disaster. So, of course, they're at it yet again.
2010-12-06 The Worst US Employment Report of the Year? by David A. Rosenberg of Gluskin Sheff
This was arguably one of the worst employment reports of the year. It was fascinating to see what little negative market reaction there was to the data — not just nonfarm payrolls but also the news that factory orders slipped 0.9% MoM in October, the steepest decline in five months. This is why everyone seems to believe the economy is improving and it’s so easy to do that when you simply ignore the bad data points! One of the key features of the payroll report was the continued retrenchment in the state/local government sector. This promises to be a major macro theme for 2011.
2010-12-06 Why You Aren't Getting Referrals - And What to Do About It (Part 2) by Dan Richards (Article)
In his previous column, Dan Richards discussed seven misconceptions that prevent advisors from getting referrals. Here, he concludes with eight more referrals fallacies.
2010-12-06 Creating a Mirage of Economic Growth by Doug Carey (Article)
Bubble formation is not random. Some may believe it is, but bubbles are in fact a predictable byproduct of the fractional reserve system upon which our economy is built. By stimulating and amplifying lending through its fractional reserve system, the Federal Reserve systematically creates the mirage of growth, from which deception systemic crises inevitably result.
2010-12-04 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Retail Ireland, retail, China, retail, tax cuts, retail, QE2, retail, jobs, retail. Yes, investors have plenty on their minds these days. Hopefully, the news from retail can continue to compensate for some of the more concerning dynamics at play.
2010-12-04 Short Skirts and Second Shoes by Herbert Abramson and Randall Abramson of Trapeze Asset Management
We are in an honest-to-goodness bull market. There is much more upside ahead. Possibly for years. Tops are made in euphoria, as when the Fed decides to tighten money and raise interest rates. With the evident despondency today the Fed continues to bring on the punchmore liquidity, accommodative easing, to keep interest rates low and make credit readily availablefor consumer spending, for housing and autos and apparel and necessaries, for government borrowings. And for stocks. Well be swimming in punch.
2010-12-03 The Dirty Dozen by Niels C. Jensen of Absolute Return Partners
In the following I list a number of risk factors which I believe investors should give serious consideration, but I do not for one second pretend for that list to be exhaustive. Neither should you read anything into the order of which those risk factors are listed. If you want my assessment of how to rank the various factors, you need to take a look at the risk scatter chart at the end of the letter.
2010-12-01 The U.S. Dollar Is A Poor Alternative To The Euro by Monty Guild of Guild Investment Management
The U.S. dollar is poorly managed, Congress has already saddled the U.S. with enough debt to keep the dollar under pressure for years, and the Federal Reserve has made it clear that it is their intention to devalue the dollar. The U.S. sponsored a 2nd round of QE, which was implemented to improve exports, to stop a deflationary psychology from forming and to create enough inflation in the U.S. economy to inspire the populace to begin investing to stay ahead of inflation. When investors begin to focus upon these obvious points, the inflation benefitted investments will rocket ahead.
2010-12-01 Open and Shut by Howard Marks of Oaktree Capital
Today some assets are fairly priced and others are high, but there are no bargains like those of 2008. Capital and nerve can’t hold the answers in such an environment. We’re no longer in a high-return, low-risk market, especially in light of the inability to know how today’s many macro uncertainties will be resolved. Instead of capital and nerve, then, the indispensable elements are now risk control, selectivity, discernment, discipline and patience.
2010-11-30 Black Gold, Texas Tea by Robert Huebscher (Article)
The flow of money into gold-related funds is, at least in part, driven by good intentions - hedging against dollar debasement, inflation, and systemic risk. As investors drive the price of gold to record levels, though, they are overlooking an equally compelling commodity hedge, one that the Beverly Hillbillies once dubbed 'black gold, Texas tea' - oil, that is.
2010-11-30 Why Bubbles Inflate and How to Avoid Them by Robert Huebscher (Article)
In this interview, Meir Statman discusses the psychological underpinnings behind the creation of bubbles in the financial markets, why some bubbles are good and others are not, and how investors should frame their decisions when facing a potential bubble.
2010-11-30 Macro and Market Thoughts by David A. Rosenberg of Gluskin Sheff
All these “rescue” packages in euroland really do is provide bridge financing — they do not resolve the underlying structural problems or the deflating asset values in bank balance sheets. The massive selloff in government bond markets, even in countries like Belgium and Italy (let alone Portugal and Spain), is a clear sign that the bond vigilantes are now targeting the supposedly stronger governments in the eurozone. The austerity packages needed to bring intractable deficits down will fuel deflation, which will further destabilize the financial system and damage the economy.
2010-11-30 ProVise Bullets by Ray Ferrara of ProVise Management Group
Is the new Congress going to be as wealthy as the current Congress? Why was there 1.3% less carbon deposited into the atmosphere worldwide in 2009 versus the prior year? These questions answered and more in this edition of Provise Bullets.
2010-11-29 A List of Concerns – A Dozen of Them by David A. Rosenberg of Gluskin Sheff
Among Rosenberg’s concerns: China undergoing a significant, though likely brief, economic adjustment by 2012; The contagion reaching Spain, which would likely be game over for the euro; A renewed deflation in home prices in the US; State and local government budgets – the critical source of downside risk for the U.S. economy in 2011, which could easily result in 1.5-2.0 percentage points of withdrawal from GDP growth.
2010-11-29 A Time to Invest in Africa by Nile Capital Management of Nile Capital Management
In this report, I will summarize my answer to the often-asked question: “Why is this a good time for investors to focus on Africa?” I also will explain why the best way to participate in African markets and manage their risks is through an actively managed fund that offers “feet-on-the-ground” expertise in Africa.
2010-11-28 Recessions are on the Margin by John Mauldin of Millennium Wave Advisors
We had a slate of good news over the past few weeks, including data on business confidence, housing, and unemployment. GDP growth is slowing, but it is still north of 2%. The economy may be able to handle only taking away the tax cuts for those with over $250,000 in income. It will slow things down, but probably not enough to cause a recession. Given that government spending is going to go down (at least I hope so), unemployment is going to take time to get under control; and with the whole developed world in a mess, it is hard to see an environment where we can average 3.5% for this decade.
2010-11-28 House on Ice by John P. Hussman of Hussman Funds
If our policy makers had made proper decisions over the past two years to clean up banks, restructure debt, and allow irresponsible lenders to take losses on bad loans, we would be quickly on the course to a sustained recovery. Unfortunately, however, we have built our house on a ledge of ice.
2010-11-25 Scenario Building - Key Risks Ahead by David A. Rosenberg of Gluskin Sheff
The dramatic fiscal tightening in Ireland and others is insane and I wonder how a new government in early 2011 is going to react. Everybody seems to believe the euro is sacrosanct, but this was also the view around the Argentina nearly a decade ago; it ultimately devalued in order to reflate and pay off its debts in debased currency. Some of these peripheral countries will leave the EU, go back to their own currency to reclaim control over their monetary policy and pay their debts in devalued punts, drachmas and pesetas.
2010-11-24 US Q3 GDP and Profits Analyzed by David A. Rosenberg of Gluskin Sheff
The Q3 real GDP is better, but momentum has clearly waned. Based on the hits that the household sector will likely face in the early part of 2011, Q1 growth is likely to be disappointing. On a sequential basis, corporate profits are still clearly rising, but at a more moderate rate than before. Not only did housing starts get clobbered in October, but existing home sales fell unexpectedly as well. Retailers are anticipating a solid holiday shopping season, and yet, they are aggressively marking down their prices well in advance.
2010-11-24 A More Integrated Latin America by Claus Born of Franklin Templeton
Chile, Colombia and Peru are planning to integrate their stock exchanges, providing local investors with more investment opportunities and also allowing companies to access a broader investor base. We are likely to see increased foreign investor participation with improved liquidity. Once fully integrated, this new regional exchange should have the highest number of issuers in Latin America (before Mexico and Brazil), the region’s second-largest market capitalization (after Brazil) and its third-largest trading volume (after Brazil and Mexico).
2010-11-23 Will Municipal Bonds be the Next Disaster? by Dennis Gibb (Article)
It has been an article of faith that municipal bonds are safe investments, but this complacency about the safety of munis may soon be proven unwise.
2010-11-23 Setting the Record Straight...Again by David A. Rosenberg of Gluskin Sheff
Still-high levels of mortgage delinquency rates are a vivid sign that household financial strains have hardly abated. The NY and Cleveland Fed’s published reports outlining the severity of the deleveraging cycle that’s in full swing. The Fed’s yet again going to take a knife to its growth and inflation forecast as it has done with regularity over the past eight months. Corporate profits have come in fine despite one of the weakest recoveries on record, but to some extent, much of this has already been priced in.
2010-11-22 The Science of Risk by Scotty George of du Pasquier Asset Management
We’re in a particularly vulnerable time in world financial markets. Having just completed a significant 2 year market response (upwards) to the global credit crisis, the question of whether or not we can sustain similar economic magnitude has everyone’s attention. Although financial data seems more or less in line with a nascent recovery, investor confidence and activity are still less than robust.
2010-11-22 Reality Check by David A. Rosenberg of Gluskin Sheff
The world's economic environment is extremely fragile. The growth bulls are underestimating the fact that the fiscal disarray at state and local governments is a major headwind for the U.S. economy --state and local governments are the second largest contributor to spending outside of the American consumer. There is still scant evidence of a vibrant organic recovery. At least initially, the reversal of all the risk-on trends in the markets suggests that the pullback that became apparent after the peak in April is likely to be sustained over the intermediate term.
2010-11-22 'Good Enough' with Ken Fisher, Marty Whitman and Warren Buffett by Kendall J. Anderson of Anderson Griggs
It is quite easy for us all to forget that the concepts of “good enough” and “cheap enough” have produced such consistent long term returns, at least for those who have had the fortitude to apply this theme. True, it takes training to determine what is good enough and what is cheap enough. But for many of us, our greatest failure is not paying any attention to it at all. In today’s investment world the majority of investors are making their investment decisions based on their general market outlook and their desire to obtain immediate gratification.
2010-11-22 Does the Fed Create Money? by Michael Pento of Euro Pacific Capital
Certain deflationists have recently gone on record saying that the increase in the Fed’s balance sheet is meaningless with regard to creating inflation because our central bank can’t print money, it can only create bank reserves. The problem with their view is that it both disregards the definition of money and ignores the process of creating bank reserves.
2010-11-20 O Deflation, Where is Thy Sting? by John Mauldin of Millennium Wave Advisors
The economy growing between one and two percent. That is better than recession but not good enough to really bite into the unemployment rate, which means trouble. Mauldin examines the construction of the BLI's CPI index and specifically the role of housing: inflation, when you take out housing costs, is a jaunty 1.9%. Right in the Fed target range of 1.5-2%. The Fed's QE program may create inflation where we can least afford it - in energy and food.
2010-11-19 Gold Standard or Political Discipline? by Stan du Plessis and Andreas Freytag of VoxEU
President of the World Bank, Robert Zoellick, caused a stir this week by hinting at a need to return to the gold standard. While supporting the drive for pro-growth policies and the desire to maintain an open international trade system, this column argues that a return to gold would struggle to achieve this and could even be a destabilising force.
2010-11-19 Philly Fed Up, NY Empire Down by David A. Rosenberg of Gluskin Sheff
Despite mixed indicators, it looks like real GDP is chugging along at a tepid though still above-water annual rate of between 1% and 2% at an annual rate. The fragility is what is important. Gold still looks very good in this uncertain and unstable environment.
2010-11-18 Europe Will Be The Next Region to Create Liquidity for the World by Monty Guild of Guild Investment Management
The coming European bailout of Ireland and Portugal will have to include some method of quantitative easing (QE), or the printing of new money. The European Central bank will claim they are not using QE, but using newly created money must be a part of the plan. Often, when hiding their bond-buying, governments will use means to disguise their actions. Clearly, very few professional investors have an appetite for Portuguese or Irish bonds unless they are put under some political pressure, so the buyer of last resort will be the governments and European Central Bank.
2010-11-17 Gold's Allure Tied to Interest Rate by Michael Pento of Euro Pacific Capital
The continued bull market in the price of gold has been one of the staple discussions in the financial media for the better part of a decade. But, in that time, almost no consensus has emerged to explain the phenomenon. The truth is the main drivers for the price of gold are the level and direction of real interest rates and the intrinsic value of the dollar.
2010-11-17 I Wonder What Milton Friedman and Karl Drunner Would Say About Allan Meltzer by Paul Kasriel of Northern Trust
On November 9, I wrote a commentary entitled ''Quantitative Easing in the mid 1930s Appeared to be Successful''. In my commentary, I did not mention what happened to the U.S. unemployment rate as a variation on quantitative easing was taking place. So, let’s do this now.
2010-11-16 Jeremy Siegel on the Upside for Equities and the Virtues of QE2 by Robert Huebscher (Article)
In our annual interview, Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School, offers his forecast for equities - a 10% to 20% gain in 2011, along with a continued rally through the end of this year. He also explains why the current round of quantitative easing is exactly what is needed to stimulate the economy.
2010-11-16 A Reading List for 2010: Part 2 by Vitaliy Katsenelson (Article)
Updated for 2010 and in time for the holidays, here is the latest installment of my recommended books. I originally wrote this list in 2008 and again last year. I intend to keep adding to and revising it every year. It contains seven sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, Risk and Books for the Soul. The first three sections were presented last week and the remaining four are presented here.
2010-11-16 Skin in The Game, Part II by Mariko Gordon (Article)
In my previous column, I examined the validity of using the 'skin in the game' metric when evaluating a money manager. Today, we see how well it applies when used to assess corporate management. (Hint: Not so well.)
2010-11-15 The Cliff by John P. Hussman of Hussman Funds
We estimate that the S&P 500 is priced to achieve sub-5% returns, albeit with significant risk, for every horizon out to a decade. Treasury securities are clearly priced to deliver similarly low returns. It's possible that internals will improve sufficiently to shift the expected return/risk profiles we observe in stocks, bonds and precious metals. For now, we are tightly defensive.
2010-11-15 U.S. Consumer Confidence - Less than Meets the Eye by David A. Rosenberg of Gluskin Sheff
So, when you do the simple math, Joe Sixpack sees inflation at 3% in the coming year (from 1% now) and then averaging 2% in the next four years. Depending on how food and fuels play out, this could well be consistent with a zero or even sub-zero environment as far as core consumer price trends are concerned. This is why long Treasuries are likely to remain in a secular bull market for some time to come.
2010-11-15 Fall Quarterly Commentary by John G. Prichard of Knightsbridge Asset Management
Economic and employment conditions remain soft amidst continued deleveraging. Developed market debt and currency issues remain. There are however offsetting positives. Corporations are in good shape with lots of cash and moderate leverage. Household finances are improving as well. Further, it is important to remain cognizant of the fact that conditions can change and equities are forward looking. Housing and autos, common drivers of economic expansion, should kick in at some future point.
2010-11-12 Market Thoughts by David A. Rosenberg of Gluskin Sheff
The overwhelming consensus view is that the market will continue to rise through year-end and into 2011. The trend in most asset classes that had been rallying the past three months are now reaching an exhaustive phase. I’m a little nervous about changing our view at the high end of the range on equities. The problem with the U.S. fiscal outlook is that the intractable U.S. debt and deficit situation cannot be solved by cutting government spending alone. Taxes, that evil five-letter word, will have to rise in the future.
2010-11-12 Analyzing China's Banking Sector Reform by Richard Gao of Matthews Asia
China's banking reform has effectively transformed its state-owned banks into commercial banks running under international practices.
2010-11-12 A Bad Plan Poorly Disguised by John Browne of Euro Pacific Capital
With our economy sagging and our international clout waning, one of the few assets upon which the US can rely is the confidence that the rest of the world has traditionally showered upon us. That confidence is the reason why the US dollar was elevated to global reserve status more than 65 years ago. With so much riding on perception, Tim Geithner’s recent statements denying the existence of a dollar debasement campaign could not be seen as anything less than foolhardy.
2010-11-12 A Bull in China by Christian Thwaites of Sentinel Investments
On a recent trip to China, we saw encouraging and inexorable signs that the Chinese consumer is becoming a very potent force in the world economy. It wont be without volatilitybut it is happening. Heres how: demographics, changes in consumer behavior and a number of other factors.
2010-11-11 Rising Oil Prices; Still Like Gold, But... by David A. Rosenberg of Gluskin Sheff
Oil is now challenging the $90/bbl threshold and this is more a reflection of the Fed’s quest to weaken the dollar than any incipient global economic boom. As in the case of most other commodities, the Fed has unleashed the floodgates of investor speculation on the commodity complex. How can this possibly be constructive for the 90% of the U.S. earnings outlook that is not hooked to the basic commodity sector? We don’t see where this is addressed anywhere in “Street” research. The economy is much more vulnerable to an energy shock now than it was in 2007.
2010-11-11 Global Markets Up, Up, Up and Away by Monty Guild of Guild Investment Management
The world markets moved like Superman last week. They lifted off and moved higher in a decisive manner. In the ongoing contest between bulls and bears, the bulls have had the upper hand in many markets. Wall Street also moved firmly into the bullish camp with U.S. stocks eclipsing their April 2010 peaks. To us this means that the technical short-sellers who had been bearish on U.S. stocks and expecting a correction bought back their short positions and took their losses.
2010-11-10 The Anti-QE Market by David A. Rosenberg of Gluskin Sheff
Yesterday’s manic performance in many asset classes may well have been a watershed event. The U.S. dollar reversed course and rallied and all the program trading risk-on trades are correlated with the greenback. It could well be that some folks are beginning to pay more attention to what is happening in Europe where sovereign default risks and bond spreads within the periphery are blowing out again.
2010-11-10 The Quantitative Easing in the mid 1930s Appeared to have been Successful by Paul Kasriel of Northern Trust
There is much skepticism as to whether the Fed’s second round of quantitative easing, QE2, will be effective in stimulating the nominal demand for goods and services in the U.S. economy. Keying off Mark Twain’s aphorism that although history may not repeat, it often rhymes, perhaps we can get some guidance as to whether QE2 will be successful from the results of the quantitative easing that was initiated in the second half of 1933.
2010-11-10 On the Road Out of Ireland by Michael J. Schussele of Michael J. Schussele, CPA
Ireland has been celebrated as the European Union poster child for eurozone austerity. Yet, its efforts have received little respect from the bond market, which has become increasingly aware that austerity will not make Ireland again prosperous. In attempting to be the good European Union partner, Ireland created a "bad" bad bank which gave government guarantees to all liabilities of three private banks which had engaged in risky investment policies and poor management. In doing so, the government bailed out incompetent management and bondholders at the expense of the Irish people.
2010-11-09 How Modern Is Your Portfolio Theory? by Direxion Funds (Article)
After 58 Years, is there Another Way to Conquer the Efficient Frontier? In the past, active or "tactical" investment management referred to jumping in and out of stocks and bonds - market timing. With the introduction of sophisticated funds that help the masses harness the power of institutional managers and alternative asset classes and strategies, today, tactical management may help to renovate your portfolios - and help you retain and attract assets.
2010-11-09 Keynesian Confusion by Michael Lewitt (Article)
Keynesian policies are inflicting untold damage on the U.S. and global economies today. Keynes did not have to be misread. The reason that the current recovery is below par is that the economy is experiencing a massive paradox of thrift. We doubt that reducing already low rates is going to stimulate much of anything other than more frustration on the part of savers. Sooner or later, everything being earned on the upside of this liquidity-induced rally will be given back in spades - the only question is when.
2010-11-09 RCM's Global Strategic Outlook: Fourth Quarter 2010 by Andreas Utermann of RCM
Analyzing various leading indicators, there is hardly any hint of a recession. This is not to say that there is no risk of a recession happening. A continued weak labor market is weighing on household consumption in industrialized economies. The housing market in the U.S. is showing signs of weakness. There is a risk of a policy failure in emerging markets, especially of China overdoing policy tightening. Fiscal policy tightening in the West may actually turn out to be too strong. In sum, we think that structural headwinds and tailwinds could balance each other out.
2010-11-09 There Was a Fed Chairman Who Swallowed a Fly by Peter Schiff of Euro Pacific Capital
In reality, quantitative easing will produce the exact opposite of its intended result. In the short-run, it may create the illusion of economic growth and temporarily add some service sector jobs, but once the QE ends, the growth and jobs will vanish. Then, the Fed will most likely try once again to douse the fire it started with another round of QE gasoline, creating an even larger and less manageable inferno.
2010-11-09 Waiting for Superman: The Fate of Teachers’ Unions by Charlie Curnow (Article)
In 'Waiting for Superman,' the new documentary film about the shortcomings of American public education, director Davis Guggenheim argues that, in order to compete with rival school systems in Asia and Europe, the U.S. must rein in its teachers unions and embrace the free market principles of private schools and privately managed charter schools. Is this a fair assessment?
2010-11-09 Chinks in the Armour by David A. Rosenberg of Gluskin Sheff
Nobody thought a year ago that things would have weakened to such an extent that we would have needed QE2 or the extension of Bush tax cuts. The Fed is doing $600bln in quantitative easing, which is about one-third what it did last year. I’m not convinced that it alone will prevent the economy from weakening, even if contraction risks have abated. Now what will it take to turn me more positive? Well, a sustained job creation for one and if we can get initial jobless claims down to 400k that would be huge. But I have to admit, QE2 does not do it for me.
2010-11-09 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.
2010-11-08 What Has the Fed Really Done? by David A. Rosenberg of Gluskin Sheff
In the Fed’s latest QE quest, by targeting the front- and mid-part of the U.S. Treasury curve, it is only really influencing yields that were already at microscopic levels before anything was even announced. It is hard to figure out what a 0.3% yield on the 2-year T-note or a sub 1 % yield on the 5-year T-note is really going to accomplish as far a spending stimulus is concerned. The Fed’s action seems to have unleashed a wave of speculative trading activity in risk assets — from stocks, to commodities, to emerging markets
2010-11-08 No Soft Patch, No Excuse for QEII by Brian S. Wesbury and Robert Stein of First Trust Advisors
The bottom line here is that QEII – which we believe is ineffective anyway – was unnecessary, especially when the ball and chain of fiscal policy is under attack. Not only will current tax rates likely be extended for two (possibly three) years, but the White House has made it clear it is willing to eliminate the 1099-reporting requirement for purchases over $600. This was a part of Obamacare and other parts of that law may also face the knife as well.
2010-11-08 Crossing the Threshold into a New World ... Or Not by Chris Maxey of Fortigent
There is no doubt that the events which transpired last week are without precedent. The long-term implications of quantitative easing by the Federal Reserve are entirely unknown. Should the Fed’s program conclude on schedule, private investors would need to step to the plate and replace the incremental demand lost from the Fed. It is unlikely private investors could replace that demand, which would lead to enormous upward pressure on interest rates.
2010-11-05 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
Investors should keep gold for long-term investment, as well as oil-related holdings. The U.S. dollar, Japanese yen, British pound and the euro are poor long-term prospects. Investors should continue to hold shares of growing companies in India, China, Singapore, Malaysia, Thailand, Indonesia, Colombia, Chile and Peru, as well as food-related shares such as grains, wheat, corn, soybeans and farm suppliers. Finally, investors should continue to hold U.S. stocks for a further rally.
2010-11-05 More on QE2 - Will it Work? by David A. Rosenberg of Gluskin Sheff
Quantitative easing is no antidote for structural economic problems, even if it manages to give investors a short-term sugar high. Let's learn from the Japanese QE experiment. The day the Bank of Japan launched the program on March 19, 2001, the Nikkei surged 7.5 percent, from 12,190 to 13,103. Three months later, as it became painfully obvious that the real economy was not responding well to the shock therapy, the Nikkei index slid 16 percent to just over 12,000.
2010-11-05 Thoughts on Liquidity Traps by John Mauldin of Millennium Wave Advisors
Lacy Hunt writes that the Oct employment situation was dramatically weaker than the headline 159k increase in employment measures. The most distressing aspect is the loss of another 124K full-time jobs, bringing the 5-month loss to 1.1 million. John Hussman discusses liquidity traps, where investors prefer cash to debt (because of low interest rates) and the central bank loses control. Fiscal policy, not monetary policy, impacts economic growth and inflation - and the proper fiscal measures, such as infrastructure spending, may be the best hope for growth.
2010-11-04 Thoughts on QE2 by David A. Rosenberg of Gluskin Sheff
While the Fed could have done more yesterday, it didn't because the economy is doing better than expected, even if it is still quite fragile. Auto sales, for example, rose to 12.3 million at an annual rate in October from 11.8 million in September (best result since August 2009). However, recall that motor vehicle sales also jumped 2.4 percent in September and all that translated into was a +0.08 percent inch-up in total real consumer spending, which was one of the weakest months of the year. Consumer spending excluding auto will now be essential to watch.
2010-11-03 Four Rather Sick Patients by Niels C. Jensen of Absolute Return Partners
The world is in an unprecedented situation in which all four major trading currencies (EUR, GBP, JPY and USD) face serious challenges. Not all four major currencies, however, can fall at the same time. Currencies are unique in the sense that they are relative as opposed to absolute trading objects. You don't just buy dollars. You buy dollars against some other currency. The scaremongers may have their day in the sun, but ultimately common sense will prevail and currency traders will have to go back to focus on housing starts again.
2010-11-02 Gold and the Decade to Come by American Century Investments (Article)
Gold is an asset class unto itself. It is not only a barometer of confidence in governments and the financial system, but also a reserve asset, an alternative currency, and a store of value. Those characteristics make gold an ideal diversifier because it has low correlation to most financial assets, both in expansionary and recessionary periods. Indeed, the return pattern to gold investments is not only uncorrelated to most traditional financial assets, but makes gold uniquely positioned to outperform when you want diversification the most--during periods of crisis.
2010-11-02 A Top Economist's Nightmare Scenario by Charlie Curnow (Article)
Remember the 1970s? Stagflation like we saw then could return to the U.S. if unsustainable public debt levels trigger a selloff of government bonds and dollar-denominated holdings, according to a recent study by John C. Cochrane. Cochrane, a finance professor at the University of Chicago, is perhaps best known for his response to Paul Krugman's article in the New York Times on why mainstream economics failed to anticipate the financial crisis.
2010-11-02 November Economic Update by Team of Cambridge Advisors
We have enjoyed the recent rally, but we expect volatility to continue. Investors should remain cautious. It is not necessary to chase stocks higher as buying opportunities are expected to present themselves throughout the next year. If Bill Gross is right, government bonds may not be the safe investment they once were. To reduce risk, broad diversification across many asset classes is the best strategy during these uncertain times.
2010-11-02 Whitney George On Where We Are In Today's Market by Whitney George of The Royce Funds
Whitney George, Co-Chief Investment Officer of Royce & Associates, discusses the state of the stock market and the economy, looks at the possibility of inflation and details what he likes about precious metals and mining companies and the Technology sector.
2010-11-02 Grey Owl Q3 Letter by Team of Grey Owl Capital Management
Uncertainty abounds and all broad asset classes are beginning to look expensive again. Unemployment shows few signs of improvement and business confidence is low, yet the stock market continues to climb the 'wall of worry.' Frankly, we have little confidence in the economy or in the broad stock market. However, we continue to find pockets of value in out-of-favor names across industries and market capitalizations. Macro uncertainty may continue to drive the market for some time, but eventually the weighing machine will win out.
2010-11-01 Big Week Ahead in the U.S. by David A. Rosenberg of Gluskin Sheff
After Tuesday's elections, there is little question that the GOP will take the House with a 1994-type landslide. Once in control, the GOP will not support more fiscal initiatives. We are therefore likely about to see a pronounced slowdown in the pace of economic activity; outside of government intervention and inventory accumulation, catalysts for growth are few and far between. Unlike during the soft patches of the mid-1980s and mid-1990s, the economy today is just a shock away from slipping back into contraction mode.
2010-10-29 Four Critical Investment Themes for the Next Decade by Robert Huebscher (Article)
Four investment themes will dominate market behavior over the next decade, according to Martin Murenbeeld, the chief economist at DundeeWealth Economics, a Canadian investment manager and financial advisor. Investors, he said, would be wise to overweight gold and other commodities.
2010-10-29 The One-Sided Compromise by John Browne of Euro Pacific Capital
Last weekend at the meeting of G-20 finance ministers China agreed to 'look into' a revaluation of the yuan and the management of trade surpluses in return for accepting America's continued dollar debasement. They also agreed to an international self-policing regime to curb currency manipulation. Secretary Geithner’s 'victory' at the G-20, however, was a Pyrrhic one. China will now become the third-largest shareholder in the IMF, and developing economies will get a six percent larger voting share.
2010-10-29 RCM's U.S. Market Outlook by Scott Migliori of Allianz Global Investors
RCM's outlook for 2010 remains positive, with some prospect for a year-end rally and the market up at the lower end of 5 percent to 10 percent. Expectations of quantitative easing by the Fed, the election season and the earnings season may create some short-term volatility.
2010-10-29 Asset Allocation: Fall 2010 by Tony and Rob Boeckh of Boeckh Investment Letter
Excess liquidity will continue to act as a tailwind for equities, commodities and non-dollar currencies well into 2011. Deflation will dominate in the short term; the inflationary threat is probably further away than most investors expect. Gold is expensive relative to the inflationary outlook. Fixed income markets are heavily influenced by government intervention. While it is likely that continued intervention will succeed in depressing bond yields below market levels, even a modest increase in inflationary expectations would undermine these actions. We recommend shortening duration.
2010-10-29 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 Night of the Living Fed by Jeremy Grantham of GMO
This is a summary of Grantham Mayo Von Otterloo chairman Jeremy Grantham's 3Q 2010 newsletter. Grantham notes that in the third year of a presidential cycle, risky, highly volatile stocks have outperformed low-risk stocks by an average of 18 percent per year since 1964. Levels of 1400 or 1500 on the S&P 500 one year from now are about a 50/50 bet. The biggest threats to this possibility are that Congress will initiate a new trade war, or that the Federal Reserve will start a currency dispute with quantitative easing.
2010-10-27 Convertible Strategy Q3 by David Baccile of Sextant Investment Advisors
Recent earnings growth stems from the economic leadership of developing countries from Asia to Latin America. When those economies soften, the recent improvement in earnings will be called into question. Meanwhile, with interest rates already at rock bottom, equity prices are even more susceptible to future earnings hiccups. The most profitable investment approach over the next several years will therefore be to reduce risk following periods of strong returns, and add risk only when markets have weakened sufficiently.
2010-10-27 Reflections: Venturing into a New Frontier by Mark Mobius of Franklin Templeton
Frontier markets are the next emerging markets. These economies are more domestic-oriented, with a limited number of publicly listed companies; hence, frontier market investments tend to be primarily limited to private equity. Quality of company management is a frequent concern. Frontier market investing therefore often requires additional time and due diligence to assess the quality of corporate management teams, including more frequent on site visits to evaluate businesses effectively.
2010-10-27 Triple Down: Fannie, Freddie, and the Triumph of the Corporate State by Christopher Whalen of Institutional Risk Analyst
What we need from the Federal Reserve is some leadership on the issue of making the White House take responsibility for restructuring the economy. The Fed should be telling the healthy banks to start taking a bit of risk, making some loans instead of buying Treasury bonds and agency mortgage-backed securities. A bit of increased competition in the origination channel so that performing borrowers can get a refinancing closed will unblock the economy and also do wonders for the efficacy of Fed policy.
2010-10-27 Maddison’s Forecasts Revisited: What Will the World Look Like in 2030? by Andrew Mold of VoxEU
Developing countries have enjoyed strong economic performance over the past decade – often growing twice as fast as OECD economies. This column asks whether developing countries will continue to outpace rich countries over the coming two decades. Updating Angus Maddison's famous projections, it forecasts a world starkly different from that of today. The world's poor countries, according to the forecast, will account for nearly 70 percent of global GDP in 2030.
2010-10-27 Where Inflation is Higher than Interest Rates, Liquidity Will Flow by Monty Guild and Tony Danaher of Guild Investment Management
Investors should continue to hold U.S. stocks for a further rally. Long-term U.S. liquidity formation through QE will create demand for many assets, including U.S. stocks. Short-term U.S. stock market indices are near resistance areas, and so traders can consider taking profits. Investors should also continue to hold gold for long-term investment, as well as oil, and food-related shares such as grains, wheat, corn, soybeans, and farm suppliers. The U.S. dollar, Japanese yen, British pound and the euro are all poor long-term prospects.
2010-10-25 Bernanke Leaps into a Liquidity Trap by John P. Hussman of Hussman Funds
The belief that an increase in the money supply will result in an increase in GDP relies on the assumption that velocity will not decline in proportion to the increase in monetary base. Unfortunately for the proponents of 'quantitative easing,' this assumption fails spectacularly in the data - both in the U.S. and internationally - particularly at zero interest rates. Once short-term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity.
2010-10-25 It's All About Earnings by David A. Rosenberg of Gluskin Sheff
The equity market has now managed to climb three weeks in a row despite the fact that the U.S. dollar has done likewise in a classic countertrend rally from oversold conditions. Almost one-third of the S&P 500 universe has reported, and the year-over-year earnings growth rate is now running at plus-28 percent from plus-24 percent last week. Fully 83 percent of the companies have beaten their bottom-line estimate, which is far above the historical norm of 62 percent; although barely over 60 percent are bettering their revenue estimates, which is below average.
2010-10-25 Beating Bridgewater's Big Bear Bet by Brian S. Wesbury and Robert Stein of First Trust Advisors
A prominent investment story in last Friday's Wall Street Journal said that so far in 2010 Bridgewater Associates, a Connecticut-based hedge fund run by Ray Dalio, had racked up a 38 percent return with a 'wager that the U.S. economy would be in worse shape than many expected.' Unfortunately, this entire premise – that it pays to be bearish, especially about the U.S. – is highly misleading. In reality, a 'bullish bet' on the NASDAQ would have provided even better returns than Bridgewater over the past two years. Believe it or not, bullishness has been more rewarding than bearishness.
2010-10-24 The Subprime Debacle: Act 2, Part 2 by John Mauldin of Millennium Wave Advisors
Buyers of mortgage-backed securities may be able to join together and force issuers to buy back those securities, if the loans they contain are defective. This is further complicated by the fact that some of those buyers were non-US entities. Bank of America is badly exposed through its acquisition of Countrywide, as are "dozens" of other banks.
2010-10-22 And That's the Week That Was... by Ron Brounes of Brounes & Associates
All in all, a relatively “eventful” week. Quarterly earnings remained favorable (for the most part). The Fed moved a step closer to a new “stimulus.” Politicos upped the election-year grandstanding. China’s economy took a tumble (we should all tumble so far). And, my wife gave birth to another daughter (Zoe Erin). Plenty of reasons for celebration. (Beware of typos this week.)
2010-10-22 Don't Fear the Euro by Michael Pento of Euro Pacific Capital
When the euro hit a low of $1.1917 against the US dollar on June 7th, 2010, the airwaves crackled with assertions that the European common currency, beset by Greek debt problems and intra-union discord, was destined to trade at parity with the greenback. They were wrong. Since then, the euro has risen over 17% against the dollar, hitting $1.3961 today. The current upswing, delivered courtesy of the Fed, has at least temporarily silenced the euro’s critics.
2010-10-22 Portfolio Strategy by Bradley Turner of Chess Financial
The risk profile of stocks relative to bonds has improved markedly in recent months. Add to this the fact that the S&P component companies are holding almost one trillion dollars in cash and are trading at a reasonable multiple of current earnings, and we conclude that bonds will be hard-pressed to outperform stocks on a total-return basis in the decade ahead.
2010-10-21 Latest Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
Investors should continue to hold U.S. stocks for a further rally. U.S. liquidity formation through QE will create demand for many assets, including U.S. stocks. Long-term Treasury bonds have also become less bearish. Another round of QE, as well as fear of another depression will create strong demand for bonds; it is thus too early to sell them short. Meanwhile, investors should short the Japanese yen. The Japanese have neither the resources nor the political willpower to fight protect their currency's value.
2010-10-19 Allen Sinai: US at the Crossroads by Robert Huebscher (Article)
America is at a crossroads in a shifting global economy, and it's not just our economy that is in trouble. We have moved from a mindset of prosperity to a much gloomier self-conception, and dysfunctions within our government and society are pushing us downward. That sobering assessment was delivered by Allen Sinai, the president of Decision Economics, an economic research firm he founded in 1996.
2010-10-18 The Recklessness of Quantitative Easing by John P. Hussman of Hussman Funds
With continuing weakness in the U.S. job market, Ben Bernanke confirmed last week what investors have been pricing into the markets for months - the Federal Reserve will launch a new program of quantitative easing, probably as early as November. Further attempts at QE are likely to have little effect in provoking increased economic activity or employment. This is not because QE would fail to affect interest rates and reserves. Rather, this policy will be ineffective because it will relax constraints that are not binding in the first place.
2010-10-18 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
After the steady run-up in natural resources equities the past year, some are concerned that the progression might come to an end. Based upon improving policies and demand worldwide, however, it is still entirely appropriate to reserve an overweight ranking for these investments. As long as industry prudently manages inventory-versus-demand cycles, upward valuations might persist. In the long term, depleting resources might provide the science and politics for an elongated trend with significant capital gains potential.
2010-10-18 It's All About Ben, the Fed's Intent and the Market Reaction by David A. Rosenberg of Gluskin Sheff
The U.S. economy is caught in a classic liquidity trap. With additional fiscal stimulus no longer a viable political option, even though the government is better equipped to deal with many of the structural hurdles to growth than monetary policy, Mr. Bernanke clearly feels that the Fed is the only game in town. Monetary policy, even in a non-conventional form, is a very blunt tool to use to reverse a secular uptrend in the savings rate, fix chronic unemployment or induce people to spend rather than correct their debt-laden balance sheets.
2010-10-18 Fed Ignores Gold, Targets Higher Inflation, and Plays With Fire by Brian S. Wesbury and Robert Stein of First Trust Advisors
By ignoring rising gold and commodity prices and signaling that it won't quit applying monetary stimulus anytime soon, the Fed is trying to force banks to change their behavior. If it works, look out for inflation to reach multiples of 2 percent in the years ahead. The Fed hasn’t been successful yet when it ignores gold and commodity prices.
2010-10-18 Is Inflation Gone Today and Here Tomorrow? by Chris Maxey of Fortigent
Inflation is arguably not an issue for the time being, but with the Fed prepared to unleash trillions in additional liquidity, the outlook for inflation is more uncertain than ever. While yields on government bonds with a maturity between 2- and 10-years are flattening, the long end of the yield curve is widening dramatically. Long-term bonds exhibit the most sensitivity to interest rates and inflation, so this may be the first indication that inflation will pose a serious threat down the road. Investors and consumers alike should tread very, very carefully.
2010-10-15 Global Currency Meltdown by John Browne of Euro Pacific Capital
The Fed is being pressured to erode the value of the U.S. dollar in order making foreign sales more lucrative in nominal terms. But this form of stealth protectionism will fail just as surely as more overt trade barriers. Only when currencies are allowed to float freely will trade imbalances be corrected. Washington's attempt to force the issue is only doing harm to the world economy by introducing uncertainty and punishing the prudent. The Fed has gone radioactive, setting off a global currency meltdown. Perhaps only gold can truly shield investors from the fallout.
2010-10-15 Q310 Portfolio Commentary by Jay Compson of Absolute Investment Advisors
Asset prices appear to be solely supported by the potential effects of QE2. Global credit markets, where liquidity could be highly strained given the large flows into bond funds and the hazardous reach for yield, are particularly disconcerting. While the Fed could successfully create asset inflation in the short term, the asymmetry of these policy efforts is to the downside, and patience should be better rewarded. Additionally, a dollar rally is quite possible given current sentiment, and could create much volatility in both global equity and credit markets.
2010-10-15 Interesting Insights from Bernanke; A Double-Dip Signpost by David A. Rosenberg of Gluskin Sheff
Despite a speculative equity market binge, a weakening U.S. dollar, an economy that seemingly avoided a double-dip recession last quarter and a renewed boom in commodity prices, what continues to prove elusive in this so-called recovery is pricing power in the broad retail sector.
The headline rate of inflation sits at 1.1 percent today. The core inflation rate, proven to be the key driver for bond yields, is now running at a mere 0.8 percent year-over-year rate, the lowest level since March 1961.
2010-10-14 Who's Doing the Buying? by David A. Rosenberg of Gluskin Sheff
So who's buying equities right now? Good question. We know it's not the retail investor and private clients - they have been selling into this entire bear market rally and rebalancing their asset mix in favor of income. It's not the mutual funds, because institutional private managers already have cycle-low cash ratios. There would seem to be three principal buyers right now: pension funds struggling to reach their 8 percent assumed annual returns, hedge funds, and the proprietary trading desks at big commercial banks.
2010-10-14 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
Historically, it has taken about four or five years of capital inflows into emerging markets to create an investment bubble. Thus far, we are only one year into a significant capital inflow into emerging markets, and we probably have another three or four more years to go before these markets become so popular that it is time to move on to other pastures.
2010-10-13 Gold Vs. U.S. Bonds - Which Do You Believe? by Michael Pento of Euro Pacific Capital
Any psychoanalyst looking at the behavior of investors today would see clear strains of schizophrenia in a comparison between the markets for gold and U.S. Treasury bonds. Low bond yields warn of deflation, while high gold prices and a declining dollar presage hyperinflation. Federal Reserve Chairman Ben Bernanke will not stop the presses until inflation has a firm and undeniable grip on the American economy. Since the chairman has shown no will to hit the brakes, you would have to be mad to ride the yield curve alongside him.
2010-10-13 The Fed Feels Compelled to Experiment by Mohamed A. El-Erian of PIMCO
Judging from the minutes of the September 21 Federal Open Market Committee meeting, it is virtually a foregone conclusion now that the Federal Reserve will announce on November 3 that it is re-engaging in 'unconventional policies.' As a body, the FOMC recognizes that the benefits of quantitative easing come with potential costs and risks, including unintended consequences. Despite this tricky and uncertain balance, it feels compelled to act.
2010-10-13 What's Ahead in Q3 Earnings Season; Our Fair Value of the S&P by David A. Rosenberg of Gluskin Sheff
The consensus is still expecting U.S. operating earnings per share growth of $95-plus in 2011, but at a time when profit margins are at a cycle high, not a trough. Judging from past performance at cycle highs, however, it may be more prudent to be valuing the equity market at $75 EPS growth, rather than $95. Slap on an appropriate multiple and you can see why an underweight position in equities still makes sense, speculative fervor sparked by quantitative easing notwithstanding.
2010-10-12 Gold Continues to Glitter by BlackRock (Article)
Gold recently reached all-time highs in several currencies as investors flocked to the asset class as a safe-haven investment. This is despite volatile financial markets and continued investor concerns regarding the impact of the US government's massive fiscal and monetary stimulus on inflation/deflation. Learn why BlackRock believes gold will continue to remain attractive to investors.
2010-10-12 Simon Johnson on Why This Crisis Wasn’t the Last by Robert Huebscher (Article)
Is the last financial crisis over? Did we at least fix the problems that caused the crisis? Were those the worst of our problems? Answering those three questions was the focus of a talk by Simon Johnson, formerly the chief economist at the IMF.
2010-10-12 Beggar Thy Neighbor, Beggar Thyself by Michael Lewitt (Article)
In the latest edition of the HCM Market Letter, Michael Lewitt argues that reported attempts by countries to devalue their currencies will only result in higher inflation and not economic growth. QE2 will similarly fail, and the necessary "heavy lifting" for the economy should be through fiscal, not monetary, policy. A continuation of Keynesian policies, as advocated by Paul Krugman, will also fail. Lewitt warns of dangers in ETFs and offers his investment recommendations.
2010-10-12 The Perfect Storm: Threat or Opportunity by Dinesh Sharma and Michelle Goldstein (Article)
Our primary client base, baby-boomers, is quickly sliding into retirement, leaving us to question where our growth will come from. And now we have the uncertainty surrounding the Dodd-Frank Wall Street Reform and Consumer Protection Act and the anxiety that comes with it. Financial advisors can choose to see the convergence of these factors as a threat to their well-being or as an opportunity to prosper.
2010-10-12 The Fed's Zero Rate Policy is Destroying America by Christopher Whalen of Institutional Risk Analyst
If the Federal Open Market Committee does not soon allow interest rates to rise and thereby rebalance the policy equation between American savers and borrowers, then gold prices will climb further. Federal Reserve Chairman Ben Bernanke and the FOMC will hand the detractors of the central bank led by U.S. Representative Ron Paul the political issue they need to eliminate the Fed once and for all. And President Barack Obama will be wearing the concrete booties that once belonged to President Herbert Hoover. Unlike your worthless greenbacks, you can take that to the bank.
2010-10-12 It's a Mad World by David A. Rosenberg of Gluskin Sheff
Gold could be the only asset class that makes sense right now. If the bond market is right, then we will get deflation, and gold is a hedge against the uncertainty such an environment would entail. If the equity market is right, then we will get gobs of liquidity out of the Fed and then go off to a new reflationary credit cycle - gold would benefit in this scenario, too. And if the commodity complex is right, then we are heading towards a new inflationary cycle, and of course gold is a classic way to play this scenario.
2010-10-11 Commodities - More Signs of Life by Milton Ezrati of Lord Abbett
The rise in commodity prices during the past few weeks offers yet another sign that the U.S. economy will avoid the dreaded double-dip recession and continue to grow, albeit slowly. Some of the commodity price rise, of course, reflects little on the economy. Gold's price increase, for instance, mirrors generalized fears on a number of fronts. The surge in agricultural prices stems from particular crop failures. However, industrial commodities, including energy, are connected to the economy, giving broader economic significance to their healthy price gains.
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.
2010-10-11 In QE We Trust by Komal Sri-Kumar of TCW Asset Management
Senior monetary officials worldwide have complained about the massive inflows of capital into their financial markets resulting from expectations of monetary easing in the United States. One of the major pitfalls of quantitative easing is that beggar-thy-neighbor currency interventions do not result in increased growth for all participating countries. Instead, they sharply increase the risk to exporters and international investors and, eventually, dampen global growth.
2010-10-08 Refinancing, Not Foreclosures, is the Issue; Richard Alford on Bill Dudley and QEII by Christopher Whalen of Institutional Risk Analyst
The failure on the part of the largest banks to perfect guidelines for security interest agreements on the homes, office buildings or other real properties that underlie securitizations is turning out to be not merely a legal headache, but also the operational catalyst for the next crisis in financials. This commentary also features a piece by contributor Dick Alford on the recent speech by New York Federal Reserve President William Dudley regarding the resumption of quantitative easing. According to Dudley, the speech suggests that the Fed has not yet learned from past mistakes.
2010-10-08 Back to School... And This Report Gets an F! by David A. Rosenberg of Gluskin Sheff
Considering that policy rates are at zero, the Fed's balance sheet has tripled in size (with more to come), and a 10 percent deficit-to-GDP ratio that would have even made FDR blush, the unemployment situation is an unmitigated disaster that deserves the government's undivided attention. The question that has to be asked - and answered - is why the equity market would be rejoicing over today's somber piece of economic news.
2010-10-08 Narratives vs. Facts: Why U.S. Stocks are Surging Despite Anemic Economic News by David Edwards of Heron Financial Group
Investors chasing yields have bid up the prices of corporate bonds and preferred stock, while Treasury bonds, near post-war lows, barely yield more than inflation. Emerging markets stocks and bonds are doing well, but the high returns of 2008 are unlikely to happen again. Indeed, after a decade of pariah status, perhaps the only asset class that offers a reasonable risk-adjusted return is U.S. stocks. Even so, expect no more than 8 percents returns including dividends until the debt deflation process is complete in another 5-10 years.
2010-10-08 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Earnings season; labor reports; Fed-speak; political grandstanding; hostile offers; currency battles…say what you want, but the markets sure aren’t boring these days. With plenty of uncertainty still in the air, the “bulls” remain firmly in control (for now) and equities keep rolling along (even past 11k on the Dow). Nothing like a friendly trend.
2010-10-07 Risk On, Risk Off by Cliff W. Draughn of Excelsia Investment Advisors
The huge drop in bond yields is the driving force in the equity markets and the decline of the dollar. The old adage 'don't fight the Fed' still applies, and Excelsia's allocations will be shifted more towards equities and alternatives as interest rates get driven lower and lower. Emerging market debt, commodity and natural resource companies, gold, and large-cap stocks all offer favorable prospects.
2010-10-07 You Can't Make This Stuff Up! by David A. Rosenberg of Gluskin Sheff
In the October 6 New York Times, op-ed contributor Daniel Gross called on the American consumer to 'get back into the game.' 'The renewed willingness and confidence to spend money we don't have,' Gross wrote, 'is vital to the continuing recovery.' There was no mention in the article of the fact that with a 70 percent share of GDP, U.S. consumer expenditures never exactly went into hibernation, even if spending decisions have changed. And haven't employment and income always been the vital components to sustainable growth?
2010-10-07 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
Inflation, which has heated up in countries like Brazil, India, Indonesia and many others, will eventually make its way to the U.S. and Europe. Attractive areas for investment include Chinese consumer stocks and currencies, stocks and bonds of growing countries in Asia and Latin America, U.S. stocks and gold. The Japanese yen is a short. Japan's quantitative easing, when combined with the QE going on elsewhere, provides a strong impetus for price increases in commodities, gold and stocks.
2010-10-07 Government Policy and the Markets: Prepare For Some Big Changes by Tony and Rob Boeckh of Boeckh Investment Letter
Proponents of gold base their arguments on predictions of eventual monetary ruin, a dollar collapse and high inflation. The bond market, however, is far bigger and more sophisticated than the gold market, and it indicates that inflation expectations are nonexistent. Bond yields are far below their long-run equilibrium levels and if anything, are forecasting deflation and possible stagnation. The huge disconnect between gold and bonds should serve as a reminder to gold bulls to tread carefully, unless they are sure that the bond market has it wrong.
2010-10-06 And That's the Week That Was... by Ron Brounes of Brounes & Associates
The economy remains unsteady as an uncertain labor picture continues to limit consumer activity. And yet, corporations have accumulated trillions of dollars in cash and money markets yielding near 0 percent have forced managers to seek other options. Looking ahead, the Fed's stimulus debate wages on although many expect a more limited bond buying program than the $1.7 trillion one offered last year. As for the markets, companies still have lots of cash looking for a home and hopefully equities have more room to run.
2010-10-06 Is Warren Buffett Correct on this One?; I Love Gold, But… by David A. Rosenberg of Gluskin Sheff
Warren Buffett says that equities are currently cheaper than bonds, and that people who are buying bonds are 'making a mistake.' That's quite a statement considering what bonds, even at ultra-low yield levels, have managed to generate in terms of total returns this year compared to the equity market. It's not even close, with all deference to the recent snapback in the stock market. More fundamentally, there is a critical difference between something that is government guaranteed and comes due in 10 years versus something that has downside capital price risks and never comes due.
2010-10-05 In a Word, Surreal by David A. Rosenberg of Gluskin Sheff
Why do so many people think bonds are in a bubble when they are actually the most detested asset class out there? After all, as we saw in the tech mania of the late 1990s and the housing mania of 2003-2006, bubbles usually involve a mix of adulation, admiration and adoration with the asset class in question, which is obviously missing in the current case as it pertains to Treasury securities. You can't lift up a newspaper or watch a business program on TV and not see pundit after pundit talking about the dangers of being invested in bonds. Something here is amiss.
2010-10-04 What's On My Mind?: Five Developments Driving Investor Sentiment by David A. Rosenberg of Gluskin Sheff
The bottom-up S&P 500 operating EPS estimate currently driving equity valuations is $95. That would be a 14 percent gain on top of this year's anticipated 36 percent bounce. Here's the rub: to get that $95 operating EPS for 2011, we either need to see at least 7 percent nominal GDP growth, which last happened in 1989 when inflation was 5 percent, not close to zero, or margins manage to reach new all-time highs. The base case now, however, is for low single-digit nominal growth and some margin compression so frankly we could be looking at something closer to a $75 earnings stream next year.
2010-10-02 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.
2010-10-01 Gold Still Shining and Renewed Housing Deflation by David A. Rosenberg of Gluskin Sheff
The latest data on U.S. new home prices, Case-Shiller and the FHFA data series are all pointing toward renewed housing deflation. The culprit? A new wave of foreclosure supply is saturating the market. According to RealtyTrac, 24 percent of all homes sold last quarter were homes that had been foreclosed. Meanwhile, as imminent quantitative easing by the U.S. Federal Reserve and the Bank of England threaten to grow supplies of fiat currencies, gold and silver will likely go much higher still.
2010-10-01 A Fall Surprise... by David Baccile of Sextant Investment Advisors
If billionaire money manager John Paulson is correct, and inflation reaches low double-digits by 2012, the discount rate used by investors to estimate the present value of their stock investments will rise sharply, which will have a very negative impact on equity prices as present value calculations decline. Sure, companies will be able to pass along price hikes and inflation should have a positive impact on nominal earnings growth, but the higher discount rate will overwhelm any benefit to the bottom line.
2010-10-01 Liquidity Flowing into Asia and Western Latin America by Monty Guild and Tony Danaher of Guild Investment Management
Liquidity will flow into the Asian region raising consumer spending, stock prices and currency values. In the following countries: India, Indonesia, Malaysia, Thailand, Singapore, and China much new liquidity will enter. It will be in the form of foreign direct investment and investment money moving into stocks and bonds. With the exception of China, which is being singled out for a trade battle by the U.S. Congress, all of these countries will see their currencies rise and their economies grow.
2010-10-01 And That's the Week That Was... by Ron Brounes of Brounes & Associates
So much for “sour” Septembers. This year, “super” September is more appropriate. The bulls were out in force last month as equities experienced their best September since 1939. The week was met with some profit-taking and quarter-end window dressing (is that still allowed?) as investors eyed an uncertain Fed policy and a heated election season.
2010-09-30 Why David Tepper Is Only Half Right by Michael Pento of Euro Pacific Capital
Once domestic bond investors regain consciousness -and they will most likely do so in concert with foreign holders of U.S. debt and currency - a debt and dollar crisis will emerge. Then the only buyer of U.S. Treasury debt will be the Federal Reserve. An economy can't persist for very long by buying its own debt with printed money. The result will be a crumbling currency and soaring interest rates, especially on the long end of the yield curve. When rates rise despite the Fed's efforts to keep them down, that's game over for the 'recovery.'
2010-09-28 The Future of Oil by Robert Huebscher (Article)
No commodity impacts the global economy more than oil. When geopolitical threats loom, two questions often dominate discussion: Will the price of oil rise? And what will be the economic consequences? We review the key drivers of recent, current, and forecast oil prices, including a template for the necessary eventual alignment of supply and demand.
2010-09-28 A Better Alternative - Natural Resource Equities by RS Investments (Article)
Investors look to the commodity market to provide three primary benefits: portfolio diversification, inflation protection, and equity-like returns. However, empirical data shows that over the last decade, shifts in underlying fundamentals have undermined the role which commodities are expected to play in a diversified portfolio, particularly relative to natural resource equities. RS Investments reviews the return streams generated by both commodities and natural resource equities in the context of the benefits expected from each investment option. We thank them for their sponsorship.
2010-09-28 Reality Check on the Macro Outlook by David A. Rosenberg of Gluskin Sheff
More than 80 percent of the economic growth we saw from the lows of 2009 in real GDP was due to the massive amounts of federal government stimulus and the huge inventory swing. The underlying trend in organic real final sales is barely above 0.5 percent. One therefore has to therefore wonder, with an estimated 1.7 percentage point drag from fiscal withdrawal in the coming year and the evident signs of a peaking-out in the inventory contribution to growth, how can the economy not contract heading into 2011?
2010-09-28 It's a Break-out! by Mike Hurley of Incline Capital
While stocks are overbought and may well pull back over the short term, market internals are in good shape and suggest stocks will likely headed higher over the intermediate term. Specifically, both breadth and leadership are confirming the ‘break-out,' with the next key question being how they compare if and when stocks will challenge their early 2010 highs. A key factor in the strength in equites has clearly been interest rates, which have moved sharply lower over the past six months. This has not only helped stocks move higher, but gold as well.
2010-09-27 The Bubble in Bonds by Charles Lieberman of Advisors Capital Management
Bonds can play an important role in diversifying a portfolio. The current bubble in bond values, however, places excessive stress on that benefit. Today's yields don't make sense to investors. While the Fed needs to keep interest rates at low levels to strengthen the pace of recovery, investors who flee stocks for the 'safety' of bonds will get hammered. Those who are not distracted by the equity market's volatility and focus on its exceptional current value relative to its long-term prospects will be handsomely rewarded.
2010-09-27 What Happened on Friday? by David A. Rosenberg of Gluskin Sheff
On Friday, a very successful hedge fund manager came on CNBC and told viewers that the equity market now was a one-way ticket up. If the economy sputtered, he said, the Fed would step in and engage in more quantitative easing, and that would propel the equity market higher. And if the economy chugs along, then there will be no need for more Fed balance sheet expansion but the stock market will enjoy the fruits of stronger earnings growth. The third scenario he did not mention is that the economy will weaken to such an extent that the Fed will indeed re-engage in QE, but that it will not work.
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 The Chinese Conundrum That Will Not Go Away by Chris Maxey of Fortigent
The determination by the U.S. government to revalue China's renminbi is another smoke and mirrors tactic to divert our attention from the true crux of the problem, a faltering economy with little hope for regaining stable ground for at least the next several years. Even if China appreciates its currency, there is no guarantee that it will provide a boost to the American economy. Jobs that were long ago outsourced to China will simply move to the next-cheapest home; they will not return to the U.S.
2010-09-25 Pushing on a String by John Mauldin of Millennium Wave Advisors
The Fed will move forward with aggressive quantitative easing (QE), unless economic growth reaches 1.5 percent to 2.0 percent. The Fed's QE efforts thus far have been ineffective, because funds remain on banks' balance sheets. Future efforts would likely lower interest rates or possibly devalue the dollar, but it is unlikely it will stimulate growth.
2010-09-24 The U.S. Stock Market by Monty Guild and Tony Danaher of Guild Investment Management
The U.S. stock market is rallying, and the U.S. dollar is slowly declining in value relative to a basket of other currencies. Although inflation may not occur for another six to 12 months, it will eventually increase demand for assets with growth potential, such as income-producing real estate, gold, global growth stocks, and the world's better-managed currencies. Meanwhile, it is possible that we will see a small rally in bonds during late 2010. Many are expecting a slowdown in U.S. economic activity in early 2011.
2010-09-24 Housing Still in a Deep Funk and Gold Going Higher Still by David A. Rosenberg of Gluskin Sheff
Existing home sales increased 7.6 percent month-over-month in August in what can only be described as noise around a fundamental downtrend. The three-month trend in single-family sales is still -72 percent at an annual rate, the six-month trend is -31 percent and the 12-month trend is -19 percent. Meanwhile, gold is now on the precipice of breaking above $1,300/oz, and is likely to remain in this secular uptrend for quite a while longer. We\'re talking years. We\'re still talking $3,000/oz.
2010-09-21 U.S. Government Debt by Tony and Rob Boeckh of Boeckh Investment Letter
That the U.S. is in a dangerous debt situation is hardly a secret. Yet nothing will be done about it any time soon. Politicians, now back from their holidays, are focused on securing reelection. Republicans are moving further to the populist right. Cutting deficits has once again taken a back seat to spending and minimizing taxation. There is a rapidly escalating Greek-style debt-to-GDP scenario unfolding, along with all the consequences that go with it.
2010-09-20 An Interesting Week Ahead by Mohamed A. El-Erian of PIMCO
The failure to reduce risk spreads in peripheral European countries means that the public sector bailout is not working. The list of industrial countries wishing to depreciate their currencies is not matched by a list of emerging economies happy to let their currencies appreciate significantly. As a result, foreign exchange tensions are mounting, and the price of gold has been driven to a new record level. This week will shed light on whether policymakers can do anything to deal with these two issues.
2010-09-20 Gold Breaks Out – Again; Investment Strategy in a Deflationary Environment by David A. Rosenberg of Gluskin Sheff
What is amazing is that there are just about as many naysayers about gold out there as there are bond bears. Until the investment elite catches on, the odds of these two asset classes continuing as relative outperformers are quite high because no bull market ends until the masses fall in love with the asset or security in question. What makes the gold story so interesting is that bullion has so many different correlations - with inflation, with the dollar, with interest rates, with political uncertainty - and it also has different faces.
2010-09-20 The Islamic Triangle: Tilting Toward Opportunity by Douglas Clark Johnson of Codexa Capital
The Islamic Triangle - the space between Casablanca, Istanbul and Muscat - may not be a top priority for most global money managers, but perhaps it should be. At just over $1 trillion, the Islamic Triangle's total market capitalization is just a bit less than Brazil's or India's. Among major markets, it compares with Australia or Switzerland. Relative to GDP - a sign of an equity market's importance to a local economy - the number is nearly 60 percent, relatively low, but indicative of the region's structural potential over time.
2010-09-20 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Unemployment claims have leveled off at a very high level and the Economic Cycle Research Institute's leading indicators has shown improvement. The year-over-year level, though, suggests slow and anemic growth ahead. Thus government policy must focus not on spending which simply raises the nation's debt levels but on growth. Read that to mean lower taxes and a smaller government sector supported by a growing private sector.
2010-09-18 Market Matters... by Ron Brounes of Brounes & Associates
Some believe the Fed should restart the bond-buying program to help keep long-term interest rates low, thereby encouraging additional corporate borrowing and bank lending. Others fear that the program has a very limited chance of success and worry that inflation may become a not-so-welcome byproduct of such a move. With the summer well in the rearview mirror and trading desks back at full staff, market volume could pick up next week, and hopefully the excessive daily volatility will ease somewhat.
2010-09-15 Stocks For the Long Run? And a Look at Gold by David A. Rosenberg of Gluskin Sheff
The bond market usually gets it right, and the 0.9 percent yield on the 10-year TIPS security is back to where it was at the depths of the recession. Something is going to have to give. If we recall correctly, bonds led both the stock market and the economy in 1990, 2000 and again in 2007. In the next few months we may well look back at the 130 basis point rally in 10-year Treasury bonds this spring as an important event, analogous to the rally we saw in the summer and fall of 2007. David Rosenberg also comments on Tuesday's gold rally.
2010-09-14 A Better Way to Invest in Gold by Geoff Considine, Ph.D. (Article)
In the year since Geoff Considine last wrote about gold, underlying prices have risen 24%, leading to several important questions - including whether his advice of a year ago still holds today. We look closely at how a direct investment in GLD performed as compared to a bond-plus-call-option strategy, and which conditions favor each strategy.
2010-09-14 Sometimes We Get Lucky by Monty Guild and Tony Danaher of Guild Investment Management
Monty Guild and Tony Danaher strongly recommend that investors sell long- and intermediate-term U.S. bonds, including U.S. Treasury bonds, U.S. government agency securities, municipal bonds and corporate bonds. It would be very unwise to bet that interest rates will stay down. Guild and Danaher also comment on the rising risk of inflation, the drug war in Mexico, the rise of the Japanese currency and bullish prospects for gold.
2010-09-14 Some Bullish Signs for U.S. Stocks by Monty Guild and Tony Danaher of Guild Investment Management
The November U.S. congressional election is likely to bring in more pro-business and anti-tax legislators and the U.S. stock market is already beginning to discount this news. The fact that political gridlock is the most likely prospect for the next two years is music to the market's ears. This is because investors are nervous and unsettled by some political rhetoric that has been circulating, which portrays them as bad and even dangerous to the economic wellbeing of the nation. Guild also comments on strong performance by gold and silver, and demand pull in emerging markets.
2010-09-13 All Aboard the European Debt Express by Chris Maxey of Fortigent
A recent paper from the Organization for Economic Cooperation and Development found that the European bank stress tests were less than stressful. This was because they only considered sovereign debt held on banks' trading books, not on banking books. The trading book of Greek banks, for example, only represents 6.7 percent of the overall Greek sovereign debt exposure on their books. The ignored banking book exposure represents the other 93.3 percent. On a cumulative basis, that translates into a sovereign exposure to Tier 1 capital ratio of more than 225 percent.
2010-09-10 Don't Doubt the Double-Dip by Neeraj Chaudhary of Euro Pacific Capital
A few weeks ago Nouriel Roubini, widely regarded as one of the more pessimistic figures on Wall Street, made headlines by raising his forecasted likelihood of a 'double-dip recession' to a terrifying 40 percent. The vast majority of 'mainstream' economists described these predictions as far too gloomy. Roubini, however, may be right. As the high from last year's monetary and fiscal stimulus wears off, there is a good deal of evidence suggesting that the U.S. economy is weak and deteriorating, and that a renewed contraction in GDP is a near certainty.
2010-09-07 Jeffrey Gundlach on Bonds, Stocks and Gold by Robert Huebscher (Article)
DoubeLine's Jeffrey Gundlach recently reduced his position from "overweight" to "small underweight" in Treasury bonds, and cited "divergent behavior across the yield curve." In this interview, he discusses that behavior and the rationale behind his move, as well as his thoughts on other asset classes, including equities and gold.
2010-09-07 The Free Lunch Illustrated by Michael Nairne (Article)
One of the most remarkable discoveries in modern finance is the ability to improve the expected return of a portfolio while simultaneously reducing its risk. In this guest contribution, which advisors can share with clients, Michael Nairne explains that the proverbial "free lunch" does exist, its exploitation requires a focus not only on the returns and volatility of the assets in the portfolio but on the degree of covariance between those assets.
2010-09-07 The Recognition Window by John P. Hussman of Hussman Funds
Over the course of the market cycle, one of the primary areas of risk for stocks (and conversely, one of the best periods for Treasury bonds) is typically the 'recognition window' where economic activity begins to deviate from the upward trend that is priced into the market, and investors begin to recognize that an economic downturn is, in fact, likely. The instant relief provoked by the manufacturing purchasing managers index and the employment report was an overreaction to data that is still very early in that window.
2010-09-07 Looks Like a Bottom! by Mike Hurley of Incline Capital
WWhile the odds suggest stocks are most likely headed higher from here, trend-following indicators such as the 'golden cross' or the weekly MACD have yet to confirm a new intermediate term up trend. The MACD is quite close however, which would reverse the 'sell' signal it registered during the the week of May 7. Commodities are looking ready to move higher as well.
2010-09-04 The Last Chapter by John Mauldin of Millennium Wave Advisors
Mauldin presents content from his forthcoming book. He reviews some fundamental precepts of economics, focusing on the Keynesian approach the US is taking to revive the economy. He presents data from Woody Brock showing that the US debt may rise by as much as $1.5 trillion per year. Ultimately, he says, the bond market will revolt and interest rates will rise and the results will be very unpleasant. Using taxes or savings to handle a large fiscal deficit reduces the amount of money available to private investment.
2010-09-02 Beggar Thy Neighbor by Niels C. Jensen, Nick Rees and Patricia Ward of Absolute Return Partners
Austerity hurts domestic economic growth, and all those countries facing harsh austerity programs over the next several years will thus realize that the only way out of the current predicament is through higher exports and/or lower imports. We cannot all export our way out of our problems, however. Somebody will have to do the imports. Lower economic activity will again lead to lower tax revenues for the public sector; it is a very unfortunate and rather vicious spiral which is also very deflationary.
2010-09-01 No Chance of a V-Shaped Recovery by Nouriel Roubini of RGE Monitor
Given political and fiscal constraints and banks' unwillingness to lend, it is doubtful that policy can prevent a double-dip. Even if a new round of monetary and quantitative easing can provide limited stimulus, the real issue facing the U.S. is the need for balance sheet deleveraging and repair, and that will be a multi-year process. The U.S. must brace itself for a long period of below-potential growth.
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 ProVise Bullets by Ray Ferrara of ProVise Management Group
Over the next 65 days it might be a bit rocky and it will therefore be important to look ahead six months from now rather than to get caught up in the moment. Investors are shunning equities for bonds, but one day not too far in the future, that trend will reverse. When it does, we could see a dramatic rise in the equity markets. ProVise also comments on Cisco's gloomy earnings report, U.S. GDP growth, falling consumer debt levels, the closing months of the campaign season and a possible real estate bubble in China.
2010-08-31 Double ‘Bubble,’ Toil and Trouble by Sam Bass (Article)
The latest economic prophecy, which has gripped investors' fears for the past three years and counting, is that a 'bubble' in US Treasury bonds is about to burst. Hyperinflation is just around the corner, the prediction goes, and US Treasury bonds, driven up in price to record levels by unprecedented policy measures, are about to crash. In this guest contribution, Sam Bass writes that advisors shouldn't follow the advice of these "seers."
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.
2010-08-30 Hussman Funds 2010 Annual Report by John P. Hussman of Hussman Funds
At present valuations, exposure to market and credit risk is not likely to be well-compensated over the long-term, and may be associated with substantial losses in the intermediate term. Recent advances may simply be the product of a fragile post-crisis bounce, similar to those following other historical credit crises in the U.S. and abroad. The quarters immediately ahead present the greatest risk of fresh credit strains and concentrated economic risk.
2010-08-30 Views on Developing Markets by Team of First Eagle Funds
As the developed world stumbles from crisis to crisis, many developing countries seem poised to continue taking a greater share of the world's wealth. This trend, however, is not an automatic signal to invest. China, India and Brazil, the most sought-after developing markets, now demand double-digit multiples, and have higher inflation and monetary growth than developed markets. These factors suggest that the margin of safety is significantly smaller in developing markets than in developed markets.
2010-08-27 Summer Camp for Stock Traders: But Will the 'Fall' Arrive Before the Summer Ends? by Isbitts of Emerald Asset Advisors
Years like 2010 may test the patience of investors in many asset classes, but the key is to keep plenty of perspective. Those who invest in growth assets are hopefully doing so without the requirement that their portfolios avoid losses or near-zero returns for short periods of time. The key is to not forget that risk-reward tradeoff concept when markets move to either extreme, such as the middle of this year when we saw double-digit percentage moves in the S&P 500 in both directions.
2010-08-27 Debt Be Not Proud by Rob Arnott of Research Affiliates
The looming sovereign debt crisis may be the defining influence on capital market returns over the next 10 years. Greece recently hit a wall and had to break a lot of promises to its citizens, including retirees and prospective retirees from government employment. Greece certainly won't be the last. An exploration of the relationship between sovereign debt levels and the economic might of debtor nations reveals a scary situation, particularly for investors who cap weight their government bond market exposure.
2010-08-27 Increasing Risks by Tony and Rob Boeckh of Boeckh Investment Letter
Capital preservation is of critical importance in this volatile, highly uncertain world. Within that conservative context, Boeckh has been relatively bullish on risk assets. The time has come to add another layer of caution to portfolios. The S&P 500 may well remain in an extended trading range, but we may be much closer to the upper boundary than the lower. Seasonally, we are heading into a period when markets tend to be weak, and some important declines have occurred.
2010-08-27 On Critical Support by Mike Hurley of Incline Capital
While stocks have so far held key areas of support, there is a very real chance the equity markets are forming a cyclical top. The action in the weeks ahead will be absolutely critical.
2010-08-26 In Which Direction Will the Next Panic Come? by Chris Lightbound of GaveKal
Good 'panic indicators' may be the cheapest way to monitor fat-tail risks. One of the most reliable panic indicators is the EUR/CHF exchange rate and the daily volatility of this cross rate, especially as compared to the Spain 10-year government bond spread over German Bunds and the volatility of U.S. long bonds. As charts presented in this commentary show, there are signs that today's only crowded trade is on the sidelines. So what are the odds that either of these two concerns - another sovereign debt crisis or a U.S. double dip - will reach a tipping point and become a panic?
2010-08-26 You Call This Capitulation? by David A. Rosenberg of Gluskin Sheff
The extent of the denial over U.S. double-dip risks is unbelievable. Investors Intelligence did show the bull share declining further this past week, to 33.3 percent from 36.7 percent. The bear share barely budged, however, and is still lower than the bull share at 31.2 percent. Are we supposed to believe that at the market lows, there will still be more bulls than bears out there? Hardly. At true lows, the bulls are hiding under table screaming 'uncle!.'
2010-08-25 The Fed's Biggest Bubble by Michael Pento of Euro Pacific Capital
Even top-flight Wall Street analysts seem to believe that the Fed's doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy. Their logic can be summed up like this: "The money the Fed created and dropped from helicopters has all been caught in the trees." In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public.
2010-08-25 Housing, State Spending and Jobs – Bogeymen for Rest of 2010 by David Edwards of Heron Financial Group
The time to buy stocks is when the economic forecast is grim. If you wait until the forecast looks good, stock prices have already moved higher. Fears of a double-dip recession have kept a lid on stock prices since April. The stock market, however, now feels like a pressure cooker on the boil, with earnings growth as the heat source. Short-covering rallies, meanwhile, are usually explosive to the upside. Heron therefore continues moving cash into stocks, as there are plenty of companies with great prospects and reasonable valuations.
2010-08-25 What's With Equity Valuation? by David A. Rosenberg of Gluskin Sheff
Historically, the average consensus estimate forward price-to-earnings ratio on the S&P 500 has been 15.6x. And yet, what we actually end up with on average is 19.2x. The consensus, in other words, is systematically publishing earnings forecasts that make the market look cheap. Meanwhile, the Shiller P/E, which uses the 'bird-in-the-hand' earnings, takes them in inflation-adjusted terms, and cyclically-adjusts the earnings data, currently generates a multiple of 20.6x, which is 26 percent above the historical norm.
2010-08-24 This is No Way to Run a Railroad by Michael Lewitt (Article)
In the latest edition of the HCM Market Letter, This is No Way to Run a Railroad, Michael Lewitt says the railroad known as the United States economy is chasing its own tail these days. Driven by misbegotten fiscal and monetary policies that ignore the lessons of history in favor of discredited financial and economic theories, the economy is trapped in a cycle of boom and bust. Lewitt also comments on the bond market, the European stress tests, GM, and the private equity industry.
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.
2010-08-20 Happy Birthday Social Security? by Neeraj Chaudhary of Euro Pacific Capital
In his weekly radio address this past Saturday, President Obama happily commemorated the 75th anniversary of Social Security. This milestone, however, is nothing to celebrate. For although the president spoke earnestly about the 'obligation to keep the promise' of Social Security, in reality, the program will wreck the government's finances within 10 years.
2010-08-19 Debt and Growth Revisited by Carmen M. Reinhart and Kenneth Rogoff of VoxEU
With the advanced economies at a critical juncture, some economists are urging more fiscal stimulus while others argue that raising debt levels will stunt growth. This column presents the Reinhart-Rogoff findings on the relationship between debt and growth based on data from 44 countries over 200 years with a focus on the debt-growth link during high-debt episodes.
2010-08-17 Misconceptions about Risk and Return Uncovered by Geoff Considine, Ph.D. (Article)
Our beliefs about risk and return determine how we construct portfolios and manage risk. Research over the last decade suggests that a number of the ideas on which many investors and advisors rely lead to portfolios that are too highly exposed to market risk. In this article, we review a number of ideas that determine how we select assets and how we determine what to expect from those assets.
2010-08-17 ProVise Bullets by Ray Ferrara of ProVise Management Group
Yields on 10-year Treasury bonds are hovering under 3 percent, which basically means that buyers anticipate inflation will only be 3 percent over the next 10 years. In spite of all the talk about deflation, however, can anyone really believe that inflation won't exceed 3 percent over the next decade given all the money the government has made available? That is why for the most part, ProVise is avoiding long-term bonds in their portfolios - remaining on the short to intermediate side of the yield curve.
2010-08-16 Double-Dip or Single Scoop? by David A. Rosenberg of Gluskin Sheff
It is only a commentary on the human condition and the innate need to be optimistic that the vast majority of economists, analysts, strategists and market commentators still seem to be acting like ostriches with their heads in the sand, even in the face of fairly substantial evidence that GDP growth was cut at least in half in Q2 and that there is negative momentum in real retail sales being 'built' into the current quarter. If we are realistic, however, we can actually deploy strategies that will generate profitable results - certainly better than zero percent yields on cash.
2010-08-13 Deciphering Today's Violent Market Moves by Mohamed A. El-Erian of PIMCO
Tuesday's Federal Open Market Committee statement confirmed what the high frequency partial data have been signaling for a few weeks now: that the U.S. economic recovery has lost momentum. Expectations have evolved in an interesting manner - from the more familiar bell curve (a dominant mean and thin tails) to a much flatter distribution with fatter tails. In such a universe of expectations, short-term news can have a disproportionate impact on market valuations. When you are potentially on the road to deflation, a small change in probability will have an amplified impact on markets.
2010-08-13 Russia: Insights from Templeton’s Emerging Markets Analyst Conference by Mark Mobius of Franklin Templeton
Russia was one of the hardest-hit countries during the recent global economic crisis, largely due to its huge dependence on commodity prices. The worst, however, is over. We already saw a sharp recovery for Russia's GDP growth recently when commodity prices stabilized. The Russian oil supply experienced significant growth in 2009, taking most forecasters by surprise. The International Monetary Fund is even more optimistic about Russia's growth, expecting the country's economy to grow by 4.3 percent in 2010 due to rising oil prices and an improving fiscal outlook.
2010-08-12 Asset Allocation: Volatility, Correlations and Returns in the New Environment by Tom and Rob Boeckh of Boeckh Investment Letter
Slow growth, high unemployment and weak inflation will keep interest rates very low in the short term. Rising government debt levels and heavy reliance on monetary ease from the Federal Reserve, however, suggest rising risks of price inflation later on, possibly much later. The current period of low long-term interest rates should thus be thought of as an extended base-building period for higher rates down the line. Investors should maintain a diversified portfolio, shifting equity exposure to defensive, non-cyclical sectors, and build positions in cash and safe sovereign debt.
2010-08-11 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
The world is awash in fear: fear of war in Middle East, fear of a double-dip economic recession in the U.S. and Europe and fear of inflation in China and India, as well as many other potential problems. Gold and oil appear to be two of the wisest investment categories. India, Singapore, Malaysia, Thailand, China and Brazil also have strong potential for continued growth. Although it is less certain, we will probably see continued growth in Canada, Australia, Taiwan, and Korea. Europe, Japan and the U.S., meanwhile, appear to be set on low growth trajectories for the next few years.
2010-08-11 Not in Kansas Anymore by David A. Rosenberg of Gluskin Sheff
The transition to the next sustainable economic expansion and bull market in these types of business cycles takes between five and 10 years, and is fraught with periodic setbacks. While an underweight positions in equities still makes sense, a bar bell between basic materials and defensive dividend stocks is a prudent strategy, with the overall emphasis in the asset mix tilted towards bonds, especially the BB-rated sliver or that part of the higher quality non-investment grade space that currently has the greatest unexploited potential for spread compression and capital gains.
2010-08-10 Is the Market Efficient? by Adam Jared Apt (Article)
After Marxism, no economic theory today may be as derided and despised as the hypothesis of market efficiency. The idea is often misunderstood, sometimes willfully. So what does "market efficiency" mean? In the latest installment of his series for the educated layman, Adam Jared Apt provides some answers.
2010-08-09 Systemic Regulator Risk: Does the Fed of New York Need a Haircut? by Christopher Whalen of Institutional Risk Analyst
Given its second lease on regulatory life, one might expect that the Fed's bank supervision function would be gearing-up to take a fresh, smart, and tough line with respect to financial company oversight. However, the appointment of Sarah Dahlgren as head of supervision by the Federal Reserve Bank of New York indicates this may not be the case. Ms. Dahlgren has been at the center of many of the Federal Reserve's most embarrassing failures in the area of bank supervision, including the fiasco surrounding American International Group.
2010-08-07 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Although the economy remains in recovery mode, the labor statistics confirmed that it may not be as strong as many were hoping. Several quarters of lackluster growth appear to be on the horizon. Even though the unemployment rate held steady at 9.5 percent, the June payroll data was revised lower and the 'underemployment' rate stands at a high 16.5 percent. Retailers braced for a feeble 'back-to-school' shopping season as same-store sales for July came in below expectations and department stores and teen retailers reported the most disappointing results.
2010-08-07 A Quick Review of Gold by Mike Hurley of Incline Capital
Mike Hurley presents charts of prices for gold contracts, as well as two key gold stocks: Newmont Mining and El Dorado Gold Corporation. It looks pretty clear that gold, and the stocks shown, are in good shape technically and ready to move meaningfully higher from here - despite what many of the bears are saying. It will be a very different story once gold breaks the up trend line shown, but until then the market itself is saying that it's 'all clear ahead!'
2010-08-06 August Monthly Economic Update by Justin S. Anderson of Cambridge Advisors
Compared to U.S. government bonds, stocks may be a better investment if we stay in a slow-growth rather than negative-growth environment. Yields are low and the Federal Reserve is expected to keep short-term rates low for quite some time. Higher yields may be found in corporate bonds or foreign government bonds. Emerging market governments have lower debt as a percentage of their growing GDPs and may also provide higher yields to investors.
2010-08-04 Summer Quarterly Commentary by Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management
One might have anticipated a large increase in inflation, given gold's five-fold increase in value since 2001. In fact, the polar opposite has occurred: Instead of inflation, we are now under threat of deflation. The reason for this reversal lies in investor fear of quantitative easing. The more signs emerge that deflation is on the horizon, the more likely it seems that the government will use quantitative easing, which in turn would hasten the day of monetary reckoning, when there will be no hope of debts ever being serviced, much less paid off.
2010-08-03 Letter to the Editor by Various (Article)
In a letter to the editor, a reader responds to Dave Loeper's article, Fake Diversification Exposed: Does Asset Allocation Work?, which appeared on July 13.
2010-08-03 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
High cash balances are warranted as volatility leads to market dislocations and good buying opportunities. Gold is approaching attractive prices for additions to portfolios. Some high-yielding oil-related shares will also be attractive on price declines. Longer term, China, India, Malaysia, Thailand, Singapore and Brazil continue to be attractive destinations for investment capital.
2010-08-03 Roller Coaster Economics: Prepare for the Next Downturn by Brian Reading of Boeckh Investment Letter
This commentary features a piece by Brian Reading, former advisor to the Bank of England, former economics editor of The Economist magazine and founding partner of Lombard Street research service, on what should be done about massive fiscal deficits and spiraling debt-to-GDP ratios. Reading argues that no amount of exchanging domestic imbalances within the U.S., UK and other deficit countries between the public and private sectors can prevent a resumed recession. The prerequisite for sustained global recovery is increased consumption in Eurasia and a reversal of payment imbalances.
2010-08-03 'Don't Worry, Be Happy' by Jeffrey Saut of Raymond James Equity Research
Listening to the market is an art, not a science, and Dow Theory is interpreted differently by many practitioners. Nevertheless, evidence suggests that a buy signal has been registered. Three consecutive 100-point up days in the Dow Jones Industrial Average catapulted the Dow above its June closing high of 10450.64 last Monday. Simultaneously, the Dow Jones Transportation Average closed above its June high of 4433.60.
2010-07-30 Inflation in 2010 and Beyond? Practical Considerations for Institutional Asset Allocation by Michael Katz and Christopher Palazzolo of AQR Capital Management
Traditional institutional portfolios with risk characteristics similar to a 60/40 stocks/bonds allocation are not well-positioned for unexpected inflation. Stocks are not effective inflation hedges, particularly in the short and medium term. Meanwhile, traditional institutional allocations resemble a 'bet' on low inflation. A risk-based approach to strategic asset allocation, however, may generate more balanced performance across both inflationary and deflationary periods.
2010-07-30 And That's the Week That Was... by Ron Brounes of Brounes & Associates
A couple of Fed sightings, some mixed earnings reports, and a stand against profane emails. At the end of the day (week), the markets were little changed from where they began. Seems hardly worth coming in this week (though the month of July was pretty successful for equities).
2010-07-30 Core|Satellite Investing with First Eagle Funds by Team of First Eagle Funds
Many practitioners of core/satellite investing use the core of their clients’ portfolios to generate market-like returns with market-level risk exposure, or beta, and use satellite investments to produce excess returns, or alpha. Within this framework, passive investment vehicles — index funds and ETFs — have become standard core investments. First Eagle questions this approach, and believes an actively managed global portfolio should be the core.
2010-07-29 The Emerging Consensus; A Gold Buying Opportunity? by David A. Rosenberg of Gluskin Sheff
Almost everyone is dismissing double-dip risks in the U.S., while Wall Street research departments are concluding that the ECRI leading index is not foreshadowing another recession. This brings back memories of 2007 and 2008, when all the research houses came to the conclusion that once you strip out the effects of housing, the U.S. economy was still in fine shape. Meanwhile, even though the gold price will ebb and flow, gold is in a secular bull market and will retain its natural hedge against recurring concerns surrounding the integrity of the global financial system.
2010-07-27 Important New Research Talking to Seniors About Risk and Market Volatility by Dan Richards (Article)
New research shows how to talk to seniors about their investments. Titled "Behavioral finance and the post-retirement crisis" and released in May, this report compiles findings on how older investors perceive risk and make financial decisions. Dan Richards discusses the findings.
2010-07-27 Rediscovering Your Listening Skills by Justin Locke (Article)
Listening may be the most critical part of your job, both for acquiring new clients and for maintaining current relationships. Everyone's listening abilities are unique, but many common fears and anxieties can interfere with your innate listening skills. In this guest contribution, Justin Locke identifies a few common problems and suggestions for how to work around them.
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 Mike Hurley’s Technical Take (7/26): A Bear Trap? by Mike Hurley of Incline Capital
While we have not yet seen a trend-following 'buy' signal in the weekly Moving Average Convergence/Divergence, stocks could continue to rally from here over the short term – particularly given that the Stochastics are just now moving off oversold levels. The more important question is whether or not the strength will become anything more than a 'right shoulder' of a head and shoulders-type topping formation. Mid-cap stocks will most likely outperform on the upside should the market move higher in the weeks ahead.
2010-07-24 And That's the Week That Was... by Ron Brounes of Brounes & Associates
After riding high for the first few months of the year, investors faced the uncertainty of another major market downturn and watched those early profits disappear. In more recent times, they have been clawing their way back to breakeven territory. After some favorable earnings news and some decent economic (and banking) reports from Europe, the Dow and Nasdaq are virtually flat for the year and the S&P 500 is nearing the breakeven point. The small-cap Russell 2000 has fared a bit better thus far.
2010-07-24 The Artificial Economic Recovery by Tony and Rob Boeckh of Boeckh Investment Letter
Economic recovery in the U.S. and elsewhere has slowed rapidly and forecasts are being downgraded accordingly. The massive stimulus packages stopped a self-feeding downward spiral, but they have given us only an artificial recovery. Government tax revenues will be disappointing and expenditures will remain elevated. A fragile economy, however, should not push investors away entirely from risk assets. High levels of risk and uncertainty argue for continued focus on wealth preservation and sound diversification.
2010-07-23 So What Else are the Bulls Looking at Right Now? by David A. Rosenberg of Gluskin Sheff
This is still a meat-grinder of a market. The bulls have the upper hand, but only until the next shoe drops in this modern-day depression and post-bubble credit collapse. The best we can say is that we do have a tradable rally on our hands and that we are at a critical technical juncture at the 50-day moving average on the S&P 500 - but remember, in a secular bear market, these rallies are to be rented, not owned. To be sure, 140 companies have reported so far and the news overall is good … but earnings are a coincident, not a leading indicator.
2010-07-22 Musings on Asia by Vitaliy Katsenelson of Investment Management Associates
The popping of both the Chinese and Japanese bubble economies will lead to higher interest rates. The Japanese government will probably not be able to intervene in the economy for much longer, and so rates in that country will rise and there will be little they can do about it. China's government, meanwhile, seems to be mulling another multi-hundred-billion-dollar stimulus over the next few months. The Chinese government's actions are thus the wild card that will determine the duration and the magnitude of the bubble's pop - the longer they intervene, the direr the consequences will be.
2010-07-22 A Precious Metals Bubble? by John Browne of Euro Pacific Capital
In the first few days of July, the prices of gold and silver appeared to break a five-month upward trend by drawing back about 5 percent from the record June peaks. Despite many similar corrections that have occurred frequently during the long bull market in precious metals, pundits nevertheless looked to draw bold and significant conclusions from the drop.
2010-07-21 No Golden Ticket by Nouriel Roubini of RGE Monitor
Why aren't we giddy about gold? In the abstract, gold is most attractive as a hedge in one of three extreme scenarios: high inflation, persistent deflation, or when the risk of global financial meltdown is large. Once national balance sheets are repaired through a protracted and gradual deleveraging of households and governments following the relatively rapid deleveraging of the financial sectors, particularly in the United States, excessive deflation and inflation fears will subside.
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.
2010-07-19 Deflation: Should the Fed be Buying Gold? Hugo Salinas-Price on the Silver Peso by Christopher Whalen of Institutional Risk Analyst
This piece features a commentary from Hugo Salinas-Price, founder of Mexican retailer Grupo Elektra, on his proposal for the introduction of a silver-backed peso. Legislation to that effect now is under serious consideration before the Mexican Congress. Salinas describes the Mexican peso as a 'derivative' of the dollar, a troubling prospect since the dollar itself is a derivative of nothing, at best a mere representation of a unit of work. Christopher Whalen also discusses the U.S. financial reform bill, and the latest Federal Open Market Committee meeting.
2010-07-19 The Inflation Debate Rages On by Chris Maxey of Fortigent
Last week's reports on the Consumer Price Index and the Producer Price Index only served to confirm what everyone already knows – any discussion of budding inflationary pressure is naïve at the moment. It is too early to write off a full-blown deflationary episode. In addition to weakness at the consumer and producer levels, the rate at which money changes hands (a common means of inflation) is near its slowest pace in years. Other problems facing the U.S. are a rising personal savings rate and ever-slower demand for commercial loans.
2010-07-19 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The skepticism from investors both individual and institutional remains quite high as the aforementioned concerns about an economic slowdown continue to persist. The good news though, is that profit margins remain strong and interest rates will stay near zero for quite some time. Thus equities are the only game in town for investors whether they want to admit it or not. In that regard, we shall see what, if any, opportunities in individual company names present themselves during the upcoming earnings season.
2010-07-17 And That's the Week That Was... by Ron Brounes of Brounes & Associates
So much information; so little time to digest. While earnings season kicked off to some mixed results, investors also eyed critical news from BP, Goldman, Apple, the Fed, and even Playboy as they attempted to determine the next direction for the markets. The early weak euphoria was replaced by newfound late-week concerns and stocks did another about-face as the game of streaks continued. Aren’t the summers supposed to be slow and boring?
2010-07-17 The Debt Supercycle by John Mauldin of Millennium Wave Advisors
The Debt Supercycle, as posited by the Bank Credit Analyst, is the decades-long growth of debt from small and easily-dealt-with levels, to a point where bond markets rebel and the debt has to be restructured or reduced or a program of austerity must be undertaken to bring the debt back to manageable proportions. The consequences for each country will be different, and the U.S. is a long way off from "the end." A key point will be the 2014 elections, when critical budget decisions must be made.
2010-07-16 Government Policies Pushing Towards Depression by John Browne of Euro Pacific Capital
As leaders around the world look to tighten the reins on out of control spending, President Obama and his Democratic supporters in Congress believe that their stimulus actions have succeeded and should be redoubled. Armed with nothing more than faith in government and a belief that spending is both a means and an end, it appears that the U.S. stimulus policy will continue. The net result of these efforts will not be a more vibrant economy, but the perpetuation of fear and confusion in the business community and the continuing expansion of deficits that will lead inevitably to higher taxes.
2010-07-15 It's Always Darkest Before the Dawn (of Earnings Reports) by David Edwards of Heron Financial Group
The gold market looks like yet another bubble. Over the last three years gold gained 85 percent while the broader Commodities Index declined 19.8 percent. The current surge, however, is related to 'fear factor' trade compounded by huge hedge buying of gold futures. Meanwhile, even after the rally of the last week, stocks still look cheap. The S&P 500 should close out 2010 with a gain of 8 percent, which is 9 percent higher than current levels. Corporations flush with cash and with surging revenues and earnings are a buy.
2010-07-13 Nouriel Roubini on Crisis Economics by Michael Edesess (Article)
There's good reason why Nouriel Roubini has been dubbed Dr. Doom. After reading his book co-authored with Stephen Mihm, Crisis Economics, one might despair for our economic system. Roubini makes the recent crisis seem inevitable, hard to stop, and very hard to keep from happening again.
2010-07-13 Fake Diversification Exposed: Does Asset Allocation Work? by David B. Loeper, CIMA, CIMC (Article)
Domestic equities are down roughly 14.5% from their April 23rd high. Many advisors tout sophisticated (and very expensive) asset diversification strategies, supposedly to protect their clients against precisely these circumstances. So, with this recent decline, Dave Loeper asks whether all of those supposed diversifiers protected portfolios?
2010-07-13 Deficits Monetary and Moral by Michael Lewitt (Article)
"The word 'deficit' has come to epitomize not only our economic dilemmas but also our moral and intellectual failures to address them in an era that should be boasting of new breakthroughs in the social and physical sciences," writes Michael Lewitt in the latest installment of his HCM Market Letter, Deficits Monetary and Moral. "Instead, our ability to solve complex problems is weighed down by flawed and corrupted government processes and the lack of courage to forthrightly change them."
2010-07-13 Chronicle of the Quarter by Bob Veres (Article)
Bob Veres provides one of his Client Articles, which is a service for advisors to send to their clients; it's a daily blog about what it felt like to watch the market during the past fiscal quarter. It communicates several points: perhaps most importantly, that what seems clear in hindsight (the markets gave back their first quarter gains) is not at all clear as it is experienced.
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.
2010-07-12 Misallocating Funds by John P. Hussman of Hussman Funds
The relative abundance of physical and educational capital has been a driver of U.S. prosperity for generations, and is the main reason why American workers earn more than their counterparts in the developing world. Neither advantage in capital, however, is intrinsic to American workers, and it will be impossible to prevent a long-term convergence of U.S. wages toward those of developing countries unless the U.S. efficiently allocates its resources to productive investment and educational quality.
2010-07-12 Recession Odds Still on the Rise by David A. Rosenberg of Gluskin Sheff
The Economic Cycle Research Institute's weekly leading index fell again last week despite the equity market bounce. The spot index fell 0.6 percent for the second week in a row, and the growth index slipped to -8.3 percent from -7.6 percent at the end of June. While this is the only indicator so far suggesting that recession odds are rising, once you get to -8.3 percent, looking at the historical record, downturns occur more often than not.
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 Four Major Impediments to Economic Normalcy by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Although the four coincident indicators that the NBER utilizes in judging recession troughs have turned positive, two of them (income less transfer payments and employment) have only marginally shifted upwards and are subject to significant revisions. Thus, history may come to judge that the NBER was very wise to hold off making this end of recession call. The past several quarters may be nothing more than an interlude in a more sustained economic downturn, with further negative quarters still ahead. Such an outcome will suppress inflation further and quite possibly lead to deflation.
2010-07-09 Emerging Market GDP Growth: The Past Two Decades, and Our Projections for the Next Decade by Monty Guild and Tony Danaher of Guild Investment Management
Even with all the problems currently experienced in Japan, Europe, and the U.S., some parts of the world continue to grow vigorously. Guild's focus will be on the countries above which have strong prospects for growth. They will also focus on high-yielding income stocks which earn cash flows from the production of oil, and from gold, which will provide an anchor to windward in the current turbulent economic times. Today's markets will continue to produce those opportunities in the form of price weakness if we remain patient.
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 Currency Management Series - Part Two: Currencies as an Asset Class and Source of Alpha by John Lovito and Federico Garcia Zamora (Article)
Active currency management allows professional managers to extract alpha on a consistent basis. Two members of American Century Investments' management team explain why, despite being one of the most liquid markets, global currencies remain inefficient. We thank them for their sponsorship.
2010-07-06 Implications of a Likely Economic Downturn by John P. Hussman of Hussman Funds
Instead of directing savings toward investments in real, productive assets that we would observe as physical output, fixed capital, and equipment (and claims on those assets in the form of corporate stocks and bonds), our economy has been forced to choke down a massive issuance of government liabilities in order to bail out bad debt. For every dollar of debt that should have defaulted, we now have two dollars of debt outstanding: the original debt, and a newly issued government security. What appears to be 'sideline cash' is simply the evidence of past spending.
2010-07-06 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.
2010-07-06 Second Half Growth Will Slow, but is a Double-Dip Certain? by Chris Maxey of Fortigent
While it is easy to remain pessimistic on the state of the economy, especially following the events of 2008, the signs of a double-dip recession are simply not there yet. Slower growth is a given at this point, but this should not come as a surprise considering that it has been well-documented that previous stimuli would become a detractor to growth in the second half of 2010 and through 2011. Further stimulus packages are already being debated, even in the face of fiscal tightening by countries across Europe, as politicians face difficult battles at the polls.
2010-07-02 The New Ideological Divide by Peter Schiff of Euro Pacific Capital
Despite the apparent deficit-cutting solidarity that emerged from this weekend’s G-20 meeting in Toronto, it is clear that the great powers of the industrialized world have not been this philosophically estranged since the end of the Cold War. Ironically, in this new contest, the former belligerents have switched sides – the capitalists are now the socialists, and vice versa.
2010-07-02 And That's the Quarter That Was... by Ron Brounes of Brounes & Associates
As the quarter began, the economy continued its trek toward recovery; confidence had returned to corporate boardrooms; and investors were pouring their “cash-on-the sidelines” back into risky assets. Just when all seemed right in the world again, tiny Greece (and huge BP) began dominating the headlines. (Remember when a mere volcano was big news?)
2010-07-01 Summer Forecast (and Beyond) by The Emerald Team of Emerald Asset Advisors
With Spain and its PIIG friends continuing to cause anxiety in global investment circles, it's a good time to focus on the potential risks and rewards facing investors right now. In reviewing our commentary released on February 1st of this year, we find that little has changed in the reward/risk tradeoffs we see. Themes identified earlier this year are now starting to play out and come into focus, as often happens simply with the passage of time. So, here is a brief update on those themes and more importantly, how they are influencing the management of the portfolios we run.
2010-06-29 Inflation Protection Investment Strategies by Vern Sumnicht (Article)
The value of the dollar is sure to erode, and investors will be left to grapple with the inflationary consequences. As Vern Sumnicht shows in this guest contribution, recent policies suggest steep inflation may be just around the corner. Fortunately, investors have some options to bolster their portfolios against the threat of inflation.
2010-06-29 Country Risk: The World According to Robert Rubin by Christopher Whalen of Institutional Risk Analyst
Christopher Whalen writes about the role of Robert Rubin in Citigroup, Goldman Sachs, the Mexico bailout, and the threads he weaves throughout the White House administration’s fiscal policy.
2010-06-28 Recession Warning by John P. Hussman of Hussman Funds
Warning: the US economy appears to be headed into a second round of decline. Looking at lessons learned across countries and centuries, Dr. John P. Hussman argues that that ‘the economy is again turning lower, and that there is a reasonable likelihood that the U.S. stock market will ultimately violate its March 2009 lows before the current adjustment cycle is complete.’ The current argument that this outcome is ‘unthinkable’ is not evidence but rather reflects reliance upon incomplete data and narrow-minded perspectives.
2010-06-28 On The Merits of Hedged Equity by Chris Maxey of Fortigent
Despite positive predictions for the housing market, existing home sales fell in May. This may be due to a number of first time buyers who snapped up distressed properties, requiring a longer wait between contract acceptance and closing date. At the same time, new home sales plummeted and median home sale price fell. A glimmer of hope exists in this market as home prices are in the positive over a year-over-year basis.
2010-06-26 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Get used to this volatility and market uncertainty - it could last a while. This week, the naysayers won out again as concerns about the upcoming earnings season emerged and talk of a possible double-dip in Europe made its way into the Fed’s policy meeting. Financial reform appears to be headed to the Prez’s desk. The week found personal conflicts on the military front, a potential loss of the Budget Director, and the realization that a federal judge may have more power over issues of deepwater drilling. Is it time for the July 4th vacation yet? (Will we be able to afford the gasoline?)
2010-06-25 World Cup Fever in Africa by Mark Mobius of Franklin Templeton
The outlook for Africa is positive. It has stirred the interest of countries like China, India and other fast-growing emerging markets, which require increasing resources for their growing economies, as well as countries like Russia and Brazil, who look to expand their enterprises into global operations. South Africa, acting as a representative for the continent through the World Cup, has shown that it can host an international event to international standards, and this bodes well for the region's future investment prospects.
2010-06-25 Suiting Up For a Post-Dollar World by John Browne of Euro Pacific Capital
The U.S. has always benefited from its reserve-currency status, which allows it to accumulate unsustainable debts for an unusually long period without the immediate repercussions of inflation or higher borrowing costs. This false sense of security, however, may be setting us up for a truly monumental crash. After two decades as net sellers of gold, foreign central banks have now become net buyers. What's more, more than half of central bank officials surveyed by UBS didn't think the dollar would be the world's reserve in 2035.
2010-06-25 Does the Oil Leak in the Gulf of Mexico Herald a Big Discovery? by Monty Guild and Tony Danaher of Guild Investment Management
The Macondo well blowout may indicate that these Gulf of Mexico fields, located in deep water about 50 miles offshore and under another 20,000 to 35,000 of rock below the seabed, represent a massive oil discovery. The costs of exploitation will be huge (and already are), and it will probably be decades before the oil can be brought to the surface, but they may do a great deal to help the U.S. attain energy independence. Despite the ongoing tragedy of the Gulf oil spill, the reality is that these resources are likely to eventually make it to market.
2010-06-24 Daring to Compare Today to the 30s by David A. Rosenberg of Gluskin Sheff
Look at what we have today: No room to cut rates. No room – let alone political will – to cut taxes. And, in contrast to starting a new war, the U.S. is going to be pulling troops out of Afghanistan, which is a good thing for the troops and their families, but in terms of GDP impact it does represent fiscal withdrawal. The options to resuscitate the economy when it enters a 2002-03 style growth collapse are extremely thin, and probably lie on the Fed’s balance sheet, which means the bond-bullion barbell will likely remain a viable strategy.
2010-06-22 China Rising by Brian S. Wesbury and Robert Stein of First Trust Advisors
China just decided it will once again let its currency - the yuan - get stronger against the U.S. dollar. Yuan appreciation will do two things. First, it will lower Chinese inflation relative to U.S. inflation. Second, it will raise the living standards of Chinese citizens. Where previously the Chinese government might have wanted the peg in order to encourage export growth, now the political calculus is starting to favor expanding the purchasing power of its workers. This is a sign of maturity for both the economy and Chinese policymakers.
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 Niall Ferguson on Japan, China, and the US by Dan Richards (Article)
Harvard's Niall Ferguson is arguably today's leading economic historian. In part two of this interview, Ferguson explains why he fears the future is bleak for Japan, why China may someday be the leading global superpower, and what all this means for the US. We provide a video and a transcript.
2010-06-21 China's Currency Shift Not a Game-Changer by David A. Rosenberg of Gluskin Sheff
The big news over the weekend was the move by China to end the yuan peg to the U.S. dollar. This delink will allow the People’s Bank of China to pursue its own independent monetary policy. In turn, this will help to ease global trade imbalances, ward off the threat of trade protectionism, alleviate domestic credit strains and inflation pressures and accelerate the Chinese shift from export-led to consumer-led growth. It also suggests that the Chinese authorities have confidence in the sustainability of the global recovery.
2010-06-21 Why Own Gold? by John Petrides of Advisors Capital Management
Buyers of gold assume that a buyer will materialize who is willing to pay more for their shiny rock than they did. For this reason, buying gold is the epitome of a speculative investment. How does one value gold, from a fundamental standpoint? The conceptual answer is to match supply with demand and an equilibrium price is created, but how does one measure supply? Well, gold is mined, so that is one part of the equation, but what about holders such as central banks and investors, who keep the shiny rock in their vaults? How is that level of supply factored into the equation?
2010-06-21 Talking the Economy: Alex Pollock, Bruce Bartlett and Josh Rosner by Christopher Whalen of Institutional Risk Analyst
This commentary features snippets from interviews by IRA co-founder Chris Whalen for his upcoming book, Inflated: How Money and Debt Built the American Dream, which is scheduled for release in November. Alex Pollock of the American Enterprise Institute, Bruce Bartlett, a domestic policy adviser to President Ronald Reagan and Treasury official under President George H.W. Bush, and Josh Rosner, principal of Graham-Fisher, all discuss the economic outlook.
2010-06-18 Chinese Workers Force the Issue by Neeraj Chaudhary of Euro Pacific Capital
Chinese factory workers and other laborers across the country are going on strike, thus defying the orders of their government-run unions and risking dismissal by their employers. The Chinese government must find a way to nip their labor issues in the bud. The best policy approach would involve yuan revaluation. By reducing the rate of inflation of the Chinese yuan, the purchasing power of the yuan will increase, thereby allowing Chinese workers to better enjoy the fruits of their labor. As living standards rise, worker unrest will subside, and the impetus to strike will vanish.
2010-06-18 Gold vs Dollar Correlation by Team of Bespoke Investment Group
With gold trading at a record high, we wanted to highlight the shifting correlation between it and the US Dollar. Normally, when gold rallies, the dollar declines and vice versa. However, as the chart below illustrates, gold and the dollar have become increasingly unlinked. In the chart, positive readings close to one indicate a strong positive correlation, while readings closer to negative one indicate a strong inverse correlation. The current level of -0.18 indicates a very weak inverse correlation.
2010-06-17 Hayward to Depart as CEO? Goldman to Pay $25 Million or More? Place Your Bets by Team of Bespoke Investment Group
Traders on Intrade are currently putting the odds of BP's Tony Hayward to depart as CEO by the end of the year at 59 percent. How about Goldman Sachs? The last trade on the contract for CEO Lloyd Blankfein to depart by the end of the year puts the odds at 20 percent. Odds for Goldman to pay a fine of at least $25 million to the SEC by the end of the year are at 80 percent. The November elections are being heavily traded on the site. Odds for the Republicans to take back the House of Representatives in November are at 47 percent.
2010-06-17 Getting a Grip on Reality by David A. Rosenberg of Gluskin Sheff
Double-dip risks in the U.S. have risen substantially in the past two months. While the economy's 'back end' of industrial production is still performing well, this lags the cycle. The 'front end' of consumer sales and housing leads the cycle. We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June is pointing to subpar activity. The housing sector is going back into the tank - there is no question about it. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions.
2010-06-17 The New Economic Reality - Part III by Monty Guild and Tony Danaher of Guild Investment Management
Inflation can occur in either an economic expansion or a depression. In either case gold, currencies of countries with conservative financial management and stable banking systems, real estate, and other real assets can do well. In an inflationary expansion fast growing companies and producers of commodities will also do well. During deflation, bonds will do well if the issuer can make the payments. Gold often holds its value in terms of buying power even in a depression.
2010-06-15 'May Momentum K