More on Related Themes
2013-05-24 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
The two Asian giants have a challenging year ahead. The Fed will be challenged to keep the bond market under control.
2013-05-24 The Love Trade for Gold is Still On! by Frank Holmes of U.S. Global Investors
The more important demand for gold, in my opinion, comes from the enduring Love Trade, as countries like China and India buy the precious metal out of love and tradition.
2013-05-24 Bifurcation Blues by Herbert and Randall Abramson of Trapeze Asset Management
Bifurcation. A very technical sounding word. It merely means “a division into two parts”, which is what we are witnessing in many areas related to investment, both macro and micro. And it is exhibiting to value investors those areas to avoid and the most attractive to embrace. And giving rise to a wide range of disparate opinions among economic and investment professionals as to what outcomes are likely. Needless to say, we have our own strong views.
2013-05-24 After the Sell Off in Japan: 2 Reasons Not to Panic by Russ Koesterich of iShares Blog
Russ explains why Thursday’s market correction in Japan hasn’t changed his view that investors should consider a market weight to Japanese stocks.
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.
2013-05-23 QE from 35,000 Feet by Scott Minerd of Guggenheim Partners
Quantitative easing has benefited from global macro events and appears likely to continue for the rest of the year. Markets, though, will continue to anticipate how the current policies will eventually be unwound.
2013-05-22 Cyprus and the Eurozone...Still Stuck in the Middle by Gregory Hahn of Winthrop Capital Management
The debt crisis in the Eurozone turned another chapter as Cyprus finally reached the point of requiring a bailout from the European Union. The wisdom of Gerry Rafferty’s hit song “Stuck in the Middle with You” which was written in 1973, rings true today as we watch the EU and the European Central Bank navigate the mess in Europe. With each attempt at containment, there appears some plot twist, the proposed Cyprus bank bailout is no exception. While the bailout of Cyprus and its banks is not large in size, only 10 billion, relative to the Cyprus economy, it is significant.
2013-05-22 How to Turn the ECB Straggler into a Central Bank Pacemaker by Myles Bradshaw of PIMCO
In our opinion, the ECB will be most effective if it can design a programme that helps banks deleverage more quickly to stimulate growth in the real economy. To have a meaningful impact on Europe’s broken transmission mechanism, any ECB programme needs to not only lower the cost of credit, but also be regionally tailored or big enough to be effective. Long-term investors should remain focused on the quality of issuers’ balance sheets rather than simply taking more risk because of lower prospective returns.
2013-05-22 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 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 High Yield Market Overview by Team of Nomura Asset Management
The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, was up 1.86% for the month of April, as the high yield market continued to benefit from stable U.S. economic growth and steady asset reflation driven by the Federal Reserve and global central banks.
2013-05-21 Putting Cash to Work: 3 Ways to Enter the Market Today by Russ Koesterich of iShares Blog
With global equities up more than 25% since their bottom last June, many investors are wondering: “Is it too late to move cash from the sidelines to stocks?” No, says Russ, and he offers three ideas for where find value today.
2013-05-20 Global Real Estate Is Hot Again, but Where Are the Best Opportunities? by Joe Rodriguez of Invesco
In this low interest rate environment, yield-hungry investors have been moving out of bonds, and many are opting for real estate investment opportunities. Combine that with a structural undersupply of institutional quality real estate in many key cities across the globe, and an attractive case for investment starts to emerge. Here’s where we see the most attractive and promising opportunities by region this year.
2013-05-20 ProVise Bullets by Ray Ferrara of ProVise Management Group
When the President put forth his proposed budget for the 2014-15 fiscal year which begins October 1st, he went out of his way to offer an olive branch to the Republicans on entitlement programs - especially Social Security and Medicare. The President proposed changing the cost of living adjustments in such a way that, over time, there would be significant savings to the government, but of course, take the money away from the recipients.
2013-05-20 Not in Kansas Anymore by John Hussman of Hussman Funds
Knowing where you are doesn’t mean that you’re leaving, but you should still know where you are.
2013-05-20 Bernanke's JEC Testimony by Scott Brown of Raymond James
On Wednesday, May 22, Federal Reserve Chairman Ben Bernanke will testify on “The Economic Outlook.” The next monetary policy meeting is four weeks away, but Bernanke is likely to provide a preview of what will be discussed at that time specifically, on the issue of when to begin reducing the rate of asset purchases. The short answer may be “it depends.”
2013-05-18 All Japan, All the Time by John Mauldin of Millennium Wave Advisors
This week we again focus on Japan. Their stock market has been on a tear, and their economy grew 3.5% last quarter. Is Abenomics really the answer to all their problems? Is it just a matter of turning the monetary dial a little higher and voila, there is growth? Why doesn’t everyone try that? And what would happen if they did?
2013-05-17 Weekly Economic Commentary by Team of Northern Trust
Predictions of an American manufacturing renaissance may be premature. Does the Fed have to worry about deflation? The U.S. fiscal deficit is narrowing rapidly.
2013-05-17 Weekly Market Highlights by Matthew Rubin of Neuberger Berman
Bank of England leaves monetary policy unchanged.
S&P 500 and DJIA post gains of 1.3% and 1.1%, respectively. U.S. inflation and housing data and euro area GDP headline this week’s economic releases.
2013-05-15 Is Japan\'s Sun Rising Again? by Kenichi Amaki of Matthews Asia
Japan’s stock market continues to rise while its currency heads in the other direction. Its new leaders, now enjoying high approval ratings, are battling deflation and trying to jump-start its economy with a new determination. This month Kenichi Amaki takes a look at what, if anything, is different this time.
2013-05-15 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 Guide to Working with Monetary Napalm by Scott Colyer of Advisors Asset Management
Napalm is a highly incendiary form of jellied fuel. It was used extensively in the Vietnam War to quickly ignite massive fires over large areas of land. In the world of financial incendiaries, the Fed’s overwhelming monetary stimulus has ignited asset prices in the United States with the force and effectiveness of napalm. Is the fire short lived? Are the gains in asset prices temporary or can they be believed? Are the housing and stock markets on fire just because of the Fed’s quantitative easing (QE) or could there be a much more fundamental reason?
2013-05-13 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.
2013-05-13 Closing Arguments: Nothing Further, Your Honor by John Hussman of Hussman Funds
Nothing further, your honor. I am resting my case.
2013-05-13 Tenuous Times? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
US stocks continue to make new highs, yet commodities have struggled and Treasury yields remain low, albeit up from recent near-record lows. Although not the standard playbook, we remain optimistic but acknowledge an equity pullback can occur at any time. Manufacturing data has been soft, the employment picture is mixed, and housing continues to improve. The European Central Bank (ECB) has joined the easing arty, illustrating the continued disappointments coming out of the eurozone.
2013-05-13 Americas: Regional Economic Review 1Q 2013 by Team of Thomas White International
Weaker global demand and prices for energy and commodities, as well as softer than expected domestic consumption have restricted the growth outlook for most economies in the Americas region during the first three months of the year. Fewer monthly job additions in the U.S. have dented consumer confidence, and growth for the current year is now forecast to be moderately lower than earlier expectations.
2013-05-10 The U.S. Economy Stands to Gain from Actions of Central Banks by Team of Northern Trust
Recent central bank meetings have resulted in a reiteration of accommodative monetary policy from the Federal Reserve and new initiatives from its counterparts overseas.
2013-05-10 Countries Should Be Careful Not to Overstimulate Their Housing Markets by Team of Northern Trust
Countries should be careful not to overstimulate their housing markets. Credit extension is improving, but remains modest.
2013-05-08 Are Investors Breathing a Sigh of Relief? by Bob Doll of Nuveen Asset Management
Last week U.S. equities delivered another gain as the S&P 500 increased by 2.0%.1 On Friday, the U.S. jobs report offered relief from fears of an accelerating weakness caused by prior softness during this time in each of the last three years. However, the full set of economic data for the week supports our view of a slower second quarter in a post-sequestration environment.
2013-05-08 US Economy Should be \"Good Enough\" for Stocks by Russ Koesterich of BlackRock Investment Management
The April employment report confirms that the US is on a slow-but-positive course of economic growth. This environment should be conducive to further gains in equity prices. Europe, in contrast, continues to struggle and investors should approach that region with caution.
2013-05-08 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 Bail-Ins, Bernanke, and Buyouts: Assessing Key Event Risks for Fixed-Income Investors by Team of Hartford Funds
While the eventual shift to less accommodative central-bank policy and a rise in global interest rates are perhaps the greatest focuses of concern today for bond investors, other risks also merit scrutiny. European sovereign debt worries have resurfaced as the tiny nation of Cyprus, representing just 0.3% of euro-area gross domestic product (GDP), joined the list of bailout recipients. Recent rhetoric from the Fed has prompted investors to consider the impact of an eventual winding down of its asset purchases.
2013-05-06 Aligning Market Exposure With the Expected Return/Risk Profile by John Hussman of Hussman Funds
Some risks and market conditions are more rewarding than others. My objectives for this week’s comment are very specific. First, to demonstrate using a very simple model that investment returns do indeed vary systematically with market conditions. Second, to demonstrate that overvalued, overbought, overbullish conditions have historically dominated trend-following measures when they have emerged. Third, to demonstrate the impact of accepting investment exposure in proportion to the return/risk profile that is associated with a given set of market conditions.
2013-05-06 All's Well That Ends Well by Scott Brown of Raymond James
The economic data reports were decidedly mixed last week. However, the April Employment Report exceeded expectations, which provided a good excuse for share prices to move higher. Bonds were whipsawed, encouraged by the view that the Fed was less likely to taper its asset purchases, but then hit hard by the better-than-expected payroll figures.
2013-05-03 Pring Turner Approach to Business Cycle Investing by Team of AdvisorShares
Like the seasons of the year, the environment for bonds, stocks, and commodities progress in a repeatable and sequential fashion. A gardener understands it is difficult to plant in the winter because nothing grows. The same is true for the financial seasons in the business cycle, where investors can use knowledge of the sequence to create a financial market roadmap. This paper from Pring Turner Capital Group, one of our valued sub-advisors, takes you through the six-stages of the business cycle.
2013-05-03 Job Creation May Be More Robust Than Official Statistics Suggest. by Team of Northern Trust
Job creation may be more robust than official statistics suggest; U.S. employment situation; Central bank meetings
2013-05-02 Fed Doesn\'t Budge by Brian Wesbury, Bob Stein of First Trust Advisors
It would be hard to find a policy statement from the Federal Reserve with as few changes as the one issued today. The Fed made no changes to monetary policy and only minor changes to the language of its statement. Even the lone dissent, from Kansas City Fed Bank President Esther George, was a carbon copy from the last statement in March.
2013-05-01 Emerging Asia Pacific: Regional Economic Review by Team of Thomas White International
Major emerging Asia Pacific economies, which picked up growth momentum during the latter half of 2012, struggled to carry forward the economic pace during the initial months of 2013. China, India, and Indonesia, some of the most populous countries in the region and in the world, faced significant headwinds to growth as key engines of the economy investment, consumption, and exports came under strain.
2013-05-01 May 2013 Commentary by Team of Sadoff Investment Management
The slow growing economy will cause the Federal Reserve to stay the course with continued stimulus via low interest rates and Quantitative Easing (QE) for some time. This environment continues to be bullish for stocks.
2013-05-01 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 Likely Rate Cut from the European Central Bank Will Be No Magic Wand by Darren Williams of AllianceBernstein
Disappointing April data suggest that the ECB is set to cut the refinancing rate at Thursday’s Council meeting. This is likely to have limited economic impact but could encourage expectations of more creative policy action later, helping to take some upward pressure off the euro.
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.
2013-04-29 New Highs Bring New Worries by Richard Golod of Invesco
The sustainability of the rallies in US and Japanese equities this year so far is looking uncertain amid slowing year-over-year earnings growth and mixed global economic signals. European and emerging market shares have traded lower year to date and seem likely to continue lagging in the near term. However, on balance, I remain optimistic about global equities, seeking yield opportunities and investments with an actively managed, more selective approach.
2013-04-29 Developed Asia Pacific: Regional Economic Review by Team of Thomas White International
After facing subdued economic conditions for the most part of 2012, developed Asia Pacific economies started 2013 on a cautious note. While most countries opined that downside risk to GDP growth declined substantially, challenges to growth arose from a recessionary scenario in key developed economies, especially from the European Union.
2013-04-29 Economic Slowdown Has Not Weakened Share Prices by Bob Doll of Nuveen Asset Management
U.S. equities rebounded last week as the S&P 500 increased by nearly 1.8%,1 despite continued weak economic data. We believe recent data is not yet weak enough to change forecasts. The relative stability of data and forecasts - supported by stimulative monetary policies, an improving U.S. housing market and fading political polarization in the U.S. and Europe - sends a message of reasonably low volatility and manageable downside risks.
2013-04-26 An Update on the Global Business Cycle by Investment Strategy Group of Neuberger Berman
Understanding where we are in the an important aspect of investing, as the behavior of asset classes may vary throughout that cycle. Recent data indicate that the U.S. remains in its fourth year of expansion, but payroll and retail numbers have disappointed. Outside the U.S., Europe continues to be mired in recession while China’s growth rebound recently has appeared to sputter. In this edition of Strategic Spotlight, we review what these developments mean for the global business cycle and how to position portfolios accordingly.
2013-04-26 The Sustainability of U.S. Interest Rates Rising by Paresh Upadhyaya of Pioneer Investments
Investors are growing concerned, with good reason, we think, that yields have bottomed for the 10-year Treasury and will surge as the economy gains strength. Prices, which move inversely to yields, would fall, and the question is whether rising rates in 2013 could trigger a bond bear market along the lines of the Great Bond Bear Market of 1994. We don’t think so.
2013-04-26 The Yin and the Yang of Commodity Price Trends by Team of Northern Trust
In recent weeks, financial press headlines have centered on the sharp drop in the price of gold. Of greater importance, however, are the significant price declines of oil, wheat, corn and copper. The S&P Goldman Sachs Commodity Index is down 6.1% year-to-date after a nearly steady reading in 2012 and gains exceeding 20% in both 2010 and 2011. It is essential to recognize the different nuances buried in these commodities’ price trends. First we will focus on the implications of declining commodity price trends and then discuss gold specifically in more depth.
2013-04-26 No Escape by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Global economic growth has weakened, while the US economy hasn’t reached "escape velocity." US stocks have held up relatively well. With few other attractive alternatives, domestic equities appear to be the best house in a rough neighborhood. With the Fed committed to easing, housing improving, and valuations reasonable, the trend should continue. Risks remain and diversification and some hedging strategies are recommended.
2013-04-26 Why The Fed's Balance Sheet Matters Neosho Capital Takes On Alan Blinder by Chris Richey of Neosho Capital
We anticipate the Fed will begin slowing, but not eliminating, its QE purchases later this year, barring another severe downturn in the intervening period. As such, we expect macro-economic factors such as currency, interest rates, growth, and inflation to continue to be a significant influence on stock market returns and that the long-term benefits of active portfolio management and individual company performance will continue to be masked by these macro influences.
2013-04-26 A Playbook for Investors: How to Shoot, Score, Win by Frank Holmes of U.S. Global Investors
So, in the competitive spirit of the NBA playoff season, I’ve gathered a series of plays that investors can use to shoot, score and win during this year’s market. I’m happy to say they include all the elements of an exciting game, including a comeback kid, an upset and an underdog.
2013-04-26 Financial Repression: Why It Matters by Shane Sheperd of Research Affiliates
Financial repression refers to a set of governmental policies that keep real interest rates low or negative, with the unstated intention of generating cheap funding for government spending. The ramifications of these policies will be measured in decades, not years.
2013-04-25 Murkier Prospects for Merkel by Milton Ezrati of Lord Abbett
An anxious German electorate may make it harder for the chancellor to continue her pro-cooperation approach to Europe’s fiscal crisis.
2013-04-24 Will Abenomics' Ensure Japan's Revival? by Team of Thomas White International
According to a World Bank (WB) report, global growth in 2013 will remain sluggish as economic recovery in the developed nations is likely to be slow. Lower business and consumer confidence, government spending cuts, as well as high rates of unemployment may delay the recovery, the report says. The report has also noted that developing nations may experience slower growth due to structural and monetary policy challenges.
2013-04-24 Europe's Sovereign Debt Problem: A Call for a Clear Destination by Andrew Bosomworth, John Henning Fock of PIMCO
Without political commitment to a common fiscal destination, the long-term instability and market distortions within Europe’s capital markets are likely to intensify. To preserve the euro, the eurozone must develop federal fiscal policies that tackle significant economic, cultural and societal differences and define a credible roadmap to achieving structural reforms, a banking union, political union and fiscal union. Historical precedents in Europe may help guide the way.
2013-04-23 The New Challenges to Reinhart and Rogoff by Robert Huebscher (Article)
Advocates for debt reduction and austerity have had no more authoritative sources than Carmen Reinhart and Ken Rogoff. But last week, these two professors had to defend claims that errors in their research – ranging from a typo in a spreadsheet to the failure to include data from New Zealand – invalidated their much-acclaimed findings.
2013-04-23 Middle East/Africa: Regional Economic Review by Team of Thomas White International
According to a World Bank (WB) report, global growth in 2013 will remain sluggish as economic recovery in the developed nations is likely to be slow. Lower business and consumer confidence, government spending cuts, as well as high rates of unemployment may delay the recovery, the report says. The report has also noted that developing nations may experience slower growth due to structural and monetary policy challenges.
2013-04-23 Federal Funds, Interest Rates and Defaults and Bankruptcies by Gregg Bienstock of Lumesis
This week we focus on Federal Funds delivered to the States and consider some interesting data points to contemplate as folks pretend to get a bit more serious about addressing fiscal issues at the National level. We move on to an interesting and surprising quote on rates and then a look at some facts and figures around bankruptcies and defaults.
2013-04-23 The Next Steps For the Euro: What Is Needed to Ensure Its Survival? by Keith Wade of Schroders Investment Management
The near term outlook for the Eurozone remains bleak, with the latest International Monetary Fund (IMF) forecasts showing 2013 as another year of falling output for the region. Better growth is desperately needed and there is a case for more cyclical support through easier monetary policy, but there are also structural obstacles to stronger growth. Unless these are addressed, any pick-up in growth will ultimately flounder. In this Talking Point I look beyond the near term cyclical challenges and consider what the Eurozone needs to do to ensure its long term viability.
2013-04-22 Strategy for a Second Gear Economy by David Kelly of J.P. Morgan Funds
American investors could be forgiven for feeling just a little confused. One week after the stock market posted its strongest first-quarter gains since 1998, the Bureau of Labor Statistics announced the weakest monthly job growth in nine months. Real GDP growth was just 0.4% in the fourth quarter but appears to have been much stronger in the first. So is the economy getting stronger or weaker, how is the Federal Reserve likely to react to it and what, if anything, should investors do about it?
2013-04-22 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 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 Guess What? Growth is Back! by Brian Wesbury, Bob Stein of First Trust Advisors
The first quarter has come and gone and lots of data have been released. Still, there are pieces of data missing and these missing data points make forecasting GDP treacherous.
2013-04-20 Austerity is a Consequence, not a Punishment by John Mauldin of Millennium Wave Advisors
Austerity is a consequence, not a punishment. A country loses access to cheap borrowed money as a consequence of running up too much debt and losing the confidence of lenders that the debt can be repaid. Lenders don’t sit around in clubs and discuss how to “punish” a country by requiring austerity; they simply decide not to lend. Austerity is a result of a country’s trying to entice lenders into believing that the country will change and make an effort to restore confidence.
2013-04-19 F.I.R.S.T.: Bond Market Outlook by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Amid heightened political uncertainty in Europe and subdued global growth expectations, global investors owe Hiroki Kuroda a big domo arigato for his pledge to inject about $1.4 trillion into the moribund Japanese economy by the end of 2014. The newly appointed BOJ governor’s unprecedented plan to buy Japanese government bonds,
2013-04-19 The Pharaoh's Dream by Andrew Bosomworth of PIMCO
As yields on assets decline, central banks’ ultra-loose monetary policies are effectively forcing investors further out the concentric circles into lower quality, more illiquid sectors in search of positive yielding assets after deducting inflation. In order to achieve 6%-7% returns in the future, investors may be required to take on more risk. Allocating part of a portfolio away from “middle circle” asset classes into assets with higher return potential as well as assets offering liquidity is the right strategy in our opinion.
2013-04-19 Japan Steps into the Void by Peter Schiff of Euro Pacific Capital
In the years following the global financial crisis, economists and investors have gotten very comfortable with very high, and seemingly persistent, government debt. The nonchalance may be underpinned by the assumption that globally significant countries that can print their own currencies can’t get trapped in a sovereign debt crisis. However, it now appears that Japan is preparing to put this confidence to the ultimate stress test.
2013-04-19 First Quarter Investment Commentary by Team of Litman Gregory
Looking ahead, significant uncertainty surrounds fiscal and monetary policy in terms of what policies will be adopted and their ultimate economic and financial market impacts. More broadly, still-high global debt levels pose an economic headwind. Against this backdrop, our outlook for stocks has not improved. If anything, given the sharp run-up in stock prices, we are getting closer to reducing our U.S. equity exposure further than we are to increasing it.
2013-04-18 Reversing Quantitative Easing by Richard Bernstein of Richard Bernstein Advisors
The Fed is likely to lag the markets, as they do in most cycles. The markets will probably anticipate the Fed reversing QE. The Fed will surprise few investors. The Fed should reverse QE in a yield curve-neutral way, in our view. Steepening the curve risks perversely stimulating the economy by making carry trades and loan spreads more profitable. This cycle will probably end as do most cycles. The Fed will be behind the curve, play catch-up, tighten too much, invert the curve, and cause a recession. That end result, however, is probably quite far in the future.
2013-04-17 Hyperactive Monetary Policy: The Good, the Bad and the Ugly by Lupin Rahman, Mohit Mittal, Josh Thimons of PIMCO
Hyperactive monetary policy (HMP) is in full force as fiscal policy retreats. The benefits of HMP outweigh the costs for now. Despite cyclical growth, we will likely not achieve escape velocity and eventually the costs will likely overtake the benefits.
2013-04-17 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 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 What\'s Driving Emerging Markets? by James McDonald, Daniel Phillips, Phillip Grant of Northern Trust
Emerging market (EM) equities have historically outperformed as the global economy gained momentum, as shown in Exhibit 1. After a great catch-up rally in the second half of 2012, the stocks finished the year as global outperformers only to lose that momentum in the first quarter of 2013. What is behind the recent underperformance, and what does it say about the outlook? Our research points to a number of contributors to the recent weakness.
2013-04-17 Emerging Markets Equity Commentary by Team of Thomas White International
Emerging market equities corrected for the second successive month in March, on concerns that continuing weakness in European demand could hurt export growth for several countries in Asia and Latin America. These economies had seen a revival in their export fortunes during the second half of last year as U.S. consumer demand turned healthier. However, the moderation in U.S. consumer sentiment during March has somewhat dulled the optimism.
2013-04-16 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 High Yield Market Overview by Team of Nomura Asset Management
The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, was up 1.03% for the month of March, as the high yield market continued to benefit from stable U.S. economic growth and steady asset reflation driven by the Fed and global central banks.
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.
2013-04-15 Keynes And Retail Sales by Brian Wesbury, Bob Stein of First Trust Advisors
No, just because retail sales fell 0.4% in March does not mean Keynes was right. Sequestration did not cause the decline. Nor did the end of the temporary 2% payroll tax cut, back in January, cause it either.
2013-04-12 The Bank of Japan Pulls All the Stops by Raymund Uy of Invesco
The Bank of Japan (BOJ) surprised the markets by announcing a particularly aggressive round of quantitative easing (QE) designed to rid the Japanese economy of its persistent deflation. The new policy was unexpected not only in the size of the asset purchases announced, but also in the types of securities to be purchased and their maturity.
2013-04-12 How a Landslide Shifts Copper Supply by Frank Holmes of U.S. Global Investors
The U.S. mining industry was dealt a devastating blow as Kennecott Utah Copper’s Bingham Canyon Mine experienced a pit wall failure causing a massive landslide with rocks and dirt covering the bottom of the mine pit. It’s a miracle no one was hurt due to the vigilance of its owner, Rio Tinto. The landslide is just one example of how quickly and unexpectedly the supply and demand factors facing the red metal can shift, which underscores the need for nimble active management.
2013-04-12 Everyone Wants More Financial Stability, But at What Cost? by Carl Tannenbaum of Northern Trust
For all the good intentions, there is no guarantee that the rush to re-regulate will be successful. The next crisis may look nothing like the one just past, and the political will to take tough preventative steps during good times cannot be taken for granted.
2013-04-12 Soft Patch - Part Four? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Stocks continue to trade at all-time highs, but concerns are rising over a possible pullback and downturn in economic growth. A consolidation of gains is likely, but trying to trade around a pullback can be quite difficult. A potential tapering of Fed asset purchases continues to be discussed, but the Fed also appears nervous over the potential for a spring downturn. Cooler heads appear to be gaining traction in Washington and at least some marginal progress is being made. Economic improvement is gaining traction in Japan, raising hopes of sustainable change, while Europe continues to suffer.
2013-04-11 The Ripple Effect of Abenomics by Scott Minerd of Guggenheim Partners
Monetary policy in Japan will continue to drive investors in that country to overseas markets, which will affect global asset prices and bond yields.
2013-04-11 Bank of Japan Surprises Market and Yen Reacts by Team of Nomura Asset Management
We recently indicated on March 14, 2013 that we believed the Yen would remain range bound near the level of PPP (purchasing power parity), which we estimated to be between 90 to 95 Yen/USD. We wrote at the time that though currency movements will be affected by various factors, the monetary policies of both Japan and the U.S. are the most important.
2013-04-11 Global Investing in 2013: Policy Dominance, Active Management and a New Paradigm in Currencies by Scott Mather of PIMCO
We expect that the impact of ongoing global policy experimentalism on real economic growth and financial markets will likely vary substantially from country to country, creating both risks and opportunities. With flexible, active global strategies investors can potentially benefit from a broader opportunity set and the ability to go off benchmark in an effort to both avoid risks and tap opportunities.
2013-04-10 High Yield and Bank Loan Outlook by Team of Guggenheim Partners
While leveraged credit is far from the bargain it was four years ago, discussions of a bubble are premature at this point. Although we have entered the advanced stages of the rally, historical precedent and the continuation of accommodative monetary policy suggest that spreads, particularly those of lower-rated bonds and bank loans, may tighten materially from current levels.
2013-04-09 John Hussman – Why Prospective Returns Are Low by Robert Huebscher (Article)
Monetary and fiscal policies have driven our economy into an unstable equilibrium, pushing investors into higher-yielding securities, according to John Hussman. But those higher yields are illusory, he said, because corporate profit margins are too high to be sustainable.
2013-04-09 PIMCO Cyclical Outlook for Asia: How Leadership Changes Are Shaping Asia's Outlook by Q&A with Ramin Toloui, Tomoya Masanao and Robert Mead of PIMCO
For Asia, “slow but not slowing” global growth will likely keep external demand neutral, and policy developments will therefore help shape the economic outlook. In Japan, we see a significant boost to aggregate demand coming from the concerted monetary and fiscal expansion of the new Abe government. In China, concerns about inflation, housing market excesses, and long-term financial stability are prompting policy restraint that should keep growth below 8% this year.
2013-04-09 Morning in Japan by Christian Thwaites of Sentinel Investments
There were two very important central bank meetings last week, one from the Bank of Japan the other the ECB. Bank of Japan press conferences have been soporific affairs for years with a few QE programs not leading to much and no changes to inflation targets. Deflation, a declining workforce and falling aggregate demand have been pretty much the unbroken story for the best part of two decades.
2013-04-08 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.
2013-04-05 PIMCO Cyclical Outlook for the U.S.: Back From the Brink by Josh Thimons of PIMCO
We expect the largest contributors to U.S. growth this year will be housing and related industries, increases in capital expenditures (albeit from very depressed levels), certain manufacturing sectors, such as the auto industry, and the energy sector. We see roughly 1.7 percentage points of drag on GDP coming out of Washington far less than the four to five percentage points of potential drag had there been no fiscal cliff resolution. We believe the Fed will continue with hyperactive monetary policy, which we now call “QE Infinity,” that does not have an explicit end date or progr
2013-04-05 This Week's Central Bank Meetings Revealed a Range of Behavior by Team of Northern Trust
This week’s central bank meeting revealed a range of behavior. The U.S. employment report fell well short of expectations. Does China have a property bubble?
2013-04-04 Short-Duration High-Yield Bonds: An Attractive Solution for a Low-Yield, Rising-Rate Environment by Eric Scholl, Tom Saake of Allianz Global Investors
With Treasury yields at historically low yields, investors need to look elsewhere for the income they need. Eric Scholl and Tom Saake, portfolio managers at Allianz Global Investors, discuss why high-quality short-duration high-yield bonds may be a good solution for today’s low yield environment and can provide protection against rising rates in the future.
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 The Long Mystery of Low Interest Rates by Kenneth Rogoff of Project Syndicate
As policymakers and investors continue to fret over the risks posed by today’s ultra-low global interest rates, academic economists continue to debate the underlying causes. While everyone accepts that a global savings glut is at the root of the problem, no one has provided a convincing explanation of what, exactly, is driving it.
2013-04-03 First Quarter Recap by Bob Doll of Nuveen Asset Management
This past month marked the fourth anniversary of the global equity market bottom on March 9, 2009. U.S. stocks have clawed back all of the losses from the Great Recession and are near historical highs. Most other major markets are still well below their 2007 peaks, but have rebounded sharply since last June and look increasingly resilient. However, there is tremendous anxiety about the economic outlook, and many investors fear equities and other risk assets are floating on a sea of liquidity rather than solid fundamentals. We are more constructive and maintain a pro-growth investment stance.
2013-04-02 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.
2013-03-29 Learnings From the Cyprus Saga by Carl Tannenbaum of Northern Trust
There are important differences between the situation in Cyprus and the challenges other southern European nations face that should limit the transfer of financial trauma. The hope remains that the ECB’s promise to do whatever it takes to solve the sovereign debt crisis will ultimately settle markets. But access to certain types of ECB support requires reaching agreement on restructuring with the same European officials who have handled the situation in Cyprus so maladroitly.
2013-03-28 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 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.
2013-03-28 Whatever It Takes in Japan? It Takes an 'Audacious' Monetary Policy! by Richard Clarida and Tomoya Masanao of PIMCO
The BOJ will have to make some key monetary policy decisions soon, given Kuroda’s sincere but ambitious desire to achieve 2% inflation within two years. The BOJ has lagged far behind other major central banks in the deployment of its balance sheet since the onset of the financial crisis. Expect Japan’s monetary policy to be more aggressive and experimental as it shifts toward reflating the economy. For global investors, this may mean a modest economic growth contribution from Japan, at least over a cyclical horizon, as well as additional central bank liquidity pouring into global m
2013-03-27 What Happened to That Export-Led Recovery? by Mike Amey of PIMCO
With nearly 50% of the UK’s total exports going to Europe, an economic area constantly flirting with its own recession, it is no surprise to see that UK trade performance has been challenged.As the US continues to re-heal, and trade becomes more geographically diversified, we should see exports start to grow once more, albeit off a modest base. The easing in sterling is undoubtedly welcome and will improve prospects for exports, but it is unlikely to be a “game changer”.
2013-03-27 You Can't Be Serious by John Mauldin of Millennium Wave Advisors
I admit to being surprised by Cyprus. Oh, not the banking crisis or the sovereign debt crisis or the fact that its banks were eight times larger than the country itself or even the fact that the banks were bloated with Greek debt that had been written down. I wrote about all that a long time ago. What surprised me was that all the above was apparently a surprise to European leaders.
2013-03-27 Why Not a Quantitative Target for Quantitative Easing? by Paul Kasriel of Econtrarian, LLC
When I should have been practicing my bass guitar in preparation for my band class Thursday evening, I, instead, watched the first few minutes of Federal Reserve Chairman Bernanke’s post-FOMC press conference. A number of press inquiries were related to adding specificity to the FOMC’s criteria for modifying its current $85 billion per-month purchases of securities. In the short time that I watched the press conference, Chairman Bernanke did not seem to satisfy the press on this issue.
2013-03-26 Currencies in a Race to Debase by Chris Maxey, Ryan Davis of Fortigent
Since the start of the year, investors have seen rapid shifts of sentiment in currency markets. The debasement that for so long was assumed to be a purely Western phenomenon is beginning to impact countries globally, driving changes in expected returns and growth prospects.
2013-03-25 Fed Outlook: Cautiously Optimistic or Just Hopeful? by Scott Brown of Raymond James
The Federal Open Market Committee’s latest policy meeting generated few surprises. The FOMC maintained its forward guidance on the federal funds rate target, which is still not expected to start rising until 2015, and did not alter its asset purchases plans ($40 billion per month in agency mortgage-backed securities and $45 billion in longer-term Treasuries). However, in his press briefing, Bernanke indicated that the pace of asset purchases could be varied as progress is made toward the Fed’s goals or if the assessment of the benefits and potential costs of the program were to cha
2013-03-25 Cyprus Reminds Us of Threats and Improving Global Economy by Bob Doll of Nuveen Asset Management
Equity averages sagged slightly last week. Strength later in the week made up for earlier weakness as the equity rally paused for the Cyprus crisis. We (and the consensus) perceive Cyprus as mainly a local problem and believe it supports our view to remain cautious with Eurozone weightings.
2013-03-25 Housing Recovery Still Young by Brian Wesbury, Bob Stein of First Trust Advisors
Into early 2012, conventional wisdom argued that the odds of a robust housing recovery were lower than the odds of New Mexico and Georgetown losing to Harvard and Florida GC.
2013-03-22 ING Fixed Income Perspectives March 2013 by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Developed sovereigns are still broadly unattractive, but global central banks appear poised to ease. We prefer EM currencies that will continue to benefit from positive global growth and tolerate further upward pressure on the U.S.
2013-03-22 The Success of Central Bank Policy Is Not Measured By The Revenue It Generates by Team of Northern Trust
The success of central bank policy is not measured by the revenue it generates. Cyprus is a small country that could cast a long shadow. The U.S. dollar’s fortune is changing
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 Fed Still Inching Toward Optimism by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve made no changes to monetary policy today and only some small changes to the language of its statement. Once again, the Fed’s comments were slightly more optimistic about the economy than they were after the prior meeting.
2013-03-19 Rising Political Risk and Ongoing Economic Weakness Challenge a Difficult Journey to Recovery by Andrew Balls of PIMCO
Looking ahead, it will continue to be a very bumpy journey as we anticipate economic contraction in the eurozone by -0.75% to -1.25% over the next year, hampered by growing political risk and fiscal tightening. Although we expect the pace of contraction in the eurozone to diminish over 2013, the duration of the recession is likely to be longer than consensus forecasts.
2013-03-19 The Dow Marches On by Gene Peroni of Advisors Asset Management
The stock market has demonstrated tireless resiliency in the face of challenging headline news and geopolitical events since its bottom in March 2009. Now, some four years later, the burden of some of these once gripping issues has been lifted.
2013-03-18 Finding the Sweet Spot by Mark Kiesel of PIMCO
Where is the investment “sweet spot” in today’s global financial markets? The uneven global growth outlook means there are opportunities and risks for both credit and equity investors.
2013-03-18 Outlook for the Yen by Team of Nomura Asset Management
For several quarters ahead, we estimate that the Yen will remain range bound near the level of PPP (purchasing power parity), which is estimated to be between 90 to 95 Yen/USD. Though currency movements will be affected by various factors, we think the monetary policies of both Japan and the U.S. are the most important.
2013-03-18 Investment, Speculation, Valuation, and Tinker Bell by John Hussman of Hussman Funds
The most important questions investors should be asking are these: what do they know that can be demonstrated to be true; and what do they believe that can be demonstrated to be untrue. It is best to make these distinctions deliberately, lest the financial markets clarify these distinctions for investors later, against investors’ will, and at great cost.
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.
2013-03-18 UK Budget: No Fiscal Consolidation, but Looser Money Ahead by Darren Williams of AllianceBernstein
We expect little change in UK fiscal policy in Wednesday’s budget. Instead the Chancellor George Osborne may try to nudge the Bank of England towards more aggressive monetary easing, putting further pressure on the pound.
2013-03-15 Washington May Be Ready to Take a Break From the Brink by Josh Thimons, Libby Cantrill of PIMCO
With Washington’s dysfunction not in the forefront, the economy could be more unencumbered to grow, with markets trending in a similar direction. The Fed’s proactive policies should continue to favor overweight positions in the five-year through 10-year part of the Treasury yield curve and support interest-rate-sensitive sectors of the economy most notably housing. In the longer term, however, we would advise investors to be cautious: Without meaningful long-term structural deficit reform, real growth will inevitably lag in the U.S.
2013-03-15 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
Despite exceptionally easy monetary policy, inflation risk remains low. Record stock market levels are boosting consumer spending. U.S. capital spending is poised to be a bright spot this year.
2013-03-15 China\’s Next Stop by Frank Holmes of U.S. Global Investors
Would it surprise you to discover that China is planning to add 800 miles to its subway system over the next two years? That’s the distance equivalent to building a network from Dallas to Chicago in less time than the U.S. Congress can resolve a budget!
2013-03-15 Finally!! Now What? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Surprise! We don’t know what’s going to happen in stocks over the next few weeks. But we are seeing an environment that we believe can foster further gains in the US as economic data remains generally positive, the Fed maintains its accommodative stance, and small progress is being made in the fiscal realm. Investors concerned about a pullback may want to hedge their portfolios, but maintain adequate exposure to equities.
2013-03-14 DC Plan Sponsors: Now's the Time to Get More From Bonds by Stacy Schaus of PIMCO
Long on equities and light on bonds, today’s DC plan lineups may expose participants to extreme market risks. Plan sponsors could potentially improve retirement outcomes by trimming choices for stocks and considering additional options for bonds. The inclusion of active fixed income strategies with global exposure or additional income opportunities could help participants reach their retirement goals.
2013-03-14 Global Currency Battles: A Waiting Disaster or a Win for All? by Team of Knowledge @ Wharton
To many, Japan’s recent moves to devalue the yen looked like the spark that could ignite a global currency war -- a series of competitive devaluations that, last century, helped plunge the world into the Great Depression. Until now, central bankers have been resisting the urge to politicize exchange rates. However, while currency skirmishes can be dangerous and require monitoring, they are also necessary for establishing equilibrium in markets and will help in the global economic recovery, some experts say.
2013-03-13 Who Cares if There's a High-Yield Bond Bubble? by Gary Halbert of Halbert Wealth Management
High-yield bonds, or "junk bonds" as they are widely known, have received a lot of attention in recent months. Is there a high-yield bond bubble? Certainly a ton of new money has gone into high-yield bond funds over the last few years. Millions of Americans who would have never considered high-yield bonds have bought in due to near zero returns on traditional savings vehicles.
2013-03-13 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 Coping With Age by Zach Pandl of Columbia Management
Many things in life get better with age, but many others do not. Unfortunately for central banks, the effects of unconventional monetary policy probably fall in the latter category. Unlike traditional monetary policyin which the central bank only sets short-term interest ratesthe impact of unconventional policies likely decays over time. This means that it is not enough for the Federal Reserve to keep its current policies in placeit actually has to take additional action to maintain the same impact on interest rates and the economy.
2013-03-12 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Stocks rose each day last week as the notion of a ho-hum global economy was reassuring to those who fear either a recession or a surge in economic activity.
2013-03-12 Pacific Basin Market Overview February 2013 by Team of Nomura Asset Management
Monthly returns for February 2013 were somewhat mixed, but the Pacific Basin regional markets generally ended in positive territory this month. Outside of Asia, political instability in Italy and concerns that the Federal Reserve might begin to scale back its monetary stimulus in the U.S. led to weaker investor sentiment. Economic data from China was weak, largely due to the effect of the Chinese New Year.
2013-03-12 The Plow Horse is Trotting by Brian Wesbury, Bob Stein of First Trust Advisors
In October 2012, we raised our recession odds from 10% to 25%. We saw an increase in uncertainty and fear over the election and the fiscal cliff as having the potential to cause a drop in velocity. Panics (falling velocity) are rare. As a result, our base case (75% odds) was for a 2.5% to 3% increase in real GDP for 2013. Real GDP increased just 0.1% in Q4, but now it appears the Plow Horse is starting to trot a little.
2013-03-12 We Made It. Now What? by Christian Thwaites of Sentinel Investments
What looks like a fairly settled policy in Europe is fast becoming a very dangerous situation, according to Christian Thwaites in his latest "Thought of the Week" -- "We Made It. Now What?" -- adding that the outlook for the world's second largest economic bloc is pretty week.
2013-03-11 Two Myths and a Legend by John Hussman of Hussman Funds
The present market euphoria appears to be driven by two myths and a legend. Make no mistake. When investors cannot possibly think of any reason why stocks could decline, and are convinced that universally recognized factors are sufficient to drive prices perpetually higher, euphoria is the proper term.
2013-03-11 The Job Market: Not As Strong As It Looks by Scott Brown of Raymond James
With headwinds fading, the U.S. economic recovery appeared poised to pick up more substantially in 2013. Unfortunately, fiscal policy is going in the wrong direction.
2013-03-11 Forecasting Bond Returns in the New Normal by Saumil Parikh of PIMCO
PIMCO has a detailed framework for deriving a forecast for secular bond returns based on our most current expectations of policy rates and the inflation-adjusted (or real) bond risk premium.
We start by defining the expected secular real policy rate as the expected average rate of the fed funds rate after adjusting for inflation over the next 10 years.
2013-03-08 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 Gentlemen, Start Your Presses by John Browne of Euro Pacific Capital
In his Congressional testimony last week in Washington, Fed Chairman Ben Bernanke took time to downplay the significance of the few dissenting voices on the Fed's Open Market Committee (FOMC). Those statements, combined with an even more dovish statement by Fed Vice Chairman Janet Yellen earlier this week, clearly reaffirm the Fed's indefinite commitment to $85 billion of monthly quantitative easing.
2013-03-07 When Will the Music Stop? by Scott Minerd of Guggenheim Partners
The investment environment is in transition, with uncertainty around policy moves contributing an increasing amount of uncertainty for asset prices.
2013-03-06 A New Yen for Japan by Team of Janus Capital Group
In Japan, a little inflation could go quite a long way. After stepping down six years ago, Prime Minister Shinzo Abe returned in November with a platform promising to put an end to the deflationary cycles that have plagued Japan for decades.
2013-03-05 Japan: Brave New Policies from Japan? by Team of Thomas White International
Time to Shine Again: After two decades of failed policies and stagnant economic growth, Japan is embarking on a bolder monetary policy under its newly-elected Prime Minister Shinzo Abe.
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.
2013-03-05 Currencies: The Winds of War by Milton Ezrati of Lord Abbett
In this conflict, the collateral damage could include asset bubbles and accelerating inflation.
2013-03-05 No Rest for the Wicked by Scott Brown of Raymond James
With headwinds fading, the U.S. economic recovery appeared poised to pick up more substantially in 2013. Unfortunately, fiscal policy is going in the wrong direction.
2013-03-04 Living in the Past: Investors Finally Putting Away the Rear-View Mirror? by Liz Ann Sonders of Charles Schwab
With a very strong January in the books for stocks, and hefty inflows into stock mutual funds, are we finally seeing the investor class become believers?
2013-03-04 Out On A Limb - An Investor's Guide to X-treme Monetary and Fiscal Conditions by John Hussman of Hussman Funds
Massive policy responses, directed toward ineffective ends, are scarcely better than no policy response at all. A look at the current monetary and fiscal policy environment, as well as more effective policy initiatives, and why they make sense.
2013-03-04 Forecasting Bond Returns in the New Normal by Saumil Parikh of PIMCO
PIMCO has a detailed framework for deriving a forecast for secular bond returns based on our most current expectations of policy rates and the inflation-adjusted (or real) bond risk premium. We start by defining the expected secular real policy rate as the expected average rate of the fed funds rate after adjusting for inflation over the next 10 years.
2013-03-01 The Walk of Life: Stepping Away From Dire Straits and Toward Active Short-Term Mgmt Strategies by Jerome Schneider, Andrew Spottiswoode of PIMCO
Money market investors may find the benefits of recent regulatory and industry reforms bittersweet at best, as they are still tolerating borderline zero percent yields in a persistent low rate environment. Without creative strategies for liquidity management, many investors are finding themselves in the "dire straits" of actual negative real returns on their cash allocations even with modest current levels of inflation.
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 Global Volatility by Josh Thimons of PIMCO
The Fed's new communication strategy may, in fact, be a more sensible policy prescription than calendar rate guidance. We expect increased market volatility, particularly around economic data releases. Investors with an understanding of the Fed's now increasingly transparent reaction function will find opportunities to profit in the volatility markets. According to our model of the Feds reaction function, presently every .25 of a percent unexpected change in the unemployment rate is likely to lead to roughly an 11 basis point change in the five-year Treasury yield.
2013-03-01 Critical Juncture? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Headwinds have reemerged and investor concern is heightened yet again. We still believe stocks can run further, but a pullback is more likely in the near-term. The sequestration is now in affect but that doesn't necessarily mean it's here to stay and more budget fights loom, particularly in advance of the potential government shutdown on March 27. Meanwhile, some members of the Fed are in favor of scaling back its quantitative easing (QE) program, rattling markets a bit.
2013-02-27 Impending Decline in Stock Prices by Charles Lieberman of Advisors Capital Management
It is a popular view that stocks have run up excessively, rising more than 125% off the March 9 2009 low, and are now highly vulnerable to a sizable retrenchment. This is a sexy idea, but also quite contentious. Nonetheless, it is worth considering seriously.
2013-02-27 Potential Threats to Equity Rally by Chris Maxey, Ryan Davis of Fortigent
Equity markets started a third consecutive year in rather impressive fashion, gaining more than 6% to date. With so much optimism in the investment community, it is always worth keeping an eye open for risks possibly overlooked. By now, it is apparent that investors are increasing their exposure towards equities with arms wide open. Data from the Investment Company Institute (ICI) estimates $39 billion flowed into equity mutual funds this year through February 13. Following outflows of $153 billion in 2012, the sudden reversal has been impressive.
2013-02-27 Singapore A Wise Owl Among Currency Snakes by John Browne of Euro Pacific Capital
As China enters the "Year of the Snake," Singapore stands as a beacon of sound currency in a world gone mad. China's renminbi remains pegged to the US dollar, while even steadfast Switzerland has followed the US, UK, EU, and Japan into an impoverishing strategy of currency debasement. Singapore, alone, has been able to sustain genuine economic growth in the context of a strong national currency.
2013-02-26 Looking For A Reason To Sell-Off by Christian W. Thwaites of Sentinel Investments
Markets were looking for a reason to correct. Risk assets had outpaced themselves since mid November and in the first seven weeks the S&P[1] had outperformed the US Treasury 10-year note by 12% and the 30-year bond by 15%. The markets will lumber through the sequester and face the next test on the debt ceiling and first quarter results. Below the surface, the outlook is mildly optimistic. Why the qualifier? Because everything, in Europe, US and Japan, must be set in the context of the asset deflation and deleveraging going on and that will go on for some years.
2013-02-26 Sudden Discomfort by Scott J. Brown of Raymond James
Minutes of the January 29-30 meeting of the Federal Open Market Committee showed a growing discomfort with the Feds Large-Scale Asset Purchase program (QE3). Thats not all that surprising. Even those who strongly favor the program arent exactly happy with it. However, thats a far cry from wanting to end the program anytime soon. We should learn more this week as Fed Chairman Bernanke delivers his semiannual monetary policy testimony (Tuesday and Wednesday).
2013-02-25 Fed Will Make Excuses About Inflation by Brian S. Wesbury and Robert Stein of First Trust Advisors
Inflation is tame. For now. The CPI was flat in January and is up only 1.6% from a year ago. The PPI rose a small 0.2% in January and is up just 1.4% from a year ago. And even though energy prices spiked in February, the year ago comparisons are likely to stay tame. The consensus expects the February CPI to rise 0.6% - the largest in 44 months. Nonetheless, it would still show just 1.9% inflation in the past year, which is still below the Federal Reserves target of 2%. This wont last. With the Fed loose; we expect consumer prices to rise toward 3% during 2013.
2013-02-22 Uncovering 'Diamonds in the Rough' in Today's Credit Markets by Mark Kiesel of PIMCO
There are still good opportunities for yield and total return in the credit markets, but there has been a shift in where and how investors can find them. A "diamond in the rough" is a credit that is under-covered, or not actively followed or researched by many investors. At PIMCO, we identify these opportunities through our top-down and bottom-up investment process. We've identified a number of sectors that appear poised for above-average growth.
2013-02-22 January 2013 Market Commentary by Andrew Clinton of Clinton Investment Management
The municipal bond market continues to perform well in the face of significant political, financial and economic uncertainty, once again, demonstrating the importance of consistent, competitive tax-free cash flow. Municipal bonds proved to be one of the best performing asset classes during 2012.
2013-02-22 Central Banks Are Factoring Financial Stability into Their Decision Making by Team of Northern Trust
Central banks are factoring financial stability into their decision making. The FOMC is taking a critical look at its asset purchase strategy. Don't look now, but the sequester is coming.
2013-02-22 A Test of Strength for Gold by Frank Holmes of U.S. Global Investors
This week, we saw the gold bears growling louder and gaining strength, as the worlds largest gold-backed ETF, the SPDR Gold Trust, experienced its largest one-day outflows since August 2011. The Fear Trade fled the sector following the Federal Reserves meeting that revealed a growing dissension among some of its members over the central banks bond-buying program.
2013-02-21 Fed Must Tune in to Changing US Economy by Joseph Carson of AllianceBernstein
With each passing month, more questions are being asked about the sluggish US economic recovery. Why has growth been subdued since the recession ended in mid-2009? What's changed in the economy? How long can loose monetary policies persist before promoting more inflation or creating a new bubble?
2013-02-20 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
Tick Tick Tick. The President has plans for improving life in America. Tick Tick Tick. Republicans want to fix the middle class (and restricting taxes on the upper class may help). Tick Tick Tick. Earnings reports look good, but forecasts for the current quarter have been lowered. Tick Tick Tick. Weekly jobless claims keep falling, but major corporations are announcing layoffs. Tick Tick Tick. Sales figures show growth, but Wal-Mart and others are worried. Tick Tick Tick.
2013-02-20 Whatever It Takes by John Mauldin of Millennium Wave Advisors
Was it only a few years ago I visited the Emerald Isle of Ireland? The collapse of its largest banks foreshadowed the demise of many other European banks that had borrowed money from British, German, and other European banks to lend against homes and property. The Irish government had to guarantee deposits and bond holders in order to prevent a bank run. I think I am correct when I state that the Central Bank of Ireland was the first central bank to avail itself of large-scale use of the Emergency Liquidity Assistance (ELA) provision of the European Central Bank.
2013-02-19 Tough Times for Classic Value Investors by Laurence B. Siegel (Article)
While the U.S. equity market has performed exceptionally well since its bottom in March 2009, Warren Buffett's Berkshire Hathaway has trailed the index by nearly 6%. Buffett is among a number of prominent classic-value investors who have fared poorly over this period. Over long time horizons, value investing has consistently outperformed growth strategies and the broad market index. So what is causing this recent phenomenon?
2013-02-19 The Pound Gets Pounded by Peter Schiff of Euro Pacific Capital
As the global currency war intensifies, the majority of attention has been paid to the 17% fall of the Japanese yen against the U.S. dollar over the past few months. The implosion has given cover to the sad performance of another once mighty currency: the British pound sterling. But in many ways the travails of the pound is far more instructive to those pondering the fate of the U.S. currency.
2013-02-19 All is Not Well Down Under by Russ Koesterich of iShares Blog
Though Russ continues to like Australian equities for the longer term, he explains why he may downgrade his near-term view of the Australian market soon.
2013-02-19 Too Great Expectations by Richard Golod of Invesco
Global investors entered the year with newfound enthusiasm. Across the board, global equities traded higher in January, and retail money flows into global equities were the best in 17 years. Media reports about a "Great Rotation" from fixed income into equities are raising expectations about the possibility of a new secular bull market. However, I believe a little perspective is in order.
2013-02-19 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.
2013-02-16 Seeing the Forest by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Equity markets continue to be resilient and investor confidence is elevated in various sentiment indices, suggesting a near-term pullback is possible. But there are longer-term trends developing that give us hope that the US economy's expansion and market's rally are sustainable. Federal spending cuts via the "sequestration" appear sure to happen, but there will continue to be debates about the nature and size of the cuts. Similarly, questions are increasing as to the potential unwinding of current Fed policy with regard to timing and rapidity.
2013-02-16 When It Comes to Gold, Stick to the Facts by Frank Holmes of U.S. Global Investors
During short-term gold corrections, its much more important to focus on the facts, including the fact that gold is increasingly viewed as a currency. Rather than buying real estate, lumber or diamonds, central banks around the world are buying gold. According to the World Gold Council (WGC), over 2012, central bank demand totaled 534 tons, a level we have not seen in nearly 50 years.
2013-02-16 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
The recent energy dividend is not likely to last. Crafting a single monetary policy for Europe is challenging.
2013-02-15 All is Not Well Down Under by Russ Koesterich of iShares Blog
Though Russ continues to like Australian equities for the longer term, he explains why he may downgrade his near-term view of the Australian market soon.
2013-02-14 Pacific Basin Market Overview January 2013 by Team of Nomura Asset Management
Improving expectations for global economic growth underpinned a solid start to 2013 for the Asia Pacific equity markets. In Asia, interest focused on China, as economic data showed further signs of recovery. On the other hand, the depreciating Japanese yen drew concerns that Asia's main exporters, which include Korea and Taiwan, will become relatively less competitive. The MSCI AC Asia Pacific Free Index including Japan gained 3.0% while the MSCI AC Asia Pacific ex Japan Free Index closed 2.6% higher during the month.
2013-02-14 A Bold New Direction for Japan\'s Economy by Team of Knowledge @ Wharton
Newly elected Prime Minister Shinzo Abe wants to take Japan's economy in a daring new direction to end 20 years of stagnation and deflation. His policies resemble past efforts -- but with far more firepower behind them. That means even looser monetary policies and a sharp rise in government spending to boost demand. Some analysts say it's just the medicine Japan needs and, on the spending side at least, the opposite of what Europe and the U.S. are doing.
2013-02-13 Trading Secrets: And All Our Yesterdays by Tad Rivelle of TCW Asset Management
Markets work. Not because they are perfect, but because they self-correct. Inherent to their functioning is the ability for buyers and sellers, borrowers and lenders, to freely express their predilection to engage in commercial transactions as proxied by the price mechanism. This is all utterly basic. So, why are the capital markets in general, and the credit markets in particular, not to be trusted to operate without the price and quantity guidance of the Federal Reserve? I
2013-02-12 Fixed-Income Insights: When High Yield Loses Some Height by Zane Brown of Lord Abbett
If one sought an indication of how monetary policy and historically low interest rates can influence investor behavior, the high-yield bond market could provide some perspective. In 2012, investors' ongoing demand for income was reflected by the high-yield market's 15.6% return, the $32 billion that flowed into the asset class, andas several headlines pronouncedthe market's record-low yields of less than 6%.
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 Unconventional Policies and Capital Flows by Ben Emons of PIMCO
Although quantitative easing has grabbed the headlines, a number of central banks around the world have enacted other extraordinary measures in attempts to manage their economies. The Swiss National Bank (SNB), for example, adopted an exchange rate peg versus the euro while increasing its foreign exchange reserves to almost 80% of Swiss GDP.
2013-02-08 Weekly Economic Commentary by Team of Northern Trust
Immigration reform would help the US economy at many levels. There is much going on with the US labor force participation rate. Will leadership change usher in a new era at the Bank of Japan?
2013-02-07 From QE to Queasy: Fiscal Policy and the Risk of Inflation by Jason Hsu of Research Affiliates
Quantitative easing does not directly cause inflation. Rather, by enabling the government to issue low-cost debt, it fosters undisciplined spending, says Jason Hsu, CIO of Research Affiliates, LLC in this commentary. This spending, in turn, generates inflation, transferring wealth from future taxpayers to the current generation. Hsu argues that Americans are more likely to follow the European model of insufficient saving than to imitate the Japanese practices of private sector belt-tightening, high savings rates, and international lending.
2013-02-06 Focus on Fixed Income by Steve Van Order of Calvert Investment Management
Last week Administration officials, including the President, clearly ruled out using extraordinary legal measures to avoid defaulting on Treasurys financial obligations in the absence of a debt ceiling hike by Congress. The two legal measures most discussed, going back to the summer 2011, were invoking the 14th Amendment and minting a trillion dollar platinum coin. The coin idea was dismissed as Fed officials commented that the central bank would not honor the coin as a deposit, and the amendment idea has been shelved a number of times.
2013-02-06 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 Why Cash Kills by Charles Lieberman of Advisors Capital Management
Many investors remain in cash, earning nothing, out of fear that the rally in the stock market may be unsustainable or that such issues as the fiscal impasse or Europe's fiscal problems may yet start another meltdown. But while they remain focused on potential adverse developments, they suffer from the near zero interest rate they are earning on cash. Even in today's low inflation environment, such investors are experiencing a persistent erosion in the purchasing power of their capital, which will impair their ability to grow their portfolios in the future.
2013-02-05 2012 Equity Market Market Year in Review by Natalie Trunow of Calvert Investment Management
Equities started the year strong as global inflation remained tame, and aggressive, accommodative monetary policy by central banks around the globe helped equity markets rally hard off their lows posted in the fall of 2011. Continuously improving U.S. economic data, strong corporate earnings, and policy steps toward mitigation of the sovereign debt crisis in Europe also provided support for the equity markets worldwide.
2013-02-05 Currency War or Something Altogether Different? by Niels Jensen, Nick Rees,Tricia Ward of Absolute Return Partners
"Who is afraid of currency wars?" asks Gavyn Davies in the FT. I have known Gavyn for 25 years and have to confess that he is way out of my league intellectually. He is one of the smartest people I have ever met and, thankfully, also one of the humblest. He rarely gets things wrong so, when I occasionally disagree with him, it always makes me slightly uneasy.
2013-02-04 Shifting Sentiment? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
Is investor sentiment shifting in favor of equities, which could help to continue the recent rally?
2013-02-04 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.
2013-02-01 Feasting in a Time of Famine: The South African Consumer by Maria (Masha) Gordon, Richard Flax of PIMCO
South Africa's consumer sector has been on a strong run for the past several years, but there are signs the consumer is now coming under pressure. For all the challenges that have faced the South African economy, most listed consumer companies have enjoyed a great run since 2008. However, a combination of factors strong growth in retail sales and credit along with the rise in consumer debt levels and weak employment growth suggest the South African consumer sector may have pulled consumption forward in a way that could prove ultimately unsustainable.
2013-02-01 The Lost Decade...Found? by Jeffrey Bronchick of Cove Street Capital
While much of the fundamental picture has played out as we expected over the past 18-24 months, the financial markets appear to be concerned solely with the existence or non-existence of macro headlines and events. There seems to be a disconnect between market movements and fundamentals which means doing real work based on intellectual honesty and logic puts you at a disadvantage. Chasing momentum and profiting from central bank market manipulation appear to be the current winning strategies.
2013-02-01 2013 Economic & Capital Market Outlook by Gregory Hahn of Winthrop Capital Management
It took our country 229 years to accumulate $8 trillion in federal debt. It only took the next eight years to double it to $16 trillion. History shows that when a country accumulates debt at this rapid pace, economic growth languishes. Not surprisingly, Congress is pursuing policies that attempt to inflate the economy. Five years after the Financial Crisis, we really havent fixed much. Instead, we've issued more debt in order to pay our bills and sustain a quality of life society cannot afford long term.
2013-02-01 The Biggest Loser by Peter Schiff of Euro Pacific Capital
For the past few generations Switzerland has enjoyed some of the strongest economic fundamentals in the world. The country boasts a high savings rate, low taxes, strong exports, low debt-to-GDP, balanced government budgets, and prior to a few years ago one of the most responsible monetary policies in the world. These attributes made the Swiss franc one of the world's "safe haven" currencies. But in today's global economy, no good deed goes unpunished.
2013-02-01 Weekly Economic Commentary by Team of Northern Trust
Is the world engaged in a currency war? Januarys job report had some pleasant surprises, but more progress is needed. Purchasing managers surveys suggest growth in the US, retreat for Europe
2013-02-01 Look at the Bears! Look at the Bears! by Christine Hurtsellers, Matt Toms and Mike Mata of ING Investment Management
Yes, the grumbling of bond bears is reverberating in Treasury yields, but that sound isnt the death knell of a grizzly; at this point, the closest ursine analogue is Boo-Boo Bear.
2013-01-31 Q4 2012 Letter by Team of Grey Owl Capital Management
During the second half of 2012, central banks turned their massive and coordinated monetary intervention "up to eleven." This is the overwhelmingly dominant economic and market force today. Despite the long-term consequences (which are very real), we believe the central bankers commitment is steadfast. It has and will likely continue to mute both real economic and financial market volatility (at the expense of long-term growth). A deeper analysis of what has changed, our assessment of the impact, and our portfolio response follows.
2013-01-31 Elliott's Paul Singer On How Money Is Created ... And How It Dies by Team of TimeCapital
When we launched our series into the US Shadow Banking system in the summer of 2010 we had one simple objective: to demonstrate just how little the process of modern (and by modern we mean circa 2004 not 1981) money creation was understood.
2013-01-29 Letter to the Investment Committee by Emilio Vargas (Article)
The following is a thousand words on investing that will irritate most every investment professional. Most forms of active portfolio management incur fees, transaction costs and taxes. Whole industries exist due to these costs, and their proponents will argue that they are adding value. In aggregate they cannot; they are all costs. That I am proposing an investment that could take food from the mouths of the children of an army of accountants, brokers and investment professionals will, no doubt, cause them to find flaws in what follows.
2013-01-29 Emerging Europe: Regional Economic Review 4Q 2012 by Team of Thomas White International
As the 2012 year closed, the emerging economies of Europe joined their cousins in the developed world for their share of woes, and in particular, were impacted by the debt crisis in the Euro-zone, their primary trading partners. Though Russia, the biggest of these economies, finally managed to become a member of the World Trade Organization, the resource-dependent economy recorded slowing growth during the third quarter as both household consumption and state spending expanded at a slower pace.
2013-01-29 Q4 2012 Market Commentary by Team of Altegris Advisors
With the end of a historically challenging year for alternative investment strategies, signs emerge of a potentially more favorable environment.
2013-01-29 Investment Basics by Michael Kayes of Willingdon Wealth Management
I've always been curious about how famous people would have done had they pursued completely different careers. Some of our former presidents make excellent examples. For instance, Abe Lincoln towered over his contemporaries. I wonder how he would have fared as a basketball player had the game existed during his life. Our heaviest president, William Howard Taft weighed well over 300 pounds. Had football risen to prominence a few decades earlier, could gridiron greatness have been part of his resume?
2013-01-28 Global Market Commentary: Follow the Money, Again by Richard Golod of Invesco
Global equity market performance in 2012 was driven by accommodative monetary policy around the world, as well as a decline in investor fear after policymakers in Europe reduced the risk of a financial crisis. Global equity markets are likely to respond to the same stimulus this year but maybe not to the same degree. I believe the dominant factor that will drive equity prices in 2013 will likely surprise investors: inflation.
2013-01-28 Conflicted Objectives by Charles Lieberman of Advisors Capital Management
Policymakers in the U.S., Europe, Japan, and elsewhere all seek to weaken their currencies to stimulate exports and domestic growth. It is not possible for all of them to succeed, since some currencies must rise in value, if others decline. Although their individual objectives may be in conflict, their efforts are actually mutually supportive. As each country runs an accommodative monetary policy to weaken its currency, they are also simultaneously promoting stronger domestic growth directly. Indirectly, they are also stimulating demand for their trading partners.
2013-01-28 Is the Fed Doing the Right Thing? by Mark Oelschlager of Oak Associates Funds
After a strong 2012, the stock market is off to a good start in 2013, rising more than 5% so far in January and currently riding an eight-day winning streak (the longest since 2004). Encouraging economic data has a lot to do with this. Unemployment claims are at a 5-year low, home sales and prices are up, and consumer credit and retail sales are growing. Research firm ISI says that the current level of unemployment claims is consistent with 4% real GDP growth for the first quarter, which would be an acceleration from the sluggish growth of recent years.
2013-01-25 Americas: Regional Economic Review 4Q 2012 by Team of Thomas White International
The outlook for most economies in the Americas region improved during the fourth quarter as domestic consumption growth was sustained and the anticipated revival in global demand has lifted the prospects for export growth this year. Partly helped by fiscal and monetary policy measures introduced since 2011, consumer demand has held up across most countries in the region.
2013-01-25 Resource Investors: Why You Can Expect Sunnier Days Ahead by Frank Holmes of U.S. Global Investors
During the current commodity supercycle, there have been occasionstoo many to countwhen investor psyche has been damaged by reports about slowing U.S. growth, a hard landing in China or a debt crisis in Europe. Yet just behind the gloom, significant and positive trends are taking hold, causing the storms to start dissipating.
2013-01-24 Searching for Growth in a Low-Growth World by Austin Graff of PIMCO
We believe corporate profit growth will fall short of sell-side consensus estimates. But companies with inflation-linked revenues and supply side advantages to drive revenue growth, and those with ample cost levers to improve margins, are positioned for sustained earnings growth in the New Normal.
2013-01-24 Quick Takes on the Investing Year Ahead by Sam Wardwell of Pioneer Investments
We covered a lot of market and investment topics at Pioneer's National Sales and Marketing Meeting last week. Here are some notes on a few that were popular: GDP Growth for the U.S.. Expectations for rates: Fed Funds Rate and the 10-year Treasury, EM equities favored over U.S. Equities?, Things that keep us up at night (outside of the debt ceiling, Europe, and Middle East tension.
2013-01-24 Emerging Asia Pacific: Regional Economic Review 4Q 2012 by Team of Thomas White International
Emerging Asia Pacific economies showed strong signals of a rebound in economic activity amidst generally rising exports and stabilizing inflation. While some major economies like China, which had cut interest rates throughout 2012 to stimulate the economy, saw a mild resurgence in inflation, many countries like South Korea, Taiwan, Malaysia and Philippines saw inflation stabilize significantly during the quarter. Still, India, the region's second largest economy, continued to be troubled by rising prices despite high interest rates.
2013-01-23 Ignore the GDP Headline by Brian Wesbury, Bob Stein of First Trust Advisors
Next week, Fourth Quarter Real GDP will be released. Our forecast of 0.9% annualized growth, if correct, will encourage the pessimists to continue fretting about the economy in the year ahead. But we will ignore that dour response. Beneath the surface of the report will be evidence that the plow horse economy is picking up some steam.
2013-01-23 The Year of the American Consumer by Philip Tasho of TAMRO Capital
It was an above-average year for stock returns across the domestic market cap spectrum. Ultimately, unconventional and accommodative monetary policy trumped investor concerns over fiscal policy, the Presidential election and weakness overseas. The Federal Reserve (the Fed) entered uncharted waters when it announced open-ended quantitative easing through the ongoing purchasing of government securities. Importantly, other central banks globally waded in by mimicking the Fed in word if not deed and the global liquidity cycle continued apace.
2013-01-23 Avoid Disappointment, Aim Low by Christian Thwaites of Sentinel Investments
No, it's not a life aspiration. But it can work when it comes to investing. We had a rush of gains coming into the end of the year with the S&P up 22% over the year. But it's also one of the more relaxed markets and start we've had in years. The political agenda is still front and clear and we're in a lull until the debt ceiling arguments gain steam. The markets know this but seem comfortably complacent. They're probably right to be.
2013-01-23 It's What You Learn After You Know It All That Counts. by Jeffrey Saut of Raymond James
January is the time of year when strategists, economists, gurus, etc. all join in on the annual nonsense of predicting "What's going to happen in the markets for 2013?" For many, this ritual is an ego trip, yet as Benjamin Graham inferred forecasting where the markets will be a year from now is nothing more than rank speculation. Or as I have noted, "You might as well flip a lucky penny."
2013-01-23 Developed Asia Pacific: Regional Economic Review - 4Q 2012 by Team of Thomas White International
Developed Asia Pacific economies witnessed mixed economic fortunes during the fourth quarter of 2012. While the group's largest economy, Japan, suffered from stubborn deflation and slumping trade due to a bitter territorial dispute with China, Singapore and Hong Kong managed to fare better.
2013-01-22 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 The Economic Fundamentals of 2013 by Nouriel Roubini of Project Syndicate
The global economy this year will exhibit some similarities with conditions prevailing in 2012 no surprise there. But there will be some important differences, as fiscal austerity spreads to more advanced economies, the risk of a hard landing in China rises, and the threat of war in the Middle East grows.
2013-01-22 Invesco Fixed Income 2013 Outlook by Greg McGreevey of Invesco
While the Great Financial Crisis of 2008 is long behind us, the ensuing consequence of ongoing systemic deleveraging remains a dominant force in global financial markets. Central banks continue to respond with monetary stimulus to support regional economies and counterbalance the impact of deleveraging relative to growth and asset valuations. Such activity was especially evident in the eurozone and the US throughout the entirety of 2012.
2013-01-22 Year-End Investment Commentary by Team of Litman Gregory
Stocks shrugged off numerous worries to log a very good year in 2012, but can markets continue to climb? Certainly the worries remain. The most immediate has to do with the spending side of the fiscal cliff. The cliff deal made permanent the Bush tax cuts for all but high-income taxpayers but it did not address spending. So while the worst case of the cliff was avoided, the work is not nearly done. In this commentary we discuss our current assessment of the investment environment including a detailed look at what could go right, and tie it all back to our portfolio positioning.
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 Quarterly Review and Outlook by Van Hoisington, Lacy Hunt of Hoisington Investment Management
The American Taxpayer Relief Act has lifted the immediate uncertainty of the fiscal cliff. Nevertheless, tax increases that are already in effect from this act, as well as the Affordable Care Act, impose a major obstacle to growth for the U.S. economy in the first half of 2013. The result of these taxes is considerable, especially in light of the poor trend in household income. In addition, these tax increases will continue to act as a drag on economic growth until late in 2015 and are unlikely to produce the revenue gains advertised.
2013-01-18 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 Are Central Banks Easing Off Prematurely? by Team of Northern Trust
Are central banks easing off prematurely? Washington is girding for another budget imbroglio; Inflation is contained, for now.
2013-01-17 The Year Past, The Year Ahead by Michael Gomez of PIMCO
The multiyear run of performance by emerging market (EM) sovereign external debt has been remarkable but residual valuations look either just fair (investment grade) or expensive (high yield) versus other comparable credits. We still see abundant opportunities in EM local markets, while EM equities are poised to benefit from a relatively low starting point for both earnings and earnings expectations.
2013-01-16 Haka Politics and the Slow Crawl by Christian Thwaites of Sentinel Investments
In the last few months we have seen the rise of Haka politics. Familiar to any All Blacks fan, this is the ritualistic Maori war dance, full of noise, bluster and theater. But it rarely intimidates and most opponents sit it out with some amusement. So it is with the political interventions last year. We saw countless announcements and intentions from EU leaders and solemn pledges with little follow-through. And in the US we had a soporific election and a squalid squabble over the fiscal cliff that caught the public but not the market's attention.
2013-01-16 UK Economic Quagmire Adds Pressure for Monetary Policy Change by Darren Williams of AllianceBernstein
Bank of England governor-elect, Mark Carney, has raised hopes that the central bank may soon switch to a nominal GDP target. In our view, the costs outweigh the benefits, but the attractions of a radical new approach will grow if the economy remains stuck in the doldrums.
2013-01-15 Demographics and the Decline of Equity Mutual Funds by Paul Franchi (Article)
Until the last few years, mutual fund flows followed performance. Recently, however, money has flowed disproportionately into bond funds and out of US equity funds despite a strong rally in the equity markets. Changing demographics explain this shift, which has important implications for advisors and the mutual fund industry.
2013-01-15 Land of the Rising Dead by Christian Thwaites of Sentinel Investments
Yes, you knew we were going to talk about Japan. It's all the rage and the big standout in market performance in the last few weeks. Since November the broad Nikkei-225 average has risen 24% because there's new thinking in town. It's hard to describe Japan's 20 year malaise. Once proud companies shaken, the shattering of a property market and total collapse of stocks. Even if the market rises at the same level of the last few months, it will take six years to re-reach its peak. A more reasonable 10% growth rate will take 14 years. Weird things happen when economies enter deflation.
2013-01-15 Japan: Tip of the Spear by Bill O'Grady of Confluence Investment Management
On Sunday, December 16, 2012, Shinzo Abe, the leader of the Liberal Democratic Party (LDP), led his coalition to a decisive electoral victory in Japan. The LDP won 294 out of 480 seats and, with the additional 29 seats captured by its coalition partner, the New Komeito Party, will control the lower house in the Japanese Diet. Abe was named the new prime minister ten days later.
2013-01-15 Inflation, Still Not Taking Off Anytime Soon by Scott Brown of Raymond James
A few years ago, amid exceptionally large federal budget deficit and extraordinarily accommodative Fed policy, a number of pundits warned of impending hyperinflation. Instead, inflation has stayed low. That hasn't stopped the inflation worrywarts. It's just a matter of time, they say. Inflation "has to show up at some point." That's not an argument. There are a number of reasons to expect inflation to stay low.
2013-01-15 The Year Past, The Year Ahead by Michael Gomez of PIMCO
While not immune to global economic headwinds, emerging market investments remain well positioned to outperform their developed world counterparts over time. The multiyear run of performance by emerging market (EM) sovereign external debt has been remarkable but residual valuations look either just fair (investment grade) or expensive (high yield) versus other comparable credits. We still see abundant opportunities in EM local markets, while EM equities are poised to benefit from a relatively low starting point for both earnings and earnings expectations.
2013-01-14 Bond Market Review & Outlook by Thomas Fahey of Loomis Sayles
The final quarter of 2012 was the icing on the cake of an exceptional year for the credit sectors. Fourth quarter credit gains stemmed in part from uncommonly aggressive monetary policy responses in the third quarter. As economic growth continued to undershoot expectations, major central banks made clear that they were dissatisfied with the status quo of tepid economic growth and high unemployment. The Federal Reserve went so far as to tie its monetary policy to the level of the unemployment rate.
2013-01-11 2013 Leveraged Credit Report: High Yield and Bank Loans by Scott Minerd of Guggenheim Partners
Record high prices, historically low yields and gradually deteriorating fundamentals have tempered expectations for the leveraged credit market. Generating above-market returns in 2013 will require an even greater emphasis on fundamental credit analysis to unearth opportunities in attractively valued segments of the market, such as upper middle-market bank loans.
2013-01-11 Abe's Return May Prod Japan Forward by Kenichi Amaki of Matthews Asia
Japan's politics have entered 2013 with a mixed freshness. Former Prime Minister Shinzo Abe has clinched a rare second shot at the prime minister's post. His first term, which began in late 2006, lasted only about a year and ended with his sudden resignation. But following its landslide victory last month, his Liberal Democratic Party (LDP) has secured a two-thirds majority in the 480-seat Lower House, giving it the constitutional power to override Upper House opposition, where no single party holds a majority, on almost all issues.
2013-01-11 Fed Policy Update: Waiting for Clearer Criteria for Open-Ended Asset Purchases by Alan Levenson of T. Rowe Price
The FOMC's shift from dates to economic conditions as the basis for policy rate guidance clarified the criteria for beginning rate hikes. The criteria for ceasing open-ended asset purchases are not clear, and may reflect not only the evolution of the labor market recovery but also concerns about financial stability and the size of the Fed's balance sheet. We expect the Fed to try to clarify these criteria in the months ahead. Asset purchases will end a "considerable time" before policy rate hikes commence, and rate hikes will commence before asset sales.
2013-01-10 A New Years Vantage Point: Michael Hasenstab by Michael Hasenstab of Franklin Templeton Investments
As we ring in a new year, it's a good time to gain some perspective on where we've been, and where we might be headed. In the first few weeks of January, Beyond Bulls & Bears will be featuring a series of investment commentaries from select Franklin Templeton investment management teams. These professionals provide their insights on the market ups and downs of 2012, and the potential challenges and opportunities that may lie ahead from their respective vantage points. Today we hear from Michael Hasenstab, portfolio manager and co-director of the International Bond Department.
2013-01-09 Waiting for Godot by Sam Stewart of Wasatch Funds
Like the enigmatic title character in Waiting for Godot, clear signals of U.S. economic health remain much anticipated but elusive. The year 2012 saw consumers and businesses mimicking the Samuel Beckett play - with optimists waiting for things to get better and pessimists waiting for things to get worse.
2013-01-09 Stock Market Rocket by Jerry Wagner of Flexible Plan Investments
I know that if you spent any time during the holidays around children eight or older, you probably saw some pretty amazing electronic toys, communication, and entertainment devices. But 50-some years ago one of the best toys in the world was...a rubber band. Today the snap of the rubber band holds a different meaning to me. It symbolizes what I believe has been happening in our stock market.
2013-01-09 Ten Acts for Chairman Bernanke in January 2013 by Tony Crescenzi of PIMCO
Federal Reserve Chairman Ben Bernankes term ends in January 2014, and it is unclear whether he will stay on for another. We expect Bernanke will muster every means he can over the next year to help the U.S. and indeed the world emerge from a gloomy time.Here, then, are 10 items we suggest for Ben Bernankes to-do list in 2013.
2013-01-08 Crystal Ball Gazing by Team of Bedlam Asset Management
Several recent government announcements are likely to impact the global economy and equity markets over the medium term. In order of importance these are: the Federal Open Market Committee pledge to target zero interest rates until unemployment reaches 6.5%; the new government in Japan, under an increasingly monetarist LDP leadership; commitments by the new Chinese leadership to boost domestic infrastructure and consumption; and finally, the softening line of the Republicans on the fiscal cliff.
2013-01-08 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 Fixed Income Asset Allocation Post-Apocalypse by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
December 21, 2012 the day the Earth was prophesized to collide with a black hole of kaputness has come and gone in defiance of the Mayan calendar. The more upbeat interpretation of the 5,125-year Mayan cycle, however, is that the end date doesn't signify Armageddon but rather the beginning of a new time for positive change here on earth. So allow us to suggest an investment playbook to cash in on this silver lining. In short, the sweetness of the metaphorical fortune cookie in your hand will depend on how you allocate your fixed income assets in 2013.
2013-01-07 Investments That May Keep Me Up at Night in 2013 by Charles Lieberman of Advisors Capital Management
The outlook for 2013 is quite improved compared with 2012. Domestic economic growth prospects are significantly less troublesome. The election is over. Europe has (painfully) slowly made progress in reducing its own budget problems. It is not all clear sailing, however. (It never is.) Europe remains a work in progress. All of the geopolitical risks of 2012, notably North Korea, Iran, and all of the rest of the Middle East, remain on the docket in 2013. And the battle over the U.S. budget will resume in the near future.
2013-01-04 The US Congress Kicked the Fiscal Cliff Down the Road by Team of Northern Trust
The US Congress kicked the fiscal cliff down the road. Holiday sales in the US were tepid. December's job report will not impress the Fed
2013-01-03 Beyond the Fiscal Cliff by Richard Bernstein of Richard Bernstein Advisors
Politicians love the spotlight, but it is very unfortunate that investors watch the show. The drama of the so-called "fiscal cliff" has scared investors, and led them to miss a very good year in the equity market (the S&P 500's total return was 16.0% during 2012 versus the long-term annual average of 11.8%). It appears as though Washington wants to continue to dominate the headlines, which means that it may be more important than ever for investors to downplay Washington's theatrics.
2013-01-03 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 Grin and Bear It. by Scotty George of du Pasquier Asset Management
Without question, the financial markets yielded better in 2012 than what most had believed possible at the beginning of the calendar year. At that time, embroiled in a U.S. Presidential election and ongoing turmoil in the Middle East, many analysts would have been happy if we simply avoided catastrophe.
2013-01-03 Taking Care of Business, DC-Style, to Avert the Fiscal Cliff by Liz Ann Sonders of Charles Schwab
No "grand bargain," but Congress got a deal done at the 13th hour to avert the fiscal cliff. The next two months will bring more DC wrangling and likely market angst, but we believe the outlook has brightened for the economy and market in 2013. The "wall of worry" is alive and well.
2013-01-02 Emerging Markets Outlook by Armando Armenta of Invesco
There are a number of factors effecting the flows into emerging market economies. I'd like to review several of them in the medium term outlook and let you know why I doubt they will recede soon.
2012-12-31 Brief Holiday Update by John Hussman of Hussman Funds
Though our concerns still weigh heavily toward the defensive side, there are hints of progress toward the resolution of the lopsided market conditions we've seen.
2012-12-28 Shinzo Abe's Monetary-Policy Delusions by Stephen Roach of Project Syndicate
The politicization of central banking worldwide continues unabated. The resurrection of Shinzo Abe and Japan's Liberal Democratic Party pillars of the political system that has left the Japanese economy mired in two lost decades and counting is just the latest case in point.
2012-12-28 Don\'t Wait for the Robins: Investment Strategy for 2013 by Pamela Rosenau of HighTower Advisors
Warren Buffet once remarked, "If you wait for the robins, spring will be over." "Uncertainty" has been an overarching issue since the financial crisis of 2008 and one of the principal reasons that investors have remained on the sidelines away from the equity markets. As it has been a part of the investment lexicon, "uncertainty" will always exist in some capacity. In 2012, investors began by focusing on European issues, then the U.S. election, and now the fiscal cliff. In fact, when there is little uncertainty and investors appear unafraid, one should be more concerned.
2012-12-27 The Ten Most-Read Articles in 2012 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…
2012-12-27 The Ten Best Articles You Probably Missed by Robert Huebscher (Article)
Great articles don't always get the readership they deserve. We've posted the 10 most-widely read articles for the past year. Below are another 10 that you might have missed, but I believe merit reading.
2012-12-26 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.
2012-12-21 Farewell to Inflation Targeting? by Mohamed El-Erian of Project Syndicate
In a four-day period in mid-December, three seemingly unrelated developments suggested that modern central banking is in the midst of an historic change. To the extent that this shift gains momentum which appears likely it will affect economic performance, the functioning of markets, and asset-price valuations.
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.
2012-12-21 The Japanese Economy: The Result of the Lower House Election by Team of Nomura Asset Management
The Liberal Democratic Party (LDP) reclaimed power in a landslide victory. Together with coalition partner, the New Komeito Party, the LDP secured 325 seats giving it two-thirds of the total seats, which allows them to pass legislation by using the supermajority position in the lower house. This will enable them to overrule the upper house where no party currently holds an overall majority, otherwise requiring the LDP to consult with opposing parties. In addition, on an individual case by case basis, the LDP would be able to seek cooperation from the third party Japan Restoration Party.
2012-12-20 The Limits of Monetary Policy by Scott Minerd of Guggenheim Partners
With unemployment levels remaining stubbornly elevated, investors should not expect a reversal of quantitative easing by the Federal Reserve in 2013.
2012-12-19 PIMCO's Cyclical Outlook for Asia: Awaiting the Policy Breakthrough by Tomoya Masanao, Robert Mead, Ramin Toloui of PIMCO
Our base case for China includes incremental policy reform, but we also see an increased chance of a potential positive surprise on reform, resulting from the recent changes in leadership. Japan's new government will likely focus on reflating the structurally impaired economy, but policy effectiveness will remain questionable. Australia is being burdened by the unintended consequences of the policy responses of others, accompanied by the impending rebalancing of the Chinese economy.
2012-12-19 PIMCO Cyclical Outlook for Europe: Policy Developments Will Shape Growth Prospects and Risks by Andrew Balls of PIMCO
Policy developments in particular, the European Central Banks acceptance of its role as a lender of last resort have helped to normalize European financial markets but been insufficient to promote decent growth. Eurozone leaders recently laid out a long-term roadmap to achieve stability, but the plan faces great execution risk, technically and politically, and in cross-border coordination. We continue to take a cautious approach and underweight European credit risk and European financials in general, looking for specific opportunities rather than broad exposure.
2012-12-18 Pulling Back the Lens in Emerging Markets by Western Asset Management (Article)
Emerging markets remain resilient, according to Western Asset Portfolio Manager Rob Abad. But in the face of so much global uncertainty, investors would be wise to consider the latest trends and dynamics impacting this maturing asset class.
2012-12-18 Better Angels by Michael Lewitt (Article)
If all else fails, President Obama should lock the members of Congress inside the Capital about a week before Christmas, post the military at the door, hang big-screen television in each chamber, tune them to CNBC, and turn up the volume up. Faced with listening to endless repetitions of the words "rising above" or "fiscal cliff" or "kick the can down the road," our legislators will have no trouble reaching a compromise quickly.
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 Roach Motel Monetary Policy by John Hussman of Hussman Funds
Monetary policy has become a roach motel easy enough to get into, but impossible to exit.
2012-12-17 Fed Talks Louder, To Little Avail by Brian Wesbury, Bob Stein of First Trust Advisors
When someone doesn't speak your language, yet you must communicate, funny things can happen. At first, most just talk normally, hoping the message somehow gets through with a hand gesture or two. If that doesn't work, some people start talking really slowly. And if all else fails, how about saying it REALLY LOUDLY, and emphatically, to finally get our point across. That's where the Federal Reserve is today. In its own collective mind, it has a very important message to convey: that monetary policy is going to be as expansionary as necessary to get this economic recovery off the ground.
2012-12-17 The Fed's New Math and What It Means by Kristina Hooper of Allianz Global Investors
Central bankers are scrapping the use of a timeline to determine how long to keep interest rates at record lows. Rather, they will tie rate increases to specific unemployment and inflation targets. There is definitely more clarity around the Fed's decision making now than ever. The question is, will such "outcome targeting" really change the outcome? In looking at the last three economic recoveries, the average time it took for unemployment to fall from 7.7%, our current level, to 6.5%, was 26.6 months.
2012-12-17 The Fed: Targets, Thresholds, Guideposts, and Goals by Scott Brown of Raymond James
As expected, Federal Open Market Committee announced that purchases of Treasuries will be added to QE3 in 2013 (the Fed will continue to buy $40 billion per month in mortgage-backed securities and $45 billion per month in long-term Treasuries). Fed policymakers also announced threshold guidance on the overnight lending rate, which will make the Fed's policy intentions clearer, and that's a good thing.
2012-12-15 Looking Back to Look Ahead by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Markets have been more focused on short-term forces; not least being Washington and the fiscal cliff negotiations. But taking a step back and gaining some longer-term perspective can help investors better weather short-term volatility. Even beyond the fiscal cliff, Washington and fiscal policy will likely remain in focus next year. Monetary policy is also front-and-center with the Fed maintaining its extremely accommodative policy and targeting specific economic conditions instead of providing calendar guidance. Europe managed to make it through the year, but challenges and risks remain.
2012-12-15 A Face-Off Between Passive and Active Investing by Frank Holmes of U.S. Global Investors
Exchange-traded funds continued to attract assets in 2012 while money has been exiting mutual funds. Still a majority of assets continue to be invested in actively managed products: As of the end of 2011, of the nearly $13 trillion invested in funds, index and exchange-traded funds comprise only about 8 percent, according to the Investment Company Institute.
2012-12-14 FOMC Laying the Groundwork for an Exit Strategy? Investment Implications. by Paresh Upadhyaya of Pioneer Investments
Yesterday's FOMC meeting was a surprisingly eventful one that injected some volatility into financial markets. As expected, the Fed left its target rate of 0 - .25 percent unchanged and implemented more quantitative easing (QE). It announced additional monthly purchases of agency mortgage-backed securities of $40 billion per month and stated that "The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year at a pace of $45 billion per month."
2012-12-14 No Way Out by Peter Schiff of Euro Pacific Capital
By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve's Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford. At his press conference this week, Fed Chairman Bernanke explained how the easiest policy stance in Fed history has just gotten that much easier. First it gave us zero interest rates, then QEs I and II, Operation Twist, and finally "unlimited" QE3.
2012-12-13 FOMC: More of the Same on QE, But New Language to Guide It by Team of Northern Trust
The Fed's decision to increase the scope and size of the quantitative easing program following the two-day FOMC meeting was largely expected. Its choice of new wording to express its posture came sooner than expected.
2012-12-13 Investors Vote for Equities as Japanese Elections Near by Takeo Aso, Nicholas Davidson of AllianceBernstein
Current bearishness on the yen is reigniting investors' interest in Japanese equities. In our view, yen weakness is likely to continue and may help boost the Japanese equity market, with undervalued companies poised to benefit most.
2012-12-13 The Fed and The Fiscal Cliff by Evan Schnidman of Fed Playbook
President Obama and Speaker Boehner are Thelma and Louise getting ready to drive the car off the cliff with the U.S. public locked in the trunk. While the Fed may not have the power to hit the breaks for them, they could simply refuse to fill the car with gas. Instead, the FOMC decided today to top off the tank and sup-up the engine in hopes that the President can floor it to clear the ravine.
2012-12-13 Rescuing the Bond Deer from the Bond Bear by Mike Temple of Pioneer Investments
It's the season to talk about the man who delivers presents. No, not Santa Claus, but Fed Chairman Bernanke who has been delivering the green stuff for the past four years in a helicopter, not a sleigh... My last installment introduced the Fixed Income Bond Deer the investor caught in the headlights confused about what to do. This week we contemplate the following: should "Bond Deer" be grateful for the green stuff or frightened by the possibility that it is fueling the next bond "bear" market? The answer: it depends on how long this experiment continues.
2012-12-13 Conditional: Fed Drops 2015 in Favor of 6.5% and 2.5%185 by Liz Ann Sonders of Charles Schwab
The Fed announced it's adding $45 billion in US Treasury purchases to QE3s $40 billion in MBS purchases and moving to economic versus calendar targets.
2012-12-13 Pacific Basin Market Overview - November 2012 by Team of Nomura Asset Management
Asian equity markets ended higher this month, although they were heavily influenced by events elsewhere. Improved economic data from Germany, coupled with expectations that Greece will receive a further round of financial support from the European Union (EU), helped to lift sentiment. Meanwhile, investors were paying close attention to the American congressional budget negotiations to avoid the looming year-end "fiscal cliff" risk to the economy, although U.S. economic data was generally positive.
2012-12-12 To QE Infinity, and Beyond! by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve made two big changes today, but changes that were mostly anticipated by the markets.
2012-12-11 PIMCO Cyclical Outlook: At Policy Crossroads by Saumil Parikh of PIMCO
The maturation of the global cyclical growth phase suggests we look to a handoff to more secular drivers of growth. But strong secular drivers remain elusive due to the continuation of New Normal headwinds.Policies are at important crossroads in every major economy. 2013 will be the year of policy change, with policymakers in major economies challenged to enact structural changes that spur private sector growth before government-balance-sheet-led growth is exhausted.
2012-12-10 Is QE4 Really Coming? by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve meets this week. Analysts are supposing and predicting what the statement will say and if the Fed will change its economic projections.
2012-12-08 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.
2012-12-08 Weekly Economic Commentary by Team of Northern Trust
What are the margins of monetary policy? The November job report showed only modest improvement. Japan continues to struggle, with a change of government on the horizon.
2012-12-07 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.
2012-12-05 Waiting for Signs on the Fiscal Cliff and From the Fed by Russ Koesterich of iShares Blog
Investors are stuck between a rock and a hard place: Theyre trying to plan for the end of 2012, while also looking ahead to 2013. Its being reflected in the questions Im getting from clients right now, who are worried both about the fiscal cliff and the outlook for interest rates in 2013. As we saw last week, the markets are focused on every utterance out of Washington on the fiscal cliff. For better or worse, this is unlikely to change until we have a deal. And in terms of getting to one, the truth is we did not see much progress last week.
2012-12-05 Headline Roulette by Christian W. Thwaites of Sentinel Investments
That Fiscal Thing dominated the week. Every twitch out of Washington was greeted with over analysis by the press and us. Less so the markets. Truth is, markets are not very good at discounting political uncertainty. Sure, a tax scare here and a debt ceiling impasse there might lead to a sell-off but ultimately it's about earnings, corporate health and outlook and on those metrics, nothing last week really upset the markets in a major way. The bond market tends to get this right.
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?
2012-12-03 Watching for Cliff to Fade, Jobs to Appear by Bob Doll of BlackRock Investment Management
Investors are likely to remain volatile as the focus on the fiscal cliff will remain intense.
Progress on the cliff needs to happen quickly if a compromise is to be reached.
Given the sluggish nature of jobs growth, we are unlikely to see the Fed change its stance anytime soon.
2012-12-03 Temporary Weakness Won\'t Last by Brian S. Wesbury and Robert Stein of First Trust Advisors
Hurricane Sandy knocked out electricity all over and is now causing some flickering in the economic data. Real consumer spending fell 0.3% in October, the steepest drop since cash-for-clunkers ended in 2009, while real income slipped 0.1%. The ISM manufacturing index fell to 49.5 in November. Considering that Sandy smashed the eastern seaboard and affected roughly 25% of the US population with the brunt hitting New Jersey and New York the economic damage will be spread out. Timing helped limit the impact on October data, given that the storm struck very late in the month.
2012-12-01 The Bank of Canada Has Barked, But Will It Bite? by Ed Devlin and Richard Clarida of PIMCO
As Canadian consumers have increased their mortgage debt and bid up housing prices, the potential for a disorderly unwinding of these imbalances rightly concerns the Bank of Canada. PIMCO believes that the banks next policy move will be to raise interest rates, but with the traditional aim of fighting inflation rather than reducing home prices and consumer debt. We expect the Bank of Canada to continue tightening mortgage credit and using moral suasion to damp the housing boom and discourage consumers from taking on more debt.
2012-12-01 Are Corporate Bonds Expensive? by Team of Neuberger Berman
As in the case of Treasury bonds, yields for U.S. corporate credits have fallen to historic lows as prices have risen. The yield on the Barclays Aggregate U.S. Investment Grade Bond Index was recently at 2.8%far below levels achieved during the heady days of 2007. Obviously, this reflects overall interest rates, but is it also a sign that corporate issues may be overvalued? We explore the issues and consider how investors should position their portfolios for the current environment.
2012-11-30 Where Are We in the Boom/Bust Liquidity Cycle? by Thomas Fahey of Loomis Sayles
In an often cynical world, standard financial and macroeconomic quantitative models give people the benefit of the doubt. Fundamental economic theory assumes the best of us, supposing that human beings are perfectly rational, know all the facts of a given situation, understand the risks, and optimize our behavior and portfolios accordingly. Reality, of course, is quite different.
2012-11-27 Fixed Income Perspectives by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
A wise American once said "Life is hard; it's harder if you're stupid." A good example is when your pals in Washington are so busy pushing their partisan agendas that they lose sight of what could happen to the American economic Thunderbird if it goes all Thelma and Louise over the fiscal cliff. With the latest elections in the books, it remains to be seen if a Democratic president and acrimonious Republican House can put on their thinking caps to devise a way to delicately pump the brakes of fiscal restraint.
2012-11-27 Fiscal Perdition by Marie Schofield of Columbia Management
Fiscal consolidations are underway across the developed world, and many require large adjustments. At a minimum, countries need to bring their primary budgets into balance in an effort to stabilize growing debt-to-gross domestic product (GDP) ratios. Many are looking at trimming deficits totaling 5% of GDP or more. This will require both spending cuts and tax increases which often work counter to stabilizing debt ratios, as this can brake GDP growth and undermine both the fiscal position and the political fortitude for action.
2012-11-26 Deja Vu All Over Again by Tony Crescenzi, Andrew Bosomworth, Lupin Rahman, Ben Emons of PIMCO
If the eurozone is to endure, it will require reduced economic differences among countries and larger common fiscal capacity. Emerging market central banks are likely to remain in wait-and-see mode while looking to the U.S. for clarity on the fiscal negotiations and domestic macro prints for signs of moderation in both inflation and activity. While central banks in advanced economies have not traditionally used explicit policies to target exchange rates, the European debt crisis may change all that.
2012-11-26 Stuck in the Muddle with You by Milton Ezrati of Lord Abbett
Raising Keynes hasn't worked. What will finally lift the fog of uncertainty that bedevils the economy?
2012-11-26 Illegitimum Non Carborundum by Jeffrey Saut of Raymond James
In my opinion Richard Fisher said in plain English what Ben Bernanke is trying to say in a much more politically correct way hey Congress, get your act together because I have done just about all I can do on a monetary basis, so it is up to y'all to make the tough decisions on fiscal policy that need to be made to get this economy going again. Surprisingly, I think Congress, and the President, will rise to the occasion because if they don't, and the country falls off the "fiscal cliff" for an extended period of time, it most assuredly will put us back into a recession.
2012-11-26 Monetary and Fiscal Policy in Early 2013 by Scott Brown of Raymond James
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliffs negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
2012-11-26 Fiscal Cliff: An Emerging Markets' View by Mark Mobius of Franklin Templeton Investments
Now that the U.S. presidential election is over and President Barack Obama has been re-elected to serve a second four-year term, we're able to do what we always do after a major election or regime change, and that's examine the potential implications of policy changes on our investments. As our team sees it, there are two main factors for global investors to consider: the U.S. economy's future health, and President Obama's foreign policy stance toward key countries, particularly China.
2012-11-26 Overlooking Overvaluation by John Hussman of Hussman Funds
Presently, on the basis of smooth fundamentals such as revenues, book values, dividends and cyclically-adjusted earnings, the S&P 500 is somewhere between 40-70% above pre-bubble valuation norms, depending on the measure. That's about the same point they reached at the beginning of the 1965-1982 secular bear period, as well as the 1987 peak.
2012-11-26 Japan: After the Quake, After the Floods by Richard Mattione of GMO
Japan's recovery from the Tohoku earthquake and tsunami of March 11, 2011 has been so astounding that people rarely even think about the tsunami anymore. Even fewer remember that heavy rains in Thailand further disrupted the global production chain at the end of 2011. With so much accomplished, why do so few Japanese companies see bright days ahead?
2012-11-20 Kyle Bass on the Next Big Crisis by Robert Huebscher (Article)
If economics could be studied in a laboratory, scientists might concoct something like the circumstances now unfolding in Japan – and policymakers should be paying close attention. According to Kyle Bass, Japan's currency – and its bond market – are about to collapse under the weight of the country's unsustainable fiscal deficit.
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.
2012-11-20 Favoring France: The Newest Bright Spot in Europe by Russ Koesterich of iShares Blog
Europe may be stabilizing, but it's not out of the woods yet. One bright spot on the continent? France. Russ explains why he would now overweight the country's equities.
2012-11-19 Little Dutch Boy by John Hussman of Hussman Funds
In the Mary Mapes Dodge book titled Hans Brinker, there is a fictional story within the story of a little Dutch boy who, on his way to school, notices a hole in the dyke. Having nothing else to fix the leak, he plugs the hole with his finger and stays there through the night until workers come to repair it. We are now into the fourth year of efforts to print trillions of little Dutch boys out of dollars and euros in order to stop a tide from crashing through a fundamentally damaged dyke. All of this has bought time, but no workers have arrived, and no real repairs have been done.
2012-11-19 Monetary and Fiscal Policy in Early 2013 by Scott Brown of Raymond James
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliff's negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
2012-11-19 The Seeds of Higher Market Volatility Were Sown by Mike Temple of Pioneer Investments
A paradigm shift in financial markets has taken place since 2008 into a more volatile investment environment that will demand different ways of managing risk. In an ironic twist of intention, today's higher volatility is the consequence of attempts by central banks to engineer a less volatile economic environment.
2012-11-17 Three Events That Sum Up the Week by Frank Holmes of U.S. Global Investors
India regained its title as the strongest performing market, overtaking the greater China area, as the country experienced a bounceback in demand due to improved sentiment during the festival season. The Federal Housing Administration reported that it has exhausted its reserves, possibly requiring a bailout from U.S. taxpayers for the first time ever in its nearly 80-year history. The global economic picture came into focus a little more this week with the announcement of Chinas new leadership.
2012-11-16 Central Bankers Take Steps Where Politicians Fear to Tread by John Remmert of Franklin Templeton Investments
In the past few years, many global central banks have enacted various measures to stimulate their respective economiesin some cases without the support of fiscal measuresand sometimes to little effect. John Remmert, senior vice president and senior portfolio manager for Franklin Equity Group, shares his insights on why central banks have acted in some cases where politicians seemed fearful to tread.
2012-11-16 Obstacles to a Lasting Recovery: The Liquidity, Hesitancy & Solvency Traps by Thomas Fahey of Loomis Sayles
Those familiar symptoms are back again to start the summer: risk aversion; falling equity prices; rising volatility; record-low German and US government bond yields; wider credit spreads; a European country getting picked on; and a stronger US dollar. We have seen this bad movie twice before, during the summers of 2010 and 2011.
2012-11-16 Weekly Economic Commentary by Carl Tannenbaum, Asha Bangalore of Northern Trust
The focus on the fiscal cliff cannot be overstated. It is very hard for the world's central banks to set rules governing monetary policy. The troika charged with addressing Greece has some internal disagreement.
2012-11-15 Too Low for Too Long by Scott Minerd of Guggenheim Partners
The Federal Reserve faces the risk of inducing a sell-off in bonds similar to that which occurred in 1994 when Dr. Greenspan tightened credit conditions after maintaining an artificially low interest rate environment for an extended period.
2012-11-13 Emerging Markets: Maintaining Perspective by Robert O. Abad (Article)
In this Q&A, Western Asset Portfolio Manager Robert Abad discusses the latest dynamics and trends within emerging markets (EM). Although EM continue to demonstrate resiliency, Mr. Abad believes that given the amount of global uncertainty today, it is important that investors evaluate opportunities alongside a manager equipped to guide them through the risks and rewards of this evolving asset class.
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.
2012-11-12 After the Election, Fiscal Cliff Outcome May Surprise by Libby Cantrill, Josh Thimons of PIMCO
Our base case for a fiscal cliff resolution continues to be a lame-duck mini-deal that would reflect about 1.5% of GDP in fiscal contraction in 2013 (vs. nearly 5% without a deal). But the dynamics of polarization and partisanship that played a role in past dysfunctional negotiations may have gotten worse. On a more optimistic note, it is widely known that second-term presidents are largely interested in their legacies spearheading noteworthy, bipartisan and lasting accomplishments for the history books.
2012-11-12 Lopsided Risks by John Hussman of Hussman Funds
The recent sequence of overvalued, overbought, overbullish, technically exhausted setups followed by a clear technical breakdown is of greatest concern here, because we often observe that sequence at the beginning of deep and extended market losses.
2012-11-12 Surveying the Post-Election Landscape by Team of Lord Abbett
Of all the uncertainties facing investors over the past few years, the U.S. presidential election was among the most significant. And now that the election is over, asset managers are assessing the opportunities and riskssuch as the looming fiscal cliffwithin their respective markets.
Indeed, the direction of fiscal policy remains investors' foremost concern, according to a recent survey of nearly 600 financial advisors conducted on Lord Abbett's postelection Web conference.
2012-11-12 President Obama Wins Reelection; Equity Markets Trade Lower by Matthew Rubin of Neuberger Berman
Congress remains split following Tuesday's vote (Democrat Senate, Republican House. DJIA and S&P 500 decline 2.0% and 2.3%, respectively, last week. European Central Bank and Bank of England maintain current monetary policy stances.
2012-11-09 Americas: Economic Review 3rd Quarter 2012 by Team of Thomas White International
Economic trends in most countries across the Americas region saw a moderate recovery during the third quarter, though the pace of growth remains subdued. Slower global demand due to the ongoing European recession and the slower expansion in Asia continues to restrict exports from the Americas. At the same time, domestic consumption growth has been relatively more robust than expected and has helped most regional economies prevent a deeper slowdown.
2012-11-09 Two Policy Instruments, Two Labor Market Thresholds by Alan Levenson of T. Rowe Price
Despite understandable post-election focus on the resolution of the looming fiscal cliff, there is persistent interest in the conditions under which the FOMC will end the asset purchase program initiated in September ("QE3"). The economic projections and monetary policy expectations submitted for the September 12-13 FOMC meeting indicate that a consensus for rate hikes begins to build as the unemployment rate approaches 7.0%.
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 Magic 8 Ball Knows All by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
The efficacy of 1980s technology turned out to be a real bummer, huh? Flying DeLoreans and flux capacitors are the ultimate heartbreakers, but the clairvoyance promised by those iridescent black and white Magic 8 Balls is definitely a close second. Give one a few shakes today and see for yourself. "Magic 8 Ball, [SHAKE] will financial markets rally post the U.S. election?" "It is decidedly so." "Magic 8 Ball, [SHAKE] are you lying?" "Yes definitely." "Magic 8 Ball, [SHAKE] seriously?" "Reply hazy, try again."
2012-11-08 Overcoming the Brake Light Shockwave by Christian Thwaites of Sentinel Investments
Big democratic breakthroughs, say Egypt, Tunisia are halting and fall far short of the hopes they embodied. Technology is a race over mobility and brevity but hardly elicits the same wonder from years past. Governments are polarized. The US had almost no voting overlap in recent years so big ideas are on the wane. In Europe, the supra-national organizations like the EU are swift to talk and slow to act. No we're not reactionaries. We think all this is explained by the deepest drop in output in the post-war period and the slowest recovery.
2012-11-08 Obama Wins: What's Next? by Team of Janus Capital Group
U.S. President Barack Obama has been re-elected for another four years, while Democrats will continue to control the Senate and Republicans the House of Representatives. We believe this outcome was largely anticipated by the markets before Election Day. However, U.S. Treasury markets likely will gain and risk assets could decline as investors remain concerned about sluggish economic growth, the impact of the impending "fiscal cliff" and the effects of continued Federal Reserve (Fed) intervention.
2012-11-06 Lacy Hunt on Our Economic Future by Robert Huebscher (Article)
Last week I spoke with Lacy Hunt, an unequivocal advocate of deficit reduction. Hunt defended – as persuasively as few others can – the need to address our fiscal imbalances. But equally respected economists are advocating for the other extreme, and he shares some common ground with them.
2012-11-06 ClearBridge Advisors - Market Commentary Q312 by Harry “Hersh” Cohen (Article)
Vibrant end demand is missing, as consumers have neither the wherewithal nor the will to spend as they did in prior periods.
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.
2012-11-06 Same Old Samba for Brazil by Milton Ezrati of Lord Abbett
The old saw for the last 80-plus years puts Brazil perpetually on the verge of becoming the next economic powerhouse, but never quite making it. It is easy to see the potential. The nation is large; rich in natural resources and arable land; has a sizable, active population; and has well-developed trade relations in the Americas, with Europe, and with Africa. Brazil has failed to realize its potential less for economic reasons than because of misguided government policies.
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 Of Varied States: Cyclical, Storm-Tossed and Swing by Alan Levenson of T. Rowe Price
The latest readings on employment growth and household formation show a firm underpinning for moderate growth, with the household sector gathering momentum toward the emergence of positive feedback loops. Despite the immense human cost of Superstorm Sandy, the adverse impact on measured economic activity is likely to be short-lived, with a compensating rebound to emerge before quarter-end. Next week's general election results should bring clarity to the route that policy makers will take to avoid the year-end fiscal cliff.
2012-11-02 Blind Faith by Steven Romick of First Pacific Advisors
Although we cannot impose our will on this administration as to Mr. Bernankes continued role at the Fed, we would at least like to make our case for a Fed chairman more aware (at least publicly) of the unintended consequences of ultra easy monetary policy, and one with less hubris.
2012-11-02 What Would Happen at the Fed Under a Romney Presidency? by Josh Thimons of PIMCO
Between now and the election expect markets to continue to reflect the changing election probabilities. Expect Treasury yields to climb if Romneys probability of victory increases due to fear of what he will do when it comes to Fed nominations. However, any substantial rise in Treasury yields based upon a Romney victory is likely to be a buying opportunity, because Fed policy will be accommodative regardless of who controls the White House.
2012-11-01 Growth Outlook for Europe, China and the US by Mark Nash of Invesco
Growth Outlook for Europe, China and the US Mark Nash, Senior Portfolio Manager in Invesco Fixed Income, outlines the case for global "core" government bonds amid central bank actions on growth prospects in Europe, China and the US.
2012-11-01 The Fed and the Fiscal Cliff by Zach Pandl of Columbia Management
Prospects for this quarter's results are being very closely scrutinized. After healthy growth in Q1, Q2 results proved quite sobering, as sales decelerated and operating leverage proved hard to come by. Given continued disappointing global macro growth, Q3 results seem tracking to be close to flat year over year again. Implicit in the consensus S&P500 estimate of around $103 is a reacceleration in Q4. Implicit in the 2013 consensus of around $115 is renewed healthy growth continuing consistently through the year. Such reacceleration seems highly at risk, which raises a few questions.
2012-11-01 Time To Vote! by Bill Gross of PIMCO
So I pulled out my magic lamp that for some reason works only every October 22nd, and rubbed until the Genie appeared in his red and white checkered cloak with a 10-inch diameter Flavor Flav clock hanging ceremoniously around his neck. Being a rather forward, although not disrespectful Genie, he immediately said, "Mr. G, instead of the yield on the 10-year Treasury, perhaps this year you should wish to know who is going to win the Presidential election?"
2012-10-30 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 And That\'s the Week That Was by Ron Brounes of Brounes & Associates
Disgruntled investors took a look at the earnings reports and ran for the hills. With some industrial and techs issuing pessimistic reports (mainly in their outlooks), investors chose to take a hiatus. Election season is just a week-ish away and then the fiscal cliff looms in the not-so-distance future, so plenty of uncertainties and concerns remain for the time being. (And don't forget Spain.)
2012-10-26 October 2012: Fixed Income Investment Outlook by Team of Osterweis Capital Management
Like last year, this summer's quarter was eventful. Investors entered the quarter with high expectations that the European Central Bank (ECB) and Federal Open Market Committee (FOMC) would provide the markets with more monetary largesse. On July 26th, Mario Draghi, President of the ECB, vowed to "do whatever it takes" to preserve the euro. Risk assets then began an anticipatory rally heading into some key events in mid-September.
2012-10-26 What Now? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
The market appears to be in a "wait-and-see" mode in advance of the elections, but looking beyond November 6th is important for investors. The election is only one piece of the puzzle, and certain aspects of the political landscape likely won't be much clearer after Election Day. Earnings season has been somewhat disappointing, even though there was a relatively low bar to hurdle. We see more signs that the slowdown in the United States may be ending, however, with strength in housing particularly noteworthy.
2012-10-26 Weekly Economic Commentary by Carl Tannenbaum, Asha Bangalore and James Pressler of Northern Trust
Fiscal policy is a matter of multiplication. US GDP growth accelerated in the third quarter, but remains less than ideal. Recent reports out of China reassured the markets, but underlying trends are not so promising.
2012-10-25 Picking Up Nickels by Chris Richey of Neosho Capital
Those who pursue puny returns in the face of enormous risks to their principal are said to be "picking up nickels in front of a steamroller". You would think such behavior is limited to drunkards and fools, but you will be shocked to hear that our very own Federal Reserve has undertaken just such a strategy in their well-intentioned, but, by their own admission, futile pursuit of improved U.S. employment numbers.
2012-10-24 Policy at a Crossroads by Investment Strategy Group of Neuberger Berman
On September 13, the Federal Reserve announced a third round of quantitative easing, dubbed QE3, in the hope of providing an additional boost to the slow U.S. economic recovery. Although this latest policy action reinforces the notion that the U.S. is prepared to support its economy for as long as needed, some economists question whether the stimulus can really make a difference. In this issue of Strategic Spotlight, we consider the recent effects of loose monetary policy and whether the Fed has "reached its limit."
2012-10-24 Emerging Markets Local Currency Bonds: Reducing Risk and Improving Returns in a Global Fixed Income by Marcela Meirelles, Blaise Antin of TCW Asset Management
Emerging market (EM) local currency bonds broaden the scope for income generation and risk diversification in a global fixed income portfolio. The asset class offers a unique opportunity to access higher income and potential for capital appreciation through a basket comprised of mostly investment grade credits with an average yield spread of 475 basis points over US Treasuries.
2012-10-23 The Perils of the Fiscal Cliff by John Mauldin of Millennium Wave Advisors
In today's letter we'll peek over the Fiscal Cliff and see what economic models can tell us about government spending. And if we have time we'll quickly look at an interesting study that uses economics to predict the outcome of this US presidential election.
2012-10-23 A Tepid Week for Earnings by Matt Rubin of Neuberger Berman
Through the first two weeks of earnings season, corporate results have largely mirrored the releases we witnessed a quarter agoof the 118 S&P 500 companies that have reported to date, only 60% have exceeded their earnings estimates while 29% have surpassed their revenue expectations. This week, we will see financial results from 169 S&P 500 companies, representing 32% of the index market capitalization, which will be well dispersed across all 10 S&P 500 sectors.
2012-10-23 The GDP Outlook by Scott Brown of Raymond James
On Friday, the Bureau of Economic Analysis will release the advance estimate of third quarter GDP growth. Theres always a lot of uncertainty in the advance estimate. The BEA will have to make assumptions about inventories, foreign trade, and a few other missing components. However, the report should continue to show the U.S. economy in recovery mode.
2012-10-22 The "Fiscal Cliff" and the Election by Milton Ezrati of Lord Abbett
The fiscal cliff looms large. It should. Unless Washington does something, the 2013 budget will face a sudden and automatic fiscal restraint. The shock would almost certainly drive this economy's already enfeebled recovery into recession. It is an alarming prospect, to be sure, but still, likelihoods suggest that even this partisan Congress will steer clear of such a "cliff."
2012-10-22 The Little Country That Could by Bill O'Grady, Kaisa Stucke of Confluence Investment Management
In this geopolitical report we will take a brief look at Estonia's history, its economy after the break-up of the Soviet Union, its remarkable economic growth in the 1990s and early 2000s, and the ensuing downturn in 2008. The country stands out for choosing a different path to deal with the recession than many other European countries.
2012-10-19 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 Quarterly Letter by Ron Muhlenkamp of Muhlenkamp & Company
In his latest quarterly letter, Ron Muhlenkamp, president and portfolio manager of the Muhlenkamp Fund, re-examines Europe, China, and U.S. Politics as the major drivers of the markets. On September 7, 2012, Muhlenkamp published a Market Commentary, headlined "Threat of European Banking Crisis Recedes." In it, he discusses the Outright Monetary Transactions program, introduced by the European Central Bank. Mr. Muhlenkamp thinks this program makes credible the ECB's promise to do all it can to keep the Eurozone together.
2012-10-19 Muddling Down the Middle by Josh Thimons of PIMCO
PIMCO expects that the debate over the fiscal cliff will end in fiscal consolidation, but not a fiscal catastrophe. Unfortunately, while the Fed's monetary policy actions have been, by and large, successful in achieving its intermediate-term goal of increasing asset valuations, they have not been effective in influencing real economic outcomes. Our forecast for the drag on GDP from the fiscal cliff in the coming year is roughly negative 1.5%. Improvement in the housing market will only fill a small part in that hole.
2012-10-19 Monthly Investment Bulletin by Team of Bedlam Asset Management
In their efforts to support growth, governments and central bankers have steadily chipped away at the free market. Through increased regulation, financial suppression and monetary intervention they have accentuated the lack of supply in quality fixed income paper, driving bond yields down to previously unthinkable levels. Policy makers are almost pathological in their belief that the end justifies the means as they try to inflate away their debt by keeping interest rates below nominal growth.
2012-10-18 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 As Global Growth Falters, Consider Emerging Markets by Russ Koesterich of iShares Blog
Global growth this year is forecast to lag that of both 2011 and 2010, and the outlook for 2013 isn't much better. These sobering forecasts are bolstering Russ K's view that investors should consider being overweight emerging market stocks.
2012-10-18 Triskaidekaphobia1 \tris-kī-dek-ə-fō-bē-ə\ n: Fear of the Number 13 by Gene Tannuzzo of Columbia Management
In May of this year, the Congressional Budget Office published a paper outlining the tax increases and spending cuts scheduled to be automatically implemented on January 1, 2013 under current law. The paper illustrates the real risk of recession if Congress fails to address this looming "fiscal cliff" before year end. The markets are telling us not to worry about the fiscal cliff. Are the markets right, or should investors be more concerned that 13, as in 2013, could be an unlucky number for the U.S. economy?
2012-10-18 Emerging Markets Equity - Monthly Product Commentary: September 2012 by Team of Thomas White International
Investment inflows and low interest rates helped emerging market equities. Emerging market equities saw a healthy recovery during the month of September, as the U.S. Federal Reserve and the European Central Bank rolled out aggressive monetary measures to support their respective economies. As the U.S. and Europe are the biggest markets for exports from emerging market countries, it is hoped that the latest monetary stimulus measures will help these countries revive the export growth that has slackened in recent months.
2012-10-17 Economics is Such a Drag by Fred Copper of Columbia Management
At least in Europe it is. Central bankers around the world are doing everything they can to try and pump up the global economy. Mario Draghi, President of the European Central Bank, has been incredibly aggressive and creative in trying to rectify the imbalances plaguing Europe.
2012-10-17 Emerging Europe: Third Quarter 2012 Economic Review by Team of Thomas White International
In its recent economic assessment, the European Bank for Reconstruction and Development (EBRD) said it expects growth to slow down during the year in member countries such as Russia, Poland, Hungary, and Turkey as the effects of the Euro-zone crisis spills over. The bank said many of these countries have already seen lower growth, but Russia especially is affected by falling commodity prices. Striking a similar note, the International Monetary Fund in its World Economic Outlook said emerging economies of the world are at risk should the developed economies experience a continued slowdown.
2012-10-17 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.
2012-10-17 Rise Up: US Soft Patch Appears to be Ending by Liz Ann Sonders of Charles Schwab
By definition, inflection points are characterized by maximum weakness. Many US economic readings are again suggesting notable signs of life. Will the improvement be enough to offset the "fiscal cliff"?
2012-10-16 Will Bonds Be ‘Burnt to a Crisp?’ by David Schawel, CFA (Article)
Bill Gross's recent monthly commentary painted a disturbing picture for investors - he foresees bonds being “burnt to a crisp.” This isn't just hot air. Such a conflagration is possible, and investors in bond funds, especially those that are constructed similar to the widely followed Barclays bond index, need to heed risks inherent in today''s market.
2012-10-16 Inflation: Washington is Blind to Main Street's Biggest Concern by Peter Schiff of Euro Pacific Capital
Journalists, politicians and economists all seem to agree that the biggest economic issue currently worrying voters is unemployment. It follows then that most believe that the deciding factor in the presidential race will be the ability of each candidate to convince the public that his policies will create jobs. It seems that everyone got this memo...except the voters.
2012-10-16 Bank of England Still Aiming at the Wrong Target by Darren Williams of AllianceBernstein
The UK is celebrating a near three-year low in consumer price inflation, but we think the Bank of England (BOE) should be more worried about the role that money and credit play in the inflation process.
2012-10-15 The United States: Stability or Complacency? by Alan Levenson of T. Rowe Price
The International Monetary Fund's updated World Economic Outlook foresees a modest pace of U.S. economic expansion in 2012-2013, emphasizing significant downside risks emanating from the euro area crisis and from the domestic fiscal cliff. Weakness in the euro area and slower growth in a secularly-restructuring Chinese economy are weighing on U.S. export trends, but sturdier growth in Canada and Mexico is providing an important offset.
2012-10-15 Bond Market Review & Outlook by Thomas Fahey of Loomis Sayles
Aggressive policy responses from major central banks were dominant forces in the third quarter. The European Central Bank (ECB), Federal Reserve (Fed), Bank of Japan (BoJ) and other central banks took decisive action, prompted by the escalating European sovereign debt crisis, slowing global growth, financial market volatility, and the impending US "fiscal cliff."
2012-10-15 Lender of Last Resort Move Crucial to Regional Stability by Andrew Balls of PIMCO
While the ECB's engagement as a lender of last resort is crucial, Europe's big four governments must provide political commitments supportive of ECB policy to counter the lingering threat of a Greek exit, address convertibility risk, and build a more stable union. However, this will require sustained growth. Faced with capital flights from the periphery and lowered credit ratings, the key challenge remains crowding-in private and foreign official investors to buy peripheral sovereign debt.
2012-10-15 QE3Back to the Future by Milton Ezrati of Lord Abbett
The broad scope and open-ended nature of the Federal Reserve's third round of quantitative easing raises questions about what exactly Fed chairman Ben Bernanke has in mind. Some insight, remarkably, emerges from a speech he gave in November 2002 to the National Economists Club in Washington, D.C., when he was simply a Fed board member. Taking his cue then from fears of a Japanese-style deflation, he laid out a path for monetary stimulus in an extreme situation, outlining nontraditional policy tools that have since become common.
2012-10-15 High Yield and Bank Loan Outlook by Scott Minerd of Guggenheim Partners
The leveraged credit market turned in an impressive Q3 with high yield bonds and bank loans returning 4.3 and 3.1 percent, respectively. Unprecedented accommodation from central bankers across the globe has alleviated much of the macroeconomic tail risk that we highlighted in last quarters publication. Presented with a seemingly insatiable demand for new issue bonds, issuers returned to the torrid pace of issuance that characterized the start of 2012 by raising a record $99 billion during the third quarter.
2012-10-15 Commodity Inflation Complicating Pro-Growth Policies by Ryan Davis of Fortigent
The return of commodity inflation raises several questions, primary among them being the impact it will have on emerging markets. While rising commodity prices are generally bullish for equity prices in emerging markets, it may also inhibit central bank flexibility at a time when many developing countries are experiencing decelerating economic growth. This issue was paramount in 2010, leading to underperformance in many EM stock markets. Since then, however, commodity prices have generally moved sideways, allowing those fears to subside.
2012-10-15 The New Investment World is Not Near, It's Here by Russ Koesterich of iShares Blog
The recent pace and magnitude of economic change has left many investors disoriented, to say the least. Russ K explains why this new environment is unlikely to change any time soon, which may have implications for investors' current and long-term strategies.
2012-10-12 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).
2012-10-11 Macro View: China in Transition by Scott Minerd of Guggenheim Partners
With nominal growth rates falling faster than expected, the possibility of a hard landing for China country's economy appear to be increasing. More importantly, however, there is more to this situation than is immediately observable.
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 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 Potential Picks for a Yield-Starved Portfolio by Russ Koesterich of iShares Blog
Yield-hungry investors today are faced with a stark choice: accept lower yield or more risk. Russ K explains why given those options, investment grade bonds may be one of the better bargains.
2012-10-09 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
2012-10-08 Number Five by John Hussman of Hussman Funds
Examine the points in history that the Shiller P/E has been above 18, the S&P 500 has been within 2% of a 4-year high, 60% above a 4-year low, and more than 8% above its 52-week average, advisory bulls have exceeded 45%, with bears less than 27%, and the 10-year Treasury yield has been above its level of 20-weeks prior. While there are numerous similar ways to define an "overvalued, overbought, overbullish, rising-yields" syndrome, there are five small clusters of this one in the post-war record.
2012-10-08 The Great Debate by John Petrides of Advisors Capital Management
The first of three presidential debates kicked off last week with each candidate portraying the core fundamentals of their respective party, neither of which backed down from their beliefs. As the candidates continue to jockey for sound bites, a debate among investors continues to rage: What will happen to the market after the election?
2012-10-08 Strong Employment But Still Lots of Slack by Christian Thwaites of Sentinel Investments
The ECB's dearth of tools came through loud and clear last week. Rates remained unchanged not because the economies have a ghost of a chance of recovery but because inflation, at 2.7%, scored well above the 2% target. There's a certain amount of in-built inflation in European economies not present in the US, for example, indexing across many industries and pensions, VAT and euro denominated commodity costs. The combination of higher oil costs and a weaker euro put some of the YOY increases in energy costs as high as 40%.
2012-10-05 Market Performance and the Party in Power: Is There Really a Connection? by Team of Janus Capital Group
The relationship between domestic securities market returns and U.S. Presidential elections is a favored topic of Wall Street commentators. As the 2012 Presidential election heads toward the tape, the pundits are in full swing once again, and claims about the impact of a Democratic or Republican victory on U.S. stock and bond markets pop up almost as frequently as political ads. In this paper, we address the question, Should investors take these prognostications to heart and, more importantly, apply them to their asset allocations?
2012-10-05 Economic Recovery and Debt Reduction: Faster, Please! by Chris Molumphy of Franklin Templeton Investments
It's tough to be patient in an age of instantaneous communications and instant gratification. We all want immediate answers to our questions and quick fixes to our problems. When it comes to real world tangles like the global economy, though, Chris Molumphy, CIO of Franklin Templeton Fixed Income Group, reminds us that patience, not a magic pill, is the order of the day when it comes to European and U.S. struggles to cure their economic ailments. He's realistic about these problemsbut isn't waiting to act where he does spot investment opportunities.
2012-10-05 Election Preview by Investment Strategy Group of Neuberger Berman
Our Investment Strategy Group sizes up the approaching U.S. election and its potential impact on the "fiscal cliff."
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.
2012-10-03 Don't Bring Me Down: Not Swayed by Pessimism at BCA Conference by Liz Ann Sonders of Charles Schwab
We present highlights, key takeaways and perspective on the recent BCA Research Investment Conference. The eurozone crisis and China's slowdown remain risks, but are somewhat offset by optimism about US markets. Politics will remain a force underpinning uncertainty and volatility.
2012-10-03 A Funny Thing Happened On The Way To Economic Armageddon by Scott Colyer of Advisors Asset Management
After the recent announcement by the U.S. Federal Reserve (Fed) that they would begin to engage in what has been deemed "QE3," there has been a lot of skepticism that such a plan could actually work. The Fed is attempting to carry out their dual mandate of price stability and full employment by engaging in a new round of asset purchasing targeted at the mortgage market.
2012-10-02 Confronting the Unemployment Crisis by Robert Huebscher (Article)
Policymakers seeking a path to economic recovery must first answer one crucial question: Is our persistently high unemployment structural or cyclical? If it's cyclical, then monetary and fiscal measures designed to boost consumer spending will restore the US to full employment in due course. But if we face a structural problem, then quick fixes won't work until we correct deeper imbalances that have left 12.5 million Americans without jobs.
2012-10-02 Lessons from Scandinavia by Kaisa Stucke, Bill OGrady of Confluence Investment Management
During the late 1980s and early 1990s, Scandinavian nations suffered through balance sheet recessions. Commentators have suggested that U.S. policymakers could use the Scandinavian response to their crises as a roadmap for resolving the current U.S. situation. As part of our own analysis, we have studied several earlier events to understand the underlying similarities and differences to develop insights into the current event.
2012-10-02 Are Markets Ready for a Correction? by Chris Maxey, Ryan Davis of Fortigent
Entering the final quarter of 2012, many investors may find themselves apprehensive about the outlook for markets and the broader economy. While the pace of economic disappointment appears to have slowed down and actually reversed according to the Citigroup Economic Surprise Index actual data levels continue to suggest an anemic economic state.
2012-10-02 QE and the Equity Market: Is the Fed Driving or Along For the Ride? by Patrick Lawler of PIMCO
Federal Reserve officials have said several times that among other benefits, its quantitative easing (QE) programs have helped boost U.S. equity prices. Based on our analysis, QE has not been the driving force behind rising equity prices in recent years. How does the Federal Reserve measure the success of its asset purchase programs, or quantitative easing (QE), since the 2008 financial crisis QE1, QE2, Operation Twist (OT) and QE3?
2012-10-01 Recession Risk Rising by Brian Wesbury, Bob Stein, Strider Elass of First Trust Advisors
Economic forecasting was relatively easy from the end of World War II until the middle of the prior decade. Most of the time, you could just focus on monetary policy. But then came the last recession, which had nothing to do with the Fed being too tight. Instead, falling home prices and mark-to-market rules rendered some major banks under- capitalized. A pure financial panic ensued, the likes of which we had not seen for 100 years. But what if this was not a one-time event?
2012-10-01 Euro-Area Interest Rates: To Zero and Beyond? by Darren Williams of AllianceBernstein
There has been some speculation that the European Central Bank (ECB) may soon push its deposit rate into negative territory. We think a cut in the deposit rate would be a poor substitute for measures aimed directly at repairing the monetary transmission mechanism in the troubled peripheral countries. But there's a case for reducing the deposit rate, and one which we think is worth rehearsing.
2012-10-01 Quantitative EasingBernanke Sizes Up the Risks by Milton Ezrati of Lord Abbett
Bernanke acknowledged four potential pitfalls in policywith a fifth lurking in the shadows.
2012-10-01 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 Falling Off the Fiscal Cliff? by Libby Cantrill, Josh Thimons of PIMCO
When we look at how the fiscal debate is likely to play out, rather than how it should play out, our base case is the fiscal cliff will likely be resolved in a short-term deal before the end of the year, making what was a cliff more like fiscal black diamond still dangerous, but not likely to land the economy in a body cast.
2012-09-28 Schwab Market Perspective: Disrespected RallyCan It Continue? by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
US equities are trading near five-year highs but numerous measures show investors remain skeptical. The enthusiasm following the Fed's announcement of more quantitative easing was short-lived, although the summer rally in stocks could be at least partially attributed to anticipation of more stimulus. The enthusiasm following the Fed's announcement of more quantitative easing was short-lived, although the summer rally in stocks could be at least partially attributed to anticipation of more stimulus.
2012-09-28 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 Growing Pains in the BRICs by Investment Strategy Group of Neuberger Berman
The "BRIC" countries have been a focal point of investor interest since the early 2000s. Brazil, Russia, India and China account for about half of the world's population, boast vast natural resources and are among the fastest-growing economies in the world. That said, progress at times has been uneven. Since 2010, the MSCI BRIC Index has largely underperformed the S&P 500 as economic growth flagged. In this edition of Strategic Spotlight, we discuss current conditions and the outlook for these markets.
2012-09-27 PIMCO'S Cyclical Outlook for Asia: Structural Slowdown Shaping Near-Term Growth Dynamics by Tomoya Masanao, Robert Mead, Ramin Toloui of PIMCO
Rather than a hard landing for China, we foresee a structural downshift that could be called a "New Normal with Chinese characteristics." Australia has considerable scope for additional rate cuts and more expansionary fiscal policy to address regional weaknesses. The Japanese economy will be affected by weak economic growth in China, which will add more pressure for the Bank of Japan to respond.
2012-09-26 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?
2012-09-24 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 Do TIPS Pose a Hidden Risk to Seekers of Inflation Protection? by Douglas Peebles of AllianceBernstein
Treasury-inflation protected securities, or TIPS, have been a popular choice for investors concerned about future inflation. And TIPS' returns have been impressive in recent years. But the main contributor to TIPS' performance isn't inflation. It's an ingredient that could become as hurtful down the road as it's been helpful in the past.
2012-09-24 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 Housing Recovery Still Young by Brian Wesbury, Bob Stein of First Trust Advisors
The turnaround in the housing market is perhaps the brightest spot in an otherwise tepid economic recovery. Home sales, home building, and even home prices are all headed up. In the past twelve months, sales of existing homes are up 9% while sales of new homes are up 25%. Housing starts are up 29%. The two most prominent home price measures, Case-Shiller and FHFA, are both up at about a 7% annual rate in the past six months.
2012-09-24 ECB Throws Euro a Life Preserver by Philippe Brugere-Trelat of Franklin Templeton Investments
A few short months ago, the euro appeared to be in critical condition. The crushing weight of debt, particularly in Southern Europe, seemed to be sucking the life out of the European Union. Now that the European Central Bank has announced that it stands ready to provide some life support to the euro, the contagion fears seem to have ebbed, and one might even say predictions of its death were perhaps greatly exaggerated.
2012-09-22 QE Infinity: Unintended Consequences by John Mauldin of Millennium Wave
Last Monday an op-ed in the Wall Street Journal, penned by five PhDs in economics, among them a former Secretary of the Treasury and an almost-guaranteed Nobel laureate (and most of them former members of the President's Council of Economic Advisors) minced no words in excoriating the current QE policy. We will look at that op-ed in detail below. The point is that there are grave reservations about the current policy among some very serious policy makers.
2012-09-21 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.
2012-09-20 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.
2012-09-20 The Fed's "X" Factor by Zach Pandl of Columbia Management
The most surprising element in last week's Federal Reserve (Fed) decision was not the announcement of Mortgage Backed Securities (MBS) purchases or the extension of its funds rate guidance to "mid-2015," both of which were signaled fairly clearly in advance. Rather, it was the fact that the aggressive monetary easing occurred alongside an upgrade to the central bank's economic forecasts.
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?
2012-09-18 $4 Gas Could Put Brakes on Growth by Milton Ezrati of Lord Abbett
Reaction to the recent climb in gasoline prices appears surprisingly muted, but a sustained rise could result in a significant drag on U.S. growth.
2012-09-18 Federal Reserve Actions Help the Rally to Continue by Bob Doll of BlackRock Investment Management
The headline news last week was the US Federal Reserve's announcement of a new round of quantitative easing in which the central bank plans to purchase $40 billion of mortgage-backed securities on a monthly basis (without a predetermined end date). The Fed also pushed back the timeframe on how long it will maintain its current zerointerest-rate policy, indicating that the current level of rates should be in effect through the middle of 2015.
2012-09-18 Fed Delivers another Big Dose of QE by Scott Colyer of Advisors Asset Management
Yesterday, the Fed delivered the much anticipated dose of Quantitative Easing (QE) announcing that it would continue to buy U.S. Agency Mortgage Backed Securities (MBS) in an effort to further drive growth in the U.S. economy and decrease the ranks of the unemployed. The monthly purchase rate of $40 billion will be in addition to the already $10 billion that is being reinvested from QE 1&2 in mortgage-backed securities. This new money balance sheet expansion by the Fed accompanies additional guidance that the Fed would stay low on interest rates likely until mid-year 2015.
2012-09-17 The Fed to the Rescue? by Scott Brown of Raymond James
Citing concerns about the pace of improvement in the labor market, the Federal Open Market Committee extended and amplified its forward guidance and started a third round of large-scale asset purchases (what most people call "QE3"). The FOMC said that economic conditions are expected to warrant exceptionally low levels of the federal funds rate target through mid-2015 (vs. "late 2014" in the previous policy statement) and added that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
2012-09-17 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 Ben Wants You To Spend Cash by John Petrides of Advisors Capital Management
This week the Federal Reserve launched its third round of monetary policy easing in as many years. Under QE3 (quantitative easing), the Fed will purchase $40 billion of mortgage backed securities on a monthly basis with the purpose of continuing to fuel the housing market. Under QE3, the Fed said it will keep its zero interest rate policy until mid-2015, with the goal of removing market assumptions of a rising rate environment. The Fed is and always will be data dependent, so all of these actions are subject to change.
2012-09-17 "QE" Stands for Quality Employment by Kristina Hooper of Allianz Global Investors
The Fed's expansive and open-ended quantitative easing program centers on building up a depleted workforce and quickening the pace of the housing recovery, but higher inflation and tight credit could play the role of spoiler. Buying mortgage-backed securities and pushing interest rates lower is designed to boost the housing sector, help loosen lending standards, stimulate corporate spending and increase foreign demand for U.S. products. This is a tall order and there are many "ifs" in this scenario, but the flexibility and breadth of QE3 increases the likelihood of its effectiveness.
2012-09-17 QE3, For Now by Brian Wesbury, Bob Stein of First Trust Advisors
As we all know by now, the Federal Reserve launched QE3 on Thursday, announcing an open-ended program of buying an extra $40 billion a month in mortgage-backed securities until it sees a substantial improvement in the outlook for the labor market. It also adjusted its guidance for when it thinks it will start moving up short-term interest rates to mid-2015 from a previous late-2014.
2012-09-15 The Direction of the Compromise by John Mauldin of Millennium Wave
I think this election has the potential to be one of those rare times, at least in terms of economic outcomes. In Thoughts from the Frontline we cover economics and investments, money and finance. We only rarely stray into the political world, and then only glancingly. Today, we cross that gray line, but at a somewhat different angle, as we look at the economic consequences of the political decision that will come with the choices we make in November in the US.
2012-09-14 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 Open-Ended Easing by Carl Tannenbaum and Asha Bangalore of Northern Trust
The Federal Open Market Committee (FOMC) took a very forceful set of steps this week, designed to stimulate what officials have called a "frustrating" job market.
Our updated forecast suggests that the growth trajectory of the US economy is positive but sufficiently sub-par for the Fed to have initiated additional monetary policy support.
There are increasing signs that China's economy is slowing more than the official readings would suggest.
2012-09-14 Australias Second-largest Export It Isnt Coal by Adam Bowe of PIMCO
With growth in China now moderating, and the price of commodities and Australias terms of trade now declining, many investors are questioning how the Australian dollar has managed to remain well-supported. The explanation lies mainly in the changing structure of the funding of the current account deficit. Going forward this will likely have important implications for monetary policy in Australia if the decline in national income growth is not offset by a similar decline in the Australian dollar.
2012-09-14 All In by Bob Rodriguez of First Pacific Advisors
2013 is a critical moment in time. If a material and timely fiscal restructuring does not take place by next September, I fear and believe that it will not occur before 2017. Unfortunately, if this were to occur, my 2009 warning of a crisis of equal or greater magnitude than the Great Recession by 2017 would be a more likely outcome. My worst fear is that fiscal gridlock continues, coupled with the policies of this activist Fed Chairman. Todays Fed actions add to my anxieties. ALL IN may be a good strategy for poker but not for this economy.
2012-09-14 Operation Screw by Peter Schiff of Euro Pacific Capital
The Fed will try to conjure a recovery on the backs of currency debasement. It will not stop or alter from this course. If the economy fails to respond to the drugs, Bernanke will simply up the dosage. In fact, he is so convinced we will remain dependent on quantitative easing that he explicitly said he won't turn off the spigots even if things noticeably improve. In other words, the dollar is screwed.
2012-09-14 Central Banks Take Center Stage by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Accommodative central banks have traditionally been good for equities and stocks have responded positively to recent action. However, each market reaction to US Fed action has been shorter in length and challenges persist. Although recent economic data has been beating relatively low expectations, it is still not meeting the Fed's hopes. We appreciate the sentiment of wanting to stimulate growth, but the Fed's power is limited. It's down the street in Washington where the real power to stimulate growth lies.
2012-09-13 Back to the Future: What's at Stake for the Economy in the Obama-Romney Contest by Team of Knowledge @ Wharton
To hear the two candidates tell it, the U.S. presidential election offers a dramatic choice on the economy: Vote for me, each says, if you want a robust recovery; pick my opponent, and we'll plunge back into recession. But given the huge problems the country currently faces, the future -- no matter who wins in November -- will look much like the present, according to several Wharton faculty.
2012-09-12 Pacific Basin Market Overview - August 2012 by Team of Nomura Asset Management
Pacific Basin equity market performances were mixed during August 2012 and generally underperformed markets in Europe and North America, largely due to the drag caused by concerns surrounding Chinas slowing economic growth rate. Numerous statements made by European leaders to support the Euro helped to allay fears and brought yields on sovereign bonds lower during the month.
2012-09-12 Will America Be Greece in Four Years? by Gary Halbert of Halbert Wealth Management
The US national debt topped $16 trillion last week, and it was almost as if no one paid attention. At the rate we are going, the national debt will top $20 trillion just four years from now in 2016. In my August 21 E-Letter, I pointed out just how mind-boggling a trillion dollars is. Lets revisit that analogy of a trillion in terms of time.
2012-09-12 PIMCO Cyclical Outlook: Building Rickety Bridges to Uncertain Outcomes by Saumil Parikh of PIMCO
Without structural change aided by well-planned fiscal policy, we are afraid the nominal bridges of monetary policy will fail to reach their desired outcomes. The probability of a deflationary left-tail outcome emanating from the eurozone has declined substantially in the short run, yet outright economic growth in the eurozone will remain elusive in 2013.The much-publicized "fiscal cliff" is set to hit the U.S. economy on January 1, 2013, and could reduce U.S.
2012-09-12 Is Europe Fixed? Not Even Close! by Fred Copper of Columbia Management
Euro Area (EA) equities have rallied 16% since European Central Bank (ECB) President Mario Draghi made his now famous July 26 pronouncement that "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." Does this mean the EA is fixed? Not even close.
2012-09-11 Fed Preview: Time to Forge Ahead by Carl Tannenbaum of Northern Trust
I got home at about 8 one evening last week, and it looked like a bomb had gone off inside my house. The shrapnel included empty pop cans, open bags of snacks, and scores of used napkins. The sink was filled with dirty dishes, and laundry (clean, or dirty?) was strewn about the floor. No one was home, leading me to suspect that the explosion had done them all in.
2012-09-10 Late-Stage, High-Risk by John Hussman of Hussman Funds
The market conditions we observe at present are very familiar from the standpoint of historical data, matching those that have appeared prior to the most violent market declines on record (e.g. 1973-74, 1987, 2000-2002, 2007-2009).
2012-09-10 Fixed Income Investment Insight by Michael Siviter of Invesco
At the beginning of a crucial period for the Eurozone, Michael Siviter, Portfolio Manager in Invesco Fixed Income, outlines the challenges the authorities face.
2012-09-10 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.
2012-09-08 Debt Be Not Proud by John Mauldin of Millennium Wave
The unemployment numbers came out yesterday, and the drums for more quantitative easing are beating ever louder. The numbers were not all that good, but certainly not disastrous. But any reason will do, if what you want is more stimulus to boost the markets ever higher. Today we will look first at the employment numbers, because deeper within the data is a real story. Then we look at how effective any monetary stimulus is likely to be.
2012-09-07 The ECB: No Rest for the Weary by Carl Tannenbaum of Northern Trust
The economic picture in Europe is worsening, exposing flaws in the foundation of the euro compact. The European Central Bank is trying its best, but remains hindered by its charter. European policy makers should focus on stabilizing the situation first, and seeking retribution later.
2012-09-07 Euro: Looks Like a Duck, Quacks Like a Duck by Alex Merk of Merk Funds
If it looks like a duck, quacks like a duck, it just might be a duck. We are talking about the euro: it now looks like a currency, acts like a currency, it might as well be yet another currency.
2012-09-07 The Federal Reserves Next Move: QE3? Perspectives on U.S. monetary policy by Team of Janus Capital Group
We believe the Fed will take additional action by mid-September to stimulate the economy, probably through a third round of quantitative easing. U.S. economic growth remains well below potential and is slowing, and the Fed is not meeting its dual mandate to ensure price stability and full employment. We recently reduced our 2012 GDP growth estimate to between 1.5% and 1.7%.
2012-09-06 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 September: A Rough Month for the Markets? by Gary Halbert of Halbert Wealth Management
September is often a bad month for the stock markets, historically speaking, and this year it could be especially turbulent. In addition to all the uncertainty about the weak US economy, there is uncertainty about what the Fed may do just ahead and what, if anything, will be done to address Europe's recession and debt crisis. In addition, there is the looming presidential election which no doubt will go hyperbolic this month.
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.
2012-09-04 Still No Recession in Sight by Brian Wesbury, Bob Stein of First Trust Advisors
Real GDP in the US has grown 2.3% in the past year, a mediocre rate of growth, little different than its 2.2% average since mid-2009, when the recovery officially began. It's what we call the Plow Horse economy and we expect it to continue plodding along, at least through this fall.
2012-09-01 The Consequences of Easy Monetary Policy by John Mauldin of Millennium Wave Advisors
We heard from Bernanke today with his Jackson Hole speech. Not quite the fireworks of his speech ten years ago, but it does offer us a chance to contrast his thinking with that of another Federal Reserve official who just published a paper on the Dallas Federal Reserve website. Bernanke laid out the rationalization for his policy of ever more quantitative easing. But how effective is it?
2012-08-30 The ESM: Saviour, Super SIV or End of the Road? by Andrew Bosomworth of PIMCO
So long as the fundamental issues about the future of the eurozone remain unsolved, the extra supply of ESM bonds will likely drive up the borrowing costs of its weaker stakeholders. Without a cap on or exit clause from additional capital calls, the ESM could lead northern eurozone countries down a difficult and unsustainable path.
2012-08-30 Fixed Income Investing - the Dangers of Complacency by Bill Woodruff of Bandon Capital Management
The paper points out the US has been in a declining interest rate environment for 30 years, producing a tailwind for fixed income investors but one with little room left for further decline. At these interest rate levels - the yield on the 10 year US Treasury recently hit an all-time month end low of 1.49% - fixed income investors face unique risks which are predominantly unfamiliar.
2012-08-29 Closed-End Funds by Douglas Bond of Cohen & Steers
We would like to share with you our review and outlook for the closed-end fund market as of July 31, 2012. For the month, the total return of the Morningstar U.S. All Taxable ex-Foreign Equity Closed-End Fund Index was 3.0% based on market price and 2.3% based on net asset value (NAV). Year to date, the index had a market-price return of 11.8% and a NAV return of 8.1%. By comparison, the S&P 500 Index and the Barclays Capital U.S.
2012-08-28 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 Letter From Fed Camp by Scott Brown of Raymond James
The minutes of the July 31/August 1 Federal Open Market Committee provided clear insight into the Fed's policy debate. At that meeting "many" FOMC members felt that "additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."
2012-08-27 And That's the Week That Was by Ron Brounes of Brounes & Associates
When Ben Bernanke talks...investors listen, Republican moans, Romney belittles, and markets react. For now, the jury is still out about any upcoming stimulus move as the policymakers appear far from consensus. Housing continued its rebounding ways, though manufacturing again raised concerns. Europe still appears to be in disarray as Greece takes direction (and a scolding) from its stronger brethren. Stocks ended their nice winning streak, though closed the week on a high note.
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 Setting Up for Jackson Hole by Carl Tannenbaum of Northern Trust
I was once favored with an invitation to the Federal Reserve's annual retreat in Jackson Hole, Wyoming. It was an amazing experience; the participant list was a Who's Who of global economic policy makers. I called my mother to brag, but all she wanted to talk about was the mischief that she and my father had gotten into while honeymooning in the area some fifty years earlier. Too much information.
2012-08-23 'Japanification' by Scott Mather, Dirk Jeschke of PIMCO
The same dark forces that Japan has been battling could continue to infect the developed world. During Japan's banking crisis deflationary expectations became embedded in the economy early on, preventing real short-term rates from remaining negative and thereby clogging monetary transmission. One of the chief explanations for the outbreak of deflation in Japan was the difference in the structure of the labor market.
2012-08-23 Reading the Right Tea Leaves to Gauge Market Volatility by Daniel Morillo of iShares Blog
Market volatility has come to be associated with short-term events, like the Lehman Brothers bankruptcy or the downgrade of US debt. But Daniel Morillo explains why investors should keep an eye on broad macroeconomic prospects and not the latest breaking news headline to gauge where market volatility is headed for the longer term.
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.
2012-08-20 The Outlook for Inflation and Fed Policy by Scott Brown of Raymond James
The odds of further accommodation from the Federal Reserve have decreased significantly in the last few weeks, as the level of fear has diminished. The financial markets now expect most of the fiscal cliff to be avoided. In Europe, leaders will still have to act against the region's crisis, but theyve also continued to express a strong resolve "to do whatever it takes" to keep the eurozone intact. Perhaps more importantly, U.S. economic data reports have generally improved.
2012-08-20 QE3: Tackling the Big Questions by Milton Ezrati of Lord Abbett
Will the Fed launch another round of quantitative easing? If so, when? Here are the factors that could influence the central bank's decision.
2012-08-20 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
In the common parlance of Wall Street, youre either a bull or a bear. It's difficult to be both at the same time, yet this market has as many agnostics as it does true believers. What you believe, however, is another story altogether.
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 Groundhog Day: Will Septembers Sell-off Repeat? by Russ Koesterich of iShares Blog
Investors might feel they are trapped in their own version of Groundhog Day this year as Russ K expects September, which has historically been the worst month of the year for capital markets, to once again fall victim to its well-documented negative seasonal bias.
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.
2012-08-16 The ECB Is Too Tight Absolutely and Relatively by Scott Mather, Dirk Jeschke of PIMCO
Looking at measures of the quantity of money and its transmission into the real economy reveals that ECB policy is quite tight. Growth hardly stands a chance under this scenario. Relatively tight monetary policy would perhaps be understandable if the eurozone were threatened by inflation. However, inflation is low and falling in the Eurozone. The ECB may be playing a game of chicken with European policymakers. If true, this is a dangerous strategy.
2012-08-14 This Is What Bull Markets Are All About by Richard Bernstein of Richard Bernstein Advisors
Investors have the impression that bull markets are days of wines and roses. However, nothing could be farther from the truth. Bull markets are periods of fear. This becomes quite obvious when one examines the valuation and sentiment data associated with the 1982, 1990, 1995, and 2003 bull markets.
2012-08-14 China Growth Threatened by the West by Chris Maxey, Ryan Davis of Fortigent
As we head further into the second half of 2012, it is clear that policy from central banks in the US, Europe, and China will drive markets and the global economy. Monetary policy in the US is becoming less impactful, while central bankers in Europe appear unwilling to tackle the enormity of their collective problem. It could be China that provides a sparkplug for second half global growth...
2012-08-14 The Eurozone Drama Continues by Bill O'Grady of Confluence Investment Management
In this report, we will review the political and economic structure of the Eurozone. From there, we will discuss the critical event that caused the reversal in safety assets and what this reversal likely means for the geopolitics of the Eurozone. As always, we will conclude with potential market ramifications.
2012-08-13 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 Begging for Trouble by John Hussman of Hussman Funds
Investors remain so addicted to the temporary high of monetary intervention that they are practically begging to be shot, mauled by dogs, and diced by a Veg-O-Matic so they can get their next fix of pain-killers.
2012-08-13 Stocks Look Poised for Continued Gains by Bob Doll of BlackRock Investment Management
Although investor attention seems focused on a number of well-known downside risks (including the European debt crisis, hesitant US economic growth and the pending US fiscal cliff), stocks have continued to climb higher and last week notched their fifth consecutive week of gains.
2012-08-10 Schwab Sector Views: Cautiously Cautious by Brad Sorensen of Charles Schwab
We remain slightly defensive with our sector recommendations but admit that we're a bit concerned over doing so. While we certainly believe this is the appropriate positioning given the continued elevated uncertainty in the market, combined with sluggish economic data, we also acknowledge that some defensive areas appear extended and the possibility of a near-term cyclically-based rally exists.
2012-08-10 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.
2012-08-10 Dog Days by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
We now appear to be firmly in the dog days of summer. Low volume and little conviction may dominate but investors need to stay vigilant and now is a good time to prepare for the fall. The recent Fed meeting yielded no new action, but policy makers reiterated that they will act if necessary. We are skeptical that more stimulus measures will have a lasting impact. A waiting game has ensued in Europe as investors look for action following hopeful comments from various officials. But despite concerns over corn prices, central banks will continue to ease, helping to support global growth.
2012-08-09 Pacific Basin Market Overview - July 2012 by Team of Nomura Asset Management Co.
Most equity markets in the Pacific Basin region recovered somewhat in July after a weak second quarter on expectations of further monetary easing and measures by the European Central Bank to forestall a Euro currency crisis. However, when we examine the sector results, it is hard to conclude that the recovery was accompanied by an improvement in sentiment.
2012-08-08 How Hoover Caused the Euro Crisis by Christian Thwaites of Sentinel Investments
There is a Burkean principle that many sorts of change must be regarded with skepticism. In the last few months in Europe we have seen new maxims, new ideas, new commitments, new resolves, lots of new acronyms, yet very little has changed from two years ago when Greece surfaced as the first casualty of the banking/sovereign crisis.
2012-08-08 ECB Policy: Over-Promise and Under-Deliver, Investor Behavior: Over-Anticipate and Over-React by Colin Moore of Columbia Management
Last week was a good example. Investors anticipated a major announcement from Mario Draghi, President of the ECB on Thursday because of remarks he had made the previous week at a conference in London. When he did not announce any immediate monetary policy changes following the regular meeting of the ECB, the markets demonstrated considerable volatility, declining on Thursday and rising on Friday.
2012-08-03 GDP Report: "Good News" - You've Got to be Kidding! by Gary Halbert of Halbert Wealth Management
We dissect last Fridays controversial 2Q GDP report, which most found disappointing but some in the mainstream media found encouraging (ie at least were not in a recession). From there, well discuss the Feds latest monetary policy meeting that ends tomorrow. The stock markets rallied strongly last week, partly on perceived good news from Europe, and partly because of renewed expectations that the GDP report would be weak enough to move the Fed to enact QE3.
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.
2012-08-01 Real Estate Portfolio Construction for Individual Investors by Casey Frazier of Versus Capital Management
Commercial real estate is an asset class that includes many different strategies and approaches. Investors segment real estate investments into a few categories. This segmentation is done by several key factors including income profile, leverage, operational risk and potential returns. The most important segmentation is core versus non-core, or properties with stable income versus properties that have unstable or no income.
2012-07-31 Uncertainty Reigns Supreme by Chris Maxey, Ryan Davis of Fortigent
With the first half of the year in the rearview mirror, investors might be lulled into thinking the most active period of the year is also in the rearview. Fast forward to year-end, though, and investors may beg for a return to the sanguine days of early 2012. A range of events in the coming months will likely dictate market optimism for 2012, 2013 and possibly beyond.
2012-07-30 No Such Thing as Risk? by John Hussman of Hussman Funds
In the face of present enthusiasm over central bank interventions, one almost wonders why nations across the world and throughout recorded history have ever had to deal with economic recessions or fluctuations in the financial markets.
2012-07-30 What Next for Spain? by Myles Bradshaw of PIMCO
As part of its bank recapitalization program, Spain has ceded fiscal sovereignty, and this is a positive step toward resolving the euro debt crisis. We believe its eurozone partners should now make good on their summit agreement to use European Financial Stability Fund and European Stability Mechanism instruments in a flexible and efficient manner.
2012-07-30 The Central Bank by John Petrides of Advisors Capital Management
Global markets responded favorably last week to comments from Mario Draghi, President of the European Central Bank, saying that he would do whatever it takes to save the euro (this reminded me of Fed Chairman Bernanke's comments in February 2009, when the Fed started its asset purchase program, and markets responded favorably soon after). Although the world awaits more details as to what Mr. Draghi's comments entail, equity markets rallied, and the yields on Spanish and Italian bonds came in.
2012-07-30 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 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.
2012-07-27 FOMC Preview: Christening QE III by Carl Tannenbaum of Northern Trust
Look for the Federal Reserve to embark on a new round of quantitative easing next week.
2012-07-25 An Excess of Reserve by Carl Tannenbaum of Northern Trust
Bank credit has expanded nicely over the past two years, yet financial institutions continue to hold substantial pools of excess reserves with the Fed. Some suggest that this extended conservatism is hindering the economic expansion, and are calling on the Fed to lower the rate it pays on excess reserves. The ECB has already taken this step. We think that a cut in the interest rate on excess reserves is unlikely.
2012-07-24 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
I want to dispel the notion that I am an investment bear. There is nothing wrong with expressing an opinion, bullish or bearish, particularly when the consensus says its alright. Proof of one's courage, though, lies at the margins, during undetectable inflection points, before the consensus has arrived. My track record versus the benchmarks demonstrates a successful delineation between bearishness and being opportunistic.
2012-07-24 Fed Outlook: An Itchy Trigger Finger by Scott Brown of Raymond James
Fed Chairman Bernanke's monetary policy testimony to Congress was not expected to be a big deal. The economic projections of senior Fed officials were already published and the minutes of the June 19-20 policy meeting showed the Fed in a wait-and-see attitude However, most of the economic data released since the Fed policy meeting were weaker than expected. While Bernanke did not signal that policy action was imminent, the tone of his testimony was clearly concerned.
2012-07-24 Wesbury vs. Krugman by Brian Wesbury, Bob Stein of First Trust Advisors
Today, on Bloomberg with Tom Keene, Brian Wesbury was asked about Paul Krugman. Wesbury said Krugman was wrong - government spending does not boost growth, if it did there would be no poverty in the world. This was reported on BusinessInsider...BusinessInsider then reported that Krugman fired back...quoting his New York Times blog. In it, he claims it all "depends on the situation."
2012-07-23 Emerging Asia Pacific: Economic Review 2nd Quarter 2012 by Team of Thomas White International
Emerging Asia, which posted strong results during the first quarter of 2012 on optimism that Europe's sovereign debt problems would be solved quickly, returned to struggling ways during the second quarter of 2012 as prospects for Europe continued to wobble throughout the period. The uncertainty about Greece's fate in the European Union and the destiny of the single market itself kept industrial firms in Europe guessing for the most part of the second quarter.
2012-07-22 Extraordinary Strains by John Hussman of Hussman Funds
A broad array of observable evidence suggests extraordinary strains in Europe, and abrupt though expected deterioration in U.S. economic activity. The Federal Reserve certainly has policy options, but those options have no material transmission mechanism to the real economy.
2012-07-20 No Armageddon, but Consequences by Michael Hasenstab of Franklin Templeton
In a time of severe stress and crisis, its easy to come to the conclusion that Armageddon is upon us. Those who believe the European Union is going to split up and Chinas growth will come to a screeching halt are probably building bunkers and sharpening their survival skills right about now. Hasenstab isnt in panic mode. In fact, hes optimistic the eurozone will survive, and that no, China wont move back into the feudal age.
2012-07-19 Fixed Income Investment Outlook by Team of Osterweis Capital Management
Recent escalations in the euro crisis and weaker-than-expected global economic data have led to widespread calls for further stimulus. Global leaders believe they are addressing the issue, with China and the ECB lowering interest rates and the Bank of England announcing an additional 50 billion sterling of quantitative easing. We are skeptical about the benefits of such policy action and believe that the U.S. and Europe each require different solutions to solve their fiscal issues.
2012-07-18 Global Overview by Team of Thomas White International
The new agreement reached by European policymakers during the last week of June has helped ease some of the fears over a breakup of the monetary union and more bank failures. It has been agreed that the regions financial crisis fund may be used to provide capital support to the troubled banks and also to try and lower the bond yields of countries such as Spain and Italy.
2012-07-17 Obstacles to a Lasting Recovery: The Liquidity, Hesitancy & Solvency Traps by Thomas Fahey of Loomis Sayles
Those familiar symptoms are back again to start the summer: risk aversion; falling equity prices; rising volatility; record-low German and US government bond yields; wider credit spreads; a European country getting picked on; and a stronger US dollar. We have seen this bad movie twice before. If this is indeed another rerun, we should expect central bank and other policy responses to help limit the fallout. As we see it, hesitancy and solvency traps are the main obstacles to recovery.
2012-07-17 Game of Thrones by Cliff Draughn of Excelsia Investment Advisors
An economy consists of a gazillion simple transactions, all working together; and our economy used to be grounded is such factors such as supply and demand, growth, and imports and exports. But today the economy is driven by the political rhetoric of our elected officials as it relates to regulations, taxes, and anticipation of QE3. We are in global slowdown mode, and to understand how we should invest we need to better understand what deleveraging will mean over the coming couple years.
2012-07-17 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.
2012-07-16 High Yield and Bank Loan Outlook - July 2012 Sector Report by Team of Guggenheim Partners
After a strong first quarter for high yield bonds and bank loans, the mixed performance of the second quarter has conjured up memories of 2011s volatility. While the lack of clarity in Europe and the looming U.S. fiscal cliff will continue to weigh on the economy, the current macro-induced price dislocations present attractive long-term opportunities for investors with patient capital.
2012-07-16 Pacific Basin Market Overview by Team of Nomura Asset Management
Europe's sovereign debt crisis continued to hound the global equity markets throughout the second quarter, while economic data from the U.S. was also lackluster. Despite a late recovery, the Japanese equity market fell during the April-June quarter, owing to instability in the European financial system, economic distress in Europe, the U.S. and China, and the yens appreciation.
2012-07-16 We Are All Alone by John Nyaradi of Wall Street Sector Selector
Global markets seem to be pricing in a new round of quantitative easing from the Federal Reserve. Dr. Bernanke and his colleagues will likely comply sometime between now and December. However, even with more quantitative easing, investors cant count on the Federal Reserve to rescue the stock market and their portfolios. We are on our own, and here's why.
2012-07-13 UK Perspectives: The Labour Market's Mixed Blessings by Mike Amey of PIMCO
Although UK unemployment has held at a much lower level than in previous recessions, employment among workers under 25 has fallen significantly since 2008. There is already a whiff of stagflation about the UK economy, and we need to take steps to support youth employment before we end up with longer-term unemployed. In this environment, UK investors should seek inflation protection and exposure to countries and companies without stressed balance sheets or secular growth challenges.
2012-07-12 The Intersection of Monetary Policy and Volatility Markets by Josh Thimons of PIMCO
When the Fed exhausted the power of its traditional monetary policy tools, it turned to increasingly creative and innovative policy measures. During periods of Fed balance sheet expansion, both interest rate and equity implied volatility experienced significant declines. The opportunities presented by the intersection of monetary policy and volatility markets are often compelling, because most options market participants are not looking at the world through a policy lens.
2012-07-11 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 Is Higher Inflation on the Horizon? by Orhan Imer of Columbia Management
For nearly two decades inflation in the U.S. has been fairly contained except for a few periods of moderate acceleration around peak levels of economic activity. More recently, headline inflation as measured by the year-over-year change in the CPI-U (Consumer Price Index for Urban Consumers) declined from 3.9% in September 2011 to 1.7% in May 2012 driven primarily by the slowdown in the U.S. economy and the sharp drop in energy and commodity prices.
2012-07-10 Is a U.S. Recession Looming? by Scott Colyer of Advisors Asset Management
In the third quarter of 2011 the Economic Cycle Research Institute (ECRI) called for a 100% chance of a U.S. recession. They have a stellar track record of calling U.S. economic cycles. What we noted that the ECRI estimated the severity of any slowdown to be shallow and fairly short-lived. Most recessions in the U.S. are over even before they are positively identified.
2012-07-09 Mixed Picture for the Consumer, ISM Numbers Weak Data on Factory and Service Sectors by John Buckingham of AFAM
While the major market averages ended in the red, though only modestly so, there was plenty of volatility in a holiday-shortened trading week that was replete with the release of quite a few economic statistics.
2012-07-09 Unemployment a Secular Problem by Brian S. Wesbury and Robert Stein of First Trust Advisors
Last Fridays employment report was a Rorschach test for economists. (You know, show an inkblot and find the obsession.) Its not a surprise that the response to the report was pessimistic. We heard all kinds of rhetoric, including a new one - Zombie Economy.
2012-07-07 Into the Matrix by John Mauldin of Millennium Wave Advisors
What does the current environment of earnings and valuations tell us about the prospects for the US stock markets in general over the next 3-5-7-10 years? This week we have part two of "Bull's Eye Investing Ten Years Later," which we started last week. These two letters have been co-authored with Ed Easterling of Crestmont Research. We take a look at research we did almost ten years ago as part of my book Bull's Eye Investing, updating the data and asking,"Are we there yet? When will we get to the end of the secular bear market?"
2012-07-06 Central Banks Take Steps to Stimulate Economic Growth by Asha Bangalore of Northern Trust
Following the Feds extension of Operation Twist on June 20, 2012, the European Central Bank (ECB), Peoples Bank of China (PBoC), and the Bank of England (BoE) put in place new monetary policy support today as gloomy economic data have trickled in during recent weeks.
2012-07-06 Market Perspectives Q2 2012: A Long Road Ahead by Richard Michaud of New Frontier Advisors
The most important economic news in the quarter occurred in the last two business days. Investors were losing patience with seemingly endless and ineffectual eurozone summitry. But the resolutions by the four major eurozone members at the end of the quarter were different. The agreements allow recapitalization of Spanish banks and purchase of Italian sovereign bonds. The proposals appear to effectively address short- and long-term problems in the eurozone economies.
2012-07-06 Mid-Year 2012 Economic Update by Team of Horizon Advisors
The questions we hear most often from our clients have to do with the Eurozone, U.S. politics, and closely related, the so-called fiscal cliff. We thought we would approach each of these in turn.
2012-07-05 Looking for Bubbles by Niels Jensen, Nick Rees, Tricia Ward, Thomas Wittenborg of Absolute Return Partners
This month's Absolute Return Letter picks up on the question we left hanging in the air back in May - is Asia a potential re-run of Europe? Although policy rates appear to be dangerously low, and thus encouraging further borrowing, Asia has come a long way since 1997 and there is no immediate risk of a financial meltdown. Australian property prices and commodity prices - in particular crude oil prices - are more likely 'credit event' candidates in our opinion.
2012-07-05 Focus on the Fed: Interest Rates and the "Dual Mandate" by Team of American Century Investments
When creating the Federal Reserve (the Fed), Congress set out some vitally important objectives for monetary policymaximum employment and stable prices. We use this issue of Chart of the Week to provide some context around the Feds sometimes competing policy goals in its dual mandate, as well as simplify and summarize the inflation and jobs data informing Fed interest rate policy in a single graphic.
2012-07-03 Featured Video from Henderson Global Investors - Global Market Activity by Alex Crooke (Article)
Henderson's Alex Crooke provides an update on markets including the proactivity to refinance banks in Europe.
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.
2012-07-03 A Crisis Is Not An Emergency by Christian Thwaites of Sentinel Investments
Some crises linger for years. The sterling crisis began in 1964 and, despite periodic respites, was not solved until the early 1990s. The oil crisis burned for over ten years until the political and economic stars realigned and restored order. Latin America lingered for over ten years before a breakthrough of sorts...not for everyone though, as Argentina's GDP per capita is the same as it was in 1960. A crisis is not the same as an emergency.
2012-07-03 Of Mice and Men by Michael Shamosh of Corby Asset Management
We have all spent our share of time at amusement parks. We always marvel at the degree of engineering required to subject the human body to stresses not present in our ordinary day. Those screams mean something. Investing is often described as similar to riding a roller coaster, where the rapid ups and downs can subject ones emotional framework to feelings of exhilaration, fear, and pain. We liken it to a ride called the Wild Mouse, one you might have spent some time on in your youth.
2012-07-03 Let's Twist Again by Daniel Kurland of Corby Asset Management
Ben Bernanke must be nostalgic for his childhood. On June 19th in the summer of 1961, when Chairman Bernanke was only 8 years old, Chubby Checker released his smash hit, Lets Twist Again. Chairman Bernanke, citing decreased inflationary concerns and heightened employment weakness, announced that Operation Twist, which had been set to expire at the end of June, would be extended until the end of the year.
2012-07-02 U.S. Economic Outlook: Potential for Growth, Vulnerability to Policy Mistakes by Saumil Parikh of PIMCO
There are very early signs of improvement in the housing market. Another plus is the shift in U.S. energy supply from imported oil to domestic oil and natural gas. The U.S. economy still faces significant headwinds from over-indebtedness, large imbalances, growing inequality and policy incrementalism. In our view, investors need to consider the implications of rising forward tax rates and that price inflation will play a greater role in generating nominal GDP growth than in the past.
2012-06-29 Fat Tails by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Stocks have moved modestly higher and may now be in a relatively large trading range. US economic growth remains sluggish and is drifting dangerously close to stall speed. Policymakers in Europe appeared to make some progress in the most recent summit, but much is left to be done and time is running out. Meanwhile, global growth is slowing and central banks are attempting to stem the decline.
2012-06-27 United States of Europe has Arrived! by Axel Merk of Merk Funds
A fiscal union, a banking union, a United States of Europe has arrived! Dont believe it? Just like many newborns, this one has its shares of wrinkles, but what you see is what you get. We discuss a tough love approach to move forward in Europe, as well as implications for currencies.
2012-06-26 Running on Empty by Marie Schofield of Columbia Management
In a move that was more anti-climax than comforting, the Federal Reserve (Fed) satisfied the minimum expectation of the markets and extended Operation Twist, or the MEP (Maturity Extension Program), through the end of the year thankfully taking us beyond the election period.
2012-06-25 Emerging Markets Converge With the Developed World by Michael Gomez, Lupin Rahman of PIMCO
We expect to see growth moderating in emerging economies over the secular horizon, but still outpace growth rates in Europe and the U.S. Emerging economies entered this period of global uncertainty with relatively clean balance sheets, reasonably high degrees of policy flexibility, and substantial dry powder in the form of international currency reserves. Emerging markets are likely to be affected by the considerable growth headwinds and uncertainty emanating from the developed world.
2012-06-25 12 Reasons US Recession Has Arrived (Or Will Shortly) by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I am amused by the Shadow Weekly Leading Index Project, which claims the probability of recession is 31%. I think it is much higher. When the NBER, the official arbiter of recessions, finally backdates the recession, May or June of 2012
2012-06-25 The Rating Agencies Are Lost At Sea by Charles Lieberman of Advisors Capital Management
Moodys bank downgrade is such a breathtaking demonstration of incompetence that it undermines the entire rating agency concept. If the banks deserve downgrading now after domestic banks increased their capital base dramatically over the past few years, declines in loan defaults, and recovery in profits, one can only wonder why these very same banks were not rated junk a few years ago before these improvements occurred?
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 Will Quantitative Easing Lead to Higher Inflation? by Keith Wade, James Bilson of Schroder Investment Management
In certain circles, talk of Quantitative Easing (QE) immediately triggers thoughts of Weimar Germany and Zimbabwe. The only beneficiaries of turning to the printing presses, it is suggested, will be wheelbarrow salesmen. Whilst extreme inflation seems an exceptionally low risk event, there are legitimate concerns over the impact of the huge expansion of the monetary base on future inflation. In this Talking Point, we examine the key signals to watch out for in assessing future inflation risks.
2012-06-20 Fed Does the Least by Brian S. Wesbury and Robert Stein of First Trust Advisors
In the past few days, news outlets have breathlessly reported that the Federal Reserve would today launch into another round of quantitative easing, probably including major purchases of mortgage backed securities. Instead, the Fed did the least that was expected, extending Operation Twist until the end of the year, but not altering the size of its balance sheet at all and not as some analysts suggested it might changing when it thinks it will start raising rates (still late 2014).
2012-06-19 Will Policy Response Follow Policy Rumor? by Bob Doll of BlackRock Investment Management
The past two weeks have been better for stocks, with the major indices up in consecutive weeks for the first time in more than a month. Europe remains stuck in a cruel cycle of recession, a banking system in need of life support, frozen policymakers, too much debt and a downward confidence spiral. In the United States, economic growth slowed this spring (likely due to poor weather and the earlier spike in gasoline prices), but remains intact.
2012-06-19 Consumers Remain Perplexed by Chris Maxey and Ryan Davis of Fortigent
Consumers have long been the cog behind the American economic engine. After suffering a terrible fate in 2008, there was a long, slow build to post-recession normalcy. Consumer balance sheets are in a better place, but remain tenuous and suggest there continues to be a long distance to travel before we can once again depend on the American consumer to be the buyer of last resort.
2012-06-19 Is China Running Out of Steam? by Matthew Rubin, Ing-Chea Ang, Justin Gaines of Neuberger Berman
The Chinese growth story is especially impressive. At a time when many economies have struggled, China has continued to expand rapidly, helped by its dominant position in manufacturing, growing middle class and, after the 2008 credit crisis, its successful injections of capital and stimulus to ward off recession. Nevertheless, recent data have suggested that the Chinese expansion is now slowing more quickly than most investors expected.
2012-06-19 U.S. High Yield: A Closer Look at Junk Spreads by Hozef Arif of PIMCO
Investors are cautious about high yield bonds which have become more volatile following strong performance and inflows earlier this year. We believe the cyclical bottom in default rates is behind us, and based on a tightening in lending standards compared to last year, we expect a gradual increase toward the mean in default rates and credit losses in 2012.
2012-06-19 Shocking Fed Survey on Consumer Finances by Gary D. Halbert of Halbert Wealth Management
Today we focus on a new Fed study which found that Americans net worth plunged almost 39% in the period from 2007 to 2010. That period included the so-called Great Recession, a financial crisis and a severe bear market in stocks. There are lots of interesting statistics to look at in this new Fed study.
2012-06-18 And That's The Week That Was by Ron Brounes of Brounes & Associates
With Fed officials preparing for next weeks policy meeting, traders and investors alike have been busy dissecting economic data and global developments as they speculate about any potential moves. While Spain and Italy saw their yields surge and Greece moved closer to Decision 2012, investors focused on the potential for European action and compromise that could put the Union back on a road to recovery (with or without Greece).
2012-06-18 What Happens In Greece Must Stay In Greece by Charles Lieberman of Advisors Capital Management
Greeks has seemingly elected a leadership to work with Europeans to help them balance their budget. Nonetheless, Greece is too dysfunctional a country for another round of credit to accomplish much. It must become a law abiding nation by paying taxes, it must severely reduce government spending by decreasing social programs, including employing far fewer Greeks, and it must restructure its restrictive labor and business laws to enable firms to grow.
2012-06-18 Should Germany Leave the Euro? by Brian S. Wesbury and Robert Stein of First Trust Advisors
The weekend victory for the center-right keeps the Greek austerity plan alive and makes it less likely Greece will try to leave the Euro. Leaving the Euro would be an unmitigated disaster for Greece and a problem for the Eurozone, but the odds of this happening are priced into the Euro already. What isnt priced into the Euro is the exit of another country. No, not Spain, Portugal, or Italy. Were talking about the inner-most core of the Euro-zone: Germany.
2012-06-18 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Stock markets continued their cautious advance last week as hopes for a victory by the New Democracy party in Greece strengthened throughout the week. At the same time the cross currents of elections in France and Egypt kept the trading rather quiet.
2012-06-16 The Bang! Moment is Here by John Mauldin of Millennium Wave Advisors
We know that money is simply flying out of Greek banks. A number of them are clearly insolvent, yet they are meeting demands for withdrawals. Where is the cash coming from? The answer is in the form of yet another acronym from Europe, called the ELA.
2012-06-15 Global Outlook Dampened Further by the European Crisis by Team of Thomas White International
Apprehensions over a worsening European fiscal crisis and concerns about slower growth in the emerging economies continued to dampen investor sentiment in May. Europes political leadership is yet to find a common ground that would accommodate the opposition to short-term austerity measures expressed in recent elections in countries such as France and Greece. There is growing expectation of a possible Greek exit from the monetary union while borrowing costs of troubled countries such as Spain have increased further, following credit rating downgrades.
2012-06-15 Obstacles to a Lasting Recovery: The Liquidity, Hesitancy & Solvency Traps by Thomas Fahey of Loomis Sayles
Those familiar symptoms are back again to start the summer: risk aversion; falling equity prices; rising volatility; record-low German and US government bond yields; wider credit spreads; a European country getting picked on; and a stronger US dollar. We have seen this bad movie twice before, during the summers of 2010 and 2011. If this is indeed another rerun, we should expect central bank and other official policy responses to help limit the fallout. As we see it, hesitancy and solvency trapsnot a liquidity trapare the main obstacles to a lasting economic recovery.
2012-06-15 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 Patient But Vigilant Fed by Asha Bangalore of Northern Trust
Chairman Bernanke failed to offer broad hints about an imminent round of financial accommodation or an extension of Operation Twist (Maturity Extension Program) in his testimony on June 7. There were three key takeaways pertaining to the near term economic outlook from Bernanke's testimony and response to questions.
2012-06-13 Three Years and Counting by Neel Kashkari of PIMCO
In addition to muted economic growth, record low interest rates, and sustained high unemployment, extraordinary equity market volatility has been a repeated feature of the past three years. As heightened volatility persists, many equity investors remain on the sidelines. We think a better investment approach is to invest globally, across asset classes, reflecting the likelihood of the various outcomes.
We believe managing against downside shocks is enormously beneficial to compounding attractive returns over the long term.
2012-06-12 Kingdoms of the Blind by Michael Lewitt (Article)
Recent events offer a rare illustration of the combined effects of the failure of monetary, fiscal and regulatory policy to coordinate a meaningful response. Rising budget deficits, record low interest rates, J.P. Morgan's proprietary trading blunder and the botched Facebook IPO process speak to abject policy failures in virtually every aspect of finance. It's not even a question of not having learned our lessons; our collective policy intelligence actually appears to have diminished.
2012-06-12 Asia's Role in Global Economic and Portfolio Rebalancing by Tomoya Masanao, Robert Mead, Ramin Toloui of PIMCO
We expect that the reallocation of global investor portfolios toward more balanced allocations to emerging market bonds the Great Migration to support Asia in the coming years. To pivot to a growth model that emphasizes domestic demand, China must alter government policy on taxes, profits of state-owned enterprises as well as make other structural changes. Japans growth will continue to be challenged by secular dynamics, and by the countrys inability to respond to them.
2012-06-11 The Heart of the Matter by John P. Hussman of Hussman Funds
The ongoing debate about the economy continues along largely partisan lines, with conservatives arguing that taxes just aren't low enough, and the economy should be freed of regulations, while liberals argue that the economy needs larger government programs and grand stimulus initiatives. Lost in this debate is any recognition of the problem that lies at the heart of the matter: a warped financial system, both in the U.S. and globally, that directs scarce capital to speculative and unproductive uses, and refuses to restructure debt once that debt has gone bad.
2012-06-11 Bet Against QE3 by Brian S. Wesbury and Robert Stein of First Trust Advisors
Since the financial crisis in 2008 the Federal Reserve has done extraordinary things lowered interest rates to essentially zero, increased the size of its balance sheet by $2 trillion and announced Operation Twist. With unemployment still relatively high and real GDP growing at a 2% rate in the past year, there are many on (and off) the Fed who think more should be done. If we thought liquidity was a problem, we might agree, but its not.
2012-06-11 The Economy Cannot Live on the Fed Alone by Kristina Hooper of Allianz Global Investors
The road to economic recovery cannot be paved by monetary policy alone. It must be accompanied by greater access to credit. Rates can be kept low for years, but without looser credit standards they cannot be truly potent and stimulative. In other words, banks will need to do their part. Offering capital to a larger number of small businesses and enabling more homeowners to refinance their mortgages, or even purchase new homes, is a key ingredient that will help keep us out of a liquidity trap.
2012-06-11 China Toes a Delicate Balance by Chris Maxey and Ryan Davis of Fortigent
Markets posted their best returns of 2012 last week as investors anticipated additional policy action from global central banks. A series of events during the week heightened optimism that central banks would once again step in to support financial markets. In a Wednesday release, the European Central Bank did not cut its policy rate, but ECB President Mario Draghi said the bank was ready to act in response to the deteriorating state of the Eurozone.
2012-06-11 Bertha and Casey by Christian Thwaites of Sentinel Investments
Markets braced last week for a bailout on Spain which came this weekend. Its banking sector is in wretched condition and joins other European banks at 25 year lows in share price. The official downgrades came long after the stock market had voted with its feet. European leaders had little to add to the debate. There's some talk of a twin track: some European countries pressing on to further integration, some coping with contraction and austerity on their own.
2012-06-07 Spain & Weak US Economy Dominate Markets by Gary D. Halbert of Halbert Wealth Management
Stock markets around the world have been pummeled in recent weeks amidst the growing reality that were in a global recession, especially in Europe. Fears that the US will also fall into recession have intensified, particularly in light of last weeks very disappointing economic reports. At the same time, the European debt crisis has once again raised its ugly head, this time with the spotlight on Spain. Spains own Prime Minister has admitted that the country is in a state of emergency, and money is gushing out of Spanish banks.
2012-06-06 Merk Commentary: ECB Meeting - No Horse Trading, No Additional Money Printing (for now) by Axel Merk of Merk Funds
Draghi stuck to his guns in today's press conference of the European Central Bank (ECB). Keeping the main refinancing rate unchanged, he discarded various proposals on how the ECB could bail out peripheral governments.
2012-06-04 It's All Relative by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Equities have pulled back and are flirting with correction (-10%) territory. We believed this was a needed process, and remain modestly optimistic that economic data will rebound and the market will eventually resume its move higher over the next several months. The Federal Reserve has made clear that it stands ready to act should the US economy deteriorate, or the European debt crisis escalate, but we remain skeptical. The more important issue in our view is how the coming "fiscal cliff" is addressed.
2012-06-04 More Muddling Along by Charles Lieberman of Advisors Capital Management
It appears that economic growth has slowed a bit once again, although a relapse into recession seems fairly unlikely. Consumer spending, business investment and a recovery in housing should support growth at a moderate pace. Europe remains a dark cloud hanging over better prospects. Budget deficits at the sovereign level and bank capital needs at the corporate level must be resolved before markets can breathe easily. So volatility in our markets is likely to continue. Since we can exert very little control over Europe, policymakers here must remain focused on maintaining growth domestically.
2012-06-04 Opportunities in Credit Higher Quality High-Yield Bonds by Team of Columbia Management
One of the more compelling opportunities across todays fixed-income landscape is within the higher quality segment of the high-yield market bonds rated BB and B. Strong underlying fundamentals driven by a wave of refinancing and solid operating performance have greatly diminished credit risk among these issuers, as demonstrated by exceptionally low current and expected default rates. Despite this, spreads, or yield premiums relative to Treasuries, are generally higher than long-term averages.
2012-06-04 Tomorrows Europe by Andrew Balls, Andrew Bosomworth, Mike Amey of PIMCO
Our secular view is that the status quo is not an option for the eurozone. In the near term, we believe it is more likely than not that Greece will exit the eurozone. While a Greek exit would likely be messy and volatile, our baseline view is that a smaller union will persist. To be sustainable, it will have to be underpinned by much stronger fiscal union, greater support for the banking system, and mutualization of debt to mitigate cross-border capital flight risks.
2012-06-04 Job Recap/How Big of an Impact from Europe? by Scott Brown of Raymond James Equity Research
Job growth has slowed. However, its unclear exactly why or even, despite all the hand-wringing on Friday, whether its something to worry about. A European recession would have a moderate impact on U.S. exports, but there are some positives.
There are a number of other possible explanations for the recent slowdown in (seasonally adjusted) job growth.Firms may be reluctant to hire for a number of reasons: political uncertainty, fiscal policy uncertainty, higher gasoline prices, and worries about the fallout from Europe.
2012-06-04 The Sky Is Falling - Again by Scott Colyer of Advisors Asset Management
Last week provided a very scary end to May in both the equity and bond markets. The 10-year Treasury set a new historic low yield and the equity markets ended the week giving back all of its year-to-date gains. European fiscal and banking issues continue to overshadow the slow recovery of the U.S. economy. Of current note, the EU and ECB are trying to successfully deal with the need to recapitalize the banks of Spain. On top of this rosy news, the U.S. economy continued to show a slowdown which was indicated by a much lower than expected job creation for May.
2012-06-02 Will the ECB and Fed Follow Where China Leads? by Frank Holmes of U.S. Global Investors
Every month, policymakers track purchasing managers indices (PMI) around the world as they consider fiscal and monetary actions. To us, a PMI is a measure of health of companies around the world, because it includes output, new orders, employment and prices across manufacturing, construction, retail and service sectors. Historically, weve seen Chinas PMI number leading the year-over-year change in exports by three to four months, so when the PMI has increased, a few months later, Chinese exports have historically risen, and vice versa.
2012-06-01 Are my methods unsound?...I don't see any method at all, sir. by Christian Thwaites of Sentinel Investments
This week we can add the lowest ever level of GT10, which touched 1.44%, and the 7-year note firmly below 1%. German 10-Year Bunds fell to 1.12%, brining the total return close to 20% over the last year. Over in Switzerland, it will cost you nearly 0.5% for the privilege of holding a two year bond. If negative rates are on offer, distress and fear are not far behind.
2012-05-30 CBO Warns of Recession in 2013 by Gary D. Halbert of Halbert Wealth Management
The non-partisan Congressional Budget Office (CBO) has calculated the expected negative effects on the US economy if the Bush tax cuts expire at the end of this year. Their numbers just released last week are eye-opening! To give us some perspective, US Gross Domestic Product rose by 2.2% (annual rate) in the 1Q of this year.
2012-05-30 Beyond Short-Term Risks, Stocks Are Growing More Attractive by Bob Doll of BlackRock Investment Management
Given our view that the European debt crisis should remain reasonably well contained and our belief that the US recovery remains on track, our outlook for risk assets continues to be a positive one. The combination of the rising equity risk premium, falling stock prices, improving corporate arnings and lower Treasury yields means that stocks have become quite cheap relative to bonds. Assuming that the world is not headed for a renewed deflationary spiral, there is little doubt in our view that stocks are poised to provide superior long-term returns over bonds given their current levels.
2012-05-30 U.S. Dollar and Euro - Review and Outlook by Axel Merk of Merk Funds
The 12-month period ended March 31, 2012 (the Period) could be described as one of contrasting halves. News emanating from Europe dominated market gyrations for the majority of the Period. During the second half of the Period, the market appeared to ascribe a more optimistic assessment to the European situation and the global economy. Regarding the U.S. dollar, we consider the more dovish FOMC voting member composition to be a negative for the currency, as it will likely lead to more expansionary policies relative to global central bank counterparts
2012-05-29 Can Krugman Fix Our Economy? by Robert Huebscher (Article)
Our economy faces depression-like conditions, according to Paul Krugman, in its alarmingly high unemployment rate. It needn’t be that way, though, Krugman says – a few simple steps could quickly solve our problems.
2012-05-29 Unraveling the Mess in Europe by Charles Lieberman of Advisors Capital Management
There is considerable nonsense written about the European debt crisis. Greece must balance its books, whether they remain inside the Euro or not. There are major benefits and costs to both remaining inside the Euro and to exiting. There is no silver bullet that will solve their problems easily. More broadly, banks need to be recapitalized all across Europe. This has not been done as yet, perhaps for political reasons, which only compounds the economic problems and allows them to fester. It seems like the Europeans are working towards solutions, but painfully slowly.
2012-05-25 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 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.
2012-05-24 Sorting Out the Fiscal Cliff Issue by Asha Bangalore of Northern Trust
Under current law, the federal budget deficit in fiscal year 2013 will show a drastic decline from fiscal year 2012 as a result of scheduled increases in taxes and reductions in government spending. The Congressional Budget Office (CBO) estimates that the federal budget deficit of $1.17 trillion in fiscal 2012 will shrink to $612 billion in fiscal 2013. This sharp reduction of the federal budget deficit is referred to as the fiscal cliff in the financial media and macroeconomic discussions.
2012-05-23 Is Quantitative Easing the Silver Bullet to Economic Recovery? by Joseph Giulitto of Trust Company of America
I saw this quote recently while researching another topic. I found it to be appropriate to capture the challenge that professional money managers have in finding investments appropriate for the current domestic economic and geopolitical environment. The rules (that apply to what makes an investment good or bad) that have been established over the previous 40 years of investing are no longer relevant, and those investments that typically would struggle during a massive global recession have been successful in achieving a rising valuation.
2012-05-23 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.
2012-05-23 Global Investment Outlook by Mike Turner of Aberdeen Asset Management
Investors continue to focus on the global macroeconomic backdrop, which is still relatively positive despite slightly disappointing data recently. There are signs that some of the imbalances within the Eurozone are starting to ease as competitiveness is improving in some of the peripheral countries and this is beginning to be reflected in trade figures. Looking further ahead, we feel that global consumption should be supported by falling headline inflation.
2012-05-22 Investing Through a Bumpy Ride by David Kelly of J.P. Morgan Funds
Its been a tough quarter so far. The U.S. economy is still growing, but not at a sufficient pace to excite anyone. Meanwhile, investors have had plenty to worry about including a fiscal cliff in the United States, a slowdown in China and, right now most ominously, further turmoil in Europe. Despite plenty to worry about, the realities of a U.S. economic recovery, very conservative allocations and relatively attractive valuations suggest that investors should still consider adding stocks and other risky assets to their portfolios.
2012-05-22 Return to Normalcy: The False Argument of "Austerity" vs. Growth by Team of Institutional Risk Analyst
To rescue Europe, to reinvigorate the United States, and to set the global economy on a sustainable path toward expansion, the current debate offers a so-called "choice": either slash government spending or spend your way to growth. In Europe, German Chancellor Angela Merkel is one of the most prominent proponents of fiscal restraint -- in part because Germany is picking up the tab for the continent's debt crisis. And in the United States, economist and New York Times columnist Paul Krugman is the fullest-throated supporter of more government spending.
2012-05-21 Are We Near the End of the Correction? by Bob Doll of BlackRock Investment Management
Although US economic data was generally good last week, stocks sank sharply as investor fears over Europe's debt problems intensified. Despite the mounting crisis in the eurozone, the US economic recovery continues to look stable. While it is true that US stocks have taken a turn for the worse over the last month, other markets (particularly European stocks) have been hurt even more. In our view, markets are awaiting some sort of positive jolt (perhaps in the form of a policy response in Europe or some stronger US economic data) to break out toward the upside.
2012-05-18 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 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.
2012-05-18 Closed-End Funds April 2012 Review and Outlook by Team of Cohen & Steers
Given various risks to the domestic and global economies and generally modest inflation, monetary policy in the US will remain accommodative. With borrowing rates likely to remain low for an extended period, the yield advantage of leveraged closed-end funds will continue to draw investor interest. As a result, we see potential for the broad closed-end fund market to maintain historically narrow discounts, or even at times trade at premiums to NAV.
2012-05-15 An Attack on Paul Krugman by Michael Edesess (Article)
A foundational principle of modern economics is that the creation of credit leads to economic growth. That precept underlies need for quantitative easing, and it is central to the question of what role monetary policy can and should play in stimulating a faster recovery from the Great Recession. It is also the subject of a debate between one of the world's most prominent economic scholars, Paul Krugman, and a feisty Australian economist, Steve Keen.
2012-05-15 Ponzi's Children by Michael Lewitt (Article)
Europe, whose economic condition is nothing less than terminal, is about to receive what physicians refer to as a 'zetz' of morphine in the form of M. Hollande. A 'zetz' is the final dose that doctors give to dying patients to hasten their passage to the afterlife. In Europe's case, however, the medicine is not going to be painless, and its administration is not based on mercy but on resentment and stupidity.
2012-05-15 Policy Confusions & Inflection Points by Mohamed A. El-Erian of PIMCO
During this important annual event, PIMCO colleagues from around the world debate the major trends that will play out over the next three to five years, focusing not on what should happen, but what is likely to happen. Based on the 2012 Secular Forum discussions, we expect three themes to play out: continued policy and political confusion, overly incremental public and private sector responses and, therefore, greater potential for inflection points. In terms of regions, the status quo is no longer an option for Europe.
2012-05-15 Searching for Big Foot by Anwiti Bahuguna of Columbia Management
For the past few years, the sovereign bond markets have pushed peripheral European countries to reduce public debt. This has meant adopting austerity measures whereby government budgets are slashed and taxes are raised. Such measures meet investors approval. However, the immediate impact of such efforts is less economic growth which is intolerable to the people in Europe. The path to sustainable growth is complicated and requires long-term investments. We believe despite decades of research on the topic, academic efforts have not found a clear answer. Perhaps finding Big Foot will be easier.
2012-05-15 Month of May: Sell and Go Away, or Hang in There? by Liz Ann Sonders of Charles Schwab
We believe the stock market's correction is likely to be less severe this year relative to 2010 or 2011.
Be aware of the possible perils of following a "sell in May" trading strategy.
For now, macro concernsincluding Europe and the looming "fiscal cliff"are trumping better micro news.
2012-05-14 Brazil: Compelling Opportunities for the Long Term by Brigitte Posch of PIMCO
Although economic growth has moderated somewhat in recent years, Brazils growth story remains compelling.
Underpinned by favorable GDP growth, Brazilian bank fundamentals are solid; banks are closely regulated and well-capitalized.
PIMCO believes several key corporate sectors oil, gas, utilities, infrastructure and major banks will dominate the outlook for Brazil over a secular horizon thanks to stronger pricing power and improved profitability.
2012-05-12 Waving the White Flag by John Mauldin of Millennium Wave Advisors
Europe has embarked on a program that will require multiple trillions of euros of freshly minted money in order to maintain the eurozone. But the alternative, European leaders agree, is even worse. Today we will look at the recent German shift in policy, why it was so predictable, and what it means. This is a Ponzi scheme that makes Madoff look like a small-time street hustler.
2012-05-11 Here We Go Again....or Not? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Softer economic data has prompted concerns that the market may be headed for a summer swoonsimilar to the previous two years. We believe the backdrop is decidedly different (and better) this time around but investor and business confidence will continue to be important. Some appear to be hoping for weaker data in order to spur the Fed to enact QE3. We believe the bar is much higher and that the Fed should look to return to a more normal monetary stance. Complicating the overall picture and the Feds job is the coming "fiscal cliff" out of Washington at the end of this year.
2012-05-11 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 First Quarter Stepping Stone or Stumbling Block? by Team of Managers Investment Group
Popular headlines from last year took the sidelines and investors re-embraced risk. European government bond yields declined in response to long-term refinancing operations (LTRO). The much anticipated Greek default finally occurred in March and the firewall around Greece appeared to hold for now. The focus returned to the U.S. as the economic picture at home showed continued subtle improvement. Lower unemployment claims helped bolster equity prices. Several other major indicators pointed to a strengthening U.S. recovery. Market volatility fell to the lowest point since 2007.
2012-05-10 Benchmarking Tail Risk Management by Vineer Bhansali of PIMCO
While tail risk hedging is a critically important area of modern portfolio management practice, the relative newness of the area means standard frameworks for benchmarking such portfolios have not developed. In fact, weve found that once the framework for proper tail hedge construction is defined based on key guidelines (including exposures, attachment, cost, and basis risk), the task of creating a proper index becomes relatively straightforward. To compensate for insufficient real-time performance measurement, tail hedges need to be evaluated on the basis of scenario analysis.
2012-05-10 Global Overview: April 2012 The European crisis continues to cloud global outlook by Team of Thomas White International
Global equity prices corrected marginally for the second successive month, while energy and other commodity prices have also moderated in recent weeks. However, led by the U.S., China, and India, global factory output continued to expand in April. Consumer demand remains healthy in most major economies, except Europe, and data from Japan suggests that a healthy recovery is underway as expected. In its updated forecasts, the IMF has increased its global GDP growth expectations for the current year to 3.5 percent from 3.3 percent earlier.
2012-05-09 Pacific Basin Market Overview - April 2012 by Team of Nomura Asset Management
In April, risk-averse sentiment prevailed throughout the global financial markets amid fresh concerns about the prospects for European sovereign debt. Recent economic indicators have presented mixed signals, with signs that the Western economies are at a standstill together with a recovery for Asian industrial countries. Our outlook for global economic growth remains reasonably optimistic, and financial markets in the near future will be highly dependent on monetary policy. In the developed economies, we believe the authorities will probably take additional easing measures.
2012-05-08 Q2 Outlook: "Sell in May" May Not Work This Year by OppenheimerFunds (Article)
Chief Economist Jerry Webman explains why he believes the U.S. economic recovery is real and CIO Art Steinmetz talks about how stocks are as cheap compared to bonds as they have been in decades.
2012-05-08 Jobs: Tale from Two Continents by Komal Sri-Kumar of TCW Asset Management
As in the case of Europe, the U.S. unemployment situation is likely to get worse in coming months because few moves toward meaningful structural changes in the labor market (e.g., training for the unemployed to improve skills), or fiscal shifts to aid hiring (e.g., targeted employment tax-credits) are likely to be implemented before the November presidential elections. We may have to wait for a reelected President Obama, or President Romney, to move in this direction in 2013.
2012-05-08 Dont Fight the Last War Lessons from the Battlefields of Risk Management by Niels C. Jensen of Absolute Return Partners
Investors often behave as if they operate in a world of logic and certainty even when that is not the case. For that reason, history is littered with investors who have failed miserably. In this month's Absolute Return Letter we look at many of the pitfalls facing risk managers and we take a stab at where the next big crisis is going to surface. Our conclusion may surprise a few readers.
2012-05-07 Despite Uncertainty, the Bull Market Should Persevere by Bob Doll of BlackRock Investment Management
There is a great deal of uncertainty that is acting as a headwind for the markets. In the United States, perhaps the main uncertainty is over the looming fiscal and tax issues that must be dealt with before the end of the year. Additionally, the still-developing European debt crisis has the potential to derail markets, as does the possibility for worse-than-expected economic growth. In any case, while we do expect to see markets continue to churn for the near term, we also believe that stocks will eventually be able to resume their climb.
2012-05-04 Back In by Mark Kiesel of PIMCO
U.S. housing may be a decent place to put money over the next several years due to improved absolute and relative valuations. U.S. housing fundamentals have improved significantly, led by lower prices, record low mortgage rates, improving inventory and delinquency trends and a gradually improving labor market, which in combination are helping homebuyer confidence and potential demand. While the outlook for U.S. housing has improved, several headwinds remain, including tight credit, potential supply from the shadow inventory and weak household formation due to a subpar economic recovery.
2012-05-04 Watchful Waiting by Tony Crescenzi, Ben Emons, Andrew Bosomworth and Lupin Rahman of PIMCO
Today, the Federal Reserve itself faces an unusually uncertain period because it lacks a complete understanding of the potential side effects of its unconventional policy actions; in particular the elongated timeline of its zero interest rate policy and its massive money printing. What matters in shaping market expectations about inflation and deflation are the credibility of fiscal policy, the prospect for real economic growth and the central banks commitment to step back from the punch bowl.
2012-05-03 And Thats The Week That Was by Ron Brounes of Brounes & Associates
Earnings season continues (with the likes of Humana, AIG, Kraft), though investors may shift gears to focus on the economy next week as the new month brings key releases from manufacturing and labor. The recent jobless claims release has cast some doubt on the employment picture and last months lower-than-expected nonfarm additions have worried some analysts for the past month. (At least, it should look better than the picture in Spain?)
2012-05-03 Renewed Eurozone Concern as Liquidity Injections Dont Solve Solvency Woes by Thomas D. Higgins of Standish Mellon Asset Management
As investors recognize that the ECB's long-term refinancing operation is doing nothing to address the regions underlying solvency problems. Resolving those problems through monetary policy is complicated by the large disparities in economic growth and inflation across the eurozones economies, rendering both loosening and tightening inappropriate for certain parts of the region. As a result, Standish remains cautious about the European economic outlook and fears that renewed uncertainty over Europes fiscal stability could lead to another bout of global financial market volatility.
2012-05-03 6 Reasons Why a Soft Landing in China Matters by Russ Koesterich of iShares Blog
World markets and financial media seem to react to every new data point about Chinas economy, whether its manufacturing reports or gross domestic product numbers. This market sensitivity isnt very surprising given how important China has become for the global economy. But it also means that it will be hard for the global recovery to continue without a soft landing in China.
2012-05-03 ECB Warns Easy Money No Solution by Axel Merk of Merk Funds
Austerity is the easy part, structural reform is the tough part. With regard to monetary policy, Draghi was notably light. He shed cold water on the notion of re-activating the peripheral bond purchase program. He also dampened expectations of a rate cut by emphasizing balanced inflation risks, as well as a gradual economic recovery, albeit with downside risks. He suggested the European banking sector is improving, not only visible in reduced intra-bank refinancing (repo) rates, but also apparent in an increase of the deposit base in peripheral Eurozone countries.
2012-05-02 Digbys Umbrella and a Dinner to Remember by Christian Thwaites of Sentinel Investments
The US economy is on a painfully slow road. It is recovering. Jobs numbers are better, even though some hiring in the first quarter may have been brought forward by mild weather. Production, manufacturing and exports, all signs of regained competitiveness in the US, are showing steady improvements. And the government sector is contracting. Not on purpose mind you, but jumping off a cliff and letting inertia do the work result in the same end. Above all of this, we have a Fed using every monetary policy at their disposal to try and promote growth and employment.
2012-05-01 Q2 Outlook: by OppenheimerFunds (Article)
Chief Economist Jerry Webman explains why he believes the U.S. economic recovery is real and CIO Art Steinmetz talks about how stocks are as cheap compared to bonds as they have been in decades.
2012-05-01 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 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 Roller Coaster Returns by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Despite an earnings season that has been much better than expected so far, investors appear to be again focusing on more macro concerns. Europe and China are dominant concerns but US growth sustainability is also being questioned. We remain optimistic on the ultimate direction of the stock market. The Fed meeting provided no changes but did show a slightly more hawkish tilt in their economic forecasts. Meanwhile, the US government continues to play a dangerous game of chicken as election season is already in high gear and the so-called "fiscal cliff" looms.
2012-04-27 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.
2012-04-26 The Global Fiscal & Monetary Policy Shift Moves Markets by George Bijak of GB Capital
The powerful macro forces that drive global economy and move stock markets have changed direction post the peak of the Global Financial Crisis. Governments are tightening their Fiscal Policies and Central Banks are expending their Balance Sheets (also known as quantitative easing or money printing) as part of globally synchronized deleveraging process.
The two opposing forces pull the global economy in different directions. The fiscal cuts are slowing economic growth but are counter-balanced by a stimulative nature of the Central Banks easing.
2012-04-26 One Step Closer: Fed Keeps Rates Low But Gets More Hawkish by Liz Ann Sonders of Charles Schwab
The Federal Reserve's Open Market Committee (FOMC) made no change to short-term interest rates, but provided no hints that a third round of quantitative easing (QE3) was in the offing. As usual, the committee repeated its comment about keeping the Fed's balance sheet under review and being willing to act "as appropriate," while also confirming its pledge to keep rates "exceptionally low" through 2014. For the third consecutive meeting, there was one dissenterRichmond Federal Reserve Bank President Jeffrey Lackerwho believes the first increase in rates will be necessary in 2013.
2012-04-25 Developed Europe: Economic Review 1st Quarter 2012 by Team of Thomas White International
The first quarter of 2012 witnessed several comforting developments in Europe. Greece fulfilled the pre-condition for securing its second bailout by convincing its private creditors to accept a 53.5 percent write-off on its debt. The deal eased concerns about a disorderly default by Greece on its sovereign debt. Following up on the liquidity-infusing program it introduced late last year, the ECB carried out another round of its Long-Term Refinancing Operation (LTRO), this time handing out to about 800 banks a total of 529.5 billion in 3-year loans at a very low interest rate of 1 percent.
2012-04-25 Is The Economic Recovery Stalling? by Gary D. Halbert of Halbert Wealth Management
The US economic recovery is facing some stiff headwinds. Those include high gasoline prices, the recession and higher interest rates in Europe and the recent disappointing unemployment numbers in the US, just to name a few. The apparent slowdown in the recovery recently is in part due to the unusually warm winter, which served to pull economic activity forward in January and February, thus making March and April so far look softer. Some in the mainstream media concluded that we dont have a problem with the economy. Maybe so, but the recovery has had an uneasy feeling about it recently.
2012-04-24 Bruce Greenwald on Structural Imbalances in the Economy by Eric Uhlfelder (Article)
Bruce Greenwald likes to say that he is constituted to disagree with everybody about everything, and he was true to his word at the recent Hyman P. Minksy Conference in New York. Taking immediate exception with the virtually unanimous characterization of the economic crisis as a balance-sheet recession, Greenwald, a professor of finance at Columbia University, argued that, far from being unusual, balance-sheet recessions can in fact be found at the heart of almost all business cycles.
2012-04-24 Gundlach - Two Dangers for Equity Markets by Robert Huebscher (Article)
Don't buy stocks – for real, this time. That was the message Jeffrey Gundlach delivered to investors last Tuesday.
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.
2012-04-23 Emerging Asia Pacific: Economic Review 1st Quarter 2012 by Team of Thomas White International
Emerging Asia Pacific economies, which reported dismal economic numbers during the fourth quarter of 2011, recovered some lost ground during the first quarter of 2012. Export-led growth in many Asian countries, which had come under pressure during the last months of 2011, witnessed slight improvements in 2012 thanks to receding fears about a sovereign debt crisis in the EU and a stronger-than-expected recovery in the U.S. China, the regions largest economy, however, signaled that it will accept a slightly lower growth rate of around 7.5 percent over the coming years.
2012-04-23 Run, Don't Walk by John P. Hussman of Hussman Funds
One way to gauge your speculative exposure is to ask the simple question - what portion of your portfolio do you expect (or even hope) to sell before the next major market downturn ensues? Almost by definition, that portion of your portfolio is speculative in the sense that you do not intend to carry it through the full market cycle, and instead expect to sell it to someone else at a better price before the cycle completes. With respect to those speculative holdings, and when to part with them, my own view is straightforward. Run, don't walk.
2012-04-20 Currency Wars: Gambling With Other Peoples Money by Axel Merk of Merk Funds
If running out of your own money wasnt bad enough, policy makers are increasingly spending other peoples money to bail their country out. At the upcoming G-20 meeting, finance ministers from around the world will contemplate an increase to the resources of the International Monetary Fund (IMF). At stake for politicians is whether they can continue to do what they know best to play politics. In contrast, at stake for investors may be whether currencies will retain their function as a store of value.
2012-04-20 Monthly Investment Commentary by Team of Litman Gregory
Stocks and other risk assets surged in the first quarter, continuing the strong run that began in the fourth quarter of last year. In each of the past two quarters, domestic stocks gained about 12%, marking one the strongest runs over the October-March span going back to the 1920s. Developed foreign stocks increased nearly 12% in the quarter, emerging-markets stocks gained 14, small-cap U.S. stocks were up 12%, high-yield bonds rose 5%, and emerging-markets local-currency bonds added 8%.
2012-04-20 Whats Ahead for the Fed? by Team of Neuberger Berman
Although growth could slow from here, we do not believe economic conditions will deteriorate enough to provoke further accommodative measures from the Fed. The Fed may be on hold for the time being, but we also believe that Bernanke is acutely aware of the potential consequences of reversing monetary policy too quickly. As a result, interest rates may stay lower for longer. In this type of yield-constrained environment, we continue to favor segments like high yield fixed income and emerging market debt, which both offer attractive sources of income and upside potential.
2012-04-20 Outsized Outsourcing Opportunity in the Philippines? by Frank Holmes of U.S. Global Investors
Our investment team has reported in the weekly Investor Alert about a number of positive trends coming out of the Philippines lately, including a narrowing of the budget deficit, easing inflation and rising export numbers. In addition, CLSA reported last fall that, the Philippines increasingly looks like it could be where Indonesia was five years ago in terms of the potential for a multi-year credit and investment cycle to kick in after years of post-Asian Crisis de-leveraging.
2012-04-20 Fixed Income Investment Outlook April 2012 by Team of Osterweis Capital Management
The Feds easy money policy will likely not reverse in the near term, but may do so before 2014, if economic growth strengthens meaningfully; some inflation is also acceptable to the alternative deflation. We are seeing some economic strength in the U.S., which is translating into higher equity prices (and hopefully higher capital gains). We are still generally avoiding exposure to interest rate risk found in Treasuries and investment grade bonds. We believe the easy money has been made there and we are not currently being compensated for the risk of rising interest rates.
2012-04-20 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 International Real Estate Securities Investment Review & Outlook First Quarter 2012 by Team of Cohen & Steers
Europes attempt to rein in its fiscal imbalances has made for a negative macroeconomic backdrop, and we expect a moderate recession as a base-case scenario for the continent, marked by more severe contraction in the southern region. The recent LTRO facilities have prevented a severe credit crunch and collapse of the EU banking system. However, we take the view that this three-year program merely buys time to sort out the overleveraged balance sheets of most EU banks. It does not solve the long-term solvency crisis facing Greece and possibly Portugal.
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.
2012-04-20 Global Real Estate Securities Investment Review and Outlook First Quarter 2012 by Team of Cohen & Steers
We are encouraged by the recent trend of U.S. economic data showing measured improvement, although our expectation for GDP growth in 2012 remains modest at around 2%. With funding costs likely to remain low and demand showing signs of strengthening, we believe U.S. real estate fundamentals will continue to gradually improve in 2012, driven by growing demand from tenants and the scarcity of new supply in most markets. We believe these fundamentals will help support growth in asset values and dividend distributions for the U.S. public real estate sector.
2012-04-19 Huge Dilemma: Do You Protect Your Job or Your Clients' Money? by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I feel like a broken record. Jeremy Grantham, John Hussman, and Lance Roberts of Streettalk Live surely feel the same way. I have been preaching the "low returns for a decade" concept for quite some time. It is very tough preaching caution, when caution is routinely tossed to the winds. Yet history has proven time and time again, that such times are precisely when caution is warranted, even though timing the precise moment is simply impossible.
2012-04-19 Price and Waistline Stability Prove Elusive as Inflation Creeps Up by Scott Colyer of Advisors Asset Management
The long-time trends are firmly in support of consistent price inflation during the history of the US. Inflation is a natural inclination for people, businesses, politicians and central banks. Given the Feds ultra-easy monetary policy aimed at creating inflation, we will eventually see it. Higher inflation requires investors to rethink where they invest. Cash and fixed income do little to cope with inflation and actually can be losers if held at times of higher than normal inflation rates. We think investors should take advantage of current bargains in real estate and equity asset prices.
2012-04-18 Q2 Markets: Dont Expect Smooth Sailing by Russ Koesterich of iShares Blog
While valuations still appear reasonable, inflationary pressures remain well contained and the economy is stabilizing, Russ explains why he expects more market volatility in the second quarter and details how investors may want to position their portfolios as a result.
2012-04-18 Monthly Product Commentary: International Equity March 2012 by Team of Thomas White International
After the robust gains during the first two months of the year, international equity markets corrected marginally during March as the markets waited for further economic data and trends from first quarter earnings announcements. Emerging markets underperformed on renewed concerns that domestic consumption growth in some of the larger emerging economies could be lower than current expectations. The lack of investor interest for a new issue of Spanish bonds drew renewed attention to the European fiscal crisis.
2012-04-17 Asia-Pacific Portfolio Committee on PIMCOs Cyclical Outlook by Robert Mead, Tomoya Masanao and Ramin Toloui of PIMCO
We do not expect to see aggressively expansionary policy to combat the incremental economic slowdown in China. We believe that most countries in emerging Asia will continue to put their currency appreciation on hold, as inflation is expected to remain subdued over the cyclical horizon.
We are concerned about the sustainability of Japans economic growth beyond 2012, as the governments reconstruction spending will fade in 2013. Relatively speaking, Australia is indeed a beneficiary of higher commodity prices as a result of the strong demand for coal, iron ore and liquid natural gas.
2012-04-13 Pacific Basin Market Overview - March 2012 by Team of Nomura Asset Management
Our outlook for global economic growth remains reasonably optimistic. The U.S. in particular has exhibited some surprisingly buoyant conditions driven by improvements in the job market and stronger consumption. Europe for now appears to have disproved the more pessimistic forecasts, whilst Japan will benefit from reconstruction activity. Our sector allocation strategy remains biased towards growth. We hold overweight positions in the Industrials, Consumer Cyclical, and to a lesser extent, Technology, while we remain underweight in the Telecommunications and Utilities sectors.
2012-04-13 Dutch Disease Lite in Australias Economy by Robert Mead of PIMCO
Australia is probably more likely to feel the effects of an extended structural change in the economy as resources continue to be reallocated, rather than the effects of a full-fledged, but transitory, case of Dutch disease. China is Australias largest trading partner, and Chinas historical focus on infrastructure building has amplified the divergence in Australias two-speed economy. We believe Australias strong initial conditions should help ensure that Commonwealth Government Bonds remain one of the worlds cleanest dirty shirts for risk-averse investors.
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.
2012-04-13 The Next Error by John Gilbert of GR-NEAM
The escalating frenzy for yield may in fact prolong the trying process of deleveraging by tacitly supporting bad investment decisions, and underpricing of risk. The relentless destruction of private capital in real terms is policymakers' answer to reducing leverage in nominal terms. If central banks err in the direction of ease, as the Fed will signal if it ignores the Taylor Rule for a time, poor long-term investments are likely to do well for a transitory period. The eventual reckoning can be suppressed, but only for a time.
2012-04-12 Evolution, Impact and Limitations of Unusual Central Bank Policy Activism by Mohamed A. El-Erian of PIMCO
I will speak in a central bank and to central bankers about the role of their institutions particularly the Federal Reserve and the European Central Bank in todays highly complex, perplexing and historically unusual policymaking environment. I will go further and try to link actions to motivations. And, when it comes to implications, I will attempt to put forward questions and hypotheses that, I believe, are critical for the future of the U.S. and global economies but for which I, like others, have only partial answers.
2012-04-12 Global Investment Outlook - March 2012 by Team of Aberdeen Asset Management
Global economic growth sustains its momentum for now. Fiscal policy remains a global focus. Further monetary policy accommodation should support markets. Recent positive momentum within the U.S. economy is driving the global economic recovery, overwhelming the negative sentiment emanating from peripheral Europe. Real incomes, boosted by employment growth and easing inflation, are showing signs of turning positive in the U.S., feeding through to the broader economy.
2012-04-12 Bond Market Review & Outlook by Thomas Fahey of Loomis Sayles
Central banks around the world sent a rush of liquidity into the global financial system, and this coordinated effort helped stem the risk of a major European credit crunch that was brewing at the close of 2011. In our view, the liquidity provision has improved the macroeconomic outlook and buys some much needed time for sovereigns, banks and other indebted private sector agents to try to get their balance sheets in order. Risk assets have generally responded very well to easy money policies over the last two quarters, while negative real interest rates have piqued the global thirst for yield.
2012-04-11 Small Businesses Less Optimistic in March by Asha Bangalore of Northern Trust
The Small Business Optimism Index of the National Federation of Independent Business fell in March to 92.5 from 94.3 in the prior month. The March decline is the first after six monthly gains since September 2011. Although the percentage of respondents indicating that poor sales is problematic has held steady for two straight months, it has failed to show an improvement in March. The index tracking plans of firms to increase employment declined to zero from 4.0 in the prior month, the poorest showing since October 2008, which was during the global financial turbulence.
2012-04-11 Emerging Market Rates: A Different Cycle by Francesc Balcells of PIMCO
The business cycle in EM has been conducive to easing policy rates. Global growth decelerated noticeably in the second half of 2011, and this included most EM economies. While we expect EM local rates will move higher again as the business cycle progresses, the cyclical highs will likely be lower than the previous highs, reinforcing the secular trend towards lower rates. We like EM local rates with a strong credit quality, steep local curves and high real rates that may offer compensation for taking inflation risks. The local markets of Brazil, Mexico and South Africa all stand out.
2012-04-10 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 Paul Kasriel's Parting Thoughts on the Economy by Robert Huebscher (Article)
Paul Kasriel, the chief economist at Northern Trust, will retire at the end of this month. In this interview, he explains why he is optimistic about the prospects for the US economy and why supposed headwinds - from the price of oil to the housing market - pose much less of a threat than most people believe.
2012-04-10 Managing Expectations: Why Gold Should Thrive by Frank Holmes of U.S. Global Investors
It was a challenging week for gold investors. Although the yellow metal has been on a spectacular 11-year bull run, some think golds heyday is over. This March, there seemed to be one main driver eight thousand miles away negatively affecting gold prices. I often say that government policy is a precursor to change, and fiscal policy strongly affected the Love Trade in India last month. To trim its current account deficit, Indias finance minister proposed doubling the customs tax on the precious metal. As a result, gold imports into the worlds largest gold market fell 55 percent.
2012-04-09 Is the Fed Promoting Recovery or Merely Desperation? by John P. Hussman of Hussman Funds
What we've observed in the employment figures is not recovery, but desperation. Having starved savers of interest income, and having repeatedly subjected investors to Fed-induced financial bubbles that create volatility without durable returns, the Fed has successfully provoked job growth of the obligatory, low-wage variety. Over the past year, the majority of this growth has been in the 55-and-over cohort, while growth has turned down among other workers. All of this reflects not health, but despair, and explains why real disposable income has grown by only 0.3% over the past year.
2012-04-09 Still, Plenty Good by Charles Lieberman of Advisors Capital Management
March payroll employment was disappointing, although economic gains cannot be expected to move in a smooth ascending growth curve. Economic trends remain solid. There is little reason to expect monetary policy to change, although the latest figures reinforce the Fed's concern that job growth is insufficient to reduce unemployment as much and as quickly as they would prefer. So, there's every reason to expect policy to remain highly accommodative. A few months ago, this employment report would have been taken as good news. That it is now disappointing is a good measure of how far we've come.
2012-04-09 Policy, Numbers and Markets. Still good. by Christian Thwaites of Sentinel Investments
Commentary continues to use pre-2008 data as a baseline, whether for economic data, household behavior or corporate prosperity. This is a mistake. We remain in a liquidity trap. This happens 1) when asset prices fall 2) the private sector delevers 3) credit demand becomes inelastic, i.e. immune to price 4) savings increase 5) income balances between the private, corporate, net export and government sectors distort and vi) the reluctant leakages destroy aggregate demand. Throw in higher credit standards and necessary re-regulation and you can see why austerity economics is the final bullet.
2012-04-06 Managing Expectations: Why Gold Should Thrive by Frank Holmes of U.S. Global Investors
Its been a challenging week for gold investors. As I often say, investing, like life, is about managing expectations. Over the past 11 years during golds spectacular bull run, investors should remember that price action can go both ways. What helps is to look at the historical rise and fall of gold. For example, looking at the past decade of one-day 5 percent drops in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5 percent in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.
2012-04-05 You Cant Handle the Truth by Niels C. Jensen of Absolute Return Partners
The UK may not be facing the same set of challenges as many other European countries but that does not mean that the next few years will be plain sailing for the British. Households are overextended, banks are highly leveraged and the pension model is deeply flawed. Meanwhile, the British government, obsessed with keeping the coveted AAA rating, is pursuing a fiscal policy which is well intended but entirely inappropriate.
2012-04-04 Kasriel's Parting Thoughts - Has the Fed Boosted the Stock Market? by Paul Kasriel of Northern Trust
The Feds actions have benefited the stock market as well as aggregate demand for goods and services in the U.S. economy. Would you have preferred that the Fed sit idle as it did in the early 1930s, with likely similar results for the stock market and the economy in recent years as occurred at that time? The Fed has simply provided some of the credit to the economy that the private MFI system would have had it not been crippled with loan losses. And even with the Feds additional credit creation, total MFI credit growth has fallen short of the long-run normal credit creation of private MFIs.
2012-04-04 Fed - Actions Speak Louder Than Words by Axel Merk of Merk Funds
The Fed has a credibility problem: having assured investors that rates will remain low for an extended period, it may only take one or two FOMC members to turn more optimistic about the economic outlook to cause the markets to more aggressively price-in tighter monetary policy. Conversely, Bernanke has made it clear that he is most concerned about a recovery in the housing market and that low interest rates throughout the yield curve are desirable. Operation Twist is specifically aimed to achieve that, lowering long-term rates and flattening the yield curve.
2012-04-04 Economic Update by Richard Hoey of Dreyfus
We believe that a full-scale global recession is unlikely, assuming that there is no major oil price spike from a disruption of the flow of Middle East oil. We believe that a key cause of global economic expansion will be the easy monetary policy prevailing in many regions and countries worldwide. We expect a global growth recession in 2012, with declining economic activity in Southern Europe, an economic stall or temporary declines in the U.K. and much of Northern Europe, a moderate slowdown in emerging markets and a U.S. expansion at a near-trend pace in 2012, somewhat faster than last year.
2012-04-03 The Easy Money Saloon by Michael Lewitt (Article)
When two of the world's soundest central banks (Israel and Switzerland) start investing their reserves in stocks (the Bank of Israel is run by the highly respected Stanley Fischer for God's sake!), one has to wonder what the world is coming to. Apparently the global saloon is expanding its boundaries. No doubt we will soon hear the ECB is merging with the London Stock Exchange.
2012-04-03 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 2012 Invesco Fixed Income and Asset Class Outlook by Greg McGreevey of Invesco
Given the increased need for yield in developed economies, driven by an aging demographic base and low interest rate environment, we expect parts of the high yield, bank loans, corporate credit and distressed debt to post solid performance over the near-term. As we look across the global landscape, the US has seen a notable reduction in debt at financial institutions and among consumers. Leverage at the government level remains high and there is no credible plan to reduce such debt going forward.
2012-04-02 The Outlook for the U.S. Dollar by Nic Pifer of Columbia Management
On a trade-weighted basis, the U.S. dollar was largely unchanged in the first quarter of 2012. We expect a broadly similar story in both the near- and medium-term, with the balance of structural and cyclical weakness across the major economies providing little clear direction for the U.S. currency. For sure, movements of 5% or more in the trade-weighted dollar are always possible, reflecting short-term swings in investor sentiment and the normal volatility of currency markets. But we do not expect sudden moves in either direction to be sustained.
2012-03-30 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.
2012-03-29 China's Gravity-defying Economy: How Hard Will It Fall? by Team of Knowledge @ Wharton
As China's high-octane economy shifts into lower gear, virtually everyone agrees that the double-digit, super-charged boom years are drawing to a close. Speculation over the possibility of a so-called "hard landing" for the country flourishes with each boom and bust cycle, only to die down as China's growth revs up again. This time, however, both external and internal factors -- including global conditions, domestic politics and financial trends -- are reinforcing the downturn. Many experts warn that without some painful reforms, there will be worse trouble to come.
2012-03-29 To QE or Not to QE by Tony Crescenzi of PIMCO
If the Fed does nothing, asset prices could fall, threatening Americas fragile economic recovery. But if the Fed decides to battle the forces of deleveraging, it could commit a classic error by acting during a turning point and thereby doing too much. During Operation Twist, the Fed will absorb the equivalent of all of the issuance of U.S. Treasury securities maturing beyond seven years. When Operation Twist ends, global investors will be left to shoulder the burden.
2012-03-28 Revisiting the Liquidity Cycle with the Minsky Model by Thomas Fahey of Loomis Sayles
Once an extreme event occurs, standard models offer limited insight as to how the ensuing crisis could play out and how it should be managed, which is why policy responses can seem disjointed. The latest policy responses to the European crisis have been no exception. To understand and respond to a crisis like the one in Europe, perhaps we need to consider some new models that include the human factor. Economic historian Charles Kindleberger can offer some insight
2012-03-28 Challenges and Change in Brazil by Team of Franklin Templeton
Brazils economy is grappling with some interesting challenges right now, such as shifts in monetary policy to cope with a possible economic slowdown and preparing to host two major events on the international stagethe 2014 FIFA World Cup Brazil and the Olympics in 2016. Marco Freire, Franklin Templetons CIO, Brazil Fixed Income for the Local Asset Management team based in Sao Paulo, isnt sharing any locals-only secrets about either event, but hes happy to share his insights on how Brazil is approaching these challenges, and to clear up some common misconceptions about Brazils markets.
2012-03-28 The End of the 30-year Bond Bull Market? by Team of Knowledge @ Wharton
Is the great 30-year bull market in bonds coming to an end? Yes, perhaps -- or maybe not: It depends on whom you ask and how flexible your timing is. While many people think of bonds as conservative holdings, they have produced stellar returns for decades, thanks to the taming of inflation and other factors. But some experts say economic recovery could now reverse the process by driving interest rates higher, causing bond prices to fall.
2012-03-27 Our Current Perspective on the Global Economic Outlook by American Century Investments (Article)
As we proceed through the first quarter of 2012, the U.S. economy continues to drift— not in recession, but far from the level of growth and dynamism we would like to have. Meanwhile, global economic growth has slowed as the world anticipates a solution to the European sovereign debt crisis. In short, we are in a period of uncertainty, not only about how key events will unfold, but about the timing associated with their future progress and resolution.
2012-03-26 Economic Insights: Fear, Bank Lending, and Fed Frustrations by Milton Ezrati of Lord Abbett
The Fed recently released the results of its latest survey of senior bank officers. Like the economy, the bankers' attitudes were mixed. Things have improved over the past year. Bankers on balance have shown a greater willingness to extend credit. But still, they remain very cautious. Understandable after the losses of 200809, this lingering reluctance to lend offers yet another explanation as to why this economy's recovery has proceeded so slowly to date, and will likely continue to do so for some time to come. Still, there are tentative signs that the environment is easing.
2012-03-26 Postcards from the Edge: Central Banking in the Age of Policy Extremes by David Kelly, David M. Lebovitz and Brandon D. Odenath of J.P. Morgan Funds
Major developed world central banks have taken extraordinary action over the last few years, leaving us in uncharted territory, close to the edge with little experience or history to rely on. The move to todays extremes was forced by the impotence of conventional monetary policy tools, as well as the breadth and depth of the crisis-causing issues. Uncertainty about the probabilities and range of possible outcomes resulting from current extremes has, and will, impact both capital markets and decision making in the real economy.
2012-03-23 Whats Next for Equities? by Matthew Rubin and Justin Gaines of Neuberger Berman
In 2011, the S&P 500 finished essentially flat on a price-return basis. That return, however, would not have been achieved without a 15% gain over the last three months of the year. Equities have since picked up where they left off and, year-to-date, most major indices are up by double digits. Front-of-mind for investors is whether this momentum can be maintained. We offer the bear and bull cases as well as our thoughts on what may lie ahead.
2012-03-23 A Random Walk Through the Data Minefields by John Mauldin of Millennium Wave Advisors
We are once again to a point in Europe where there are no good choices, only very bad ones. But this time it is with a country that actually makes a difference. (No slight intended to Greece, but you are just small.) Spain has no good way to cut its deficit without things getting worse. But Europe must be willing to then fund Spanish debt, even if "only" through more LTRO actions by the ECB.
2012-03-23 International Real Estate Securities- Investment Review & Outlook - February 2012 by Team of Cohen & Steers
International real estate securities added to their year-to-date gains in February, although the pace of the rally moderated. Most markets in Europe and Asia Pacific continued to benefit from the retreat of macro risk concerns. Europes difficult grapple with its fiscal crises has made for a negative macroeconomic backdrop, and we expect a moderate recession as a base-case scenario for the region. Given this environment, we seek to invest in companies that are best able to shield themselves from the most adverse effects of slowing economies and a general deleveraging.
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 Global Real Estate Securities Investment Review and Outlook February 2012 by Team of Cohen & Steers
Global real estate securities added to their year-to-date gains in February, although the pace of the rally moderated. Most markets in Europe and Asia Pacific continued to benefit from the retreat of macro risk concerns. U.S. REITs, which advanced in 2011 while other regions struggled, had a modest decline.
2012-03-22 The Case for Chinese Stocks by Russ Koesterich of iShares Blog
Chinas recent lowering of its growth target made some investors nervous that the country may be in for a period of sluggish growth. Russ, however, believes that a hard landing can be avoided, and he continues to advocate overweighting Chinese equities for three reasons.
2012-03-22 Explaining the Stir over Recent Fed-Speak by Team of American Century Investments
The official statement from the Federal Reserves March 13 interest rate policy committee meeting was relatively ho-hum (no significant changes from Januarys statement), but other recent Fed communications have raised more of a stir. In particular, we explain what fiscal cliff and sterilized QE mean, and help put them into context. Its all part of a mixed, uncertain economic outlook in which slower mid-year growth, like last year, cant be ruled out, but higher inflation by next year is also a possibility.
2012-03-20 Bob Rodriguez on the Dangers in Today's Markets by Robert Huebscher (Article)
Bob Rodriguez is the managing partner and chief executive officer of Los Angeles-based First Pacific Advisors. In this interview, he discusses how the challenges faced by the US economy will impact the capital markets.
2012-03-20 The Wages of Denial by Michael Lewitt (Article)
Europe is insolvent, and hopelessly so. Her procurer - the European Central Bank (ECB) - can front her some money for a while, but in the end she is either going to have to repay him or suffer a very rough consequence. In the meantime, however, she can continue to entertain her customers, in this case those willing to extend her credit in one form or another. Sooner rather than later, however, these creditors are going to grow tired of her tricks and turn their attention otherwise. At that point, she will be left to deal with the ECB because nobody else will have her.
2012-03-20 Economic Insights: Bernanke's Drama Strikes a Chord by Milton Ezrati of Lord Abbett
The chairman has shown clearly that all policyboth fiscal and monetaryfaces quite a balancing act. The Fed, which has already done a great deal to support financial markets and the economic recovery, has reason already to worry over longer-term inflationary pressures. But it cannot remedy matters if the federal government fails to do its job of fiscal reform while protecting the economic recovery. Bernanke has made it clear that there are no easy answers, because all the pieces of the puzzleeconomic growth, inflation, monetary policy, and fiscal policydepend on each other.
2012-03-19 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.
2012-03-16 Why Invest in Asia Bonds? by Teresa Kong of Matthews Asia
The development of Asias bond markets is one of the regions most profound economic changes of the last decade. This month Teresa Kong, CFA, writes about the diversification Asias bond markets can offer investors, and their three primary return drivers: credit, currency and interest rates.
2012-03-15 Investment Management with a Conscience by Douglas Hodge of PIMCO
Earlier this year the Financial Times ran a series of editorials under the title Capitalism in Crisis. Contributors ranged from Bill Clinton and Alan Greenspan to FT editors Martin Wolf and John Kay. There was also a submission with the byline, Occupy London. While I am admittedly unable to add much to their collective wisdom, I think a sound analysis of capitalism requires an understanding of the role of the investment management industry within the financial services ecosystem."
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.
2012-03-14 Pacific Basin Market Overview - February 2012 by Team of Nomura Asset Management
We still have a broadly positive view of the outlook for the Asia Pacific equity markets. The European Central Banks efforts to provide long-term liquidity support have alleviated the default risk among the peripheral Euro-zone countries. It also appears that the Federal Reserves easy money policy is beginning to have a positive impact on the U.S. economy. Given this optimism, we believe that equities in the region will continue to rally, particularly in the oversold cyclical sectors such as Industrials, Technology and Consumer Durables.
2012-03-13 Europe's “Back-door QE”: Good News for Global Bond Investors by OppenheimerFunds, Inc. (Article)
By restoring confidence in the global financial system, the European Central Bank's Long Term Refinancing Operation has allowed global bond investors to participate in attractive opportunities around the world.
2012-03-13 Will he? Won't he? by Christian Thwaites of Sentinel Investments
Will oil prices hurt the economy? No Recent good news on the economy has come with warnings of possible demand destruction from higher oil. First, lets stress that QE does not cause higher oil prices. There are too many iterations between increasing bank reserves and the trading firepower needed to drive spot oil prices sharply higher. And while we have seen an increase since September, we're no higher than a year ago. During that time economic prospects dimmed then brightened MENA troubles flared, receded and then grew, and Asian demand steadily rose. But there are reasons to be sanguine.
2012-03-13 Economic Update by Mark Oelschlager of Oak Associates
As one might expect after a near-doubling of the market in three years, investor sentiment, by many measures, is much more positive these days. These psychology indicators had reached worrisome levels (too much optimism often augurs below-average stock returns) a few weeks ago but have since come in a bit, which is healthy. The recent bullishness is hard to square though with the general anxiety individuals still have toward stocks. While some are returning to the market, many are still spooked by the volatility of recent years.
2012-03-12 The King is Back by Liam Molloy and Bethany Carlson of Galway Investment Strategy
On Mar 1, Lazlo Birinyi called for the S&P500 to hit 1700 in 2012 (an increase of 35%). The 24% rise in the S&P500 between Oct 4 and Feb 29 has prompted many to review their outlook for the year. Their euphoric revisions are propelled by some tailwinds: lean company financials with high operating leverage; emerging markets consumer demand; improving jobs reports; low interest rates, and high cash balances. Many of these factors contributed to Galways relatively positive outlook. However, one lesson we have learned over the years is to start getting nervous when everyone agrees with you.
2012-03-12 An Overweight to Stocks Is Still Warranted by Bob Doll of BlackRock Investment Management
We believe the macro environment remains equity-friendly and we would argue that it still makes sense to retain overweight positions in stocks. The economic expansion should continue, inflation remains muted and central banks around the world are hyper-focused on maintaining easy monetary policy. Add to this backdrop the fact that stock valuations remain attractive, and the case for sticking with stocks gains strength.
2012-03-12 Iran, Oil Prices, and the Economic Recovery by Milton Ezrati of Lord Abbett
With the situation highly unstable the hope is that the powers involved can reach a resolution without resorting to military action or even a standoff that prompts insurers to close down shipping. Should such a resolution develop, crude oil and gasoline prices would certainly drop from today's highs. Though they would not likely recapture the lows of late last year. Even if today's level of tension were to hold up current prices indefinitely, it would cause little further harm than it already has. But until some resolution is reached, risks for much higher prices remain significant.
2012-03-09 Economic Update - March 2012 by Team of Cambridge Advisors
We continue to deal with the added risk to the global economic system caused by the high degree of debt that exists throughout the developed world. A spirit of cooperation in Europe helped to put those concerns on the back burner in February. Solutions for Greece have been announced however, these are not permanent solutions and the problems go much further than Greece. We expect more turbulence from sovereign debt problems to reemerge in coming months.
2012-03-09 The Healing Powers of a Weaker Yen by Kenichi Amaki of Matthews Asia
In mid-February, the Bank of Japan surprised markets with an expansion of its Asset Purchase Program, Japans version of quantitative easing. At the same time, the BOJ reworded its stance regarding inflation, revising its quantitative easing understanding to a goal and formally adopting an inflation target of 1%. Equity markets reacted positively, prompting foreign investors to pour more than US$5 billion into Japanese stocks and futures over just a 2-week period. The yen weakened to levels not seen since May 2011, and the currency seems to have broken from its 5-year appreciation trend.
2012-03-09 Appreciating China to its Fullest by Frank Holmes of U.S. Global Investors
While most analysts dont expect another moon shot rise in China's GDP this year, a 7.5 percent growth rate still exceeds most emerging economies and all developed nations. Advanced economy growth is expected to be meager, slowing from 1.6 percent to 1.3 percent in 2012, according to The Conference Board. For long-term investors learning to appreciate the finer points of the country, we believe China is somewhat like fine wine; it only gets better with age.
2012-03-09 Market Fatigue? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Market action has been relatively muted, notwithstanding the first 1% down day of this year. After the strong run to start the year, another pause or pullback would not be surprising but we continue to believe the upward trend will largely stay intact. Uncertainty abounds as to whether the Fed will unleash a new round of easing but liquidity remains abundant. Rhetoric continues in Washington but any substantial fiscal or tax policy action this year seems unlikely, despite the many challenges that are looming.Europe has stabilized somewhat but risks remain elevated.
2012-03-08 Of Tulips and Treasuries. Treasuries Securities Entering Bubble Zone. by Scott Colyer of Advisors Asset Management
U.S. Treasury securities could take their place alongside other bubble assets like tulip bulbs did in the 1630s. There are signs of a secular change afoot in the U.S. Treasury market as rates set historic lows. The U.S. Treasury market is indeed a crowded market as Euro-singed capital is being tucked behind the ultimate safety of the U.S. obligations. Add to that the Feds own record setting buying binge in these securities and you have an asset that may have well crossed the line of what its long-term value could possibly be.
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.
2012-03-07 Winning the War in Europe by Scott Minerd of Guggenheim
Given my view on the global liquidity glut, it probably will come as no surprise that I remain bullish on U.S. investments, including equities, high yield bonds, bank loans and other risk assets, as well as art and collectibles. I believe the United States has entered a period of self-sustaining economic expansion, driven primarily by the aggressive monetary policy of the Fed, which is now being reinforced by the ECB. U.S. growth is necessary to reduce domestic unemployment and to provide support to the struggling economies in Europe and Asia.
2012-03-06 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 Big Headlines...Not Much Action by Christian Thwaites of Sentinel Investments
Bottom Line: Volume: There's still no major conviction in the rally. Too many cautious investors out there keeping a wary eye on their gains. Russell 2000: has broken down recently; the mega caps have overshadowed it. Employment: Still the most sensitive number. Anything above 150,000 is fine but confidence will be shaken if it's much below. AAPL: The most over-owned stock in the market and accounted for about 20% of February gains. The Fed is sticking to its script: and with the growth numbers, this means that GT10s are likely to remain exactly where they are today.
2012-03-05 Warning: A New Who's Who of Awful Times to Invest by John P. Hussman of Hussman Funds
Last week, the estimated return/risk profile of the S&P 500 fell to the worst 2.5% of all observations in history on our measures. This is not a runaway bull market. Rather, it is a market that again stands near the highs of an extended but volatile trading range. Importantly, the market is again characterized by an extreme set of conditions that we've previously associated with a Who's Who of Awful Times to Invest.
2012-03-05 Investors Are Skeptical, and Pace of Gains Slows by Bob Doll of BlackRock Investment Management
Even with the S&P setting new post-crisis highs, we don't think stocks are ahead of themselves. While we may not be pricing in a recession like we did last October, markets are in the same place as last April but earnings are up nearly 15%. The October market bottom also seemed to have technical characteristics of an important low. While there remain plenty of problems, including rising oil prices and profit margins at very high levels, we recommend overweighting equities. For investors that are underweight equities, we recommend continuing to dollar-cost-average to increase exposure.
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 TARGET2: A Channel for Europe's Capital Flight by Andrew Bosomworth of PIMCO
The Eurosystem's TARGET2 transaction system introduces elements of fiscal union via the back door. The large TARGET 2 positions developing among national central banks in the eurozone reflect capital flight from the periphery to the core and de facto introduce transfer and burden sharing elements of a common fiscal policy. Monetary policy ends up substituting for fiscal policy without going through the same democratic channels that governments' expenditure and taxation decisions entail. Taxpayers in the eurozone are contingently liable for losses incurred by monetary policy operations.
2012-03-02 Will Oil Continue Heading Higher? by Frank Holmes of U.S. Global Investors
We expect there to be corrections in the price of oil throughout 2012, just like the ups and downs commodities experience from year to year. While the world is hungry for energy, theres no free lunch on the Periodic Table of Commodities, and historically, from year to year, commodities fluctuate. Crude oil, for example, has seen its share of ups and downs: In 2008, oil lost 53 percent; in 2009, it increased a substantial 78 percent. While oil may remain elevated, use these higher prices to your advantage by owning natural resources companies that benefit from higher prices.
2012-03-01 2012: A year in US bonds by David Harris of Schroder Investment Management
There are two new factors that came to the forefront in late 2011 and which are set to influence investments throughout 2012. Indeed, it appears the collective bond market had a series of epiphanies in Q3 that should frame investment activity for some time to come, and these factors are by no means isolated to the US. The first factor is the broad recognition that debt expansion will not be the large driver of economic growth as it has been for the past several decades. The second factor is that political policy pronouncements will often trump economic and credit fundamentals.
2012-02-28 ARRA, Three Years On by Scott Brown of Raymond James Equity Research
The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009. Did it help? Yes, but estimates of the impact vary. Before Barack Obama took office, he selected Christina Romer to be the chair of the Council of Economic Advisors. Romer, a professor of economics at the University of California, Berkeley and an expert on the Great Depression, is exactly the sort of person youd want advice from in combating a severe recession. Its long been rumored that Romer had requested a significantly larger stimulus package than the roughly $800 billion in ARRA.
2012-02-28 The Big Picture Through a Small-Cap Lens by Kristina Hooper of Allianz Global Investors
Things are looking up for investors as a recovery in the job market and a rosier consumer outlook have helped fuel optimism. But spiking oil prices could spoil the party in the short run. A look at small-cap stocks may offer perspective. The rally, Oct. 4 - Feb. 23, has seen the Russell 2000 jump 37%, well ahead of both the Russell Mid-Cap and the Russell 1000 indices. The small-cap rally may be headed for a hiccup, however, one foreshadowed by last weeks slight decline in the Russell 2000. Still many portfolios can benefit from a long-term allocation to small-cap and even micro-cap stocks.
2012-02-27 No Inflation and Plenty of Money by Christian Thwaites of Sentinel Investments
We are still fighting: worldwide fiscal drag (aka the dogma of expansionary austerity) with accommodative money polices. The PBOC joined in with some RRR cuts, although these do not mean much in the Chinese loan-quota system. And the BOJ took steps to weaken the yen. CBs are in control. Government fiscal policies remain ineffectual. Bottom Line: US government bonds remain in a tight band of 190-210. The New Issue Market is strong with low end investment grade names trading at less than 314 over GT10s. We continue to like US equities.
2012-02-24 Global 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 The Outlook for the Overvalued Euro by Russ Koesterich of iShares Blog
Now that a second Greek bailout deal has been reached, investors are asking whether Greece will remain in the euro bloc and how the euro will likely perform going forward. Russ answers these questions, explaining why the euro currently appears overvalued and how a weaker currency could be good for Germany.
2012-02-23 Muni Outlook Q&A with Portfolio Manager Alan Kruss by Team of American Century Investments
Municipal bonds (munis) are back in the bond market spotlight, but for different reasons than a year ago (when widespread defaults were projected, and muni funds experienced heavy outflows). Muni performance has rebounded strongly since then, which has triggered follow-up questions about the muni market outlook. We posed them to Alan Kruss, Vice President and Municipal Portfolio Manager at American Century Investments.
2012-02-23 PIMCO by Ed Devlin of PIMCO
Given the bimodal nature of the expected distribution of outcomes, it is important for investors to remain nimble so they can respond to high frequency data and global public policy developments.
We expect the Bank of Canada to remain in wait-and-see mode until it is clear which way the economy is tipping.
In our base case scenario, we estimate Canadian bond market returns in the range of 2%-4%, and if we tip into a virtuous cycle of economic recovery, we anticipate the possibility of negative absolute returns.
2012-02-22 Closed End Funds - January 2012 Review and Outlook by Team of Cohen & Steers
The U.S. economic picture has brightened meaningfully since December, and we expect the trend to continue, albeit at a modest pace. We are also encouraged by progress in Europe, but continue to monitor developments closely, as the issues there are complex and will take considerable time to resolve, while economic austerity measures are likely to weigh on growth. In this period of extended easy monetary policy by the Federal Reserve, we believe the yield advantage of leveraged closed-end funds will continue to draw investor interest, as demonstrated by the IPO in January.
2012-02-21 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 The Macroeconomic Backdrop Continues to Improve by Bob Doll of BlackRock Investment Management
Looking ahead, we believe the backdrop for risk assets remains a solid one. The global economy is hardly experiencing boom conditions and remains subject to the hangover effects of the financial crisis, but improvements have been real and sustainable. Interest rates around the world are low. This backdrop, combined with at-least reasonable valuations, should help equities to continue to outperform. On a near-term basis, the improvements we have seen in recent months do appear to have been absorbed by the markets, which explains the recent nearly uninterrupted move higher in stock prices.
2012-02-21 Inflation Held in Check by Fear by John Browne of Euro Pacific Capital
Out of control money supply creates inflation. In light of the trillions of synthetic dollars that have been injected into the economy by the Fed over the past five years, most observers had expected prices to spiral upward. But in making these determinations, many of us forgot to factor in the supply side of the supply/demand equation. Inflation remains low now because of game changing events that have reduced the demand for money. So beware of the recovery. Any wakening of animal spirits in the U.S. will likely stir the threat of inflation, which may very well short-circuit the recovery.
2012-02-21 International Equity - January 201 by Team of Thomas White International
International equity prices recorded strong gains in January on increased optimism that the global economy is not headed for a significant downturn this year. Markets across all regions, led by Asia, recovered during the month. Emerging markets, which had seen price declines during the second half of last year, outperformed the developed markets. Economic indicators from most regions, except Europe, have been relatively healthy and suggest expansion. EU leaders have now agreed to set tighter fiscal rules for member countries, including limits on fiscal deficits and aggregate public debt.
2012-02-18 Danger: Caution Ahead by Bob Rodriguez of First Pacific Advisors
I know many of you would like more actionable ideas but principal protection is uppermost in my mind. Patience is required now. Many investors underestimate the potential risks and disruptiveness from high global financial leverage. We are in phase 2 of a continuing and expanding economic and financial market instability. Flexibility, high liquidity, and concentrated asset deployment, when appropriate, will be key elements in attaining superior investment performance. The era of being fully invested and adjusting portfolio weights relative to an index has been over for more than a decade.
2012-02-17 Something Old, Something New, Something Borrowed and Something 2 by Richard Clarida of PIMCO
Given the Feds targets for both inflation and long-run normal employment, the new framework suggests continued lower bound rates, forward guidance and potentially additional QE. The Fed explicitly extended the length of time that it expects interest rates to remain exceptionally low and kept the door open to adjusting at a future meeting the size and composition of its balance sheet. The Fed reached unanimous agreement on a published numerical inflation target of 2% that, in its judgment, best satisfies its mandate to achieve price stability.
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 Peroni Report February: On The Edge of Something Big? by Gene Peroni of Advisors Asset Management
One of the bullish features of this market is that there is a good balance in performance among the leading industry sectors. For instance, agriculture had been a leading sector following the markets lows after the financial debacle. But, stocks in the sector generally consolidated through much of last year. I believe that the consolidation was completed in the fourth quarter and that agriculture can reclaim its longer-term leadership. Numerous stocks in the sector have exhibited good relative strength recently and several stocks have begun to breakaway from downward or neutral trends.
2012-02-14 A Dejected Asset Class Finds Its Way in 2012 by Chris Maxey of Fortigent
Investor interest is acutely focused on the developed world, specifically Europe and the US. All the while, developing countries continue to be better positioned fiscally, with lower debt and better long-term growth prospects. Despite the outlook, stock markets in emerging markets are largely at the mercy of their counterparts in Europe and the US, suffering in lockstep as opposed to embracing the decoupling phase that was supposed to have begun in 2007. According to the IMF, emerging and developing economies grew 6.2% in 2011, compared to a 1.6% growth rate in advanced economies.
2012-02-10 Missed Opportunities? by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Investors eased back into stocks to start the year. This is the start of a sustainable trend, but equities rarely go up in a straight line and near-term caution may be warranted. Another deadline is approaching for Congress and the President to make a deal. Something will get done, but any hopes for substantial action remain dim. Markets appear to be more comfortable with the European debt crisis and the risks associated with it. Central banks around the world are easing, which could help support international stocks in the coming months.
2012-02-09 Bernanke on the Unemployment Rate and Labor Weakness by Mike "Mish" Shedlock of Sitka Pacific Capital Management
I nearly always disagree with Bernanke on monetary and fiscal policy. Specifically, the Fed ought not have a monetary policy for the simple reason the Fed should not exist. Indeed, the Bernanke Fed and the Greenspan Fed have both proven beyond a shadow of a doubt they do not know what they are doing, where the economy is headed, or anything else of relevance in setting monetary policy. However, on rare occasions, Bernanke can say a few snippets that seem to make complete sense. For example, Bernanke Says 8.3% Unemployment Understates Labor Weakness.
2012-02-09 Q411 Portfolio Commentary by Jay Compson of Absolute Investment Advisers
We continue to stress that investors remain patient. Given that we are likely in the 1% of money managers that look beyond the next 30 days, it is inevitable that the markets will move counter to our positioning. This is to be expected and is consistent with the Fund's historical performance.We continue to remain disciplined and receive counsel from the investing bible: Graham and Dodd's Security Analysis. For those few true value investors left, it's worth noting that nowhere is the phrase "margin of safety" defined by quantitative easing, government stimulus, or bank bailouts.
2012-02-09 Economic Update by Richard Hoey of Dreyfus
For 2012, we have three themes and three risk concerns. The three main themes are (1) global growth recession, (2) lower inflation for now and (3) monetary ease. The three main risk concerns are (1) the European financial stresses, (2) the Chinese property market and (3) the Middle East risks, with oil supply vulnerabilities as the main concern. We expect a global growth recession in 2012, rather than either a strong global expansion or a fullscale global recession.
2012-02-09 European Update: Volatility Will Remain High Amidst Rating Agency and Political Uncertainty by Team of Standish Mellon Asset Management Company
S&P downgraded nine of the 16 Euro area countries on credit watch negative. Germany is now the sole AAA country with a stable outlook. The primary drivers of the downgrades were reduced political and external scores. The near-term market impacts have been relatively muted, as the downgrades were not as bad as investors may have feared. However, the negative outlooks across the region and potential for further downgrades. Within the Euro area, further volatility is likely to be reflected in lower German yields relative to other Euro area bond markets.
2012-02-07 Jeremy Siegel, Rob Arnott and Other Experts Forecast Equity Returns by Laurence B. Siegel (Article)
A forecast of the equity risk premium (ERP) tells you how much to save, how to allocate assets between equities and fixed income, and how much you can consume. Given its great importance, the CFA Institute recently convened a group of top-level academics and practitioners to forecast future ERPs - and to reflect on similar predictions they had made a decade ago.
2012-02-07 If Current Bank Credit Trends Continue, Bet Against the Feds Interest Rate Forecast by Paul Kasriel of Northern Trust
A majority of FOMC members expect that the interest rate on federal funds, an interest rate controlled by the Fed, will not be increasing until late in 2014. If the current trend in the behavior of bank credit continues in 2012 and into 2013, I believe that the FOMC will be lifting its federal funds rate target early in the second half of 2013. Again, if the current growth trend in bank credit continues, a failure on the part of the FOMC to raise its federal funds rate target and shrink its balance sheet will sow the seeds of a rate of consumer inflation above the FOMCs 2% annualized target.
2012-02-03 Sentinel's Top 10 Predictions For 2012 by Christian W. Thwaites of Sentinel Investments
i) the US is emerging stronger from this recovery than any other major economy ii) Europes woes are temporarily eased and iii) China is past the worst of its inflation scares. If that sounds muted, it is. The damage done to the economies through irresponsible lending and uncontrolled asset price inflation (the US) or unencumbered vendor financing and overvalued exchange rates (EU) was immense. Both meant huge banking messes. And households are the only ones who clean up banking messes. In time. Slowly. And thats where the world stands.
2012-02-03 American Creativity by Doug MacKay and Bill Hoover of Broadleaf Partners
We remain bullish on the stock market. In an environment of low or non-existent bond yields, stocks may not only represent a compelling alternative source of income, but likely have a far better risk reward profile when it comes to upside return potential. After more than a decade of being the cellar dweller of annual asset class returns, domestic common stocks may finally be due for some positive mean reversion. This doesnt mean were headed back to an era of multi-year, double digit returns but, that given a choice among alternatives, stocks should prove to be the best game in town.
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.
2012-02-01 The Doves are Flying Circles around the Hawks by Colin Moore of Columbia Management
Most of the members of the FOMC of the Fed remain concerned about the level of economic growth and inflation over the next few years. The Committee expects growth to be modest over coming quarters which appears to be a downgrade from moderate. As a consequence, the FOMC pledged to keep rates near zero into 2014 versus 2013, as previously indicated. Some members were slightly more hawkish. Six members thought monetary policy tightening should begin as early as 2012 or 2013. Five participants chose 2014. Six participants thought 2015 or later.
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 Barry Eichengreen on the End of the Dollar - Video by Dan Richards (Article)
Barry Eichengreen is a professor of economics and political science at the University of California, Berkeley and a former senior advisor to the International Monetary Fund. In this interview, he discusses the future of the dollar as the reserve currency and the role of the IMF in the Eurozone crisis. This is the video of the interview.
2012-01-31 The Fed: Dual Targets Or Dueling Targets? by Scott Brown of Raymond James Equity Research
The Fed has adopted an inflation target, as many other central banks have done long ago. However, the Fed retained its dual mandate, with a soft employment target. How will the two goals be achieved and what happens when they conflict? The Fed says is will use a balanced approach. The Fed lengthened the period for which it expects to keep short-term interest rates at exceptionally low levels. However, the five Fed governors and 12 district bank presidents have differing opinions on when the Fed should start raising short-term interest rates and what the rate target will be at the end of 2014.
2012-01-31 2012 Tale of Two Bond Markets Handicapping the Bull and Bear Case for Bonds by Scott Colyer of Advisors Asset Management
2012 will likely be the tale of two bond markets. You have the high-grade debt market that has been the recipient of a huge flight to quality and fear trade. The prices of these obligations have skyrocketed and yields plummeted. Additionally, the Fed has turned out to be the biggest buyer of longer-dated Treasuries in the markets today. It is rumored that they might engage in a mortgage buying campaign later this year. That would have the effect of lowering mortgage rates further than the record lows where they are at. In short, the world has sought refuge in the U.S. bond high-grade market.
2012-01-31 To Fight or Not to Fight the Worlds Central Banks by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Lupin Rahman and Isaac Meng of PIMCO
We are skeptical that fiscal austerity alone is sufficient for all eurozone countries to grow and remain solvent. We thus expect the ECB to continue supporting the euro area with liquidity in 2012.
Recent central bank policy in China is oriented toward stabilizing growth in a political succession year, while balancing lingering inflation and medium-term systemic risks.
Investors may want to hedge portfolios by looking to select emerging markets with the ability and willingness to cut policy rates both from a cyclical as well as structural perspective.
2012-01-31 Fed Forecasts Depend on Data by Brian S. Wesbury and Robert Stein of First Trust Advisors
Last summer, the Fed promised to hold rates down through mid-2013. Headlines from last week suggest that the Fed now thinks 2014. But, how committed is the Fed to this strategy? What will it take to change course? Some analysts argue that this is an ironclad commitment and there will be no course changes. We believe this is a misreading of the Feds intentions. There are 19 potential economic views that are important at the Federal Reserve 7 are on the Board of Governors and 12 are Presidents of regional banks. There is more disagreement at the Fed than meets the eye.
2012-01-31 The ECB to the Rescue by Milton Ezrati of Lord Abbett
Though a good deal of concern over European downgrades has emerged, markets actually have received reason to anticipate relief in Europes financial crisis. The old risks and fears remain, of course, but the ECB has at least changed the equation, signaling that it had jettisoned its former hands-off policy and begun, at last, to support European financial markets. The remarkable nature of the change received only a few headlines, and even less commentary, but it deserved then and deserves now more attention. The ECBs help is crucial.
2012-01-31 When Two Percent is Good by Christian W. Thwaites of Sentinel Investments
FOMC marked new ground by placing a date on any change in the fed funds rate out to 2014, a full year beyond the date put out last year. This is exactly the playbook described by the Fed Chairman nearly ten years ago. He is shaping interest conditions as obviously as he can. He would prefer a policy of conditionality, say to unemployment or inflation (the case for nominal GDP is probably too radical for now) but, if nothing, he is a pragmatist and knows he would not carry all the board with him. So the next best thing is a fixed period.
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 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 TIPS for Financial Repression by Mihir Worah of PIMCO
Treasury Inflation-Protected Securities got a boost last week after the Fed extended the period of time it is likely to maintain unusually easy monetary policy and moved toward adopting a formal inflation target of 2% for the Personal Consumption Expenditure Index. Bernanke said that the central bank was likely to allow deviations from this target if employment was not where the Fed thinks it should be. We think financial repression is likely to persist and real interest rates are likely to be lower than recent history would suggest for the foreseeable future.
2012-01-30 Don't Fight The Fed, Part Three by Charles Lieberman of Advisors Capital Management
Growth is improving slowly, but insufficiently to satisfy the Fed. So Fed officials are reviewing new initiatives to promote growth, including buying mortgages in the market. The Fed's latest press release suggests that policy may remain unchanged for even longer than suggested earlier. But the Fed's willingness to remain so staunchly committed to growth remains "data dependent", as any significant increase in GDP growth could cause the Fed to backtrack. At the end of the day, the Fed is committed to an outcome, not to the calendar. And right now, it is committed to growth.
2012-01-28 The Transparency Trap by John Mauldin of Millennium Wave Advisors
We look at the shift in Fed policy, and at the balance sheets of central banks, US GDP, Portugal and the ECB, the LTRO policy, and yes, theres even a tidbit on Greece. Unemployment will be higher than we are comfortable with; it is just a product of the current environment and simple math. The US economy is in a Muddle Through range of around 2%. If not for a potential shock coming from a serious European crisis and real recession, the US should not slip into outright recession this year.
2012-01-27 Europe Investment Commentary - Full Year 2011 by Team of Cohen & Steers
Our global macro outlook has turned positive given the shift toward monetary easing as well as U.S. economic data steadily improving growth. However, Europes central role in fiscal crises has made for a difficult backdrop in the region. We have begun to envision a recession in Europe as a base-case scenario. Given this, we seek to invest in companies that are best able to shield themselves from the most adverse effects of a slowing economy. Broadly speaking, opportunities to invest in companies with good balance sheets that are trading at meaningful discounts to their property values.
2012-01-27 Global Real Estate Securities Investment Commentary - Full Year 2011 by Team of Cohen & Steers
Our macro outlook has turned more positive given the global shift toward monetary easing as well as U.S. economic data confirming steadily improving growth. However, we expect the fiscal crisis plaguing Europe to remain an overhang, as the region is likely heading into recession, making a long-term resolution increasingly difficult. Despite these challenges, we believe fundamentals for global real estate securities will continue to improve broadly, with the lack of new supply coupling with growing demand and effective expense reduction to generate meaningful cash flow growth.
2012-01-27 International Real Estate Investment Commentary - Full Year 2011 by Team of Cohen & Steers
We remain materially underweight Europe and Japan, and overweight Asia Pacific (ex-Japan). We have selective allocations to well-established companies in emerging markets whose business models are positioned to benefit from secular growth in consumer spending among emerging middle classes. We are overweight high-quality retail and offices in major city centers globally, where tenant demand has been more resilient and supply more constrained. Finally, we have allocations in property sectors and geographies where stronger cyclical recovery is emerging as a driver of outsized cash flow growth.
2012-01-27 Slow Road to 'Normal?' by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Market volatility has fallen and tight correlations have loosened, indicating to us some calming of fears and increased attention on more traditional economic and earnings-related news. This is a good sign for stocks in the foreseeable future. The Fed unveiled its new communication strategy after its most recent meeting, reiterating that interest rates will likely remain extremely low for some time. The European picture is brightening slightly and there may be a glimmer of hope for stock market investors. After a soft patch, global growth may be turning around.
2012-01-27 Heart of China Bull Beats Strong by Frank Holmes of U.S. Global Investors
With rising incomes and increasing urbanization, we believe China is pursuing the American Dream, and the government has shown great determination to build the necessary infrastructure along with a robust urban labor market. On a purchasing power parity basis, Chinas share of world GDP has risen significantly, from around 3 percent in 1985 to a current world share of nearly 16 percent.
2012-01-26 Questions and Answers About S&Ps European Downgrades by David Fisher, Michael Story and Olivia Albrecht of PIMCO
Sovereign downgrades will likely be another trigger for cuts in the ratings of European banks. Nearly all major eurozone banks are on negative watch.
Even those securities guaranteed by eurozone sovereigns that were not downgraded are also in the ratings agencies crosshairs.
The most significant downgrade for benchmark compositions was Portugal -- downgraded to below investment grade by S&P, consistent with Moodys and Fitch.
2012-01-26 Journey to the Center of the (Fed's) Mind by Liz Ann Sonders of Charles Schwab
The Federal Reserve opted to keep short-term interest rates on the floor and extended the period of time during which rates are likely to remain near zero.
Newly published forecasts show slightly better growth, a bit less inflation and a lower unemployment rate.
Fed Chairman Ben Bernanke got hit with a lot of questions about the risks of extending zero-rate policy for 2 more years.
2012-01-26 Fed Language Goes Dovish, But Policy Unchanged by Brian S. Wesbury and Robert Stein of First Trust Advisors
Investors should take note that at his press conference today Chairman Bernanke made it clear that if the Feds economic forecast proves either too optimistic or too pessimistic, that it would change its forecast and alter its policy expectations for the funds rate as well. The importance of this statement cannot be underestimated. We anticipate faster economic growth, lower unemployment, and higher inflation than the Fed projects over the next few years. As result, we believe the Fed will start raising interest rates well before late 2014.
2012-01-25 The Fed Plays with Fire by Milton Ezrati of Lord Abbett
The Federal Reserve recently announced plans to publicize its interest rate expectations. The new approach, according to the Fed, should give investors and businesses a more reliable basis on which to plan. The Fed argues further that people, acting on those plans, will enable monetary policy to have a prompter and more thorough impact on longer-term bond yields and on the overall economy. Reasonable as all this sounds, matters may not go quite as smoothly as the Fed seems to think. On the contrary, the new open approach could cause more harm and more confusion than the former secrecy did.
2012-01-25 Emerging Markets Real Estate Investment Commentary Full Year 2011 by Team of Cohen & Steers
Over the long term, we believe emerging market real estate securities are well positioned to benefit from secular trends such as expanding urban centers and the rise of the consumer class. In the near term, however, we expect volatility to continue as markets grapple with uncertainty about Europe and further deceleration in economic growth. In this challenging market environment, we continue to favor commercial landlords over developers.
2012-01-24 Economic Update by Richard Hoey of Dreyfus
The most likely outlook for the world economy in 2012 is a global growth recession. The economic outlook reflects disparate trends in different regions: a full-scale recession in Europe, stagnation or moderate recession in the nearby U.K., near-trend growth in the U.S., continued expansion in Japan and moderate slowdowns in China and most other emerging market countries. While European financial stresses are serious, the global shift towards monetary ease should help mitigate the spillover effect. The result should be a global growth recession rather than either a full-scale global recession.
2012-01-23 The Path of Least Resistance Is Up by Charles Lieberman of Advisors Capital Management
There is so much skepticism with respect to stocks that most everyone who might be scared out of the market has already exited. Investors fear a credit meltdown in Europe following a Greek default. They also fear a weakening domestic economy. As a result, stock prices are depressed, despite solid earnings growth and a healthy corporate sector. If investor's fears are not fulfilled, stocks should move higher.
2012-01-23 Debt and Deleveraging: A Five-Pronged Solution by Mike "Mish" Shedlock of Sitka Pacific Capital Management
Citing the latest report on "Debt and Deleveraging" by the McKinsey Global Institute, Ambrose Evans-Pritchard proclaims a light at the end of the tunnel and that America overcomes the debt crisis as Britain sinks deeper into the swamp. However, there is a big difference between alleged "light at the end of the tunnel" and "America Overcomes Debt Crisis" as Pritchard claims. US consumers may be one-third of the way through, but US debt-to-GDP ratios are low only because unsustainable government spending has taken up the slack.
2012-01-23 Cutting Debt and Deficits by Keith Wade and James Bilson of Schroder Investment Management
Clearly fiscal tightening in the developed markets will produce strong headwinds to world economic growth at an already unfavorable phase of the economic cycle. The extent of this drag on growth will in part be determined by the composition of the consolidation taking place between spending and revenue. Fiscal multipliers - the extent to which changes in spending and taxation affect real output - are difficult to predict with great accuracy at the best of times, but two factors suggest they may have become more powerful.
2012-01-23 Willful Optimism in the Face of Pessimism by Robert Horrocks of Matthews Asia
The U.S. has an unemployment problem, Europe is insolvent and Chinas banking system and property developers face the prospect of rising bad loans. The only thing that appears to be sustainable in investors minds is depression. Indeed, this has led to ongoing pessimismand perhaps too much of it. This month Robert Horrocks, PhD, takes a dissenting view on all the negativism as central banks in Europe, the U.S. and Asia appear to be shifting to more accommodative stances as inflationary pressures subside.
2012-01-20 Equity Investment Outlook by John Osterweis and Matt Berler of Osterweis Capital Management
We believe that 2011 was an aberration in terms of stock market correlations and that gradually stocks will once again perform based more on their individual results and outlooks and less on the markets en masse risk on, risk off vacillations. Despite our near-term caution, which reflects a very uncertain economic and political climate, we are increasingly convinced that equities are poised for solid longer-term returns. Over the past ten years, stocks generally underperformed bonds. This is highly unusual. Stocks are now reasonably priced and profits are expected to expand.
2012-01-20 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The first full week of trading in the New Year was uneventful but positive as the market awaits corporate earnings and next weeks Federal Reserve Board Meeting. As the charts above illustrate, the Dow Jones Industrial Average extended its gains for the year by an additional half of one percent last week, while the NASDAQ Composite jumped nearly 1.4% on excitement in many of the technology shares.
2012-01-20 It May Take a Dragon to Breathe Fire into Markets by Frank Holmes of U.S. Global Investors
Ive found many people are particularly energized about predicting a hard landing for Chinas economy, but I believe the country is no sinking ship. China isnt fast-approaching an iceberg in the dark of the night like the Titanic. Beijing has long been anticipating the ice chunks and subtly adjusting the rudder around inflation without steering the economic ship too far off course.
2012-01-19 Asia-Pacific Portfolio Managers Discuss PIMCOs Cyclical Outlook by Robert Mead, Isaac Meng and Raja Mukherji of PIMCO
We expect emerging Asia growth below the market consensus due to its less aggressive policy responses compared to 2008-2009.
The Asia-Pacific region is less affected than others by eurozone turmoil but contagion is still a risk through direct trade and the regional production chains that characterize Asias export-oriented economies.
In this environment, we favor Australian government bonds for their high credit quality, low-beta currencies such as the Chinese yuan, corporate issuers that have delevered, covered bonds and mortgage-backed securities.
2012-01-19 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.
2012-01-19 Developed Europe: Economic Review Fourth Quarter 2011 by Team of Thomas White International
Germany: Unemployment fell to historically low levels. Exports grew in November, while businesses and consumers remained optimistic. U.K.: The services and construction sectors stayed buoyant. GDP grew 0.6 percent in the third quarter of 2011 France: The unemployment rate rose suddenly in the July after being in a downtrend for several quarters. Italy: The new government introduced the countrys third austerity package in 2011. Spain: Tax hikes and spending cuts were announced by a new conservative government.
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.
2012-01-17 Martin Wolf on the Eurozone and Beyond by Robert Huebscher (Article)
Martin Wolf is widely considered to be one of the world's most influential writers on economics. Since joining the Financial Times in 1987, where he is chief economics commentator, he has received numerous awards for excellence in financial journalism. In this interview, he discusses the Eurozone crisis and prospects for global economic growth.
2012-01-17 A Nobel Laureate’s View on the US - A Debt Problem, but an Unemployment Crisis - Video by Dan Richards (Article)
Peter Diamond is a professor emeritus at MIT and the winner of the 2010 Nobel Prize in Economics for his work on unemployment and labor market policy. In this interview, he discusses the degree to which US unemployment is a structural problem and whether it can be reduced through fiscal stimulus. This is the video of the interview.
2012-01-17 The Mess That Is the Eurozone Inflation-Linked Bond Market by Michael Althof and Jeremie Banet of PIMCO
Italian ILBs now mostly reflect credit risk and tend to trade at a discount to compensate for the higher volatility. Unless the eurozone collectively decides to inflate their way out of their sovereign debt problems through a large increase in the ECB balance sheet, Italian inflation-linked bonds are likely to keep trading like a more volatile and less liquid version of nominal Italian bonds. A European investor looking to secure consumption of real assets in the future may wish to think about alternative measures to help protect their real purchasing power when hedging real liabilities.
2012-01-17 Global Overview by Team of Thomas White International
Fears of a recession in developed economies such as the U.S. have receded as recent data releases indicate that economic activity has not weakened as much as thought earlier. Though European economies are still expected to see a decline, there is now increased optimism that the monetary union and the common currency will survive the crisis. Large European countries such as Spain and France have been able to sell new bonds at relatively affordable costs and the European Central Bank has cut its benchmark rate again, besides extending additional liquidity support to the regions banks.
2012-01-17 Fed Policy Outlook More Communication Is Good by Scott Brown of Raymond James Equity Research
The Federal Open Market meets next week to set monetary policy. Its widely expected that short-term interest rates will remain unchanged and that (for the time being) there wont be another round of asset purchases (QE3). The Fed will begin publishing the range of senior Fed officials projections of the appropriate federal funds rate target (for the fourth quarter of this year and the next few years). There are more benefits than risks in making these projections public.
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.
2012-01-13 Quarterly Review and Outlook, Fourth Quarter 2011 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
As the U.S. economy enters 2012, the gross government debt to GDP ratio stands near 100%. Nominal GDP in the fourth quarter was an estimated $15.3 trillion, approximately equal to debt outstanding by the federal government. In an exhaustive historical study of high debt level economies around the world, it was demonstrated that when a countrys gross government debt rises above 90% of GDP, the median growth rates fall by one percent, and average growth falls considerably more. This study sheds considerable light on recent developments in the US.
2012-01-13 The Year that Was and The Year to Come by Mark Mobius of Franklin Templeton
From a long-term perspective, we continue to have a positive outlook on emerging economies. In our opinion, balancing growth, inflation and global competitiveness will be the task ahead for many emerging countries in the months to come. We believe that emerging stock markets could be much larger than they are today, and over the long term, their combined value could potentially exceed the combined value of the U.S., Japanese and European equity markets.
2012-01-12 Pacific Basin Market Overview December 2011 by Team of Nomura Asset Management
For much of the fourth quarter of 2011, anxiety surrounding the ongoing European sovereign debt crisis has kept the Pacific Basin equity markets largely range bound, although most indices managed to trend higher from their October lows with the help of unexpectedly buoyant economic data from the U.S. The MSCI AC Asia Pacific Free Index including Japan gained 0.66% and the MSCI AC Asia Pacific ex Japan Free Index gained 3.96%, resulting in declines of 17.31% and 17.98%, respectively, for the full year.
2012-01-12 Global Investment Outlook by Team of Aberdeen Asset Management
Policy makers globally face the challenge of supporting growth while managing debt levels, and still remaining aware of inflation. The Eurozone crisis is a further complication, and has the potential to make matters more difficult. That being said, there is still growth in the world economy, though perhaps more disparate than in previous cycles. Given the inter-connected nature of countries in the globalized world, there are few areas truly insulated from turmoil. However, there are safer-havens where clearer policy frameworks and the ability to enact solutions more robustly are helpful.
2012-01-12 Emerging Europe: Fourth Quarter 2011 Economic Review by Team of Thomas White International
The European Bank for Reconstruction and Development was established in 1992 to help the former communist states in their transition to market-based economies. The EBRDs mandate includes investments in Russia and its satellite states such as Poland and Hungary. The Czech Republic, which was the first country to complete the transition process successfully, has come out from under the EBRD umbrella. According to the banks latest forecasts, GDP growth in the central and eastern European region will be approximately 4.5 percent in 2011 and about 3.2 percent in 2012.
2012-01-11 Emerging Asia Pacific: Economic Review 4th Quarter 2011 by Team of Thomas White International
Emerging Asia Pacifics economic expansion slowed considerably beginning in October 2011. In many economies, export growth along with investments grew at their slowest pace since the summer of 2009. Although the Purchasing Managers Index improved across key economies in November the index was still under the 50 mark, which generally means a contraction in manufacturing activity. Almost all the countries in emerging Asia Pacific posted slower third quarter expansion over the year-ago period.
2012-01-11 Developed Asia Pacific: Economic Review by Team of Thomas White International
Developed Asia Pacific economies faced economic headwinds for the greater part of the fourth quarter of 2011 beginning in October. Major export-oriented economies such as Japan, Hong Kong, and Singapore witnessed slowing export growth as consumer confidence in key markets such as the U.S. and the EU remained weak. Although China boosted exports from Developed Asia Pacific economies, overall exports to emerging economies across the world came under pressure. Furthermore, the resilience of the labor market was also tested by the slowing export and domestic markets.
2012-01-10 Bad Medicine, Bad Policies by Christian Thwaites of Sentinel Investments
We can see the results of sensible monetary policy and not so sensible fiscal policy: slow recovery of manufacturing and service jobs, decline in all government jobs and gradually lower participation rates. Expect these trends to continue. We find 30-year bonds with a near 20 duration very tradable. The YTD price swing is already over 4% and with a 3.0% yield; we must be careful that price changes not wipe our coupon returns. Stocks offer attractive entry points but we look at individual companies, balance sheets and management more than the overall asset class.
2012-01-09 Leading Indicators and the Risk of a Blindside Recession by John P. Hussman of Hussman Funds
The balance of leading evidence continues to indicate a very high likelihood of an oncoming recession. We respect the various marginal improvements in the data in recent months, which do take the probability to less than 100%, but that is a far cry from suggesting that recession risk is anywhere close to being "off the table." Recession is not a certainty, but it remains the most probable outcome at present.
2012-01-09 One More Step Forward by Charles Lieberman of Advisors Capital Management
Markets remain priced for economic weakness, with some possibility of a financial market meltdown, despite improving conditions. Stock prices remain very low compared to bond prices, while government bond prices remain very high compared to corporate bond prices. Both comparisons speak to a high degree of caution on the part of investors. The economy is not playing along, however. Barring an unexpected adverse shock out of Europe, which remains the market's primary concern, the economy and the equity market would likely gather momentum over 2012.
2012-01-07 2012: A Year of Choices by John Mauldin of Millennium Wave Advisors
2012 will the year that the consequences of the choices made by the developed world will begin to manifest themselves in the economic realm. We are in the closing chapters of the current Debt Supercycle, with different countries strewn out along the path, and all headed for a destination that will force major decisions if politically painful actions are not taken. Some countries (e.g., Greece) have a choice between the dire and the disastrous. The option for merely difficult choices was long ago, and there is no going back to where you started without a different but equally painful outcome.
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.
2012-01-05 2012 Market and Economic Commentary and Outlook by Multiple of Various
This is a compilation of economic and market forecasts from managers at 14 individual mutual fund companies.
2012-01-05 U.S. Dollar & Currencies: Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
In 2012, policy makers around the world may be driven by the realization that the theme of 2011 was not a Euro-specific crisis, but simply another stage in a global financial crisis. Central bankers may ramp up their printing presses in an effort to limit contagion concerns. As such, the currency markets may be the purest way to take a view on the mania of policy makers. Market movements may continue to be largely driven by political rhetoric. We dont believe this trend will abate over the foreseeable future, especially given the likely leadership changes throughout several G-7 nations.
2012-01-03 The Triumph of Optimism by Scott Minerd of Guggenheim
Over the course of history there is a certain triumph of optimism. Betting against the column of progress of human history and the innovation of mankind has always proven to be a losing proposition. In the short run, there are times to become cautious, as the past five years have exemplified. Broad-based economic expansion and its attendant outsize investment returns follow contraction and panic just as the day follows the night. As dark as the current environment may seem, the sun will come up tomorrow. When it does, I believe it will shine favorably on the optimists of today.
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 2012: A Look Ahead by Bob Doll of BlackRock Investment Management
2012 is likely to feature a slow-growth world that includes a recession in Europe. The US faces headwinds, but manages to achieve growth of between 2% and 2.5%. China and India slow somewhat, but, along with the US, make up two-thirds of global GDP growth. The big risk remains that of a financial breakdown in Europe, which would tip the developed world into recession. Inflation should also continue to move lower. Should the muddle-through environment come to pass, we believe earnings and some improvement in confidence would allow equity markets to move higher, with US stocks leading the way.
2011-12-28 Where Falling Inflation Means Rising Valuations by Russ Koesterich of iShares Blog
Emerging market inflation should decelerate further in 2012 thanks to a combination of continuing slower global growth and the lagged impact of monetary tightening. With the outlook for emerging market inflation improving, my team recently ran an analysis to determine which developing countries are likely to see their valuations benefit the most from falling inflation. Here is the list, with each country ranked in order of how much they should benefit. 1. Brazil 2. India 3. Egypt 4. South Africa 5. Russia 6. Turkey.
2011-12-23 Outlook 2012: Living In Interesting Times by Victoria Marklew, Asha G. Bangalore, James A. Pressler, and Ieisha Montgomery of Northern Trust
Setting aside the debate over the appropriateness of various policy directives, this Outlook considers which countries or regions are vulnerable as we head into 2012. Not surprisingly we start off with Europe, then go through the U.S., industrialized Asia, and Latin America, finishing with a brief discussion of the political powder keg that is the Middle East.
2011-12-23 Emerging Markets Real Estate by Team of Cohen & Steers
Emerging markets real estate securities had a negative return in November following an exceptionally strong October. Worries about the global economy and Europe continued to weigh on equities broadly, while signs of slowing growth in China were of particular concern to developing countries. A sharp rally in the last few days offset some of the decline, as China cut its reserve requirement ratio for the first time in three years and central banks announced a coordinated effort to provide much-needed liquidity to European banks.
2011-12-23 Global Real Estate Investment Commentary by Team of Cohen & Steers
Our macro outlook has turned more positive given the recent shift toward monetary easing in Asia Pacific and emerging markets, as well as U.S. economic data confirming slow but positive growth. However, Europe is likely to remain an overhang, as the region appears to be heading into recession, making a resolution to its debt crisis considerably more difficult.
2011-12-23 International Real Estate Investment Commentary by Team of Cohen & Steers
Our macro outlook has turned more positive given the recent shift toward monetary easing in Asia Pacific and emerging markets, as well as U.S. economic data confirming slow but positive growth. However, Europe is likely to remain an overhang, as the region appears to be heading into recession, making a resolution to its debt crisis considerably more difficult.
2011-12-21 Hot Potato by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Lupin Rahman and Rob Mead of PIMCO
The world is playing a game of hot potato with European financial assets, and the European Central Bank is a reluctant player. Together, Europes fiscal and monetary authorities can likely avert a systemic accident, but they must act quickly and courageously. Differentiation among emerging market monetary policies is increasing. And in Australia, the central bank will likely need to ease further in 2012. If every central bank enacts similar monetary policy tools, those tools compete for the same targets (financial and inflation stability), thereby potentially eroding their effectiveness.
2011-12-20 Concussed, The Year in Review by Doug MacKay and Bill Hoover of Broadleaf Partners
We remain biased to a slow growth environment for as far as the eyes can see, an environment which continues to favor innovators. At the same time, with concerns about a slowdown in China emerging and Europe likely already in recession, the Economic Cycle may deserve some increased attention as a driver of alpha in the portfolio, particularly with a global monetary policy bias towards easing and leading economic indicators in the United State now improving.
2011-12-19 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
I expect that the year-end will be rife with psychological mania of this kind, yielding to an extremely volatile attention span. Despite the numbers, a new landscape is emerging which trades upon hype, happiness, and expectation. It could cost us the opportunity to tune in to dormant themes that might be next years capital gains winners, or, possibly, to overlook them altogether while wallowing in excess negativity.
2011-12-19 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
I expect that the year-end will be rife with psychological mania of this kind, yielding to an extremely volatile attention span. Despite the numbers, a new landscape is emerging which trades upon hype, happiness, and expectation. It could cost us the opportunity to tune in to dormant themes that might be next years capital gains winners, or, possibly, to overlook them altogether while wallowing in excess negativity.
2011-12-16 Loose Monetary Policy Paves Way for Growth by Scott Migliori of Allianz Global Investors
Continued volatility in early 2012, but an increasingly accommodative monetary policy globally could jumpstart growthparticularly among export-driven companiesin the second half of the year. Energy and health care sectors stand out as likely outperformers.
2011-12-16 A Bad Year for Common Sense by Gerald Hwang of Matthews Asia
The phrase common sense can be a paradoxical concept in investment conversations. Seemingly imbued with a perverse, reverse meritocracy, the catchphrase appeals to investors as an intellectual leveler. It suggests, Let us think things through logically. Not only does this sound good, but what could be more egalitarian and humble? But when investment managers consider something to be common sense, be wary. We take a look at how common sense failed bond investors this year.
2011-12-16 Early Santa Arrival? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Stocks have continued their seesaw pattern around developments in the European debt crisis. The major indices remain in the wide range we've been in for the last two years. Factors are setting up for a potential break above that range in the coming year. Expectations about progress in Washington are extremely low and near-term the biggest issues are the proposed extensions of the payroll tax cut and unemployment insurance. The increasing populist rhetoric is not helpful and any chance of major debt-reducing legislation occurring before the 2012 election seems remote.
2011-12-13 Fed Policy Outlook Changes On The Way? by Scott Brown of Raymond James Equity Research
The Federal Open Market Committee will meet on Tuesday to set monetary policy. The Fed is widely expected to leave short-term interest rates unchanged and the wording of the economic assessment should be largely the same as in the previous statement. However, we could see another round of asset purchases or some changes to the Feds communications. The inflation outlook is moderate. It doesnt look like well see substantially higher inflation in 2012, but (barring a large negative shock to growth) were unlikely to see a threat of deflation.
2011-12-13 The Borrowing Has Finally Begun by Milton Ezrati of Lord Abbett
Since all the financial troubles began in 2008, the Fed has pumped massive amounts of liquidity into the economy: first to stem financial collapse, then to ameliorate the effects of the recession, and more recently to spur the all too sluggish recovery. For a long time, this liquidity remained bottled up in banks and other financial institutions, where it helped, but less than it otherwise might have. Now however liquidity seems to have begun to flow more generally, suggesting 1) that Fed policy is finally having its looked-for effect and 2) that in future, the economic climate will improve.
2011-12-12 One Step at a Time by Charles Lieberman of Advisors Capital Management
Rising profits and cheap valuations make stocks very attractive, but concerns over Europe will offset these solid domestic fundamentals, particularly when developments increase the risk of widespread credit defaults. So, volatility should remain high, as investors respond these events. Stock prices will move higher, but it will remain a roller coaster ride. As Europe resolves its finances, risks of a meltdown should fade and volatility should decline, clearing the way for stocks prices to move meaningfully higher.
2011-12-09 Emerging Markets Bonds and Currencies in an Uncertain World by Ignacio Sosa of PIMCO
Even if global risk deteriorates significantly, emerging markets may continue to offer compelling risk-adjusted return characteristics. Emerging markets external sovereign debt, along with receiving interest rates in higher-quality EM countries, could be the best relative performers. EM currencies would likely sell off sharply in risk-off periods but would also tend to rebound robustly when risk appetite returns. Several Asian currencies are likely to be the best relative performers. Emerging markets assets remain a risk asset class and will not be immune to waves of global jitters.
2011-12-09 Another Growth Engine by Michael Han of Matthews Asia
South Korea has long been an export-oriented economy; more than half its economy is still dependent on export-heavy industries such as shipbuilding, automotives and information technology. The governments supportive political sentiment toward exports is understandable since these industries have been South Koreas bread and butter ever since it began its transformation in the 1960s from one of Asias poorest countries. But Korea now needs to take a deeper look domestically, particularly in terms of its social welfare system.
2011-12-09 Obama Gets Real by Peter Schiff of Euro Pacific Capital
History has proven time-and-again that capitalism works and socialism does not. Taking money from the rich and redistributing it to the poor does not grow the economy. On the contrary, it reduces the incentives of both parties. It lowers savings, destroys capital, limits economic growth, and lowers living standards. Maybe Obama should take his eyes off the teleprompter long enough to read some American history. In fact, he could start by reading the Constitution that he swore an oath to uphold.
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 Buying Cyclical Stocks: Wisdom or Inexperience? by Bill Smead of Smead Capital Management
Buying cyclical stocks and emerging markets under the assumption that secular forces in emerging markets will nullify the cyclical nature of sectors like energy; mining and heavy machinery exposes investors to a great deal of risk and shows a lack of understanding. It would be better to wait for 3-5 years of poor performance in these stocks and until earnings have declined quite a bit before you buy. It is just the first monetary easing move after a year of tightening in China. Besides, China could be starting its first real contraction as a quasi-capitalist country.
2011-12-08 2012: A Gut Check for Global Markets by Andreas Utermann of Allianz Global Investors
We are clearly facing a significant slowdown in economic activity in 2012, but we do not expect most developed economies to fall into recession. However, growth risks are increasingparticularly in Europe, where a recession is becoming increasingly likely. We do not expect a return of deflationary fears despite weakening growth, nor is inflation likely to be a threat in the foreseeable future. We expect rates to come down further in the euro zone and emerging markets; in the U.S., U.K. and Japan, we expect extremely low interest rates to continue.
2011-12-07 More Thoughts on Europe, China, and the U.S. by Ron Muhlenkamp of Muhlenkamp & Co.
The reduction in the likelihood of a U.S. recession and the shift in stance of the Chinese Central Bank give us more confidence in buying companies we believe will do well going forward. Ongoing events in Europe continue to keep us a bit cautious. We continue to try to strike a reasonable balance between taking advantage of the investment opportunities we see and avoiding losses if events in Europe get worse.
2011-12-07 The Fed: Is QE3 Coming in January? by Gary D. Halbert of Halbert Wealth Management
For most of this year, rumors have continually swirled that the Fed was about to embark on yet a third round of Quantitative Easing. The rumors suggested, that the Fed would announce another $600 billion in asset purchases, primarily of long-dated Treasury bonds. While many of us argue that the first two rounds of QE have had little positive effect, the Obama administration and many others are urging the Fed to do more. The argument is that Europe is heading into a recession, and this cant help but weaken the US economy just ahead.
2011-12-07 Waiting for All In by Mark R. Kiesel of PIMCO
Without a more forceful and coordinated policy response, Europe now faces an increasing risk of a hard landing. In this uncertain environment, volatility will likely remain high, liquidity poor, risk premiums wide and the global economy fragile as financial and credit conditions tighten. Easier monetary policy as well as the potential for more balance sheet support from a larger consortium of global central banks is now needed over our cyclical horizon. If these actions are coordinated and timely, investors and risk takers would be more likely to move off the sidelines.
2011-12-06 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.
2011-12-05 Solid Improvement by Charles Lieberman of Advisors Capital Management
The latest employment report showed significant improvement. Job growth is still not strong enough, but the gains are sufficient for the expansion to continue without faltering, as long as the financial crisis in Europe is addressed. And finally, it appears that the Europeans are closer to resolving their debt issues.
2011-12-05 Year of the Living Dead Stock Market by Kristina Hooper of Allianz Global Investors
Stocks have been acting like a pack of zombies this year: wandering around aimlessly, frightening off everyone, but not really getting anywhere. However, recent data suggest an awakening.
2011-12-03 Schwab Market Perspective: Short-term PainLong-term Gain? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Markets have been under pressure as the crisis in Europe has recently intensified, providing the impetus for more aggressive action and an eventual resolution, including this week's coordinated central bank actions. Economic data in the United States continues to be largely better than expected. The supercommittee failed to come to a deficit reduction agreement. While markets expressed initial disappointment, their failure may end up being beneficial as it forces spending restraint. As the euro crisis has deepened, some steps have been taken but mostly address liquidity, not solvency.
2011-12-02 The Markets are Encouraged by the Actions of the Worlds Central Banks by Thomas S. White, Jr. of Thomas White International
Six of the worlds major central banks, led by the Federal Reserve, this week announced an expansion of a program to increase the availability of U.S. dollars to European banks and lower their cost of borrowing these funds. While this action was not designed to solve the central challenge the European governments are experiencing - the spiking interest rates they must pay when issuing their sovereign debt - it will likely calm the tangential problems this has caused within the European banking system.
2011-12-02 Are Stars Aligned for a Year-End Rally? by Frank Holmes of U.S. Global Investors
Correlations will decrease along with volatility as we get more clarity on the eurozone crisis and see signs of stability in the global economy. Volatility fell this week, with the CBOE Volatility Index (VIX) declining 20 percent. This could be related to the news that November U.S unemployment unexpectedly dropped to 8.6 percent, U.S. auto sales in November were the strongest in more than two years, and preliminary data on holiday retail sales appears to be strong. According to Bloomberg News, Black Friday sales hit a record high this year, with consumers spending $11.4 billion.
2011-12-01 On Money and Confidence by Andrew Foster of Seafarer Capital
At this moment, the worlds central banks have undertaken what appear to be coordinated efforts at relief, easing liquidity by boosting money supply. This is a welcome move, as liquidity has been strained. My concern is that while this monetary stimulus is necessary, it is not sufficient to achieve financial stability. Unless confidence is restored specifically, by repairing balance sheet solvency growth will remain tepid, and markets range-bound.
2011-11-29 Deja Vu? Eurozone Crisis Today vs. 2008 Subprime Crisis by Liz Ann Sonders of Charles Schwab
News flow on the eurozone debt crisis is speedy, and the latest news of a fiscal pact brings cheers by stock investors for now.
There are many similarities between the 2011 and 2008 crisesbut even more differences.
The end of the "Debt Supercycle" has ushered in a period of heightened risk and shortened economic/market cycles.
2011-11-29 Playing \'What If?\' with Oil Prices and a Potential Strike on Iranian Nuclear Facilities by Greg E. Sharenow of PIMCO
The impact of a major disruption in the supply of oil from Iran would depend on the IEAs intervention, the duration and the degree to which any attack might be a surprise. The market has less cushion than it did earlier this year due to production outages and relatively strong non-OECD demand, leading to sharp draws on inventories. Excess capacity is virtually exhausted and we doubt other OPEC nations would be able to compensate for a reduction in Iranian oil production. In light of these possible price spikes, investors should evaluate how their portfolios might be affected by inflation.
2011-11-26 With Rising Wages, Will China Remain a Manufacturing Hub? by Frank Holmes of U.S. Global Investors
In 2010, countries such as Hong Kong, Japan, South Korea and Germany depended on China for data processing, apparel, and iron and steel exports. Chinas largest import partners in 2010 were Japan, South Korea, the U.S., Germany and Australia. For those companies not already doing business in China, theres one dominant factor that shows they should start: the vast domestic market. Companies may be able to find a cheaper workforce in Bangladesh, India or Sri Lanka, but being located in China allows convenient access to what is rapidly becoming the worlds largest consumer market.
2011-11-23 We Are All Keynesians Now - Except Me by Paul Kasriel of Northern Trust
If you want federal debt reduction, you are going to get it Super-Committee "failure" or not. The recent debt-ceiling legislation calls for $1.0 trillion less-than-otherwise federal spending over the next 10 years.
2011-11-22 Europe Is in for a Long Recession by Paul Kasriel of Northern Trust
Collectively, the 27 sovereign nations that make up the EU most likely entered a recession this quarter. Given that the EU represents the largest economy in the world, a recession there is no small beer for the rest of the world. The Greek tragedy morphed into an Italian comedy. Now, it has become a French farce. The plot behind all of these theater forms is how an economy struggles when deprived of adequate bank credit. Although eurozone MFI credit is growing, its growth is much slower than it was prior to the global recession.
2011-11-22 Whether the U.K. is in the Euro or Not, We Are All in This Together by Mike Amey of PIMCO
Can the U.K. economy withstand a further sharp deterioration in the European debt crisis? The prospect of European recession, coupled with the U.K.'s program of tight fiscal policy, points to a challenging economic outlook for the U.K. A weak eurozone means weak export prospects at a time when the U.K. is trying to rebalance its economy towards greater exports. The U.K. economy has made great strides in stabilizing its banking system, but it is not yet in a position where it can withstand a systemic European crisis involving multiple defaults.
2011-11-21 Investment Outlook: November 2011 by Team of Aberdeen Asset Management
Financial crisis continues to dominate the political agenda: a credit crunch looms as Europes banks shrink balance sheets, growth momentum is diverging among different regions, investor focus on global fiscal policy will intensify in 2012 and abundant liquidity via central bank easing is likely to prevail for some time. Economic data has tended to surprise analysts over the last few weeks, encouraging the view that growth may not be as weak as some were predicting only a month ago. However the picture is very different among different regions around the world.
2011-11-16 Ben Bernanke: The Decider by Tony Crescenzi of PIMCO
Amid great economic stress, policymakers have missed many opportunities to improve the situation and better the lives of people.
The leadership void in the U.S. was illustrated by the dismal display of policy dysfunction that led the country to lose its AAA credit rating. European leaders have fared no better.
Ben Bernanke and the Fed, however, have demonstrated leadership. What is both remarkable and instructive for the outlook for monetary policy is how active the Fed remains even though it has reached the zero-bound for interest rates.
2011-11-16 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.
2011-11-14 Hokey Pokey by John P. Hussman of Hussman Funds
Sound monetary policy requires sound fiscal policy, coupled with a habit of the private sector to allocate resources productively so that the government isn't forced to compensate for bad decisions. That's where the global economy has failed.
2011-11-14 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.
2011-11-11 Off With Their Heads! by David Baccile of Sextant Investment Advisors
It is hard to know now whether deflationary or inflationary forces will prevail. But we dont have to know. I do not expect that central banks will be able to get monetary policy just right and so it is clear to me that the current environment of low, stable inflation around the world is going to be short lived. This outlook combined with the extremely low interest rate environment cause us to focus on the preservation of capital. Avoiding losses is very important now. With yields so low, offsetting or recouping any losses is very difficult and would take much longer than is typical.
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.
2011-11-08 Bill Gross' Revised Paradigm: The New Normal Minus by Robert Huebscher (Article)
Following the financial crisis of 2008, PIMCO articulated its 'new normal' forecast of slow growth and mediocre capital market returns. Appending the even drearier modifier 'minus' to that outlook, Bill Gross said that expectations now appear worse than even he previously feared. Gross was pessimistic in both the near and long terms, and he startled the audience with his premonition that 'capitalism is at risk.'
2011-11-08 Ignore Egan-Jones at Your Peril by Niels C. Jensen of Absolute Return Partners
The ink on the Greek rescue agreement has barely dried, and the feeling in financial markets is sombre yet again. However, investors have changed their focus away from Greece towards Italy - a change which could prove disastrous for the eurozone given the size of the Italian bond market. In this edition of The Absolute Return Letter we take a closer look at Italy's refinancing needs and suggest corporate bonds as an alternative to government bonds.
2011-11-07 Time to Raise the "Natural Rate" by Brian S. Wesbury and Robert Stein of First Trust Advisors
We think the jobless rate is headed down in the next few years and think it will decline a bit faster than the Fed believes. But the only way to get it down to 5.6% is to dramatically reduce the size of government or to push so much money into the economy that it artificially pushes unemployment below the natural rate. But that second method can only work for a short period of time. Eventually, a monetary policy loose enough to lower the unemployment rate that much would create a 1970s-style inflation. That would make todays inflation problem look minor in comparison.
2011-11-05 Fund Manager Interview by Nick Robinson of Aberdeen Asset Management
The popular perception of Latin America as a region of weak political systems and economies is changing. Prudent fiscal and monetary policies have helped many countries stabilize their economies. The region came through the recent credit crisis relatively unscathed. Good-quality companies trading at attractive valuations can be found in the region. A local presence helps bolster our research.
2011-11-04 Return of the Phillips Rule by Scott Minerd of Guggenheim
The U.S. remains the least-dirty shirt in the bag. In fact, its looking comparatively better all the time. In the stock market, I believe fundamental and seasonal factors could push the S&P 500 to new highs before the end of the year, despite the drama in Greece. The market has discounted some pretty nasty events that I dont believe will come to fruition. When more certainty comes, especially regarding events in Europe, investors will likely look back and wish they had paid more attention to fundamentals rather than emotions. On a historical basis, stocks are attractively valued.
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 Fed Fights for Relevance by Brad Sorensen of Charles Schwab
The Federal Reserve made no changes to their current course of action, but continue to leave the door open for additional measures.
The statement noted stronger economic activity in the third quarter and increased household spending but continued weakness in employment and housing.
Increasingly, it appears that the Fed is being pushed to the background, frustrating their attempts to get the economy moving and reduce the unemployment rate.
2011-11-02 Born in the USA: A Look at What Could Go Right by Liz Ann Sonders of Charles Schwab
The expectations bar has probably been set low enough to be easily hurdled as the big market rally may be indicating.
Not only is recession risk fading in the near term, a very positive longer-term story is emerging, even though very few are in tune (yet).
Investors have gotten used to digesting worst-case scenarios maybe it's time to ask what could go right.
2011-11-01 Feeling Better? by Scott Brown of Raymond James Equity Research
The European debt agreement puts the concerns about Greece off to the side for the present. However, its unclear exactly how much the European stabilization fund will be increased and how it will be financed. The agreement doesnt do much to head off potential problems for Italy and Spain. The government debt situation in the UK is worse than in Spain and Italy but borrowing costs for Spain and Italy are much higher. Thats because Spain and Italy do not have their own monetary policy. There is inherent fragility in the monetary union. TheECB and the EU will have to address this at some point.
2011-10-31 Pennies from Heaven by Bill Gross of PIMCO
Growth is the commodity that the world is short of at the moment.
Once interest rates inch close to zero and discounted future cash flows are elevated in price, it's difficult to generate much more return if economic growth doesn't follow.
Equity markets should be dominated by dividend yields and the return of capital via share buybacks, as opposed to growth.
In fixed income assets, we suggest that portfolios should avoid longer dated issues where inflation premiums dominate performance.
2011-10-28 How China Drives the Global Economy by Frank Holmes of U.S. Global Investors
The Chinese economy is not a bubble, but that does not mean a significant slowdown wouldnt affect the global economy, especially natural resources. This is because Chinas economic transformation over the past few decades has cast the country into the forefront of demand. PIRA Energy Group says that, in 1990, Chinas share of oil and GDP was less than 5 percent; its share of world energy was just under 10 percent. Since then, Chinas share of energy, GDP and oil has risen dramatically, with each expected to be approximately 28 percent, 21 percent and 16 percent, respectively, by 2025.
2011-10-27 Third Quarter Investment Commentary by Team of Litman Gregory
Since 2008, we have been in a period where macroeconomic forces are particularly influential and must inform our portfolio strategy. This quarter's developments in which we saw heightened concerns about a global economic slowdown, political gridlock, and serious concerns about shorter-term European and longer-term U.S. debt problems are consistent with the risk scenarios we've been discussing the past several years.
2011-10-27 Asia-Pacific Portfolio Committee Discusses Cyclical Outlook for Globe and Region by Robert Mead, Tomoya Masanao and Isaac Meng of PIMCO
China will likely focus more on rebalancing of the investment-focused domestic economy this time, rather than on reflating of the economy to engineer higher growth as it has done in 2008 to 2009.
Japans fiscal policy will need to be expansionary to facilitate reconstruction efforts.
We believe Australian government bonds have the potential to outperform U.S. Treasuries on a local currency basis, particularly in a left-tail global economic scenario.
2011-10-27 Eyes on the Prize by Richard Clarida of PIMCO
Before Nobel laureates Tom Sargent and Chris Sims developed their methods, economists and policymakers had no rigorous way to incorporate expectations into their statistical models.
There is a limit to forward guidances effectiveness, which is why the Fed has pursued other policy options since hitting the zero lower bound.
An uncanny correlation exists between the Feds preferred measure of the publics long-term inflation expectations and the timing or initial announcement of a quantitative easing or twist program.
2011-10-27 Salami Tactics by Andrew Bosomworth of PIMCO
Repeated attempts to solve the eurozone's sovereign crisis have failed, reflecting a coordination problem among its fiscal authorities and between the ECB and governments.
Markets will not return to supporting the eurozone as it stands, signaling the EMU's leaders to choose one of two solutions: downsize to a smaller, stronger group of countries or adopt a federation with political and fiscal union.
A comprehensive solution not only needs the right tools in place, but also requires a credible commitment with regard to sequencing and executing the long-term plan.
2011-10-25 Fed Outlook More Asset Purchases? by Scott Brown of Raymond James Equity Research
The Federal Open Market Committee, the Feds policymaking arm, will meet on November 2-3. Clearly, there are some differences of opinion among senior Fed officials regarding the appropriate path for monetary policy. However, the dissenters (those wanting to do less) are a small minority. The FOMC will come together with a somewhat less troublesome near-term economic outlook (no recession in the near term), but there are more concerns about growth in 2012.
2011-10-25 ASEANHow Different is it This Time? by Kenneth Lowe of Matthews Asia
ASEAN nations have recently seen increases in foreign ownership, and many show attractive demographics and the potential for strong economic growth. But with ASEAN nations having been a root cause and major casualty of crises past, investors may be asking: How sustainable is this? This month Kenneth Lowe, CFA, takes a look at how ASEAN got where it is today, and what challenges may still lie ahead.
2011-10-24 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
The Fed, and a majority of global state treasuries, have made the decision that keeping money inexpensive is at least one of the tools they can use both to sustain economic growth. This policy has been a boon to those with money, and a severe hindrance to those without. A vexing conundrum exists when monetary policy is designed to promote the flow of money into dynamic expansion but the spigot gets blocked because psychology and momentum are running in the opposite direction. In the meantime savings rates have nearly disappeared, along with whatever savings the losers in this game had.
2011-10-21 Global Equity OutlookFourth Quarter 2011 by Team of American Century Investments
In this edition of Weekly Market Update, presents the teams outlook for global equity markets, based on the latest research and discussions with companies from industries and countries across the economy and the globe. The team focuses on individual security selection, building portfolios from the bottom up, rather than making top-down judgments about the economy. In their view, economic trends matter to the extent that they relate to corporate earnings power. As a result, the outlook focuses on corporate earnings and other areas they deem important to successful global equity investing.
2011-10-21 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 Five Policy Prescriptions for Europe by Tom Fahey of Loomis Sayles
The European sovereign debt crisis is chronic. It can not be resolved until countries can demonstrate the ability to grow and improve their budget deficits. The immediate need is to stop Europe from hemorrhaging risk into the global financial markets. That can only be done by the ECB because it is Europes most effective and high profile euro-area institution and the banking systems only lender of last resort. Until the ECB steps up to commit sufficient liquidity, the overall septic conditions of European risk will likely continue to infect the global capital markets.
2011-10-19 U.S. Dollar and Euro - Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
With so many global dynamics playing out, and the worlds financial markets fixated on the political process (or lack thereof) in the Eurozone, driving market sentiment around the world, it may be a good time to take a deep breath, take a look back at where weve come from, and assess the likely implications going forward. Specifically, what are the implications for the U.S. dollar and currencies globally? With continued expansionary monetary policy here in the States, and lack of such policies elsewhere, the divergence in monetary policy is likely to further erode the U.S. dollar.
2011-10-19 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.
2011-10-19 Emerging Asia Pacific: Economic Review September 2011 by Team of Thomas White International
After battling inflation for over a year, many emerging Asia Pacific economies are now facing challenges over stimulating growth. A year of persistent monetary tightening in emerging Asia Pacific has unfortunately coincided with slowing growth prospects in the developed world. The U.S. and the European Union are the largest trading partners for many export-dependent emerging Asian economies like South Korea, Taiwan and even China. With economic growth slowing in the U.S. and the European Union, many emerging Asian nations are rightly worried about their export prospects.
2011-10-19 Developed Asia Pacific: Economic Review September 2011 by Team of Thomas White International
Developed Asia Pacific nations continued to face headwinds to growth in September. With factory output across the world slowing down to a trickle, major developed Asia Pacific economies ranging from Japan to New Zealand started witnessing pressure on their economic output. As exports still act as the backbone for many of Asias developed countries, a global decline in manufacturing is causing concerns. A slowdown in the U.S. and Europe also cast a shadow on the economic prospects for Asian nations.
2011-10-19 Americas: Economic Review September 2011 by Team of Thomas White International
Financial markets faced significant volatility as the global economic outlook weakened and concerns about the European crisis worsened. Markets in the Americas region were also affected by the erosion in investor confidence, though the developed markets in the region fared relatively better. Latin American currencies saw steep falls against the U.S. dollar, as the weaker economic outlook is expected to force the central banks to cut interest rates in the future, potentially reducing the relative attractiveness of these markets to global investors.
2011-10-19 Global Overview: October 2011 by Team of Thomas White International
Global financial markets have partly recovered from Septembers extensive price declines, helped by hopes of stability in the Euro-zone and moderately better economic data from major countries, including the U.S. Volatility in the currency markets has also eased somewhat after last months steep fall in international currencies against the U.S. dollar. Commodity prices have seen similar trends as well, though concerns about global demand persist. Monetary policy in major economies has seen significant shifts over the last month, as central banks have lowered their economic outlook.
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.
2011-10-15 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?
2011-10-12 Investing in an Environment of Extremes by David Kelly of J.P. Morgan Funds
The volatility of the last few months along with very negative headlines have caused a stream of assets to leave equity funds and move into cash and high-quality fixed income assets. However, this has left assets at extreme valuations. Indeed, by the end of the Q3, U.S. stocks were selling at lower prices than at the end of any quarter in 21 years. 10-year Treasury yields were running below the core year-over-year inflation rate for the first time in 31 years. Long-term investors may want to be somewhat over-weight in equities and under-weight in fixed income relative to a normal portfolio.
2011-10-12 Quarterly Review and Outlook by Team of Hoisington Investment Management
Negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012. Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income.
2011-10-11 Letters to the Editor by Various (Article)
A reader responds to Richard Vodra's article, The Energy Expert You Shouldn't Trust, which appeared last week. Another reader responds to Geoff Considine's article, Reexamining Bill Gross' Decision to Sell Treasury Bonds, which appeared on September 27.
2011-10-10 Talking Points for the "Occupy Wall Street" Protesters by John P. Hussman of Hussman Funds
The proper way to address the present economic imbalances is pursue policies that encourage the restructuring of bad debt, the allocation of public funds and private savings to productive investment and new research, the accumulation of education and labor skills ("human capital") to allow workers to capture a greater share of their own productivity, and the continuation of social safety nets to ease the economic adjustments that are necessary in a deleveraging economy. In my view this requires a number of steps which not everyone will like.
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 Third Quarter 2011 Market Commentary: This is Not 2008 by Robert Stimpson of Oak Associates
The discussion on how to contain the sovereign debt crisis torments the market, which would prefer a decisive solution administered by a powerful and determined financial authority. While stringing the situation along is painful in the near-term, it may actually allow other struggling countries in Europe time to right their budget problems and enact measured reform before bailout funds are required to force them to act. Regardless, an end to the debate will come and financial markets will recover. We intend to benefit from it.
2011-10-07 Bond Market Review and Outlook by Thomas Fahey of Loomis Sayles
Amid the ongoing debate, the financial markets are signaling a need for liquidity. Until Europe and the US are able to demonstrate economic growth, the financial markets are likely to remain skittish, leaving risk premiums high. In the interim, policy-makers will be in the spotlight. In our opinion, central banks should supply more liquidity on a global basis in this turbulent environment. We believe such intervention can help assuage the markets.
2011-10-06 Global Investment Outlook: October 2011 by Team of Aberdeen Asset Management
Global growth momentum continues to decline but is worst in Europe. Solvency of national governments and now banks is creating fears of a crisis. Coordinated policy action is key to stemming adverse market reaction. Although economic data has continued to demonstrate slower business activity, this is most obvious within Europe which has suffered from fiscal contraction as well as diminishing export demand from the emerging world. Unemployment levels remain elevated, and the reluctance to create new jobs is proving the Achilles heel of policymakers efforts to kick start private sector demand.
2011-10-05 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 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.
2011-09-30 The Fed's 'Twist' Turns into a Problem for Pensions, Insurers and Households by James Moore of PIMCO
In its attempt to stimulate borrowing by making long-term money cheap, the Fed has harmed large swaths of savers. A look at three groups in particular proves instructive: pension plans, life insurance companies, and households saving both inside and out of 401(k)s.
2011-09-30 Is a More Integrated Europe the Answer? by Andrew Goldberg and David M. Lebovitz of J.P. Morgan Funds
Germany has voted for an expanded EFSF to stabilize the European Sovereign debt crisis, an important step towards reducing near-term concerns. However, broader problems still loom. In recent weeks, mounting skepticism has exacerbated fears of recession in developed economies, sending risk assets plunging and volatility soaring. In the following update on the situation in Europe, well consider: The underlying issues plaguing Europe, A summary of steps taken to address them thus far, A look at possible next steps and solutions and a few thoughts on investing in such difficult times.
2011-09-29 PIMCO Cyclical Outlook: Growth Risks, Policy Polarization and Rethinking Returns by Saumil H. Parikh of PIMCO
Over the next 12 to 18 months, we expect the global economy to expand at a very modest real rate of 1% to 1.5%
Global imbalances have continued to rise in the post financial crisis environment, global leaders continue to fail in their policy coordination efforts, and deleveraging and reregulation continue to be critical over the course of our cyclical horizon.
We are transitioning into a world where we believe the incentives of policymakers and the divisiveness of politics will become the predominant drivers of investment returns and economics.
2011-09-28 With Apologies to James Carville, It's the Demand, Stupid by Paul Kasriel of Northern Trust
If there were more demand for goods and services in the economy, then corporations allegedly sitting on all that cash would start to use it. Our current weak economic growth is largely the result of inadequate aggregate demand for goods and services, not inadequate supply. And that is why I suggested a properly designed Federal Reserve quantitative easing could chum up aggregate demand until banks are able to create adequate amounts of credit on their own to get the job done. Monetary policy is all about affecting aggregate demand; fiscal policy is all about affecting aggregate supply.
2011-09-28 On Flexibility, and Why the World Needs More of It by Andrew Foster of Seafarer Capital
I hold no illusions about the gravity of the current sovereign crisis. The intractable nature of such large debts has sapped confidence. Most of Europe is saddled with unsustainable obligations, and a decade of fiscal profligacy has put the U.S. on a trajectory to match Europes worst. The West must put its fiscal house in order. All that stated, I want to be clear about what I view as our central problem today: the world is not growing fast enough. The challenge we face is, first and foremost, one of growth, and not necessarily one of debt.
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 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 Twist And Pout by Scott Brown of Raymond James Equity Research
As expected, the FOMC opted for Operation Twist, and will sell short-term Treasuries out of its portfolio and buy longer-term Treasuries. However, the size of the Feds operation was larger than anticipated and more out-the-curve, sending yields on long-term Treasuries tumbling sharply. In addition, to further aid the housing market, the FOMC voted to recycle is maturing mortgage-backed securities and agency debt back into mortgage-backed securities. So whats not to like? By themselves, the Feds latest moves arent going to lead to strong GDP growth anytime soon, but they should help.
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.
2011-09-23 All Eyes on Europe by Mark Kiesel of PIMCO
The longer policymakers wait, the more likely Europes financial crisis will deteriorate. The risk of a global liquidity trap has also increased as many healthy balance sheets around the world are also refusing to engage. Germany and other strong sovereign nations in Europe have to make a choice: continue to provide financial assistance to countries with more debt and assist in helping to restructure the debt of some European peripheral countries, or potentially move forward with a smaller, stronger group of countries-or at the extreme walk away from the Euro and the EU all together.
2011-09-22 Twist and Shout: The Fed, as Expected, Announced "Operation Twist" by Liz Ann Sonders of Charles Schwab
The Federal Reserve announced "Operation Twist," which was largely expected.
The goal is to further reduce borrowing costs and push money via lending out into the real economy.
Whether it will work is the big question because high interest rates are not the economy's problem.
Ultimately, confidence has to improve before we're likely to enjoy any reasonable pace of economic growth. Whether this move by the Fed starts the confidence-healing process remains to be seen. But we suggest you keep your expectations relatively low.
2011-09-21 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 Fed Policy Outlook Something, But What? by Scott Brown of Raymond James Equity Research
Fed policymakers meet this week at a critical juncture. Growth has slowed in the last few months no recession, but well below potential, leading to some softening in the labor market. Consumer price inflation has picked up in 2011 and August CPI figures were on the high side of expectations. In their public comments, Fed officials have been divided on the potential benefits and risks of additional policy accommodation. However, some action is expected on Wednesday. The only question is which tool the Fed will pull out of its kit.
2011-09-19 How to Prevent a Depression by Nouriel Roubini of Project Syndicate
The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers. The risks of an economic and financial crisis even worse than the previous one-now involving not just the private sector, but also near-insolvent sovereigns-are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a depression and financial meltdown? The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.
2011-09-19 Benjamin Strong and Milton Friedman - Ironically, Something in Common? by Paul Kasriel of Northern Trust
Had Milton Friedman not passed away in 2006 and were alive and writing today, he would be arguing forcefully in favor of continued Federal Reserve quantitative easing. Friedman argued that had Benjamin Strong been alive to influence Federal Reserve policy in 1930 and 1931, the recession of 1929 would not have degenerated into the Great Depression. If Milton Friedman were alive today to influence the current Federal Reserve monetary policy debate, the near stagnant economic environment we find ourselves in would not need to persist.
2011-09-19 No Recession, No Panic by Brian S. Wesbury and Robert Stein of First Trust Advisors
Online markets (at Intrade) put the odds of a recession in the next year at 40%. The consensus of economists (in a Wall Street Journal poll) has the odds of recession at one in three. These elevated fears are hitting consumer confidence, creating political pressures and causing volatility in financial markets. We think the actual odds of a recession are much lower than the consensus thinks. We place them at 20%, barely above the 15% that history tells us exists in any year.
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 An Analysis of the Obama Jobs Plan by Mark Zandi of Moodys Economy.Com
In the current political environment, it is less than likely that most of the presidents plan will pass Congress. Our current baseline outlook assumes that the payroll tax holiday for employees is extended for only one more year. There is a fighting chance that broader payroll tax cuts for employees and employers could become law, but the odds arent high enough at this time to change our baseline assumptions.
2011-09-15 More of the Same by Bob Rodriguez of First Pacific Advisors
What would it take for me to shift to a more optimistic longer term outlook? First, there should be a discussion and then implementation of real and substantive congressional budgetary reforms that have a standing in law. Without this change, a future congress can overturn any of the expenditure cuts that are voted on today but are not implemented until much later. With a congressional approval rating of 13%, the American public should demand nothing less because the Congress cannot be trusted. Both parties are equally responsible for the fiscal mess the nation faces.
2011-09-14 Obamas Jobs Speech, The Economy & The Fed by Gary D. Halbert of Halbert Wealth Management
Once again this week, there is a lot of news to cover. We begin with my thoughts on President Obamas latest jobs speech in which he asked for yet another almost $450 billion in stimulus which he said is paid for. That all depends on Congress passing a litany of new tax increases that Obama announced yesterday. Following that discussion, we will look at the latest economic reports, including the dreadful August unemployment report. Next, we will move on to the latest news from the Fed and what the FOMC may be up to at its upcoming monetary policy meeting on September 20-21.
2011-09-14 Asian Bonds Fund Manager Interview: A Misunderstood Opportunity by Team of Aberdeen Asset Management
Global investors remain under-invested to Asian bonds. Exposure is often made through global debt benchmarks; however, these benchmarks typically have low allocations to Asia, may not be particularly active, have allocations to less creditworthy countries and possess limited local currency exposure. Many investment opportunities in the Asian region have been overlooked. Asia provides a diverse set of markets and a broad set of country issuers across the credit spectrum, offering what we believe are good opportunities for investors to enhance portfolio yields.
2011-09-13 Extraordinary Measures Needed by Scott Brown of Raymond James Equity Research
While Fed officials appear to be divided the hawks are a minority. More monetary stimulus is coming but its unclear whether this will include another round of asset purchases or a lengthening of maturities in the Feds asset holdings. Looking at Europe, its difficult to quantify the probability of a banking crisis, the exit of one or more countries from the monetary union, or a complete breakup. The political environment is difficult in a different sort of way than in the U.S. Fiscal and monetary policy efforts in the U.S. may not lead to a strong recovery anytime soon, but at least we try.
2011-09-13 How the Government Can Create Jobs by Peter Schiff of Euro Pacific Capital
On Tuesday, September 13, Peter Schiff will testify before the House of Representatives Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending. The hearing entitled, "Take Two: The President's Proposal to Stimulate the Economy and Create Jobs" will examine federal job creation efforts. Mr. Schiff is well known for his views on how federal regulatory activism and irresponsible monetary and fiscal policy is actively destroying jobs in America. The following statement from Mr. Schiff will be read into the Congressional Record this morning.
2011-09-10 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.
2011-09-10 Preparing for a Credit Crisis by John Mauldin of Millennium Wave Advisors
This week we turn our eyes first to Europe and then the US, and ask about the possibility of a yet another credit crisis along the lines of late 2008. I then outline a few steps you might want to consider now rather than waiting until the middle of a crisis. It is possible we can avoid one but whether we do depends on the political leaders of the developed world making the difficult choices and doing what is necessary. And in either case, there are some areas of investing you clearly want to avoid. Finally, I turn to the weather and offer you a window into the coming seasons.
2011-09-09 Americas: Economic Review August 2011 by Team of Thomas White International
While markets have calmed after the anxiety caused by S&Ps downgrade of U.S. debt, economic indicators for most countries in the Americas region remain subdued. 2nd quarter growth declined for most countries and full year forecasts are being revised lower. The subdued global growth outlook has dulled the prospect for continued growth in export earnings while consumer spending in some of the larger economies is increasingly being restrained by higher interest rates and the heightened economic uncertainties. Nevertheless, inflationary risks have declined, except most notably in Brazil.
2011-09-09 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.
2011-09-09 Fed 'Twisting' Will Stimulate Economic Activity for Bond Traders by Paul Kasriel and Asha Bangalore of Northern Trust
The consensus view is that after adjourning from its September 20-21 meeting the FOMC will announce a plan to lengthen the maturity structure of its securities portfolio by increasing the proportion of longer-maturity securities in the portfolio.
2011-09-09 Schwab Market Perspective: What's Next? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
The economic debate continues between the recession and slow growth camps. We lean toward the latter but the argument may be just splitting hairs. The more important issue is what this sideways movement may mean for the market and jobs growth. There seems to be more disagreement among Fed members than we've ever publicly seen. Theyve laid out potential further stimulus but we believe their effects are likely to be limited. The European crisis continues to fester and some hard choices may need to be made sooner rather than later. Slowing European economies however, could help emerging markets.
2011-09-08 If Some Dare Call It Treason, Was Milton Friedman a Traitor? by Paul Kasriel of Northern Trust
The principal factor accounting for the current exceptionally weak economic recovery is not unusually high uncertainty, too burdensome regulation and taxation, excessive federal government spending and/or debt or a major structural change in the economy, but rather inadequate depository institution credit creation. The reason depository institutions are not creating normal amounts of credit is that they suffered enormous losses after the residential real estate bubble burst and they remain concerned about current and/or future capital adequacy.
2011-09-08 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 Emerging Asia Pacific: Economic Review August 2011 by Team of Thomas White International
Emerging markets across Asia experienced flagging equity prices as fears of a global slowdown, triggered by the downgrade of the U.S. sovereign credit rating and concerns over the debt crisis in Europe, gripped markets. Stock markets in some of the emerging Asian economies flirted with yearly lows. The Asian Tigers including South Korea, Hong Kong, Taiwan, Malaysia, and Thailand reported slower growth for the second quarter ended June 2011. Even China, the worlds second largest economy, reported headwinds to growth.
2011-09-08 Emerging Europe: Economic Review August 2011 by Team of Thomas White International
Economic growth in the Eastern European region faltered during the 2nd quarter. With this sputtering growth, the central banks are feeling pressured to reduce borrowing costs for consumers and businesses alike. Significantly, the economic recovery in the region is currently facing its most serious threat amid the burgeoning Euro-zone debt crisis and the recent downgrading of the U.S. credit rating. The woes of these former communist states are compounded further by the fact that most of these economies are dependent on their exports to the industrial powerhouse Germany.
2011-09-07 Helicopter Ben risks destroying credit creation by Bill Gross of PIMCO
The concept of showering money over national economies to combat deflation has been an accepted principle of monetarism for decades. A helicopter, however, is not your average aeroplane, and the usual laws of aerodynamics do not necessarily apply in all cases. Similarly monetary policy at the zero interest rate bound introduces a new dynamic that may conflict or even reverse standard logic that lower interest rates across the sovereign yield curve are everywhere and always stimulative to economic growth.
2011-09-07 More Readers Questions Answered by Mark Mobius of Franklin Templeton
We have begun to see signs that the overheated Chinese economy may moderate in the not-too-distant future. We believe that inflation in China could reach a peak in the near future as a result of the Chinese governments decision in July to increase pork supply by releasing a portion of their strategic pork reserves. By releasing more pork supply into the market, the government hopes to combat rising pork prices. That move, combined with an easing growth rate, could subsequently lead to the end of the central banks current tightening monetary policy cycle in the near term.
2011-09-06 An Imminent Downturn: Whom Will Our Leaders Defend? by John P. Hussman of Hussman Funds
The global economy is at a crossroad that demands a decision-whom will our leaders defend? One choice is to defend bondholders-existing owners of mismanaged banks unserviceable peripheral European debt, and lenders who misallocated capital by reaching for yield and fees by making mortgage loans to anyone with a pulse. Defending bondholders will require forced austerity in spending of already depressed economies, continued monetary distortions, and the use of public funds to recapitalize poor stewards of capital. It will do nothing for job creation, foreclosure reduction, or economic recovery.
2011-09-06 Its the Jobs, Stupid! Part VI by Komal Sri-Kumar of TCW Asset Management
The zero U.S. job growth also had an impact beyond its own borders. Even though U.S. markets were closed yesterday for the Labor Day holiday, Asian and European equity markets fell sharply on growing fears that the data release signaled the beginning of a U.S. recession. (Concerns about the solvency of the European banking system were the other reason for the market setback.) The United States and the European Union each account for about one-quarter of world GDP, and emerging markets cannot maintain global growth despite their faster pace of expansion.
2011-09-03 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 If Carlsberg Did Mortgages by Niels C. Jensen of Absolute Return Partners
The old world is drowning in debt. Governments are responding with austerity programmes and near zero interest rates but neither will work. Economic growth will be required to get the escalating debt under control, but policy makers need to dig deep into the tool box for different ideas as to how to create this growth. In this month's Absolute Return Letter we focus on one particular idea which will greatly benefit economic growth at no cost to the tax payer - reform the mortgage finance system across the world, using the model developed by the Danes over the past 200 years.
2011-08-31 1/2 Full: Not Throwing in Towel on Recession Probability by Liz Ann Sonders of Charles Schwab
Double-dip recession chatter is highly elevated, but I think we'll scrape by without one. Leading indexes are giving conflicting signals. Recession or not, growth will be weighed down by debt and lack of confidence. Let me state right up front that even though I'm not in the recession camp, risks that there will be one have risen markedly. A good deal of that risk relates to the breakdown in confidence triggered by the debt ceiling-related political antics, the subsequent downgrade of US debt by Standard & Poor's, the ongoing debt crisis in the eurozone and a highly volatile stock market.
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 Banks Lending at Last by Milton Ezrati of Lord Abbett
Amid the many signs of economic weakness, the recent rise in bank lending stands as a welcome contrary indicator. Policy makers at the Fed no doubt see the news as significant. Certainly, a willingness among banks to lend actively to companies and to individuals does much to build confidence that the economic expansion can continue. Bernanke has on many occasions identified bank lending as a crucial sign that past stimulative policy has gained traction. Growth in bank loans should give the Fed comfort about its past efforts to exercise patience with a QE3.
2011-08-29 What We Learned from Jackson Hole by Komal Sri-Kumar of TCW Asset Management
We heard about the frailty of developed economies on both sides of the Atlantic. However, Bernanke seemed to suggest eventual additional monetary measures, rather than recommend that structural reforms carry the bulk of adjustments in the U.S. economy. And while the head of the IMF pointed to the inadequate level of European bank capital compared with the size of the sovereign loan losses they may experience, she was not yet ready to recommend that the European powers undertake measures to reduce the level of debt. Simply put, we are nowhere near achieving a successful economic stabilization.
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.
2011-08-25 Perspective on the Fed, Inflation, and the Economy, as Well as Implications for Income Investors by Team of American Century Investments
The Fed recently took the unprecedented step of declaring their interest rate policy for the next two yearsthey will be holding their short-term rate target essentially at zero well into 2013. Well give our perspective on why the Fed has taken this unusual step, and what these policy decisions tell us about the state of the economy, inflation, and the bond market. Finally, well address potential solutions for income-oriented investors in todays environment of record-low bond yields.
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 Strategies for a Rising Rate Environment by Jayant Kumar of Fisher Francis Trees & Watts (Article)
Shortening the duration of a fixed-income portfolio is often considered the default option, but it is not the only way to hedge against a potential rise in interest rates. This article provides investors with a framework to analyze and implement a range of fixed-income strategies, and highlights various investment considerations that should carefully be taken into account.
2011-08-23 Whats A Central Banker To Do? by Scott Brown of Raymond James Equity Research
The Kansas City Feds annual monetary policy symposium in Jackson Hole, Wyoming is attended by central bankers from around the world. For U.S. investors, the focus will be on Bernankes speech on Friday 8/26. Many market participants are hoping for a repeat of last year, when the Fed Chairman signaled the possibility of a second round of asset purchases QE2. However, while the August 9 Federal Open Market Committee indicated that its members were discussing a range of policy tools to promote growth, the FOMC is unlikely to pull the trigger on another round of asset purchases anytime soon.
2011-08-23 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
A new political dynamic is overspreading the globe. It's a force not only of political will, but fiscal interests. It sets up a defensive, cash-only paradigm which favors no one but those who have capital. Ironically, this new renaissance is concentrated not in regions of vast wealth already, but in the more distressed areas of the globe. The implications are vast. Foreign investment in these regions in agriculture, water purification, industrial development, and manufacturing could prove to be the next revolution in capital spending that saves the markets and people in need at the same time.
2011-08-22 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.
2011-08-20 The Recession of 2011? by John Mauldin of Millennium Wave Advisors
If we are headed into recession, and I think we are, then the stock market has a long way to go to reach its next bottom, as do many risk assets. Income is going to be king, as well as cash. Well know several things. Recessions are by definition deflationary. Yields on bonds will go down, much further than the market thinks today. And while the Fed may decide to invoke QE3 to fight a deflation scare, the problem is not one of liquidity; it is a debt problem.
2011-08-19 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.
2011-08-17 The European Debt Crisis: Key points to consider by Tom Fahey & Ed Thaute of Loomis Sayles
A toxic combination of factors contributed to the recent selloff in risk assets and the sharp decline in German and US government bond yields. The lingering European sovereign debt crisis, exacerbated by political bickering, weak economic data and doubts about the potential effectiveness of monetary and fiscal policy tools, fed investor anxiety. Ever since Greece requested its first rescue package in May 2010, the European sovereign debt crisis has been simmeringwith occasional flare-ups.
2011-08-17 Our Take on the Current Market Tumult by Jon Quigley of Advanced Investment Partners
A headline sums up the markets action: its a sell first, ask questions later market as investors experience flashbacks to the 2007/2008 markets. Investors/markets dont like uncertainty and theyre getting political, economic and sovereign uncertainty in abundance. With the austerity discussions that are dominating US and Europe, there are increasing concerns about a double-dip recession even though positive economic signs are out there earnings, revenues, and a slightly better than expected jobs report.
2011-08-15 Emerging Europe: Economic Review July 2011 by Team of Thomas White International
The European Bank for Reconstruction and Development (EBRD) has sounded a cautionary note for the east European region after a new $229 billion aid package for Greece by the Euro-zone leaders was awarded in July. The bank, which was established to help the former communist states in their transition to market economies, said Eastern Europe and central Asia are at serious risk from the Euro-zone debt crisis, according to a news report published by Bloomberg. Still, the EBRD upped its economic forecast for the current year for the countries where it has investments.
2011-08-15 Emerging Asia Pacific: Economic Review July 2011 by Team of Thomas White International
China, India, Taiwan and Philippines and other Asian economies seeing inflation accelerate to new highs in June. In most of these countries higher fuel costs and food prices were the primary culprits. While large economies such as India and China hiked interest rates aggressively, many countries increased bank reserve ratios to drain excess liquidity and rein in credit growth. The lone exception to the inflation-ridden scenario in Asia was Indonesia. Indonesia has successfully navigated inflationary pressures by allowing its domestic currency to strengthen strongly.
2011-08-15 Developed Asia Pacific: Economic Review July 2011 by Team of Thomas White International
Reconstruction spending in some key countries in the region, like Japan and New Zealand, also played a key role in improving labor markets. In Australia, however, labor markets turned sour as job losses inched up during the quarter. Inflationary pressures have become acute in Singapore and Hong Kong mainly due to labor shortage and a relentless rise in property prices. Economies that depend on China for their export industries are worried about a weakening in the Chinese economy in the quarters ahead.
2011-08-15 Americas: Economic Review July 2011 by Team of Thomas White International
Second quarter economic growth was weaker than expected in the U.S.. Canada is also expected to report slower second quarter growth, but may regain some of the lost pace by the second half. Slower growth in the U.S. will likely have a restrictive effect on economic activity in Latin America, especially in Mexico and Colombia, which have relatively deeper economic ties with the U.S. For the resource exporters in the region, the expected decline in global demand growth for commodities and industrial material is likely to be a dampener.
2011-08-15 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 Two One-Way Lanes on the Road to Ruin by John P. Hussman of Hussman Funds
The reason we are facing a renewed economic downturn is that our policy makers never addressed the essential economic problem, the need for debt restructuring. There are two one-way lanes on the road to ruin, and these are unfortunately the only ones on the present policy map: 1) Policies aimed at distorting the financial markets by suffocating the yield on lower-risk investments, in an attempt to drive investors to accept risks that they would otherwise shun; 2) Policies aimed at defending bondholders and lenders who made bad loans, which they now seek to have bailed out at public expense.
2011-08-15 Return to Recession.or Recovery? by Liz Ann Sonders of Charles Schwab
Soft economic data has caused talk of a return to recession to grow, leading to a return to the risk-off trade and a spike in volatility. We believe these fears and the market reaction are overdone and indicators still point to growth, but risks are high. The chorus calling for a new quantitative easing (QE3) program from the Fed has grown. We believe it's unlikely at this point. The European debt crisis continues to damage investor confidence as policymakers appear to be consistently behind the curve. Meanwhile, the economic slowdown could ultimately help emerging markets.
2011-08-15 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.
2011-08-15 Intense Volatility Rattles Investor Confidence by Bob Doll of BlackRock Investment Management
We believe investors are overly pessimistic about the possibility of a renewed recession in the U.S. It is important to remember that equity markets have a poor track record as acting as predictors of recessions and corporate fundamentals remain strong. Since 1950, the U.S. has never entered a recession with corporate balance sheets as flush with cash as they currently are-at present, nonfinancial companies are holding cash in the amount of around 11% of their balance sheets, the highest level in over 60 years.
2011-08-15 The August 9 FOMC Decision - Ineffective at Best, Dangerous at Worst by Paul Kasriel of Northern Trust
The FOMCs decision to commit to holding its federal funds target in a range of zero to 25 basis points at least through mid 2013 strikes me as an ineffective way to accomplish one of its goals full employment of the labor force and potentially dangerous with regard to another of its goals stability in an index of goods/services prices. In my view, the Fed should abandon an interest-rate targeting approach to monetary policy. Rather, it should adopt a quantitative-targeting approach targeting the growth in the quantity of combined Federal Reserve and commercial bank credit.
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 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Historically, the most potent bull markets and vibrant economies are led by significant consumer demand and corporate capital expenditures. We know, today, that corporations are sitting on cash reserves and that consumer demand is lacking owing to confusion and concern about fiscal and monetary policy and governments direction. In addition, there has been a drastic decline in disposable household spending, shifting the burden to government intervention to keep production incentives viable.
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 Making Sense of the Markets by Team of Neuberger Berman
It is one thing to theorize about markets. It is quite another to invest. With that sentiment in mind, we offer a sampling of views from some of our portfolio managers across our firm who each independently form their own conclusions as to what to make of the market and how to position portfolios according to their respective investment disciplines.
2011-08-12 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 Ron Muhlenkamps Market Commentary by Ron Muhlenkamp of Muhlenkamp & Co.
Sovereign debt problems and the possibility of a European-led banking crisis are the focus of the markets, because effective action isnt being taken. You see this in the velocity of money, which has fallen dramatically, and the move into U.S. Treasury bills, bidding their prices up and creating the negative yield mentioned earlier. Banks are having difficulty making money on depositors funds so they are passing those costs along to their depositors. Yesterdays decline was accelerated by some margin calls on leveraged hedge funds, but the market is primarily concerned about Europe.
2011-08-11 US Treasury Downgrade by Brian Horrigan of Loomis Sayles
Given the nature of how the political system is handling the fiscal situation and the views of the rating agencies, I could make a strong case that there will be no downgrade by Moodys or Fitch before December 2011. But Treasurys are likely to remain on a negative outlook. I dont think that S&P will issue another downgrade this year. If Congress fails to follow through on recommendations from the Super Committee, we could get a downgrade from Moodys or Fitch. Congress has a strong incentive to implement the recommendations from them in order to help avoid automatic spending cuts.
2011-08-11 Saying No to Keynes and Fiscal Folly by Tony Crescenzi, Ben Emons and Lupin Rahman of PIMCO
Taxpayers have been hoodwinked into believing the cost from profligate government spending is low relative to the benefits.
The Keynesian revolution ignited a decades-long abuse of the core principle of Keynesian economics: for government to increase spending when private sector aggregate demand weakens and stymies job growth.
The central banker is left to shoulder the burden, seeking all the while to pressure the fiscal authority to amend the abuse of Keynesian economics and decades of fiscal folly.
2011-08-11 Saying No to Keynes and Fiscal Folly by Tony Crescenzi, Ben Emons and Lupin Rahman of PIMCO
Taxpayers have been hoodwinked into believing the cost from profligate government spending is low relative to the benefits.
The Keynesian revolution ignited a decades-long abuse of the core principle of Keynesian economics: for government to increase spending when private sector aggregate demand weakens and stymies job growth.
The central banker is left to shoulder the burden, seeking all the while to pressure the fiscal authority to amend the abuse of Keynesian economics and decades of fiscal folly.
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 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 Update on Global Economic Uncertainty by Team of Nomura Asset Management
Investors can afford to be less nervous in a market that has already declined significantly. Rather, we would recommend that investors should recognize the ability of these companies to generate earnings as well as their ability to sustain their dividends payments. Governments of all major developed and emerging countries have to deal with deteriorating economic forecasts, so until investor psychology calms down, patience may be needed. We will continue to monitor the changing investment environment and identify stocks that offer worthwhile investment opportunities.
2011-08-10 Crisis Averted, A Re-focusing On Prior Worries by Scott Brown of Raymond James Equity Research
Fiscal policy in the U.S. and abroad is going the wrong way, weakening the prospects for global growth. What about monetary policy? In the U.S., Fed policymakers meet this week. As Chairman Bernanke testified in mid-July, even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further. The Fed could provide more explicit guidance on how long short-term interest rate would remain low and how long the balance sheet would be maintained at its current elevated level.
2011-08-09 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 US Credit Rating Downgrade Q&A by Team of Loomis Sayles
Will foreign investors, who own almost half of US Treasurys, suddenly lose confidence in the US? We think not. The US is not the only nation struggling with a debt burden. But the US Treasury market is the largest, deepest, most liquid bond market in the world, by far. Investors may talk about diversifying their holdings away from the US dollar, but it is tough to execute. This is particularly true for countries who wish to maintain a fixed exchange rate or manipulate their currencies.
2011-08-08 Recession Warning, and the Proper Policy Response by John P. Hussman of Hussman Funds
As of Friday the S&P 500 was below its level of November 2010, when the Fed initiated its second round of quantitative easing. Aside from a brief bump in demand that kicked the recession can down the road a bit, the U.S. economy is not much better off. Meanwhile, countless individuals in developing countries have been injured by predictable commodity hoarding and global price instability. The Fed has leveraged its balance sheet by over 55-to-1. As policy makers look to address the abrupt deterioration in U.S. , we should ask ourselves: Do we really long for more of the Fed's recklessness?
2011-08-08 Why US of AA Matters by Niels C. Jensen of Absolute Return Partners
So what does it mean? Near term, other U.S. financial institutions (Fannie Mae? Freddie Mac? JP Morgan?) will be downgraded as a result - perhaps as early as today or tomorrow. Following that, if Standard & Poors wants to maintain whatever credibility it has left, it will probably have to downgrade a few sovereigns as well. France springs to mind; it is not far behind the US as far as profligacy is concerned, and it may prove difficult for Standard and Poors to justify the AAA rating it currently assigns to France.
2011-08-08 Budgets and Ratings by Charles Lieberman of Advisors Capital Management
Governments are increasingly being forced by markets to become more responsible. Thus, S&P's downgrading of U.S. debt from AAA to AA+ is more a reflection of market reality than a key event. The efforts by the U.S. and European governments to reduce budget deficits, an inherently political decision that reflects conflicting values on how much to cut spending and how much to raise taxes, not to mention which spending categories and which taxes, is a highly contentious battle, of course. Each side is fighting for what it believes.
2011-08-08 Everyone Forgot the Basic Laws of Economic by Richard Bernstein of Richard Bernstein Advisors
The consensus over the past month of so was that Washington would come to a last minute debt limit resolution and the equity markets would rally once the cloud of uncertainty regarding the US's finances was removed. Washington did come to its last minute resolution, but the markets have sold off. What happened?
2011-08-05 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 Markets Enter Correction Territory as Economic Concerns Set In by Bob Doll of BlackRock Investment Management
Two weeks ago, we did not think that stocks were expensive. Now, with markets lower by
10%, stocks are pricing in a more negative scenario than we expect. To us, this suggests
that the present market could represent an opportunity to accelerate moves out of cash
and Treasuries and into risk assets.
2011-08-03 The Equation of Wealth Destruction: Money + Emotion = Disaster by Scott Colyer of Advisors Asset Management
History is full examples of volatility in the markets and the affects of emotion on the creation and destruction of wealth. People have a false sense of faith in cash. Cash being made up of dollars tend to lose value over time. The loss is sometimes sneaky, but always in the form of lost purchasing power. The U.S. dollar as a fiat currency has for decades, provided a slow debasement of value for holders. At this time we see the largest hoard of cash on the balance sheets of corporations, banks and individuals in history. This seems worrisome at best and just plain stupid at worst.
2011-08-02 A Winning Endgame by Robert Huebscher (Article)
Reducing our nation's debt burden is no longer only the rallying cry of Tea Partiers and fiscal conservatives. As the debate over the debt ceiling proved, it is now the goal of the president and many fellow Democrats. John Mauldin and Jonathan Tepper's book, Endgame, published earlier this year, makes a compelling argument as to why reducing the deficit is so critical and why we face a long, slow and ultimately painful period of deleveraging. I will explain their thesis and then provide the counterargument.
2011-08-02 Russ K.s Market Calls | Developed & Emerging Markets by Russ Koesterich of iShares Blog
I started the year with a bias for developed market equities over emerging market equities. Year-to-date, developed equity markets have outperformed emerging markets by roughly 4%. I had two main reasons for favoring developed market equities. Emerging market equities looked expensive relative to their developed market counterparts and I felt that emerging market inflation would be a more persistent problem than the market was discounting. Now, however, these major rationales for broadly favoring developed markets no longer hold.
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 Continued Sluggish Economic Growth Expected Through 2012 by Asha Bangalore of Northern Trust
Bernanke indicated that the FOMC would be prepared to make monetary policy more accommodative if things do not improve. He emphasized the importance of the employment situation improving. Our forecast does not call for an acceleration in real GDP growth in the second half of 2011 nor does it call for a decline in the unemployment rate. Rather, we see the unemployment inching higher. Although we do not envision a meaningful risk of a contraction in indexes of consumer prices for goods and services in the next 12 months, we do envision continued declines in house prices.
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.
2011-07-21 Making the U.S. Dollar Safer: Return ON Your Money by Axel Merk of Merk Funds
Todays debate may be focused on whether the debt ceiling will be raised, but its tomorrows debate that really concerns us. Last week, Standard & Poors made it clear that raising the debt ceiling would be one thing, but in order to withhold a downgrade to the U.S. credit rating, the U.S. must show that it is not maxed out. In other words, show that it would be able to manage another crisis, or a potential war. What would be the implications of a credit downgrade? And what policies would need to be engaged in, in order to avert a downgrade and strengthen the U.S. dollar over the long-term?
2011-07-20 On Your Mind: Debt Ceiling and the US Dollar by Team of Charles Schwab
The uncertainty surrounding the upcoming decision on the debt ceiling has been a negative factor for the dollar. A US default and/or a downgrade of the US credit rating would almost certainly be negative also. It could weaken confidence in the dollar and cause it to fall. However, there are many global factors driving demand, including support of Japan and China, which continue to be large holders of US Treasuries. It would not be in their interest to sell dollar-denominated assets, including Treasuries, if there was simply a rating change or short-term default.
2011-07-20 How to Orchestrate an Orderly and Credible Restructuring of Greeces Debt by Myles Bradshaw of PIMCO
Identifying how much solvency relief Greece needs is complicated, not least because there is no magic debt ratio that is sustainable.
Identifying how much political capital might be bought in European Union creditor countries and beyond is more straightforward.
Contagion risks are positively correlated with any benefits Greece might experience from a potential restructuring.
2011-07-19 Global Overview: July 2011 by Team of Thomas White International
The most recent economic indicators suggest a moderation in global economic activity growth, and forecasts for the current year have been lowered. Manufacturing activity decelerated for the second successive month in June across most major economies, except the U.S. Even Japan, which was expected to bounce back, reported slower growth. Among the emerging economies, economies suggest a decline in the pace of expansion. Consumer sentiment has weakened across the developed world over concerns about income growth as the labor market slipped again in select countries, most notably in the U.S.
2011-07-18 Equity Investment Outlook by Team of Osterweis Capital Management
As evidence of a global economic slowdown accumulated, the stock market suffered a correction during the second quarter. This is hardly surprising given the market’s strong recovery from the depths of the 2008-2009 financial meltdown. After surging just over 100% from its low in March of 2009 and nearly 30% since August of just last year through the end of the first quarter 2011, the S&P 500 Index needed a breather. The 7% correction that occurred from the April high through the June low looks relatively modest to us in light of how far and how fast the market has rallied.
2011-07-18 Amid Crosscurrents, the Positives Outweigh the Negatives by Bob Doll of BlackRock Investment Management
In addition to heightened levels of unease over the sovereign debt crisis in Europe and escalating noise over the debt ceiling in the United States, market volatility has been driven by uneven economic data. While the economy is in a recovery mode, it is important to remember that recoveries that occur in the aftermath of financial crises tend to be bumpy and slow. If we were in the midst of a normal recovery, real US GDP growth should have averaged around 6% over the last two years. It has averaged less than half of that. For the first half of 2011 will have expanded at a less-than-2% pace.
2011-07-18 Looking Past a Weak Q2 by Brian S. Wesbury and Robert Stein of First Trust Advisors
While some economists are reducing their projections for second half growth, we remain confident in a relatively strong rebound from a weak first half. We forecast that real GDP will grow at a 4% to 4.5% average annual rate in Q3 and Q4 2011. Productivity is strong, monetary policy is loose and fiscal policy is getting no worse. Jobless claims are falling again and auto production is set to surge. In addition, with full expensing allowed for tax purposes this year, record levels of both profits and cash will fuel growth in business investment.
2011-07-16 Should You Bank on Turkey\'s Growth? by Frank Holmes of U.S. Global Investors
While much of Europe’s economy remains stuck in the mud, Turkey expanded 11 percent during the first quarter of 2011. In fact, Turkey’s economic growth outpaced China’s this quarter and most of the world’s larger economies last year, leading The Wall Street Journal to declare the country “Eurasia’s rising tiger.” Despite the acclaim, many investors have yet to warm up to Turkey. We’re not one of them.
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.
2011-07-14 Pacific Basin Market Overview – June 2011 by Team of Nomura Asset Management
Faced with the imminent withdrawal of the Fed’s QE2 policy, the ongoing sovereign debt woes in the Euro-zone, and concerns over a slowdown in China, the Asian equity markets were at best only able to range trade during the second quarter. The broad indices remained relatively flat, with the MSCI AC Asia Pacific Free Index declining by 0.50% while the MSCI AC Asia Pacific declined 0.87%. As the immediate concerns over the sovereign debt crisis in Europe subsided, a steady recovery in domestic production also helped to lift the Japanese market and trigger a late rebound in equity prices.
2011-07-14 The Brightening Air by Christian Thwaites of Sentinel Investments
A casual empiricist would conclude that the US economy is troubled: weak GNP, employment, housing and slowdowns in the important ISM and Fed surveys. But a longer perspective shows this is entirely in keeping with a recovery from a deep-seated financial and borrowing crisis. There are many signs that the US is picking itself up: manufacturing productivity, private sector job creation, corporate profitability and household deleveraging. Monetary policy has saved the economy from the insidious threat of deflation. Fiscal policy is meandering. Some of the answers are right in front of us.
2011-07-14 Three Competing Theories by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
While the massive budget deficits and the buildup of federal debt, if not addressed, may someday result in a substantial increase in interest rates, that day is not at hand. The U.S. economy is too fragile to sustain higher interest rates except for interim, transitory periods that have been recurring in recent years. As it stands, deflation is our largest concern, therefore we remain fully committed to the long end of the Treasury bond market.
2011-07-13 The Inflation Revival: Is it Time to Recalibrate Your Portfolio? by Richard Levine, Matthew Rubin and Tom Marthaler of Neuberger Berman
After a decades-long hiatus, inflation appears to be making a comeback. Clearly few anticipate a return to the days of the late 1970s and early 1980s when double-digit annual inflation gains were the norm. Still, the cumulative impact of inflation can be costly even during periods of modest price increases. According to Bloomberg $100 saved by the end of 1988 was “worth” only $56 by the end of 2009. Investors may wish to take into account such changes as they estimate the potential returns of their portfolios, and consider incorporating inflation hedges into their investment strategy.
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 Americas: Economic Review June 2011 by Team of Thomas White International
The economic growth outlook in the region has moderated, as both global demand and domestic consumption growth are slowing down. Consumers are less confident than earlier this year, public spending remains restricted due to continuing fiscal challenges, and businesses have become more cautious in their hiring and investment plans. Commodity and energy prices have corrected, while manufacturing activity growth has slowed down. Even in this environment, inflation risks remain significant in some of the large emerging economies where monetary policy is being tightened further.
2011-07-12 Emerging Asia Pacific: Economic Review June 2011 by Team of Thomas White International
Emerging Asia Pacific economies continued to be troubled by persistent inflation in June. Almost every country in the region had to either hike benchmark interest rates or bank reserve requirement ratios to rein in lending and credit growth. The monetary tightening effects are largely expected to make capital more expensive and this in turn is expected to crimp growth across many emerging markets. Inflation, which thus far has been more pronounced among food and fuel items, now seems to be spilling over to structural inputs like labor as well.
2011-07-12 Balancing Debt, Value and Earnings by James G. Tillar and Steve Wenstrup of Tillar-Wenstrup Advisors
The quarter was weak. If this is due to factors like the earthquake and high energy prices, the soft patch should end in the second half of 2011. However, even if this plays out, longer term headwinds remain. What has become clear is that we are in a period of suboptimal economic activity, despite aggressive fiscal and monetary policy. Almost all rich countries are still stuck with a toxic mix of modest growth, depressed housing markets, negative real interest rates, even more asset concentration at our financial institutions, and uncomfortably high unemployment and government deficits.
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 On Your Mind: Debt Ceiling and the US Dollar by Team of Charles Schwab
Theres been a lot of media attention on the US debt ceiling and the outlook for the US dollar. Here we'll answer some of the questions weve been receiving from clients. The US debt ceiling: What are the chances of the U.S. defaulting on its debt? Will the United States automatically default if the debt ceiling isnt raised? When can we expect a resolution? What will happen if the United States does default? What does this mean for investors? Outlook for the US dollar: Is there a risk of the dollar collapsing in the short term? Is the world going to abandon the dollar as a reserve currency?
2011-07-08 Bond Market Review & Outlook by Thomas Fahey & David W. Rolley of Loomis Sayles
We are experiencing a case of déjà vu with another economic soft patch and a Greek solvency crisis. We saw this movie in the spring and summer of 2010, but then we got a major policy response (a European bailout, QE2, and tax cuts) that helped lift us out of the doldrums. There is no major policy response coming in 2011. In fact, many countries are pursuing tighter macro policies by raising interest rates or cutting public spending to reduce swollen budget deficits. The European response to the sovereign debt crisis has been messy, and that has been a major contributor to the recent anxiety.
2011-07-07 Exit Interview: FDIC Chairman Sheila Bair by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we feature a conversation with FDIC Chairman Sheila Bair as she nears the end of her term. Bair has been in and out of public service for three decades, including working for Congress, the Treasury and lastly the FDIC. She spoke to IRA co-founder Chris Whalen before the July 4th break.
2011-07-05 The End of Currency Wars? by Richard Clarida of PIMCO
International capital is flowing to countries with good growth prospects and to countries with central banks confident enough to raise interest rates.
Certain nations are placing controls on capital or intervening in currency markets with an eye to maintaining economic competitiveness.
We see central banks in the U.S. and the U.K. winding down monetary stimulus that has exacerbated the situation. Also, we see potential for emerging market currencies to appreciate, and that may give developed nations a boost.
2011-07-05 Chutes and Ladders by John P. Hussman of Hussman Funds
We are all playing a game of Chutes and Ladders where it is not at all clear which game-board is applicable. To believe strongly in a certain investment outcome is to imagine that there is only one correct model of the world, and that the correct model is in hand. Investors appear very eager to apply post-war norms to the economy, and to apply the elevated valuation norms of the past two decades to the stock market. I doubt that these models represent the correct view of the world, but our approach is to allow for these possibilities and dozens of alternate ones.
2011-07-05 Hasta La Vista, Soft Patch by Brian S. Wesbury and Robert Stein of First Trust Advisors
The big report this week will be on employment for June, to be released early Friday morning. Private sector payrolls only expanded 83,000 in May. But, given the drop in unemployment claims, we think the job market re-accelerated in June. It’s no surprise to us that the Dow has now fully recovered back to where it was when the soft patch started to materialize. Despite the end of QE2, the economy is going to surprise the consensus to the upside. Monetary policy is loose, tax rates are relatively low, and the technological revolution continues.
2011-07-01 Schwab Market Perspective: Dealing with Debt by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Global governments are dealing with rolling debt crises equaling shaky investor confidence. We are concerned that many of the solutions weigh on growth prospects, but are hopeful about short-term resolutions that restore business confidence and lead to more investment and hiring. The Fed continues to hold steady, keeping short rates near zero and likely reinvesting maturing Treasury securities after QE2 ends. Greece passed the austerity package required to get short-term funding but much more is needed. And while the focus has been on Europe, it may be time to focus on the Asian region.
2011-07-01 Expert Roundtable on Interest Rates by Mark W. Riepe, Liz Ann Sonders, Kathy A. Jones, Rande Spiegelman & Brad Sorensen of Charles Schwab
US short-term interest rates have hovered near zero percent for a record period of time. The Fed has kept the funds rate extremely low, not only to boost economic growth, but also to ward off the threat of a deflationary spiral. Given the economy's recent soft patch, we don't expect the Fed to raise rates too soon. But, at some point rates will rise, it makes sense for clients to start planning now. With this in mind, Mark Riepe, led a roundtable discussion of investment and debt strategies for both the current low-interest rate environment and a future point when rates begin to tick up.
2011-06-30 Macroeconomics and Presidential Elections by Team of American Century Investments
It’s now just 16 months until our next presidential election. Republican candidates have already begun the long process of party debates and fund-raising efforts. President Obama wasted no time as well, launching his re-election campaign effort in March. This upcoming election will likely focus on the economy and involve major debates over taxation, spending, job creation and the fundamental role of the government in our economy. As a result, the election outcome could have significant consequences for the types of policies, incentives and legislation that will be pursued post-November 2012.
2011-06-30 Sunlight on U.S. Banks by Mark Kiesel of PIMCO
Among global banks, we believe U.S. banks are in a stronger position to absorb deterioration in the macroeconomic environment in Europe. U.S. banks also look attractive given their profitability, improving asset quality and capital position. Global banks vary dramatically in their asset quality and ability to meet capital requirements over time. As a result, we believe financial markets will continue to reward the strongest and safest banks and penalize the weakest. While we remain cautious on the U.S. housing market, U.S. banks appear to have the resources to manage further weakness.
2011-06-30 Thoughts on Rising Volatility by Russ Koesterich of BlackRock Investment Management
In a recent mid-year update to our 2011 outlook, we noted how equity market volatility is likely to rise further in light of continued near-term weak economic growth. Already, spring’s unusually placid markets have given way to heightened volatility. The most recent cause has been anxiety over Greece, but investors are not at a loss for things to worry about. This is a sharp departure from just eight weeks ago. In April, the VIX Index, which measures implied volatility on S&P 500 options, the “fear index” hit its lowest level since early 2007. Investors had a blindly optimistic world view.
2011-06-28 Smart Risk Taking: Realigning Client Portfolios with Their Long-Term Goals by American Century Investments (Article)
The financial crisis sparked widespread flight from risk. Although the crisis is over and equity prices have rebounded, many investors have not yet returned to the capital markets. For them, the safe-haven appeal of money market funds remains strong. In this paper, American Century Investments® proposes a strategy of "smart risk taking," an active asset management approach that seeks to identify, understand, manage, and be consistently rewarded for risk.
2011-06-28 The Fed Outlook: Uncertainty and Reluctance by Scott Brown of Raymond James Equity Research
The Federal Open Market Committee policy statement and Chairman Bernankes post-meeting press conference held few surprises. Monetary policy is still accommodativeand still on hold. Theres also apparently little will at the Fed to do more to help the recovery along. Fortunately for the Fed and the consumer, we can catch a break if oil prices continue to decline. The Fed lowered its GDP forecast for this year to a range of 2.7%-2.9%. In January, the Fed was expecting 3.4% to 3.9%. Growth has slowed due to temporary factors, still the Fed lowered it's outlook.
2011-06-27 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.
2011-06-27 Look For Improved Conditions in the Second Half of 2011 by Bob Doll of BlackRock Investment Management
Last week the Fed elected to keep interest rates on hold. The central bank has downgraded its assessment of US economic growth. The Fed did, however, underscore that the factors causing the weakness were mostly temporary, highlighting higher fuel and food prices and disruptions from the natural disasters this year. We are not expecting to see any near-term changes in the Feds position and we think there is virtually no chance of a QE3. Conversely, given a slow recovery and a subdued inflation outlook we are not expecting to see higher interest rates until at least mid-2012.
2011-06-24 The 3-D Hurricane and the New Normal by Jason Hsu of Research Affiliates
Debt, deficit, and demographics—the 3-D hurricane— is heading to the shores of all developed economies. It threatens to derail the economic recovery and to alter forever the heretofore path of robust growth for the developed world.Emerging economies with healthy government and household balance sheets, responsible fiscal policies, and young labor forces will be the drivers for global growth and will compete with their developed counterparts for economic and political leadership. More importantly, the emerging economies will demand their fair share in the consumption of resources and goods.
2011-06-23 U.S. Monetary Policy: A Case of Self-Induced Paralysis? by Paul Kasriel of Northern Trust
Part of the decreased real GDP growth/increased unemployment rate central-tendency forecasts for June vs. April can be attributed to supply interruptions from Japan and higher energy prices. But given the FOMC's assumption that the supply interruptions are dissipating and that energy prices are declining, this explanation does not apply to the reduced real GDP growth and unemployment rate central-tendency forecasts for 2012. I think the central-tendency forecasts for real GDP growth and the unemployment rate are optimistic for 2011 and 2012 in the absence of continued quantitative easing.
2011-06-23 The Disconnect Continues by Richard Bernstein of Richard Bernstein Advisors
BRIC yield curves are on the brink of inversion, while the US has the steepest yield curve in the world. Such signals, while certainly not infallible, have historically been reliable predictors of future equity returns, but investors’ portfolios nonetheless remain generally overweight emerging markets and underweight the US. We see opportunity in this disconnect.
2011-06-22 Japan Outlook – June 2011 by Team of Nomura Asset Management
Nomura’s forecast for Japan’s CY2012 real GDP growth is 3.2%, up from an expected rate for CY2011 real GDP growth of just 0.1%. Although there has been a temporary deterioration in Japanese economic indicators due to supply side constraints, such as capital stock damage, supply chain disruption, and electricity generating capacity shortfalls, we have already started to witness signs that these constraints are easing. The supply chain will return to normal this autumn, as production bases in the disaster-affected areas are restored or the users quickly switch to substitute components.
2011-06-22 Can U.K. CPI Really Get Back to Its 2% Target? by Mike Amey of PIMCO
U.K. CPI (Consumer Price Index) will likely continue to be buffeted by food and energy inflation. To generate the conditions necessary to bring inflation down more aggressively would put even greater pressure on U.K. households. The Bank of England is right to be cautious on raising the Bank rate given the current state of the economy.
2011-06-21 What Can The Fed Do? by Scott Brown of Raymond James Equity Research
Senior Fed officials meet next week amid what is widely seen as a slow patch in economic growth. A key question for investors, as well as for monetary policymakers, is whether this slowing will be temporary. Most likely, growth should pick up in the second half of the year. However, there are downside risks in the near term. Moreover, monetary policy appears to be handcuffed and fiscal policy is set to go in the wrong direction. The wide range of data have been consistent with a near-term slowing in economic activity.
2011-06-21 The World Held Hostage by Credit Default Swaps? Alford on the FOMC: Watch what they say by Team of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we feature a comment from Richard Alford on the state of thinking inside the Federal Open Market Committee regarding monetary policy -- at least based on what folks at the Fed say in public. We also comment on the latest financial bailout, in this case the apparent salvation of the European and US banks in the CDS market from taking a hit in the restructuring of Greece.
2011-06-21 The Currency Exchange Market by Frank Wei of FundQuest
The currency exchange market is a global market with a daily trading volume of nearly $4 trillion transpiring worldwide. However, it is also a very fragmented market with no central exchanges and with arguably the most diverse participants. While fundamental factors such as economic growth and interest rates determine long- and intermediate-term trends of the market, random, and even irrational short-term factors, play an already disproportionate and ever increasing significant role. Rigorous risk-control and trading disciplines are essential for active participants.
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 Investors Should Look Past Near-Term Risks by Bob Doll of BlackRock Investment Management
There is no shortage of things to worry about, an environment that has caused stocks to move in a sideways pattern for close to two months. Investor anxiety and market volatility levels will remain elevated for the time being. At some point, stock valuations will settle at a level where investors feel adequately compensated for the downside risks facing the market. We are retaining a constructive view toward the economy and the markets and we suspect such a valuation level is not too far away. Investors should view the current period of weakness as an opportunity to take on additional risk.
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 Could the Eurozone Break Up? by John Mauldin of Millennium Wave Advisors
If the euro is not going to fall sharply, if reducing unit labor cost takes too long to restore competitiveness and growth and if deflation is unfeasible or (if achieved) self-defeating, there is only one other way to restore competitiveness and growth: Leave the monetary union, go back to national currencies and thus achieve a massive nominal and real depreciation. After all, in all emerging market financial crises where growth was restored, a move to flexible exchange rates was necessary and unavoidable on top of official liquidity, austerity and reform and debt restructuring and reduction.
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.
2011-06-15 RMB Liberalization —What All the Excitement is About by Kenneth Lowe of Matthews Asia
Investors tend to be a fairly excitable bunch, always looking for the latest trends and themes to try to make a profit. But many trends have little relevance or impact over the longer term. During the past 12 months, one of those more “exciting” topics that have been discussed is the initial stages of renminbi (RMB) liberalization in Hong Kong—a concept that allows foreigners to get their hands on, and trade in, Chinese currency for the first time. But how excited should long-term investors be? A roundtable discussion among Matthews’ managers, on the same topic, is also included.
2011-06-15 The End of QEII: Gaining Clarity, Losing the Treasury’s Biggest Customer by Anthony J. Crescenzi and Ben Emons of PIMCO
The Fed’s policies and its fat balance sheet are playing a powerful role in shaping financial and economic conditions around the world. The drain of a single dollar from the financial system will signal a reversal of Fed policy and thus have a major bearing on financial conditions. Depending on the speed of the economic slowdown, the Fed could decide to keep a level of discretion over when and what will be reinvested in its portfolio.
2011-06-15 GOLDRelic or Real Money? by J Michael Martin of Financial Advantage
In the past 10 years, the price of one ounce of pure gold has risen from less than $300 to $1,500, far outpacing the return on stocks and bonds. And yet, in most gatherings of professional investors it is not respected. Why is that? What drives the price of gold, anyway? And is gold really an appropriate investment in the 21st century? We set out to better understand this unique metal. Well explore the reasons that some consider gold an important asset class with unique and valuable investment characteristics, while many professionals regard it as a sort of investment sideshow.
2011-06-14 The Consequences of Policy Failure by Michael Lewitt (Article)
Investment performance for the rest of the year will be determined by the macro-economic views of investment managers. While microeconomic factors are always extremely important in charting investment strategies, they are particularly important today as the U.S. and global economies continue to fight their way through the detritus of the global debt crisis. A compelling case can be made for weaker 2Q112 growth based on a combination of factors.
2011-06-14 Pacific Basin Market Overview by Team of Nomura Asset Management
Europe’s sovereign debt woes and inflation fears have plagued the Asian equity markets recently, sending indices lower during May. The eventual withdrawal of QE2 also became a real concern for the markets. Japan’s post disaster market downturn continued in May, but mainly due to negative international factors this time. Meanwhile, domestic concerns about the ongoing negative impact of supply-chain disruption on manufacturers’ earnings and the political disarray caused by a divided parliament and a weakened prime minister have continued to weigh on the market.
2011-06-14 Heartbreaker: Soft Patch Hits Stock Market by Liz Ann Sonders of Charles Schwab
We remain in the soft patch versus double-dip recession camp, believing a lot of the weaker growth has been from temporary factors.
Investor sentiment has become decidedly pessimistic… a contrarian positive for stocks.
Market breadth also shows the market at extremes typically followed by a bounce.
2011-06-13 How Strategic Deficit Reduction Could Spur Growth by Saumil H. Parikh of PIMCO
Much of the evolution of our secular economic outlook for advanced economies will depend upon the degree and success of structural policy changes. To date, few such policies have been implemented. We think the U.K. is implementing what is probably the best combination of fiscal and monetary policies to address deficit reduction with an eye to structural issues. In the U.S., we see great economic benefit from shifting some public spending from consumption to investment – for example, to the energy sector, where the U.S. has a large deficit vs. the rest of the world.
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 Developed Asia Pacific: Economic Review May 2011 by Team of Thomas White International
Developed Asia Pacific economies largely managed to boost output by leaning on exports in May. For some of the economies affected by natural disasters earlier this year, exports proved to be a blessing. Australia, which was affected by floods in February this year, not only managed to increase raw material exports but also gained by the investments associated with its export-oriented mining sector. Earthquake-hit New Zealand and Japan, however, faced difficulties in increasing output. New Zealand, which depends on food exports and tourism, suffered because of a strong domestic currency.
2011-06-13 Emerging Asia Pacific: Economic Review May 2011 by Team of Thomas White International
Aggressive interest rate hikes by emerging markets in the past twelve to eighteen months have started showing some results. Although food inflation in many emerging markets remains at elevated levels, the pace of inflation seemed to slow in some countries. Further, inflation expectations are expected to cool, primarily due to anticipation of record harvest of food grains in many countries. The threat from oil prices, which grew at a menacing pace during the first quarter of the year, also subsided a bit in May. Nonetheless, many central banks across Asia were cautious over monetary policy.
2011-06-10 Pause or Panic? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic data has deteriorated to the point that talk of a double dip recession has returned. The risk of another recession is low as most indicators remain well in expansion territory. Several factors are contributing to a soft patch, but a rebound is likely in the latter part of 2011. Along with talk of recession risk, chatter about the need for QE3 by the Fed has increased. The bar is quite high for QE3, but it is very likely the Fed will not let its balance sheet shrink in the near-term. Global growth is decelerating as well, with China tightening and Japan dealing with reconstruction.
2011-06-09 Bernanke - It\'s Complicated! by Axel Merk of Merk Funds
Get ready for more money to be printed – this time not to subsidize but to stem against the credit destruction caused by the Fed itself. Tuesday evening at the International Monetary Conference in Atlanta, J.P. Morgan CEO Jamie Dimon gave a list of changes that have already incurred, including: No more Special Investment Vehicles (SIVs). No more sub-prime, no more “Alt-A” mortgages. No more CDOs. Higher underwriting standards. On top of these changes, the Fed now wants to introduce 300 new regulations. Has anyone at the Fed studied what impact these regulations will have on credit?
2011-06-07 Is There a Guide for What May Trigger QE3? by Asha Bangalore of Northern Trust
The 'hurdle for QE3' is high. Discussion of the current U.S economy almost always includes mention of the Feds view that justification for QE3 is more stringent than QE2. We have been mulling this thought around for a few days and here is the checklist for what may trigger QE3. First, labor market conditions need to show a consistent improvement which suggests that the turnaround is durable. The requirements pertaining to the labor market could be summed up as: back-to-back declines in the unemployment rate, strong gains in payroll employment, and a declining trend of initial jobless claims.
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 The Federal Debt Limit, the Markets, and Taxes by Andy Friedman of Washington Update
Yesterday I appeared on CNBC Squawk Box to discuss the ongoing debate about raising the government borrowing limit. I made three points: 1. Congress is likely to enact meaningful deficit reduction legislation only upon the occurrence of an external "forcing event", such as the rating agencies downgrading U.S. debt or China slowing purchases due to concern about our fiscal situation.2. Government stimulus and QE2 contributed to the market run-up over the past few years. But this month -- for the first time in almost three years -- the economy must stand on its own, without any stimulus help
2011-06-06 Handicapping QE3 by John P. Hussman of Hussman Funds
As disappointing economic news mounted last week, the attention of market participants immediately turned to policy responses - will the Fed embark on QE3? In my view, there are three central questions relevant to this issue. The first is simply this: Has QE2 been successful in a way that the economy should desire more of it? The second: How much scope for intervention does the Fed have left? The third: Is Bernanke so invested in this attempt at balance-sheet expansion that he will push forward an extension of the policy despite its economic ineffectiveness and speculative distortions?
2011-06-06 David Kotok on Central Bank Credibility; Bob Eisenbeis: Did the Fed Print Money with QE? by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we republish a comment by Robert Eisenbeis, Chief Monetary Economist of Cumberland Advisers, "Did the Fed Print Money in QE1 and QE2?" Eisenbeis, who was Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta prior to joining Cumberland, corrects a puzzling comment on the Fed published last week in the Wall Street Journall by George Melloan. We assumed that Melloan and the Wall Street Journal editorial staff were aware of the rules of monetary quantum mechanics, but maybe not.
2011-06-06 Economic Rapture? by Brian S. Wesbury and Robert Stein of First Trust Advisors
Harold Camping predicted the "end of the world" on May 21st. Let’s imagine that the world really did end. Let’s imagine that we’re now living in an artificial world. Ben Bernanke is making the sun rise with monetary policy. Federal spending is generating oxygen and enormous increases in federal debt are making water. Everything seems relatively normal, but it’s all ultimately just a mirage, created by artificial means, and it can't last forever. This is an extreme example, but that's what it seems many believe about the economy today.
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.
2011-06-01 Buy Cheap Bonds with Safe Spread by Bill Gross of PIMCO
If the government is going to artificially repress yield, then focus on the parts of a bond that are less repressed! Rather than outright default, many countries attempt rather successfully to keep nominal interest rates lower than would otherwise prevail. Over the long term, this “financial repression” results in a transfer of wealth from savers to borrowers. Investors shouldn’t give their money away, and at the moment, the duration component of a bond portfolio comes close to doing just that – because it doesn’t yield enough relative to inflation.
2011-05-28 Schwab Market Perspective: Shifting Sentiment by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic headwinds are causing growth expectations to be reevaluated, resulting in choppier action in a majority of asset classes. The Fed is moving steadily closer to ending its purchases of Treasuries but we dont believe its a major event. Normalization of monetary policy still seems slow in coming, although we believe QE2 ending on schedule is nearly certain. Europe's debt crisis continues to plague the eurozone. Solutions appear to be limited and agreement is still anything but assured. Meanwhile, China's slowdown is also weighing on investors.
2011-05-27 Prediction Market Contracts on the Debt Ceiling and 2012 Elections by Team of Bespoke Investment Group
Everyone is following the debt ceiling story at the moment, and you can bet on whether and when Congress will approve its increase over at Intrade. While investors recognize the seriousness of the issue, Congressmen are unfortunately treating it as a political game. As we saw when Congress failed to pass TARP I, the market doesn't like political gameplay. At the moment, Intrade traders are putting the odds of a debt ceiling increase by the end of July at just 27%. Odds for an increase by the end of August are at 67%, and odds for an increase by the end of September are at 75%.
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 The Math Behind the Mortgage Interest Deduction by John Burns of John Burns Real Estate
In February, we handicapped a 75% chance that Congress would reduce the mortgage interest deduction, when consensus among our clients was only a 32% likelihood. Since Congress is getting closer to acting, we are publishing a free copy of our February 2011 report and circulating it around D.C. so we can help officials make an informed decision. The most likely scenario, a reduction in the principal balance of deductible mortgage debt to $500,000, raises only $5 billion per year for the IRS, with most of the pain being felt in a few high-priced markets.
2011-05-24 The WikiLeaks of the Economics Profession by Michael Edesess (Article)
What Caused the Financial Crisis presents the most comprehensive account I have seen of the regulations that, when considered as a whole, have incentivized unprecedented self-delusion and risk-taking in the subprime mortgage market. To put it in a manner that financial advisors will understand, the book shows that the policies and regulations greatly increased the Sharpe ratio of the financial industry - they increased the return for taking risk.
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.
2011-05-23 Fear of Uncertainty: Does QE2 = Y2K? by Charles Lieberman of Advisors Capital Management
QE2 was implemented because the slow pace of economic growth was generating new job growth too slowly to bring down unemployment at a satisfactory pace. Implicitly, QE3 was highly unlikely unless QE2 proved unsuccessful. And if QE2 proved a rousing success, there was a possibility of early termination. But by far, the likeliest outcome was that QE2 would contribute modestly to the recovery and it would end at the end of June. Market participants had every opportunity to monitor its progress and prepare for the end of Fed buying of market securities. There are no surprises here.
2011-05-23 One Small Step for Bernanke by Milton Ezrati of Lord Abbett
Fed has indicated its intention to let QE2 end as scheduled in June. This decision would mark the first designated step in the cautious program for policy change that Bernanke had previously outlined. If the Fed sticks with this plan it will take until early 2012 before policy makers will begin to increase market interest rates. Even at that last step, policy would remain easy as the Fed makes its gradual moves. The only difference is that the easing will gradually become less extreme. It will likely take until late 2012 or 2013 before American monetary policy even approaches restraint.
2011-05-23 Don't Sweat by Brian S. Wesbury and Robert Stein of First Trust Advisors
Some recent reports on the economy have been tepid and that’s likely to continue for at least a few more weeks. For example, back in early March the four-week average for initial unemployment claims hit a recovery low of 389,000; now they’re 439,000. Manufacturing production dropped the most in April for any month since the start of the recovery. Meanwhile, for May, we witnessed declines for both the Empire State index and Philly Fed index, which are measures of manufacturing activity in their regions. Both were still in positive territory but not as rapid as earlier this year.
2011-05-21 All for One Euro and One Euro for All? by John Mauldin of Millennium Wave Advisors
What Will the EU Do? Seriously, will Trichet really say “non” when they once again peer down at the abyss? He blinked last time. But if the desire is to acknowledge in private what they cannot say in public - that Greece should leave the eurozone and go back to the drachma - there is no better way than to not take Greek debt onto the ECB’s books. It is not a matter of whether Greece defaults, but when. It may be easier in the long run to clean up the mess they have now than continue to create even more debt that cannot be paid.
2011-05-20 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?
2011-05-17 Is Inflation in the Process of Peaking? by Chris Maxey of Fortigent
Investors turned away from the equity markets last week, as the S&P 500 Index fell 0.2% and the Dow Jones Industrial Average shed 0.3%. Stocks started the week in positive fashion, but an uptick in risk aversion on Wednesday weighed on markets. Market participants were caught off guard by unfavorable inflation statistics from China, a tightening of monetary policy in China and recent strength in the US dollar. At the beginning of May, the US dollar was nearing oversold territory and traders would likely capture profits in the weeks ahead. That is exactly what occurred.
2011-05-17 Inflation What Me Worry? by Scott Brown of Raymond James Equity Research
Despite rampant hysterics about "runaway inflation" in recent months, core inflation has remained at a moderate level, inflation expectations remain well-anchored, and there is little inflation pressure coming through the labor market. Is it time to declare victory? Not just yet, but the inflation outlook still does not appear to be particularly troublesome.
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.
2011-05-16 Ally Financial + ING Bank? Richard Alford on Lessons Forgotten at the Greenspan/Bernanke Fed by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst we feature a comment from Dick Alford on the lessons forgotten by the Fed when it comes to financial regulation. Showing his considerate nature, Dick even uses the official histories of past crises prepared by the FDIC as the timeline to make it easier for some of our former colleagues at the Fed to follow along. But first, let's have some fun with one of the toys developed for The IRA Bank Monitor, namely our pro forma M&A analysis tool.
2011-05-16 Public Policy Looking Better by Brian S. Wesbury and Robert Stein of First Trust Advisors
We think there are five (5) reasons to be bullish about the US economy. First, monetary policy is loose and likely to remain so. Second, the financial panic is over, thanks to the end of mark-to-market accounting rules. Third, technological advances continue to boost productivity growth. Fourth, our free market economy is incredibly resilient, more so than the pessimists believe. And fifth, the policy environment is improving. Despite what Bernanke might say (that quantitative easing lifted stock prices), we think the return in the S&P 500 has to do with a positive shift in government policy.
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 Market Turbulence Increasing by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
We are entering a traditionally tough period for the market and economic data has been raising questions about the sustainability of the recovery. While still optimistic on the longer-term outlook, there could be more choppiness in the near term as markets adjust to a changing environment. The Fed continues to buck the global trend by maintaining loose monetary policy, which contributed to a weaker dollar. But lately the dollar has gotten a lift as QE2 comes to an end, contributing to a rout in commodity prices.
2011-05-12 Pacific Basin Market Overview - April 2011 by Team of Nomura Asset Management
Equity markets in Asia continued to gain ground in April after a volatile first quarter of 2011. Stock markets ended higher as companies reported strong earnings, while expectations that inflation may have peaked out also helped to support market sentiment. Disruption to manufacturing industry supply-chains and ongoing problems surrounding the Fukushima nuclear power plant have continued to weigh on Japanese stock prices, although the market was able to stabilize from the massive sell-off that followed the Tohoku earthquake.
2011-05-11 Tough Love: Hawkish Contenders for Bank of Italy Governorship Line Up by Mark Willis, James Mason and Nouriel Roubini of Roubini Global Economics
Mario Draghi appears well-placed to succeed Jean-Claude Trichet as the president of the ECB in October, leading to speculation about who will replace him as governor of the Bank of Italy. Four names are floating around: Lorenzo Bini Smaghi, Vittorio Grilli, Fabrizio Saccomanni and Ignazio Visco, the deputy director general of the Bank of Italy. Eurozone horse trading could support Bini Smaghi, but domestic politics could help Grilli, and frequently new governors have been sourced from within the Bank of Italy.
2011-05-10 Inflation Field Manual: A Guide for a Changing World by American Century Investments (Article)
We examine the competing forces at work that will affect inflation. On the one hand, a whole host of factors are currently constraining inflation. On the other hand, US monetary and fiscal policies and a number of global economic imbalances suggest an environment of high and rising inflation. The outcome of this debate is important for financial assets, whose performance turns on the difference between expected and actual inflation-it is when inflation surprises to the upside that stocks and nominal bonds typically underperform and inflation-protected assets do best.
2011-05-10 And That’s The Week That Was … by Tom McIntyre of McIntyre, Freedman & Flynn
A spike down in commodity prices including oil and a jump in the dollar over European sovereign default worries combined to send the overall stock market lower last week. the Dow Jones Industrial Average fell 1.34% while the NASDAQ Composite.
2011-05-10 The Financial Impact of an Aging Demographic by Chris Maxey of Fortigent
A volatile week of trading resulted in the S&P 500 Index losing 1.7% and the Dow Jones Industrial Average falling 1.3%. However, those losses were tame relative to the rout experienced in commodity markets. According to the Wall Street Journal, crude oil dropped 14.7% last week, while the Dow Jones-UBS Commodity Index lost 9.1%. There was no single cause for the sudden risk aversion, but it appears that recognition of a slowing US economy, along with tighter monetary policy in developing economies, contributed to the renewed caution.
2011-05-10 Emerging Europe: Economic Review by Team of Thomas White International
The International Monetary Fund in its latest report observed that the economic recovery in Europe as a whole is proceeding modestly. However, the agency noted that the pace of growth varied substantially across countries in the region. The large emerging European economies in the region are performing at or above capacity, according to the agency. Preliminary data showed that the Euro-zone economy expanded at a better-than-expected pace in April, allaying concerns that the recent rate hike by the European Central Bank would strengthen the euro and slow down German export growth.
2011-05-10 Developed Europe: Economic Review April 2011 by Team of Thomas White International
A widely anticipated European Central Bank (ECB) rate hike and Portugal’s plea for a bailout in early April failed to dampen investor optimism surrounding the steady, albeit fragile recovery in Developed Europe. However, around mid-April, equity indices in the region did register a sharp fall in response to the news of another jump in the Euro-zone inflation rate, but recovered quickly to remain in an uptrend for the rest of the month. After recording its highest level for 28 months in February, inflation in the Euro-zone climbed further to 2.7 percent year-on-year in March.
2011-05-10 Emerging Asia Pacific: Economic Review April 2011 by Team of Thomas White International
Faced with persistent inflation, central banks across emerging Asian economies turned more active in the foreign exchange markets during April, aggressively raising interest rates. However, these actions have coincided with a loose monetary policy in the developed markets. Consequently, the investment capital, which typically chases high interest rates, continued to flow from the developed markets to emerging markets, pushing up the value of the currencies of emerging markets. To prevent a sudden appreciation of their respective currencies, central banks turned into buyers of the U.S. dollar.
2011-05-10 Americas: Economic Review April 2011 by Team of Thomas White International
Rising inflation remains the major policy concern across most economies in the Americas region and is attracting stronger policy responses, as energy and commodity prices remain elevated. While some of the Latin American countries continue with monetary policy tightening, Canada is widely expected to start hiking interest rates later this year. In the U.S., the Federal Reserve will end its quantitative easing program by the end of this quarter, though interest rate hikes are not expected until early next year.
2011-05-10 Developed Asia Pacific: Economic Review April 2011 by Team of Thomas White International
Developed Asia Pacific economies that were hit by natural disasters during the initial months of 2011 registered mixed economic performance with some countries in the group recovering faster even as other countries are still dealing with the aftermath of the crisis. While Japan, finalized a fiscal and monetary plan, investment-led growth was helping Australia recover from floods. New Zealand, which also suffered a devastating earthquake, showed a considerable rise in dairy exports. Other advanced economies continued to do well, although strong growth has been stoking inflation.
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.
2011-05-06 Watch Out Below! Commodities Falling Off the Cliff! by Scott Colyer of Advisors Asset Management
This week we have seen a huge sell-off in commodity prices. Silver is leading the way down posting another steep loss today. Some think the smart money is getting out even as the commodity exchanges are raising margin requirements. Is this the end of the “hard asset” commodity trade? I hardly think so. We believe that we are in a commodity “super-cycle” that has its foundation not in speculation or weakening currencies, but in a sharp rise in global demand. The weak dollar has merely exacerbated the move over the past couple of years as the Fed has embarked on very loose monetary policy.
2011-05-05 A Roadmap For The Coming Changes In Fed Policy by Will Denyer of GaveKal
Last week’s FOMC statement, and Bernanke’s first press conference, were predictably anticlimactic. But they did confirm what the FOMC plans to do this summer, and what they currently think should be the next steps thereafter. Based on this apparent plan, market participants would be right to assume that Fed policy will continue, well after QE2 ends in June, to weigh on the Dollar and support the already elevated Euro, commodity prices, commodity currencies, etc… In other words, the Fed’s telegraphed trajectory would continue to contribute to the world’s biggest macro risks today.
2011-05-04 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 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 Bernankes World And Ours Too by Scott Brown of Raymond James Equity Research
There were no fireworks at Bernankes first post-FOMC press briefing. All five Fed governors and 12 district bank presidents contributed revised forecasts of growth, unemployment, and inflation last week. The central tendency forecasts exclude the three highest and three lowest projections. Fed officials lowered their outlook for GDP growth this year, reflecting a slower than anticipated rate of growth in the first quarter. Unemployment is expected to decline gradually. Inflation will be higher this year, but the Fed continues to expect that commodity price pressures will be transitory.
2011-05-03 Financial Markets Offer Conflicting Opinions by Chris Maxey of Fortigent
Another week of encouraging corporate earnings reports allowed the equity market to continue its recent strong run. On the housing front, the disappointing streak continued. New home sales increased from a seasonally adjusted annual rate of 270,000 in February to 300,000 in March, according to the Department of Commerce. Although the gain was sizeable at 11.1%, new home sales are mired at abjectly low levels. Homebuyers are finding favorable opportunities in the form of distressed properties, reducing the chance of a significant rebound in new home sales in the months ahead.
2011-05-02 Schwab Market Perspective: Making Sense of a Mixed Bag by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Earnings season is winding down and is largely positive and CEO confidence is high. This points toward a continued improving labor outlook but could mean more grinding in the stock market. Housing remains moribund but the market seems to be largely dismissive. A ratings warning on US debt rattled the stock market but bond markets were relatively unmoved. Issues need to be addressed, but they are more likely to affect money flowing into the economy and highly unlikely to result in failure to pay obligations. Meanwhile, the Fed is striving to communicate more effectively-but about what?
2011-05-02 Extreme Conditions and Typical Outcomes by John P. Hussman of Hussman Funds
As of Friday, the S&P 500 has advanced to a point where it is either within 0.1% or fully through its top Bollinger band on virtually every horizon. We can define an "overvalued, overbought, overbullish, rising-yields syndrome" a number of ways. The more general the criteria, the better you capture historical instances that preceded abrupt market weakness, but the more you also encounter "false positives." Still, as long as the criteria capture the syndrome, we find that the average risk profile for subsequent market performance is negative, regardless of the subset of history you inspect.
2011-05-02 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
It looks to me as if some are confusing a market rally, an extension really, for an economic revival. The Fed Chairman declared last Wednesday that we are only half-way through a decade’s long process of recovery. The primary engines of capital gains today are price pressure, speculation, natural resources and inflation. It’s no wonder that Energy, Basic Materials, and Technology are in the vanguard, while “traditional” front-end engines of economic prosperity languish. At first blush this reveals that the consumer is not the driver of prosperity at this time.
2011-05-02 Equities Continue Their March Despite Rising Risks by Bob Doll of BlackRock Investment Management
Last week featured a rash of economic and earnings news as well as Federal Reserve Chairman Ben Bernankes historic press conference. All told, investors interpreted last weeks events positively, which helped stocks climb higher yet again. For the week, the Dow Jones Industrial Average climbed 2.4% to 12,811, the S&P 500 Index advanced 2.0% to 1,364 and the Nasdaq Composite climbed 1.9% to 2,874. With last weeks gains, several stock indices reached new all-time highs, while the S&P 500 Index reached its highest level since before the credit crisis erupted in the summer of 2008.
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 The Fed Terminates QE, We Lower our GDP Forecast by Asha Bangalore of Northern Trust
We have been putting a lot of emphasis on monetary financial institution (MFI) credit as a cyclical determinant of domestic demand for goods and services. We define MFI credit as the sum of the credit extended by the Fed, the commercial banking system, loan system and the credit union system. MFI credit is credit figuratively created “out of thin air.” There is a distinction between created credit and transfer credit. In the latter is transferred from the grantor of this credit to the recipient of credit. Transfer credit, then, is funded by the grantor by postponing some spending.
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 European Engines of Growth by Frank Holmes of U.S. Global Investors
Emerging countries in Europe are expected to outpace their developed counterparts over the next two years, with Latvia, Poland, Romania and Slovakia leading 2012 GDP growth, according to The World Bank. In its “EU10 Regular Economic Report,” the organization expects Romania to lead the way with 2012 GDP growth of 4.4 percent followed by Slovakia’s projected growth of 4.3 percent. Poland’s GDP is anticipated to grow by 4 percent this year and 4.2 percent next year. As domestic demand recovers, Latvia is set to produce a GDP of 4 percent by 2012.
2011-04-28 The Fed Meets the Press by Liz Ann Sonders of Charles Schwab
The Fed's meeting ended with no surprises on rates or outlook.
But the first-ever news conference added some clarity, context and transparency to the Fed's thinking.
The Fed has just begun its long process toward monetary policy normalization—and that's a good thing.
2011-04-27 QE3 on the Horizon? by Scott Colyer of Advisors Asset Management
Everyone is concerned about what happens when QE2 ends. On one side believes that when QE2 ends, long term interest rates on Treasuries will spike as the largest buyer exits the market. They believe that the Fed may be tempted to generate QE3 in order to continue try to keep interest rates down and keep the fragile economic recovery going. On the other side of the aisle, there are folks arguing that the yields on the Treasury bonds will drop even as the Fed exits and despite the fact that they are the largest holder of U.S. debt following a slowing U.S. economy during the first quarter.
2011-04-27 Turkey’s Shaky Foundations: Structural Deficit Underpinned by Volatile Capital Inflows by David Rogovic of Roubini Global Economics
In 2009, at the height of the global financial crisis, a reduction in capital inflows and domestic demand caused a narrowing of external imbalances across Europe. Now, as the region returns to growth and recovers from the crisis, Turkey stands out in terms of the size and speed at which its current account deficit is expected to grow. This is due in part to a more rapid recovery, but also to a shortfall of domestic savings relative to investment. The country is more reliant now than in previous episodes on short-term and historically more volatile foreign capital to finance the deficit.
2011-04-26 Republicans Draw Budget Battle Lines by Milton Ezrati of Lord Abbett
Now that the debate on the 2011 budget has largely run its course without the much-feared government shutdown, the more serious and substantive debate on the 2012 budget has begun. Though less suspenseful than the issues of 2011, the 2012 budget debate will determine basic fiscal directions in the United States for years to come. The Republicans recently offered their counter to the budget that the president unveiled some weeks ago. Having already examined the White House proposals, this third in Lord Abbett’s occasional series on fiscal issues takes up the Republican plans.
2011-04-26 The Libyan No Fly Zone Needs to be Extended to Ben Bernanke's Helicopter by Martin J. Pring of Pring Turner Capital Group
There has been a lot of talk about the excessive loose monetary policy coming out of the Federal Reserve. However, most of the arguments concerning the implications take the form of generalizations as opposed to quantifiable relationships. Our objective here is to show, through the historical relationship between short-term interest rates and the economy, that the Fed has been overly generous. Moreover, we will see that the data call for much higher industrial commodity prices before this cycle runs its course. In retrospect, they will make todays elevated levels look benign by comparison.
2011-04-26 The End of QEII: It’s Time to Make the Donuts by Tony Crescenzi, Ben Emons, Andrew Bosomworth and Lupin Rahman of PIMCO
With quantitative easing the Federal Reserve has in essence picked the pockets of Treasury bond investors throughout the world. Ultimately, the U.S. must own up to its past sins and let the deleveraging process play itself out. The U.S. must invest in its people, its land, and its infrastructure, as well as promote free trade, to achieve economic growth rates fast enough to justify consumption levels previously supported by debt.
2011-04-26 Are You Watching Your Brokered Deposits? Bob Eisenbeis: What's a Central Bank to Do? by Team of Institutional Risk Analyst
In this issue of The Institutional Risk Analyst, we feature a comment from Bob Eisenbeis, Chief Monetary Economist of Cumberland Advisors. Bob clearly states the obvious in his excellent analysis of the choices facing the Federal Open Market Committee, namely that the Fed continues to steer monetary policy based upon largely domestic factors, this even as the global role of the dollar creates dangers for the US and other nations as they flee the perils of deflation.
2011-04-25 Monetary Policy in 3-D by John P. Hussman of Hussman Funds
One of the most important factors likely to influence the financial markets over the coming year is the extreme stance of U.S. monetary policy and the instability that could result from either normalizing that stance, or failing to normalize it. It is not evident that quantitative easing, even at its present extremes, has altered real GDP by more than a fraction of 1%. Moreover, it's well established that the "wealth effect" from stock market changes is on the order of 0.03-0.05% in GDP for every 1% change in stock market value, and the impact tends to be transitory at that.
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
2011-04-21 Equity Investment Outlook by Team of Osterweis Capital Management
The bifurcation of the market, with small caps outperforming large caps, has led to a valuation disparity between overvalued small caps and undervalued large caps, which we believe can be profitably exploited. We, and others, have observed for some time that many excellent, growing large cap stocks are quite cheap relative to both the overall market and to more richly priced smaller companies. We expect that, over time, more investors will agree and large cap stocks may then begin to outperform the general market, as they have to a modest extent this year.
2011-04-21 In Tough Times, Remember All That Bonds Can Do by Tom Dalpiaz of Advisors Asset Management
These are tough times for bond investors. It’s not surprising that higher inflation and rising rates are becoming more of a focus. Economic growth continues to accumulate and oil and commodity prices are rising. Labor markets are showing some improvement and anticipation is growing concerning the eventual end of easy monetary policy. In times such as these, we typically see investors wring their hands about the comparatively meager total returns they expect from bonds going forward. This concern may cause them to inappropriately reduce their exposure to bonds or even abandon them altogether.
2011-04-20 Is Europe at the Tipping Point? Sol Sanders & Bill Alpert on Keynes, Keynesianism -- and Keynesianit by Team of Institutional Risk Analyst
With the world preparing for the collapse of the post-WWII, post-Bretton Woods economic order, we thought it might be useful to look at what Keynes actually said. We depart from our optimism due to the situation in Europe. Forget the threat of a ratings downgrade by S&P, Washington on debt ceilings or our part-time POTUS, the final collapse of the southern states of Europe is accelerating. Most banks in the EU are insolvent and the states supposedly backing them cannot access the global markets. The collapse of the EU bank bailout effort could be the next catalyst for global contagion.
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 Emerging Europe: Economic Review March 2011 by Team of Thomas White International
Upbeat forecasts from the European Commission as well as stable financial and economic conditions in European economies indicated that the recovery is on track in the region despite the tragic developments in Japan, increasing oil prices, and the continuing political unrest in the MENA region. Equity markets also seem to be signaling that the sustained pace of global economic recovery will offset these developments. The decision by seventeen Euro governments to strengthen the €440 billion rescue fund and to lower interest rates on Greece’s bailout helped allay fears of a lingering debt crisis.
2011-04-19 The Reserve Currency and the S&P Warning by Team of GaveKal
Back in May 2009, S&P placed its AAA rating for the UK on negative watch for a possible downgrade, in effect putting the UK government on notice that its proposed policy path was unsustainable. Then in October 2010, after the UK took aggressive deficit-slashing measures, S&P revised the UK outlook from negative to stable and maintained the country’s AAA rating (see p. 2). Yesterday, S&P similarly placed the US government on notice with the same warning and equal odds (one in three) of a downgrade, even if this downgrade is unlikely to be realized until after the 2012 election.
2011-04-19 Emerging Asia Pacific: Economic Review March 2011 by Team of Thomas White International
Inflation continued to be the watchword for the emerging Asia Pacific economies in March. The world’s second largest economy, China, has slowly but firmly gained control over its banks, whose relentless lending had stoked inflation. Consequently, fears about excess inflation affecting China’s economy are expected to come down over the next few months. However, worries over the damage done to Japan by an earthquake could affect a number of export-based emerging economies in the Asia Pacific region. In other emerging Asian economies, monetary tightening continued at an accelerated pace.
2011-04-19 Developed Asia Pacific: Economic Review March 2011 by Team of Thomas White International
During March, most developed Asian economies faced headwinds to export growth. Continued efforts to tighten credit in China, inflationary pressures and strengthening currencies were some of the factors affecting export growth across many developed Asian economies. However, a devastating earthquake that struck Japan in early March disrupted supply chains across Asia. Japan, which accounts for 9 percent of the worlds GDP, plays a crucial role in the functioning of the global auto and electronics industry. It is estimated that Japan will require another 2-4 quarters to recoup the losses suffered.
2011-04-19 Middle East/Africa: Economic Review March 2011 by Team of Thomas White International
The turmoil in the Middle East region continues, with Libya exploding into civil war, and troops from the Gulf Cooperation Council being called in to suppress the protests in Bahrain. In terms of the economic repercussions, stock markets in the MENA are estimated to have lost around $140 billion in market capitalization during the last month. According to the Arab Monetary Fund, the market capitalization of 16 Arab bourses was valued at $862 billion on March 4, compared with $1.002 billion on January 25, a day before the political crisis in Egypt triggered upheaval across the Middle East.
2011-04-18 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Acknowledging that all market activity is cyclical, not linear, I am often amused at the reaction by investors to each day’s trading results and the media commentary that follows. I am often asked by the media to characterize a market’s daily events, as if one might create a justification for volatility out of context. I view this day-after commentary as specious, at best. It takes days/weeks/years for real trends to evolve. In my methodology and study of the market it is most often these secular, or generational, themes that most resonate upon asset allocation and equity selection.
2011-04-16 Inside Information by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Earnings season gives an 'insider' look at economic growth. Businesses see and react to changes in the economy before the broader macro data show a clear trend. The Fed has floated some trial balloons about reining in its extremely accommodative policies, the time for which is overdue. Budget issues remain a problem at all levels of government, but likely wont derail the recovery at this time. Despite ongoing debt problems in peripheral European nations, the ECB hiked interest rates. Europe still faces significant issues that make it more likely to underperform other areas of the world.
2011-04-15 Is the US Headed for a Japanese-Style Deflation? by Daphne Gu of FundQuest
The Great Recession of 2008 ended in June 2009. However, for the majority of 2010, the market was directionless, mired with shocks from European sovereign debt and mixed economic indicators. Inflationary concerns, born of massive liquidity from monetary authorities of the developed world, drove real assets to sky-high levels. Conversely, the traditionally lagging indicator of unemployment, sitting near 9%, has increasingly become a leading indicator of the broad market. Thus, many investors are pondering the possibility that the US might be on the path to a Japanese-style deflation scenario.
2011-04-15 Concerned About Inflation? by Brad Sorensen of Charles Schwab
Inflation has become a bigger topic of discussion among investors and in the media as of late. While we have noted in numerous publications that we don’t believe inflation is a near-term concern due to a number of factors, investors are wondering how to position themselves should inflation start to take hold. First, despite common perception, gold has not historically been a very good hedge against inflation. Due to the possibility of gold prices being a bit extended after the recent run, we don't recommend gold as an investment for those concerned about inflation.
2011-04-14 Why the Doves of the FOMC Have an Advantage at the April FOMC Meeting by Asha Bangalore of Northern Trust
There are differences of opinion among members of the FOMC that have emerged in speeches of several Fed officials in recent weeks. A line is being drawn between those who favor the Fed's current accommodative monetary policy and those who are supportive of policy actions to curb demand and contain future inflationary pressures. Based on evidence present here, the doves appear to have a strong advantage at the April 26-27 FOMC meeting to stay the course and complete the $600 billion asset purchase and watch the evolution of economic conditions.
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 Seizing The Narrative by Scott Brown of Raymond James Equity Research
Later this month, Bernanke will hold his first post-FOMC press conference. The press conference is meant to present the Federal Open Market Committee's current economic projections and to provide additional context for the FOMC's policy decisions. The real goal is to reclaim the narrative. The Fed was caught off guard by the criticism and second guessing it received in 2010. These press conferences should help clear things up regarding monetary policy not that well receive clear signals of future Fed policy moves rather, well get information on how the Fed will decide what to do.
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."
2011-04-11 Charles Plosser and the 50% Contraction in the Fed\'s Balance Sheet by John P. Hussman of Hussman Funds
Last week, an unusual event happened in the money markets that should not escape the attention of investors. The yield on 3-month Treasury bills plunged to less than 5 basis points. As I noted this past January in Sixteen Cents: Pushing the Unstable Limits of Monetary Policy, a collapse in short-term yields to nearly zero is a predictable outcome of QE2, based on the very robust historical relationship between short-term interest rates and the amount of cash and bank reserves (monetary base) that people are willing to hold per dollar of nominal GDP.
2011-04-11 Bond Market Review & Outlook by Thomas Fahey, Teri L. Mason and David W. Rolley of Loomis Sayles
The power of easy money policy to dampen volatility is evident in the global bond markets. There has not been any systemic credit spread widening or major jump in risk aversion on the back of the significant political upheaval or natural disaster. The collective investor conclusion seems to be that the impact of the losses will not derail global growth, and Japanese reconstruction may even contribute to it later this year. Specifically, Chinese growth still looks on track for a strong year, and labor markets in the US have at last begun to show something like a normal recovery.
2011-04-09 The Curve in the Road by John Mauldin of Millennium Wave Advisors
We have chosen deliberately to take the inflation road. We have not traveled that road for some time. The Fed may think they know what is around the curve and what to do if inflation comes back, but no two crises are the same. I worry about these things. If the Fed and the US government wanted a weaker dollar, the return of inflation, and the potential for yet another boom-bust, they could not have designed better policies than the ones they’re pursuing.
2011-04-08 Anchors Away? by Richard Clarida of PIMCO
Public expectations of future inflation are an important determinant of actual inflation. We really don’t know if longer-term inflation expectations are well anchored. We just know they tend to adjust slowly to actual inflation. The substantial economic costs of bringing down high inflation are largely due to the need to bring down inflation expectations. Most central banks that recently enacted unconventional monetary policies are seeking to exit from them.
2011-04-07 ECB Takes Away Punch Bowl by Axel Merk of Merk Funds
Today, the European Central Bank raised its main refinancing rate by 0.25% to 1.25%. ECB President Trichet has long argued that its monetary policy is independent of the "extraordinary measures" put in place to support the financial system. However, it was only earlier this year that the market took Trichet's suggestions that he may raise rates seriously, even as the sovereign debt crisis remains unresolved. The role of a central bank is to take away the punch bowl when necessary, to pursue its mandate, not to be a cheerleader.
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.
2011-04-05 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 When Doves Cry: Debates Rage About QE2's Finale by Liz Ann Sonders of Charles Schwab
Will the Federal Reserve's quantitative easing (QE2) pull into the dry dock in June as intended? If so, what are the implications for stock and bond investors? Might the Fed begin tightening policy before many think?
2011-04-05 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.
2011-04-04 The Taylor Rule Is Wrong by Brian S. Wesbury and Robert Stein of First Trust Advisors
The working hypothesis of just about every forecaster or Fed-watcher in the world has been that the Fed would not tighten at all until 2012. That meant no interest rate hikes this year. And to avoid putting on any brakes at all, the Fed would even think about QE-III. But this view is now coming under fire, not just from the private sector, but from inside the Fed itself. Stronger gains in employment, along with some relatively hot inflation reports have pushed many regional Fed presidents to make hawkish statements.
2011-04-04 Core Incompetency by Michael Pento of Euro Pacific Capital
For years the Federal Reserve has told us that in order to detect inflation in the economy it is important to separate “signal from noise” by focusing on “core” inflation statistics, which exclude changes in food and energy prices. Because food and energy figure so prominently into consumer spending, this maneuver is not without controversy. But the Fed counters the criticism by pointing to the apparent volatility of the broader “headline” inflation figure, which includes food and energy. The Fed tells us that the danger lies in making a monetary policy mistake based on unreliable statistics.
2011-04-02 Above the Fray by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Attacks on Libya and recovery efforts in Japan have dominated the headlines, but behind the scenes US economic growth remains solid and we remain optimistic on the stock market. Commodity prices have backed off a bit and the Fed is likely to see QE2 through to its June 2011 end. Of particular concern is the unwillingness or inability for Congress to agree on a budget that addresses the growing deficit issues in the US. Japan has a significant debt burden with which to deal as it rebuilds, while Europe is struggling to come up with a comprehensive plan to deal with the eurozone debt crisis.
2011-04-02 Expert Roundtable on Inflation: Should You Be Worried? by Mark W. Riepe, Liz Ann Sonders, Rob Williams, Michael Iachini & Brad Sorensen of Charles Schwab
Inflation is a rise in the general level of prices of goods and services; your money buys less. With oil and other commodity prices rising, the Federal Reserve's current easy monetary policy and the economy picking up, many investors are worried about inflation. Mark Riepe, head of Financial Research and president of Charles Schwab Investment Advisory, led a roundtable discussing why Wall and Main Street may have different perspectives on inflation. The roundtable also covers our inflation outlook, ways to protect your investments and inflation-savvy investments you might want to consider.
2011-04-01 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.
2011-03-30 Andrew Balls Discusses PIMCO’s European Cyclical Outlook by Andrew Balls of PIMCO
Europe’s outlook hinges on limiting contagion from the most troubled peripheral countries. The European Central Bank has signaled its intentions to start tightening, which could complicate the outlook for the more distressed countries. We think the Bank of England will begin to tighten rates over the summer. The UK outlook depends on the impact of fiscal tightening.
2011-03-30 “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 Inflation versus Deflation: Two Experts Disagree by Robert Huebscher (Article)
An important question for all investors is whether low inflation rates will persist or whether the economy is heading toward much higher inflation. The answer to that question will dictate asset class allocations, portfolio construction and ultimately the rates of return investors should expect.
2011-03-29 Tilting Toward Energy by Brad Sorensen of Charles Schwab
Despite dramatic current events impacting markets, tactical shifts to your energy-sector allocation could add a small performance boost over the next several months. Volatility will likely remain elevated as events unfold in the Middle East and recovery continues from the devastating disaster in Japan. For investors looking to make shorter-term, tactical adjustments to a portfolio.
2011-03-28 A Central Bank Match by Chris Maxey of Fortigent
Equity markets donned the rally cap last week as the S&P 500 index finished higher by 2.7% and the Dow Jones Industrial Average experienced a 3.1% gain. Stability in the price of crude oil and improvement in Japan lent a helping hand to the markets, as did the announcement that AT&T would buy T-Mobile. On the domestic front, investors turned a blind eye to the slew of negative economic data. Housing, in particular, experienced the brunt of the disappointment. Existing home sales offered the first piece of bad news after falling 9.6% to 4.88mln on a seasonally-adjusted annual rate in February.
2011-03-27 QE2 - Apres Moi, le Deluge by John P. Hussman of Hussman Funds
As rules of thumb go, "the trend is your friend" historically performs better than "don't fight the Fed". While the market tends to perform better when both are true, the exception is the overvalued, overbought, overbullish, rising-yields syndrome, which is uniformly negative regardless of the random subset of historical data one examines. There is certainly a tendency for "unpleasant skew" featuring a persistent series of marginal new highs for some period of time, but on average, those are ultimately overwhelmed by steep and abrupt losses that finally clear this syndrome.
2011-03-26 Unintended Consequences by John Mauldin of Millennium Wave Advisors
Governments around the world need to be alert and make difficult choices to deal with a world excess liquidity. From an investor’s point of view, enjoy the current ride in emerging markets but recognize that they are high beta to the U.S. economy and stock markets. The next time the United States goes into recession—and there will be a next time—it is likely that emerging markets will suffer significant losses. So, emerging markets are a trade and not a long-term investment.
2011-03-25 What's Driving Russia's Outperformance? by Frank Holmes, John Derrick and Tim Steinle of U.S. Global Investors
All ten sectors of the S&P 500 Index increased this week. The best-performing sector for the week was energy which rose 4.08 percent. Other top-three sectors were technology and materials. Financials was the worst performer, up 0.50 percent. Other bottom-three performers were utilities and healthcare.
2011-03-24 Understanding Japan’s Disasters by Mohamed A. El-Erian of PIMCO
Japan’s reconstruction challenge will likely be more difficult than after the Kobe earthquake. Negative wealth and income effects this time around will be more severe, and the recovery process will probably take longer and be more complex. Japan's disasters will add to the global economy’s headwinds.
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 No Shortcuts to Greatness by Vitaliy Katsenelson (Article)
Nothing defined Alan Greenspan's tenure as chairman of the Federal Reserve Bank more than his wholehearted embrace of capitalism. According to a current Fed governor, however, both Greenspan's Fed and the Fed today have not been the stalwarts of capitalism that the Maestro believed them to be.
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 Japan, by Brian S. Wesbury and Robert Stein of First Trust Advisors
While the news coverage of problems at Japan’s nuclear power plants was sensationalized and misleading, the death toll from the Japanese earthquake and tsunami is horrendous. Moreover, the economic damage to the affected areas is substantial and will require a large re-direction of resources. Japan’s economy will not gain from this shift in resources because the cost of repair only replaces what was lost. That said, after the initial economic blow is fully absorbed, Japan’s economy may accelerate for a time because people change their labor-leisure trade-off.
2011-03-21 World Near Tipping Point? by Mohamed A. El-Erian of PIMCO
Much of the potency of policy responses has been used up in the successful efforts since 2008 to avoid global depression. The longer the persistence of supply disruptions, the greater the risk of core inflation increasing. Questions about the end of quantitative easing in the U.S. pose a challenge for policymakers.
2011-03-21 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Last week had the financial markets dealing with the headline risks associated with the nuclear reactor crisis in Japan, the uncertainty associated with what would be the outcome in Libya and of course the usual issues of inflation, budget deficits and monetary policy in general. In essence, the markets just had too much to concern themselves with. The Dow Jones Industrial Average fell 1.5% while the NASDAQ Composite dropped 2.7% as concerns about technology supply issues dominated the worries about future growth.
2011-03-19 Middle East Politics and Oil: The Influences on Global Interest Rates, Credit Spreads & Stock Prices by Tom Fahey, Ryan McGrail, Richard Skaggs and Joseph Taylor of Loomis Sayles
The market has added a substantial risk premium to the price of oil given the unrest in the Middle East and North Africa. Prices have increased by more than 20% since December 2010; half of that increase occurred during the past three weeks in reaction to unrest spreading to Bahrain, one of the Gulf States. Market participants have raised their probability calculations for black swan events. There may be excess pessimism in the market, as reflected in increased concerns about unrest spreading to the other Gulf States. Those concerns are potentially overblown.
2011-03-19 How the VAR Model and Japan’s Tragedy Affect Investors by Frank Holmes of U.S. Global Investors
The threat of disaster from the damaged Fukushima nuclear power plant unleashed a ferocious sell-off of Japanese equities, but the damage to other major markets has been limited. Already experiencing a slight pullback prior to the events on March 11, U.S. equities and emerging markets have held up quite well. The MSCI Emerging Markets Index has only pulled back 2 percent since the earthquake and the S&P 500 Index only 3 percent.
2011-03-18 Has the Game Changed? by David A. Rosenberg of Gluskin Sheff
An object at rest will remain at rest unless acted on by an unbalanced force. An object in motion continues in motion with the same speed and in the same direction unless acted upon by an unbalanced force. This is otherwise known as Newton’s first law of motion. In market parlance, this implies that a trend remains in force until such time as an exogenous shock causes it to either stall or reverse. Economic, geopolitical, and natural disaster events aside, equity markets around the world have definitely broken their intermediate-term uptrend.
2011-03-18 Quake Response Puts Yen on the Line by Peter Schiff of Euro Pacific Capital
One of the immediate financial consequences of the catastrophic Japanese earthquake is that Japan needs to call on its huge cache of foreign exchange reserves to rebuild its shattered infrastructure. To pay for domestic projects, Japan will require yen – not dollars, euros or Swiss francs. In order to maintain Japan’s position as a net-exporter of manufactured goods and net-buyer of US debt, the yen needs to stay down. So, the G-7 group of the world’s leading economies has intervened in the foreign exchange market by selling yen holdings, thereby pushing the currency down.
2011-03-17 Focus on Japan Overshadows Fed Decision by Brad Sorensen of Charles Schwab
To no one's surprise, the Fed kept interest rates at near zero and maintained its scheduled purchases of Treasury securities (also known as quantitative easing, or QE2). We're growing more concerned that the Fed is keeping interest rates low for too long, leading to potential problems down the road. With the market currently reacting to the tragedy in Japan and the ensuing market volatility, it's important to avoid acting hastily.
2011-03-16 Fed Pays Lip Service to Better Economy and Higher Inflation by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Federal Reserve made several changes to the language of its statement today, acknowledging an improving economy andhigher overall inflation. However the Fed also made it clear it does not think any of this warrants a change in the stance of monetary policy. The Fed was more bullish on the economy, saying it was on a “firmer footing” and that the labor market was “improving gradually.” Previously the Fed had said economic growth was not enough to generate “improvement” in the market. The Fed recognized faster growth in household spending and finally omitted language concerning restraints
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 An Uneven Global Recovery - Lingering Effects of the Credit Crisis by Bill Hester of Hussman Funds
The health of the global recovery depends on which country it is viewed from. When compared to the decade ending in 2007, a majority of developed countries are growing more slowly, have higher rates of unemployment, and have higher levels of inflation. There are exceptions. Notably, Germany is growing at twice its long-term average, with very low relative levels of unemployment. Stock market investors are showing growing sensitivity to differences in macro-economic risks. These may soon be further aggravated by monetary policies from the major central banks that are about to diverge noticeably
2011-03-14 Weekly Market Commentary by Scotty George of du Pasquier Asset Management
Despite last week’s contraction in global equity prices, the activity seemed mainly focused upon energy stocks and the turmoil in Libya and the Middle East. Of course, the world is also shocked by the earthquake tragedy in Japan. More significantly, there seems to be no cohesion of thought about whether these disruptions are ultimately (1) good for shareholders (2) bad for economic recovery. Instead, the debate rages on as to the sustainability of any short market rallies or the viability of real economic recovery in the face of pricing pressure upon commodities, particularly energy.
2011-03-14 Japan Will Recover by Mohamed A. El-Erian of PIMCO
Japan has the ability to recover economically from these horrible natural disasters. Japan’s immediate focus is on the enormous human suffering, and rightly so. Attention also turns towards the extent of the damage to the economy and its reconstruction and rehabilitation plans. The good health of Japan is central to a robust global economy that generates lots of jobs and enhances productivity.
2011-03-14 Weekly Investment Commentary by Bob Doll of BlackRock Investment Management
Risk assets experienced a setback last week in the face of rising tensions in Libya and the Middle East. Additionally, the massive earthquake that hit Japan on Friday resulted in a sharp downturn in Japanese equities on Monday and increased investor unease. For the week, the Dow Jones Industrial Average lost 1.0% to 12,044, the S&P 500 Index declined 1.3% to 1,304 and the Nasdaq Composite fell 2.5% to 2,716. The human costs of the earthquake in Japan are obviously foremost in everyone’s mind at this time, but the potential economic and market implications are also being weighed by investors.
2011-03-12 And That’s The Week That Was … by Ron Brounes of Brounes & Associates
The volatility is back. In Jan., the Dow encountered but two days of triple digit moves. In Feb., that number jumped, but only to three. Already by March 11, the index has moved by 100 point or more (up or down) on four occasions this month. Geopolitical events in the Middle East, Asia, and Europe have brought renewed uncertainties to the marketplace and prompted some recent profit taking and maybe even a flight-to-quality into treasuries. This week, the “nays” had it as the Libyan conflict continued and threats of its spreading to oil giant Saudi Arabia remained fresh on investors minds.
2011-03-12 Inflation and Hyperinflation by John Mauldin of Millennium Wave Advisors
Companies and households typically deal with excessive debt by defaulting; countries overwhelmingly usually deal with excessive debt by inflating it away. While debt is fixed, prices and wages can go up, making the total debt burden smaller. People can’t increase prices and wages through inflation, but governments can create inflation, and they’ve been pretty good at it over the years. Inflation, debt monetization, and currency debasement are not new. They have been used for the past few thousand years as means to get rid of debt. In fact, they work pretty well.
2011-03-12 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.
2011-03-12 Volatility on the Rise by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Geopolitical unrest and rising inflation concerns have conspired to increase market volatility. We remain bullish on US stocks and believe that this recent increase in consternation will ultimately be healthy for stocks. The US government keeps kicking the debt can down the road, while the Fed seems unconcerned about inflation and is intent on completing QE2. We believe changes are needed at both entities to foster sustainable economic growth. The European debt crisis is bubbling up again, while the ECB is talking interest-rate hikes. Future growth depends on the path of both issues.
2011-03-11 Americas: Economic Review February 2011 by Team of Thomas White International
Rising energy prices, due to the political upheavals in the Middle East, are becoming the primary economic risk for the Americas region. While the subdued inflationary trends will provide banks leeway to hold interest rates, they may be forced to advance their rate hikes if prices rise at a faster rate. In contrast, several of the emerging economies are expected to slow down this year. These economies may see interest rates rising faster, which may slow their pace of expansion even more. Also, higher interest rates will likely keep their currencies stronger and may restrict export growth.
2011-03-11 Asia Pacific: Economic Review February 2011 by Team of Thomas White International
Asian economies recorded some of their best performance for the full year 2010. In particular, Southeast Asian nations witnessed a banner year, clocking their best performance in recent memory. However, although the full year record was exemplary, growth in the final months of 2010 began to cool off. While a rising currency continued to trouble export-based economies, inflation haunted almost all central banks in the region. Central banks, having to choose between raising interest rates and attracting foreign capital, opted to hike rates.
2011-03-11 Inflation Expectations, Budget Decisions by Scott Brown of Raymond James Equity Research
Many investors fear that the recent surge in oil prices will lead to a significant uptrend in the underlying inflation rate. However, that depends on whether inflation expectations become unanchored. There's little evidence of that so far. On the deficit, lawmakers are sharply divided on the appropriate path for government spending. However, trimming nondefense discretionary spending is not going to solve the problem.
2011-03-09 Fisher Could Dissent if Oil Prices Maintain Upward Trend by Asha Bangalore of Northern Trust
Dallas Fed President Fisher indicated yesterday that he would vote to scale back/discontinue the Fed's Treasury securities buying program of $600 billion at the March 15 FOMC meeting. Last week, Chairman Bernanke indicated that only under conditions of sustained growth, expanding payrolls, and inflation readings that are consistent with price stability would the Fed consider terminating the program. Economic data indicate that the Fed is not close to meeting these. In his opinion, the Fed's job "is done" and continued purchases of Treasuries may result in raising inflation expectations
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.
2011-03-04 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 The Job Market, Oil Prices, and the Fed by Scott Brown of Raymond James Equity Research
Higher oil prices have raised new concerns about the strength of the economic recovery. If sustained, the rise in gasoline prices will restrain the pace of economic growth noticeably, but does not appear to be large enough (so far) to derail the expansion. Meanwhile, a federal government shutdown looms as lawmakers bicker over the future path of expenditures. Austerity at all levels of government is well-intentioned, but is not advisable at this point in the economic recovery.
2011-03-03 Equity Markets and Oil Prices by Asha Bangalore of Northern Trust
The turmoil in the Middle East and North Africa has led to higher oil prices. Brent crude oil was trading at $116.99 ($113.07 on 3/1/2011) as of this writing and West Texas Crude was quoted at $101.68 ($99.63 on 3/1/2011). The Libyan crisis has raised oil prices significantly in the last three trading days. The crisis in the region commenced the day after a Tunisian man set fire to himself on January 21, 2011.
2011-03-03 Emerging Markets Vision 2020 by Mark Mobius of Franklin Templeton
There will always be unforeseen factors and circumstances that might become catalysts for greater changes in the global landscape, as we have seen from the current unrests in the Middle East.. No one knows what will happen in the future, but below is some of what I envision for the emerging markets landscape in the next decade.
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 Taps for the Dollar by Michael Pento of Euro Pacific Capital
It now appears that the United States has finally succeeded in its efforts to destroy confidence in the U.S. dollar. Given the currency's reserve status, its ubiquity in financial markets, and the economic power and political position of the United States, this was no easy task. However, to get the job done Washington chose the right man: Fed Chairman Ben Bernanke. Thanks to Bernanke's herculean efforts, investors across the globe have now been fully weaned from their infantile belief that the U.S. dollar will remain the ultimate safe haven currency.
2011-03-01 Disasters Rocking U.S. Dollar? by Axel Merk of Merk Funds
From earthquakes in New Zealand to revolutions in the Middle East, natural and man-made disasters are rocking the world. We are all too often made to believe that in times of crisis there’s a flight to the U.S. dollar. However, the U.S. dollar has instead had a rocky ride of its own thus allowing the crisis-ridden Eurozone to shine. What’s going on? Is there no crisis, or has the U.S. dollar lost its appeal as a safe haven?
2011-03-01 The Absolute Return Letter by Niels C. Jensen of Absolute Return Partners
Two remarkable events unfolded during the month of February. One cleared the front pages all over the world. The other one barely got a mention - outside of its home country that is. Both have the ability to derail the economic recovery currently unfolding. The first one is not surprisingly the uprising in the Middle East and North Africa. The other one is perhaps less obvious; we are referring to the Irish elections. We take a closer look at both of those events and what the implications may be for financial markets.
2011-02-28 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 Moment of Surrender: Regimes Fall, Oil Prices Spike by Liz Ann Sonders of Charles Schwab
Geopolitical tensions swell along with oil prices, pushing the stock market lower. The absence of a longer-term oil- supply shock suggests the price spike could be short-lived. Consumers will take a hit, but the broader economy should avoid a double-dip recession.
2011-02-27 Bank Stress Index Up in Fourth Quarter; Can China Slow Down Bank Lending? by Christopher Whalen of Institutional Risk Analyst
The Q4 2010 results from the latest IRA bank stress index ("BSI") survey are in and the US banking industry saw slightly higher stress than in the previous quarter. At the start of 2010, we wrote in The IRA Advisory Service that Q1 was likely to be the best quarter of the full year 2010. As it turns out, Q1 2010 was the lowest BSI score for the full year and since the start of 2009. Operational stress as measured by the BSI has been rising in the US banking industry steadily since Q1 2010.
2011-02-25 Worry ... Friend or Foe? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Interest rates have moved higher, inflation concerns are growing, debt issues remain and global tensions are heightened. All valid concerns, but in our opinion not enough to derail stocks—although they could potentially in the future. Violence in the Middle East and North Africa is creating tension in global markets, but there are other concerns for emerging markets as well. Europe is becoming a bifurcated situation, with investors distinguishing between those with debt issues and those without.
2011-02-25 Oil And Vinegar by Scott Brown of Raymond James Equity Research
Higher oil prices have raised new concerns about the strength of the economic recovery. If sustained, the rise in gasoline prices will restrain the pace of economic growth noticeably, but does not appear to be large enough (so far) to derail the expansion. Meanwhile, a federal government shutdown looms as lawmakers bicker over the future path of expenditures. Austerity at all levels of government is well-intentioned, but is not advisable at this point in the economic recovery.
2011-02-24 Arab Autocracies and US Inflation by Michael Pento of Euro Pacific Capital
Civil revolt is currently spreading across the Arab world. What began in Tunisia has now metastasized into Bahrain, Egypt and Libya. Though two dictators have been ousted, the chances that these regimes will fundamentally transform from autocracy to a system of free markets and property rights are also up in the air. There are many unknowns, but what is known is that the turmoil has had an immediate and significant impact on the price of oil. It is also evident that global consumers continue to get pummeled by rising food and energy prices.
2011-02-23 It's All About the Timing by David A. Rosenberg of Gluskin Sheff
The calendar of events that could create recurring bouts of market volatility is coming into closer view: February 25: Irish elections. Is a default coming? March 4: U.S. government shutdown; this is the date that the latest resolution expires. The hardliners in the GOP are digging in their heels over $60 billion of spending cuts. April 1: U.S. nonfarm payroll report for March. The jobless claims data suggest no improvement from poor February results. Then end of QE2 and the knowledge that movements in the Fed’s balance sheet in the last 14 months have had an 86% correlation with the S&P 500.
2011-02-23 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.
2011-02-22 John Campbell on the Proposed Squam Lake Reforms by Dan Richards (Article)
In this interview, John Campbell, chairman of the economics department at Harvard, discusses his research into the underlying drivers of securities prices, and the key recommendations for reforming the financial system, based on his participation in the Squam Lake Group. This is a transcript of the interview.
2011-02-22 John Campbell on the Proposed Squam Lake Reforms - Video by Dan Richards (Article)
In this interview, John Campbell, chairman of the economics department at Harvard, discusses his research into the underlying drivers of securities prices, and the key recommendations for reforming the financial system, based on his participation in the Squam Lake Group. This is a video of the interview.
2011-02-22 The Monetary Policy Outlook by Scott Brown of Raymond James Equity Research
Fed Chairman Bernanke is set to deliver his monetary policy testimony next week. There’s not much suspense. The release of the FOMC minutes from the January 25-26 policy meeting included senior Fed officials’ revised projections of growth, unemployment, and inflation, as well as a thorough discussion of the uncertainties. No change in monetary policy is expected for some time. However, the Fed will have to consider when to lose the “extended period” language and eventually move to a more normal policy position. That doesn’t look likely for 2011.
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.
2011-02-20 December 2010 Semi-Annual Report by John P. Hussman of Hussman Funds
For the third time in a decade, the Federal Reserve has embarked on a policy that addresses structural economic problems by provoking speculation in asset prices. The first two attempts were ultimately followed by stock market declines greater than 50% each. As we enter 2011, the stock market remains in what we view as an already strenuously overvalued advance, which has driven our estimates for S&P 500 Index total returns to less than 3.2% annually over the coming decade. My expectation is that this attempt to create “illusory prosperity” will end no better than it has in the past.
2011-02-19 A Random Walk Around the Frontlines by John Mauldin of Millennium Wave Advisors
Today we do a Random Walk Around the Frontlines, surveying what’s going on in the world. The US economy continues to improve in fits and starts. Inflation for the last six months has risen rather smartly. And for the last three months inflation on an annualized basis is running over 3%. The recent drop in the unemployment rate was entirely due to rather dramatic drops in what is known as the participation rate - fewer people looking for jobs. The Fed needs to end its program of quantitative easing.
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 Geithner's Failed Makeover by Michael Pento of Euro Pacific Capital
To counter the increasing demands that government reduce its micromanagement of the economy, the Obama Administration offered a fig leaf in the form of a white paper entitled "Reforming America's Housing Finance Market." In addition to marking the official end of the Bush era "ownership society," where increasing the level of home ownership was a national priority, the document contains a recommended regulatory overhaul of the FHA as well as Fannie Mae and Freddie Mac, that intends to bring the share of government owned home loans from the current 95% to 40% over the next 5-7 years.
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.
2011-02-17 Money Supply Data and Inflation by Jeff Miller, PhD of NewArc Investments, Inc.
You might think that considering money supply data would be easy and non-controversial. You would be wrong! Michael Pento, most recently affiliated with Euro Pacific, well known as an aggressive advocate in both print and broadcast media. That is probably an understatement given his controversial nature and style of engagement. Most people would view him as an aggressive advocate for the viewpoint that inflation is spiraling and the Fed is responsible. To set the stage, he compares the US Dollar to Enron shares in 2001.
2011-02-16 Inflation Anxiety – Misplaced? by Scott Brown of Raymond James Equity Research
Commodity prices have moved sharply higher over the last several months, leading to increased worries that the Fed is “behind the curve,” “debasing the currency,” or “monetizing the debt.” Such fears are based on a poor understanding of the inflation process and how the Fed conducts monetary policy.
2011-02-16 Politics of Inflation by Axel Merk of Merk Funds
In arguing food inflation is not the Federal Reserve’s (Fed’s) fault, Fed Chairman Bernanke points the finger at everyone but him. Just as with a lot of Bernanke’s policies, his argument may hold in an academic setting, but the real world is a bit more complicated.
2011-02-15 The Stuxnet Paradigm by Michael Lewitt (Article)
Michael Lewitt discusses the situation in Egypt, the economy, rising risk appetites in the market, sovereign debt and municipal bonds. 'It might be very easy,' he writes, 'to be impressed by the 'two years and thousands of man hours' that Ms. Whitney spent researching the fiscal condition of the 15 largest states. What in the world required so much time and effort? It shouldn't have taken nearly so long to determine that these states are in severe financial trouble and that their options for dealing with it are limited.
2011-02-15 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.
2011-02-15 Food Chain: Do Spiking Food Prices Warn of Generalized Inflation? by Liz Ann Sonders of Charles Schwab
Food inflation has heated up and has incited global unrest. But for now, it's unlikely to become a monetary phenomenon. Investors should expect geopolitical risk to stay elevated in 2011, with implications for emerging markets performance.
2011-02-14 What Will Propel Equities Further? by Milton Ezrati of Lord Abbett
The positive outlook for equities draws on many sources, but basically rests on two pillars: 1) continued economic growth that will sustain an earnings expansion and 2) still-favorable valuations prevail, despite the great rally since March 2009. Neither point, of course, is beyond complaint. Nothing in any investment outlook is absolutely secure. Now, as ever, prospects are overshadowed by a cloud of risks. But the likelihoods still favor the earnings growth and a favorable response from equity markets.
2011-02-12 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin looks at an important paper from the Bank of International Settlements on “The Future of Public Debt.” While the debt supercycle is still growing on the back of increasing government debt, there is an end to that process, and we are fast approaching it. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. This leads the BIS to conclude that the question is when markets will start putting pressure on governments, not if.
2011-02-12 Balancing Act by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Strong US economic signals and solid earnings continue to provide a positive backdrop for stocks. We expect pullbacks if optimistic sentiment gets too elevated, but remain optimistic about the stock market. Inflation concerns are rising, but the Federal Reserve is unlikely to react with tighter policy. There's not much it can do to fight commodity inflation, but Treasury yields are rising in response to headline inflation, even with little near-term risk of companies passing on rising costs.
2011-02-12 Ignorance is Confidence: Fedtalk or Newspeak? Andrew Jackson on Repealing a Central Bank by Christopher Whalen of Institutional Risk Analyst
In this issue Richard Alford, Christopher Whalen and members of the Herbert Gold Society opine on the Fed's attitude toward veracity and transparency in an age when confidence is the paramount policy concern. In the process of seeking to restore and maintain confidence, in the financial system and in the Fed as an institution, the Board of Governors in Washington led by Chairman Ben Bernanke seem to follow the last of the three slogans of the Ministry of Truth in George Orwell's book, 1984: "Ignorance is Strength."
2011-02-11 The Many Faces of Inflation by Robert J. Horrocks of Matthews Asia
Asian markets have gotten off to a rocky start in 2011, and inflation appears to be among the chief culprits. Many seem to be treating inflation as a single phenomenon with similar effects everywhere. In truth, the effects of inflation on different countries can be quite distinct and in some cases quite positive. We can get an idea of how inflation impacts different countries in a different way by looking at four big economies dominating the Asian investment scene at the moment: China, India, Japan, and the U.S.
2011-02-10 The Two Faces of Ben Bernanke by Peter Schiff of Euro Pacific Capital
When the rest of the world no longer links their currencies to ours, the Fed will truly not have to worry about fueling global inflation. Instead, all of its inflation will burn through our banks accounts right here at home. And that blaze, so concentrated, will burn a lot hotter than the fires we see abroad.
2011-02-10 Betting Against the House; Is This the Time to be Going Long? by David A. Rosenberg of Gluskin Sheff
Housing starts are at around 550k annualized units right now and household formation averages in the 1.1 to 1.2 million range. At what point do you think this dovetails and a housing recovery takes place? Great question. This is one overextended U.S. stock market, that is for sure. We have a dividend yield on the S&P 500 of 1.8% with a 10-year bond yield at 3.7%. The dividend yield, by the way, is where it was at the market peak in October 2007. The cyclically-adjusted P/E ratio on the S&P 500 is now 23.3x, where it was back in May 2008. At the lows, it was trading at 13.3x.
2011-02-09 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 Letter to the Editor - John Hussman Responds by John Hussman (Article)
John Hussman responds to a reader's comment, and reiterates his significant concerns about the present course of monetary policy.
2011-02-08 Changing Perception of the Economy - Food for Thought by Asha Bangalore of Northern Trust
The bond market essentially signals the U.S. economy is turning around and is most likely to establish sustained growth in 2011. A part of the bullish sentiment commenced after Bernanke's speech in the last week of August 2010 when the Fed signaled that a second round of support was on its way. Inflation expectations have moved up (see Chart 3) from lows in the summer of 2010. But, they are yet to surpass the levels seen prior to the onset of the crisis. Actual inflation measures also do not represent a threat.
2011-02-07 Misquoting Keynes by John P. Hussman of Hussman Funds
The famous quote attributed to John Maynard Keynes - "the market can remain irrational longer than you can remain solvent" - is a favorite of speculators here. Actually, I very much agree with this observation, provided that it is correctly understood. Solvency is always a function of debt, and it's extremely important for investors to recognize that when you take investment positions by borrowing on margin, you'd better use stop-losses, because the debt obligation stays intact even if the investment values decline.
2011-02-07 Jobs Data Redux and Inflation Spasm Ahead by David A. Rosenberg of Gluskin Sheff
The labor market in the US is not improving. Lost in the debate over the weather impact was the benchmark revision to 2010 — overstated by 215k or 24%. The economy generated 909k jobs last year -insignificant considering that the population grew around 160k/month. The level of employment today is where it was in 2003. There have only been a handful of times in the past when both food and energy prices were rising so sharply in tandem. Since almost 25% of the CPI basket is in food and energy directly, it would seem logical to assume that we are going to get headline inflation in coming months.
2011-02-07 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Perversely, while only 36,000 new non-farm payroll jobs were reported, the unemployment rate fell to 9%. I say perversely because everyone knows that our economy needs to create upwards of 150,000 net new jobs on a monthly basis just to keep the unemployment rate from falling. So, what is going on here? The government is constantly changing its estimate of who is unemployed. In this way you can lower the unemployment rate without creating net new jobs and that is what is occurring.
2011-02-07 The Economic Recovery Pushes Ahead Despite The Strange Labor Report by Chris Maxey of Fortigent
Encouraging. Confusing. Disappointing. Mixed Bag. These were all terms used to describe the labor report for January. Ultimately, it may turn out that none of those terms are relevant and investors would be better served in pretending this report was a figment of our imaginations.
2011-02-07 Investment Commentary by Bob Doll of BlackRock Investment Management
Although we expect some hiccups along the way, improving economic growth and corporate earnings point the way toward a continuation of the equity bull market. We are in the midst of the first global economic recovery that is being led by emerging economies, and the U.S. is only at the beginning of transitioning into a self-sustaining expansion, suggesting that economic improvements still have a way to go. As the economy improves, we are beginning to see equity market correlations fall —stock prices are being driven more by fundamentals and less by macro factors, a trend we expect to continue.
2011-02-04 Portfolio Commentary : Fourth Quarter, 2010 by Jay Compson of Absolute Investment Advisors
For our 4Q commentary we have decided to alter our approach and provide direct insight into our managers’ thoughts by providing portions of their commentaries in a series of independent “short stories.” Collectively they represent many of the thoughts that we have utilized for writing our quarterly commentaries, but we feel the current environment offers a unique time to hear things “directly from the horse’s mouth.”
2011-02-04 January Employment Report – Pace of Job Growth Inadequate for Fed to Change Current Stance by Asha Bangalore of Northern Trust
The number of jobs created since the recovery commenced in June 2009 is troubling and raises the level of concern for policymakers. The level of employment, irrespective of how it is measured, is still significantly below the prior peak even after 19 months of economic growth. Job creation is proceeding in the desirable direction but at a tepid pace such that it is does not offer sufficient justification for the Fed to end the $600 billion purchase of Treasury securities (also known as QE2) before the planned expiration date of June 2011.
2011-02-03 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!
2011-02-03 Deconstructing the Current Inflation Conundrum by Team of American Century Investments
As the old saying goes: “The best time to buy flood insurance is when the river is still running low.” We suggest not waiting until inflation pressures increase further before making sure you have some inflation insurance in your portfolio.
2011-02-02 Unrest in Egypt, Uncertainty in the Region by Rachel Ziemba and Ayah El Said of Roubini Global Economics
Egypt’s political direction could have profound effects on regional stability—potentially involving, the Israeli-Palestinian conflict and efforts to contain Iran’s nuclear ambitions—with broad economic and financial ramifications. The recent economic and political developments do not bode well for Egypt’s debt, and this contagion could continue to spread within the region, leading to the persistent underperformance of local currency debt and equity markets. Regarding wider implications, the oil market remains the key link between instability in the Middle East and the global economy.
2011-02-01 Can Economics Save the Economy? by Robert Huebscher (Article)
Christina Romer, Greg Mankiw and Paul Krugman were among a group of thought leaders who spoke at a conference in Cambridge last week. They cited a lack of sufficiently powerful and politically feasible policy options, calling into question whether economists will be able to produce the clear path to the stronger recovery that the Obama administration seeks.
2011-02-01 Letter to the Editor by Various (Article)
A reader disagrees with John Hussman's recent commentary, Sixteen Cents: Pushing the Unstable Limits of Monetary Policy, which appeared on January 24.
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.
2011-02-01 Back in Black: Economy Moves to Expansion From Recovery by Liz Ann Sonders of Charles Schwab
Real GDP moves from recovery to expansion, but growth remains below potential. Inflation concerns globally replacing double-dip recession concerns as key theme in 2011. Egyptian unrest and rising volatility could further temper optimism, which could bring back the "wall of worry" the stock market likes to climb.
2011-02-01 Fourth Quarter Letter by Team of Grey Owl Capital Management
In spite of Bernanke’s objective to put a floor on asset prices, including equities, we remain conservatively positioned. Equity and credit markets appear overvalued. In addition, with the U.S. and most developed-market economies significantly more leveraged than in the last 50 years, economic growth will likely be more volatile. Further, many potential exogenous forces could negatively influence public markets: over-leveraged municipalities, the PIIGS, and continued issues in the US housing market to name a few. Finally, there is no evidence that monetary policy can create real growth.
2011-01-31 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.
2011-01-29 Schwab Market Perspective: Confidence Climbing by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Although still relatively low, confidence is returning to businesses and consumers. We believe this confidence is well-placed and could portend healthy gains for the economy and the market as the year matures. Risks remain: commodity prices are rising, housing is still moribund, and federal and local governments have severe fiscal budget crises to deal with. Confidence in developed international markets is still lagging.
2011-01-28 The Fed Sticks to the Status Quo by Liz Ann Sonders of Charles Schwab
The Fed announced no changes to its interest rate and quantitative easing round two (QE2) policies. There were no dissenters, with two new voting members changing their tune about QE2. The risk is growing that the Fed will stay easy too long, which could have implications for bond yields (and bond investors).
2011-01-28 A Mockery of a Sham by Peter Schiff of Euro Pacific Capital
We do not need more regulation. Government interference has done enough damage already. We simply need to return to a sound monetary policy and get the government out of the mortgage and housing markets. Unfortunately, that’s not going to happen.
2011-01-25 Fed Policy Outlook: Waiting It Out by Scott Brown of Raymond James Equity Research
The economic outlook largely remains a good news/bad news story. The good news if that the recovery is continuing, even gathering a little more steam. The bad news is that the pace of growth is insufficient to push the unemployment rate down significantly. The Fed has a dual mandate: stable prices and maximum sustainable employment. While these goals may be seen to be in conflict from time to time, Fed officials (and most economists) believe that economic growth can be maximized over the long run by keeping inflation low.
2011-01-25 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.
2011-01-23 Sixteen Cents: Pushing the Unstable Limits of Monetary Policy by John P. Hussman of Hussman Funds
Completing the Fed's planned purchases under QE2 will require a decline in 3-month T-bill yields to just 0.05% in order to avoid inflationary pressure. Otherwise, liquidity preference will not expand enough to absorb the addition to base money, even if we assume GDP growth at 4%. Given the extreme stance of monetary policy, the avoidance of inflationary pressures increasingly relies on a very persistent willingness by the public to hold the outstanding quantity of base money in the financial system. Small errors will have surprisingly large consequences. This is not a stable equilibrium.
2011-01-22 Together at Last! by Stephen J. Taddie of Stellar Capital Management
Many people get lost when economists start talking about monetary and fiscal policy. By definition, fiscal policy is the use of government expenditure and revenue collection to influence the economy through borrowing, spending and taxation. Monetary policy is the process by which the monetary authority of a country (the Federal Reserve, or “Fed”, in the U.S.) controls the money supply in that economy through targeting interest rates or buying and selling securities from its portfolio. In the end, the two policies are just two different tools used to manage an economy.
2011-01-21 Pricey Eats by Michael Pento of Euro Pacific Capital
From all accounts it appears that the world is in the early stages of a major leg up in food prices. The major macroeconomic trend will likely drive economic policy and the investment outlook for years to come. Although mainstream pundits like to focus on cyclical drivers like the weather, the real force behind the move is secular. The U.S. is leading the world in a pandemic of monetary inflation that is helping to cause commodity prices, food in particular, to skyrocket across the globe.
2011-01-20 'The Feeling is... Mutual!' by David A. Rosenberg of Gluskin Sheff
As they chase performance, retail investors plowed a hefty $6.54 billion into equity funds in the week of January 12. TD Ameritrade has reported that margin lending has soared 31% from year-ago levels. Uh oh. The one industry that is being hammered right now is the municipal bond fund space — with net outflows last week of $2.37 billion, the tenth week in a row. While there is no doubt that we remain cautious on the equity market as an asset class, we like the large-cap, blue-chip, cash flow generators and reliable dividend payers.
2011-01-20 Signs of Returning Pricing Power by Charles and Louis Vincent Gave of GaveKal
Six months ago, many feared the US was experiencing a ‘double dip’ recession. And with core price measures already quite weak, there were renewed fears of a deflationary spiral. Inflationary expectations according to TIPS were falling fast. In response, the Fed stepped in aggressively, providing QE1.5 in early August, and then talking up QE2 in late August. Inflation expectations started to recover, and are now back to more normal levels—with five-year expectations back at about 2%, and l0 and 20 year expectations back to around 2.5%. And the TIPS market may indeed be right.
2011-01-19 Breakfast with Dave by David A. Rosenberg of Gluskin Sheff
In more than 20 months, the equity market has managed to turn in the same performance it took 60 months to achieve in the last bear market rally. Strip out the financials, and indeed, the entire equity market is now behaving as if the destruction of debt and household balance sheets either never happened or that the aftershocks are completely yesterday’s story. Governments around the world, especially in the U.S.A., have managed to convince nearly everyone that prosperity is here and will persist to perpetuity. But … if it is too good to be true, it probably is. This is an illusion.
2011-01-19 2011 Capital Markets Outlook by Joseph V. Amato of Neuberger Berman
During 2010, macroeconomic factors largely dominated the financial markets, creating a volatile, emotional environment as investors appeared at times to be thinking less about what stocks to own than whether they should own stocks at all. As a result, many equities with very different fundamental characteristics often showed very high correlations to one another, while valuations converged. Over time, we believe that the market will differentiate these stocks based on their individual fundamentals. A similar statement can be made about other assets as well.
2011-01-19 China's Inflation Problem Looms Large by Peter Schiff of Euro Pacific Capital
The global economy has become so unbalanced that government ministers recognize that something has to give. To a very large extent the distortions are caused by China’s long-standing policy of pegging its currency, the yuan, to the U.S. dollar. But as China’s economy gains strength, and the American economy weakens, the cost and difficulty of maintaining the peg become ever greater, and eventually outweigh the benefits that the policy supposedly delivers to China. In the first few weeks of 2011 fresh evidence has arisen that shows just how difficult it has become for Beijing.
2011-01-18 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 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 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
2011-01-15 Thinking the Unthinkable by John Mauldin of Millennium Wave Advisors
Mauldin criticizes Bernanke's comment that a benefit of QE2 has been rising equity prices, arguing that this would amount to a third mandate for the Fed. He commends Richard Fisher of the Dallas Fed for his comments that monetary policy is not a tool to solve the country's fiscal problems. Mauldin then says that a big treat to his growth forecast is continued sovereign debt problems in Europe. Lastly, he questions whether China can engineer a soft landing for its economy, given rising inflation.
2011-01-12 Equity Market Review and Outlook by Richard Skaggs and Thomas Davis of Loomis Sayles
Global equity markets continued the uptrend that began in the third quarter and finished the year with solid gains across all major equity categories. Such a powerful second half of 2010 seemed improbable just last summer, when concerns over a potential double-dip recession dominated investor thinking. Other macro issues, such as the ongoing financial challenges within the European Union, remain unresolved. However, these macro concerns have remained manageable in the eyes of equity investors.
2011-01-12 Tolerable Accuracy by Christian Thwaites of Sentinel Investments
It paid to be practical in 2010. We started the year with relief that we averted catastrophe but were dimly aware it would be tough. How could it not be? Financial markets were in disrepair and the economy looked like it had only just made it through a re-stocking cycle. All other parts of the economy looked down for the count. But in the end, despite euro sovereign emergencies, deflationary fears and a phony currency war, both the real economy and financial assets had a strong year.
2011-01-11 Global Outlook and Strategy by Team of Loomis Sayles
After being challenged in November by renewed Eurozone sovereign debt concerns, global risk markets ended 2010 on a strong note. The key to the late-2010 and early-2011 optimism was the potential for the two biggest engines of global growth – the US and Chinese economies – to pull together this year.
2011-01-10 "Illusory Prosperity" - Ludwig von Mises on Monetary Policy by John P. Hussman of Hussman Funds
Perhaps more than any other economist, Ludwig von Mises got the theory of money and credit right, because he made distinctions between various forms of money and credit that are often conflated by other theorists. The amount of real physical investment in the economy is, and must be, precisely equal to the amount of output not allocated to consumption but instead to savings. Unlike many other economists, Von Mises not only recognized this identity, but carried it through to what it implied for monetary policy.
2011-01-10 Government, the Anti-Stimulus by Brian S. Wesbury and Robert Stein of First Trust Advisors
After a strong ADP jobs report last Wednesday (297,000 new private jobs in Dec.), we raised our jobs forecast. Going into Friday, we expected the official report to show a net gain of 220,000 new jobs in December. When added to the weak November report (+39,000 jobs), the December rebound would bring the two month average back to about 130,000 per month.
2011-01-09 2011 Outlook: U.S. Equities Cyclical and Seasonal Trends (Part 2) by Martin J. Pring of Pring Turner Capital Group
Part II addresses the cyclical and seasonal factors that will be in force during 2011. An analysis of the seasonal aspects will give us a better feel for the expected pattern of price behavior as the year unfolds. Since we do not know when the peak will actually materialize well discuss some indicators that should be monitored from the point of view of confirming when they have taken place. First though, lets take a closer look at some of the seasonal/cyclical patterns and how they might affect 2011.
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.
2011-01-06 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.
2011-01-05 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 Glory Days: Another Good Year in 2011? by Liz Ann Sonders of Charles Schwab
Setting targets doesn't make sense to us, but we do believe in reading the market's tea leaves, and the outlook is healthy. However, frothy sentiment has us a little concerned in the very near-term. Investors need to be mindful of complacency, but also to make sure they're not still loaded up on bonds—a major capitulation from bonds to stocks is possible.
2011-01-04 Getting a Grip by David A. Rosenberg of Gluskin Sheff
We can expect a showdown between the House Republicans and the Administration over the debt ceiling in Q2. At stake could be a good dose of spending restraint as ‘pay-go’ rules make a sudden reappearance after being neglected by the lame-duckers last year. There is always the reality of the payroll tax cut coming to an end in December and how that will crimp personal income in 2011. Of course, there is always the prospect of a Q4 corporate spending binge as the bonus depreciation allowance expires. The last 3 quarters of 2011 are going to be very interesting
2011-01-04 The 2011 Economic Outlook – Credit Given Where Credit Is Due by Paul Kasriel of Northern Trust
With regard to 2011 real GDP growth, we now expect Q4/Q4 growth of 3.3% vs. 3.0%. An upward revision of 2011 Q4/Q4 real consumption growth to 2.9% from 2.5% in November is the primary factor accounting for the upward revision to the real GDP growth forecast. We are more optimistic about 2011 real GDP growth primarily because QE2 implies that the Fed will be purchasing all of the additional Treasury debt issued in conjunction with the Obama-McConnell tax and unemployment insurance compromise. We currently see more upside risk to our 2011 real GDP growth forecast than downside risk.
2011-01-03 Economic Outlook 2011—Inching Our Way Toward Recovery by Milton Ezrati of Lord Abbett
For all the complexities and undeniable risks, the outlook is reasonably upbeat. Continued, if slow, economic growth will raise earnings and, in time, gradually will begin to improve the labor market. Inflation, though a longer-term risk, will remain well contained in the coming year. Questions about monetary and fiscal policy will continue to hang over the economy and the markets, but circumstances nonetheless seem set to generate further advances. If, at the end of the year, few would declare themselves as rich and secure as they once felt, they still will have experienced improvement.
2011-01-03 2011: Dow 14,500, S&P 1575, 10-Year 4% by Brian S. Wesbury and Robert Stein of First Trust Advisors
Seven weeks ago our Monday Morning Outlook was titled “Stocks Are Cheap, Bonds Are Not.” We said, “the bull market is still young….and bond yields are headed higher.” Since then, the S&P 500 is up 6% and investors in the 10-year Treasury note have lost more than 4%. Our models tell us to expect more of the same in 2011. We use a capitalized profits model to value stocks. We divide corporate profits by the 10-year Treasury yield, compare the result to each quarter for the past 60 years and use it to find an average fair value for stocks.
2010-12-31 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.
2010-12-29 Policy Cures for China’s Post-Stimulus Hangover by Nouriel Roubini of Roubini Global Economics
Though Chinese policy makers will spend most of 2011 cleaning up after the effects of their fiscal stimulus measures and loose monetary policies, all the while they will be laying the foundation for financial reforms that will lead to increased use of price controls in lending decisions, further internationalization of the RMB and eventually the opening of the capital account.
2010-12-25 The Skinny On Thursday’s Data Flow by David A. Rosenberg of Gluskin Sheff
We got a flurry of U.S. data releases on 12/24 that, at the margin, added some comfort for the growth bulls. Initial jobless claims came in roughly as expected at 420k on a seasonally adjusted basis for the week of December 18, down 3k from the prior week. The 4-week moving average is at 426k and this time last year it was sitting at 479k, so the pace of firings has clearly receded sharply. The issue at this time is really one of hiring and going beyond part-time help.
2010-12-17 Capital Markets Brace for Exciting 2011 by Andreas Utermann of RCM
Andreas Utermann, global chief investment officer at RCM, a company of Allianz Global Investors, highlights key themes likely to shape the direction of capital markets in the coming year and provides a brief outlook on how he expects major asset classes to perform.
2010-12-17 The Secular Theme that Transcends the US Business Cycle by David A. Rosenberg of Gluskin Sheff
If there is a secular theme that transcends the U.S. business cycle it is agriculture. Farm incomes are rising sharply and all indications point in a similar upward direction in 2011 and likely beyond. This is another way, beyond going long mining excavation equipment and industrial commodities, to play the increasing demand for food, especially proteins, alongside the ever-rising standards of living in China, India and other emerging market economies.
2010-12-17 For Whom the Bell Tolls by Peter Schiff of Euro Pacific Capital
What lies ahead is a new era of rising interest rates, soaring consumer prices, increasing unemployment, economic stagnation, and lower living standards. Instead of stimulating the economy, quantitative easing and deficit spending will prove to be a lethal combination. Bondholders beware, the bell tolls for thee.
2010-12-15 Europe Remains a Clear Downside Risk by David A. Rosenberg of Gluskin Sheff
Europe remains a clear downside risk for the global economic outlook with the problems spreading to Spain and Portugal. Contagion risks are being underestimated by Mr. Market who has been myopically focused on irresponsible fiscal expansion in the US and recent hopes that QE2 would morph into QE3. As some proof that the recent economic data flow are over-rated, and likely exaggerated by seasonal influences, the Fed barely raised its macro outlook and actually seemed to dampen its view of the housing sector.
2010-12-14 Looking Back at a Year of Policy Mistakes by Michael Lewitt (Article)
As we approach the end of 2010, the global economy remains captive to a boom-and-bust cycle resulting from years of pro-cyclical monetary, fiscal and regulatory policies. With very limited exceptions, the same policies that contributed to the 2008 financial crisis remain in place. The only difference is that government balance sheets are far more leveraged than they were heading into that crisis.
2010-12-14 The Case for Dividend-paying Stocks by David A. Rosenberg of Gluskin Sheff
Despite all the noise that the Democratic left is making, the tax bill is going to pass very soon. There is a tangible positive effect here from the tax bill and pertains to dividends. Under the deal, the top tax rate on dividends will stay at 15%. If most of the spasm in the bond market is behind us, one would have to think that a focus on dividend growth is going to have some payoff with the taxation uncertainty put to bed. The U.S. nonfarm nonfinancial corporate sector is sitting on $1.93 trillion of cash/equivalents, which is at a 51-year high representing 7.4% share of total assets.
2010-12-13 Perception versus Reality by David A. Rosenberg of Gluskin Sheff
I've been a secular bond bull and am not yet changing my view of the fixed-income market, but the perception that the economy will grow vigorously is now extremely strong. I think it will only grow about 2% next year and that core inflation will continue declining. These are the primary downside risks: 1. The U.S. Treasury market becomes unglued. 2. Further sharp increases in energy prices. 3. Renewed fiscal problems in Europe. 4. Bad inflation news out of emerging markets. 5. U.S. state & local cutbacks become more severe. 6. Latest down-leg in home prices accelerates.
2010-12-13 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.
2010-12-10 Interim Update and Comment by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Federal Reserve Chairman Ben Bernanke said in a recent television interview that economic growth was not “self sustaining.” This description also applies to an economy that is in a classic growth recession. A growth recession is characterized as an economy where GDP grows but the unemployment rate also moves higher. A close look at the U.S. economy bears out Chairman Bernanke's description.
2010-12-06 Cutting Through the Noise by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic data is rarely clear-cut, but we believe the weight of the evidence indicates a strengthening US economy. The negative rhetoric surrounding the Federal Reserve's recent decision reached a crescendo, but while we were among the first to voice our belief that it wasn't necessary, we believe the dire warnings of potential consequences from a second round of quantitative easing (QE2) are overblown. The European debt crisis continues to plague world markets. Finally, we believe the European Central Bank (ECB) needs to be more proactive instead of continually reactive.
2010-12-04 Rebalancing the World by Mark Mobius of Franklin Templeton
We are currently witnessing a largely one-way flow of capital, as money moves from countries of disinflation or deflation to countries with inflation, possibly perpetuating the situation for both. We need to see a rebalancing of the world economy. In recent history, financial authorities in the developed world have encouraged a period of easy credit and loose monetary policy, driving a debt-fuelled rise in consumption. There needs to be more ‘balance’ in the world economy, so high-savings countries should spend more and develop their own vibrant domestic market as we see in the U.S.
2010-12-04 Reframing A Case For High Yield Bonds by Tom Fahey of Loomis Sayles
Our contention is that high yield bonds are likely to continue to be a respectable store of value. We base this on their valuation profile and fixed income characteristics, which tend to stand out in the midst of a protracted economic recovery and ongoing deleveraging process that could have significant implications for economic growth and yield potential.
2010-12-03 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 Allentown by Bill Gross of PIMCO
The global economy is suffering from a lack of aggregate demand. In the U.S. and Euroland, many policies only temporarily bolster consumption while failing to address the fundamental problem of developed economies: Job growth is moving inexorably to developing economies because they are more competitive. Unless developed economies learn to compete the old-fashioned way – by making more goods and making them better – the smart money will continue to move offshore to Asia, Brazil and their developing economy counterparts, both in asset and in currency space.
2010-11-30 Currency Focus: QE2 and the Course Ahead by Ugo Lancioni of Neuberger Berman
We believe the dollar is likely to move higher on an intermediate-term basis. QE2, in our opinion, could lead to stronger economic growth in the U.S. and eventually drivehigher yields, making the dollar more attractive to investors. In our view, the impact of QE2 was already in the price of the U.S. dollar at the time of the announcement. And the market is generally still shorting dollars.
2010-11-29 The Debt is Still Here by Eric S. Ende of First Pacific Advisors
In the world of investment management, results are typically measured each quarter. While markets sometimes experience a dramatic shift in the course of ninety days, usually the most important influences on the economy evolve more slowly. That is the situation today, where from our perspective, little about the investment backdrop has changed in 2010. This commentary summarizes our view of the current situation, the policy options available and likely outcomes.
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 The Duel over the Dual Mandate by Peter Schiff of Euro Pacific Capital
Given the opposing views of the potentially parsimonious new Congress and the continuously accommodative Federal Reserve, there is a movement afoot among Republicans to eliminate the Fed’s “dual mandate.” Prior to 1977, the Fed only had one job: maintaining price stability. However, the stagflation of the 1970s inspired politicians to assign another task: promoting maximum employment. This “mission creep” has transformed the Fed from a monetary watchdog into an instrument of social policy. We would do well to give them back their original job.
2010-11-23 Why Three Top Bond Managers Like Equities by Robert Huebscher (Article)
You'll rarely - perhaps never - hear a fund manager say that market conditions do not favor investing in their chosen asset class. That's why it was so remarkable when several prominent managers recently admitted that they favored equities over their own discipline - fixed income.
2010-11-23 Stop Front-Running the Fed by Keith C. Goddard, CFA (Article)
A change of mindset is in order for bond investors, who must recognize that it is no longer wise to 'front-run' monetary policy by purchasing the same bonds the Federal Reserve is targeting with its latest round of quantitative easing.
2010-11-23 Global Tensions Rising Over Fed's QE2 Initiative by Team of American Century Investments
QE2 represents a dramatic intervention in the capital markets, and its ultimate impact is hard to predict at this point in time. Critics of the plan, including some Fed members, believe that too much monetary stimulus might lead to runaway inflation, which in turn could derail economic growth or even create future asset bubbles. Alternatively, a weaker dollar could create incentives for other countries to implement capital controls and foreign exchange interventions that negatively impact global trade.
2010-11-23 The Fed Under Attack by Scott Brown of Raymond James Equity Research
Despite hopes that the anti-QE rhetoric would die down, the noise continued last week, and unfortunately, become more political. One of the key aspects of the Fed is its independence. The Fed is answerable to Congress, and ultimately, to the American people. However, it is not controlled by Congress - nor would we want it to be controlled by Congress. Attacks on the Fed and its latest round of asset purchases aren't helping
2010-11-22 Outside the Oval / The Case Against the Fed by John P. Hussman of Hussman Funds
Ever since the Bear Stearns bailout, I've been insistent that the Federal Reserve is increasingly operating outside of its statutory boundaries. Ensuring the legality of Fed actions is not a Democratic issue, a Republican issue or a Tea Party issue. Rather, it is about whether we want America to function as a representative democracy.
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 Economic Insights: Five Reasons to Give Thanks by Milton Ezrati of Lord Abbett
Custom at this time of the year asks people to look back for reasons to give thanks. Though for investors the political-economic turmoil and risk of the times seem at first blush to yield little along such lines, a dispassionate reprise of the last year does, in fact, offer more material for thanks. To be sure, economic and financial matters are far from perfect or even second best. But still, they have improved during the last 12 months, in some instances, dramatically. Here are five reasons for thanks.
2010-11-22 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
Despite high profile news items such as the bail out of Ireland (and soon to be other nations in the Euro zone), the monetary tightening occurring in China and the high profile campaign to attack our country’s monetary policy, the stock market was as flat as a pancake last week which did not sit well with the many prognosticators calling for a significant pullback.
2010-11-22 Commodity Prices: What is Likely Impact in the United States? by Asha Bangalore of Northern Trust
The S&P GSCI commodity index has moved up 11.3% from a year ago on November 19, 2010 (see Chart 1). The trade weighted dollar declined 1.2% from a year ago as of November 12, 2010. The immediate inference is that the extent of gains in the commodity price index is larger than the decline of the dollar. By implication, commodity price gains reflect more than the depreciation of the greenback.
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 QE2 by Mark Oelschlager of Oak Associates
Interestingly, while one of the goals of QE is to lower long-term interest rates in order to stimulate the economy (particularly the housing market), the policy seems to be having the opposite effect, as rates have risen recently. This also occurred after the implementation of QE1 in 2009. In a perverse way, this may actually indicate that the Fed’s strategy is working, as higher rates generally reflect a healthier economy.
2010-11-17 Shifting Politics, Tightening Policies in China by Nouriel Roubini of Roubini Global Economics
The Central Economic Work Conference in early December should signal an end to the 'moderately loose' monetary policy that has allowed the long cycle to dominate the short since late 2008. There will likely be little commentary about renminbi (RMB) flexibility at the conference; nevertheless, we expect that technocratic control of China's monetary policy should marginally increase the rate of RMB appreciation against the USD.
2010-11-16 Touch of Grey: Market Takes a Breather by Liz Ann Sonders of Charles Schwab
My best guess as to the scenario that is unfolding is that the economy is gaining traction, which could cause the Federal Reserve to pull QE2 into the dock sooner than expected. It could also lead to a lift in the dollar, a related pullback in commodity prices, and rising bond yields. Given the high correlation recently between bond yields and stock prices, if yields were to continue to rise, they could take stock prices up with them; especially if the reasons are a better economy and lessened deflation fears.
2010-11-15 Lighten Up, Francis by Scott Brown of Raymond James Equity Research
The increase in the deficit over the last couple of years is due largely to the recession and efforts to minimize the impact of the economic downturn. Quantitative easing isn’t some hair-brained scheme, but is simply another form of monetary policy accommodation. The dollar is down, but not out of line with its longer-term trend. Stop the hysterics, please.
2010-11-15 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.
2010-11-12 They Just Don't Get It by Paul Kasriel of Northern Trust
Had the Fed said that QE2 would involve the purchase of $600 billion of Treasury bills rather than Treasury coupon securities, we could have avoided this phase of uninformed criticism of the policy. Of course, the chorus of critics would have complained that by the Fed purchasing bills rather than coupons it was not affecting the “important” part of the yield curve.
2010-11-11 A Kind Word For Ben by Paul McCulley of PIMCO
The Fed makes policy consistent with its legislative mandate handed down by the democratically elected government of the United States. Price stability (mandate-consistent inflation) that promotes bubbles in asset prices and debt creation is a prescription for a debt-deflation bust and a subsequent liquidity trap. Acting irresponsibly relative to conventional wisdom is precisely the right approach for reversing an economy facing, or worst yet, mired in a liquidity trap.
2010-11-11 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.
2010-11-11 The Road Ahead: Is It Inflation or Deflation by Martin J. Pring of Pring Turner Capital Group
Since the financial crash of 2008 there has been an intensive discussion amongst economists as to whether the fiscal stimulus and extraordinary monetary policy (Quantitative Easing, QE I and II) will lead to a significant inflationary wave or whether the system falls into a liquidity trap. Our objective here is not to dwell on the economic arguments, rather to examine the secular trends of commodities, bonds and their inter-market relationship to see what clues the markets themselves may be giving about the inflation/deflation outlook.
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 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 The Fed's Asset Purchases by Scott Brown of Raymond James Equity Research
As expected, the Federal Open Market Committee has embarked on another round of planned asset purchases. There has been much criticism of the move in the financial press. Certainly, there are risks in the Fed’s strategy. However, it’s hardly reckless or ill-advised.
2010-11-09 There Was a Fed Chairman Who Swallowed a Fly by Peter Schiff of Euro Pacific Capital
In reality, quantitative easing will produce the exact opposite of its intended result. In the short-run, it may create the illusion of economic growth and temporarily add some service sector jobs, but once the QE ends, the growth and jobs will vanish. Then, the Fed will most likely try once again to douse the fire it started with another round of QE gasoline, creating an even larger and less manageable inferno.
2010-11-09 Chinks in the Armour by David A. Rosenberg of Gluskin Sheff
Nobody thought a year ago that things would have weakened to such an extent that we would have needed QE2 or the extension of Bush tax cuts. The Fed is doing $600bln in quantitative easing, which is about one-third what it did last year. I’m not convinced that it alone will prevent the economy from weakening, even if contraction risks have abated. Now what will it take to turn me more positive? Well, a sustained job creation for one and if we can get initial jobless claims down to 400k that would be huge. But I have to admit, QE2 does not do it for me.
2010-11-09 An Inflationary Death Spiral by Michael Pento of Euro Pacific Capital
I have no doubt that Bernanke will be remarkably successful in his stated goal of driving inflation higher. I simply disagree with his nonchalance about the long-term consequences. There is currently no easy exit strategy for the Fed. There is only the prospect of Americans suffering through either a deflationary depression or hyperinflation.
2010-11-08 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 Weekly Investment Commentary by Bob Doll of BlackRock
In our view, the strength of the GOP victory makes it quite likely that Congress will push
through some extension of the Bush-era tax cuts, which are set to expire at the end of 2010. We expect the Fed to continue to be aggressive in terms of combating deflation and promoting economic growth, at least until it sees a downturn in the unemployment rate. Deflation is a more present risk than inflation, but the environment will eventually be moving to the other side of that risk spectrum. The valuations and earnings backdrop also suggests that stocks should be headed higher.
2010-11-07 Bubble, Crash, Bubble, Crash, Bubble... by John P. Hussman of Hussman Funds
Given that interest rates are already quite depressed, Bernanke seems to be grasping at straws in justifying QE2 on the basis further slight reductions in yields. By irresponsibly promoting reckless speculation and illusory "wealth effects," the Fed has become the disease. The economic impact of QE2 is likely to be weak or even counterproductive. Even though the S&P 500 is substantially below its 2007 peak, it is also strenuously overvalued once again.
2010-11-05 More on QE2 - Will it Work? by David A. Rosenberg of Gluskin Sheff
Quantitative easing is no antidote for structural economic problems, even if it manages to give investors a short-term sugar high. Let's learn from the Japanese QE experiment. The day the Bank of Japan launched the program on March 19, 2001, the Nikkei surged 7.5 percent, from 12,190 to 13,103. Three months later, as it became painfully obvious that the real economy was not responding well to the shock therapy, the Nikkei index slid 16 percent to just over 12,000.
2010-11-05 Elections and QE2: Will It Make a Difference? by Scott Migliori of Allianz Global Investors
Both Republican victories during the midterm elections and the second round of quantitative easing could result in market gains. A perceived mitigation in government intervention has typically been received favorably by equity markets, and could especially benefit investor sentiment in areas that had previously received the greatest amount of government scrutiny, such as health and financial services. Furthermore, if successful, renewed quantitative easing could increase both consumer and business confidence and result in better than forecast nominal GDP in 2011.
2010-11-05 Effects of Quantitative Easing on Asia by Teresa Kong of Matthews Asia
While the U.S. intends to stimulate its domestic economy with quantitative easing, the actual effect of QE has been to turbo-charge emerging markets, especially the markets of Asia. There is some concern that short-term portfolio flows or 'hot money' could cause sharp price volatility, and we will continue to monitor these effects and their implications on Asia.
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 Fed Embarks on QEII by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Fed's new round of quantitative easing will have little to no impact on the larger economy. Banks already hold roughly $1 trillion in excess reserves. Adding to this pile of reserves will not influence the desire of financial institutions to lend, nor will it lead to any near-term increase in the supply of currency in circulation. All it will do is sit idle on the liability side of the Fed's balance sheet and on the asset side for the banks. More importantly, the economy is already accelerating.
2010-11-04 Thanksgiving Pie by Doug MacKay and Bill Hoover of Broadleaf Partners
Where might the unexpected upside come for investors? Two areas. Dividends may attract some money away from the bond market as a source of yield, providing some relative capital appreciation potential for stocks. On a longer term secular basis, the emerging market consumer may also be worth paying attention to. As the wealth of overseas economies grows and makes its way into the hands of its citizens, a growing middle class should emerge with the same needs and wants that many of those in the United States have enjoyed for years.
2010-11-04 Moment of Surrender: Musings on the Election and Fed Policy by Liz Ann Sonders of Charles Schwab
Neither the midterm elections nor the Federal Reserve announcement of another round of quantitative easing brought surprises. Tax clarity needs to come next while uncertainty about the implications of QE2 remains front and center. Investors will likely be among the winners, but they need to understand the pros and cons of Fed policy.
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 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 The Servicer of the First Part; Dick Alford on the Fiscal Illusion by Christopher Whalen of Institutional Risk Analyst
This week the Institutional Risk Analyst features a comment by the FRBNY's Richard Alford. Alford provides a very revealing look into the brave new world of macroeconomics and how the members of the priesthood of imprecision see the 'multiplier' associated with fiscal spending. When you realize just how poor the methodology is behind these economic debates, both in terms of the mathematical assumptions and the understanding of human action, the fact that these distinctions underpin fiscal policy is truly frightening.
2010-11-01 Big Happenings by Charles Lieberman of Advisors Capital Management
Interest rates are at historically low levels because households are still pouring cash into bond funds, while stock market valuations are low because retail investors can't handle the volatility and they keep pulling cash out of equities. So despite all the uncertainty, much of which is normal anyway, stocks offer value, while bonds have very limited investment potential. While uncertainty remains, the bet seems highly asymmetric in favor of equities.
2010-10-30 Schwab Market Perspective: So Now What? by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
The Federal Reserve and upcoming elections are in sharp focus and results and actions in these two areas could determine whether the momentum seen since September can continue. Earnings season was better than expected and the market reacted as such. But confidence remains a major issue, with brewing mortgage-related problems and continued uncertainty around tax policy causing consternation. Debt remains a major issue that's just now being addressed and protectionism still threatens economic expansion. China remains a bright spot for global growth.
2010-10-29 BlackRock’s Rieder: The US Faces a Structural Dilemma by Roberth Huebscher (Article)
The U.S. economy faces a structural dilemma with high unemployment that cannot be addressed with conventional policy measures, according to Rick Rieder. Rieder is the CIO of Fixed Income for BlackRock. The 'bond bubble' will not burst, he said, and the high-yield market now offers attractive yields.
2010-10-29 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 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.
2010-10-26 Look For the Silver Lining by Christian Thwaites of Sentinel Investments
It is not a good time to buy and hold but there should be excellent one-to-two-year holding periods. Pick stocks with strong financials. Be prepared to reallocate. Stay invested in bonds: With the Fed ready to become buyer of first resort, we could see the 10-year yield fall below 2.5 percent. Real yields are high. However, do not let the search for yield compromise liquidity. The market trades on a narrow front and low volume. Less than 112 stocks account for 50 percent of turnover. That leaves thin numbers for the remaining 17,000 listed companies. Expect volatility.
2010-10-25 Bernanke Leaps into a Liquidity Trap by John P. Hussman of Hussman Funds
The belief that an increase in the money supply will result in an increase in GDP relies on the assumption that velocity will not decline in proportion to the increase in monetary base. Unfortunately for the proponents of 'quantitative easing,' this assumption fails spectacularly in the data - both in the U.S. and internationally - particularly at zero interest rates. Once short-term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity.
2010-10-25 Key Dates Approaching by Scott Brown of Raymond James Equity Research
The first week of November looms large for the markets. The November 2 midterm elections are expected to result in a power shift on Capitol Hill - but how much will actually change? The Fed's November 3 monetary policy decision has important implications for interest rates, the dollar, and the economy in general. The October Employment Report (due November 5) will help shape the near-term economic outlook and set expectations for future Fed policy moves.
2010-10-19 'Bond Bubble' Fears Overblown by G. David MacEwen (Article)
Despite considerable debate in the financial media about the existence of a bond market "bubble," the fixed income team at American Century Investments finds little evidence to support this claim. None of the factors traditionally associated with asset bubbles are at work in the bond market. However, a confluence of economic headwinds argues for a prolonged period of low interest rates and inflation, while behavioral finance trends favor further bond inflows.
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 Thoughts About Bernanke and the Fed by Charles Lieberman of Advisors Capital Management
Conditions for stock market gains remain intact, even if the pace of recovery remains below preferred levels. Growth at a moderate pace will be sufficient for corporate profits to remain on a solid upward trajectory. Interest rates and inflation remain very low and are likely to remain so for an 'extended period of time,' so the pricing of bonds implies a meaningfully higher equilibrium valuation for equities. And if policy proves successful in increasing growth, fears of a double-dip would be vanquished and forecasts of rising profits would become more believable.
2010-10-18 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 Mexico - Problems and Prospects by Milton Ezrati of Lord Abbett
Mexico's drug-related violence is a tragedy for the country and a conundrum for all those who invest there. However, as long as the U.S. economy can continue its advance, slow as it will likely be, Mexico’s economy, equity market, and currency should find support. Once the recovery in the United States begins to create jobs, as it should later this year and into 2011, remittances from Mexican nationals working north of the border will begin to add marginal momentum to Mexico’s economic growth, and hence to its market prospects.
2010-10-15 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 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 Currency Wars Heat Up as Growth Chills by Nouriel Roubini of Roubini Global Economics
As global growth stagnates, governments are increasingly focusing on monetary policy as a last resort to prop up ailing economies. The U.S. Federal Reserve recently signaled that it will refocus away from eventual exit strategies and toward the possibility of further intervention in the ailing U.S. economy. Between the Fed's second round of quantitative easing, the European Central Bank's stubbornness, and a new round of currency wars as countries fight each other for export growth, the path out of the recession remains unclear.
2010-10-13 Evolution of the Asia Bond Market by Teresa Kong of Matthews Asia
One of the most profound developments in the history of Asia's capital markets has been the deepening of the domestic bond markets over the last decade. The largest Asian issuers can now diversify their funding sources across both international and domestic currencies. While China's bond market is the largest in Asia outside of Japan, it remains largely inaccessible to most foreign investors. Korea's local currency-denominated bond market is the next-largest at just under U.S. $1 trillion, making it the single-largest bond market readily accessible to offshore investors.
2010-10-12 Beggar Thy Neighbor, Beggar Thyself by Michael Lewitt (Article)
In the latest edition of the HCM Market Letter, Michael Lewitt argues that reported attempts by countries to devalue their currencies will only result in higher inflation and not economic growth. QE2 will similarly fail, and the necessary "heavy lifting" for the economy should be through fiscal, not monetary, policy. A continuation of Keynesian policies, as advocated by Paul Krugman, will also fail. Lewitt warns of dangers in ETFs and offers his investment recommendations.
2010-10-12 The Great Depression, the Great Recession and Lessons from 1937-1938 by Team of American Century Investments
While much shorter and less severe than the Great Depression, the recession of 1937-1938 added approximately three years to the recovery period. It is extremely unlikely that we will see a repeat of this type of recession. However, depending on the outcome of elections in November, there could be substantial shift in the fiscal and taxation policies of the federal government away from Keynesianism and toward fiscal discipline and supply side economics.
2010-10-12 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 Will the Holiday Shopping Season Boost Employment? by Chris Maxey of Fortigent
The National Retail Federation announced last week that it expects holiday sales to increase by 2.3 percent from last year. That is good news following a decline of 3.9 percent in 2008 and a meager 0.4 percent growth rate in 2009. In addition, consultant Challenger, Gray & Christmas estimates that the retail sector will add as many as 600,000 jobs over the next three months. That is better than the 501,000 jobs added during the holidays last year, but still well below the pre-crisis levels of more than 700,000.
2010-10-11 In QE We Trust by Komal Sri-Kumar of TCW Asset Management
Senior monetary officials worldwide have complained about the massive inflows of capital into their financial markets resulting from expectations of monetary easing in the United States. One of the major pitfalls of quantitative easing is that beggar-thy-neighbor currency interventions do not result in increased growth for all participating countries. Instead, they sharply increase the risk to exporters and international investors and, eventually, dampen global growth.
2010-10-09 The Ride of the Keynesian Cowboys by John Mauldin of Millennium Wave Advisors
Mauldin reviews the just-released employment statistics, concluding that the "job picture is terrible." Add to that forecast weak GDP growth, lack of consumer spending, and feeble credit demand, and the Fed is left with one more "bullet" - QE2 - which is advocated by "Keynesian Cowboys" at the Fed. Others at the Fed, though, have warned about the unintended consequences of a possible QE2, and Mauldin doubts it will "work."
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 Still Vulnerable by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Economic growth has been largely due to an unsustainable, and probably over-extended rebuilding of inventories. The proposed QE2 is unlikely to succeed, and the U.S. economy faces four problems: excess leverage, counterproductive fiscal policies, sub-optimal tax policies and excess bureaucracy. Treasury bonds are not in a bubble and represent good long-term investments.
2010-10-07 Government Policy and the Markets: Prepare For Some Big Changes by Tony and Rob Boeckh of Boeckh Investment Letter
Proponents of gold base their arguments on predictions of eventual monetary ruin, a dollar collapse and high inflation. The bond market, however, is far bigger and more sophisticated than the gold market, and it indicates that inflation expectations are nonexistent. Bond yields are far below their long-run equilibrium levels and if anything, are forecasting deflation and possible stagnation. The huge disconnect between gold and bonds should serve as a reminder to gold bulls to tread carefully, unless they are sure that the bond market has it wrong.
2010-10-06 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.
2010-10-06 Deflation Economics: Quantitative Easing and the Portfolio Balance Channel by Thomas Fahey of Loomis Sayles
The level of assets on central bank balance sheets has been relatively stable since the initial burst of quantitative easing in late 2008 and early 2009. As growth slows, however, money and credit numbers could drop significantly. Central banks could still do more to spur a more complete economic recovery. Until then, bond yields should remain low. Perhaps 10-year Treasury yields below 3 percent are low enough to reverse the real demand for money and force portfolio rebalancing. Investors will need to watch the corporate sector for signs of cash hoarding and hiring as evidence of that.
2010-10-05 Challenges and Solutions for Income-Seeking Investors by Team of American Century Investments
The Fed's prediction that it will keep its short-term interest rate target at 0-0.25 percent for 'an extended period' continues to affect the near-term game plan for risk-averse investors and savers. A period of potentially heightened uncertainty and low absolute returns means that maximizing risk-adjusted returns is crucial to investment success over time. An optimized mix of fixed income holdings with a variety of different risk levels can add value to investor portfolios in this low-yield and low interest rate environment.
2010-10-05 Commentary & Market Outlook by Jeff Spitzmiller, Jim Worden and Alan Chauhan of Iron Point Capital Management
While recent economic numbers have been low, they continue to point to growth - albeit slow growth - over the next few quarters. With the Fed poised to continue engaging in quantitative easing and more stimulus programs being promoted in Congress to help small businesses and improve payrolls, it is clear that all monetary and fiscal tools will be used to keep the economy moving on an upward trajectory.
2010-10-05 Win, Lose or Draw: Do We Have a Win-Win Scenario? by Liz Ann Sonders of Charles Schwab
U.S. stocks are not expensive and they're most certainly under-owned. Most individual investors are either pessimistic or indifferent about the stock market, suggesting the 'wall of worry' - the contrarian nature of the market to perform best when pessimism is highest - is alive and well. In the near term, the stock market is likely overbought, and a little pullback to improve the sentiment picture would be helpful. On the other hand, however, strong stock market would be a terrific confidence builder, as Alan Greenspan noted last week.
2010-10-05 Cyclical Outlook by Paul McCulley of PIMCO
The influence of emerging economies is on the rise, while developed countries are retrenching. Monetary policy in the developed countries will remain extraordinarily accommodative for an extended period, with policy rates pinned close to zero and use of quantitative easing. PIMCO will therefore position its duration and curve strategies accordingly: overweight investments in the developed world, concentrated in the 'belly' of yield curves. In contrast, an increasing share of its positioning in the 'spread sectors' will be allocated to the emerging markets, including their currencies.
2010-10-01 Claims of the 'Death of Stock Picking' Are a Good Sign for Value Investors by Team of Grey Owl Capital Management
A recent Wall Street Journal article highlights the macro-driven nature of today’s stock market. Long-time value investors lament the current environment where stocks appear to trade in unison based on unemployment data or European bank stress test results. If stocks are driven by macro factors instead of company fundamentals, stock pickers can’t get an edge. We think stock-picking is very much alive. Call us contrarian, but we couldn’t think of a better sign that fundamentally-driven, bottom-up stock-picking is likely to make a comeback sooner rather than later.
2010-09-29 Multiple Risks From a Multispeed Eurozone Recovery by Nouriel Roubini of Roubini Global Economics
Although the euro zone's recovery from recession has been better than initially envisaged, there are still external and domestic pressures - some persistent, some new - as potential threats to 2011 growth. The standout performance of the core and Northern European economies, particularly Germany, alongside renewed weakness in the periphery is giving rise to a multi-speed recovery. This adds a new set of risks - such as the implications of one-size-fits-all monetary policy - to the existing list.
2010-09-28 Chain Gangs and Pipe Dreams by Doug Mackay and Bill Hoover of Broadleaf Partners
Last Friday David Tepper, who runs a very successful hedge fund, made a convincing no-lose case for stocks in an interview on CNBC. In the stock market as in sports, anytime winning seems easy, it is usually a decent signal that you might be treading in dangerous territory. During such times, it has usually paid to increase rather than decrease one's aversion to risk. Equities could indeed move higher from here and likely will, but buying under the influence of a pipe dream that they are a no-lose proposition would be as foolhardy as an offense with no defense.
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?
2010-09-27 The Myth and Mistake of Quantitative Easing by Brian S. Wesbury and Robert Stein of First Trust Advisors
Last week the Federal Reserve signaled its readiness to engage in further quantitative easing. This would be a colossal mistake. Quantitative easing does not boost real economic activity or inflation - it is not an injection of new money, like traditional monetary easing. During quantitative easing the Fed borrows money from banks and the Treasury to buy assets. All this does is shift what would have been held in the private sector onto the Fed's books. This does not create new money and therefore does not create inflation or lift aggregate demand.
2010-09-23 The Fed's Opponent: Deflation by Michelle Gibley of Charles Schwab
While there are downside risks, the U.S. economy will probably avoid a double-dip recession. Historically, a downward-sloping yield curve is the best recession predictor, and for now it continues to slope upward. Meanwhile, with interest rates already at historically low levels, lowering the cost of borrowing money even further is unlikely to spur economic growth and employment, and so quantitative easing is not the silver bullet for economic growth. Actions that give businesses increased certainty about how to plan for future operating costs in relation to demand growth are preferable.
2010-09-20 A Long Recovery Road by Scott Brown of Raymond James Equity Research
It's well known that recessions caused by financial crises tend to be more severe and longer-lasting, and the recovery process is typically lengthy. In a 'typical' recession, consumers postpone purchases of homes and motor vehicles. As the economy recovers, you get a slingshot effect as that pent-up demand comes back into play. However, that's not going to happen this time. The key element in this recovery is time. Fiscal and monetary policy can help limit the downside, but there's no miracle cure. Ultimately, the recovery is dependent on the private sector.
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 A Balancing Act For the Bank of Canada by Nouriel Roubini of Roubini Global Economics
The Bank of Canada adopted a hawkish tone at its September 8 policy meeting, despite signs of slowing growth. Less need for balance sheet repair should indeed allow Canada to continue to outgrow most of the G7. The country cannot decouple from U.S. growth, however, in part because most Canadian exports are U.S.-bound. These dynamics and a moderate core inflation rate call for the Bank of Canada to maintain the current, accommodative interest rates for the rest of 2010, despite its concerns about excessive debt practices.
2010-09-14 What the Taylor Rule Says about Interest Rates by Charlie Curnow (Article)
The Taylor Rule, a widely cited forecasting tool, predicts that the current inflation rate of 1.2 percent and the unemployment rate of 9.6 percent will keep the target federal funds rate in the range of -3.5 to -4.5 percent. We report on a presentation last week by an official at the Boston Federal Reserve Bank.
2010-09-13 It's Time for Tax Cuts, Not Tax Hikes by Charles Lieberman of Advisors Capital Management
The Obama Administration is considering extending the Bush tax cuts except for families with income above $250,000, as well as offering some tax cuts for business to spur investment spending. The Administration's proposed extensions of the Bush tax cuts, especially if augmented by more favorable depreciation allowances to encourage capital spending, are pro-growth. It is therefore surprising that the Administration would undermine the benefits of such proposals by failing to extend the Bush tax cuts for all households.
2010-09-13 The Fed Outlook: No Good Choices by Scott Brown of Raymond James Equity Research
In his semiannual monetary policy testimony to Congress in July, Federal Reserve Chairman Ben Bernanke said that the Fed 'remains prepared to take further policy actions as needed.' In his Jackson Hole speech on August 27, he outlined possible steps the Fed could take, including expanding its holdings of longer-term securities, but cautioned that 'the expected benefits of additional stimulus from further expanding the Fed's balance sheet would have to be weighed against potential risks and costs.'
2010-09-09 An Important Turn in U.S. Jobs by Anatole Kaletsky, Charles Gave, Pierre Gave, FX Chauchat and Will Deyner of GaveKal
GaveKal examines several topics related to investment strategy. The U.S. employment situation is in line with other post-recession periods, which belies the 'jobless recovery' thesis. 'Real' U.S. incomes (excluding government transfer payments) are improving faster than they did after the 2001 recession. Rumors about the death of inflation may have been exaggerated, while six major Western bond indicators are flashing sell signals. Meanwhile, investors seem prefer lending to heavily indebted governments rather than to the prosperous, resilient and well-managed listed corporate sector.
2010-09-09 Euro-Dollar Ambiguity by Milton Ezrati of Lord Abbett
The euro seems to have the edge over the U.S. dollar for the very near term, if only because the EU seems poised to shake off the lingering negatives of its spring crises. Beyond that, the dollar seems to have the edge. More rapid growth on the west side of the ocean should trump modestly higher rates on the east. Longer term, however, the shifts again back to the euro, as European governments should be further along than the United States in addressing the fiscal excesses that all nations concerned incurred during the 2008–2009 crisis.
2010-09-08 What is Wrong With QE by Komal Sri-Kumar of TCW Asset Management
The clamor from some economists for additional quantitative easing in the United States comes after two years and $1.5 trillion of such easing have already taken place. Similarly to the Japanese experience, the U.S. economy's growth has slowed to a crawl after just a few quarters of adrenaline rush due to increased liquidity. Even though newly minted cash has surged, bank lending to the private sector has not. And, again not surprisingly, U.S. banking sector profitability has sky-rocketed.
2010-09-08 Brazil's Economy Exhales by Nouriel Roubini of Roubini Global Economics
Brazil's cooling economic growth in the second quarter resulted from the withdrawal of excess accommodation, a less benign global backdrop and a high base. Looking into the second half 2010, the country's growth could temper further if July's industrial output figures and the purchasing managers' index for August are any indication. Although demand drivers such as labor conditions, credit and consumer confidence remain resilient, they are easing, which suggests economic activity will keep settling into more sustainable levels.
2010-09-08 Statistics, Damned Statistics and Lies by David A. Rosenberg of Gluskin Sheff
We just completed the fourth quarter of the statistical recovery from the 2009 lows in real GDP. Normally, that particular quarter is running at over 6 percent annual growth. This time around, it was 1.6 percent and likely to get marked fractionally lower again. The notion that it is normal to have a growth pause this early in the cycle, assuming we are early in the business cycle as opposed to slipping along a downward trend line, is nuts.
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 The Battle Between Double-Dip and Slower Growth Rages On by Chris Maxey of Fortigent
Moderate optimism began to wash over the markets last week, as the S&P 500 Index rose 3.7 percent and the Dow Jones Industrial Average increased 2.9 percent. The rally was driven by several factors, including an improvement in the tone of various economic releases, primarily the much discussed labor report and a strong announcement on manufacturing. Based on releases from last week, it became more apparent that the economy is on track for a period of slower growth and that the possibility of a double-dip is still slim.
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 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.
2010-08-31 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 In Need of Reassurance by Charles Lieberman of Advisors Capital Management
Fed Chairman Bernanke's statement at the FRB Kansas City Jackson Hole conference didn't reveal anything new, or suggest any change in monetary policy, but it was nonetheless reassuring to a market fearful of a double-dip recession. Most importantly, Bernanke stated quite clearly that he remains committed to insuring an economic recovery, which should hardly be a surprise. And yet, this was taken as good news. Investors anticipate economic problems, despite the fundamentally stronger state of business and financial market conditions.
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 Weekly Investment Commentary by Bob Doll of BlackRock
While the recovery has been slow, we have made significant progress. On a real basis, U.S. gross domestic product has regained 70 percent of what was lost during the recession and on a nominal basis, GDP has regained all of it, meaning that the United States is in a nominal expansion. In any case, investors in U.S. stocks can expect continued volatility ahead. The S&P 500 Index has remained in a rough trading range of between 1,020 and 1,120. While a dramatic breakout from this range is unlikely for now, as economic conditions slowly improve, the positive forces should win out.
2010-08-27 Double-Dip Economy: Does Quantitative Easing Really Matter? by Christopher Whalen of Institutional Risk Analyst
While the financial markets await the latest pronouncement from Fed Chairman Ben Bernanke, the Institutional Risk Analyst features a comment from friend and former colleague at the FRBNY Richard Alford. He asks whether any of the policy options being considered by the U.S. central bank are meaningful to the American economy. As Paul Krugman wrote in the New York Times on Friday, 'policy makers are in denial.'
2010-08-27 Perception Versus Reality by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Market volume continues its traditional August swoon, making it difficult to gauge much from stock market action. Economic data continues to tell a mixed story, as growth slows and risks rise. Confidence is key to consumer spending, business investment and stock market performance. The Federal Reserve and the government are attempting to instill that confidence in the American public, but so far have had little success. Emerging markets continue to show signs of growth and China's market has been performing well. Germany also has posted some nice numbers lately, but Japan remains a concern.
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!.'
2010-08-24 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 Why Hasn't the Stimulus Been More Stimulative? by Paul Kasriel of Northern Trust
The $790 billion stimulus package was supposed to put the economy firmly on a trajectory toward recovery. As one Obama administration economic advisor has said, however, the economy is still having trouble reaching 'escape velocity.' This is because fiscal policy must be accompanied by bank financing in order to stimulate aggregate demand. Otherwise, fiscal policy just reallocates total aggregate demand toward government spending and away from private spending. Policymakers should therefore concentrate more on invigorating bank credit if they want faster economic growth.
2010-08-24 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.
2010-08-18 FOMC Warms Up the Helicopter by Nouriel Roubini of RGE Monitor
The Fed has been laying the verbal groundwork for further monetary stimulus. The August 10 announcement by the Federal Open Market Committee appears to be another signal of a gradual policy shift. On its own, the latest move is likely to have limited implications for the broader economy. More importantly, however, the decision to reinvest the repayments in Treasury bonds reflects the preference many FOMC members have expressed for an expeditious return to the Fed's traditional Treasury security-only portfolio.
2010-08-17 A Request for a Proposal from the Federal Reserve Board by Emilio Vargas (Article)
On a lighter note, we were sent a request for a proposal from the Federal Reserve Bank to help implement its monetary policy.
2010-08-17 Economic, Investment and Asset Allocation Overview – July 2010 by Jeff Spitzmiller, Jim Worden and Alan Chauhan of Iron Point Capital Management
A buy-and-hold U.S. stock portfolio alone can't be expected to provide attractive returns over the coming years. Alternative asset classes and certain segments of the stock and bond markets are current areas of focus for Iron Point Capital Management. The firm currently favors high-yield bonds, floating rate securities, alternative investments and emerging market debt and equity, amongst other investments that can provide excess return, risk reduction or the ability to capitalize on long-term trends.
2010-08-17 When Unconventional Become Conventional by Paul McCulley of PIMCO
Conventional monetary policy is undergirded by the doctrine of central bank independence, founded on the proposition that fiscal authorities, hostage to the political process, inherently are prone to an inflationary bias. When the economy suffers from private sector deleveraging and a fat-tail risk of deflation, however, conventional monetary policy is not enough. In such circumstances, the central bank has a profound duty to act unconventionally, ballooning its balance sheet by monetizing assets, either government or private, or both.
2010-08-13 Q2 Economic and Market Outlook: “Soft Patch” or “Double-Dip”? by Ken Taubes of Pioneer Investment Management
Inflation should remain well-contained for the next year or two, but a credible plan to cut budget deficits and a return to positive real interest rates will be needed to prevent the bond market from pricing in rising inflation in the medium term. In this environment, the U.S. dollar can continue to strengthen versus other major currencies, and capital markets, especially equity markets, can deliver attractive returns.
2010-08-12 Bonds Have More Fun by David A. Rosenberg of Gluskin Sheff
Yields cannot go to microscopic levels, even with large-scale government debts. In the past, at the peak of bull markets in bonds, the yield curve has gotten so flat that the average spread between the long bond and the federal funds rate has been 100 basis points. It would seem that just as BB-grade sliver in the corporate bond universe was the laggard with the greatest return potential, within the Treasury curve it would seem that the long end carries with it the most compelling total return opportunity.
2010-08-12 Fed Downgrades Economic View by Brad Sorensen of Charles Schwab
The Fed isn't yet ready to raise interest rates, even though doing so could be beneficial. Raising rates would give savers a bit of a return in money market-type vehicles, potentially spur those now on the sidelines of the market into action, and give the Fed some wiggle room down the road should it need to slash rates again.
2010-08-11 Why Jobs Have Gone AWOL by Michael Pento of Euro Pacific Capital
There are three primary reasons why the U.S. is suffering from structurally high unemployment: a pervasively irresponsible monetary policy, the continued attenuation of our manufacturing base, and an overleveraged consumer who must now reconcile his balance sheet. In reality, the latter two conditions are a direct result of the first. They are the result of a government that seeks to micromanage the cost of money and the rate of economic growth.
2010-08-11 The Fed Gives the Treasury a Gift by Brian S. Wesbury and Robert Stein of First Trust Advisors
Tuesday's announcement from the Fed means that the U.S. Treasury will pay even lower interest rates to finance its burgeoning debt levels. By holding rates steady, the Fed will become more accommodative as the year progresses. As a result, Fed policy will cause both growth and inflation to accelerate throughout 2010 and into 2011. The bond market is stuck between a rock and a hard place. Fed policy on one hand is pulling rates down, while growth and inflation will push rates up. Easy monetary policy, however, eventually results in higher interest rates down the road.
2010-08-11 Real Real Returns Study by Team of Thornburg Investment Management
This commentary features Thornburg's annual look at what investors are left with after expenses, taxes and inflation take a bite out of nominal returns. Once again, common stocks and municipal bonds are the best performers. This year's study also looks at implications for retirees, a group for whom nominal returns don't mean much, since they need to be concerned about actual spending dollars to protect against outliving their retirement income.
2010-08-09 El-Erian on Why the Payrolls Report Matters by Mohamed A. El-Erian of PIMCO
The employment picture constitutes yet another headwind - and a significant one - to the already-faltering U.S. recovery. More Americans are struggling to earn enough to maintain their standard of living. The time has come for Washington to realize that the existing policy mix is not appropriate for the task at hand.
2010-08-09 It's the Jobs, Stupid! - Part III by Komal Sri-Kumar of TCW Asset Management
The unemployment rate is a leading indicator of economic activity in this business cycle due to the potent force of discouraged consumers, rather than a lagging indicator, as we have been taught in our economics courses. That, in turn, means that we cannot ignore the large number of jobless workers in the belief that economic growth will subsequently cure the problem we won't have sustained economic growth unless we lower unemployment first. The disappointing employment numbers last Friday are indicative of this trend.
2010-08-07 The Problem With Pensions by John Mauldin of Millennium Wave Advisors
A report just out from the Center for Policy Analysis indicates that state and local pension funds are drastically underfunded. By the authors' calculations, state and local pensions are underfunded by $3 trillion. Pension funding in some states will be required by law to consume 25-30 percent or more of tax revenues. That is going to mean much higher taxes or reduced services. John Mauldin also discusses a possible surprise from President Obama concerning Fannie Mae and Freddie Mac, and provides an economic update on China.
2010-08-06 Comparing Our Path to Recovery with Past Recessions and Recoveries by Team of American Century Investments
What appears to be a preliminary trend in declining rates of GDP growth has led many to speculate that the current economic recovery is weakening, or that we are slipping into another recession. The latter scenario seems very unlikely given the number of simulative factors at work in our economy, such as record-low interest rates and record-high deficit spending by the federal government. But the fact that we are less than three months away from an important midterm election in the U.S. Congress means that the state of our economy will be hotly debated and in the headlines.
2010-08-03 Richard Koo: Lessons from Japan's Decline by Dan Richards (Article)
Richard Koo is the Chief Economist of Nomura Research Institute, and has served as an advisor to the Japanese government. In this interview with Dan Richards, Koo explains why Japan's recovery was thwarted by inadequate stimulus spending. This is a transcript of the interview.
2010-08-03 Richard Koo: Lessons from Japan’s Decline (Video) by Dan Richards (Article)
Richard Koo is the Chief Economist of Nomura Research Institute, and has served as an advisor to the Japanese government. In this interview with Dan Richards, Koo explains why Japan's recovery was thwarted by inadequate stimulus spending. This is a video of the interview.
2010-08-03 The Role of Taxes in Future Growth by Chris Maxey of Fortigent
Democrats who were previously in favor of allowing the Bush-era tax cuts to expire at the end of this year are suddenly swimming in the opposite direction, with several favoring extensions to the tax credit, given the poor economic backdrop. It is easy to find evidence to support both camps, but the simple reality is that economically restrictive policies will create a drag on growth at a time when the economy can ill afford them.
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.
2010-08-02 Will Basel III Crush the Global Economy? by Christopher Whalen of Institutional Risk Analyst
This piece features a comment by Richard Alford on the evolving rules for the new Basel capital framework. Investors and bankers alike need to pay more attention to the machinations in the Swiss city of Basel to develop new bank capital guidelines, standards which could greatly constrict the supply of credit in industrial nations in the coming years. Christopher Whalen also comments on Q2 2010 bank stress test ratings, Japan, technology and the housing market.
2010-07-30 The Fed Has Not Run Out of Options, As Yet by Asha Bangalore of Northern Trust
The worst of the financial crisis is history, but the U.S. economy is still struggling to establish self-sustained economic growth. There is an ongoing debate among economists and policy advisors as to what is the best course -- fiscal austerity or stimulus -- to restore financial and economic tranquility. Discussions about the Fed's options in the event of further weakening of economic conditions in a deflationary environment have also surfaced.
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.
2010-07-28 Grey Owl Capital Management's Q2 Letter by Team of Grey Owl Capital Management
The equity and fixed income markets are still modestly overvalued. In addition, the economic recovery may only have been a mirage that the slow dwindling of the government stimulus will reveal. The majority of Grey Owl's equity portfolio is made up of 'high quality' companies – those with consistent earnings growth and low financial leverage. Japanese-style deflation and 1970s-style stagflation are both possible given the slow private sector growth, increasing government regulations, growing government debt loads, and expansive monetary policy.
2010-07-23 So What Else are the Bulls Looking at Right Now? by David A. Rosenberg of Gluskin Sheff
This is still a meat-grinder of a market. The bulls have the upper hand, but only until the next shoe drops in this modern-day depression and post-bubble credit collapse. The best we can say is that we do have a tradable rally on our hands and that we are at a critical technical juncture at the 50-day moving average on the S&P 500 - but remember, in a secular bear market, these rallies are to be rented, not owned. To be sure, 140 companies have reported so far and the news overall is good … but earnings are a coincident, not a leading indicator.
2010-07-22 It's Greek to Me by Howard Marks of Oaktree Capital
The current positives for investors include moderate valuations, rising corporate earnings and the likelihood we're already in a recovery. On the other hand, consumers are still too traumatized to resume spending strongly. Conservatism, austerity and increased savings are good for individuals but bad for a stagnant overall economy. Anyone who invests today in a pro-risk fashion out of belief in the recovery must be confident he'll be agile enough to take profits before the long-term realities set in.
2010-07-20 Cash Investing: Considerations for Investing in a Low Interest-Rate Environment by Northern Trust Investments (Article)
Northern Trust's chief economist, Paul Kasriel, forecasts that interest rates will remain low for the remainder of 2010. Investors are looking for guidance on how they should best position their cash and fixed income portfolios to take this environment into consideration, and should consider the tradeoff between liquidity and yield. We thank Northern Trust for their sponsorship.
2010-07-20 The Fed\'s View by Scott Brown of Raymond James Equity Research
Federal Reserve Chairman Ben Bernanke will testify on the Fed's semi-annual Monetary Policy Report to Congress this week. This is usually a big deal for the markets. However, there's much less suspense this time around. The Fed's views were already included in the minutes of the June 22-23 policy meeting. Fed officials lowered their projections of near-term growth and inflation, and about half saw the risks to their growth outlooks as tilted to the downside. However, policymakers felt that the shift in the near-term outlook did not warrant stimulus.
2010-07-19 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 'New Normal' Nowhere in Sight by Brian S. Wesbury and Robert Stein of First Trust Advisors
With GDP scheduled for release next week, Brian Wesbury and Robert Stein's estimate for annualized second quarter real GDP growth is 3.5 percent. While this is a significant reduction from their 5.5 percent forecast made in March, it is still higher than what the 'new normal' camp is predicting. Productivity growth is strong, monetary policy is (and will continue to be) easy, inventories are razor-thin, and corporate profits are growing rapidly. For the next four quarters, ending in mid-2011, Wesbury and Stein thus again anticipate growth at around a 4 percent rate.
2010-07-19 U.S. Lessons From Last Week: A Fiscal Dead End by Komal Sri-Kumar of TCW Asset Management
With the Obama administration's $787 billion stimulus money mostly spent or committed, the fiscal deficit has risen and borrowing needs have gone up, but the private sector is still incapable of generating sufficient employment or economic growth. While the $8,000 first-time home buyer credit temporarily helped housing, and 'cash-for-clunkers' was a boon to the automotive industry and car dealers last fall, the end of programs like these has typically been marked by a falloff in demand.
2010-07-19 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.
2010-07-15 Emerging Asia's On/Off Switch by Nouriel Roubini of RGE Monitor
In 2009 and the first half of 2010, low interest rates and an uncertain global outlook led to strong, volatile capital inflows into some of Asia's most promising economies. Policymakers in these places - which include, among others, Hong Kong, Taiwan, Singapore, South Korea, Indonesia and India - need to tighten monetary policy sooner rather than later. New inflows from the rest of the world might prove problematic, but at present low or negative real interest rates seem to be fueling speculative investment by domestic players, and that too is a dangerous dynamic.
2010-07-14 U.S. Equity Newsletter by Team of W.P. Stewart
One thing is certain - there is a lot of bad news around and many people are now forecasting a double-dip recession. 'Bad news,' however, may already be factored into prices. Global growth is still expected to be solidly positive in 2010 and 2011, albeit somewhat skewed to the emerging markets. Corporate balance sheets are very robust, productivity has never been higher and earnings growth remains strong even on somewhat reduced estimates. Equities should therefore offer significantly better returns than bonds or cash.
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 Country Risk: Building a New American Political Economy by Christopher Whalen of Institutional Risk Analyst
In a column in yesterday's New York Times, economist Paul Krugman took Fed Chairman Ben Bernanke to task for not doing more to combat deflation. And what should the Fed do according to Krugman? Print more money. More quantitative easing via purchases of private debt is the urgent recommendation of this leading American economist. While Krugman criticizes Ben Bernanke for being a Republican, however, it is worth noting that Krugman himself is not quite the socialist that he pretends to be. In fact, Krugman was once considered to be in the same political party as President Ronald Reagan.
2010-07-13 pick up the pieces by tom brakke of the research puzzle
Tom Brakke recently started a brand new service called research puzzle pix. You can think of it as a weekday digest of items that might trigger your curiosity or tickle your (investment) fancy. This commentary contains a link to one of his first efforts for the new service, a graphic called the 'yield curve accordion.' The graph shows the migration of various points on the yield curve of U.S. Treasury bonds. As the graph illustrates, each economic stumble is met with low short rates, a steepening yield curve, and a return to risk taking.
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.
2010-07-12 In Search of Your Sleeping Point by Cliff W. Draughn of Excelsia Investment Advisors
Asset allocation is an art involving quantitative analysis of financial markets combined with common sense. A buy-and-hold strategy is a dead decision during markets such as these. We have had the worst May in stocks since 1940. No credit still equals no jobs, China is destined for turmoil as its real estate market unwinds, and the Consumer Confidence Index is down to 52.9 in June from 62.7 in May. Fair value on the S&P is 950, which would indicate another 7 percent decline in stock prices from here.
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.
2010-07-08 Update: 10 Predictions for 2010 by Bob Doll of BlackRock
Over the long term, policymakers still have a difficult job to do as they work to unwind the massive amount of stimulus that had been injected into the system without causing either inflation issues or renewed deflation threats. Over the short term, the broad macro environment will continue to be buffeted by financial and economic uncertainty that will keep volatility levels elevated. That said, the odds for a double-dip recession are low. As long as a renewed economic contraction is avoided, equity prices should grind higher over time.
2010-07-08 Double-Dip Revisited by David A. Rosenberg of Gluskin Sheff
The U.S. economy is very fragile and more vulnerable to exogenous shocks than has been the case in the past. It takes time for these shocks to percolate - six months in 1995 and 12 months in 1998 - and we have yet to feel the full brunt of the European debt crisis hit home, in terms of the depressing impact of their aggregate demand on our export growth. Where the offset from government stimulus comes from next will be interesting to see. If it's not fiscal policy or the Fed, then something tells us that the bond market is going to have to work that much harder.
2010-07-06 Animal Spirits and the Economic Outlook by Scott Brown of Raymond James Equity Research
Near-term economic expectations have softened over the last few months and the risks to the growth outlook have become tilted more to the downside. There's nothing to suggest that a double-dip recession is imminent or even likely over the next few quarters. However, the one element that's hard to get a handle on is psychology. Fears of a double-dip could become self-fulfilling if enough firms stop hiring.
2010-07-03 The Dismal Science Really Is by John Mauldin of Millennium Wave Advisors
Yesterday's unemployment numbers were very bad, and Mauldin explains how they were calculated and the implications of adjustments, such as the birth/death model. Personal income was also down, which is a very rare occurrence. Other indicators, including the money supply, are not indicative of economic growth. The Fed will act aggressively to thwart deflation.
2010-07-02 Contemplating Capital Controls by Robert J. Horrocks of Matthews Asia
Some Asian countries have imposed capital controls as a measure to prevent asset bubbles. Policymakers are clearly wary of imposing further controls on capital. However, they cannot prevent the bubbles they fear by using monetary policy alone—until they allow their currencies to appreciate. Otherwise, they are simply allowing international investors to enjoy the high interest rates that tighter policy brings at the existing cheap exchange rate and capital will flow in.
2010-07-01 Ten Commandments for Fiscal Adjustment in Advanced Economies by Olivier Blanchard and Carlo Cottarelli of VoxEU
The G20 communiqué stresses the difficulty of balancing fiscal stimulus and fiscal consolidation. This column-written by one of the world's leading macroeconomists-sums up the research-based policy analysis of the issue. Put simply, what advanced countries need is clarity of intent, an appropriate calibration of fiscal targets, and adequate structural reforms – with a little help from monetary policy and their (emerging market) friends.
2010-06-30 Asset Allocation Thoughts by Tony and Rob Boeckh of Boeckh Investment Letter
This commentary provides an asset allocation framework for investor’s portfolios that reflects our macro view, concerns about the general riskiness of the financial world and a variety of issues that go into the asset allocation process. In general, we continue to be positive on risks assets in the context of our continuing focus on wealth preservation and diversification. Probabilities favor a recovery in stock and commodity prices rather than an extended bear market.
2010-06-28 Not Much Out of G20 by David A. Rosenberg of Gluskin Sheff
David A. Rosenberg summarizes the current conditions and calls for restraint. Fiscal restraint was the overarching message of the G20, which established a goal 'to shave fiscal deficits in half by 2013.' Debates continue as to whether current trends predict 'the third depression' and as to what measures might be taken to prevent that outcome. Rosenberg cites this weekend’s outpouring of articles on deficits, crises, and deflation. There seems to be no 'bottoming out' for the housing market.
2010-06-28 Feds Spin Wheels on Financial Regulation by Brian S. Wesbury of First Trust Advisors
'Later this week, President Obama will sign an overhaul of the financial industry, the biggest change required by law since the Great Depression. For all the legal change it brings, it won’t prevent the next crisis but also won’t do much harm. This bill will force existing firms to restructure their operations in order to comply, which may hit profits.' Wesbury and Stein point out the many shortcomings of this bill to fully address certain issues which include monetary policy, Fannie or Freddie, and 'too big to fail.'
2010-06-28 Investment Commentary by Bob Doll of BlackRock
We entered 2010 expecting a modest cyclical recovery countered by the structural problems that faced most of the developed world. For the first part of the year, the cyclical recovery did dominate, but in recent months, structural problems (especially those in Europe) began to win out and risk assets have been struggling. Now at the mid-year point, we thought it would be a good opportunity to take a look back at the predictions we made at the beginning of the year to see where we stand.
2010-06-25 When It Comes to Increasing Aggregate Demand, What’s Fiscal Policy Without Monetary Policy? by Paul Kasriel of Northern Trust
In order for an increase in government spending to result in an increase in total aggregate demand, the government's spending needs to be financed by the central bank and the commercial banking systems. Although the Fed and the banking system have helped fiscal policy to stimulate total aggregate demand through a cumulative increase in Treasury borrowing of $1,455 billion, the help was not all that spectacular. No wonder the results of the recent fiscal stimulus program were something less than awe-inspiring with regard to increasing aggregate demand.
2010-06-23 Recipe for a Lost Decade, or Two by Paul Kasriel of Northern Trust
There are legitimate concerns that the U.S. could catch the 'Japanese' disease and endure a lost decade in terms of normal economic growth. As has been the case in Japan, weak U.S. money and bank credit growth is occurring in the context of very low monetary policy interest rates. The private financial system is not transforming the inexpensive credit being offered it by the Fed into credit for the private nonfinancial sector of the U.S. economy. Until this transmission mechanism between the Fed and the economy gets mended, we are unlikely to experience potential economic growth.
2010-06-23 What a Flexible Yuan Means for the Economy by Nouriel Roubini of RGE Monitor
Even if the Chinese authorities allow two-way movement of the yuan against the dollar to reduce speculation, Chinese policies could support the U.S. Treasury market, commodities and risky assets more generally - especially if other emerging market countries take a cue from China and allow only gradual depreciation. However, a sharp appreciation against the euro and dollar without other policies to support Chinese consumption could contribute to much slower global growth and higher inflation as increased Chinese production costs are transmitted to G10 consumers.
2010-06-22 Navigating Fears of the Bond Market by James Pressler of Northern Trust
The need to keep the bond market happy while implementing often far-reaching fiscal reforms is most acute across Europe, where the outlook is for weak real GDP growth into 2011 – albeit with significant variations between countries. Conversely, the recoveries in Asia and in the Americas have effectively eliminated fears of sovereign defaults but now concerns over economic overheating will dominate. The U.S will eventually have to address its own public debt overhang, but for now is enjoying a temporary safe-haven status.
2010-06-22 Risk Assets Regain Favor But Risk Looms on the Horizon by Chris Maxey of Fortigent
The resurgence in risk appetite continued apace this past week, allowing the S&P 500 index and the Dow Jones Industrial Average to return to positive territory for the year. By the end of the week, the S&P was up 2.4 percent and the DJIA finished up 2.3 percent. The recession of 2008-2009 seems to have left a mark on many individuals, however, especially those in the baby boomer generation who are inching ever closer to retirement. This is fueling a reallocation away from equities in favor of bonds and income-producing securities.
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 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.
2010-06-15 An Evaluation of the Threat of Near-Term Inflation by Asha Bangalore of Northern Trust
There is plenty of room for the economy to grow before the Fed slams the monetary policy brakes. Inflation expectations have moved down to 195 basis points as of June 11, from a high of 245 basis points at market close on April 29. Meanwhile, the money supply is barely growing. The ballooning of the Fed's balance sheet has not translated into rising inflation expectations. And final retail sales grew only 1.4 percent in the first quarter.
2010-06-15 The Dow-Gold Relationship by David A. Rosenberg of Gluskin Sheff
David Rosenberg provides a chart comparing the Dow Jones Industrial Average to gold prices since 1900. If this ratio ends up retesting the two fundamental lows that it has achieved in the past, and if we are correct in our assertion that gold will go to $3,000 per ounce, then we may be getting a Dow 5,000 trough at some point down the road. Rosenberg also comments on the Fed's continued hold on monetary policy, and the threat posed by rising debt levels to growth.
2010-06-14 Twelve Weeks Later, The Recovery Remains On Track by Bob Doll of BlackRock
Equities have already priced in the likelihood of somewhat slower economic growth in the coming months. Volatility measures will remain high because markets still remain subject to many risks, not the least of which is the high degree of uncertainty surrounding the European debt crisis. In any case, the bulk of the current correction should be behind us, while the positive macro backdrop and improving valuations will provide a floor for equity prices. Investors will need to remain patient, since it will still take some time before base-building can allow markets to regain ground.
2010-06-11 Schwab Sector Views: Why Sectors? by Brad Sorensen of Charles Schwab
Views on the S&P 500 sectors.
2010-06-10 April 2010 Commentary by Bill Middleton of Sound Portfolio Advisors
Perhaps the most encouraging signs in markets today are general pessimism and lowered expectations. Mass expectations tend to be dead wrong, and are therefore excellent contra-indicators. The first- and second-best performing asset classes of the past 10 years, gold and real estate, were so ill-regarded prior to 2000 they weren't even included in the data provided by the Wall Street Journal in January of that year. The best performing asset class for the 1995-1999 period, science and technology, was by far the worst performing for the following 10 years.
2010-06-10 Addressing Investor Concerns after Heightened Volatility by Mark Mobius of Franklin Templeton
Mark Mobius shares responses to investor questions on emerging markets. Emerging markets continue to be fundamentally strong, with high growth levels, a lower debt-to-GDP ratio compared to developed markets, higher foreign reserves and declining risk. Credit default swaps in many emerging market countries now trade at lower spreads than those of some European countries. On average, however, investors still have a weighting of just 3-8 percent toward emerging markets in their portfolios, while emerging markets now represent about 30 percent of the global market capitalization.
2010-06-10 The 'Yield' Theme Continues Unabated by David A. Rosenberg of Gluskin Sheff
Fixed-income is woefully under-represented in U.S. and Canadian household balance sheets, while the average baby boomer is 55 years old and as a result is at an age where capital preservation strategies win out over a strict capital appreciation focus, which worked so well in the 80s and 90s. The market moves in 16- to 18-year cycles. Sadly, this secular down-phase in the equity market began in 2000 when the major averages hit their peak in real terms, so the best we can say now is that we are probably 60 percent of the way into it.
2010-06-10 Some Unpleasant Keynesian-Minsky Logic by Paul McCulley of PIMCO
Thirty years ago, virulent inflation demanded robust monetary authority independence, so as to pursue a draconian monetary policy that even disciplined fiscal authorities when their loose policies contradicted the overriding goal of winning the war against inflation. For the past decade, however, a more collaborative relationship between monetary and fiscal authorities has been required in order to cut off the fat tail of deflation risk, notably in recessions. The European Central Bank needs to realize this, even if future policies threaten to unmoor long-term inflation expectations.
2010-06-09 Not Your Typical Pullback by David A. Rosenberg of Gluskin Sheff
The outlook for the U.S. economy and the earnings backdrop have become highly uncertain due to the European debt crisis, which, with a lag, will end up hitting our shores. In the name of prudence, a higher risk premium must be applied to the investment decision-making process, which in turn means that a focus on income, capital preservation, and defensive, noncyclical strategies will work best. Trading up in quality and reducing risk will be the key to solid investment performance in coming months.
2010-06-08 Why Wall Street Won't be Reformed by Robert Huebscher (Article)
Michael Lewitt, author of the highly respected HCM Market Letter, has just released a new book, The Death of Capital. In this interview, he identifies the challenges facing those who seek to regulate Wall Street, and why most of the proposed reforms are likely to fail.
2010-06-08 The First Thing We Do, Let’s Kill All the Quants by Michael Lewitt (Article)
In the latest issue of the HCM Market Letter, Michael Lewitt draws the parallels between the Gulf of Mexico oil spill and financial reform - both, he says, demonstrate our inability to learn from our mistakes. Lewitt also comments on quantitative trading strategies, economic recovery and the capital markets.
2010-06-02 Gold: Early 1930s vs. Early 2010s by Paul Kasriel of Northern Trust
Some argue that gold will outperform general stocks in the early 2010s, as it did in the 1930s. If this is true, then it will be for entirely different reasons. Investors currently gravitate toward gold as a hedge against future inflation, or because of a loss of faith in the fiat currency. U.S. gold mining stocks were strong performers in the 1930s, by contrast, because the U.S. Treasury was guaranteeing gold miners a steady or rising price as production costs were falling.
2010-06-01 Equity Income Targets Utilities by Philip Sundell, CFA (Article)
Natural gas local distribution companies are appealing utility business models to conservative equity investors. They tend to have stable earnings and stronger balance sheets. Philip Sundell of American Century Investments discusses his overall outlook for utilities in this interview. We thank American Century for their sponsorship.
2010-06-01 Europe: Value or Value Trap? by Dan Trosch, CFA (Article)
European equities seem much cheaper than in the US, says Dan Trosch of Fortigent in this guest contribution. Europe trades at a 26% Price to Book discount and a 20% Price to Cash Earnings discount to the US. Some European industries and stocks are deservedly cheap and value traps; other industries and stocks are attractive and will benefit from global growth in exports and other macro trends.
2010-05-25 Sovereign Default Risk — the Next Concern by Eric S. Ende of First Pacific Advisors
In this letter, first published on April 26, First Pacific argues that it was government intervention last year that stabilized the stock market and allowed credit markets to begin functioning again. Not surprisingly, however, deficit spending has led to sharp increases in the amount of outstanding government debt compared to the size of economies. Around the world we should see lower debt ratings for weaker countries, accompanied by partial defaults. Please note that events, prices and outlook may have changed since this letter was first published.
2010-05-24 Driven By Psychology by Charles Lieberman of Advisors Capital Management
Memories of 2008 are still fresh enough to make fears of another meltdown high, even though economic conditions are considerably improved. Growth should slow as a result of deficit reduction efforts, but mostly in Europe. Domestic demand is still gathering momentum, reinforced by job growth, which is boosting disposable income and discretionary spending. Against this backdrop, domestic equities have become quite cheap once again. As conditions stabilize, stocks could experience another sharp upward surge.
2010-05-19 European Stabilization Mechanism: Promises, Realities and Principles by Charles Wyplosz of VoxEU
Markets liked the European Stabilization Mechanism, but a closer look shows that the money announced is not available. When markets realize this, they may do to Portugal and Spain what they did to Greece. Worse still, crucial principles have been sacrificed for the sake of unconvincing announcements. The debt crisis is unlikely to go away and the monetary union will have to be reconstructed to re-establish the principle of collective fiscal discipline.
2010-05-17 Two Choices: Restructure Debts or Debase Currencies by John P. Hussman of Hussman Funds
Without a central taxing authority, the common European currency can only survive if participating countries strictly control their deficits. It should not be difficult to recognize that confidence in any currency is tied to confidence in the assets which stand behind it, and associated confidence in the restraint of fiscal and monetary authorities. The bureaucrats in both the U.S. and European central banks have chosen to betray that trust.
2010-05-17 Why Be Bullish? by Charles Lieberman of Advisors Capital Management
Investors are nervous that Greece and Europe's need to restrain fiscal policy could spill over and cause a double dip recession in the United States. While that isn't impossible, it is highly unlikely. The U.S. economy is building momentum and derailing the expansion is quickly becoming difficult. Fundamentals also strongly suggest an improving economy. Thus, rather than weakness in Europe undermining domestic growth, it is far more likely that a healthier economy in the U.S. and in Asia will spill over to help the Europeans.
2010-05-14 Schwab Sector Views: Sea Change? by Brad Sorensen of Charles Schwab
Market volatility has heated up during the past couple of weeks as more eyes have turned toward the debt problems plaguing Europe. After a nice run in equities, it's certainly not surprising to see some sort of pullback, especially in areas of the market that may have outperformed to start the year. The United States is entering a time of more-steady growth, with flattening leading economic indicators, which typically represents a shift in sector leadership. The information technology sector, for example, should outperform the market, while materials should underperform.
2010-05-14 The Effect of Inflation on Purchasing Power by Robert Urie of Pioneer Investment Management
This paper provides an analysis of what inflation is and its effect on purchasing power. Inflation is a broad rise in the price level of goods and services that reduces purchasing power. In recent decades it has occurred in two predominant forms: rapid, steep increases in prices and a long, persistent rise in prices that gradually erodes purchasing power. Both forms result from a combination of the level of economic growth, monetary policy and unforeseen supply and demand shocks.
2010-05-13 Driving Without a Spare by Mohamed A. El-Erian of PIMCO
Mohamed El-Erian recounts the results of last week's PIMCO Secular Forum on the three- to five-year outlook for the global economy and the markets. Participants concluded that we are heading toward a world that is re-regulated, de-levered, and growing less rapidly in the industrial countries. It will be a world in which concerns about the dark side of globalization temper enthusiasm for its net benefits, and in which politics matter a lot for markets and the economy. The drama playing out in Europe these days is a vivid illustration of this general secular characterization.
2010-05-12 A Typical European Response To An Atypical European Problem by Victoria Marklew of Northern Trust
Markets heaved a sigh of relief this week after European Union officials announced their $1 trillion rescue plan to save the euro. European states, however, will still have to face medium-term problems concerning fiscal deficits and economic restructuring. Demands that Spain make a renewed commitment to fiscal austerity suggest a new level of cross-country intervention. And the big issue has been swept under the carpet: how to ensure prudent fiscal policy-making across the 16 members of a monetary alliance with strong national identities and prickly memories of past hostilities.
2010-05-11 Across the Pond - Still a Sea of Red by David A. Rosenberg of Gluskin Sheff
It remains to be seen how Greece and the other problem countries in the euro area will manage to cut their deficits without at the same time controlling their monetary policy and their currency. While coincident economic indicators such as employment have improved in recent months, many of the leading indicators are pointing towards a discernible slowing in economic and earnings growth in the second half of the year and into 2011 as countries worldwide shift from stimulus to fiscal restraint.
2010-05-10 Fighting a Good Greece Fire by Doug MacKay and Bill Hoover of Broadleaf Partners
Recently televised riots on the streets of Greece, a collapsing euro, and ineffectual monetary policy efforts by a politically divided European Union have all heightened concerns and comparisons of the current Greece 'fire' to our own mortgage mess a couple of years ago. While our banks and financial system are much less exposed to Greek and European debt than the European banks were exposed to our own mortgage problems, our Fed and Treasury departments, unlike Europe, stood united in doing whatever they could to prevent a second Great Depression.
2010-05-10 Europe Fires the Bazooka by Charles Lieberman of Advisors Capital Management
Greece's risk of default has the potential to disrupt markets globally, depressing stock and most commodity markets, while pushing the safest bonds, Treasuries, to artificially high values. With Greece as a possible disruptive force to global capital markets, the Fed will be hesitant to raise rates. Moreover, restrictive fiscal policies in Greece, Spain, Portugal, Italy and the U.K. will weaken U.S. exports to Europe. While a less expansion oriented monetary policy will still be needed in the U.S., it will come later given the disruptive forces from Europe that will restrain global growth.
2010-05-10 Euro-Sclerosis No Longer and Last Week's Market by David A. Rosenberg of Gluskin Sheff
In what can only be described as a spectacular showing of solidarity, European Union finance ministers managed to cobble together a 750 billion euro stabilization program. This is over and above the 110 billion euro Greek bailout package announced last week and is widely seen as a very powerful countermove against the 'wolf pack' that had been attacking the peripheral euro area financial markets over the past few weeks. Equities, commodities , credit and lower-tiered sovereign bonds should all improve markedly. Gluskin also comments on last week's uncertainty in capital markets.
2010-05-08 The Center Cannot Hold by John Mauldin of Millennium Wave Advisors
Citing a paper from the Bank for International Settlements, Mauldin says increasing sovereign debt has two consequences - higher interest rates for that debt and lower growth rates for the underlying economies. Growth in sovereign debt at its current rate is unsustainable and poses systemic risks for the global economy. Fiscal austerity is the only solution, and that seems unlikely, particularly in the case of Greece.
2010-05-07 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
So when is a 350 point down day considered a good thing? Perhaps, after it recovered from an earlier decline of almost 1,000 points? For a week at least, bullish investors went into hibernation and the bears reappeared, warning everyone about Greece, Goldman, Congress, deficits, the Fed, earnings, inflation, and everything else that could negatively impact the markets. Add a few potential technical computer glitches and maybe a heavy trading finger or two and you have one of the worst weeks among equities ever (memories of 2008).
2010-05-06 First Quarter 2010 Market Review and Outlook by Ronald W. Roge of R.W. Roge
Recent signs of economic strength are encouraging, but mostly stem from temporary factors like stimulus spending and inventory rebuilding. Based on current valuations, it is likely that stock returns will trend below average in the next five years. Even under more optimistic scenarios, annualized equity returns barely reach double digits. This goes for stocks of both domestic and foreign developed markets. Roge's investment view therefore remains cautious, balanced and flexible.
2010-05-04 Lacy Hunt: Keynes was Wrong (and Ricardo was Right) by Robert Huebscher (Article)
Underpinning the Obama administration's economic policies is the work of John Maynard Keynes, the legendary British economist who called for large fiscal and monetary interventions to counter the Great Depression. On this critical issue, Keynes was wrong, says Lacy Hunt, the internationally renowned economist with Texas-based Hoisington Investment.
2010-05-04 European Debt Crisis Keeps Expanding by Monty Guild and Tony Danaher of Guild Investment Management
The European sovereign debt crisis will continue to wax and wane, but will stay with us until European governments take much stronger actions to reign in excessive outlays of all types, including social and military spending. The euro and British pound will continue to fall in value versus the U.S. dollar and other better-managed currencies such as the Australian, Canadian and Singapore dollars, the Chinese yuan and the Brazilian real. Guild remains bullish on the strong currencies mentioned above, oil, gold, several Asian markets and exporting companies around the globe.
2010-05-01 The Bond Roller Coaster by Michael Nairne of Tacita Capital
The bond market has been characterized by long-term secular cycles. From 1946-1981 yields steadily rose; since 1981 they have steadily declined. The good times for bonds couldn’t last forever. Although some longer-term bond exposure is needed today as a hedge against a deflationary scenario, investors should recognize that in the next year or so the bond roller coaster is about to get underway.
2010-05-01 Resilience Resonates by Liz Ann Sonders of Charles Schwab
The stock market has absorbed numerous body blows recently, but continues to chug along—waiting for a big price correction to buy could be detrimental. Economic data remains solid, confounding some recovery skeptics and providing the Fed ample reason to slowly return to normalcy. European debt problems are growing and concerns over contagion are rising; there's no quick fix, and some politically unpopular decisions are going to have to be made.
2010-05-01 The Future of Public Debt by John Mauldin of Millennium Wave Advisors
Mauldin defends Goldman Sachs, arguing that buyers of the synthetic CDO it created should have been aware of the risks. He then comments on a paper by the Bank of International Settlements (BIS) which analyzes the level of sovereign debt across a number of countries. The BIS says the overall debt levels for these countries, which include many of the G20, are unsustainable, and the US is among those with the worst long-term outlook.
2010-04-30 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Goldman’s Fabulous Fab may not seem so fabulous these days, at least, not to the grandstanding Congresspersons and federal prosecutors. During the week, investors should have had plenty to cheer about: earnings remained strong, the economy continued in rebound mode, the Fed offered some positive comments and kept rates unchanged at low levels. However, equities plummeted as news from the EU raised some additional concerns about the global economy and the perpetual bailouts of other European countries (Spain and Portugal). And, as for Goldman Sachs…memories of 1990 Drexel Burnham?
2010-04-29 Fed Stays the Course by Brad Sorensen of Charles Schwab
The Federal Reserve continued its recent pattern of holding short-term interest rates relatively steady, while cautiously upgrading its economic outlook. Kansas City Federal Reserve President Thomas Hoenig again dissented. It is possible that economic uncertainty in Europe pushed the Fed to keep the status quo. Greece continues to make headlines with its debt problems, and there are growing concerns of possible contagion. Standard & Poor's recently downgraded the debt ratings of Spain and Portugal to junk status.
2010-04-29 Fed Twiddles its Thumbs by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Federal Reserve made no direct changes to monetary policy yesterday, leaving the target range for the federal funds rate at 0 percent to 0.25 percent. Minor changes to the Federal Reserve's statement on Monday, however, show that the central bank is continuing to gain confidence in the economy. These include comments that the labor market is 'beginning to improve,' rather than 'stabilizing;' household spending is 'picking up' rather than 'growing at a moderate rate;' and housing starts have 'edged up' rather than staying 'flat.'
2010-04-28 Greece, Europe and the Significance of Yesterday's Market Action by David A. Rosenberg of Gluskin Sheff
The Euro bounced back this morning, and the flight to higher quality German and French bonds has partly reversed course as markets swirl with speculation that the IMF will announce a stepped-up aid package. The problem, however, is that if Greece is bailed out then Portugal, Ireland, Spain and perhaps Italy may not be far behind. The inability of Greece - and others within European monetary union - to enact an independent monetary policy at a time of crisis has exposed the flaws of the union. The lack of a cohesive national government is another flaw in times of turbulence.
2010-04-27 Gary Shilling: America’s Lost Decade by Robert Huebscher (Article)
The US faces 10 years of slow growth and deflation that could rival Japan's "lost decade" - two words which Gary Shilling did not utter but which unmistakably characterize his forecast. Shilling is founder and President of the New Jersey-based economic consulting firm A. Gary Shilling & Co.
2010-04-26 The Danger of Zero Percent Interest Rates by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Fed has become overly involved in financial markets and it is losing sight of its number one job - maintaining price stability. Zero percent interest rates are becoming more dangerous every day. The economy is outperforming the Fed’s forecast, creating a dilemma. Before massive snowstorms, the Fed projected that real GDP would grow 3.1 percent in 2010. First Trust's forecast for Q1 real GDP is 3.4 percent, despite record-breaking storms. And we expect Q2 real GDP growth to approach 6 percent.
2010-04-23 Postcard from Vietnam by Elizabeth Dong of Matthews Asia
During his recent visit to Hanoi and Ho Chi Minh City, Matthews Asia's Elizabeth Dong had the opportunity to compare some of Vietnam's emerging sectors, as well as some more well-established industries, including its telecommunications industry—one area in which Vietnam has surpassed its neighboring countries. The government has anchored its monetary policy on the depreciation of its currency, the dong. A depreciating currency makes goods cheaper and wages more competitive, which in turn increases foreign direct investment and promotes exports, but also causes high inflation
2010-04-21 The Bernanke Put: Creating Tetrodotoxin Investors by Cliff W. Draughn of Excelsia Investment Advisors
The 'Bernanke Put' of low interest rates over an extended period of time has effectively lured investors to pursue greater and greater levels of risk without critically thinking about the ramifications of upcoming mortgage resets, consumer spending versus income, credit contraction, valuations, and unemployment. Our country has never experienced leverage of this magnitude. In this environment, we must remember the lesson from Benjamin Graham: 'The margin of safety takes priority over all other investment considerations.'
2010-04-20 Unconventional Wisdom: An Interview with Robert Shiller by John Heins (Article)
"Few macroeconomic prognosticators have been as publicly right as Yale's Robert Shiller,whose first and second editions of the book Irrational Exuberance laid bare, with remarkable timing, the speculative bubbles forming first in the Internet-crazed stock market and next in residential real estate," writes the highly regarded newsletter Value Investor Insight in its preface to this interview with Shiller and excerpt from his latest book. Value Investor Insight, which bills itself as the "Leading Authority on Value Investing, offers a no-obligation, one-month free trial subscription.
2010-04-19 Higher Inflation, Not Hyperinflation by Brian S. Wesbury and Robert Stein of First Trust Advisors
Some analysts have proposed inflating/devaluing our way out of this debt crisis. The theory is that with deficits already so large and no immediate prospects for spending control, the US government may have to resort to an Argentina-style monetary policy to pay for its largesse. Hyperinflation with a side order of devaluation, however, is not a free lunch. That was a lesson learned all too well in the 1970s. And now, with future entitlement spending making the current securitized debt small by comparison, it makes even less sense for the government to pursue.
2010-04-19 Demographic Trends for the Long Term by Chris Maxey of Fortigent
The world is entering a period of rapid aging unlike any we have previously seen. According to a recent report by Neil Howe and Richard Jackson there are several key implications due to an aging population. As populations age, decreased mobility and adaptability will restrain economic growth and entrepreneurship, leading to higher public deficits as governments shoulder a greater percentage of health and retirement costs. Fortigent also examines the impact of the SEC investigation of Goldman Sachs on equity markets, and the week ahead.
2010-04-14 Will Inflation Reemerge as a Dominant Force? by Kendall J. Anderson of Anderson Griggs
The current monetary policy of developed nations is to reinvigorate consumer demand through massive monetary stimulus. There is no doubt that this policy will have its intended effect and revitalize the private sector. Increasing demand from the private sector, along with the fiscal demands of new government obligations, however, could easily create a round of inflation where the aggregate demand of government and the private sector will exceed available supply. There is therefore a real possibility that inflation will be higher in the next 10 years relative to the past.
2010-04-14 Quarterly Review and Outlook by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Massive government spending is unsustainable, and will not lead to economic growth. Recent research says that the multiplier for federal government spending is less than one (each dollar spent results in less than one dollar of growth), whereas the multiplier from tax reductions is greater than one. Other economic research suggests that in an extremely overleveraged economy, monetary policy does not work. With excessive levels of debt and contractionary monetary and fiscal policies in place, inflation will continue to moderate, thereby driving long term treasury yields lower.
2010-04-13 Stocks Reach 18-Month Highs by Bob Doll of BlackRock Investment Management
Continued evidence of improvements in the economy and expectations for strong first-quarter earnings helped push stocks up nearly 8 percent for the year, to their highest levels in 18 months. BlackRock expects stocks to continue to grind higher over the course of the year, and for corporate earnings to become the main driver of equity prices. Over the longer term, the most significant investment issue will likely be the cyclical tailwinds of accommodative fiscal and monetary policy and the secular headwinds of massive budget deficits, high levels of debt and continued deleveraging.
2010-04-13 What Correlates With Bond Yields: The Core and the CPI Are All That Matter by David A. Rosenberg of Gluskin Sheff
Monetary policy is the strongest single predictor of bond yields, with an 88 percent correlation. Inflation and inflation expectations, meanwhile, drive Fed policy, and core inflation commands a 75 percent historical relationship with bond yields. Slack in the economy drives inflation expectations, and we currently have tremendous spare capacity in goods, labor and housing. Rosenberg also comments on the tenuous prospects for a big recovery, despite hopeful signals from equity markets.
2010-04-13 Yield Opportunities Still Exist in Bonds by American Century Investments (Article)
The current economic and market environment presents intriguing challenges for income-seeking, risk-averse investors. One effect of the Federal Reserve's policy of holding short-term interest rates at historically low levels is to force cautious, safety-oriented investors out of cash-equivalent investments. In this article, David MacEwen, chief investment officer for fixed income, discusses a number of opportunities that may provide additional yield for clients within a risk-managed, fixed-income framework. We thank American Century Investments for their sponsorship.
2010-04-12 Setting the Record Straight on the Bond Debate by David A. Rosenberg of Gluskin Sheff
Bond bears argue that the U.S. government has never before raised so much debt to finance the bloated fiscal deficit and roll over existing obligations. With credit contracting, rents deflating, the broad money supply measures now declining and unit labor costs dropping at a record rate, however, it hardly seems plausible that inflation is a risk at any time on the near- or intermediate-term forecasting horizon. Rosenberg also comments on currency, equity, commodity and corporate bond valuations, as well as money and credit contractions.
2010-04-12 Weekly Commentary and Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The economic data and outlook continue to be a mixed bag. The weekly tally of new unemployment claims jumped last week and certainly gives no indication of a surge in employment. On the other hand, very few if any earnings preannouncements were made, thus implying that the earnings season that starts in earnest this week will be a good one. It will take very good news indeed to keep prices from doing some profit-taking.
2010-04-09 Interest Rates are Creeping Up by Asha Bangalore of Northern Trust
The Fed is on hold in the near term, with nearly all its emergency programs either closed or expired. The effective federal funds rate has moved up in recent weeks, to an average of 16 bps in March, as have yields on other Treasury securities. The upward trend of Treasury market yields places the Fed is a tight spot, because the objective of easy monetary policy is defeated if Treasury market yields continue to move up and raise the cost of credit. Northern Trust's best bet is that interest rates will decline somewhat in the weeks ahead as bearish economic news comes out.
2010-04-09 Krugman Strikes Again by Peter Schiff of Euro Pacific Capital
Like most of his academic peers, New York Times columnist Paul Krugman believes that falling prices are the economic equivalent of kryptonite, guaranteed to bring low even the mightiest economy. He is wrong. We need deflation. As a result of a phony boom in assets, prices levels are still too high relative to the earning power and productivity of American workers. Falling prices will cushion the blow of recession by allowing people to buy more with their paychecks and savings, and will eventually encourage people to spend when prices fall low enough.
2010-04-09 Reform We Can Believe In by John Mauldin of Millennium Wave Advisors
Appointments to positions of power in the Federal Reserve system should be independent of the political process and party politics. Credit default swaps should be regulated by requiring that they be traded on an exchange. Commercial and investment banking should be separated, so that commercial banks cannot engage in speculative activity such as running hedge funds. Leverage use by large banks should be restricted. "Fix the big things. Credit default swaps. Too big to fail. Leverage. Then worry about the details. And leave the Fed alone."
2010-04-07 Iraqi Oil: A Riddle in the Sands by Nouriel Roubini of RGE Monitor
Iraq has the potential to be a major source of new oil in the next 5 to 10 years, but the process of scaling up production faces many obstacles. Modernizing and expanding the country's energy infrastructure will be costly, given Iraq's fiscal position, and this may tempt the government to extract as much revenue as it can in order to meet the country's fiscal vulnerabilities. And as Iraq's oil production gradually climbs, it will face pressure from OPEC to adhere to quotas. Given these uncertainties, Iraq's plans to more than double output within 5 years seem very optimistic.
2010-04-06 Do Not Give Up on Stocks: Stay Active by Jay Feeney of Robeco Investment Management
Stocks clearly have much better fundamental earnings support now than they did in mid-2009, when profits were still in a downward spiral. Money, however, is flooding away from active strategies and into passive indexing and ETFs. At this juncture, the headwinds against expansion are considerable and this stacks the balance of risk in favor of active stock-picking strategies that maintain a strong valuation bias. Higher-quality large cap stocks should also be emphasized, since the rally off the bottom has favored lower quality names, leaving the larger names with more attractive upside.
2010-04-05 Weekly Commentary and Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The unemployment report for March showed that employers added 162,000 nonfarm payroll jobs last month, but the unemployment rate stayed steady at 9.7 percent. The economy needs to add 200,000 jobs per month just to stay even given population growth and new entrants into the labor pool, including immigrants and college graduates. From an investor's perspective, however, the news remains encouraging. The data shows conclusively that economic activity is advancing despite the sluggish job market. Higher activity without higher costs spells higher profits.
2010-04-01 First Quarter Economic Review by Thomas H. Luster of Eaton Vance Investment Managers
2010 is off to a strong start, building on the accelerating recovery that began in 2009. In the fourth quarter of 2009, GDP posted a healthy 6 percent growth rate, driven by strong government outlays, increased business activity - mainly, rebuilding very low inventory levels - and a nascent recovery in consumer spending.
2010-03-30 China's 2010 Growth Forecasts Upgraded by the World Bank by Team of American Century Investments
The World Bank raised China's 2010 growth forecasts to 9.5 percent last week from the 8.7 percent projected in November, but also predicted that China's growth will slow somewhat in 2011, to 8.7 percent. It also recommended higher interest rates and a stronger currency for China amidst growing concerns over rising inflation and a property sector bubble. The Chinese government emphasized the need for structural reforms in recent presentations to the National People's Congress.
2010-03-29 Bank Profile: First Interstate BancSystem (FIBK); Achim Dübel on Covered Bond Legislation by Christopher Whalen of Institutional Risk Analyst
This post features a comment from international mortgage finance consultant Achim Dubel of German financial think tank Finpolconsult. Dubel says that legislation proposed by Representative Scott Garrett of New Jersey to create a covered bond market in the U.S. needs to be changed if it is to restore investor trust and provide needed new liquidity to real estate markets. Legacy problems with shaky assets of all colors on bank balance sheets should be solved via bad banks and/or bank insolvency and restructuring, not through a new secondary market for bank mortgages.
2010-03-29 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Last week's data revealed continued economic recovery, even though housing continues to lag, an alarming trend given that future Fed moves could negatively impact the sector. Optimists still hope that dismal housing numbers reflect poor winter conditions, however, and will reverse themselves in the coming months. As the first quarter comes to a close, expect managers to rebalance positions, take some profits and even lock in losses for tax purposes. The new month will bring a plethora of economic data, highlighted by the unemployment rate late in the week.
2010-03-29 Central Banks in 2010 - The Cacophonous Sound of Exit Music by Asha Bangalore of Northern Trust
Recent developments suggest that the uncertainty of the past three years has left central banks skittish. Otherwise strong economies have been slow to normalize rates and central banks that are following inflation targets have been more willing to risk breaches than growth. The remainder of the year will be characterized by differing exit strategies and their intended and unintended consequences. As central banks around the world begin tightening before the Fed and the ECB, there will be further implications for global capital flows and exchange rates.
2010-03-29 Taking Stock of Deficits by Milton Ezrati of Lord Abbett
As investors have gained confidence that financial markets have healed and economic recovery has begun, their concern has increasingly turned to the flow of federal red ink. While not all deficits lead to bad markets, there is reason for concern. The White House forecasts huge budget shortfalls in the years to come, and the deficit-narrowing plans it has offered rely almost exclusively on tax increases. Other considerations such as economic growth, a balanced monetary policy and earnings improvements, however, may allow stocks to rise even in the face of fiscal woes.
2010-03-26 Comments Before the Money Marketeers Club: Reflections and Ruminations by Paul McCulley of PIMCO
In a technical discussion of monetary policy, McCulley argues the 2 percent real federal funds rate constant in the Taylor Rule should be toast. In a world of deleveraging and cash hoarding, it makes absolutely no sense to reward holders of cash with an after-tax real rate of return. May Wall Street relearn the doctrine of profit-motivated stewardship, he says, and unlearn the false god of speculation-driven avarice.
2010-03-26 Inflation in 2010 and Beyond? Practical Considerations For Institutional Asset Allocation by Michael Katz and Christopher Palazzolo of AQR Capital Management
The monetary stimulus has justifiably focused investor attention on potential inflation. Despite significant growth in the U.S. monetary base, however, the money supply has grown only modestly. Furthermore, there is excess capacity in the economy, as evidenced by an approximate 70 percent capacity utilization and a 10 percent unemployment rate. Inflation rates remain below pre-crisis levels, and the trend in the CPI index is not currently showing signs of a dramatic increase in inflationary pressures.
2010-03-26 Global Market Management by Monty Guild and Tony Danaher of Guild Investment Management
Investors should focus on exporting companies, food-related companies, raw materials producers, iron ore, oil, coal, technology, and on stocks of other countries, especially countries that can export to fast-growing areas such as India, China and Southeast Asia. Even U.S. financial stocks are enjoying a rally as uncertainty ends. Japanese, European and U.S. stocks that produce products for domestic consumption offer poor prospects. Gold is in a trading range, and investors may want to acquire gold shares as it approaches the bottom of that range.
2010-03-24 The Economy, Interest Rates and Fixed Income Markets: What to Expect in 2010 by Curtis Arledge and Eric Pelliciaro of BlackRock
This commentary features an interview with BlackRock chief investment officer of fixed income Curtis Arledge and Eric Pellicaro, head of global rates investments for BlackRock fundamental fixed income. Arledge and Pellicaro predict that the Federal Reserve will keep the federal funds rate in the 0 to 0.25 percent range until at least the first half of 2011, particularly if economic activity slows down as the year progresses. When the central bank does start raising rates, it will do so gradually, and it will clearly telegraph its intentions in advance of formal rate announcements.
2010-03-17 Fed Still Clinging to Extremely Loose Money by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Federal Reserve made no direct changes to monetary policy, leaving the target federal funds rate at 0 percent to 0.25 percent. Changes to the Fed's statement with regards to the labor market, business investment and housing starts, however, suggest that the central bank is gaining confidence in financial markets and the economy. One member even strengthened his dissent toward keeping interest rates exceptionally for an 'extended period' of time. The Fed also strengthened its commitment to ending special lending facilities for the mortgage market.
2010-03-16 Greeks Bearing Gifts by Michael Lewitt (Article)
We are again privileged to publish the most recent edition of Michael Lewitt's HCM Market Letter, Greeks Bearing Gifts. Lewitt comments on Goldman Sachs' derivative transactions that helped Greece hide its debt and its larger implications for the financial system, for the European periphery and for Spain in particular. Lewitt also addresses the state of decline of the US economy and other topics.
2010-03-15 More Solid Growth Ahead by Brian S. Wesbury and Robert Stein of First Trust Advisors
The consensus is forecasting a growth rate of 2.7 percent for the first half of 2010. In contrast, we are predicting 4.5 percent, with faster growth in the second quarter than the first. The tilt toward Q2 is due to unusually harsh winter weather across much of the country. The consensus is still underestimating the resilience and robustness of the US economy and remains stuck on expectations of a 'new normal.' But, productivity is strong, monetary policy is (and will continue to be) easy, inventories are razor-thin, and corporate profits are growing rapidly.
2010-03-12 Changing Seasons by Doug Mackay and Bill Hoover of Broadleaf Partners
The economy is shifting from its early recovery phase of rapid growth into a late expansion phase of moderate growth. While low interest rates were critical to market success in 2009 during the early stages of the expansion, economic growth patterns tend to have greater influence in later stages. As economic seasons change, it will be necessary for investors to weed out bad stocks, prune healthy ones and transplant names in order to maintain the vitality of their overall portfolios.
2010-03-12 And That's the Week That Was... by Ron Brounes of Brounes & Associates
. Let the rally continue. As the country (world for that matter) celebrated the one year anniversary of the market turnaround (bull market sounds too encouraging), investors took time to reflect on just where we have been and where we may be going. Buyers emerged again (though on a smaller scale…
2010-03-05 Greek Bailout: This is a Trojan Horse! by Komal Sri-Kumar of TCW Asset Management
Eurozone members may be reenacting the story of the Trojan Horse in their efforts to rescue Greece from a debt crisis. The bailout brings unintended consequences that could weaken the entire eurozone. Greece shows no indication that it will take the necessary austerity measures to keep its fiscal house in order after a bailout takes place. A Greek bailout could make Spain and Portugal think that they are entitled to a similar financial rescue. And a bailout could feed resentment from German taxpayers, who would bear much of the burden.
2010-03-04 The Retirement Lottery by Niels C. Jensen of Absolute Return Partners
Aggressive advertising feeds us the fallacy that as long as we invest for the long term, equities will always provide us with solid returns. This may be true if your investment horizon is 30 or 40 years, but most people do not start saving for retirement until they are in their 40s. Hundreds of millions of baby boomers are now chasing whatever returns they can to ensure that they can retire in relative comfort. Jensen also examines the relationship between net private savings, foreign capital inflows and government debt.
2010-03-02 Recovery Continues, But Jobs Data Critical by Bob Doll of BlackRock Investment Management
The economic recovery remains intact, but data remains mixed and outlooks are still uncertain. Employment trends remain the most critical economic data, because the labor market is the mechanism that sustains and reinforces growth. At present, corporate earnings and balance sheets are supportive of companies increasing their payrolls. Trading remains uneven, but higher-risk assets still hold long-term upside potential.
2010-03-02 Asset Allocation Perspective by Scott Wittman, CFA (Article)
Scott Wittman, Chief Investment Officer for American Century Investments, provides his quarterly review of macro-economic factors and trends which influence the tactical weighting decisions for American Century's asset allocation funds. In the article, Wittman reviews and comments on recent events, trends and expected short-term future changes in monetary, fiscal, industrial, trade, regulatory, political and financial macro economic factors. We thank them for their sponsorship. This is sponsored content.
2010-02-26 The Multiplication of Money by John Mauldin of Millennium Wave Advisors
Mauldin begins with a review of the situation in Greece, highlighting recent social unrest, and concluding that the most likely resolution will be relief from the IMF. Next, he rejects recent reports that hedge funds will short the euro and cause it to decline relative to the dollar. He then argues that the reported expansion of M0, M1 and M2 money supply is inconsequential (for inflation), because it is more than offset by a decrease in the velocity of money.
2010-02-25 As Greece Goes, So Goes the U.S.? by Paul Kasriel and Asha Bangalore of Northern Trust
Greece's debt crisis may not make much of an impact on U.S. economic growth. In the third and fourth quarters of 2009, total U.S. exports increased at annual rates of 24.6 percent and 28.1 percent, respectively. South America and the Pacific Rim accounted for a combined 31.7 percent of U.S. exports in the fourth quarter of last year, while Europe accounted for just 23.1 percent. Kasriel and Bangalore also comment on the likely prospects for a low federal funds rate in the long term, and record lows for new home sales.
2010-02-24 Leading Indicators Reflect Positive Trends by Ken Taubes of Pioneer Investment Management
GDP growth forecasts of 3 percent to 4 percent could mean gains in credit and equity markets. Higher growth could lead to quicker tightening by the Fed, however, which could depress bond prices, as well as increase discount rates for equity markets. Corporate credit and equity markets should provide strong opportunities in 2010. While inflation is not a threat in the near term, investors should consider incorporating inflation hedges such as bank loans or multi-sector inflation products as tensions grow between fiscal deficits and monetary policy.
2010-02-24 Still No Tightening in China by Nouriel Roubini of RGE Monitor
A credit-fueled investment boom propelled China's 8.7 percent growth rates in 2009, but cheap money also drove up asset prices, especially in property markets. Loose money may now become inflationary, particularly if China's potential growth rate has come down. China's monetary policy has shifted toward a neutral stance in recent months, but may tighten to contain inflation and the property bubble.
2010-02-23 Hey Big Spender? by Paul Kasriel of Northern Trust
The most serious fiscal challenge ahead is spending, not deficits and debt. And the most serious spending challenge the government will face relates to the diversion of productive resources to future retirees, which will build over the next 20 years are more baby boomers retire. The second spending challenge facing government is ballooning interest payments on prior debt issued. Prior federal policies that established retiree entitlement programs and funded rapidly rising spending with the issuance of debt are to blame for these problems.
2010-02-22 A Speeding Ticket by Team of Beacon Pointe
Most indices are down from their January highs. But this pull-back is more of a speeding ticket than a suspended license, and markets will soon be able to travel cautiously toward their destinations. This environment will favor investors with a focus on security selection, a strong research effort and unwavering valuation discipline.
2010-02-22 Inflation is Contained, Fed Focus on Growth and Jobs Remains in Place by Asha Bangalore of Northern Trust
The January consumer price index report shows no inflationary pressures. The CPI rose 0.2 percent last month following similar gains in the previous four months. The Federal Reserve will continue to focus on economic growth and jobs, while eliminating emergency measures put in place as the economic crisis unfolded in August 2007.
2010-02-22 Notes on a Difficult Employment Outlook by John P. Hussman of Hussman Funds
The 4-week moving average for unemployment claims stands at 468,500. This suggests monthly payroll job losses of about 80,000. Census hiring should make a positive impact on short-term job growth. Debt burdens could produce credit strains if weak employment conditions continue. Hussman also comments on the current market climate for stocks and bonds.
2010-02-22 Not So Fast! by Paul Kasriel and Asha Bangalore of Northern Trust
Annualized growth rates over the first three quarters of 2010 will be less than one half of the 5.7 percent growth rate in the fourth quarter of 2009. Consumer inflation showed signs of slowing in January. Other than a costmetic increase in the discount rate, the Fed will probably find no pressing reason to tighten monetary policy this year.
2010-02-20 The Fed Tests the Waters by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Federal Reserve took a big first psychological step toward a tighter monetary policy yesterday when it raised the discount rate to 0.75 percent, from 0.50 percent. The Fed wants to make sure, however, that markets understand that a rising discount rate does not necessarily entail higher federal funds rate.
2010-02-20 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Traders were eager to help the markets regain upward momentum after the President's Day weekend. Favorable news about Europe's future role in helping Greece and other countries with their budgetary issues fueled trader optimism, as did positive earnings reports and signals that manufacturing was leading the economic recovery with no signs of inflation. Equities closed higher on each of four trading days and approached break-even for the year.
2010-02-19 My Take on the Fed by David A. Rosenberg of Gluskin Sheff
The Federal Reserve's decision to increase the discount rate from 0.5 percent to 0.75 percent was only a surprise because of the timing. The rate hike was part of the Fed's long-discussed exit strategy from its emergency stimulus plan. A number of other emergency measures are also scheduled to end this month.
2010-02-19 Fun with Charts by Doug Mackay and Bill Hoover of Broadleaf Partners
Investors need not worry about the Fed's recent increase in the discount rate by 25 basis points, to 75 basis points, even though this rate hike may be the first in a series of many such increases. The last time the Fed started to raise rates, in mid-2004, the S&P 500 climbed from roughly 1100 to 1567 three years later.
2010-02-18 At a Cross Road: Will Obama Follow Clinton’s Experience, or Go Rogue? by Michael Ghioldi of Applied Finance Group
President Obama often praises former president Clinton's economic policies, but his populist proposals often in run in opposition to Clinton's fiscally conservative record. Washington must adopt a new pro-business rhetorical stance in order to promote new hiring and investment.
2010-02-16 It's the Budget, Not the European Union at Risk by Charles Lieberman of Advisors Capital Management
The Greek government will likely use continued membership in the European monetary union as an excuse to raise taxes or cut spending, while the rest of Europe will help Greece stay in the common currency. Restrictive fiscal policies in Greece, as well as Ireland, Portugal and Spain will lead Europe to lag behind the global economic recovery.
2010-02-16 Emerging Economies Continue to Show Promise by Milton Ezrati of Lord Abbett
Despite recent financial turmoil in response to policy initiatives in Washington and fears surrounding the finances of Portugal, Ireland, Greece and Spain, markets are up since the beginning of 2009, and are likely to grow this year. Emerging markets have the best prospects for growth, but their success depends on the precarious recoveries in the United States, Europe and Japan.
2010-02-16 Emerging Economies Continue to Show Promise by Milton Ezrati of Lord Abbett
Despite recent financial turmoil in response to policy initiatives in Washington and fears surrounding the finances of Portugal, Ireland, Greece and Spain, markets are up since the beginning of 2009, and are likely to grow this year. Emerging markets have the best prospects for growth, but their success depends on the precarious recoveries in the United States, Europe and Japan.
2010-02-16 Boom and Bust by Michael Lewitt (Article)
The US and global economies are "trapped in a cycle of boom and bust as a result of fiscal and monetary policies from which there is no easy escape," says Michael Lewitt of Harch Capital Management. Lewitt believes the S&P will rally to 1,200-1,250, but says the long-term prognosis is "somewhere between grave and terminal." We are privileged to provide this excerpt from Lewitt's monthly newsletter and encourage our readers to subscribe to it directly.
2010-02-14 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Ron Brounes' weekly market recap
2010-02-13 Fear Takes the Wheel by Peter Schiff of Euro Pacific Capital
Peter Schiff of Euro Pacific Capital says in his economic commentary that the recent strength of the stock market may be more attributable to fears of inflation than an improving economy. Growing U.S. debt levels threaten to swamp to dollar, and are leading investors away from dollars and treasury bonds.
2010-02-13 It's a Great Day for America by Michael Dana of Dana Investment Advisors
Michael Dana of Dana Investment Advisors says the U.S. economy is ready to move forward on the jobs front after a 5.7 percent GDP growth rate in the fourth quarter of 2009, but claims employment gains will depend on lower tax rates on capital gains, dividends, corporations and individuals. He also comments on new natural gas drilling techniques, and the reappointment of Fed chairman Ben Bernanke.
2010-02-06 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Ron Brounes' weekly market and economic recap.
2010-02-06 Greece, Spain, and the Euro Trojan Horse by Michael J. Schussele of Michael J. Schussele, CPA
Schussele provides an in-depth look at the divergent fiscal problems facing Spain and Greece. "The possibility of default is speculative hoopla and deficit hawk destructiveness. While deficits need to be controlled, targeted public spending grows an economy and the withdrawal of public spending constricts an economy. At the present time, Greece and Spain need targeted spending and financial regulatory reform. Default is not a plausible option given the domino effect."
2010-02-02 Letter to the Editor by Various (Article)
In a letter to the Editor, a reader responds to a commentary recently posted on our site.
2010-01-30 Watch Out for Spam! by Bill Mitchell of Billy Blog
Bill Mitchell is an Australia-based economist. This commentary is a direct rebuttal to many of John Mauldin's arguments, particularly regarding the message of Reinhart and Rogoff's book, This Time is Different.
2010-01-29 Q409 Portfolio Commentary & Updated Fact Sheet by Jay Compson of Absolute Investment Advisors
“Beyond just our economic, fiscal, and underemployment problems, we are likely to see a reversal of three decades of tailwinds that will turn into large headwinds: deleveraging, higher taxes, re-regu
2010-01-29 Quarterly Letter by Jeffrey Erber of Grey Owl Capital Management
Jeff Erber says the S&P is now 20-30% overvalued, but “with a no-end-in-sight loose monetary policy this rally could continue for quite some time. “ He discusses his firm’s investment process and add
2010-01-28 "Extended Period" of Low Rates Starting to Lose Support by Brian S. Wesbury and Robert Stein of First Trust Advisors
The Federal Reserve made no direct changes to the stance of monetary policy today, leaving the target range for the federal funds rate at 0% to 0.25%. However, one member dissented from the Fed’s comm
2010-01-26 The Potemkin Market by Michael Lewitt (Article)
We are again privileged to publish the current issue of Michael Lewitt's newsletter, titled The Potemkin Market. Lewitt updates his forecast for the S&P 500, criticizes the current financial reform efforts and the ongoing GSE bailout and Fed Chairman Bernanke. Lewitt argues that risk is overpriced in many segments of the market.
2010-01-25 Invigorated Inventories: Catalyst for Growth? by Milton Ezrati of Lord Abbett
“Now with a turn to accumulation, especially if it occurs in a compressed period of time, inventories could add as much as two percentage points to overall growth. Under such an influence, an otherwis
2010-01-22 Give Bernanke a Break by Michael Nairne of Tacita Capital
In a recent speech, Bernanke pointed out that it was low real long-term rates (i.e. nominal rates less inflation) determined in the bond market that were a major contributor to the housing bubble, not
2010-01-22 Thoughts on the End Game by John Mauldin of Millennium Wave Advisors
"As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubbl
2010-01-19 Inflation Myth and Reality by John P. Hussman of Hussman Funds
It is in this context that we should consider inflation risks over the coming decade. At present, inflation risks are hardly considered to be problematic by Wall Street. From the standpoint of the nex
2010-01-19 G7 Weekly Economic Perspectives: 1/15/10 by Christopher Probyn of State Street Global Advisors
This week’s data were generally disappointing. They were not bad enough to believe that the recovery is in danger, but rather that despite a potential fourth-quarter growth “blip” caused by the invent
2010-01-16 Poland's Economy is No Joke by Peter Schiff of Euro Pacific Capital
2010-01-15 Rationalizing with Big Red, Ben Bernanke and Harry Markowitz by Anderson of Anderson Griggs
2010-01-14 Recent Fed Rhetoric and Highlights of Beige Book by Asha Bangalore of Northern Trust
In speeches late yesterday, Fed Presidents Plosser and Fisher of Philadelphia and Dallas, respectively, were of the opinion that unemployment rate is most likely to trend higher than the December jobl
2010-01-12 Things Fall Apart in Eurozone by John Browne of Euro Pacific Capital
2010-01-12 Olivier Blanchard on Global Stability by Dan Richards (Article)
Olivier Blanchard is the chief economist at the International Monetary Fund, a position he has held since September 1, 2008. In Dan Richards' interview, Blanchard discusses the steps being taken to revive the global economy and what he believes is in store for beleaguered debtor nations - particularly Greece.
2010-01-11 It's Not Our Fault by Peter Schiff of Euro Pacific Capital
It seems that the primary qualification needed by any chairman of the Federal Reserve is the ability to never admit error, no matter how damning the evidence. During his tenure on the job, Alan Gree
2010-01-11 Inflation Expectations Approach Pre-Crisis Range by Asha Bangalore of Northern Trust
Inflation expectations as measured by the difference between yields of the nominal U.S. 10-year Treasury note and the 10-year inflation protected security are now at levels seen prior to the onset of
2010-01-09 2010 Forecast: The Year of Uncertainty by John Mauldin of Millennium Wave Advisors
"This will be my tenth annual forecast issue. Time has flown by, and I enter a new decade of writing Thoughts from the Frontline. And even as I write about the high level of uncertainty of the curr
2010-01-09 December Employment Report: Hiring Freeze Yet to Thaw by Asha Bangalore of Northern Trust
2010-01-05 Paul Krugman on Deficits, Taxes, Inflation, and Recovery by Dan Richards (Article)
Dan Richards' interview with Paul Krugman, the 2008 Nobel prize winner in Economics, covers his views on the size of the next stimulus package, how high marginal tax rates should go, and lessons from the Japanese experience. Whether or not you agree with him, Krugman is highly influential and his views may presage future policy decisions.
2010-01-05 The Falling Dollar: Should We Worry? by Elisabeth L. Talbot, CFA (Article)
Over the past several months, it has become increasingly fashionable to refer to the decline of the U.S. dollar as another financial "crisis." Yet, given the current state of the global markets, declaring that the dollar's recent losses amount to a "crisis" is an overstatement, says Elisabeth Talbot in this guest contribution. To the contrary, current conditions surrounding the dollar are arguably supportive of - if not integral to - economic recovery.
2009-12-30 10 for 2010 by Nouriel Roubini of RGE Monitor
2009-12-30 Monetary Policy: Inflation-Deflation, Debt, Excess Reserves, Currency Volatility by Michael J. Schussele of Michael J. Schussele, CPA
2009-12-28 Stocks are Still Cheap by Brian S. Wesbury of First Trust Advisors
2009-12-26 Paul McCulley Discusses PIMCO's Cyclical 2010 Outlook by Paul McCulley of PIMCO
2009-12-22 Staggered Return to Global Growth by Paul Kasriel of Northern Trust
2009-12-21 Predictions of 2010: The Best is Yet to Come by Christopher Whalen of Institutional Risk Analyst
2009-12-15 Investing in Range-bound Markets by Vitaliy Katsenelson (Article)
Vitaliy Katsenelson, a frequent contributor to these pages, reviews his thesis for secular market cycles, why the US markets remain locked in a range-bound state, and what it will take for them to exit from that state.
2009-12-01 Allen Sinai: Jobless Recovery and the Failure of Current Economic Policies by Robert Huebscher (Article)
As the Democratic leadership in Congress has looked for ways to simultaneously create jobs and reduce the deficit, a key person they have turned to and continue to rely on is Allen Sinai. Sinai now fears the US is in the "mother of all jobless recoveries" and that the economic policies of the Obama administration are not working.
2009-11-24 Gary Shilling's Version of the New Normal by Robert Huebscher (Article)
A dramatic reduction in consumer spending has doomed the US economy to slow growth and deflation, according to Gary Shilling. America's 25-year spree of profligate spending is over, and it will be supplanted by a decade-long retrenchment that will ultimately bring the consumer savings rate from 4% to double-digits, where it has not been since the mid-1980s, he said.
2009-11-11 Monetary Policy Outlook by Nouriel Roubini of RGE Monitor
2009-10-27 The “V” Points Downward by Robert Huebscher (Article)
Long-term equity investors face a critical juncture. They can believe a V-shaped economic recovery is imminent, if not underway, and valuations for broad-based equity indexes properly reflect an end to the "decrepit decade" of return-less risk in US markets. Or they can believe true economic recovery - growth, not just stability - is still a long way off and US equity valuations are in bubble territory, not reflective of the rough terrain ahead. We provide our thoughts.
2009-10-20 Asset Allocation Perspective from American Century Investments by Scott Wittman, CFA (Article)
Scott Wittman,Senior Vice President, Asset Allocation at American Century Investments reflects on the one-year anniversary of the near-meltdown by our financial system and provides perspective on what kind of recovery may be coming. We thank American Century Investments for their sponsorship.
2009-07-14 Some Signs of Life and Hope for a New Recovery by John P. Calamos and Nick P. Calamos (Article)
Calamos Investments' co-CIOs John P. Calamos, Sr. and Nick P. Calamos discuss the current market climate, implications of Fed and government actions, and investment opportunities in the shorter- and longer-term. Global governmental policies have restored a degree of confidence in the financial markets and many key financial metrics are back to pre-Lehman levels. Many investment opportunities will be available in the future. We thank them for their sponsorship.
2009-06-30 Letters to the Editor: The Road to Zimbabwe by Various (Article)
In the second set of our letters to the Editor, we publish responses to to our article, The Road to Zimbabwe.
2009-06-09 Simon Johnson on Obama’s Achilles Heel by Eric Uhlfelder (Article)
While he agrees with much of what the US administration is doing to confront the economic crisis, Simon Johnson, the former chief economist of the International Monetary Fund, fears that present policy is not addressing a key issue: the overwhelming influence of the finance industry in US economic affairs. He likens this imbalance to what we see at the core of many emerging markets crises.
2009-05-12 The Well-Meaning by Michael Lewitt (Article)
We are once again privileged to publish the latest version of the HCM Market Letter, edited by Michael Lewitt. Lewitt's analysis and writing are a cut above virtually everything else we see, and you will enjoy reading his latest thoughts. You can also subscribe directly to his newsletter using the link at the beginning of the article.
2009-05-05 Defending Against Inflation: A New Look across Asset Classes by Robert Huebscher (Article)
In the long-term performance race against inflation, stocks are the hands-down winner, outpacing inflation 9.7% to 3.0% since 1926. But that history is characterized predominantly by modest inflation, with one big exception - the 1970s, when double-digit inflation contributed to a bear market. We look at new research showing the effectiveness of different asset classes as inflation hedges, and Zvi Bodie explains the implications for retirement portfolios.
2009-04-28 Gary Shilling – Economic Forecast and Current Market Opportunities by Robert Huebscher (Article)
Gary Shilling is well-known for his forecasting record, having correctly predicted major economic events over the past several decades. Beginning in 2002, he warned his clients that the housing market "has taken on self-feeding, bubble dimensions that will sooner or later collapse," and continued to sound this warning through 2007, when his predictions came true. Dr. Shilling shares with us his current forecast for the economy and the market.
2009-04-28 The Next Great Bubble? by Vitaliy Katsenelson (Article)
One more bubble, please. After the bubbles in technology, housing, and commodities, we saw the mother of all bubbles: the one in global liquidity. The world economy seemed to require bubbles for its continued functioning. Guest contributor Vitaliy Katsenelson says investors' prayers are now being answered: There's a new bubble now - or an old one is being re-inflated - which he calls the Troubled China Revival Program (TCRP).
