More on Related Themes
2014-09-30 Economic Atonement by Peter Schiff of Euro Pacific Capital
This Friday is Yom Kippur, the day when Jews around the world ask forgiveness for their transgressions from the year past. Rabbis remind the penitent to dwell on their sins of omission, in which they did nothing when a more thoughtful and proactive action was needed, and sins of commission, in which they actively participated in an unjust action. And while not all economists are Jewish, Gene Epstein the economics editor at Barron's, offered his thoughts on how this applies to the group.
2014-09-27 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
The Federal Reserve begins looking toward the door; China's policymakers should be clearer about their intentions; Dissents at central banks are rising
2014-09-26 When it Comes to Interest Rates, Who Says What Comes Down Must Go Up? by Zachary Karabell of Envestnet
We are, at long last, nearing the end of one of the great central banking experiments: the U.S. Federal Reserve’s policy of quantitative easing, which began in the wake of the financial crisis of 2008-2009. While the unwinding of the monthly purchases of billions of dollars of mortgage-backed securities and other bonds has been going on for many months, markets are now increasingly attuned to what comes next. And the primary question is quite simple: will interest rates rise and if so, by how much and when?
2014-09-26 Reading Fed Tea Leaves by Christopher Molumphy of Franklin Templeton Investments
Monetary policy is of keen interest to fixed income investors, and the US Federal Reserve (Fed) has been known to be particularly obtuse when it comes to interest-rate talk. One thing is clear: The Fed is winding down its longstanding quantitative easing (QE) program. What’s not so clear: when the Fed will actually raise short-term interest rates.
2014-09-25 Europe’s Commercial Real Estate Deleveraging: ‘Not Too Fast, Not Too Slow’? by Tareck Safi, Tom Collier of PIMCO
As European bank deleveraging accelerates, we expect that commercial real estate (CRE) will continue to constitute a significant proportion of bank assets to be sold, albeit with a shifting geographical mix. We believe CRE opportunities remain in the form of single assets and complex structured transactions in particular; but a disciplined approach will be key given competition in specific types of assets and in certain jurisdictions. This will require flexible capital, local investment expertise and hands-on asset management, in addition to strategic sourcing capabilities.
2014-09-24 Fed Forecasts Sub-3% Economy for the Next Three Years by Gary Halbert of Halbert Wealth Management
The Fed’s policy committee announced last Wednesday that it will end its massive QE bond buying program at the end of next month, thus paving the way for the first Fed funds rate increase sometime next year. This was not a surprise. The Fed’s gargantuan balance sheet will peak near $4.5 trillion in Treasury and mortgage-backed bonds at the end of October.
2014-09-22 Yellen to the Markets: Come to Me by Bradley Harper of WisdomTree
By most accounts, the Federal Open Market Committee (FOMC) statement released September 17 failed to break much new ground in terms of changes to policy or language. The Federal Reserve Board (Fed) met expectations with another measured step in its tapering process, by trimming $5 billion of Treasury and $5 billion of mortgage-backed securities purchases from its asset purchase program.
2014-09-22 Fed Keeps “Considerable Time” … But Ups Rate Expectations Through 2017 by Liz Ann Sonders of Charles Schwab
The Fed kept its statement largely intact relative to July’s; opting to retain the much-ballyhooed “considerable time” phrase. It was confirmed that QE’s tapering would be concluded by the end of October; while the Fed’s rate expectations were increased. Yellen took great pains to explain that “considerable time” should not be considered calendar-based guidance.
2014-09-22 It’s Time for Your Portfolio to Break from Tradition by Kathleen Gaffney, Kevin Dachille of Eaton Vance
Given the current low-yield environment and with rising interest rates looming, now may be the right time to consider new strategies for generating favorable returns in your fixed-income portfolio.
2014-09-17 Are Government Bonds Really "Safe"? by Dickson Buchanan of Euro Pacific Precious Metals
One of the striking ironies of our modern economy is that government bonds are considered safe-haven investments, while gold is a “barbarous relic” to be avoided at all costs. Since the 2008 financial collapse, the bond market has been on a tear, thanks to the Federal Reserve’s endless interest rate suppression. This has only served to reinforce the traditional notion that government bonds are “safe.”
2014-09-15 The Economy: September Viewpoint by Bruce Laning of Bronfman E.L. Rothschild
The U.S. economy experienced a robust summer for economic expansion and job growth, however recent consumer data is casting doubt as to whether the current level of activity can be sustained. Our position is to maintain an emphasis on higher-quality bonds and be prepared for short-term rate increase(s) in the months to come. The road ahead for stocks continues to look positive, but it would be prudent to keep in mind the inevitable speed bumps that will likely present themselves down the road, as we have not had a meaningful pullback since 2011.
2014-09-09 Staying Ahead of the Curve by Chris Diaz of Janus Capital Group
Investors could soon face an environment of rising U.S. interest rates and heightened rate volatility. Already, the Federal Reserve has begun setting the stage by tapering its quantitative easing program. Once rates start to rise, it’s difficult for a fixed income portfolio to make up lost ground if it’s not already positioned for higher rates. We think it’s crucial for investors to diversify their yield curve exposure by investing abroad.
2014-09-02 Late, Not Lost: The Economic Drag From the Millennial Generation by Joshua Anderson, Emmanuel Sharef, Jason Mandinach of PIMCO
We believe concerns of a student debt "bubble" and perpetual financial weakness among Millennials are largely overstated. Understanding Millennials' financial trajectory is critical to our secular (3-5 year) outlook for home prices and the broader economy. We expect Millennials' financial position to improve, and pent-up demand could result in longer-term strength in housing and housing-related assets.
2014-08-23 Managing Expectations by Frank Holmes of U.S. Global Investors
The third part of this series on managing expectations is devoted to fundamental resource stock evaluation. I’ll discuss some of the statistical tools we use to pick quality stocks during a treacherous bear market, such as what we’ve seen in gold stocks the last three years
2014-08-23 An Unconstrained View of Corporate Credit Amid the Rate Debate by Eric Takaha of Franklin Templeton Investments
July 2014 brought a summer swoon to the US high-yield sector, as selling pressure hit despite what many analysts by and large dubbed a respectable second-quarter corporate earnings season. Whatever the reason, many investors became suddenly spooked. Eric Takaha, director of the Corporate & High Yield Group and senior vice president, Franklin Templeton Fixed Income Group®, is not terribly concerned by what he views as short-term market volatility. He sees the recent selloff as not necessarily unhealthy, and he still sees supportive long-term fundamentals for corporate credit. He takes a
2014-08-11 Low and Expanding Risk Premiums are the Root of Abrupt Market Losses by John Hussman of Hussman Funds
Compressed risk premiums normalize in spikes. Day-to-day news stories are merely opportunities for depressed risk premiums to shift up toward more normal levels, but the normalization itself is inevitable, and the spike in risk premiums (decline in prices) need not be proportional or “justifiable” by the news at all.
2014-08-01 Getting Closer: Fed Continues its Tapering & Moving Toward Rate Hikes by Liz Ann Sonders of Charles Schwab
The Fed continues its taper; moving closer to rate hikes. Strong GDP report elevating chatter about possible earlier-than-expected rate hikes. Although volatility/pullbacks are possible, history shows initial rate hikes are NOT negative for stocks.
2014-07-30 Fed's Janet Yellen To Continue Punishing Savers by Gary Halbert of Halbert Wealth Management
New revelations have suggested that our new Fed Chair, Janet Yellen, may be the most liberal person to ever hold the highest monetary office in the world. This news comes after a recent extended interview Ms. Yellen did with The New Yorker Magazine and her testimony before Congress earlier this month.
2014-07-26 Second Quarter Earnings: Marching Toward a Strong Recovery by Frank Holmes of U.S. Global Investors
It’s earnings season once again, and though only a quarter of the Russell 1000 has reported so far, the news is just north of positive. All signs indicate that the market has dusted itself off and is back to its cheerful self after a ho-hum first quarter, which was negatively affected by harsh winter weather.
2014-07-25 Think Floating-Rate Loans Are Just a Rate Hedge? Think Again. by Scott Page, Craig Russ, Christopher Remington of Eaton Vance
The prospect of higher interest rates has many advisors and investors considering floating-rate loans. Because loans’ coupons regularly reset, these debt instruments can maintain their value even as rates rise. But the characteristics of loans, as well as their performance track record, suggest they may deserve a place in strategically allocated portfolios in any interest-rate climate.
2014-07-19 Understanding Chinese Volatility by Andy Rothman of Matthews Asia
Sinology by Andy Rothman is a publication designed to provide investors with a framework for developing a deeper understanding of China and its economy. The focus will be on discussing the longer-term trends that are taking place in the country and their impact on the global economy. Rising volatility in China is a consequence of economic modernization and should not be feared by long-term investors.
2014-07-18 Fixed Income Outlook: Moving From Zero by Christopher Molumphy, Roger Bayston of Franklin Templeton Investments
Some prior market prognostications of rising rates have proven slow to play out as global central banks, namely the Bank of Japan and European Central Bank (ECB), have continued to ramp up easing measures and the US Federal Reserve (the Fed) has only slowly begun to lay off the gas pedal recently.
2014-07-15 The New Neutral: Investment Implications for Insurance Companies by David Braun of PIMCO
Low rates are unhelpful to an industry with legacy long-term liabilities containing rigid embedded credited rates; they exacerbate asset-liability mismatches and pressure earnings margins. Insurers may want to recalibrate their expectations of future interest rates, as well as broad bond and equity market returns. In The New Neutral, with beta from stocks and bonds likely to be relatively low, insurers should look to enhance buy-and-hold return potential via active management.
2014-07-15 What Risks Are Worth Taking in the Bond Markets Now? by Kathleen Gaffney of Eaton Vance
Pursuing returns from the bond market’s traditional risks – such as interest-rate and credit-risk – has become quite expensive. Treasury bonds, which are the most sensitive to interest-rate risk, have low yields and high prices now. Corporate debt, which also has credit risk, is similarly high priced. Investors may be better served by avoiding these “systematic” risks (so-called because they tend to have a blanket effect across whole categories of bonds). Greater opportunities may lie in pursuing “idiosyncratic” risks that are unique to each issuer of
2014-07-11 Why The Fed Needs You To Sell Your Bonds by Gary Halbert of Halbert Wealth Management
Today I will attempt to explain why longer-term interest rates have fallen significantly this year when almost everyone expected rates to rise. This discussion focuses on the fact that there is a shortage of Treasury securities in the marketplace today, especially in maturities of 10 years or longer. The shortage is due to a combination of factors that I will discuss below
2014-07-11 Solving the Income Puzzle by Christopher Remington, Michael Cirami, Kathleen Gaffney, Scott Page of Eaton Vance
With interest rates at near historic lows, investors are starved for income. Government bonds and high-grade corporates have generally been the core of investors’ income portfolios, but yields on these bonds are minimal. Delivering a potential double whammy for investors, the prospect of rising interest rates could bring principal losses because the prices of bonds in these core sectors are highly sensitive to changes in interest rates. Diversifying into nontraditional income sectors may provide investors with greater income and lessen their exposure to interest-rate risk.
2014-07-10 Are Prices Too High in U.S. Commercial Real Estate?? by John Murray of PIMCO
The recovery in commercial real estate (CRE) has been driven more by low rates than improvements in fundamentals. However, fundamentals are improving and capitalization rates should remain low amid low New Neutral policy rates. We expect capital flows in both debt and equity to CRE to continue to increase, and we see opportunities for investors resulting from capital flows, demographics, loan maturities and regulatory reforms. ?
2014-07-10 The End of Quantitative Easing by Gregory Hahn of Winthrop Capital Management
During the Financial Crisis, as the capital markets seized up and interbank lending froze, traditional tools of monetary policy proved ineffective. The Federal Reserve implemented a series of initiatives called Quantitative Easing that essentially used the central bank’s balance sheet to purchase bonds in the open market and directly manipulate interest rates lower. This tool proved extremely powerful and allowed the Fed to manipulate interest rates across the yield curve which, in turn, allowed for a wave of refinancing activity that helped to lower borrowing costs.
2014-07-02 On Top of the Market Chart Book - "Global Equities Inch Forward in the First Quater" by Team of AMG Funds
Now updated through 1Q. 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.
2014-06-20 June Municipal Market Commentary by Team of SMC Fixed Income Management
In order to gauge the potential impact of an interest rate hike on a fixed income portfolio’s performance, not only does the amount of the rate move have to be ascertained, but the timing and duration must also be quantified. In summary, investors should not necessarily jump to the conclusion that rising interest rates automatically result in negative total returns.
2014-06-18 Fed Outlook: Playing It Close to the Vest by Scott Brown of Raymond James
The Federal Open Market Committee will meet this week to set monetary policy. The FOMC is widely expected to further taper the monthly pace of asset purchases (not “on a preset path,” but continuing “in measured steps”). The bigger question is when the Fed will begin to raise short-term interest rates. The correct answer is “it depends.” Fed officials are currently debating the order of steps to be taken as they begin to normalize monetary policy.
2014-06-17 Long Term Parking by W. Ben Hunt of Salient Partners
Like the Soprano Family in 2002, the problem with the US economy in 2014 is not that there is too much private debt being created, but too little. The danger for US markets is not that there is some private debt bubble about to burst, but that markets have become disconnected from the natural cycle of debt and growth, a cycle which remains decidedly anemic.
2014-06-16 Formula for Market Extremes by John Hussman of Hussman Funds
Market extremes generally share a common formula. One part reality is blended with one part misguided perception (typically extrapolating recent trends as if they are driven by some reliable and permanent mechanism), and often one part pure delusion (typically in the form of a colorful hallucination with elves, gnomes and dancing mushrooms all singing in harmony that reliable valuation measures no longer matter).
2014-05-25 Mounting Momentum? by Liz Ann Sonders, Brad Sorensen & Michelle Gibley of Charles Schwab
Although the stock market remains sluggish, with the potential for a correction elevated, the U.S. economy appears to be improving. There is probably no great rush to get into the stock market at this point, but maintaining a steady investing discipline in the face of what we think is a continuing secular bull market is key. Investors frustrated with the low yield environment should be careful about adding too much risk to a portfolio in search of higher yields.
2014-05-23 Freddie, Fannie, finis? by Team of Northern Trust
The destruction wrought by the 2008 financial crisis necessitated a good deal of repair. In some areas, that repair is complete; in others, it is well along. But in one spot, it hasn’t really begun. Freddie Mac and Fannie Mae, the giant U.S. mortgage companies, remain in structural limbo more than five years after the American government rescued them. Just as plans to restructure these government-sponsored entities (GSEs) finally began making their way through the U.S. Congress, cross currents arose that greatly complicate the way forward. Some former shareholders are suing to recover so
2014-05-15 Fed's Zero Interest Rate Cost Savers A Trillion Dollars by Gary Halbert of Halbert Wealth Management
Get a group of adults together in a social setting and the conversation almost invariably gets around to a discussion about the paltry returns savers have been earning on their money in recent years. Three-month certificates of deposits are averaging only 0.23% nationally; one-year CDs are at only 1% if you can get it; and five-year CDs get you only about 2%. And rates have been at or near these depressed levels for the last four years.
2014-05-12 Setting the Record Straight by John Hussman of Hussman Funds
If you think the market is not going to lose a large fraction of its value over the next few years, a century of history thinks you’re wrong.
2014-05-09 Fighting History? by Liz Ann Sonders of Charles Schwab
A lot of movement to go nowhere can characterize the major indexes to this point in the year. History suggests we're entering a potentially tough period for stocks, due to both seasonal and midterm election year tendencies.
2014-05-08 In the First 100 Days, Janet Yellen Puts Her Own Imprint on the Fed by Team of Knowledge @ Wharton
Janet Yellen's initial tenure as chairwoman of the Federal Reserve has been fairly smooth, but long-term challenges loom as the Fed considers its ongoing response to a still-stagnant economy.
2014-05-07 Financial Genius is…a Bull Market by Francois Sicart of Tocqueville Asset Management
In his latest piece, Francois Sicart, Founder and Chairman of Tocqueville Asset Management, reviews the events that caused the “great recession” and cautions that although “we already have suffered a serious and global recession and financial crisis,” he still believes “the question is not, ‘Will there be pain?’ but rather, “When will there be pain, and how much of it?”
2014-05-06 An Improving Economy, But Lower Rates. Why the Disconnect? by Russ of iShares Blog
Despite economic data showing an improving economy, interest rates remain stuck in a low and narrow range. Russ explains why this is and what it means for investors.
2014-04-29 What the Housing Doldrums Mean for Fed Policy by Kristina Hooper of Allianz Global Investors
Economic conditions are gradually improving, but the housing market has lagged. Kristina Hooper highlights what it will take to get housing back on track.
2014-04-25 Income Market Insight by Payson Swaffield of Eaton Vance
Fans of NASCAR racing, and most other motorsports, know what it means when the yellow flag is being waved: proceed with caution. For investors in today?s credit markets, we believe that is an appropriate image to keep in mind. After five years of generationally low rates, investors are ?stretching? for yield ? that is, they are scooping up deals at yields that, in our opinion, barely compensate them for the risk.
2014-04-22 Unloved Emerging Markets May Hold Value for Opportunistic Bond Investors by Kathleen Gaffney of Eaton Vance
· Emerging markets have come under pressure over the past year due to the Federal Reserve tapering its asset purchases and increased expectations of higher interest rates in the U.S. · We think investors should consider emerging markets to find opportunities that may provide a yield advantage and diversification away from U.S. interest-rate risk. · A multisector approach that uses bottom-up, fundamental credit analysis may be helpful in finding opportunities in emerging markets.
2014-04-17 Designing Balanced DC Menus: Considering Diversified Fixed Income Choices by Stacy Schaus, Ying Gao of PIMCO
Sponsors of defined contribution plans face a dual challenge: They must present investment options appropriate for plan members and design menus that encourage selection of well-structured portfolios. We believe that actively managed strategies designed to potentially reduce risks, invest globally and enhance yield relative to the index may improve diversification and lower concentration risk in fixed income offerings. Plan sponsors may consider a range of return and risk measures as they evaluate current and prospective fixed income offerings.
2014-04-15 Credit Availability Underpins Recovery in Commercial Real Estate Prices, But Also Poses Risks to CMB by Bryan Tsu of PIMCO
Credit availability, low interest rates, limited new construction and improving economic conditions have contributed to the recovery in commercial real estate (CRE) prices. We expect a strong 2014 in the commercial mortgage-backed securities (CMBS) market, which has been a primary source of CRE credit expansion. Increasingly aggressive loan underwriting is a concern. CMBS investors need to speak with their wallets and push back on either valuations or underwriting standards if recent trends continue.
2014-04-09 Master Limited Partnerships by Greg Reid and the Salient MLP Team of Salient Partners
Master Limited Partnerships (?MLPs?) are a unique asset class in the investment landscape. Historically, MLPs have been primarily owned by high net worth and retail investors due in part to the tax complexities. However, MLPs have started gaining traction over the past few years among institutional investors as they seek alternative sources of yield in our present low-yield world.
2014-03-25 Five Things You Should Know About Housing Reform Legislation by Michael Canter, Matthew Bass of AllianceBernstein
A recent US Senate bill calls for a restructuring of the government?s role in housing finance, including winding down Fannie Mae and Freddie Mac. Here are five takeaways from the current proposal.
2014-03-22 Debt and Taxes by Peter Schiff of Euro Pacific Capital
It seems that the majority opinion on Wall Street and Washington is that we have entered an era of good fortune made possible by the benevolent hand of the Federal Reserve. Ben Bernanke and now Janet Yellen have apparently removed all the economic rough edges that would normally draw blood. As a result of this monetary "baby-proofing," a strong economy is no longer considered necessary for rising stock and real estate prices.
2014-03-21 Debt and Taxes by Peter Schiff of Euro Pacific Capital
The red flags contained in the national and global headlines that have come out thus far in 2014 should have spooked investors and economic forecasters. Instead the markets have barely noticed. It seems that the majority opinion on Wall Street and Washington is that we have entered an era of good fortune made possible by the benevolent hand of the Federal Reserve. Ben Bernanke and now Janet Yellen have apparently removed all the economic rough edges that would normally draw blood.
2014-03-18 Market Update by Team of Castleton Partners
With military tensions rising over the Ukraine saga and geopolitical posturing dominating the headlines, Treasury rates rallied across the yield curve last week, with 10 year yields falling 13 basis points to 2.66%. Though Cold War-era rhetoric remains high, there are indications that the threat of military action is becoming less likely. As such, we suspect markets will become more comfortable with the situation and expect it to become less of a focus. Nonetheless, we concede that headline risk remains and the primary influence on the Treasury market this week may well be external.
2014-03-07 Inflation Blues: Is it Time to Start Worrying? by Liz Ann Sonders of Charles Schwab
Inflation was revised higher in the latest GDP revision; while an increase in the minimum wage could push it higher still. But we remain sanguine about inflation risk as long as velocity and wage growth remain low. The key to watch near-term is bank lending, which is starting to accelerate sharply; signaling the possible return of "animal spirits."
2014-03-06 The Dollar's Long Term Decline by Axel Merk of Merk Investments
The cleanest of the dirty shirts doesn?t necessarily preserve your purchasing power. Sure, the U.S. dollar has beaten the Russian Ruble and some others of late, but when it comes to real competition, the U.S. dollar has taken a back seat. The U.S. dollar?s long-term decline may be firmly in place and investors may want to buckle up to get ready for the ride.
2014-03-01 Black Swans and Endogenous Uncertainty by John Mauldin of Millennium Wave Advisors
John is in Florida and feeling a bit under the weather, so this week we’re bringing back one of his most popular letters, from December 2007. In the letter he discusses the work of Professor Graciela Chichilnisky of Columbia University, one of whose key insights is that the greater the number of connections within an economic network, the more the system is at risk. Given the current macroeconomic environment, it is important to remind ourselves of how complacent we were back in 2007 and how it all fell apart so quickly, just as John outlined in this rather prescient piece.
2014-02-28 Hide and Seek by Herbert Abramson, Randall Abramson of Trapeze Asset Management
Hide and seek. A game investors played as children but should not forget these days. Currently, investors need to hide safely to protect from some unfavourable developments in an environment that could hurt them.
2014-02-26 U.S. Housing: Investors Reach for Higher-Hanging Fruit by Joshua Anderson, Emmanuel Sharef, Grover Burthey of PIMCO
PIMCO expects house prices to transition to steady secular growth, with nominal price increases of 5%?10% cumulatively over two years. An environment of reduced volatility and steady gradual growth may result in tightening risk premia and spreads as the market begins to price in this new dynamic. Over the coming years, we will focus on whether the underbuilding of single-family homes is ultimately resolved through housing starts, rental growth or continued price appreciation.
2014-02-25 How to Profit from the Yellen Fed by Axel Merk of Merk Funds
Janet Yellen might have the most powerful job in the world, as the Federal Reserve (Fed) she now chairs controls what may be the world?s most powerful printing press. We take a closer look at what her reign might mean for investors? portfolios.
2014-02-20 The Next Phase of Housing\'s Recovery: Which Five Investments Should You Own Today? by Mark Kiesel of PIMCO
PIMCO has significant top-down and bottom-up expertise dedicated to understanding the U.S. housing market cycle. In 2006, we warned U.S. housing prices were significantly overvalued, which led to our defensive positioning heading into the recession. In 2011, we turned bullish on real estate and added investments such as non-agency mortgage-backed securities, banks and homebuilders that we felt would benefit from an eventual recovery in housing prices.
2014-02-20 The Fed: Yellen's Tapering Tightrope by Milton Ezrati of Lord Abbett
In reducing quantitative easing, the Federal Reserve chairwoman faces a big challenge: preventing asset bubbles at home without pressuring developing economies.
2014-02-18 Topping Patterns and the Proper Cause for Optimism by John Hussman of Hussman Funds
We would dismiss classic topping patterns we observe here if the recent market peak did not feature the "full catastrophe" of textbook speculative features, particularly the same syndrome of extreme overvalued, overbought, overbullish, rising yield conditions observed (prior to the past year) only at major market peaks in 2007, 2000, 1987, 1972, and 1929. Meanwhile, we remain encouraged. Those who follow a historically informed, value-conscious, and risk-managed investment discipline should be among the most optimistic investors in the financial markets.
2014-02-13 Admit it: You were wondering, why hold bonds? by Jeff Hussey of Russell Investments
Jeff Hussey, global CIO, highlights the importance of holding fixed income investments within portfolios, even at a time when we are seeing exceptionally low and likely rising interest rates.
2014-02-13 A Centennial to Celebrate - The Federal Reserve Looks Forward to Its Next 100 Years by Carl Tannenbaum of Northern Trust
The Fed’s centennial arrives at an interesting juncture. Never in its history has the American central bank been so deeply involved in economic management, and rarely has it attracted such controversy. The recent transition in Fed leadership marks the end of a significant era. In some ways, this makes it a perfect time to contemplate what the Fed was, what it has become and what it should be during its second century. The results of this review will be valuable to central banks the world over.
2014-02-12 Why Quantitative Easing Didn?t Work by Gary D. Halbert of Halbert Wealth Management
IN THIS ISSUE: 1. Why Fed?s Quantitative Easing (QE) Didn?t Work 2. Velocity of Money Plunged During Financial Crisis 3. Should Bernanke & Company Have Done More? 4. QE Was a Huge, Dangerous Experiment That Failed 5. Fed Begins to ?Taper? QE Purchases in January 6. Conclusions ? What Happens Next?
2014-02-11 Are Returns of Intermediate Bond Funds Persistent? by Michael Edesess (Article)
In the search for skillful managers, the most valued characteristic is persistence -- the ability of a manager to achieve superior returns consistently over time. Finding such managers is critical for fixed-income allocations, since the theoretical basis for indexing is weaker than it is for equities. Our study found, however, that persistence is elusive among a large sample of taxable bond funds.
2014-02-10 Bond Investing in a Rising Rate Environment by Kathleen Gaffney of Eaton Vance
After a transitional year like 2013, when a multidecade declining rate environment moved to a rising rate environment, we think it is important for investors to consider a multisector approach to finding value in the bond market. Finding bonds that can appreciate in price regardless of the interest-rate environment is what a multisector strategy generally seeks to accomplish.
2014-02-06 Emerging Market Woes abd Fed Tapering Equals Stocks Plunge by Gary Halbert of Halbert Wealth Management
January saw US stocks record their first losing month since last August. After reaching new record highs at the end of December, the Dow Jones shed almost 1,000 points in the last half of the month and the decline continues. Analysts attributed the sell-off in large part due to troubling news from several emerging nations, in particular to the so-called "Fragile Five" - Turkey, India, Brazil, Indonesia and South Africa.
2014-02-05 Emerald Economic Commentary by Team of Emerald Allocation Strategies
As Yogi Berra once said, "You got to be careful if you don’t know where you’re going, because you might not get there." As we look back on 2013 and look ahead to 2014,we want to share our thoughts on the road traveled and more importantly, the possible road ahead.
2014-01-31 Thrift, Thrift, Burning Bright by Christine Hurtsellers, Matt Toms of ING Investment Management
Does the title sound familiar? Think feral instead of frugal, and William Blake’s "Tyger, Tyger, burning bright" may start to flicker between the synapses of memory and an English lit class you once soldiered through. But even if you haven’t read "The Tyger", its theme is aptly captured in the opening line and its image of a big flaming kitty cat. Essentially, Blake saw reality in duality: To appreciate the ferocious feline in all its glory is to come face to face with the same force that created "The Lamb", another entry in the poet’s Songs of Innocence and of Experience.
2014-01-14 What Have We Learned from the Financial Crisis? by Michael Edesess (Article)
Why do we need yet another discussion of the 2007-09 financial crisis and its aftermath? That question is asked and answered by Alan S. Blinder in his new book, After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead. Blinder provides new details about this harrowing chapter in our financial history and valuable insights about the effectiveness of potential regulatory policies.
2014-01-06 Too Big to Pop by Peter Schiff of Euro Pacific Capital
Most economic observers are predicting that 2014 will be the year in which the United States finally shrugs off the persistent malaise of the Great Recession. As we embark on this sunny new chapter, we may ask what wisdom the five-year trauma has delivered.
2014-01-03 2014 Outlook: The Emergence of a Global Expansion by Team of Loomis Sayles
After years of a global recovery characterized by fits and starts, we expect more synchronized global growth in 2014. Global GDP growth will accelerate modestly from 2.7% in 2013 to approximately 3.4% in 2014, primarily driven by larger advanced economies. In particular, we are optimistic that US growth will be sustainable. The fading economic drag from government policy and the ongoing housing recovery should help boost US GDP growth toward 3% as the year progresses. The UK is poised for a similar rate of expansion in 2014, and Europe will likely post positive growth in the coming year.
2013-12-24 Fed Taper Brings Us Back to the Future by Kristina Hooper of Allianz Global Investors
A return to normal economic conditions is now more palpable following the Fed’s decision to start unwinding QE and early signs of a revival in consumer spending, growth and jobs, writes Kristina Hooper.
2013-12-23 Risk Assets Take Fed Taper Announcement in Stride by Roger Bayston of Franklin Templeton
The US Federal Reserve (Fed) delivered an early holiday surprise to some market participants, announcing at its December 18 policy meeting it would start slowing its asset purchase program known as quantitative easing in January. For some thoughts on what this may mean for the markets in the new year, we turned just after the announcement to Roger Bayston. He believes the markets should be able to take the Fed’s tapering in 2014 in stride, although investors should prepare for the proposition of higher Treasury yields.
2013-12-21 Start Me Up: Fed Announces a Much-Anticipated Taper by Liz Ann Sonders of Charles Schwab
The Fed decided to begin tapering its QE-related bond purchases with a reduction of $10 billion; split evenly between Treasuries and mortgage-backed securities. In a sign that tapering was already priced in, the stock market surged on the announcement; while bond yields remained quite tame. The Fed announced slightly sunnier economic forecasts, suggesting quantitative easing could wind down within a year.
2013-12-19 A Dovish-Bullish Taper by Brian Wesbury, Bob Stein of First Trust Advisors
They finally did it. At Chairman Bernanke’s next to last meeting, the Federal Reserve announced a modest tapering of quantitative easing, reducing its monthly purchases of Treasury securities and mortgage-backed securities by $5 billion each ($10 billion total) to $75 billion starting in January. As a result, the size of the Fed’s balance sheet will continue to rise, but slightly more slowly than before.
2013-12-19 Is Your Inflation Protection Really Protecting You? by Thomas Luster, Stewart Taylor, Kevin Dachille of Eaton Vance
Many investors who own Treasury Inflation-Protection Securities (TIPS) and TIPS mutual funds don’t realize that they may be taking a significant amount of interest-rate risk in exchange for their inflation protection, which may result in losses when rates begin to rise rapidly. Shorter-maturity TIPS carry the same inflation adjustment as longer-term TIPS, but have less sensitivity to interest rates, which may be helpful in times of rising interest rates like what investors experienced in spring 2013.
2013-12-19 What the Fed\'s Taper Means for Investors by Kristina Hooper of Allianz Global Investors
Kristina Hooper breaks down the Federal Reserve’s surprise move to begin unwinding its bond-buying program and its implications for markets and monetary policy.
2013-12-17 Taper Time? by Scott Brown of Raymond James
There are many arguments for and against an initial reduction in the Fed’s monthly rate of asset purchases, but the balance has shifted toward a December taper. It appears to be a very close call, but even if the Fed decides to delay again, we all know (or should know) that QE3 is going to wind down in 2014.
2013-12-16 Settling In by Mark Kiesel of PIMCO
An improving outlook for U.S. housing will be constructive for consumer spending, confidence and jobs. There are many ways to invest directly and indirectly in companies that should benefit from higher housing prices, a pickup in home repairs and remodeling, and residential investment spending. We continue to favor select investments in homebuilders, building materials, appliance manufacturers, lumber, home improvement, banks, title insurance, mortgage origination and servicing, and non-Agency mortgage-backed securities.
2013-12-11 Fed: No More Excuses Not To Taper - Just Do It! by Gary Halbert of Halbert Wealth Management
We had some terrific economic news late last week. The 3Q GDP report and the November unemployment report were so strong that some are wondering if the data are credible, and are likely to be revised lower next month. The government reported that 3Q Gross Domestic Product jumped from 2.8% as reported last month to a whopping 3.6% in its second estimate last Thursday, well above the consensus estimate of 3.1%.
2013-12-03 Is the Fed Increasingly Monetizing Government Debt? by Axel Merk of Merk Investments
Fed Chair Bernanke vehemently denies Fed "monetizes the debt," but our research shows the Fed may be increasingly doing so. We explain why and what the implications may be for the dollar, gold and currencies.
2013-11-30 Arsonists Running the Fire Brigade by John Mauldin of Millennium Wave Advisors
In the old days, central banks raised or lowered interest rates if they wanted to tighten or loosen monetary policy. In a Code Red world everything is more difficult. Policies like ZIRP, QE, LSAPs, and currency wars are immensely more complicated. Knowing how much money to print and when to undo Code Red policies will require wisdom and foresight. Putting such policies into practice is easy, almost like squeezing toothpaste. But unwinding them will be like putting the toothpaste back in the tube.
2013-11-28 The Race is On by Howard Marks of Oaktree Capital
There’s a race to the bottom going on, reflecting a widespread reduction in the level of prudence on the part of investors and capital providers. No one can prove at this point that those who participate will be punished, or that their long-run performance won’t exceed that of the naysayers. But that is the usual pattern.
2013-11-25 Ben\'s Rocket to Nowhere by Peter Schiff of Euro Pacific Capital
Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program. How this notion became so deeply entrenched is a mystery, but the stampede it has sparked is getting more violent, and irrational, by the day.
2013-11-19 A Glimpse of a Yellen-Led Fed by Kristina Hooper of Allianz Global Investors
Kristina Hooper highlights some key takeaways from incoming Federal Reserve chair Janet Yellen’s testimony before the Senate last week, including when the Fed is likely to taper its bond-buying program.
2013-11-18 Willing a Fiscal Win by Christine Hurtsellers, Matt Toms of ING Investment Management
Why can’t we just will our desired political outcomes the way the most fervent seemingly can impact ballgames? After watching Fenway Park packed to the rafters with Red Sox faithful exercising their sovereign and ethereal right to psychically encourage baseballs out of the yard and knowing that millions of others in Red Sox nation were doing the same in front of their televisions we’re left wondering if the fans of Team U.S.A. can apply a little of that classic Carlton Fisk mojo a few hundred miles down I-95.
2013-11-15 “Great Rotation?” How About “Selective Rotation?” by Eric Takaha of Franklin Templeton
A few months ago there was a lot of buzz about a so-called “Great Rotation,” used to describe an investor exodus from fixed income and into equities, conjuring up images of a massive herd of wildebeest on the African plain racing for greener pastures. Oftentimes, when investors react to the market with a herd mentality, they can wind up losing sight of where they are going, and why. Eric Takaha, senior vice president and portfolio manager for Franklin Strategic Income Fund, says what he’s seen is more of a “selective rotation.”
2013-11-12 Janet Yellen\'s Mission Impossible by Peter Schiff of Euro Pacific Capital
Most market watchers expect that Janet Yellen will grapple with two major tasks once she takes the helm at the Federal Reserve in 2014: deciding on the appropriate timing and intensity of the Fed’s quantitative easing taper strategy, and unwinding the Fed’s enormous $4 trillion balance sheet (without creating huge losses in the value of its portfolio). In reality both assignments are far more difficult than just about anyone understands or admits.
2013-11-08 Who Needs Gold Really? by Miguel Perez-Santalla, Adrian Ash of BullionVault
Four reasons to waste your time with the deeply historic, deeply human value ascribed to gold...
2013-11-08 Janet Yellen\'s Mission Impossible by Peter Schiff of Euro Pacific Capital
Most market watchers expect that Janet Yellen will grapple with two major tasks once she takes the helm at the Federal Reserve in 2014: deciding on the appropriate timing and intensity of the Fed’s quantitative easing taper strategy, and unwinding the Fed’s enormous $4 trillion balance sheet (without creating huge losses in the value of its portfolio). In reality both assignments are far more difficult than just about anyone understands or admits.
2013-11-06 Thank The Fed For Big Stock Market Gains by Gary Halbert of Halbert Wealth Management
My guess is that just about everyone reading my E-Letters would agree that the Fed’s massive “quantitative easing” (QE) program has had a bullish effect on the stock markets over the last few years. Several new reports conclude that the Fed’s unprecedented QE bond buying program is responsible for ALL of the stock market advance since the bottom in early 2009.
2013-11-04 Mortgage REITs: Last Chance to Exit? by Keith Jurow of Advisor Perspectives (dshort.com)
An online advertisement raises the following question often asked by your clients: Can you find me more income? In a nutshell, that is the dilemma facing high net worth investors.
2013-10-30 Bernanke vs. Yellen: A Spooky Outlook? by Axel Merk of Merk Investments
Fed Chair nominee Janet Yellen will take over where her predecessor Ben Bernanke leaves off. Not just operationally, but also philosophically. To understand where the Fed and the U.S. dollar may be heading, we take a closer look at where Bernanke and Yellen are coming from.
2013-10-30 Fed Tapering Could Be Off The Table Until 2014 by Michael Materasso of Franklin Templeton
Sometimes, hindsight is insight. The mystery of why the Federal Reserve didn’t start pulling back or “tapering” its prolonged quantitative easing program at its September policy meeting seems more clear now that we’ve experienced the fallout from the fraying of US fiscal policy soon thereafter, including a 16-day government shutdown in October. Given that the Congressional agreement reached in October only funds the government through January 15 and extends the debt ceiling through February 7, more political grandstandingand economic consequencescould lie ahead.
2013-10-28 The Grand Superstition by John Hussman of Hussman Funds
One thing that separates humans from animals is the ability to evaluate whether there is really any actual mechanistic link between cause and effect. When we stop looking for those links, and believe that one thing causes another because “it just does” we give up the benefits of human intelligence and exchange them for the reflexive impulses of lemmings, sheep, and pigeons.
2013-10-26 A Code Red World by John Mauldin of Millennium Wave Advisors
The heart of this week’s letter is the introduction of my just-released new book, Code Red. It is my own take (along with co-author Jonathan Tepper) on the problems that have grown out of an unrelenting assault on monetary norms by central banks around the world.
2013-10-25 Quarterly Review and Outlook by Van Hoisington, Lacy Hunt of Hoisington Investment Management
When an economy is excessively over-indebted and disinflationary factors have forced central banks to make overnight interest rates as close to zero as possible, central bank policy has repeatedly proved powerless to further move inflation or growth metrics. Four considerations suggest the Fed will continue to be unsuccessful in engineering stronger growth and higher inflation with their continuation of the current program of Large Scale Asset Purchases.
2013-10-23 Economic & Capital Market Summary by Gregory Hahn of Winthrop Capital Management
It has been five years since the Financial Crisis wreaked havoc on the economy and capital markets. With equity markets trading near record highs and new issue corporate bonds coming to market regularly, the capital markets have largely recovered. However, we are concerned that the economic recovery is just an illusion that exists in spite of the efforts in Washington D.C. to kill it.
2013-10-22 After the Minimalist Debt Ceiling Deal: The Good & Bad News by Russ Koesterich of iShares Blog
Last week, investors cheered that Washington finally reached a last-minute debt ceiling deal. But despite their big sigh of relief, the debt ceiling deal wasn’t all good news. Russ provides a quick look at the good, the bad and the investing implications of the compromise.
2013-10-17 Yellen to the Rescue? by Axel Merk of Merk Investments
While Democrats and Republicans fight with water pistols, the President may be readying a bazooka by nominating Janet Yellen to succeed Ben Bernanke as Fed Chair. You may want to hold on to your wallet; let me explain.
2013-10-15 Bond Market Review & Outlook by Thomas Fahey of Loomis Sayles
Flip-flopping Federal Reserve (Fed) policy defined the third quarter. Last quarter, the Fed threw the markets a curve ball by announcing possible tapering of its large-scale asset purchases beginning this year. That “taper talk” set off a mini-riot in global bond markets. Many emerging market (EM) countries, like Brazil, India, Indonesia and South Africa, were the biggest victims, as their bond yields rose and their currencies crashed.
2013-10-09 The U.S. Can\'t Default On Its Debt. Right? by Gary Halbert of Halbert Wealth Management
The Treasury Secretary has warned that his agency will exhaust the “extraordinary measures” it has used to fund the government on October 17. On the Sunday talk shows, he warned of “catastrophic consequences” if Congress doesn’t raise the statutory debt ceiling by then. So, over the next nine days, you’ll be hearing ominous forecasts of what will happen if the US defaults on its nearly $17 trillion national debt, or even some of it. Sound familiar?
2013-10-08 Listen to the 10th Man by Kristina Hooper of Allianz Global Investors
There’s no shortage of short-term risks in today’s market or conventional wisdom on how they will play out. But prepping for the unexpected could limit the number of surprises and better insulate investors’ portfolios, writes Kristina Hooper.
2013-10-04 The New Normalization of Fed Policy by Tony Crescenzi of PIMCO
The Fed is sending a message that the unwinding of its extraordinary accommodation will be done with great care and patience, and will take time - a long time. In delaying a taper, not only did the Fed show markets it has little tolerance for any tightening of financial conditions, it also strengthened its forward guidance considerably. The Fed’s decision to delay a taper will likely relieve some of the upward pressure on longer-term interest rates.
2013-10-04 The Fed and Its Big Thumb by Ron Muhlenkamp of Muhlenkamp & Co.
We’ve seen what happens when prices get ahead of the economy reality. The bubbles in the dot-com’s in 2000 and the housing market in 2007 were such effects. We fear that the apparent Fed desire to continue to manipulate interest rates may engender more bubbles.
2013-10-02 What's easy about Quantitative Easing? by Gene Goldman of Cetera Financial Group
Recently you may have read or heard in the news about the possibility of the Federal Reserve (Fed) “tapering” its Quantitative Easing (QE) program. The topic can be so ingrained in the news cycle that few newscasters take the time to cover the details. So we thought we’d spend a few minutes discussing the background and recent developments on the QE program, and why it matters to investors.
2013-09-30 Fourth Quarter Outlook: A Turning Point? by Gene Goldman of Cetera Financial Group
It seems sometimes that the outlook for the global economy and the markets has been unchanged for years. Since the end of the recession, each year has commenced with forecasts that the United States economy would break out of its below-trend growth mode, only to see expectations dashed. Meanwhile, Europe has been mired in its own recession as it struggles with heavy post-crisis debt burdens. Growth has slowed in the emerging markets, ending the commodity boom of the first decade of this century.
2013-09-26 One Trick Pony: Whipping the GDP Donkey into a Stallion by Cliff Draughn of Excelsia
The difficulty since 2012 has been that if you are not significantly overweight US equities, then your returns are less than stellar. Employing a diversified, risk-averse investment strategy in 2013 has in hindsight been the wrong thing to do, given that every other asset class is negative year-to-date, while US stocks are up double digits. The combination of the Fed’s Zero Interest Rate Policy and the artificial bubble in Treasury bonds has forced conservative investors into riskier positions in order to find risk-adjusted returns.
2013-09-25 Active ETF Market Share Update & Weekly Market Review by AdvisorShares Research of AdvisorShares
Last week, total AUM in all active ETFs increased by almost $80.2 million. Assets in the two largest categories “Short Term Bond” and “Global Bond” fell by $20.65 million and $38.585 respectively. As the dollar weakened on the Federal Reserve’s decision to delay tapering, the “Foreign Bond” category increased by $65.725 million and “Currency” active ETFs added $7.43 in value. Just like the previous week, the second largest increase in AUM came in the “High Yield” ETF category, which this time rose by over $44.35 million, main
2013-09-24 ENERGY MLPs: A Suitable and Sustainable Asset Class by Sponsored Content from ClearBridge Investments (Article)
Key Takeaways: MLPs have provided income with little correlation to other asset classes and little sensitivity to interest rates, commodity prices or economic cycles. The market for MLP stocks has expanded greatly and offers liquidity which appeals to long-term institutional investors. The renaissance in U.S. energy production is driving sustainable growth in the infrastructure that MLPs own and operate
2013-09-23 Seeking Global Growth: Our Outlook for Credit by James Balfour of Loomis Sayles
Global business and credit cycles are nothing new to investors. The familiar sequence of recession, recovery, expansion and slowdown plays out over time, influencing interest rates, credit availability, business climate and capital markets. It’s a time-honored process, but in practice, no two business and credit cycle pairings are exactly alike. Business and credit cycles tend to be driven by specific but varying factors that accumulate until an economic “tipping point” is reached, after which the business and credit climates deteriorate.
2013-09-20 U.S. Commercial Real Estate: Will the Good Times Last? by Devin Chen of PIMCO
The CRE market has experienced a gradual recovery in asset pricing since the 2008 financial crisis. Despite the duration of the recovery, there continues to be dislocation in the CRE market that astute investors can capitalize on. We believe certain properties in non-major markets look attractive for acquisition, and have been acquiring residential land on an opportunistic basis.
2013-09-18 Stock Funds' 5-Year Track Records Set to Double by Gary Halbert of Halbert Wealth Management
Many investors focus on the previous five years annualized return when analyzing which mutual funds to buy. We also pay a good deal of attention to the 5-year performance number when analyzing mutual fund and ETF returns at Halbert Wealth Management. And currently the 5-year average returns for most equity mutual funds are not all that attractive.
2013-09-17 “Risk-On” Resumes as Uncertainty Subsides by Bob Doll of Nuveen Asset Management
Equity markets rallied last week with the hope of a diplomatic solution to the crisis between Syria and the United States. The S&P 500 advanced 2.03% for the week.1 Broadly, the S&P 500 is in a churning phase after witnessing an all-time high of 1709 on August 2 and then stalling.1 We believe the market has been on hold while waiting for lower oil prices, progress on Syria, further global growth and successful Federal Reserve tapering.
2013-09-17 The Upside of Low Expectations by Kristina Hooper of Allianz Global Investors
The stock market has benefited from a pessimistic outlook recentlyand so could the consumer, writes Kristina Hooper.
2013-09-16 The Next Big Challenge to Investors: Rising Rates by Mike Temple of Pioneer Investments
Many investors were conditioned to accept that the economy would be in the rehabilitation ward for the foreseeable future, rates would remain low, and monetary stimulus would continue unabated. It was an increasingly dangerous mindset. Now that’s changing with the slow but steady recovery of the economy and the Federal Reserve’s announcement in August that it may begin “tapering” its billions in monthly bond purchases designed to keep rates low and boost asset prices.
2013-09-13 What's Happening to Bonds and Why? by Mohamed El-Erian of PIMCO
To say that bonds are under pressure would be an understatement. Over the last few months, sentiment about fixed income has flipped dramatically: from a favored investment destination that is deemed to benefit from exceptional support from central banks, to an asset class experiencing large outflows, negative returns and reduced standing as an anchor of a well-diversified asset allocation.
2013-09-09 The Shape of Things to Come by Kristina Hooper of Allianz Global Investors
With a week to go before the September FOMC meeting, there’s little that stands in the way of Fed tapering. Friday’s jobs report didn’t impress but it probably wasn’t bad enough to stop central bankers from pulling some punch, writes Kristina Hooper.
2013-09-06 Weekly Market Review by AdvisorShares Research of AdvisorShares
The major US stock indexes fell once again last week, capping off the worst monthly performance of the S&P 500 in over a year. However, the index is only 4.69% below its all-time intraday high reached on August 2nd. While fear that the Fed would vote to start ending extraordinary stimulus measures at the next meeting late in September was the main reason cited for the decline, thin trading volume in August and especially the week before Labor day may have made led to increased volatility and price declines.
2013-09-06 GSE Reform Lumbers Up to the Starting Gate by Michael Canter of AllianceBernstein
Momentum is finally building to do something with Fannie Mae and Freddie Mac. The bipartisan Corker-Warner proposal, now making the rounds on Capitol Hill, aims to dissolve the GSEs and start fresh. Meanwhile, Fannie and Freddie are testing innovative mortgage-security structures that transfer the risk of borrower defaults to the private sector.
2013-08-28 America is Turning Into a \"Part-Time Nation\" by Gary Halbert of Halbert Wealth Management
Part-time work accounted for a whopping 77% of the jobs the US economy created from January through July, according to household survey data from the Bureau of Labor Statistics. Last year during the same time period, part-time jobs were only 53% of the total versus 47% full-time jobs. This trend toward part-time, low paying jobs is accelerating rapidly.
2013-08-27 How Real is the Recovery in Commercial Real Estate? by Joel Beam, Ian Goltra of Forward Management
How Real Is the Recovery in Commercial Real Estate? A conversation with Joel Beam and Ian Goltra of Forward’s Real Estate Portfolio Management Team.
2013-08-26 The Case for More Mortgage QE by Kristina Hooper of Allianz Global Investors
Disappointing new home sales don’t mean that tapering is less likely to occur in September. Rather, it may only mean that when tapering begins, the Fed’s likely to start small and only trim Treasuries.
2013-08-23 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
India: Broken promise or temporary hiccup? Bond markets appear unmoved by central bank guidance. Rising mortgage rates are taking some of the steam out of housing.
2013-08-23 The Next Big Challenge to Investors: Duration by Mike Temple of Pioneer Investments
Many investors have been conditioned to accept that the economy will be in the rehabilitation ward for the foreseeable future, rates will remain low, and monetary stimulus unending. We believe this is an increasingly dangerous mindset and the next great risk for bond investors is coming into view: the return of higher interest rates. We look at the “refuge” subsectors those areas of the fixed income market that investors may believe provide “safe haven” from the gathering storm.
2013-08-21 The Danger of Duration: The Damage Potential of Rising Rates by Mike Temple of Pioneer Investments
The Federal Reserve’s initial goals from “The Great Monetary Experiment” are accomplished. Investors could now face the threat of rising bond yields.
2013-08-21 The Big Secret Mutual Fund Companies Are Hiding by Gary Halbert of Halbert Wealth Management
Do you know that most (if not all) mutual fund and ETF sponsors are keeping vital information about their funds secret from you? We’ll start today’s E-Letter with a discussion about what that valuable information is and why fund companies don’t want you to know about it.
2013-08-16 Purgatory Is Heaven by Tony Crescenzi of PIMCO
Since June, the Fed has stressed three messages: Tapering is not tightening, the federal funds rate will not move in tandem with a slowdown in asset purchases, and any change in Fed policy will rely on data, rather than a date. If Ben Bernanke leaves the Fed when his term expires, whoever is chosen to replace him will be bound by rules and the strength of the institution. The outlook for interest rates depends more on the Fed’s overall approach to the policy rate, and PIMCO believes the Fed will not increase that rate until 2016.
2013-08-13 Quantitative Easing for Regular Folks: Three Lessons from the New York Times by Susan Weiner (Article)
Quantitative easing pops up regularly in economic and market commentary. The term conveys a lot to financial professionals who know the fine points of QE1 vs. QE3. However, it’s likely to make the average investor ask, “Huh?”
2013-08-12 Quantitative Easing: Is it Working? by Mark Ungewitter of Charter Trust Company
In September 2012, the FOMC announced a third round of quantitative easing intended to reduce long-term interest rates. Since then, the New York Fed has purchased about $700 billion of mortgage-backed securities. But a funny thing happened on the way to lower interest rates. During the “QE3” period, the benchmark 10-year US Treasury yield has risen by a full percentage point. The targeted 30-year mortgage rate has also risen by about 100bps.
2013-08-06 The ABCs of ABS: Identifying Opportunities in Asset-Backed Securities by Scott Minerd of Guggenheim Partners
In the search for yield, ABS offers an opportunity to generate higher returns through rigorous analysis, unaccompanied by additional credit or interest-rate risk.
2013-08-01 Is It Time for the Fed to Wind Down the Economic Stimulus? by Team of Knowledge@Wharton
Is it time for the Federal Reserve to start tapering down the "quantitative easing" bond-buying program that has helped stimulate the U.S. economy since the financial crisis of 2008? Views are mixed. Several experts, say yes, it’s time. Others worry it could be too soon.
2013-07-31 Calm Has Replaced Fear in the Bond Market by Tony Crescenzi of PIMCO
Calm largely returned to the bond market in July following a bout of turbulence in June. Volatility declined across the broad spectrum of fixed income assets, with interest rates and credit spreads falling from their highs, in some cases dramatically. Flows have also turned positive in many market segments, particularly for high yield and bank loan securities.
2013-07-30 Economic & Capital Market Summary by Gregory Hahn of Winthrop Capital Management
We are approaching the five year anniversary of the beginning of the Financial Crisis. By this time in 2008 we had already experienced the complete seizure of the Auction Rate Preferred securities market and the takeover of Bear Stearns by JP Morgan Chase. In August of 2008, we would see the collapse of Lehman Brothers and the government takeover of AIG. We stand here today, shoulders slumped, and heads bowed mourning the lack of real progress in addressing the structural problems that are impeding sustained economic growth and private credit expansion.
2013-07-30 ING Fixed Income Perspectives July 2013 by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
We are constructive on interest rate risks in many developed and emerging economies as global central banks reinforce accommodative monetary policy. We favor the U.S. dollar versus the Japanese yen, the Euro and other developed market currencies. Credit spreads should narrow from current levels as the markets gain confidence and the Treasury market stabilizes. preads offer more than adequate compensation for likely credit losses and a further rise in interest rates. Spreads have been pressured to pre-QE3 levels and mortgages look attractive at these higher levels as prepayment speeds slow.
2013-07-29 Will a New Fed Chairman Derail the Stock Market Rally? by Kipley Lytel of Montecito Capital Management
Over the past two years, investor exuberance has poured over $150 billion into equity funds. The perception of market risk has been sharply lowered over the past years by the central bank’s supportive activities in the capital markets and the high octane fuel of near zero interest rates. Meanwhile, Bernanke’s buyback of treasury and mortgage back securities is at a pace of moving the Fed’s balance sheet to over $4 trillion.
2013-07-25 Perspective by Jim McDonald of Northern Trust
Investors have faced a torrent of central bank actions and communications during the last month, and markets continue to differentiate among economies and companies a welcome maturation from the markets’ prior regime of “risk on/risk off.” We believe the Federal Reserve has moved from an easing bias to one of tightening but at an elongated pace that will remain data dependent. Joining in this parsimony are some key emerging-market central banks, including the People’s Bank of China, which is working to control credit risk in the Chinese economy.
2013-07-25 The Damage Potential of Rising Rates by Michael Temple of Pioneer Investments
The initial goals of the Federal Reserve’s “Great Monetary Experiment” to keep rates low, create negative real yields, spur consumption and cushion the budgetary consequences of fiscal stimulus have largely been accomplished. Investors could now face the threat of rising bond yields. Various bull and bear scenarios might ensue. What are they and what could trigger them? What are the risks to portfolios?
2013-07-24 Quarterly Review and Outlook by Van Hoisington, Lacy Hunt of Hoisington Investment Management
The secular low in bond yields has yet to be recorded. This assessment for a continuing pattern of lower yields in the quarters ahead is clearly a minority view, as the recent selling of all types of bond products attest. The rise in long term yields over the last several months was accelerated by the recent Federal Reserve announcement that it would be “tapering” its purchases of Treasury and mortgage-backed securities. This has convinced many bond market participants that the low in long rates is in the past.
2013-07-18 Second Quarter 2013 Financial Market Commentary by Andrew Zimmerman of DT Investment Partners
To taper, or not to taper, that is the question that investors are currently grappling with.
2013-07-17 Fed's Gobbledygook - What Do They Really Mean? by Gary Halbert of Halbert Wealth Management
Recent communications from the Fed and comments by Chairman Bernanke cast a great deal of uncertainty on the equity and bond markets in late June. Specifically, Bernanke’s remarks in his press conference on June 19 where he discussed ending its program of quantitative easing prompted a huge global selloff in the stock and bond markets.
2013-07-12 Opportunity Knocks for Mortgage Investors by Matthew Bass of AllianceBernstein
We don’t usually think of rising rates as being good for homeowners. That may be because we’re accustomed to thinking of financing (and refinancing) as the key to reviving sagging housing markets. And it’s true that financing availability remains tight, at least by historical standards, and isn’t going to get looser with rising rates.
2013-07-10 Rising Rate: Challenge and Opportunity by Gibson Smith, Lindsay Bernum of Janus Capital Group
While the prospect of rising interest rates generally strikes fear into the hearts of fixed income investors, it’s important to remember that periods of rising rates are normal and can create opportunities for active bond managers. Since 1970 there have been 21 periods in which interest rates rose significantly. While each has had its own unique characteristics, over the past 20 years equities have rallied during these periods, which has tended to support corporate credit markets.
2013-07-09 ENERGY MLPs: A Suitable and Sustainable Asset Class by Sponsored Content from ClearBridge Investments (Article)
Greater capitalization. More liquidity. The energy MLP market has grown steadily, with good reason: our constant demand for energy. While oil prices go up and down, volume has stayed consistent. Production is increasing. And the infrastructure is needed to support it. Add some risk, and you’ve got an investment which could fit in a diversified portfolio.
2013-07-09 The Fed\'s Bind: Tapering, Timetables and Turmoil by Scott Minerd of Guggenheim Partners
There are striking parallels between the dramatic recent sell-off in U.S. Treasuries and the Great Bond Crash of 1994. But the summer of volatility now facing financial markets is no doomsday scenario. Instead, it puts the U.S. Federal Reserve in a bind. Higher interest rates will reduce housing affordability, which is especially troublesome since housing is the primary locomotive of U.S. economic growth.
2013-07-03 Long Train Running: Why Stocks Are Rebounding by Liz Ann Sonders of Charles Schwab
Why the June swoon occurred and why it might already be over. Fed’s move toward policy normalization may have a lot to do with pricking perceived asset bubbles; not a more hawkish economic stance. Sentiment has improved notably; but technical conditions may need a bit more repair.
2013-06-28 Inflation Lags Monetary Expansion: Prepare to be Swindled by JJ Abodeely of Sitka Pacific Capital Management
In May 1977, the consumer price index (CPI), which measures a basket of consumer goods in the U.S. economy, had risen 6.7% from the year before. The indexes had doubled over the previous 15 years, and by 1977 investors were fully aware that the rate of change was increasingi.e. the inflation rate was spiraling higher. By then, this inflationary awareness had worked its way into every corner of the financial markets, as commodities, gold and interest rates rose, and the stock market remained in a deep funk.
2013-06-27 AdvisorShares Weekly Market Review by Team of AdvisorShares
Once again, US stock indexes declined last week based on investors’ fears of rising interest rates. While markets were rising at the beginning of the week, on Wednesday, Federal Open Market Committee Chairman Ben Bernanke said that if the economy continued on its current growth path, the Fed would scale back on asset purchases by the end of the year and attempt to end the extraordinary measures by the middle of 2014.
2013-06-26 The Fed\'s Dirty Little Secret: QE Does Not Work by Gary Halbert of Halbert Wealth Management
Today I hope to dispel the myth that the Fed’s massive quantitative easing (QE) policy has driven long-term interest rates lower. I will argue that the opposite is true and demonstrate that the yield on the 10-year Treasury note has actually risen during QE-1, QE-2 and QE-3. This flies in the face of most market commentators.
2013-06-25 Is Fixed Income the New Equity? by Chris Maxey, Ryan Davis of Fortigent
After several decades of positive returns, fixed income investors are being treated to a rude awakening in the last six weeks. Recent comments from Federal Reserve officials suggest a sooner than anticipated exit from quantitative easing, raising the prospect of higher interest rates. Throughout the universe of fixed income assets, investors are questioning the future return potential, leading many to wonder, what now?
2013-06-25 Reframing Expectations by Aaron Reynolds of Baird Advisors
Even facing headwinds, bonds still serve important roles in a portfolio, including diversification and downside protection potential. As the heavy burden of total return falls on interest income, investors are being pulled toward higher-yield, higher-risk bond types. Investors can still benefit from the segmented bond market and the various strategies that are available. Expectations need to be reframed given the current environment of low yields and potential interest rate increases.
2013-06-24 A Timetable for Ending QE by David Kelly of J.P. Morgan Funds
In a press conference following this week’s FOMC meeting, Fed Chairman Ben Bernanke provided markets with a clearer understanding on how the Fed expects to phase out its current quantitative easing (QE) program. This timetable is justified both by economic progress and by the significant future costs which a too-large Fed balance sheet is likely to entail. Moreover, the timetable, while never previously explicitly outlined, should not have been a surprise to most market observers. Nevertheless, Mr. Bernanke’s words have been met by a sharp selloff across a wide range of financial a
2013-06-21 AdvisorShares Weekly Market Review by Team of AdvisorShares
The major indexes finished lower after experienced another volatile week. While no major statements came out of the Federal Reserve, speculation about what the Fed chairman might after say its next meeting ends on June 19 drove a lot of market price movements early in the week.
2013-06-20 Fed Slightly More Optimistic by Brian Wesbury, Bob Stein of First Trust Advisors
The Federal Reserve made only slight changes to the text of its statement, but those it did make signal slightly more optimism. It said labor market conditions show “further improvement,” rather than “some improvement” and sees “diminished” downside risks for the broader economy.
2013-06-19 Changes in our Asset Allocation by Gregory Hahn of Winthrop Capital Management
We believe that valuations in publicly traded securities are stretched, and, although we have seen a move higher in interest rates and stocks have sold off from their high levels, investors are faced with choices that offer generally lower expected returns based on historic measures of return. Today, with the S&P 500 hitting 1650 and the yield on the 10 year US Treasury Note moving abruptly from 1.70% to 2.15%, there are generally two schools of thought on the minds of investors.
2013-06-19 Dialing Down by Scott Brown of Raymond James
The financial markets have gyrated in recent weeks on fears that Federal Reserve policymakers will taper the rate of asset purchases. The rise in long-term interest rates and increased market volatility are hard to justify based on the discussion of possible changes in the Fed asset purchase program alone. No change in monetary policy is expected at this week’s Federal Open Market Committee meeting.
2013-06-17 On the Radar: Bernanke\'s Balancing Act by Milton Ezrati of Lord Abbett
A recent analysis in this space made the case for equities. Pointing to the continued flood of liquidity from the Federal Reserve and still-attractive stock valuations, I argued that the rally would continue, despite the subpar economic recovery and continued policy muddles in Washington and Europe. In this column, I will take up one of those fundamental, longer-term considerations: Fed policy. The columns that follow will discuss two other major issues: fiscal policy and energy.
2013-06-14 Changing Picture by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
We could be in the beginning stages of an adjustment toward a more "normal" monetary policy environment, with attendant volatility. This once again illustrates the importance of diversification and focusing on long-term goals when investing. We continue to believe the US equity markets are an attractive place for assets and recommend buying on pullbacks to the extent that you need to add to equity exposure. Additionally, continue to exercise caution around fixed income allocations and focus more on the developed markets vs. EM.
2013-06-12 Silver Lining: Fed's “Tapering” Signals Stronger Economy by Eric Takaha of Franklin Templeton Investments
The Federal Reserve’s warning that it planned to scale back purchases of Treasuries sparked a storm on Wall Street, bringing instability to what had been a pleasant May in the US markets. Almost lost in the noise, however, is a silver lining: the Fed thinks the economy may be healthy enough to fly on its own.
2013-06-12 Bond Realities: The Changing Landscape for Fixed Income and the Death of the Agg' by Andrew Johnson of Neuberger Berman
Earlier this year Andrew A. Johnson, Neuberger Berman’s Chief Investment Officer for Investment Grade Fixed Income, led a series of discussions with institutional clients about the state of the fixed income market and key ideas in approaching opportunistic fixed income investing in the current environment. Here, Mr. Johnson has adapted, and elaborated on, the concepts described at those meetings.
2013-06-11 Gundlach ? Don’t Sell Your Bonds by Robert Huebscher (Article)
Don’t sell your bonds just yet, according to Jeffrey Gundlach. Global economic growth is slowing, he said, and the U.S. will be competing for a larger slice of a shrinking worldwide pie. A weaker economy dims the prospects for higher interest rates. The benchmark 10-year Treasury yield ? currently 2.08% ? will be 1.70% by the end of the year, according to Gundlach, providing profits for holders of long-term bonds.
2013-06-11 Bursting the Bond Bubble Babble by Andy Martin (Article)
Interest rates will eventually go up. The 50-basis-point spike in May on the 10-year Treasury bond may have been the beginning. But despite industry and media assertions, history shows that there is nothing to fear from rising rates.
2013-06-11 And Like Clockwork... by Blaine Rollins of 361 Capital
And like clockwork, stocks bounced both from their very short term oversold point and off the 50 day moving average on Wednesday...
2013-06-06 Omissions of the Omen: \"Hindenburg Omen\" and the Selloff Last Week by Liz Ann Sonders of Charles Schwab
Rising US Treasury bond yields and Fed "taper talk" not to mention a "Hindenburg Omen" sighting hit stocks last week. A look inside the Omen should calm fears of impending doom. The market is likely not out of the woods, but we don’t expect an overly sinister correction.
2013-06-05 Fed Advisory Council Drops A Bombshell by Gary Halbert of Halbert Wealth Management
Last Friday afternoon, the Fed released the minutes from a May 17 meeting of the Federal Advisory Council (FAC). The Council is a group of 12 influential bankers from across the country who meet periodically and give the Fed Board of Governors input regarding the economy, moneyary policy, etc. The minutes from the latest FAC meeting clearly indicate that the bankers are becoming increasingly uncomfortable with the Fed’s unprecedented “quantitative easing” policy. To my knowledge, no one in the mainstream media has reported on what you will read here today.
2013-06-05 Broader Use of Bail-Ins Could Spur a Revival of Asset-Backed Securities in Europe by Felix Blomenkamp of PIMCO
We believe ABS issuance will likely increase in Europe as eurozone developments and possible future bail-ins potentially result in higher risk premiums and funding costs for European banks. Although regulators are playing catch-up, capital markets are making room for a more credit-intensive product, helping to lead the way for a resurgence in ABS. Due to concerns over the security of bank deposits, investors may look to the ABS sector, which offers collateralized bonds that are free of bail-in risk.
2013-06-03 A Taste of What Tapering Might Mean by Christian Thwaites of Sentinel Investments
A week on from the sparks of the FOMC minutes and we can see how the market handles the subtler parts of Fed communication. Not well. Most of the dove camp talked about adjusting purchases up or down depending on economic conditions (all very reasonable and consistent) but stressed there was really nothing in the data for change. The hawk that counts, Bullard of the St. Louis Fed, even called for continued QE given low inflation. So the “employment is too low, continue” and "inflation is too low, continue” camps agree.
2013-05-31 The Great Reflation by Peter Schiff of Euro Pacific Capital
This week economists, investors and politicians were treated to some of the "best" home price data since the frothy days of 2006 when home loans were given out like cotton candy and condo flipping was a national pastime. The Case-Shiller 20 City Composite Home price index was up a startling 10.9% for the 12 month period ending in March. Prices in all 20 cities were up, with some (Las Vegas, Phoenix, and San Francisco) notching gains of more than 20%. Meanwhile the National Association of Realtors announced that April pending home sales volume reached the highest level in nearly three years.
2013-05-24 Focus on What You Know and Can Control: Be Aware of Unexpected Risks in Bonds by Warren Pierson of Baird Advisors
While corporate bonds have seen improvement in credit fundamentals, similar improvement has not taken place for municipal bonds. Ongoing challenges in municipal credit could have a meaningful negative effect on municipal bonds. Many callable bonds with longer maturities face significant extension risk with an upward movement in interest rates. Durations currently pegged to shorter call dates could extend as issuers are less likely to call in bonds prior to maturity as interest rates rise. As callable bonds get re-priced to longer maturity dates, the resulting price declines could be profound.
2013-05-24 Remarkable Resilience by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
We saw how the prospect of a sooner pullback in purchases in bonds by the Fed rattled the market both in the US and globally, but the picture, to us, has not changed to any great degree. A very gradual pullback, not even going to zero, in quantitative easing due to an improved economic situation doesn’t spell disaster to us. We continue to urge investors to pay attention to both sides of the risk equation when making decisions and to keep the longer-term perspective in mind. Short-term swings are inevitable, but should not be the basis for sound decision making.
2013-05-13 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.
2013-05-10 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 Deflation Is OverPlease Come Out by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
A blooper reel of 20th century history would likely include a feature on Japanese soldier Hiro Onoda. Posted to a small island in the Philippines during the waning days of World War II, when Onoda’s mission proved unsuccessful he was ultimately forced to flee into the woods, where he survived on a steady diet of coconuts and bananasfor almost 30 years after the end of the war.
2013-05-07 Global Bonds: A Flexible Solution for an Uncertain Market by Olivia Albrecht, Michael Story of PIMCO
The recent rallies in both safe-haven and risk assets have left many investors in a quandary. We believe alpha, or above-market return, will have to play a greater role for investors seeking to meet return targets. In our view, the current environment affords many opportunities for generating alpha.
2013-05-07 Investing for Income and Capital Appreciation by Giorgio Caputo, Rob Hordon, Ed Meigs, Sean Slein of First Eagle Investment Management
A Q&A with First Eagle Investment Management’s senior members and their market views and strategic insights.
2013-05-07 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.
2013-04-19 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 Weekly Economic Commentary by Carl Tannenbaum of Northern Trust
The world’s public debt is much larger than it may appear. The lines have been drawn in the U.S. budget debate. Rates of disability are affecting labor force participation.
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 Fannie and Freddie Face the Future by Milton Ezrati of Lord Abbett
The mortgage finance giants are the subject of a new policy initiativewith significant implications for the U.S. housing market.
2013-04-09 Morning in Japan by Christian Thwaites of Sentinel Investments
There were two very important central bank meetings last week, one from the Bank of Japan the other the ECB. Bank of Japan press conferences have been soporific affairs for years with a few QE programs not leading to much and no changes to inflation targets. Deflation, a declining workforce and falling aggregate demand have been pretty much the unbroken story for the best part of two decades.
2013-04-05 PIMCO Cyclical Outlook for the U.S.: Back From the Brink by Josh Thimons of PIMCO
We expect the largest contributors to U.S. growth this year will be housing and related industries, increases in capital expenditures (albeit from very depressed levels), certain manufacturing sectors, such as the auto industry, and the energy sector. We see roughly 1.7 percentage points of drag on GDP coming out of Washington far less than the four to five percentage points of potential drag had there been no fiscal cliff resolution. We believe the Fed will continue with hyperactive monetary policy, which we now call “QE Infinity,” that does not have an explicit end date or progr
2013-04-03 Surprise! 2013 Rally Pales in Comparison to 2012 “Stealth” Rally by Douglas Cote of ING Investment Management
Despite the hoopla over first quarter market performance, it paled in comparison to the first three months of 2012. Driven in part by an extremely accommodative Fed, the U.S. economy is gaining traction, but Europe continues to flounder. After their first negative print in three years during the third quarter, S&P 500 companies returned to positive earnings growth in the fourth. A broad, globally diversified portfolio is the best way to balance the desire for wealth accumulation with an appreciation of volatility.
2013-04-03 Why This Economic \"Recovery\" is So Weak by Gary Halbert of Halbert Wealth Management
We start today with an excellent editorial I read last week written by Mort Zuckerman, Editor-In-Chief of U.S. News & World Report. My goal every week is to do a lot of reading and summarize what I’ve learned in these pages week in and week out. But every now and then I run across something so good that it just makes sense to reprint it in its entirety, even if it’s not my own work. Not many of my contemporaries are willing to do that, as they think it makes them look less scholarly. I don’t have that problem.
2013-04-02 Flying High on Borrowed Wings by Peter Schiff of Euro Pacific Capital
After selling off an astounding 56% between October of 2007 and March 2009, the S&P 500 has staged a rally for the ages, surging 120% and recovering all of its lost ground too. This stunning turnaround certainly qualifies as one of the more memorable, and unusual, stock market rallies in history. The problem is that the rally has been underwritten by the Federal Reserve’s unconventional monetary policies But for some reason, this belief has not weakened the celebration.
2013-03-29 Market Resilience by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
After a stellar first quarter performance from US stock markets, which showed impressive resilience to continued headwinds, a pullback is certainly possible but we don’t suggest investors who need to add to allocations wait. In a relative world, the US stock market continues to look like an attractive place to invest, although there may also be opportunities in Japan and Europe as well. The upcoming earnings season could tell the story for the market over the next couple of months, but we continue to advocate a long-term point of view and maintaining a diversified portfolio.
2013-03-25 Fed Outlook: Cautiously Optimistic or Just Hopeful? by Scott Brown of Raymond James
The Federal Open Market Committee’s latest policy meeting generated few surprises. The FOMC maintained its forward guidance on the federal funds rate target, which is still not expected to start rising until 2015, and did not alter its asset purchases plans ($40 billion per month in agency mortgage-backed securities and $45 billion in longer-term Treasuries). However, in his press briefing, Bernanke indicated that the pace of asset purchases could be varied as progress is made toward the Fed’s goals or if the assessment of the benefits and potential costs of the program were to cha
2013-03-22 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
2013-03-21 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.
2013-03-20 Investors Need to Pivot by William Benz of PIMCO
Fixed income investors need to think differently in the current environment. Investors may want to consider pivoting to strategies that are less focused on traditional benchmarks and more oriented to generating income and providing greater flexibility to hedge against rising rates, widening credit spreads or higher inflation.
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.
2013-03-13 Yield Opportunity in a Low Yield Environment by Troy Johnson of Westcore Funds Denver Investments
The Fed’s aggressive monetary policy teamed with its inability to jump-start the anemic economic growth pattern has challenged investors’ quest for yield entering 2013. We offer investors the following for consideration as they seek yield in this environment.
2013-03-12 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.
2013-03-07 Animal Spirits: F.I.R.S.T. by Christine Hurtsellers, Matt Toms, Mike Mata of ING Investment Management
Call it what you will a dog-eat-dog world in which you're wearing Milk-Bone underwear or an example of capitalism at its finest an M&A cycle is heating up. This activity may be signaling the rebirth of what British economist John Maynard Keynes originally referred to as "animal spirits", much to the delight of fictional corporate barbarian Gordon Gekko and his real-life analogues, who require little prompting to act on Keynes "spontaneous urge to action".
2013-03-01 Front Running the Fed by John Burns of John Burns Real Estate Consulting
We are very bullish on housing, and already thinking through the impact that 3.5% mortgage rates can have if prices rise substantially due to the interest rate stimulus. The Fed has put 34% more purchasing power into the pockets of homeowners, and investors are taking advantage.
2013-02-27 Pew: Americans Have Little Will to Cut Spending by Gary Halbert of Halbert Wealth Management
The Pew Research Center released a new national poll on Friday and the results are quite surprising. As the March 1 deadline for a possible budget sequester approaches, the new Pew survey finds limited public support for reducing spending for a wide range of government programs, including defense, entitlements, education and health care.
2013-02-26 Howard Marks? Warnings and How to Protect your Portfolio by Geoff Considine (Article)
Howard Marks, founder and chairman of Oaktree Capital Management, wrote in a recent memo that the biggest danger to investors is their willingness to buy risky assets that are likely to provide low returns. Market conditions may not fully reflect current risk; option prices, for example, are very low. Some firms ? notably PIMCO ? recommend investors buy put options to protect their portfolios. I propose an alternative strategy that will be resilient to the potential shocks of increased volatility and higher interest rates, without incurring the cost of options.
2013-02-12 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%.
2013-02-08 Messing with the Bull by Peter Schiff of Euro Pacific Capital
With the announcement this week of its massive $5 billion lawsuit against ratings agency Standard & Poor's, the Federal Government took a bold step to squelch any remaining independence of thought or action in the financial services industry. Given the circumstances and timing of the suit, can there be any doubt that S&P is paying the price for the August 2011 removal of its AAA rating on U.S. Treasury debt?
2013-02-06 Focus on Fixed Income by Steve Van Order of Calvert Investment Management
Last week Administration officials, including the President, clearly ruled out using extraordinary legal measures to avoid defaulting on Treasurys financial obligations in the absence of a debt ceiling hike by Congress. The two legal measures most discussed, going back to the summer 2011, were invoking the 14th Amendment and minting a trillion dollar platinum coin. The coin idea was dismissed as Fed officials commented that the central bank would not honor the coin as a deposit, and the amendment idea has been shelved a number of times.
2013-02-06 GDP Report Tanks - Is A Recession Looming? by Gary Halbert of Halbert Wealth Management
We will cover a lot of ground today. We begin with a new report from Goldman Sachs which argues that the US economy will remain the strongest in the world for many more years. The report rebuts claims that America is a nation in decline. Quite the contrary, say Goldman analysts who claim that there is a growing"awarenessof the key economic, institutional, human capital and geopolitical advantages the U.S. enjoys over other economies."
2013-02-06 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 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 Fourth Quarter 2012 Equity Market Review by Natalie Trunow of Calvert Investment Management
With the excitement of the QE3 announcement wearing off in the fourth quarter, market participants refocused on the less-than-stellar earnings season in the U.S. and uncertainties surrounding the U.S. presidential election and impending fiscal cliff, while the negative impact of Hurricane Sandy further dampened investor sentiment. Despite a double-dip recession in the eurozone, there was some progress on the European policy front and China's economy continued to show signs of stabilizing, which helped international stocks outperform their U.S. counterparts.
2013-02-04 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.
2013-01-31 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 And That's the Week That Was by Ron Brounes of Brounes & Associates
The trend is your friend...so hopefully it will continue for a little (lot) longer. With the uncertainty of the fiscal cliff on the backburner (for now), investors seem to like what they are seeing from earnings season and in the economy. They continued to take stocks higher as the S&P 500 settled above 1500 for the first time in five years and is currently riding a eight session winning streak.
2013-01-29 What Budget Problems? by Christian Thwaites of Sentinel Investments
"Vickers falls on fear of peace." There's an apocryphal story of how on the day after D-Day, the stock of Vickers, a large defense contractor, abruptly fell. I can't find the source but it was a good story going around the City some, ahem, 30 years ago. Last week there was not a lot of price action in bonds until Friday when economic upticks replaced budgets as the main driver. We saw a one point correction in treasuries. The market is right to push budget concerns into the background for now.
2013-01-25 Feeding the Dragon: Why China's Credit System Looks Vulnerable by Edward Chancellor, Mike Monnelly of GMO
Edward Chancellor and Mike Monnelly, members of GMO's Asset Allocation team, write to institutional clients in a new white paper about China's credit boom and outlines some worrying recent developments in its financial system. In GMO's view, "China's credit system exhibits a large number of indicators associated with acute financial fragility," including China's debt and real estate bubbles, the belief that the government is underwriting financial risk, the shadow banking system, a proliferation in credit guarantees, among others.
2013-01-25 Housing Is Off the Floor, But Faces Ceilings. by Team of Northern Trust
Housing is off the floor, but faces ceilings. The cost of housing could be a source of increased inflation. January's FOMC meeting should not break any new ground.
2013-01-23 Gun Control & How To Play Upcoming Debt Battles by Gary Halbert of Halbert Wealth Management
Ever since the tragedy on December 14 at Sandy Hook Elementary School in Newtown, Connecticut occurred when Adam Lanza senselessly murdered 26 people (20 children and six staff) and then himself there has been a growing cry from millions of Americans for some kind of new gun controls. And the current occupant of the White House is all too happy to oblige. Last week, the president unveiled the most sweeping new gun control laws since the so-called Brady Bill was passed in 1993, requiring background checks on firearm purchasers in the US. Obama's proposals go much further as I will discuss.
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.
2013-01-16 Haka Politics and the Slow Crawl by Christian Thwaites of Sentinel Investments
In the last few months we have seen the rise of Haka politics. Familiar to any All Blacks fan, this is the ritualistic Maori war dance, full of noise, bluster and theater. But it rarely intimidates and most opponents sit it out with some amusement. So it is with the political interventions last year. We saw countless announcements and intentions from EU leaders and solemn pledges with little follow-through. And in the US we had a soporific election and a squalid squabble over the fiscal cliff that caught the public but not the market's attention.
2013-01-15 Gundlach?s Predictions for 2013 by Robert Huebscher (Article)
Don't expect the low volatility that characterized the capital markets in 2012 to continue. Global economic uncertainty remains, and markets are poised like a 'coiled snake' to reward or penalize investors in certain asset classes, according to Jeffrey Gundlach.
2013-01-14 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.
2013-01-09 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.
2013-01-03 2013 Forecast: Good Economy, Challenged Markets by Douglas Cote, Karyn Cavanaugh of ING Investment Management
We enter 2013 bombarded by conflicting signals. While fundamentals have been mixed of late, longer-term themes our "tectonic shifts" like the energy revolution are gaining momentum and promising to make positive contributions sooner rather than later. And while salutary measures taken by policymakers have eased global risks and lessened fears of Armageddon, there is considerable work yet to be done.
2013-01-03 5 Investment Ideas for a Post-Fiscal Cliff Deal World by Russ Koesterich of iShares Blog
As discussed in previous posts, Congress kicked off the New Year with a bare bones deal to avert (or at least delay) the fiscal cliff. Though markets responded positively to the news Wednesday morning, the euphoria isn't likely to last.
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.
2012-12-17 Fiscal Cliff Deadlines Draw Near by Russ Koesterich of BlackRock Investment Management
In addition to the seemingly never-ending focus on the fiscal cliff, markets turned their attention to last week's Federal reserve meeting and the corresponding announcement of the central bank's continuation of its bond-purchase program. Following a very brief rally after the announcement, however, stock prices fell and ended the week marginally lower. For the week, the Dow Jones industrial average declined 0.2% to 13,135, the S&P 500 index fell 0.3% to 1,413 and the NASDAQ composite dropped 0.2% to 2,971.
2012-12-17 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 Fed Announces QE4 Starting Next Year by Gary Halbert of Halbert Wealth Management
I continue to believe that President Obama is willing to let the economy go over the cliff and blame the Republicans. Obama is hell-bent on raising taxes on those in the top two brackets; he campaigned on it; and I dont think he will back off. It remains to be seen if the Republicans will cave.
2012-12-14 The Death of the Dollar? by Rob Arnott of Research Affiliates
Rob Arnott, Chairman and CEO of Research Affiliates, has released an "Insights" paper in which he discusses the possible "Death of the Dollar" in the decade ahead. He points out that: "If we're spending $1 trillion a year more than we produce as a nation (the national deficit) and are financing it by printing $1 trillion a year of crisp newly printed bills (actually, bits in a computer), we're on a dangerous path. Printing our own money to buy our own debt works fine until it doesn't."
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."
2012-12-13 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 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.
2012-12-11 Loomis Sayles' Matt Eagan on the Macro and Fixed Income Outlook by David Schawel, CFA (Article)
In this interview, Loomis Sayles' Matt Eagan discusses the fixed income universe, Fed policy and issues facing the global macro economy. Eagan is the co-manager, along with Dan Fuss, of the Loomis Sayles Bond Fund and he manages the Loomis Sayles Strategic Alpha Bond Fund.
2012-12-10 Have the New Paper Clips Arrived, Enid? by Christian Thwaites of Sentinel Investments
If there's one economic stat that spans the economic/political spectrum, it's jobs. Last week's NFPs had a headline of 146,000, way above estimates, and an unemployment rate of 7.7%, the best since December 2008 and a comfortable one point below a year ago.
2012-12-04 Surprising Choices in the Search for Safety Near-Certain Loss of Purchasing Power versus Short-Term by Jason Petitte, CFA (Article)
Risk, in its many guises, is unavoidable, and investors today are taking on significant amounts of credit risk, duration, and leverage to obtain high yields from many presumably safe bonds. But certain types of risk are often mispriced. By overweighting one's portfolio to those sectors that currently offer attractive risk-adjusted returns, investors will be better positioned to meet their long-term goals.
2012-12-01 The Significant Impact of U.S. Oil Production by Frank Holmes of U.S. Global Investors
The Eagle Ford shale formation lies south of our headquarters in San Antonio, Texas, giving the U.S. Global investment team a firsthand, tacit perspective on the oil and gas industrys growing natural resources phenomenon. Weve witnessed how the oil activity is boosting the local economy with solid-paying jobs, a healthy housing market and strong consumer sentiment, as oil giants such as Schlumberger and Halliburton take a bigger stake in the area.
2012-12-01 The How Matters by Liz Ann Sonders, Brad Sorensen and Michelle Gibley of Charles Schwab
Market focus has clearly been on fiscal cliff negotiations. An agreement that averts the cliff would likely ignite a further near-term rally, but the ultimate solution and its components could have longer term consequences that may not be as market-friendly. US economic data has been impacted by Hurricane Sandy, but it appears modest growth is continuing; although business investment has fallen off. Housing continues to provide support and the Fed is staying the course. There are some signs of growth stabilization globally, notably in some of the emerging economies, including China.
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 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.
2012-11-23 Five Amazing Global Consumer Trends by Frank Holmes of U.S. Global Investors
Fifth Avenue no longer the worlds most expensive retail location. China set to be the second largest luxury market by 2017. Viva Macau is gaming capital of the world. Inexpensive Indian Aakash 2 could revolutionize tablet industry. Emerging market residents don't need a bank account to pay with their mobile wallet.
2012-11-22 Economic Update by Carl Tannenbaum and Asha Bangalore of Northern Trust
A look beneath the surface reveals a housing sector still struggling with post-crisis transition. The Federal Reserve is intent on promoting a broader recovery in this area.
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.
2012-11-19 Q3 2012 Market Commentary by Jon Sundt of Altegris
Decisive actions by central bankers altered the course of global markets in the third quarter of 2012 at least temporarily.
2012-11-19 Monetary and Fiscal Policy in Early 2013 by Scott Brown of Raymond James
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliff's negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
2012-11-16 The REIT Stuff: How REIT Investors Have Benefited from the Real Estate Recovery by Steve Benyik of Lord Abbett
In an otherwise slow-growth economy, real estate investment trusts' (REITs) strong returns and yields have attracted considerable investment in recent years. Steve Benyik, Lord Abbett REIT analyst, provides perspective on the sector's key trends.
2012-11-16 Fed Balance Sheet Expands, Reward-Risk Clarity Fades by Alan Levenson of T. Rowe Price
While the minutes of the October 23-24 FOMC indicated a lack of consensus regarding whether to initiate a new asset purchase program to replace the Maturity Extension Program (MEP) upon its year-end conclusion, we believe that the Committee will announce at the conclusion of its December 11-12 meeting that the Fed will begin open-ended purchases of Treasury securities at a pace close to the $45 billion per month in the MEP.
2012-11-12 Surveying the Post-Election Landscape by Team of Lord Abbett
Of all the uncertainties facing investors over the past few years, the U.S. presidential election was among the most significant. And now that the election is over, asset managers are assessing the opportunities and riskssuch as the looming fiscal cliffwithin their respective markets. Indeed, the direction of fiscal policy remains investors' foremost concern, according to a recent survey of nearly 600 financial advisors conducted on Lord Abbett's postelection Web conference.
2012-11-09 Chart of the Week: Gold and an Ever-Growing Balance Sheet by Frank Holmes of U.S. Global Investors
While Americans were still submitting their ballots, gold rallied on the possibility of a President Barack Obama reelection. With presidential results confirmed, it appears that Ben Bernanke's job of hovering over the economy and dropping parachutes of money out of his helicopter is secure. "Gold could not have asked for a better outcome," with a second term for Obama, a Democratic Senate and Republican House, says UBS Investment Research.
2012-11-09 Looking Past the Election by Liz Ann Sonders, Brad Sorensen, Michelle Gibley of Charles Schwab
The election results are in, removing at least one area of uncertainty from the equation. For the near term, economic data in the United States may take a back seat. Growth around the world appears soft, but some pockets are more encouraging than others.
2012-11-09 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%.
2012-11-06 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 Letters to the Editor by Various (Article)
A reader responds to Gary Halbert's commentary, What Really Happened in Benghazi on Sept. 11, which appeared on October 31, and a reader responds to David Schawel's article, Will Bonds Be 'Burnt to a Crisp?', which appeared on October 16.
2012-11-01 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.
2012-10-30 The Dangers of Mortgage REITs: Does Doubling the Leverage Make Them a Good Investment? by David Schawel, CFA (Article)
Levered mortgage-backed REITs are dangerous. Many of those who invest in the underlying REITs have little idea what is generating 10%+ yields, nor do they understand what scenarios could lead share prices to drop precipitously. These investors need to recall the lesson we all learned so vividly in 2008 - leverage may increase returns, but it does so by significantly magnifying risk.
2012-10-26 No New News From the Fed by Liz Ann Sonders of Charles Schwab
Given that it's just two weeks before the presidential election and that the Federal Reserve made several key announcements after its last meeting in mid-September, we weren't expecting any fireworks from today's Federal Open Markets Committee (FOMC) meeting.
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.
2012-10-19 House of Mirrors by Jeremy Boynton of Laureate Wealth Management
Did you ever try to navigate the "House of Mirrors" as a kid at your local carnival? You know the one I mean ---- where you walk through a labyrinth of mirrors designed to confuse your orientation while mocking you with various distortions of your body? If you were particularly skilled, you could use the mirror to your own advantage. What a compelling metaphor for the current state of the financial markets.
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 Investment Outlook 2013: "ABCD" Investing: Anything Bernanke Cannot Destroy by Cliff Draughn of Excelsia Investment Advisors
The Ben Bernanke and Mario Draghi concert gave the markets a double shot of their love in the month of September by promising to print as much money as needed to finance the debts of their respective countries. Ever since the financial fraternity party ended in 2008 and the world began deleveraging its massive credit hangover, the global markets have been hooked on the next shot of love from the central bankers.
2012-10-17 Fuzzy Math from the Continent of Peace by Christian Thwaites of Sentinel Investments
Whoops! The IMF made two announcements last week that caught our attention. But to set up the joke in all this, it's worth remembering that for decades the IMF preached austerity economics to any country that needed balance of payments assistance.
2012-10-16 Will Bonds Be ?Burnt to a Crisp?? by David Schawel, CFA (Article)
Bill Gross's recent monthly commentary painted a disturbing picture for investors - he foresees bonds being ?burnt to a crisp.? This isn't just hot air. Such a conflagration is possible, and investors in bond funds, especially those that are constructed similar to the widely followed Barclays bond index, need to heed risks inherent in today''s market.
2012-10-15 The United States: Stability or Complacency? by Alan Levenson of T. Rowe Price
The International Monetary Fund's updated World Economic Outlook foresees a modest pace of U.S. economic expansion in 2012-2013, emphasizing significant downside risks emanating from the euro area crisis and from the domestic fiscal cliff. Weakness in the euro area and slower growth in a secularly-restructuring Chinese economy are weighing on U.S. export trends, but sturdier growth in Canada and Mexico is providing an important offset.
2012-10-15 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 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.
2012-10-11 The New TIPping Point by Jeremie Banet, Rahul Seksaria, Mihir Worah of PIMCO
The Federal Reserve's QE3 program combined with more aggressive communication are likely to have implications for Treasury Inflation Protected Securities (TIPS).
2012-10-10 The Muni Minefield by Neeraj Chaudhary of Euro Pacific Capital
Municipal bonds have long been viewed as a staple asset class for conservative, income-seeking investors. "Munis," as they are known, are a large, liquid market of credit-rated securities that provide tax-exempt (from Federal taxes) income to millions of American investors. Towns, school districts, and other public sector authorities across the country have issued an estimated $3.7 trillion dollars worth of these bonds.
2012-10-09 Global Investment Outlook by Team of Aberdeen Asset Management
Global growth remains positive but momentum is lacking. Central bank action has eased tensions. Markets are calmer but future direction is uncertain
2012-10-05 How Helicopter Ben Helps Jobs and, Inadvertently, Gold by Frank Holmes of U.S. Global Investors
The world's central bank leaders continue to spike the monetary punch bowl, with investors imbibing on gold once again. This flurry of gold buying prompts many curious investors and doubting media to ask me two questions: 1) How can demand for gold and gold stocks continue; and 2) How high can the precious metal go? To answer these questions, we need to look at the intentions behind the economic and political decision-making across several developed countries, analyze the causes, the effects, and the possible ramifications.
2012-10-04 Priming the Liquidity Pump by Mark Mobius of Franklin Templeton Investments
The global economy is often like a line of dominos. One piece tumbles, causing others to fall too. This year, weak economic growth and heavy debt burdens in many developed markets had a domino effect on emerging economies, and many investors lost confidence in both. In response, central banks have taken actions to boost economic growth and prime the liquidity pump.
2012-10-03 The Fed Plays All Its Cards by Peter Schiff of Euro Pacific Capital
There never really could be much doubt that the current experiment in competitive global currency debasement would end in anything less than a total war. There was always a chance that one or more of the principal players would snap out of it, change course and save their citizenry from a never ending cycle of devaluation. But developments since September 13, when the U.S. Federal Reserve finally laid all its cards on the table and went "all in" on permanent quantitative easing, indicate that the brainwashing is widely established and will be difficult to break.
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 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?
2012-09-28 The Housing Market: For Real or Fakeout? by Jeffrey Dow Jones of Jones & Company
Most of you guys know that I bought a new house last summer. I spent two years looking at properties with the lovely (and patient!) Mrs. Concord, and eventually we found one that had what we each were looking for. My #1 criteria was value. Not price, but value.
2012-09-28 Alternative Thoughts: Macro Investing - What is macro investing and investing in a macro strategy? by Lawrence Epstein, Josh Rowe of Orinda Asset Management
Macro investing has long been the focus of investors in search of non-correlated investment strategies. Orinda Asset Management believes that macro strategies have the potential to produce positive absolute returns across market cycles. In addition, the strategy has historically exhibited low correlation to traditional equity and fixed income indices, and has provided effective diversification benefits when incorporated as part of a long-term investment plan.
2012-09-28 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 Its the (REAL, not the financial) economy, stupid! by Kane Cotton of Bellatore Financial, Inc.
The Fed is relying on the wealth effect. It can't directly bring down unemployment (i.e., part of the "real" economy), so it is focusing on the areas that it can affect, the financial economy and asset prices. Since both PCE and Core CPI inflation measures have been fairly low and are unlikely to become uncomfortably high in the near term due to the slack labor market, low capacity utilization and stagnant incomes, the Fed is again taking aim at asset prices.
2012-09-25 Stocks Should Overcome Hurdles to Continue the Bull Market by Bob Doll of BlackRock Investment Management
Although global economic data has been relatively weak in recent years, risk asset prices have nonetheless advanced. We would attribute this trend to the fact that weak economic growth does not, by itself, limit the potential for risk assets. In our view, the liquidity-driven reflationary policies of the world's central banks have been a more important factor for asset prices than economic growth levels have been.
2012-09-22 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 Ramifications of a Robin Hood Tax by Frank Holmes of U.S. Global Investors
Could a transaction tax have unintended consequence for American banks? While the jury is still out on that answer, Hungarys example is a reminder to policymakers to comprehensively consider the rewards of collecting a Robin Hood tax along with the risks. Profits and bank credit growth rates across Hungary plummeted due to the hefty bank levies imposed.
2012-09-19 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 Shock and Awe by Jerry Wagner of Flexible Plan Investments
Almost twenty years ago, the US initiated a campaign of "Shock and Awe" with its bombing campaign on the Iraqi capital city of Bagdad. I bring this up because some commentators are comparing the Federal Reserve announcement made last week (not to mention the shocking new Arab unrest and murder of our Ambassador!) to the "Shock and Awe" of the first day of the Iraq War. What made it "Shock and Awe" was that the new Fed policy differed, according to John Carney at CNBC, in three ways from past Fed actions.
2012-09-18 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.
2012-09-18 Housing Recovery? Try Long Convalescence by Russ Koesterich of iShares Blog
The US Federal Reserve's decision to expand quantitative easing is dramatic, but we don't think it will have a significant impact on the US housing market. While the extra liquidity is supportive of risky assets in the very near-term, lower mortgage rates are not a game-changer for a consumer still struggling with little income growth and too much debt.
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 "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.
2012-09-17 A Fed Fueled Rally by Chris Maxey of Fortigent
The week was overshadowed by policy actions from the Federal Reserve, which led to a 2.2% gain in the Dow Jones Industrial Average and a 1.9% increase in the S&P 500 Index.
2012-09-17 Main Street Policy...Seriously? by Jason Doiron of Sentinel Investments
In case you did not catch the press conference last week, Ben Bernanke believes that his latest round of quantitative easing will benefit Main Street. Seriously? The notion that Main Street will benefit from the Fed purchasing an additional $40 billion per month of agency-backed MBS is preposterous to us.
2012-09-15 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 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 QE3: Ineffective Parachute for Fiscal Cliff by Russ Koesterich of iShares Blog
While the most likely scenario is that Washington reaches a compromise at the last minute, until then the uncertainty will keep the markets volatile and potentially drag down fourth quarter growth. Given recent comments out of Congress, there is also a non-trivial chance that we will, at least temporarily, go over the cliff. If that happens, QE3 will not be a particularly effective parachute.
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.
2012-09-13 Fed Sets Sail on QE3 by Brian Wesbury, Bob Stein of First Trust Advisors
They did it. The Federal Reserve today announced a third round of quantitative easing, making an open-ended commitment to buy additional mortgage-backed securities at a pace of $40 billion per month. The Fed said it also will "closely monitor" the economy and financial markets and continue these purchases and possibly expand them until they see substantial improvement in the outlook for the labor market.
2012-09-11 Three Bond Funds for Rising or Falling Rates by David Schawel, CFA (Article)
Several actively managed bond funds have achieved significant outperformance relative to their benchmarks despite recent low interest rates. The strategies employed by these funds can and will continue to outperform without needing rates to fall further.
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 Back to School: Summer Vacation Ends for Central Bankers by Andrew Boczek of Sentinel Investments
The heady days of "Maestro" Alan Greenspan may be long gone. Nonetheless, most of us still take for granted that similarly wise men and women, aloof from the pressures of politics and short term market fluctuations, have the capacity to set the proper price of our most precious commodity: time. Or said another way, to set an effective interest rate policy that encourages either savings or spending, today or in the future, to help manage long term economic stability.
2012-09-07 The 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%.
2012-09-07 The Fed's Campaign by Peter Schiff of Euro Pacific Precious Metals
This past Friday, as Fed Chairman Ben Bernanke delivered his annual address from Jackson Hole - the State of the Dollar, if you will - I couldn't help but hear it as an incumbent's campaign speech. While Wall Street was hoping for some concrete announcement, what we got was a mushy appraisal of the Fed's handling of the financial crisis so far and a suggestion that more 'help' is on the way.
2012-09-01 And That's the Week That Was by Ron Brounes of Brounes & Associates
Isaac vs. Romney vs. Bernanke. Each took their turn in the limelight this week. While the Hurricane dropped plenty of rain and brought damaging winds into Louisiana, the devastation didnt compare to Katrina. Romney humbly accepted his party's nomination, while still trying to prove to T-Partiers (and women) that he should be their guy (and he can bash his opponents with the best of them.
2012-08-28 Curious Repetition by Christian Thwaites of Sentinel Investments
Greece had a bond payment in the middle of the week that was paid with no drama and then announced that it had enough cash to finance its needs through October. However, it is using cash set aside to recapitalize banks in order to meet general obligations. The bond buying proposals are still priced into the market.
2012-08-27 Inside the Feds Head by Kristina Hooper of Allianz Global Investors
Now more than ever, investors are getting a glimpse into the minds of policy makers. While economic forecasts remain foggy, recent FOMC minutes reveal why the Fed is sharpening its tools and which ones it is likely to use.
2012-08-21 Anniversary Weaks by Christian Thwaites of Sentinel Investments
A couple of anniversaries last week: five years since the start of the credit crunch and one year since the US downgrade. The ramifications of both are still evident daily, of course. We're still living the consequences. So this is as good a time as any to take stock.
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.
2012-08-17 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.
2012-08-14 An Imperfect Storm by Janus (Article)
Changing regulations have drained liquidity from the corporate bond markets, as growth in bond ETFs is distorting a shrinking market. These converging forces are likely to result in a more volatile environment, but we see opportunity for managers able to understand the fundamental risk and reward.
2012-08-13 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.
2012-08-10 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.
2012-08-08 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.
2012-08-07 Mixed Signals Color Downgrade Anniversary by Kristina Hooper of Allianz Global Investors
Two trouble spots for the economy, the job market and housing, generated some good vibes amid gloom over no action from central banks and manufacturing weakness. Unfortunately, it wasnt enough to push the stock market into positive territory for the week. But looking through a longer-term lens, stocks have been resilient since last year's debt-ceiling drama and Standard & Poors downgrade of U.S. debt.
2012-08-06 Diamonds in the Rough by Mark Kiesel of PIMCO
The demand for most high-quality, income-producing assets continues to exceed supply due to a weaker growth outlook and aggressive policy action by global central banks. Yet we are still finding numerous opportunities globally through our bottom-up research that targets areas around the world where fundamentals are supportive and the outlook remains constructive.
2012-07-31 An ECB Rally by Christian Thwaites of Sentinel Investments
We remain dependent on European statements but what a difference a year makes. This time last year we saw softening economic data and increasingly poor news coming out of Europe. But then we had a diffident ECB president who had just finished a round of rate increases as Europe slumped. This time we have combative words from Mario Draghi to support the euro, apparently at all costs.
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.
2012-07-16 The Third Law of Randomness by John P. Hussman of Hussman Funds
Proper investing doesn't rule out randomness and unpredictability, particularly when it comes to individual events. It instead diversifies against randomness both across holdings at each point in time, and across time by repeatedly acting on the basis of averages instead of individual forecasts.
2012-07-13 End Game: What Happens to Residential Mortgage-Backed Securities if There's a Eurozone Exit by Rod Dubitsky of PIMCO
An exit would substantially affect euro-denominated RMBS mortgage collateral. Currency redenomination and devaluation would likely wipe out the entire available credit enhancement for most deals. Losses of redenominated loans could overwhelm credit support, even for well-performing deals.
2012-06-25 Timid Actions, Fearful Times by Christian Thwaites of Sentinel Investments
Since 2010, investors have traveled between optimism and pessimism every three months. It's negative right now. Here's why: A very timid move by the Fed. What was glaring was the entire board revised down their expectations on the economy: i) GDP down by $500bn ii) unemployment up 500,000 and iii) lower core and PCE inflation. Not just for 2012 but next year as well. That takes complacency to a new level.
2012-06-19 Achilles Last Stand: Greeks Vote in Favor of Euro by Liz Ann Sonders of Charles Schwab
The June 17 Greek elections favored the pro-bailout party and allow for a likely coalition to be formed probably the least-tumultuous outcome. However, kicking the can further down the road doesn't solve the eurozone's structural problems, nor does it stem contagion. Next on investors' radar is this week's Federal Reserve meeting, where additional easing is expected.
2012-06-13 U.S. Commercial Real Estate: A Technical Affair by John Murray of PIMCO
We believe attractive investment opportunities will arise in sectors of CRE that haven't yet caught the eye of technicals-driven capital. Demand for CMBS arguably comes from a lack of alternatives as opposed to any sort of inherent belief in rental fundamentals. Fickle technical factors are not the only headwinds: Deleveraging, regulatory uncertainty and weak fundamentals add further pressure.
2012-05-29 The Reality of the Situation by John P. Hussman of Hussman Funds
If one steps back from the trees to observe the forest, the reality of the situation is that Europe is already largely in recession, the global economy is slipping quickly toward the same outcome, and in my view, the U.S. is also entering a recession that will ultimately be dated as beginning in May or June of 2012 (i.e. now). The economic headwinds already in place are likely to make any meaningful budget progress virtually impossible in the Eurozone, and without meaningful budget progress, the likelihood of continued bailouts to peripheral European states is slim.
2012-05-24 Why Invest in Asian Credit? by Showbhik Kalra of PIMCO
Asian sovereign and corporate credit offer more attractive yields than a number of other global fixed income sectors as investors take on additional risk. Given Asian markets diversity and the global macroeconomic environment, investors may wish to consider investment managers with a strong global macro process coupled with strong relationships with local stakeholders and experience in local portfolio management and markets.
2012-05-22 New Lows and a Dud IPO by Christian Thwaites of Sentinel Investments
We're testing all sorts of lows: 1) record low for GT10 auction last week 2) GT30 yield, same level as Dec 2008 3) European banks are at same price level as 1987...so 25 years of gains wiped out 4) euro stocks same level as March 2009, so all the gains gone 5) US safest and best place to be 6) China stocks at same level as 2006, since then the Chinese economy has doubled and 7) to cap it all we had an IPO that should never have happened. We're back in risk territory and markets don't want to extend or commit.
2012-05-21 Liquidation Syndrome by John P. Hussman of Hussman Funds
Presently, the market remains richly valued on normalized earnings, and is coming off of a speculative peak with an abrupt and persistent initial decline. All of this reflects what might be called a "liquidation syndrome" that is selective for awful drops that began in 1969, 1972, 1987, 2000, 2007, and the more moderate but still steep losses in 1998, 2010, and 2011.
2012-05-15 The world is not ending. Nor is it by Christian Thwaites of Sentinel Investments
Last week saw more dire talk on the end of the euro, the lowest ever GT10 auction, a 2.2% swing in SPX and an overly dramatic reaction to hedging losses at JPM. But these are not big enough to push aside the broad positives: i) Europe will cobble together some compromise...there's already broad agreement that pure austerity needs dilution and the Bundesbank even made soothing noises on inflation ii) US economic data was broadly helpful iii) market metrics remain solid and iv) the federal government is in budget surplus. Yes, no lies. Read on.
2012-05-10 Diversification 301: Tailored Solutions for Your Portfolio by Team of American Century Investments
We continue our discussion of diversification and its application to investor portfolios. We explain how there is no single universal diversified portfolio suited to all investors and occasions. Instead, diversification is a highly customizable framework that can and should be uniquely tailored to suit each individual investors goals and risk tolerances. Earlier articles in the series discussed the basic benefits and rationale for diversification and a discussion of alternative investments that can be used to diversify a traditional balanced portfolio of stocks and bonds.
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 Rethinking Best Practices for Bank Investment Portfolios by Sabrina Callin and Justin Ayre of PIMCO
The turmoil in capital markets and changes in the regulatory environment have sparked changes in bank investment portfolios and caused many banks to reevaluate portfolio management practices. Banks without the resources to develop new processes may be forced to limit their investment opportunity set, possibly limiting earnings and diversification potential in the securities portfolio. The investment portfolio may represent an opportunity to improve bank revenues and risk-adjusted performance by expanding into investments with improved return and diversification potential.
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 Tuesday Never Comes by Bill Gross of PIMCO
The current acceleration of credit via central bank policies will likely produce a positive rate of real economic growth this year for most developed countries, but the structural distortions brought about by zero bound interest rates will limit that growth and induce serious risks in future years. Gradually higher rates of inflation should be the result of QE policies and zero bound yields. Focus on securities with shorter durations bonds with maturities in the 5-year range and stocks paying dividends that offer 3%4% yields. Real assets/commodities should occupy an increasing percentage.
2012-05-01 Bernanke: Be Humble! by Axel Merk of Merk Funds
To Bernanke, being humble means to keep strong monetary policy support to avoid deflation. This humbleness creates a lot of debt whether that be out of thin air on the Feds balance sheet, or across the economy as consumers, businesses and the government alike are enticed to borrow evermore money. What we consider monetary largess, as well as fiscal unsustainability, may ultimately lead to deterioration of the US purchasing power. We have encouraged investors to take a diversified approach to cash. A basket of hard currencies or gold might serve to mitigate the risks of a declining dollar.
2012-04-27 Bond Market Reflections Spring 2012 by Bruce A. Weininger of Kovitz Investment Group
Faced with the prospect of loaning money out for eight years knowing that our best case return over that time was 2%, we decided that, for a while anyway, wed rather hold onto to cash in hopes that pricing will become more rational over the coming weeks or months.
2012-04-26 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.
2012-04-24 Finance, Meet Pharma by Dan Ariely of Predictably Irrational
I think we need an FDA-like entity and process for financial products, because if we dont have a counterfactual, we cant compare and measure the value of their products. We could call it the FPA, for Financial Product Administration. One example of a financial tool that the FPA could test is high frequency trading. Companies are going all out to profit by being the fastest to buy and sell stocks, owning them for fractions of a second; they even go so far as to buy buildings closer to the stock market to make trading faster.
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.
2012-04-10 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.
2012-03-29 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.
2012-03-21 Trade Rains on the Jobs Parade by Peter Schiff of Euro Pacific Capital
Back in the late 1980s, when annual trade and budget deficits were but a small fraction of today's levels, the markets were rightly concerned about America's ability to sustain its twin deficits. This anxiety helped lead to the stock market crash of 1987. More recently, large and persistent trade deficits were a significant factor in building the imbalances that caused the U.S. economy to implode in 2008. But in recent years, most Americans have lost their concern with gaping trade deficits. I believe it will soon come back with a vengeance.
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."
2012-03-13 The Gutenberg Economy by Michael Lewitt (Article)
As commentators near and far speculate on what 2012 will bring to the global economy and markets, there is little question that one factor will be decisive: the central banks' printing presses. Both the Federal Reserve and the European Central Bank (ECB) will keep printing dollars and euros around the clock until their presses run out of ink.
2012-03-06 U.S. Covered Bonds: Reassessing Credit Risk and Relative Valuations by Marco van Akkeren and Ben Emons of PIMCO
We believe nominal spread analysis is insufficient, since investors must now consider recovery and default risk under various economic conditions. Our factor-based approach provides a means to quantify default probabilities across a range of outcomes instead of analyst-defined ad hoc assumptions. We also investigate historical CDS spreads as a means to quantify default risk relative to national home price appreciation. The potential for an emerging U.S. issuer market, combined with ongoing foreign issuance, leads us to believe the U.S. covered bond market has viability.
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.
2012-02-07 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.
2012-01-30 Tide Turns for Structured Credit by Joshua Anderson and Carrie Peterson of PIMCO
Many investors remain skeptical, but the market environment for structured products has changed markedly since the financial crisis of 2008. Current pricing now reflects a more realistic view of the underlying fundamentals, including weakness in the global economy and U.S. housing market. We believe now is the time to consider entering the structured credit market.
2012-01-20 On Mexicos Homes by Kate Jaquet of Seafarer Capital
Mexicos macroeconomic backdrop has been surprisingly benign for more than a decade now. The country has experienced stable growth, low unemployment, low levels of government debt and it has managed inflation relatively well, as evidenced in the table nearby. The country also enjoys very capable policy management, a burgeoning middle class, stable mortgage markets, strong housing demand and a wide field of homebuilders to cater to that demand. No one knows whether or when the violence in Mexico might end, but behind the headlines, the housing market gives hope that a stable future lies ahead.
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.
2012-01-17 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.
2012-01-13 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.
2012-01-10 Gundlach on the Key Risk for Bond Investors by Robert Huebscher (Article)
Watch out if you own a bond fund that underperformed its benchmark by 2% or more last year, as most did. Rather than put their careers at risk by suffering a second year of poor performance, those fund managers will turn to indexation, according to DoubleLine?s Jeffrey Gundlach. And since the Barclay?s Aggregate Index holds nearly 35% of its assets in Treasury bonds with near-zero yields, its investors will endure poor returns.
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.
2011-12-13 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.
2011-10-25 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.
2011-10-07 The Hunt for (Sustainable) Yield by Team of Emerald Asset Advisors
In any low-rate environment, it is easy to be seduced by any investment that can deliver high yields. But to achieve a consistent total return, you need to carefully weigh the risks and focus on investments that can deliver attractive yields that are sustainable, while also providing the potential for higher income in the future. Our answer thus far has been a combination of sources. Given the current miniscule yield environment, we expect these higher-quality asset classes to move the income-generation meter at least a little for client portfolios without exposing them to inordinate risk.
2011-10-06 Worry and Volatility Continue in September by Team of BondWave Advisors
September was a continuation of the fear and anxiety that plagued August. Worries about a global slowdown and the fiscal situation in Europe drove a volatile month. Fears of a double-dip recession have been growing as economic data has moderated. These fears were stoked after the September FOMC meeting when the Fed downgraded the state of the economy by announcing a new plan intended to stimulate growth. The IMF also adjusted its global outlook down, revising its estimate for global growth in 2011 and 2012 to 4% from 4.3% Estimates for the US were revised from 2.5% to 1.5%.
2011-09-30 Schwab Market Perspective: Perception vs. Reality by Liz Ann Sonders, Brad Sorensen, and Michelle Gibley of Charles Schwab
Economic data continues to reveal sluggish activity, and markets have been increasingly trading in a risk-on, risk-off mode. The Fed continues to try to stimulate greater economic growth, most recently with the announcement of operation twist. We have serious doubts this will engender any broad upturn. We continue to look toward Washington to move beyond short-term rhetoric and provide some serious long-term plans that allow businesses to have more confidence in the future. European policymakers continue to delay any real action, increasing the risks of an escalation of the debt crisis.
2011-09-28 Fed Extends Maturities by Kathy A. Jones and Rob Williams of Charles Schwab
Fed Notes-The TwistObservations and takeaways on the Fed's two day meeting this week. Bank Bondsplus Extraordinary Calls on Trust Preferred SecuritiesWe elaborate on factors affecting the banking sector. Obama Bill Questions Exemption on Muni bondsOur view on one piece of the job proposal presented by the Obama administration. Liquidity- Ignore at Your PerilWe highlight some reasons why liquidity, especially in volatile markets, is an important investment factor.
2011-09-27 When Greece Defaults by Keith Goddard (Article)
The Greek default is indeed inevitable, but there remain two possible ways the world may learn about it, and financial markets will react very differently depending on which of these two processes for default occurs.
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.
2011-09-22 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 Counterparty Risk in Large Total-Return Funds by Robert Huebscher (Article)
We can add another to the list of concerns facing advisors: counterparty risk ? a potential loss from the failure of a bank or broker-dealer. Underscoring this threat, DoubleLine's founder and chief investment officer, Jeffrey Gundlach, recently warned advisors to avoid all funds with counterparty risk. Heeding his warning, however, is not easy; it is virtually impossible to gauge the extent of counterparty risk in most funds.
2011-09-13 The Risks of Exchange-Traded Products by Dennis Gibb (Article)
Every major financial crisis has been foretold by timely but ultimately ignored warnings. At the end of mania, the rush to secure more fees, investment performance and status trumps common sense. In the last few months, the drumbeats of warnings from financial journals and regulators about exchange-traded funds have been sounding. Few seem to be listening.
2011-09-13 Fear and loathing at Bank of New York Mellon by Team of Institutional Risk Analyst
In our last issue, we presented the case for the insolvency of the parent of Bank of America Corp, even though the subsidiary banks remain profitable and well-capitalized. This week, we ponder the situation at Bank of New York Mellon, where like BAC the operational performance of the depositories does not tell the whole story. Despite the high profile thrashing meted out to BAC and BK both by the NY AG in the Countrywide put-back settlement, markets may not fully appreciate just how deep is the rising kimchee swirling around BK.
2011-09-09 Should We Cheer The FHFA Lawsuit? by John Downs of Euro Pacific Capital
Last Friday the Federal Housing Finance Agency (FHFA) lawsuits were filed against seventeen banks and financial institutions for $200 billion in subprime loan losses. The victims of the alleged fraud? Fannie Mae and Freddie Mac, and therefore the taxpayers. The suits claim that Fannie and Freddie, then two of the largest investment bodies in the world, had been ruthlessly hoodwinked by bankers into buying low-quality, and potentially fraudulent, mortgage-backed securities. In exchange for fees and commissions, big banks and loan companies stuck the taxpayers with a mountain of bad debt.
2011-09-07 Are We There Yet? by Christian Thwaites of Sentinel Investments
A rogue summer. Markets fretted, politicos dissembled, bankers flinched. So that leads us to growth fears: 3Q is of course weaker but not enough to tip into recession. Why? i) there's no pressure in the economy and volatile measures like inventories and orders are holding up ii) personal and disposable income are barely moving; confidence is flat but that does not mean wholesale retrenchment iii) no inflation, either at the PCE, broad deflator, core or CPI level. The cumulative one year jobs story so far: private +1.7m and government -0.5m.
2011-09-06 Byron Wien Reflects on His List of Surprises by Laurence B. Siegel (Article)
Byron Wien is a senior managing director and vice chairman of Blackstone Advisory Partners, the largest alternative investment firm in the world with $140 billion under management. Each year, for the last 26 years, he has published a list of 10 'surprises' investors should expect in the capital markets and the economy. In this interview, he reflects on his list for 2011 and what see sees ahead.
2011-09-01 Updated Ideas for Fixed Income Positions by Team of American Century Investments
The current environment and related factorsincluding double-dip recession concerns, equity and high-yield corporate bond market volatility, moderate inflation expectations in the near term, and premium pricing for U.S. Treasury securitieshave raised questions for investors as they return from summer activities and re-examine fixed income investment positions. It is difficult to address all investor situations and scenarios. So for our hypothetical allocations in this piece, we will focus on fixed income positioning within employer-sponsored retirement plans, both qualified and non-qualified.
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.
2011-08-01 And That's The Week That Was by Ron Brounes of Brounes & Associates
A month ago, the DC deficit/debt debate was amusing political theater. Partisan hacks earned brownie points with loyal constituents, while preparing for next years election. Two weeks ago, the theater turned into a game of chicken as Main Street and Wall Street watched with interest to see which party would blink first. Today, theater and chicken are no longer amusing. A complete and utter inability to compromise and a win-at-all-costs attitude have brought government and economy to the brink of disaster. Are there any grown-ups left in Washington?
2011-07-22 Debt Ceiling Myths by Michael Pento of Euro Pacific Capital
With the Tea Party gaining traction in Congress, and causing nightmares for incumbents, Republicans have little incentive to raise the debt ceiling (although they raised it 7 times under George W. Bush). Democrats arent going to reduce entitlements without raising taxes on the rich and Republicans arent going to raise taxes when the unemployment rate is 9.2%. Theres your stalemate and anyone expecting a significant deal to cut more than $4 trillion in spending by the August 2nd deadline will be severely disappointed.
2011-07-20 Secular Outlook: Implications for Investors by Bill Benz of PIMCO
As the economy undergoes important realignments, investors will need to rethink their traditional approaches to managing their portfolios. As the lines between interest rate and credit risk become blurred, finding sources of safe spread becomes even more critical. More, not less, discretion is warranted when navigating volatile global markets, avoid sectors affected by financial repression and hedge against inflation and/or adverse tail events. We believe investors need to look at risk factors rather than traditional asset classes when making asset allocation decisions.
2011-07-14 Ben Bernanke channels Genworth Financial; Chris Laursen on bank trading under the Volcker rule by Team of Institutional Risk Analyst
This week we republish an important article by Christopher Laursen, NERA Vice President, on bank trading under the Volcker rule. And we ask whether Fed Chairman Ben Bernanke knew he was saying about the conforming loan limit yesterday before the House Financial Services Committee.
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.
2011-07-02 And That\'s the Week That Was... by Ron Brounes of Brounes & Associates
The second quarter ended on a very positive note as equities enjoyed a late surge to bring the Dow into positive territory for the period (and the other indexes close to flat). Such performances didn?t seem likely just a few weeks ago, but positive news this week from Greece, signs of a rebound in manufacturing, and declining gas prices that helped ease a more fearful inflation picture put a damper on the recent negativity. Equities enjoyed their best week in two years. Let?s hope the mood lasts.
2011-07-01 With Housing Fragile, the Risks of Public Policy Error Are High by Scott Simon of PIMCO
We are seeing signs of what we have long suspected: There never was a housing recovery. The market is in an arguably fragile state that we believe is far easier to break than to fix. If we ended government support, mortgage rates could rise significantly, because home loan investors would need to be compensated for greater credit risk, and loan availability could decline. Those two factors would put downward pressure on home values.
2011-06-29 Covered Bonds: Strong Demand, New Regulations Create Global Momentum by Ben Emons and Kris T. Mierau of PIMCO
Basel III?s long-term funding and liquidity coverage requirements could boost demand, create technical support for valuations. The EC has proposed an exemption excluding covered bonds from private sector participation in post-insolvency burden sharing. The Covered Bond Act could alter the way regional banks in the U.S. rely on the Federal Home Loan Bank (FHLB) system for funding.
2011-06-16 U.S. Investors Overexposed to U.S. Dollar Risk? by Axel Merk of Merk Funds
The U.S. dollar has experienced significant weakness over recent years. And there is a risk the U.S. dollar will experience ongoing deterioration for an extended period of time. U.S. investors may want to take this possibility into consideration when assessing the U.S. dollar risk inherent in their investment portfolios. Our analysis into the aggregate financial asset holdings of the U.S. personal sector finds that the vast majority of investor?s financial assets are denominated in U.S. dollars and as a result, significant U.S. dollar risk exposure is evident.
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.
2011-06-07 Letters to the Editor - On the WikiLeaks of the Economics Profession by Various (Article)
This is a follow-up to last week's exchange between Guy Cumbie and Michael Edesess, which concerned Edesess' article two weeks ago, Letter to the Editor On the Wikileaks of the Economics Profession.
2011-06-06 David Kotok on Central Bank Credibility; Bob Eisenbeis: Did the Fed Print Money with QE? by Team of Institutional Risk Analyst
This week in The Institutional Risk Analyst, we republish a comment by Robert Eisenbeis, Chief Monetary Economist of Cumberland Advisers, "Did the Fed Print Money in QE1 and QE2?" Eisenbeis, who was Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta prior to joining Cumberland, corrects a puzzling comment on the Fed published last week in the Wall Street Journall by George Melloan. We assumed that Melloan and the Wall Street Journal editorial staff were aware of the rules of monetary quantum mechanics, but maybe not.
2011-06-02 Expert Roundtable on Risk by Mark W. Riepe, Liz Ann Sonders, Randy Frederick, Rob Williams, & Brad Sorensen of Charles Schwab
The word "risk" has a negative connotation-something to steer clear of whenever possible. However, in the investing world, risk and performance are intertwined. Market sentiment can shift quickly depending on economic or political news, geopolitical events and even natural disasters and these shifts can sometimes send investors fleeing for safety or taking on more risk as they seek higher returns. Mark Riepe, led a roundtable discussing the concept of risk in investing, strategies for reducing portfolio risk, and investment suggestions tailored to both risk-seeking and risk-averse investors.
2011-05-24 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.
2011-04-28 Weekly Market Update by Team of American Century Investments
Total returns began looking better for municipal bonds (munis) after mid-January this year as issuance eased and a wave of non-traditional (not tax-exempt income-seeking) buyers entered the market in pursuit of relative value and return opportunities provided by falling muni prices and rising yields compared with those of Treasuries. But the rewards from that influx of demand have not been uniform across the muni market, the non-traditional ?crossover? buyers have targeted some segments much more than others, creating a divided market that has rewarded some investors at the expense of others.
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.
2011-04-19 Inflation Destroys Real Wages by Michael Pento of Euro Pacific Capital
In the same vein as medieval physicians believed bloodletting would cure illness, modern snake-oil economists still perilously cling to their claim that rising wages and salaries are the cause of inflation. With my recent debates with these mainstream economists, I?ve heard the following: ?without rising wages, where does the money come from to push prices higher?? I was tempted to respond, ?where do the employers get the money to pay those higher wages?? But economists tend to get a little nasty when you make them feel stupid.
2011-04-18 Late to The Party?Once Again by Peter Schiff of Euro Pacific Capital
The only thing more ridiculous then S&P?s downgrade of U.S. sovereign debt was the market?s severe reaction to the announcement. Has S&P really added anything to the debate that wasn?t already widely known? In any event, S&P?s statement amounts to a wakeup call to anyone who has somehow managed to sleepwalk through the unprecedented debt explosion of the last few years. Given S&P?s concerns that Congress will fail to address its fiscal problems, on what basis can it conclude that the U.S. deserves its AAA credit rating? If S&P has genuine concerns, the AAA rating should be reduced now.
2011-04-15 Not all Bonds are Created Equal by Dan Fuss, Kathleen Gaffney, Matthew Eagan & Elaine Stokes of Loomis Sayles
It has become the question of the day: If interest rates are heading higher, shouldn?t I bail out of bonds altogether? While we anticipate rates will rise, we don?t believe abandoning bonds would be prudent for most investors. Bonds can play an important role in investor portfolios by providing income potential plus diversification. In this piece, we describe why we think rates may be biased higher in coming years and how our portfolio strategies may adjust to the new environment.
2011-04-14 U.S. Dollar ? Review and Outlook by Axel Merk and Kieran Osborne of Merk Funds
We believe that continued U.S. dollar weakness may be a consequence of the diverging monetary approaches central banks are taking around the globe. While many international central banks have been on a tightening path, raising rates (i.e. Australia, Brazil, Canada, China, India, Norway, Sweden, to name a few), the U.S. Federal Reserve has been conspicuous in its continued easing monetary policy stance. Indeed, while other central banks have been shrinking the size of their balance sheets, the U.S. Fed?s balance sheet continues to expand on the back of ongoing quantitative easing policies.
2011-04-11 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.
2011-03-12 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.
2011-03-08 The Clued-in, the Clueless, the Oblivious and the Conflicted by Michael Edesess (Article)
I?ve now read perhaps 10 books about the financial crisis. Maybe I?m a junkie, but each has given me new information or a fresh way of looking at events. 'All the Devils Are Here' offers a treasure trove of information about company behavior during the crisis, notably Fannie and Freddie, Goldman Sachs, Merrill Lynch, AIG, Countrywide, and Ameriquest.
2011-02-17 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.
2011-02-16 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.
2011-02-09 The State of the Municipal Bond Market by Matthew Whitbread of FundQuest
The municipal bond market has been an usually volatile asset class over the past year. In Q4, the Barclays Municipal Bond Index lost 4.17%, its worst quarterly performance in 16 years, and continued to decline in January. The recent turmoil for municipals was the result of the four primary factors: supply issues stemming from the expiration of the Build America Bonds program; excessive negative media attention that has spooked investors; the current economic downturn; and, rising U.S. Treasury rates. FundQuest still believes that the municipal bond market is an attractive asset class.
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.
2011-01-20 Word on the Street: Cautious Optimism by Eagle portfolio managers of Eagle Asset Management
The general consensus among Eagle managers is that companies are more optimistic than they have been in many years. Businesses are starting to loosen their purse strings, albeit slowly and deliberately, to take advantage of competitive opportunities. Eagle managers continue to believe independent, diligent research is paramount in selecting stocks right now and that this likely will prove to be an excellent opportunity for long-term investors.
2011-01-18 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.
2010-12-22 2011 Outlook: Fixed Income by Fixed Income Investment Team of Neuberger Berman
Entering 2011, there is no shortage of potential issues that could ignite periods of extreme market volatility. While short-term market gyrations are unsettling for both novice and experienced investors alike, for the year as a whole, we believe the outlook for the economy and the fixed income market is generally positive. In particular, certain non-Treasury sectors have compelling fundamentals going into the New Year. In our opinion, these areas could benefit generally from an increased risk appetite, should investors seek incremental yields given a continued low interest rate environment.
2010-12-01 The Risk of Fixed Income Indexing vs. Active Multi-Sector Management by Ken Taubes of Pioneer Investment Management
Tepid economic growth coupled with weak equity markets over the past few years have driven U.S. investors to the perceived safe haven of fixed income. We believe that fixed income indices may be appropriate as benchmarks, but not as investment strategies.
2010-11-23 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
2010-11-15 I Am Shocked, Shocked that the QE2 is Akin to Printing Money and Public Debt Monetization! by Paul Kasriel of Northern Trust
Whenever the sum of Federal Reserve and commercial banking system credit increases, credit is being created out of thin air and debt is being monetized. The magnitude of the credit creation being contemplated by the Fed is not extraordinary in an historical context. It is not an extraordinary increase in credit creation given the current amount of resource underutilization in the U.S. economy. Being shocked by the implications of QE2 with respect to ?printing money? and the ?monetization of debt? would appear to be either naïve or hypocritical.
2010-11-11 Never Too Big To Fail Their Customers by John Downs of Euro Pacific Capital
As a mortgage broker during the manic years of the housing boom, I witnessed reckless financial practices on a wide scale. As a result, I was not surprised by the ?robo-signing? mess that now threatens the mortgage sector. Unfortunately, the scandal is only a small tip of the iceberg that threatens to take down the entire US banking system.
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.
2010-11-08 Crossing the Threshold into a New World ... Or Not by Chris Maxey of Fortigent
There is no doubt that the events which transpired last week are without precedent. The long-term implications of quantitative easing by the Federal Reserve are entirely unknown. Should the Fed?s program conclude on schedule, private investors would need to step to the plate and replace the incremental demand lost from the Fed. It is unlikely private investors could replace that demand, which would lead to enormous upward pressure on interest rates.
2010-11-07 Bubble, Crash, Bubble, Crash, Bubble... by John P. Hussman of Hussman Funds
Given that interest rates are already quite depressed, Bernanke seems to be grasping at straws in justifying QE2 on the basis further slight reductions in yields. By irresponsibly promoting reckless speculation and illusory "wealth effects," the Fed has become the disease. The economic impact of QE2 is likely to be weak or even counterproductive. Even though the S&P 500 is substantially below its 2007 peak, it is also strenuously overvalued once again.
2010-11-04 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.
2010-10-29 Employment is Main Focus of Fed Policy by Asha Bangalore of Northern Trust
The Fed is widely expected to announce the details of the second round of quantitative easing following its two-day meeting ending November 3. Advocates of QE2 expect lower interest rates to lift all interest-sensitive expenditures, including home purchases, mortgage refinances and business expenditures. In addition, bankers could be more likely to lend given paltry earnings from excess reserves and Treasury securities. Finally, the benefit of increased exports from a depreciation of the dollar may reflect in headline GDP.
2010-10-27 Triple Down: Fannie, Freddie, and the Triumph of the Corporate State by Christopher Whalen of Institutional Risk Analyst
What we need from the Federal Reserve is some leadership on the issue of making the White House take responsibility for restructuring the economy. The Fed should be telling the healthy banks to start taking a bit of risk, making some loans instead of buying Treasury bonds and agency mortgage-backed securities. A bit of increased competition in the origination channel so that performing borrowers can get a refinancing closed will unblock the economy and also do wonders for the efficacy of Fed policy.
2010-10-25 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.
2010-10-24 The Subprime Debacle: Act 2, Part 2 by John Mauldin of Millennium Wave Advisors
Buyers of mortgage-backed securities may be able to join together and force issuers to buy back those securities, if the loans they contain are defective. This is further complicated by the fact that some of those buyers were non-US entities. Bank of America is badly exposed through its acquisition of Countrywide, as are "dozens" of other banks.
2010-10-20 Dirty (Paper) Work: Foreclosure Mess Gets Messier by Liz Ann Sonders of Charles Schwab
Moratoriums on foreclosures, and the reasons behind them, bring back fears of 2008 all over again. These fears will likely cement another round of quantitative easing by the Federal Reserve. Even if 'Foreclosure Gate' blows over, investors shouldn't make too little of a potentially big problem.
2010-10-19 Bernanke's Impossible Dilemma by Robert Huebscher (Article)
David Wessel, economics editor of the Wall Street Journal, examines the challenge Ben Bernanke faces. His goal is to provide full employment and price stability. Yet he faces a slowly growing economy, unemployment close to 10%, consumers deleveraging and spending frugally, renewed fears of banking system instability, and the threat of an asset bubble is growing somewhere in the markets. Monetary and fiscal policy options have been seemingly exhausted, and the public is losing confidence in all aspects of government.
2010-10-18 The Recklessness of Quantitative Easing by John P. Hussman of Hussman Funds
With continuing weakness in the U.S. job market, Ben Bernanke confirmed last week what investors have been pricing into the markets for months - the Federal Reserve will launch a new program of quantitative easing, probably as early as November. Further attempts at QE are likely to have little effect in provoking increased economic activity or employment. This is not because QE would fail to affect interest rates and reserves. Rather, this policy will be ineffective because it will relax constraints that are not binding in the first place.
2010-10-18 Is Inflation Gone Today and Here Tomorrow? by Chris Maxey of Fortigent
Inflation is arguably not an issue for the time being, but with the Fed prepared to unleash trillions in additional liquidity, the outlook for inflation is more uncertain than ever. While yields on government bonds with a maturity between 2- and 10-years are flattening, the long end of the yield curve is widening dramatically. Long-term bonds exhibit the most sensitivity to interest rates and inflation, so this may be the first indication that inflation will pose a serious threat down the road. Investors and consumers alike should tread very, very carefully.
2010-10-16 The Subprime Debacle: Act 2 by John Mauldin of Millennium Wave Advisors
The housing market has not yet begun to recover, and it is not only going to take longer but the decline in prices may be greater than many have forecast. But the real problem is the foreclosure crisis, where banks have foreclosed in situations where they had no right to do so. Several options exist for resolution, including sorting out the details of each case in a legal forum. A more ominous outcome would be to force investment banks to buy back securities with faulty titles.
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.
2010-10-07 Risk On, Risk Off by Cliff W. Draughn of Excelsia Investment Advisors
The huge drop in bond yields is the driving force in the equity markets and the decline of the dollar. The old adage 'don't fight the Fed' still applies, and Excelsia's allocations will be shifted more towards equities and alternatives as interest rates get driven lower and lower. Emerging market debt, commodity and natural resource companies, gold, and large-cap stocks all offer favorable prospects.
2010-10-05 Thinking Bond Market Bubble? Consider Short-Term Bonds by RidgeWorth Investments (Article)
The current market environment - characterized by historically low interest rates and money market reform - has created an opportune time to invest in short-term bonds. RidgeWorth believes investors with excess cash reserves earning near zero percent, as well as those invested in long-term bonds who may be most impacted by a rise in rates, will be well served to consider an allocation to short-term bonds. We thank RidgeWorth for their sponsorship.
2010-10-05 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 QE II Set To Sail, But How Soon? by Scott Brown of Raymond James Equity Research
In its September 21 policy statement, the Federal Open Market Committee indicated that it was 'prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.' The key part of that phrase is 'if needed.' Growth and inflation are both too low for the Fed's comfort, but are they low enough to force the Fed's hand? Most officials appear to be leaning in the direction of further quantitative easing, but it's unclear when it will happen.
2010-09-27 What Happened on Friday? by David A. Rosenberg of Gluskin Sheff
On Friday, a very successful hedge fund manager came on CNBC and told viewers that the equity market now was a one-way ticket up. If the economy sputtered, he said, the Fed would step in and engage in more quantitative easing, and that would propel the equity market higher. And if the economy chugs along, then there will be no need for more Fed balance sheet expansion but the stock market will enjoy the fruits of stronger earnings growth. The third scenario he did not mention is that the economy will weaken to such an extent that the Fed will indeed re-engage in QE, but that it will not work.
2010-09-21 Jeffrey Gundlach: No Double-Dip Recession ? but by Robert Huebscher (Article)
The economy won't suffer a double-dip recession, according to Jeffrey Gundlach. But that doesn't mean the DoubleLine co-founder, CEO and CIO expects strong economic growth. To the contrary, Gundlach said that we haven't yet recovered from the recession. "The people who are looking for robust and sustained growth are really kidding themselves," he said.
2010-09-20 Sequential Signals by John P. Hussman of Hussman Funds
The U.S. economy is still in a normal 'lag window' between deterioration in leading measures of economic activity and (probable) deterioration in coincident measures. Though the lags are sometimes variable, as we saw in 1974 and 2008, normal lags would suggest an abrupt softening in the September ISM report (due in the beginning of October), with new claims for unemployment climbing beginning somewhere around mid-October. If we look at the drivers of economic growth outside of the now fading impact of government stimulus spending, we continue to observe little intrinsic activity.
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.
2010-09-18 The Chances of a Double-Dip by John Mauldin of Millennium Wave Advisors
This commentary features a letter from Gary Shilling on the chances of a double-dip recession. Shilling notes that investors early this year believed that rapid job creation and the restoration of consumer confidence would spur retail spending. A funny thing happened, however, on the way to super-charged growth. In April, investors began to realize that the euro zone financial crisis, which had been heralded at the beginning of the year by the decline in the euro, was a serious threat to global growth. Stocks retreated, commodities fell, Treasury bonds rallied and the dollar rose.
2010-09-16 The Woody Hayes Economy by Team of Applied Finance Group
By preventing additional redistribution policies, the split government that will likely emerge from the November U.S. midterm elections will probably loosen some purse strings to invest, hire and grow. However, we probably will not see any policies that will meaningfully change the overall economic condition or the outlook for equities as an investment. The next two years will thus most likely bring a Woody Hayes economy - 'Three yards and cloud of dust'- meaning we will have some renewed economic activity, but not the sustained, robust growth to be expected coming out of such a long slump.
2010-09-15 Using Convertibles for Prudent Stock Market Exposure by Douglas G. Forsyth of Allianz Global Investors
For investors still wary of stepping fully back into U.S. stocks, convertible securities - which possess both equity and bond features - may be a prudent way to participate in potential stock upside while also defending against market volatility. With economic growth and corporate profitability slowly but steadily picking up steam, the prospects for convertibles may be particularly attractive now. At the same time, their diversification and total return benefits make them an appropriate allocation in a long-term portfolio as well.
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.
2010-09-08 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.
2010-09-07 Jeffrey Gundlach on Bonds, Stocks and Gold by Robert Huebscher (Article)
DoubeLine's Jeffrey Gundlach recently reduced his position from "overweight" to "small underweight" in Treasury bonds, and cited "divergent behavior across the yield curve." In this interview, he discusses that behavior and the rationale behind his move, as well as his thoughts on other asset classes, including equities and gold.
2010-09-01 Land of Confusion ? Bubbles and Omens Dissected by Liz Ann Sonders of Charles Schwab
Charles Schwab is sticking with its view that the recovery is square root shaped (a 'V' followed by a stall), and there's little question that we've entered the stall phase. In addition to the havoc the stall has wreaked on stock market volatility, it's taken yields on Treasury bonds to near all-time lows. This, of course, has generated a very strong upward price move in bonds (as bond prices and yields move inversely) and much talk about a 'bond bubble.' That could be the case if yields move higher, which could trigger a swift move out of bonds as an asset class.
2010-08-31 Back to the Old Homestead by David Brownlee and Jason Doiron of Sentinel Investments
America is learning the hard way that a home was meant to be a place of dwelling, family, and community and not an ATM or piggy bank. Sure, lots of people made a boatload of money as the housing market appreciated, but many more are suffering with its downturn. As such, there are many calls for reforms in the U.S. mortgage-finance system. Sentinel's David Brownlee and Jason Doiron share their thoughts on proposed reforms for mortgage-debt forgiveness programs, mortgage-backed securities and mortgage origination.
2010-08-20 EM Corporate Debt: Ready for Prime Time by David I. Robbins and Javier Segovia of TCW Asset Management
Emerging Market corporate debt is rapidly growing into a significant asset class backed by the world?s fastest-growing economies. These bonds benefit from strong fundamentals, improving credit quality, declining default rates and superior prospects for economic growth across most of the emerging world. One of the most compelling aspects is their consistent outperformance relative to other fixed income asset classes since 2002. Currently, they offer a yield pick-up over comparably rated corporate issues in the U.S., despite the fact that they frequently enjoy stronger credit fundamentals.
2010-08-18 Bank Credit ? One Month Does Not Make a Trend, But... by Paul Kasriel of Northern Trust
U.S. commercial bank total credit increased at an annualized rate of 8.3 percent in July. If this is the beginning of an upward trend in bank credit, then we can feel a lot more confident about the prospects of rising real GDP growth rates in 2011. Subsequently, if bank credit continues to grow on a sustained basis and aggregate demand growth starts to pick up in the first half of 2011, then the Fed would be expected to begin raising policy interest rates around mid-year.
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 How Much of a Threat is Deflation? by Scott Brown of Raymond James Equity Research
The Federal Open Market Committee voted to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in long-term Treasury securities ? which will keep the level of its security holdings steady over time. By itself, the Fed's decision is not a major move. Long-term interest rates were already very low. The move signals, however, that the Fed could do more if needed. Outright deflation is not likely, but it could result from a more substantial downturn in the overall economy. The Fed's latest move should prevent the economy from weakening a lot more.
2010-08-13 And That's the Week That Was... by Ron Brounes of Brounes & Associates
No doubt, investor sentiment can shift on a dime. Perhaps, we can blame some of the market moves on overreaction and light volume from the end of summer blahs. After closing out the second quarter on a sour note, the equity market regained its bullish form in July, but again hit a serious road block this week. A perceived pessimistic Fed statement following the policy meeting sent investors running for cover as four straight down days left the major indexes back ?in-the-red? for the year.
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.
2010-08-10 Is the Market Efficient? by Adam Jared Apt (Article)
After Marxism, no economic theory today may be as derided and despised as the hypothesis of market efficiency. The idea is often misunderstood, sometimes willfully. So what does "market efficiency" mean? In the latest installment of his series for the educated layman, Adam Jared Apt provides some answers.
2010-08-09 The Fed Policy Outlook - Further Efforts? by Scott Brown of Raymond James Equity Research
The economic data of recent weeks has confirmed that the recovery has hit a soft patch. Overall growth still appears to be positive, but the pace has slowed. Downside risks to growth have increased. Meanwhile, the Fed has spent much of the last several months working on its endgame. One part of that, reducing its holdings of mortgage-backed securities, could be accomplished gradually over time, by simply letting securities mature. The Fed may decide this week to use these proceeds to buy more mortgage-backed securities. This would be a small step, but it would be symbolically important.
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.
2010-08-03 Agency Mortgage Valuations: Government Action and Unintended Consequences by Mitchell A. Flack of TCW Asset Management
In its attempt to bolster housing and stem the tide of foreclosures, the government has enacted several new policies and mandates over the past year to provide underwater borrowers with poor credit histories with subsidized mortgage rates. These policies, however, will likely end the participation of many private mortgage investors. They will cost taxpayers, new home buyers, pensioners and private investors, while giving overseas investors the cold shoulder. Ultimately there is a limit to the assistance the government can provide private markets without doing more damage than good.
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.
2010-07-16 Value in the Agency Mortgage Market: Modern Carry by Mitchell A. Flack of TCW Asset Management
'The road to hell is paved with carry.' We investors find ourselves facing a most unusual mortgage-backed securities market. Mortgage prices are now at or near all-time high dollar prices. And with mortgage rates also near all-time lows, are we not at the precipice of the mother of all refinance waves? Will negative convexity hit us like a Mack truck and mortgage investors suffer poor returns? The simple answer is a resounding no. While we still are walking down that proverbial 'road paved with carry,' the nature of that carry has changed.
2010-07-12 Keeping a Level Head by Jonathan A. Shapiro of Kovitz Investment Group
A downward bias toward stocks was evident throughout the quarter. This was a marked, but not unexpected, change from the seemingly straight up rise stock prices made from the year earlier (March 2009) lows. The potential for global fallout from Europe's fiscal crisis and its impact on the worldwide economic recovery served as the largest drag on the equities markets during the quarter. Other negatives included inconsistent readings in the U.S. on job growth, consumer-related sales and housing.
2010-07-09 Potholes in the Recovery Road ? Reduce Speed Ahead by Paul Kasriel of Northern Trust
The second-half GDP growth forecast has been lowered to 1.8 percent and Q4/Q4 GDP growth in 2011 will be 3.2 percent. This is a business cycle unlike any other in the post-war era. In prior cycles, as the Fed raised the funds rate, growth in bank credit slowed. In the current environment, even with the Fed holding the funds rate at less than 25 basis points, bank credit continues to contract. Thus, we are going to utter the six most dangerous words in economic forecasting: This time it might be different.
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.
2010-06-30 Home Price Data is Very Misleading by John Burns of John Burns Real Estate Consulting
Executive decision makers want to know whether prices are trending up or down, and that question has never been harder to answer. Burns suggests that merely looking at headlines as a basis for research or information is a surefire way to get misinformed. When forced to answer the question, John Burns Real Estate says that most home prices are reverting to 2003 prices ? some areas have overcorrected and some have not fully corrected. That covers them on a national scale, yet they know the truth is much different depending on what submarket or pool of homes you are talking about.
2010-06-29 Jeff Gundlach: The US will 'Politely Default' on its Debt by Robert Huebscher (Article)
Jeff Gundlach's keynote address at last week's Morningstar conference documented the immensity of U.S. debt obligations and the lack of choices available for alleviating that burden. As he has stated in the past, he does not view inflation to be a threat in the capital markets today. He cited six options open to policy makers, but believes a seventh - some form of default - is most likely.
2010-06-24 No Surprises from the Fed by Liz Ann Sonders of Charles Schwab
The Federal Open Market Committee surprised no one with its decision to keep the Fed funds target rate in a range between zero and 0.25 percent, where it's been since December 2008. The new statement marked the first time since the economic recovery began last summer that the Fed had to slightly dial back its language about the pace of the recovery. Stocks rallied immediately after the announcement, but in light of rampant intraday volatility lately, it's way too soon to judge if there will be any longer-term impact.
2010-06-17 Assessing Investment-Grade Bonds by Team of Litman Gregory
Investment-grade bonds are likely to generate average returns in a 1 percent to 2 percent range in most scenarios over the next five years. That is markedly lower than any historical rolling five-year average annual return number since the mid-70s. Forward-looking scenarios project that bond yields and inflation higher than their current levels and capital losses due to rising yields will cut into income from coupon payments.
2010-06-07 Rajiv Sethi on High Frequency Equity Trading by Christopher Whalen of Institutional Risk Analyst
This commentary features a piece by Barnard economics professor Rajiv Sethi on high-frequency trading and its implications for the use of equity-market data, both for profit and risk management. Sethi notes that trading must be based on fundamental information rather than pure market data for prices to remain stable. Banning specific classes of algorithms is unlikely to provide a lasting solution to the problem, however, unless the advantage is shifted decisively and persistently in favor of strategies that feed information to the market instead of extracting it from technical data.
2010-05-25 Seth Klarman is More Worried than at Any Time in his Career by Robert Huebscher (Article)
The concern that the dollars he earns for his clients will lose their purchasing power is always on hedge fund manager Seth Klarman's mind. The possibility that the government will continue to print money to solve our economic problems has left him more worried than at any time in his career. We report on Klarman's remarks at last week's CFA conference.
2010-05-21 Financial Regulation - The New Landscape by Asha Bangalore of Northern Trust
The Senate passed a new financial reform bill on May 20, while the House passed its own version in December. The next step is a reconciliation of the two bills, which should be ready for the president's signature by July 4th. The bills contain elements that will affect consumer protection, systemic risk, ?too big to fail,? derivatives, bank regulation, the Federal Reserve, credit rating agencies and securitization, and represent the biggest overhaul of financial regulation since the 1930s.
2010-05-19 Review of First Quarter 2010 by James F. Keegan of Ridgeworth
The recovery to date has largely consisted of an inventory correction and a response to various government stimulus programs; very little of it will prove to be organic or sustainable. Consumer spending has proven more resilient than anticipated, but this has come at the expense of savings. The consumer remains over-leveraged and the balance sheet repair process can't rely again on asset appreciation; hence, further gains in spending are unlikely. Meanwhile, capital expenditure plans remain tepid, and the tailwind from the stimulus plan is also diminishing.
2010-05-14 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.
2010-05-11 A Historical Perspective on the Slight Depression by Robert Huebscher (Article)
Armed with textbooks and formulas, economists attack a problem by drawing lines, forming equations and trying to fit data to the real world. Niall Ferguson, a historian by training, thinks you can learn more simply by analyzing what has already happened. So what's a historian's take on the current crisis? Ferguson says it has yet to run its course.
2010-05-07 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).
2010-05-03 Violating the No-Ponzi Condition by John P. Hussman of Hussman Funds
Greece has insufficient economic growth, enormous deficits (nearly 14 percent of GDP), a heavy existing debt burden as a proportion of GDP (over 120 percent), accruing at high interest rates (about 8 percent), payable in a currency that it is unable to devalue. This creates a violation of what economists call the 'transversality' or 'no-Ponzi' condition. Unless Greece implements enormous fiscal austerity, its debt will grow faster than the rate that investors use to discount it back to present value.
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.
2010-04-29 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.
2010-04-26 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 To Peg or Not to Peg? by Peter Schiff of Euro Pacific Capital
Just as it is always better to be rich than to be poor, it is always better to have a strong currency than a weak one. The effect of current Chinese currency policy is to make the U.S. dollar more valuable and the yuan less valuable. Whenever the Chinese government decides to end the peg, the Chinese economy will benefit as a result. While as citizens we can hope that U.S. leaders respond with the right policies to enable our economy to regain its former glory, as investors we should position ourselves to benefit from the more certain outcome.
2010-04-20 Investment Implications for Government Policy and Intervention by BlackRock, CFA Institute Reprint w/ Curtis Arledge (Article)
Government intervention has stabilized the economy, but policymakers must be careful to draw down their interventions before inflation occurs. Although residential real estate has seen its worst days, a wave of high-yield bonds and loans will soon mature, and the banking system must rebound enough to absorb that bubble. Despite these uncertainties, the range of yields and total annual returns among fixed-income sectors provide investors with multiple opportunities. We thank BlackRock for their sponsorship.
2010-04-19 Goldman SEC Litigation: The End of OTC?; Alan Boyce on the Duration of Fed Open Market Operations by Christopher Whalen of Institutional Risk Analyst
This piece features a comment from Alan Boyce, chief executive officer of Absalon, on the impending end of the Fed Purchasing Program. Boyce says that as FPP ends, there is the real potential for unintended consequences in domestic and foreign markets. If markets were to become unglued, the Fed may purchase more mortgages and Treasury debt. Foreign central bankers will likely snap and become sellers, however, if the Fed decides to monetize more debt. Markets would likely take it as a sign that the Fed is politically unable to exit the mortgage market, or quantitative easing.
2010-04-13 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 Extend and Pretend by John P. Hussman of Hussman Funds
A year ago, the Financial Accounting Standards Board suspended rule 157, which had previously required banks to mark their assets to market value when preparing balance sheet reports. The basic argument was that fair values were not appropriate because there was 'no market' for troubled assets, which was false even at the time. This 'extend and pretend' policy has created a gap between the reported value of assets and the value they would have on the basis of reasonable cash flows over the course of their maturity.
2010-04-06 Paul McCulley Discusses PIMCO's Cyclical Outlook by Paul McCulley of PIMCO
In an interview, PIMCO Managing Director Paul McCulley discusses his firm's cyclical economic outlook and its impact on investment strategy. PIMCO's cyclical outlook revolves around two core tensions in the global economy. The first is the huge disparity in the rate of recovery between highly leveraged developed countries and relatively balanced developing countries. The second tension is the resistance to cyclical recovery in the developed world due to deleveraging and other headwinds.
2010-04-05 No Double-Dip For Housing by Brian S. Wesbury and Robert Stein of First Trust Advisors
While the end of the Federal Reserve's massive mortgage purchasing program will certainly not help the housing market, it probably will not result in a double dip for housing of the economy. Instead, home building, home sales and home prices should all be up nationwide a year from now versus today. Perhaps the most important reason for this is that the labor market, the last of the lagging economic indicators, has finally turned positive.
2010-04-05 Half Empty or Half Full? by Scott Welch of Fortigent
Global equity markets closed out the quarter well, with all major world indices except China posting positive quarterly performance. Earnings improvements, dramatic P/E expansion and a slowly recovering global economy all contributed to the run-up. Several potentially dark clouds, however, float across an otherwise sunny investment sky. One is simply a function of the extended market rally and corresponding expansion in market P/E ratios. By several indicators, the market seems to be veering into over-valued territory. Fortigent also comments on muted but real GDP growth, and the week ahead.
2010-04-02 And That's the Week That Was... by Ron Brounes of Brounes & Associates
The Brounes & Associates market/economic commentary for the week ended April 2, 2010. For those of you forced to get up early for the labor numbers, here you go. The economy added 162k jobs in March, the best showing in three years, while the jobless rate held steady at 9.7 percent. For those of you still asleep (or who just been back to sleep)?enjoy your holiday (and don?t worry about how those temp census workers impacted the number)
2010-04-01 Market Insight by Payson S. Swaffield of Eaton Vance Investment Managers
Evidence mounts that the U.S. economy is moving away from the depths of the Great Recession. The U.S. economy expanded at a 5.6 percent annual rate in the fourth quarter of 2009, and corporate profits surged. While unemployment stands at 9.7 percent, there are indications that the jobs picture may be improving, and inflation has remained in check. The U.S. stock market has responded favorably to the current environment, with the Standard & Poor?s 500 Index climbing more than 5 percent since calendar year-end.
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.
2010-03-24 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.
2010-03-22 The AIG Rescue: What Did We Bail Out and Why? by Christopher Whalen of Institutional Risk Analyst
This article features a comment by Richard Alford, a former economist at the Federal Reserve Bank of New York's foreign department. Alford notes that AIG is back in the news again for successfully negotiating the sale of two significant operating units. The Fed will receive partial payment for the sales in stock of the acquirer. This shows that both the Fed and U.S. taxpayers are still providing capital and taking risk to support the business activities of insurance subsidiaries of financially sound parenting companies operating abroad, a year and a half after the crisis hit.
2010-03-19 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Welcome to March Madness. The time when the world looks on to ascertain the level of financial support to that European superpower of Greece?the time when politicos ignore each other and move forward with key legislation in a purely partisan manner (so what else is new?)?the time when Bernanke has to teach an Economics 101 class to elected officials?the time when Google says goodbye to the fastest growing Internet market?and the time when investors quit following the markets because Old Dominion is playing (and beating) Notre Dame.
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?
2010-03-08 Mark-to-Market Accounting: OneWest and WaMu by Christopher Whalen of Institutional Risk Analyst
One year ago, OneWest Bank Group purchased the banking operation of the IndyMac Federal Bank, which was being operated in conservatorship by the FDIC. As with the purchase of Washington Mutual by JPMorgan Chase, the subsidy in these deals came from the write-down of the assets of the failed bank. All of the potential claims against the parent companies of WaMu and IndyMac for rescission of securitized loans are sitting in bankruptcy court, where they will likely remain and die.
2010-03-04 Bernanke Finally Fingers Mark-To-Market by Brian S. Wesbury and Robert Stein of First Trust Advisors
Mark-to-market ideology is affecting the ability of the Federal Reserve to exit its quantitative easing. The mark-to-market rule uses bids, or exit prices, to value assets. Chairman Bernanke signaled that he recognized the problem in February when he said commercial real estate loans should be valued on income from their property, rather than their collateral value. As long as mark-to-market valuation continues to drag on securitization, the Fed will remain hesitant to withdraw its support of the system.
2010-02-23 Interest Rates, Inflation and the PIMCO Total Return Fund by Robert Huebscher (Article)
The current generation of financial advisors has never experienced rising interest rates, but that will change, based on the forecasts we collected in our survey last week. We review our survey results and look at the implications for the largest bond portfolio, the PIMCO Total Return fund.
2010-02-22 Financial Economics, Deregulation and OTC Derivatives: Interview with Yves Smith of Naked Capitalism by Christopher Whalen of Institutional Risk Analyst
This is an interview with author Yves Smith, the creator of Naked Capitalism. Smith?s new book explores the methodological shift of economics in the 1940s and 1950s, when economists decided to make their discipline more "scientific" and thus more mathematical. This methodological shift ignored the flaws neoclassical and financial economics, and led to the deregulation of financial services, which in turn allowed for predation and looting.
2010-02-14 Growing Problems in the Residential Real Estate Market (Part 2) by Team of American Century Investments
The problem of growing housing delinquencies has spread to states not originally affected in the sub-prime crisis and to higher-quality prime mortgages as the nation?s unemployment rate has reached double-digit levels. This commentary looks at the failure to-date of policy initiatives intended to stem defaults, and at the range of possible future policies.
2010-02-01 Well, Better Late than Never by John Petrides (Article)
The author supports the reconfirmation of Bernanke as Fed Chairman, but warns that investor unease about policy decisions is justified.
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 And That's the Week that Was... by Ron Brounes of Brounes & Associates
Ron Brounes? weekly market recap.
2010-01-28 Making Sense of Obama's Bank Reform Plans by Acharya & Richardson of VoxEU
Obama's sweeping proposal for financial regulation took the world by surprise. Here two of the world's leading professors of finance explain why it is step in the right direction from the standpoint
2010-01-25 Bears Rejoice by Chris Maxey of Fortigent
?Some pundits saw fit to blame China for the recent pullback [in US equity markets], as a result of the monetary tightening occurring in that country, but such an accusation is unfounded in our opinio
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 John Cochrane on the Dangers of Current Economic Policies by Dan Richards (Article)
John Cochrane is a professor of finance at the University of Chicago and the incoming president of the American Finance Association. Cochrane is also author of the widely-circulated article, How did Paul Krugman get it so Wrong?. In this interview, Cochrane identifies the shortcomings and dangers of current economic policies.
2010-01-19 A Market for Contrarians by Robert Huebscher (Article)
Along with Steve Leuthold, Rob Arnott, Doug Kass and DoubleLine co-founder Joe Galligan were among the speakers at Fortigent's conference. These three speakers' bearish sentiment extended across a wide range of asset classes, opening lots of possibilities for those who prefer contrarian bets.
2010-01-09 And That's the Week That Was... by Ron Brounes of Brounes & Associates
2010-01-04 Timothy Geithner Meets Vladimir Lenin by John P. Hussman of Hussman Funds
2009-12-26 Paul McCulley Discusses PIMCO's Cyclical 2010 Outlook by Paul McCulley of PIMCO
2009-12-15 TCW Post-Gundlach by Robert Huebscher (Article)
The reasons for Jeff Gundlach's termination from TCW and his future plans have become subjects of great speculation. We will leave it to others to answer those questions and instead focus on one important issue that was raised in a conference call TCW held with investors last Friday.
2009-11-10 Bruce Greenwald on Structural Problems in the Economy and Unemployment by Robert Huebscher (Article)
Bruce Greenwald is a professor of finance at Columbia University, the Director of Research at First Eagle Funds, and perhaps the foremost expert on value investing. In part one of our two-part interview, he discusses the structural problems facing the economy, the parallels to the Great Depression, and the implications for the unemployment rate.
2009-11-10 Roubini: Fed Policies are Destabilizing the Financial System by Robert Huebscher (Article)
Nouriel Roubini, the once-obscure economist who gained celebrity and the title "Dr. Doom" after correctly forecasting the financial crisis, believes that current Fed policies are destabilizing the markets and pushing the economy toward another collapse.
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.