Advisors Asset Management
Commentary
AAM Has Released Its 2022 Best Ideas and Investment Outlook
by Advisors Asset Management, 1/24/22
After a tumultuous data deluge over the last two years, 2022 may begin to see the economic silt settling a bit, even as the waves of reaction to uncertainties continue. Check out our 2022 Investment Outlook covering the Housing Market, Interest Rates, Fiscal Stimulus, Inflation, & Market Returns.
Commentary
Post-pandemic Investment Opportunities In Europe
After many false starts, Europe is finally emerging from an incredibly difficult 18 months of battling Covid-19.
Commentary
The Great Transitory Debate. Breaking Down The Latest Inflation Numbers.
Through the first half of 2021, fixed-income investors have been faced with their greatest fear: inflation.
Commentary
Welcome To The “Rorschach Market”
The Rorschach inkblot test was created in 1921 to analyze how individuals who view the exact same picture perceive and interpret external reality.
Commentary
Inflation Is A Boon For Value Equities
Generally, when inflations expectations are rising, we see value stocks favored more than growth stocks.
Commentary
Municipal Bonds: Breaking Down The Strength In The Market In 2021
In 2021, municipal (“muni”) bonds have been a tough asset class to manage due to overwhelming demand and limited supply in the market.
Commentary
Life’s Certainties: Death, Taxes…and Municipal Bonds?
In a November 1789 letter addressed to his good friend, Jean-Baptiste Le Roy, Founding Father Benjamin Franklin shared that America was off to a great start and the recently established U.S. Constitution showed much promise but immediately added, “In this world, nothing is certain except death and taxes.”
Commentary
The Four Layers Of Inflation
As we entered 2021, we put the pivot point of the economy and market returns squarely on inflation.
Commentary
A Jumpy Market Waiting for The Fed to Move
Tracy Nolte talks AAM’s Outlook for Inflation, Fixed Income Market’s Outlook for Inflation, and Managing the Current Rate Environment.
Commentary
Liquidity: Historic Gains Lead To Marginal Drains
We look at the myriad of liquidity measures and what the draining from gains does to asset prices and fiscal and monetary responses.
Video
1Q 2021 Review and Market Outlook
by Advisors Asset Management, 4/15/21
AAM CEO Scott Colyer and Chief Investment Strategist Matt Lloyd recap Q1 2021 and share their market outlook for the coming months. See their insights and expectations
To view all of AAM’s Market Commentary videos, please visit our video gallery page. Here, you can subscribe to our video channel, to receive AAM’s newest videos straight to your inbox. Video topics include market updates & insights, media appearances, & firm updates.
Video
Advisors Asset Management: 40 Years Strong
by Advisors Asset Management, 4/5/21
AAM has been providing carefully sourced, vetted, and supported solutions for over 40 years. We offer access to a diverse range of investment solutions to meet today’s challenges. See why we are a trusted resource for financial professionals.
To view all of AAM’s Market Commentary videos, please visit our video gallery page. Here, you can subscribe to our video channel, to receive AAM’s newest videos straight to your inbox. Video topics include market updates & insights, media appearances, & firm updates.
Video
What Keeps AAM 40 Years Strong
by Advisors Asset Management, 3/1/20
AAM CEO & CIO Scott Colyer, reflects on 40 years in the financial industry and how Advisors Asset Management has evolved as a leader in empowering financial advisors to succeed. “We started as an advisor-centric firm back in 1979, and are still an advisor-centric firm 40 years later.”
Video
2020 Outlook: AAM’s Investment Themes
by Advisors Asset Management, 2/3/20
CEO Scott Colyer and CIS Matt Lloyd discuss their 10 investment themes for 2020. Watch to learn more about expectations and top opportunities, and the warning signs we look for.
Commentary
The U.S. Household: Connecting the Dots
The state of the U.S. household is in one the best shapes it has been in throughout history; though depending on how you look at it, it may corroborate your skepticism or optimism. At a recent discussion, a key debt figure was triggering doubt about this optimism.
Commentary
The 2018 Economic Playlist: Carry the Tune
Since the dawn of time music has played a pivotal role in the defining of the times and the progression made. We would like to utilize the artistic genius of these maestros to bring some context to the current pivotal point in the economy and capital markets.
Commentary
The Relationship of Suds and Bubbles
The proliferation of news, information, opinion and fact (which all come across in the same way) has had an overwhelming effect on the common investor and the instructional as well. Attempting to delineate the crowded trade from the minority viewpoint is a far greater task currently. Though this increased dissemination of information is beyond the recognition of the investor’s psyche, it does have a more pronounced positive impact.
Commentary
European Forecast: Clouds Lifting
We understand the general public’s concern with regard to Europe. Just when you get your hands around a cease fire in Ukraine, the “Greexit” hits the newsstands with hardline headlines. If this Greek drama ever ends - which is unlikely as we noted two weeks ago detailing Greece’s restructuring –-rescheduling or outright default on debt occurs over 45% of the time since 1800, one still has to deal with the constant threat of a deepening recession.
Commentary
Deflation: Consternation Not Elation
Deflation has been around ever since there was an excess supply of something or when demand had plummeted. The term “deflation” has now become mainstream in the general public’s lexicon, though the understanding of the declining economic growth that corresponds with it is often disregarded until it wreaks havoc on the consumer’s paycheck. When we see deflation permeating global economics, market movements and NFL games, the general public will become acutely aware of the other major impact from deflation, the increasing symbiotic nature of all the global economies.
Commentary
Oversold Market Poised to Rebound
The distinction between ?bear market? and ?interruption? is important in understanding and assessing the ultimate upside potential of this cycle. The DJIA had a terrific advance between October 2002 and 2007 of nearly 100%, but when the advance resumed in March 2009 with much of the market?s longer term sector leadership still intact, it soon became apparent that the financial debacle had presented only an interruption of the bullish cycle that began in 2002.
Commentary
Energy: Technology Disruption, but not to all
Disruptive Technologies are the gold vein every entrepreneur seeks, but rarely find. Clayton M. Christensen, the patriarch of observing disruptive technologies, noted in his seminal book The Innovators Dilemma in 1997 that each breakthrough can be categorized as either disruptive or sustaining.
Commentary
Consumer Spending & Economic Recoveries: What They Mean Going Forward
As a follow-up to the discussion on the rollover of the duration of the unemployed, the byproduct of an accelerating improvement in the undercurrents of the job market is consumer spending. The measure of consumption has a primary correlation to wages and income workers receive. As such, the benign improvement in wages has an obvious correlation to the benign improvement in consumption. There is a strong secondary driver which we will discuss shortly.
Commentary
Numbness to Numbers
Ive often pondered the continuing headlines over the lack of progress in the area of mathematics in the United States relative to our peers and think the issue may lie in one area. The rest of the world has adopted the metric system, while we are only peripherally aware of it. As such, when standardized scores are compared, maybe translating from the metric system is needed and we may score higher.
Commentary
The High Tide in China
One axiom that has been used over the last couple decades is that high tide lifts all boats; meaning that a rise in economic or market conditions will lift every component of an economy or market to some degree. While true, we deal with relative measurements when discussing returns comparable to a benchmark. So, while the high tide does lift all boats, if the boat is tethered too tightly, you may be higher than being beached, but you also could still be underwater.
Commentary
Where are Municipals Headed in the Second Half
With such strong performance in the first half of 2014 and interest rates at such low levels already, one would think that the municipal bond market has run its course and cant possibly continue to produce positive returns.
Commentary
Approaching a Tipping Point
On Thursday, June 19, the S&P 500 made it 66th new high of this bull market and unfortunately, based on almost any metric available, one could argue that the U.S. equity markets are due for at least a mild correction or more.
Commentary
European challenges and outlook
The constant debate of leading and lagging indicators is one that spills over to the political components as well. The timing of demographic shifting, recent economic events, geopolitical tectonic shifts taking place globally and neo-creative monetary policy have all been pointing to voter sentiment evolving. We have seen this represented in Europe for some time and the recent European Parliament election saw more than sublime results.
Commentary
Shale Reserves Are No Shell Game
Since the times of Ancient Greece, ?The Shell Game? has been a confidence trick used to convince bystanders into believing they have a legitimate shot at guessing correctly and doubling their bet. We are currently in one of the more transformational periods of energy consumption, distribution and discovery seen in some time. The technology of extracting once undiscovered pools of energy is reverberating throughout economies and potentially causing tectonic shifting of political structures.
Commentary
Housing: An Oft Forgotten Pivot Point
Today we got the newly released data on the state of the economy in the form of the Fed Flow of Funds. We have often cited it as a way of corroborating certain trends and potential reversal of trends when warranted.
Commentary
The Impact of the Great Recession and Federal Reserve Accommodation on Households
The latest release of macro data came out today from the Fed Flow of Funds report generated by the Federal Reserve. We monitor this with great anticipation so as to measure possible direction changes or momentum of a current direction. There are a myriad of data points, however, a few select charts should continue to raise confidence in the direction of the economy and, at worst, a liquidity-driven backstop to maintain consumption at minimum agreeable levels.
Commentary
Viewpoints from AAM - Navigating the New High Landscape
December, historically the best month to own equities, has begun with a whimper with the S&P 500 closing at a loss each of the first four days of the month. If you include the last trading day of November, that makes five days in a row of red-filled screens for a total loss of 1.23% for the S&P 500. In the grand scheme of things that is a pretty small loss but it already has pundits dismissing the chances of a "Santa Claus Rally" and others saying the recent new market high of 1807.23 for the S&P 500 reached on November 27 might be its last.
Commentary
Looking Back 40 Years, What Can We Learn About This Current Corporate Debt Market?
I recently wrote a blog post detailing the potential opportunity in municipals as it has historically rebounded after a negative total return. Accordingly, I have been asked if this pattern was representative in the investment grade corporate arena.
Commentary
The Markets in a Tug of War in the Short Run
As the damage to sentiment that was brought about by the Washington Drama Club, a somewhat cautious number has come about. On October 21, 2013, the Wall Street Journal had an article detailing margin debt hitting new highs which counteracts some of the investor sentiment numbers that are detailed by several sources. To get a better understanding, we ran the margin debt as a percentage of corporate equities over the last 25 years.
Commentary
Government Shutdown Could Lead to a Buying Opportunity
As we approach yet another self-induced the sky is falling and the other guy is to blame environment, recall that this situation is not uncommon. We have had 17 of these budget debt ceiling deadlines and yet we have unbelievably (said with extreme rolling of the eyes) been able to overcome our elected officials calls for the end of the world. The most recent time when the U.S. government shutdown was in November 1995 concluding in January 1996,when arguably the animosity and polarization was as pronounced as it is today.
Commentary
Investing In Bonds When Rates Are Rising
How can investors “stay in the bond game” during these difficult rising rate environments? Here are some suggestions.
Commentary
Time to Kick the Ick Factor for Energy and Materials
Basic materials have been the biggest loser of an asset class for 2012 as well as thus far in 2013. Everything tangible, from gold and copper to coal and steel, has acquired an ick factor that makes the asset class nearly uninvestable. Shares of companies in these categories are trading at values not seen since 2009 market lows. We are beginning to see some very important developments that might make the group more palatable. In fact, we believe that metals, mining and energy could again become Wall Street darlings.
Commentary
The Capital Flight from Safety: It is Not About Tapering it is About Growth
Since Ben Bernankes comments seemed to unleash the bond vigilantes on June 19, we have seen a reversal in money flows that have used the U.S. Treasury market and the gold market as a flight to safety trade.
Commentary
Trampled By the Crowd? Logic Briefly Abandoned Creates Opportunity
The past two week slide in asset prices has caused a resurgence of doomsday pundits warning of impending calamity. The negative interpretation of Fed Chairman Bernankes comments regarding the U.S.economys future upgraded prospects is simply not logical. A careful review of what Bernanke said at his press conference was entirely consistent with what the Fed has said and done in the past.
Commentary
Guide to Working with Monetary Napalm
Napalm is a highly incendiary form of jellied fuel. It was used extensively in the Vietnam War to quickly ignite massive fires over large areas of land. In the world of financial incendiaries, the Feds overwhelming monetary stimulus has ignited asset prices in the United States with the force and effectiveness of napalm. Is the fire short lived? Are the gains in asset prices temporary or can they be believed? Are the housing and stock markets on fire just because of the Feds quantitative easing (QE) or could there be a much more fundamental reason?
Commentary
All That Glitters Is Not Gold
This quote from Shakespeares Merchant of Venice is apropos given the nosedive in the gold markets today. In our 2013 Best Ideas piece we labeled gold a neutral as gold had not had a significant correction since 2008. Our research indicated a significant slowing of bullion purchases by gold Exchange Traded Funds (ETFs) in 2012 versus 2011. We looked for a correction and now need to contemplate whether we are in the end of the commodity bull market or merely a pause that refreshes.
Commentary
The Dow Marches On
The stock market has demonstrated tireless resiliency in the face of challenging headline news and geopolitical events since its bottom in March 2009. Now, some four years later, the burden of some of these once gripping issues has been lifted.
Commentary
Waiting on Weakness?
On Tuesday, March 5, The Dow Jones Industrial Average (DJIA) set a new record close at a level of 14,253.8 (old record of 14,164.5 was set on 10/09/07). Since then it has gone on to set four more consecutive record-closing highs. The S&P 500, at a closing level of 1556.2 on 3/11/13, is still about nine points shy of its record high of 1565.2 (also set on 10/09/07), but it is up seven days in a row and the odds of that occurring are about 1.17%.
Commentary
Dividend Growth Continues to Impress
The S&P 500 posted a very solid price appreciation of 5.14% (total return of 5.18%) for the month of January which marks its best January since logging a total return of 6.25% in January 1997 (16 years). However, it does pale in comparison to the best January of the last 50 years which saw the S&P 500 return 13.47% in January 1987. Perhaps equally noteworthy, but clearly not garnering as many headlines, is the continued impressive growth of dividends.
Commentary
Crosscurrents and Contradictions: Which Way Will Municipal Bonds Go?
The two possible scenarios outlined are quite different with very different outcomes for municipal bonds, and that is what makes any 2013 municipal bond outlooks difficult to offer with certainty. Scenario 1 will likely have a relatively benign impact on municipal bond values while the impact of Scenario 2 will be more negative. Of course, the possibilities municipal bond investors will face this year include more than just the two stark contrasts presented above.
Commentary
Charting the U.S. Employment Situation
The continuing jobless claims relative to past measurements has been a chart we like to detail to show the more psychological impact of where we stand and the sentiment about the employment situation. As we have shown, the current level is just below the high points of past recessions (recessions denoted by gray rectangles). Although we are approaching the long-term average, currently 6.7% above the 30-year average, the negative sentiment is understandable.
Commentary
Political Small Ball and Its Impact On Municipal Bonds
In politics, making a grand bargain might be compared to the big inning where big things are accomplished in a big way. Given the serious issues we currently face regarding government spending, deficits, and the need for entitlement and tax code reform, it is not surprising many investors and the public generally have been feeling the need for a big inning or grand bargain from our political players.
Commentary
Don't Confuse Market Hiccups for Economic Heart Attacks
The daily bombardment of moving toward an agreement on the fiscal cliff only to see a hesitation on the advancement is symptomatic of the tango that we have been bombarded with over the last several years. It does appear though that we are becoming a bit desensitized to the two-steps forward to two-steps back pattern we have been accustomed to in similar debt ceiling deadlines or budgetary standoffs. In looking at the markets move and comparing statements from the two parties involved, it does appear we are at least in the same ball field for negotiations.
Commentary
Earnings Cliff?
We are now about 63% (316 of the 500 S&P 500 companies have reported) of the way into the third quarter earnings season and the popular opinion seems to be that the earnings are disappointing, that this current earnings cycle has peaked and that earnings going forward will fall sharply (earnings cliff). In a nutshell, we don't believe that this is the case and will begin with the former, that the current crop of earnings reports are disappointing.
Commentary
Municipal Debt Discipline
The strong demand for municipal bonds has been a constant throughout 2012. That demand was a major factor forcing municipal bond yields lower by the end of the third quarter in spite of an increase in new issue supply compared to last year.
Commentary
A Funny Thing Happened On The Way To Economic Armageddon
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.
Commentary
Fed Delivers another Big Dose of QE
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.
Commentary
Opportunity Cost: Emotions
Emotions may be keeping your clients in cash, putting their long-term goals at risk. Taking a snapshot of headlines and it is not hard to discern where investors' predispositions lay.
Commentary
Market Surge is Amplified by Low ExpectationsAs Expected
European fears have subsided a bit as the European Central Bank's (ECB) president continued to offer words of support for a more comprehensive solutionthough he appeared to dampen the statements with concessions about the ECB's ultimate subservient role to the governments.
Commentary
Is a U.S. Recession Looming?
There are many indicators that we look for that tends to define cyclical market bottoms and give us signs of an upturn. Recent investor lack of volume and record high cash balances can also point to a change toward higher market valuations. Every day I hear about the relative cheap valuations of U.S. equities. We know that valuations can stay depressed for years, even decades. Why would we be thinking that a potential melt-up might be about ready to happen?
Commentary
Is a U.S. Recession Looming?
In the third quarter of 2011 the Economic Cycle Research Institute (ECRI) called for a 100% chance of a U.S. recession. They have a stellar track record of calling U.S. economic cycles. What we noted that the ECRI estimated the severity of any slowdown to be shallow and fairly short-lived. Most recessions in the U.S. are over even before they are positively identified.
Commentary
To IPO or Not to IPO?
With the recent initial public offering (IPO) of Facebook stock, the IPO process is once again making headlines and this raises many questions such as, Is the process fair? Is the process flawed? Should retail investors look to get involved? Pretty simple questions but the answers, if there are any, are not.
Commentary
Germany's Role in Saving the European Union
As the talk of supporting, realigning or destroying the European Union (EU) dominates headlines, it appears crucial to us to look at who benefits most from any of these scenarios. Most of the pressure has been on Germany, as it should since it is by far the biggest component of the EU and currently the most prosperous, though it appears so more on a relative basis.
Commentary
The Sky Is Falling - Again
Last week provided a very scary end to May in both the equity and bond markets. The 10-year Treasury set a new historic low yield and the equity markets ended the week giving back all of its year-to-date gains. European fiscal and banking issues continue to overshadow the slow recovery of the U.S. economy. Of current note, the EU and ECB are trying to successfully deal with the need to recapitalize the banks of Spain. On top of this rosy news, the U.S. economy continued to show a slowdown which was indicated by a much lower than expected job creation for May.
Commentary
Crazy Markets - Remember That Old Standby: Municipal Bonds
Sometimes it takes heightened uncertainty and increased market volatility to help investors rediscover an old friend in the investment universe. We thought it would be useful in todays difficult market conditions to list a series of questions as a reminder of what municipal bonds, properly selected and managed, can do for investors. Dont worry; the questions we pose arent tough. In fact, it should come as no surprise, given the title of this blog, that you can receive an A grade on the following quiz by answering municipal bonds to each of the questions in this article.
Commentary
Market Gut Check Time, Again
Our research of the last 50 years shows 3% pullbacks occur on average four times a year. So, clearly pullbacks are commonplace during a normal bull market; however, every time they occur they still set investor emotions on edge and test their resolve. At times like this we like to try and decipher what drove the selloff and try to resolve if we think it is just a normal correction or the beginning of a longer trend down and possibly the start of a new bear market.
Commentary
What the Individual and Professional Investors are doing
The tug of war between individual investors and investment professionals is seeing two distinct paths. According to reports from the Investment Company Institute, equity outflows of mutual funds in April were at $18 billion, the most in nearly 28 years. On the other side, according to Bloomberg, the Commodity Futures Trading Commission showed the drastic reduction of bearishness by professional speculators as net short contracts have dropped over 80% since the high set last September. The question is, Who will be right and when?
Commentary
Charting Crude
Crude and gasoline have been in the press a great deal recently. Headlines touting the potential recession being exacerbated by high prices of crude and gasoline have also been met with statements about the need to regulate the speculators who are the ones to blame. We have mentioned our view on this several times over the last few weeks. Last week we mentioned a chart pattern corresponding with a negative backdrop that could push crude down in the short run. Consider the move in the Crude over the last five days.
Commentary
Rising Rates? Why Municipal Bonds May Weather the Storm
A rising interest rate environment over the next few years is an investment scenario to which many investors now subscribe. The prospect of rising rates often prompts investors to think along the following lines: Interest rates are going rise and thats bad for bonds, so Ive got to cut back or stay away completely. But what if we suggested that investment grade, intermediate muni's might weather a rising rate storm comparatively well? We believe there are a number of factors worth considering that could help municipal bonds lessen the negative impact of generally rising interest rates.
Commentary
What to Do With the Daily Data Divulge?
Simply ignoring the immense amount of data would be foolhardy and we must use more corroborating data and scrutinizing the data among trends and the volatile monthly data. This has given rise to the more artistic aspect of viewing the markets than how we may have in the past. This is why ones prediction for the markets may differ completely from another while looking at the exact same data. As such, the importance of the rationale for why one may feel a certain way about the markets is as important as the actual conclusion.
Commentary
Price and Waistline Stability Prove Elusive as Inflation Creeps Up
The long-time trends are firmly in support of consistent price inflation during the history of the US. Inflation is a natural inclination for people, businesses, politicians and central banks. Given the Feds ultra-easy monetary policy aimed at creating inflation, we will eventually see it. Higher inflation requires investors to rethink where they invest. Cash and fixed income do little to cope with inflation and actually can be losers if held at times of higher than normal inflation rates. We think investors should take advantage of current bargains in real estate and equity asset prices.
Commentary
Bond Investors Beware: Quicksand Ahead
There is a potential danger out there lurking for bond investors who are anxious for interest rates to increase. That danger for these yield-seekers is getting stuck in a bond mutual fund that might never deliver an investor the opportunity to realize the return of their capital. Bond mutual funds have been the beneficiary of a huge outflow of funds from the equity markets in 2011. The trend continued through the first quarter of 2012 even as equity markets turned in one of the best quarterly performances in a decade.
Commentary
The Economic Backstop: The Consumer
As we near the summer, if you listen close you might hear the anticipation of yet another macro shock to stall out the equity market gains. Over the last couple of years, the risk of a domestic double-dip recession, natural disasters, public political debates and European sovereign debt crises have all had the effect of stalling out positive momentum gained in the first quarter. Through April of last year, the S&P 500 showed a total return of 9.05%. However, by the end of September it was at negative 8.67% including dividends and thus rebounded to show total return of 2.11% by year end.
Commentary
Are We Approaching a Second Banking Crisis?
So, even though we saw healthy growth and returns to investors over this time requiring patience during the credit crunch of 2008 when returns were negative the market has built up a large base of holders to offset the lack of primary dealers holding net positions. It still brings to bear whether these positions have been measured for duration risk in case of higher rates as we have discussed many times before; however, demand for yield and risk aversion has at least tempered the loss of primary dealers utilizing capital.
Commentary
Peroni Report February: On The Edge of Something Big?
The Wall Street adage, Never sell a dull market short, might be particularly applicable at this juncture. The volatility index has been in a steady downtrend since last October and is now trading at an eight month low. Reviewing the charts of the 30 DJIA components reveals surprisingly similar horizontal compressed trends since January. Referring to on-balance volume characteristics, however, these flat-line patterns may be masking significant accumulation trends that could unleash considerable upside price pressure by the second quarter.
Commentary
Taking Rising Dividends to the Bank(s)!
Yesterday, the Fed was moved to release the latest round of stress test results for the largest 19 banks in the US one day early. Midday, JP Morgan announced a significant dividend increase which gave the appearance of jumping the gun so the Fed chose to make all of the results public late yesterday. The news caused prices of most U.S. banks to rise as the tests confirmed the continued progress being made towards strengthening their businesses. We believe that this is simply the beginning of a renaissance of the U.S. banks and their ability to grow earnings and dividends in the next few years.
Commentary
China and the Rising Cost of Oil
While the markets and economy continue its path upward with each trepid step more anxious than the previous, the anxiety about future crude prices has now hit the political circuit. However, one base analysis that has seemed to slip memory is the correlation of Chinas growth and its growing demand of oil and the price of oil itself. What makes this important is the recent dichotomy that we are seeing in the underlying economic growth of China and the price of crude oil.
Commentary
The Strategic Times: What is the Yield Curve Saying and Should We be Listening?
Many prognosticators continue to discount the shape of the yield curve and what bits of wisdom one might see in its steepness or flatness. Though not a perfect indicator from the past, it does represent some interesting expectations from institutional investors that should not go unaddressed. Though these numbers may not appear meaningful to the average investor, the institutional investor sees this as highly significant as it pertains to investor appetite, economic impacts and hedging of interest rate swaps and currency expectations.
Commentary
Of Tulips and Treasuries. Treasuries Securities Entering Bubble Zone.
U.S. Treasury securities could take their place alongside other bubble assets like tulip bulbs did in the 1630s. There are signs of a secular change afoot in the U.S. Treasury market as rates set historic lows. The U.S. Treasury market is indeed a crowded market as Euro-singed capital is being tucked behind the ultimate safety of the U.S. obligations. Add to that the Feds own record setting buying binge in these securities and you have an asset that may have well crossed the line of what its long-term value could possibly be.
Commentary
Greece Anxiety to the Rising Cost of Crude Oil
With the ever so slowly resolution for Greece becoming a reality, most markets are turning their anxiety to the rising price of crude. The international energy markets have been shaken by the realization that Iran and its 2.5% of the worlds oil production may soon cause another economic shock. Though this concerns Europe more than the other continents, it surely puts a strain on everybody needing oil to help sustain the positive growth in the global economy. As such, we have seen a steady and sharp rise in gasoline prices.
Commentary
Peroni Report February: On The Edge of Something Big?
One of the bullish features of this market is that there is a good balance in performance among the leading industry sectors. For instance, agriculture had been a leading sector following the markets lows after the financial debacle. But, stocks in the sector generally consolidated through much of last year. I believe that the consolidation was completed in the fourth quarter and that agriculture can reclaim its longer-term leadership. Numerous stocks in the sector have exhibited good relative strength recently and several stocks have begun to breakaway from downward or neutral trends.
Commentary
FDIC-Insured Structured Certificates of Deposit & Investors Reaching Their Financial Goals
The safety that Structured CDs provide, in terms of the return of principal when held to maturity in addition to FDIC insurance, may have the calming effect that an investor who has reached their destination is looking for while the performance of said CD linked to some underlying asset class (commodity, currency, equity or fixed-income) may be what the investor who is still traveling to their destination is seeking in order to reach said destination.
Commentary
2012 Tale of Two Bond Markets Handicapping the Bull and Bear Case for Bonds
2012 will likely be the tale of two bond markets. You have the high-grade debt market that has been the recipient of a huge flight to quality and fear trade. The prices of these obligations have skyrocketed and yields plummeted. Additionally, the Fed has turned out to be the biggest buyer of longer-dated Treasuries in the markets today. It is rumored that they might engage in a mortgage buying campaign later this year. That would have the effect of lowering mortgage rates further than the record lows where they are at. In short, the world has sought refuge in the U.S. bond high-grade market.
Commentary
Oil Production Increase to Temper Crude Volatility?
An interesting article on the resurgence of production of oil in the United States details the rebound in the amount of oil produced daily in the United States. It relays the expectation by the U.S Energy Information Administration that output could pick up over half a million more barrels per day by 2020. That would put daily output at over 6 million barrels per day, well short of the estimated daily usage. However, it does show that the production gains of 1.3mm per day over the last four years were greater than the gains in Russia, China and Brazil combined (1.2mm total).
Commentary
European Nations Stripped of Credit Rating
S&P announced they were cutting the credit rating of nine European countries and stripping Austria and France of their AAA credit rating. Reminiscent of the removing of the AAA status from the US nearly six months ago, all eyes are on what will happen to their debt markets and currency. The markets had long expected some sort of credit rating warning or downgrade with regard to the United States. So too is the reaction from the European downgrades on Friday. Consider what has occurred in the debt markets over in Europe and you can then compare it to the United States movement.
Commentary
Low Rates & the Volatility Implications of Reaching for Yield
Interest rates fall and the temptation to reach for higher yields in longer maturity bonds is difficult for bond investors to resist. Are we again at that kind of point in the interest rate cycle? Municipal (muni) bond yields are at or close to their historical lows and it easy to see how investors might be unimpressed with the yields currently available. Dont despair. We suggest in environments such as these that muni bond investors repeat a few simple but helpful reminders to themselves.
Commentary
Flight 2012, Cleared to Hold?
Commercial air travel can be pretty frustrating these days, but nothing compares to the call from the cockpit as you approach your destination that the flight is entering holding. Immediately many questions enter travelers minds including: Why? How long? Where will we land? Given the S&P 500 essentially experienced a holding pattern in 2011, many investors must be asking themselves similar questions right now. Specifically the S&P lost .04 points last year as it began 2011 at 1257.64 and ended the year at 1257.60.
Commentary
Markets Off to the Races in 2012
As we kick off the New Year, the markets are starting like Usain Bolt off the line. The European markets are up already for the year after two trading days with the German DAX index up 4.55% and the Euro Stoxx 50 up 3.17%. The U.S. markets are moving higher with gains of nearly 2% for the day. Though a few trading days dont translate to what will happen over the year, the combination of improved manufacturing data across the globe and a further comprehension of the dramatic comments made by the ECB (European Central Bank) President Draghi last week seems to be fueling the gains.
Commentary
Dependence on the U.S. Consumer
China and Japan announced a joint effort to diversify themselves from the U.S. dollar by allowing direct trading of their currencies. The interesting aspect is the still high dependence upon the U.S. consumer. At its peak, the U.S. consumer was (with all in consumption, Medicare and Medicaid transfers and other expenditures added in) from Merrill Lynch at 18.9% of global consumption. If we simply use the total chained consumption metric, the consumer is 15.0% of current world GDP. The central point to the global economy is still primarily on the U.S. consumer.
Commentary
Fiscal Pressures Could Lead to European Solution
As we and many have noted during the debt crisis in Europe, the ultimate end to the current dilemma requires a comprehensive and coordinated solution from all of its members. In an article over night from Bloomberg we read that, a measure of ECB leverage may grow from a record 30 times, raising the risk of a widening in sovereign bond spreads unless governments commit a detailed rescue plan for members. The two challenges we have seen from Europe is the conscious effort to do just enough to get by which doesnt instill confidence and inability to comprehend the severity of the situation.
Commentary
European Credit Freeze Thawing?
Mario Draghi, President of the European Central Bank, said that banks may borrow money from the ECB to purchase sovereign bonds. This is a form of quantitative easing that circumvents the prohibitive inflexibility many other central banks around the world dont have to meddle with. Like any additional indirect action, its ultimate impact may be more subtle than a direct action but it does bring about some creative solutions where leadership has stalled. Other assistance could come from a discussion in increasing liquidity by nearly 200 billion Euros via the International Monetary Fund.
Commentary
European Bond Markets Offer Glimmer of Hope
Not that we havent been whipsawed by the procrastination from European leaders before, but the last week and half of trading in the European bond markets are offering a glimmer of hope that there might be push to come to a resolution. At this point, there is no sense in calling for the end to their dilemma as all long-standing concerns usually require drawn out solutions. However, the confirmation today of more austerity measures from Italy coupled with generally better global economic numbers is causing a large rally in Spain and Italys sovereign debt.
Commentary
Contrarian Perspective to Market Sentiment Fear
We have long taken the contrarian perspective to the fear that dominates market sentiments. Overnight we have now seen the recognition that Europe is unable to fully solve this on their own and needed mediation in the form of a Federal Reserve lowering of the overnight swap rates to release the pressure cooker on European liquidity. Though we have witnessed many interventions this year, this one is pronounced in what it says in a very subtle manner.if you could ever call an intervention like this as subtle.
Commentary
Stressed Out About the Stress Tests
The market is trying to better understand the Feds announcement yesterday regarding seemingly new stress tests for U.S. banks. Many posit that the Fed is worried about the health of the U.S. banking system in light of the issues in Europe. Some feel that it is an attempt to show the market that the U.S. banks are actually healthy in light of the potential economic hazards. The truth here might be a bit more innocent than many think. The stress tests are actually part of the requirements of Dodd Frank. They are not new and this is actually the third set that will have been routinely done.
Commentary
Investor Anxiety Sights on Europe, Not Washington
As we approach the third Congressional deadline for Fiscal measures in 2011, the lack of investor anxiety is very telling. Just like the parable of the boy who cried wolf, most investors are still staring beyond Washington to Europe and the daily reactions to their evolving solutionor lack thereof to some. There are possibly two reasons for this: 1. The general public appears tired of the Armageddon finger pointing and isnt convinced the wolf is out there. 2. A pre-determined $1.2 trillion in cuts will automatically be put in effect if the gang of six cant come to an agreement.
Commentary
European Respite Allows Fundamental Scrutiny of Economy
An interesting week of economic data has allowed the slight respite from the European soap opera to push a more fundamental scrutiny of the economy. The two-day heavy release reveals quite a few of positive surprises, even if they are slight. In Q1 we grew at 0.4%, the Q2 at 1.3% and the non-revised number for the Q3 is at 2.5%. This growth is in light of the acceleration of the European situation that started in July and should have impacted the domestic GDP growth rate. However, we saw just the opposite due to the relative strength of the Euro compared to the U.S. dollar.
Commentary
Jefferson County Bankruptcy Not a Reason to Fear Munis
The possibility of Jefferson Countys filing was discussed by us in our July 27th blog entry. Of course at that time, we could not know how the Jefferson situation would ultimately play out. We did believe that it was still a possibility that a reasonable settlement could be worked out if the political will could be mustered by government officials. Regardless of the outcome, we stated at that time that a bankruptcy filing by Jefferson County should absolutely NOT be used as evidence of the beginning of a wave of defaults descending on the municipal bond market. We feel the same way now.
Commentary
Equity Market Correlation Could Signal a Divergence
One thing lost in the market moves is correlation between the volatility in the equity and Treasury markets. Standing alone, one notices that the Treasury volatility index from BofA/ML has spiked up since the initial potential downgrade by S&Ps in April. This coincided with a spike in the Equity volatility though it has tempered a bit lately. When we look at traditional analysis, one would expect both volatilities to be somewhat divergent, yet now we stand at the third highest correlation over the last 10 years.
Commentary
The Markets & Worlds Economy: Three Major Events
In the last 24 hours, there have been three key developments that should catch investors attention. The Greek Referendum vote has been canceled in light of the ultimatum that Germany and France has put forth to Prime Minister George Papandreou. It appeared to us that this referendum vote was initiated by political pressures to maintain his position of power which he ultimately denied. This little turn of events is just one of the many on the road that lies ahead.
Commentary
Nuclear Option Back On the Table for Europe?
We have seen a violent reaction in the equity and bond markets globally over what seems to be a return to chaos in Europe. After seemingly removing the nuclear option by levering up the EFSF (European Financial Stability Facility) and the 50% voluntary haircut for holders of Greek debt the markets are once again headed south. Compounding the problem is the Monday morning bankruptcy of MF Global was not necessarily unexpected but the magnitude of the leverage embedded on the firms balance sheet is remarkable.
Commentary
Economic Perception or Reality?
October is on track to post the best monthly S&P gain of this current recovery, the first double-digit monthly gain since December 1991 and the best October gain since 1974. Though we felt the equity markets were overdue for a bounce we do feel we are now ripe for a bit of consolidation before they move higher. We think as perceptions begin to align a bit more with reality that the S&P 500 should be able to move towards the April highs We recommend investors focus on the themes of quality dividends, quality growth and quality balance sheets that we have been highlighting for quite some time.
Commentary
Household Net Worth Influence & GDP Expectations
After recently discussing the Economy and its metrics for a select group of clients, we forwarded the concept that at some point market indicators are as relevant as economic indicators. Since we are living in an age when economic metrics are difficult to trust at their outset, most look at the revised number. We like to combine economic metrics with the multitude of market indicators to affirm a trend or potential reversal of a trend. As such, reading the market and economic tea leaves has become more artistic than scientific; though long-term success still requires both.
Commentary
TIPS Can They Really Protect Against Inflation?
A few weeks ago, I had the pleasure of reading a White Paper by Cutwater Asset Management. The paper is titled, Inflation Protected Bonds How TIPS Can Drive You Tipsy and discusses the lack of correlation between the returns on Treasury Inflation Protected Securities (TIPS) and gusts of inflation. TIPS were created to give investors protection against the devastating effects that inflation can have on the loss of purchasing power. I consider it a very good idea that was executed in a very poor fashion.
Commentary
Three Strategists Speak Out & Rare Apology From PIMCO
Quality in bond land is expensive and promises little return for a fair amount of risk. The Fed is punishing Treasury investors with historically-low yields. We believe the only way to generate a return in these markets is by price appreciation because these notes have very little in the way of coupon income. This lack means that they will trade more like zero coupon bonds when, and if, the Fed ever removes the buying pressure on that market. History has shown us that the market will move before the Fed does. Our discipline has thus far beaten our benchmark.
Commentary
Strategists Predicting Explosive Q4
This morning I read a Bloomberg article titled: Strategists See Biggest S&P 500 Gain Since 98. Could this be a misprint? We would tend to agree with the potential for an explosive Q4. The markets have traded down on the Euro scare which has spread to Ameri scare. The truth is that the U.S. is in a MUCH better place than Europe, in our opinion. Our banks are very well capitalized. Our consumer has much less debt and is actually holding up well. We believe markets often turn when sentiment is at its worst. Could it be time to be greedy in the midst of all of this fear? We think so.
Commentary
Be Mindful of the Markets History
When markets are not able to determine efficient use of capital and transfer excesses to underutilized areas, concern arises. We often hear about the rise of Socialism in the United States, and though compared to more free-market periods from years ago, there may be some accuracy to it; the relative capitalism benchmark versus other economies is still profoundly different. As evidenced by the situation in Europe it should serve as a warning sign for elected leaders setting more protectionist policies in light of our pursuit for free market forces.
Commentary
Is Recession a Certainty in the U.S.?
There is certainly much greater economic risk out there than there was just a month or two ago. My sense is that any recession that the United States may experience would be associated with a slowing of U.S. GDP because of a fall of in Europe, and potentially China. I believe that China would act quickly to reverse their tightening bias to spur growth. Calling recessions is a dangerous game. We all try to make logical sense of markets and try to forecast the future. All I know is that folks that have done well decade over decade, like Buffet, are buying and not selling.
Commentary
Dividends: Paid To Wait and Poised to Rally
There are myriad clichs that capital market participants and commentators like to call on from time-to-time to help soothe the pain or illustrate the potential for gain. One that we believe applies on almost any given day concerning dividend paying stocks is, paid to wait. However, there are certain times, like now, when we think we can add the addendum, and poised to rally. We have been discussing for quite some time that we thought the U.S. equity markets were attractive based on current valuations and earnings growth (both current and projected), and that is still the case.
Commentary
The Trend is Our Friend
I am bullish about the outlook for growth stocks because the trend is our friend. A comparison of the Russell 3000 Growth Total Return Index versus the Russell 3000 Value Total Return Index performances from October 15, 2008 to August 31, 2011 finds the RAG up 61.16% versus the RAV up 33.65%. These are both respectable showings, but the growth index is winning by a considerable margin of 27.51%. While this is not a call to abandon equity value strategies, it is a powerful argument for including growth as part of an overall equity allocation.
Commentary
The Exemption of Municipal Bond Interest
Liquidating municipal bond portfolios and hiding out in cash based on a possible change in tax law is not a wise investment program. Clients investment goals dont get to take a rest. Investors must invest wisely to create opportunities for bond objectives to be met. If the very worse case scenario of the municipal bond interest exemption going away completely were to occur at some point, it would happen in conjunction with a large simplification of the tax code and lowering of tax rates. Tax reform talk is real. Be aware of it, stay informed, but dont run for the hills because of it.
Commentary
A discrepancy in earnings affecting corporate, commodity and debt
There is a rising disconnect in the marketplace between perceptions and forecasts. It is occurring predominantly in the corporate earnings sector; however, we notice it in the commodity markets and the debt markets. For the last couple of months we have noticed a rising discrepancy between the top down earning analysts as compared to the bottom up analysts and CEO forecasts. We would typically side with the bottom up analysts as a general rule. However due to some interesting dynamics, we are leaning even more to the side of the bottom up estimates.
Commentary
Will the U.S. Economy Face Recession in 2011?
The question I am now most often asked is, Will the United States slip into a second economic recession this year? The risks have definitely risen such that the current soft patch in the U.S. economy may translate from slightly positive GDP to a negative reading. Investors are faced with a huge opportunity to buy risk assets at a great entry point. We believe that the probabilities are that the markets will be significantly higher in the future. Market participants are net short this market and cash on the sidelines is at record highs. That is a recipe for a rare opportunity.
Commentary
Cash is King
The equity markets look to be suffering from a little sleep apnea. It appears restful until a sudden gyration is induced by a pause in breathing leading to a lack of oxygen. The markets catch their breath only to be shocked again by the combination of lack of comprehension from elected leaders both domestic and abroad and the rising concern the economic soft patch may be quick sand. To illustrate a little more of why we see the soft patch versus the economic quick sand, consider the last 13 years with regard to the equity markets and cash flow.
Commentary
What to Make of Todays Market Moves?
The 10-year Treasury has hit an important threshold while equity markets across the globe are off 4-5%. The 10year Treasury hit an intra day low yield today of 1.97%, which was last seen on 12/30/08. This is important in that it is a historical low yield and invites the question whether a secular double bottom might just be taking place. It also begs the question whether this flight to quality is another knee jerk reaction to a stumbling of political processes; or is it an environment where historically low interest rates are semi permanent? Could the answer be yes to all of them?
Commentary
Bull Run Done?
To put it mildly, the equity markets have been extremely weak and extremely volatile over the last three weeks. We expected some weakness into the summer. However, the levels we have seen surprised us somewhat given the vast majority of market moving events came as no surprise and were, we believed, priced into the market. Regardless, we do believe, despite the magnitude of the markets movements, that we are still in a bull market. That isnt to say we go straight up from here but we do think we have put in a summer low.
Commentary
Insider Buying Trends. Should You Follow Suit?
Current headlines are suggesting that recent market hits have created a buying opportunity. Yesterday, Bloomberg reported that Insiders Buy Stocks at Highest Rate Since 2009. The scare this morning still surrounds the European banking system which is being tested, much like those in the US were tested in 2008. Back then, the U.S. instituted a number of actions to return confidence to our banking system. A combination of TARP and a guarantee by the FDIC of all bank obligations overcame the market attacks. The ECB does not have FDIC, so its looking on how to shore up confidence.
Commentary
Capitulation Could Usher in Fresh Buying Opportunity
I suspect this decline will not cause a major change in leadership. The best buying opportunities are likely to be in those stocks and sectors that were leading the market higher before the downturn. I continue to believe this will be an earnings growth focused market and, therefore, investors should choose equities that have produced the best earnings relative to Street expectations over multiple quarters. Several sectors that standout include: aerospace, agriculture, industrial, information technology and oil service.
Commentary
S&P Downgrade and Municipal Market Insights
Here is some perspective from Municipal Separately Managed Accounts (SMA) Land about the S&P downgrade and the municipal bond market: Moodys and Fitch have retained their AAA ratings on U.S. Government debt. This action by S&P was not entirely a surprise and was foreshadowed to a large degree. The rating agencies had negative trends on U.S. Government debt for a few months and S&P, in a mid-July report, laid out in three scenarios the actions they might take depending on how the debt ceiling increase was handled by Congress.
Commentary
What does the Downgrade of U.S. Debt Mean?
The downgrade potential was not mitigated with the overly dramatic yet not surprising game that Congress and the President partook in. Losing the AAA status has some fundamental and some theoretical impacts. The obvious facet is the increase in interest costs for the U.S. government and every interest based instrument. Estimates for increased interest expense have ranged from 25 billion annually to as high as 100 billion annually. Any measuring is sure to have flaws when one considers past rating cuts and the significance and uniqueness of the Treasury market.
Commentary
Is Todays Selloff a Sign of Market Capitulation?
The paralysis that has dominated the markets has only been enhanced by the recent market movements. For those who have a longer-term time frame and are underweight risk assets in general, current levels still appear attractive. The one characteristic that has been missing from the benign sell-off in the second quarter was a market capitulation. Yesterday actually had a feeling of that; however, it may require more of the flushing of the system before that occurs. Calling a bottom would be foolish. Being a successful investor, buying low and selling high, has always been easier said than done.
Commentary
The Equation of Wealth Destruction: Money + Emotion = Disaster
History is full examples of volatility in the markets and the affects of emotion on the creation and destruction of wealth. People have a false sense of faith in cash. Cash being made up of dollars tend to lose value over time. The loss is sometimes sneaky, but always in the form of lost purchasing power. The U.S. dollar as a fiat currency has for decades, provided a slow debasement of value for holders. At this time we see the largest hoard of cash on the balance sheets of corporations, banks and individuals in history. This seems worrisome at best and just plain stupid at worst.
Commentary
Debt Ceiling Got You Concerned?
Even though it feels uncomfortable, earnings growth is very healthy. The actions going on in Washington will likely result in a more balanced spending and debt management approach, in our opinion. Our advicepress on! We see this as a buying opportunity, as it is likely this cloud may soon dissipate. Remember, that buying low and selling high often requires you to make decisions that dont always feel great when you make them.
Commentary
Muni Bond Lessons Learned from Harrisburg and Jefferson County
If a bankruptcy filing were to occur in any of these two cases, it wouldnotbe indicative of the wave of municipal bond defaults predicted by some.It would be simply a story of two particular issuers that made the basic mistakes. Observers who would highlight a bankruptcy filing by either of these issuers as evidence of massive problems to come in the muni market would be misreading the specific events that brought Harrisburg and Jefferson County to their present troubles. We believe it is important to be wary of those who might try to use this as evidence of a broader problem.
Commentary
Golds Value Made Powerful by the Dollar, Euro and Yen
In reviewing the weekend headlines and data points released, it appears the gold rush fever is alive and well. It is almost as if a sequel to Shakespeares Merchant of Venice is about to be revived for reality TV... One might expect to read: It appears that what ever side of the Atlantic you lay, gold and gold only appear the play. Gold has crossed over $1600 per ounce, a mere 125% increase over where it stood a little over 2 years ago.
Commentary
Chairman Bernanke: A White Knight or one of the Four Horsemen?
There are some underlying forces that we believe to be a better indicator of the future than the headline risks that pop up every hour. Chairman Bernanke?s announcement that more support is needed affirms our view that they will remain accommodative for some time and analysts? estimates have risen, even though top-down analysts have dropped a bit. The amount of liquidity continues to rise even as markets are up year-to-date. At the end of the day, anxiety and apprehension are key components in the building of the wall of worry.
Commentary
Back in the Uptrend
June did not present a meaningful technical departure from the preceding five months. This does not mean that June was uneventful; it had its fair share of peaks and valleys, the most dramatic of which occurred during the gravest worries that Greece might default on its debt. It was not the first time this year that the stock market was rocked by blazing headlines reporting devastating or monumental events. In March, stocks were driven lower following the Japanese tsunami. Whether a financial woe or a natural disaster event, the effects have been similar thus far in 2011.
Commentary
Second Half Equity Market Rally?
We only have a few trading hours left in the 1st half of 2011 and, barring any late day meltdowns, we should end up solidly in the black as the S&P 500 is currently up 5.85% (includes re-invested dividends). On an annualized basis, this equates to 12.14% which is below the 15 ? 20% we predicted at the beginning of the year. However, as we have reiterated many times before, equity returns never come in uniform fashion, and we still are holding to our prediction as we expect, a better 2nd half than 1st half, in our opinion.
Commentary
Default or Not; What Happens After Greece?
The markets are preoccupied with the potential of Greece defaulting on its debt. Just what are we worried about? Greece is unable to access the capital markets, which are necessary for them to continue funding their expenditures and roll their debt forward. The EU outlined an assistance package that is being handed out in pieces to Greece. The next piece is coming due and the EU is pushing Greece to raise taxes and cut expenditures. The Prime Minister is up for a confidence vote tomorrow and the world seems to be waiting to see if Greece has the political will to stand up to their debt.
Commentary
A Replay in the Markets
The one concern we cannot project, and one that every investor should be cognizant of, is the contagion risk of the potential default of Greece or any of the other troubled European issues. It won?t be necessarily the default itself but the reaction to it. This is more than likely the catalyst for the large amount of liquidity being built up in the banking system so as to mitigate another credit crunch that paralyzed the global markets in 2008. It also explains why A-rated Financials have seen their spread to the 10-Year Treasury widen from 121 basis points (bps) in May to a current 147 bps.
Commentary
LinkedIn and Pandora IPO: More than meets the eye
With all of the confusing, often contradictory, reams of economic information flooding the market, the supply of conundrums seem to be rising. With the combination of hitting six consecutive weeks of declines in the S&P 500 (not seen since 2002) and on track to make it a seventh and the large number of rolling over of economic data, one might be surprised to see the success of technology IPO (Initial Public Offering) market recently. LinkedIn brought back a euphoria and cautionary tales of the go-go 1990s with their stellar IPO nearly a month ago.
Commentary
Will the U.S. experience a Perfect Storm of fiscal woes?
Right now it?s easy to latch onto the argument that the soft patch we are entering economically will transfer into quick sand. The predisposition of retail and institutional investors is greatly formed by events over the last decade as well as the sixth straight weekly loss for equity markets. With deposits and household liquidity standing at all time highs, is there truly exuberance and overly-hyped expectations for the economy and equity markets? It appears not, which should caution those who are longer-term bearish.
Commentary
Taking Advantage of Cyclical Highs and Lows
As we find ourselves in the throws of an economic soft patch, the anxiety to investors seems only to be a sniffle versus an outright sneeze or full-fledged cold. Many are wondering as to why the accumulation of the slowing economic news is having such a muted impact and cause many to extrapolate that a ?coming to Jesus? meeting is around the corner. As we stated last week, the conundrum of negative outlook on Treasuries by three credit rating agencies is being trumped by slowing economic metrics. It is also influenced heavily by the majority of investors believing rates will rise.
Commentary
My Thoughts on Meredith Whitney?s Forecast of the Municipal Bond Market
Meredith Whitney appeared on CNBC to defend her highly controversial forecast that the municipal bond market would experience severe defaults as a result of local government finances. Here are my thoughts on Whitney?s comments: First, it is important to remember the broader context of her interest in the municipal bond market. Last Fall she created a new subscription service offering her analysis of the municipal bond market. What better way to launch her subscription than to appear on 60 Minutes and state that there will be hundreds of billions in muni defaults within the next 12 months?
Commentary
10 Reasons to Think about Munis and Professional Bond Management
Municipal (muni) bonds remain a very workable asset class ? one worthy of investment in spite of the recent uncertainty and volatility of the past six months. Properly done, munis can provide dependable, attractive levels of after-tax income with modest expected volatility for conservative investors. Here are 10 reasons to think about munis and professional bond management right now: 1. Munis make sense for top tax bracket investors. 2. Muni bond credit quality challenges are real, but muni bond issuers have the resiliency and tools to help remedy their difficult budget situations. Continued.
Commentary
Are we at a Market Detour or merely a Speed Bump?
The market has been predisposed to a positive bias over the last quarter. This is in light of what we see as a bit of rolling over in the economic metrics and various global forces. The market has somewhat disregarded the impacts of natural disasters, the European Central Bank (ECB) turning generally hawkish and placing the rating of U.S. Treasuries on negative outlook. A few years ago, any of these events would have proven to be a detour to the markets road to higher levels, currently they are merely speed bumps.
Commentary
Sell in May and go away?
May is popularly regarded as the month of the year to ?sell and go away?. Statisticians have found merit in this Wall Street adage, but it is not flawless. For investors who choose to focus on stocks and sectors rather than the popular market averages, it is not a saying that should be seriously incorporated into one?s decision making in our opinion. Surely, there can be instances where technical indications of an overbought or vulnerable market condition coincide with a seasonal call to sell. However, this May is not one that would make me believe this adage should be heeded in 2011.
Commentary
Watch Out Below! Commodities Falling Off the Cliff!
This week we have seen a huge sell-off in commodity prices. Silver is leading the way down posting another steep loss today. Some think the smart money is getting out even as the commodity exchanges are raising margin requirements. Is this the end of the ?hard asset? commodity trade? I hardly think so. We believe that we are in a commodity ?super-cycle? that has its foundation not in speculation or weakening currencies, but in a sharp rise in global demand. The weak dollar has merely exacerbated the move over the past couple of years as the Fed has embarked on very loose monetary policy.
Commentary
QE3 on the Horizon?
Everyone is concerned about what happens when QE2 ends. On one side believes that when QE2 ends, long term interest rates on Treasuries will spike as the largest buyer exits the market. They believe that the Fed may be tempted to generate QE3 in order to continue try to keep interest rates down and keep the fragile economic recovery going. On the other side of the aisle, there are folks arguing that the yields on the Treasury bonds will drop even as the Fed exits and despite the fact that they are the largest holder of U.S. debt following a slowing U.S. economy during the first quarter.
Commentary
Could the U.S. Return to 1970s Style Inflation?
The U.S. appears to be at the crossroads of fiscal and monetary policy. Many are painting a very bleak picture of the future of the dollar, U.S. credit and the validity of the U.S. economy as the model for the world. Could the U.S. return to 1970s style of inflation? The answer is that, although the possibility is there, the probability that such a high level of inflation returning any time soon is actually very low. Is the Fed conducting monetary policy that is inflationary in nature? Yes they are, but let?s not forget why they are doing this. The Fed is engaged in the avoidance of deflation
Commentary
In Tough Times, Remember All That Bonds Can Do
These are tough times for bond investors. It?s not surprising that higher inflation and rising rates are becoming more of a focus. Economic growth continues to accumulate and oil and commodity prices are rising. Labor markets are showing some improvement and anticipation is growing concerning the eventual end of easy monetary policy. In times such as these, we typically see investors wring their hands about the comparatively meager total returns they expect from bonds going forward. This concern may cause them to inappropriately reduce their exposure to bonds or even abandon them altogether.
