American Century Investments
Webinar
Investing With an Eye on Taxes with ETFs
by Sandra Testani, CFA, CAIA, Sandra Testani, and Dave Nadig of American Century Investments, 10/30/23
Investing with an eye on taxes has never been more important. Investors in taxable accounts should especially consider how taxes diminish their portfolio returns. Join us for a timely tax discussion on how to turn market volatility into an opportunity with the power of ETFs.
Commentary
Q1 Investment Outlook: There’s Room to Improve, but Remain Defensive
Will 2020 be more of the same? Our teams are encouraged by differences they see in the new year; but they remain alert for unexpected downturns.
Commentary
Q4 Investment Outlook: No Rest for the Weary
As we look ahead to the closing months of 2019, most of the year’s volatility drivers remain in place. With that in mind, we believe now may be the time to adopt a more defensive posture without deviating from your long-term strategic asset allocation.
Commentary
Q3 Investment Outlook: Remain Patient While Trade Talks Play Out
As we reach the midpoint of 2019, some investors could be feeling a little queasy from the market’s ups and downs. Our advice is to remain patient. Gain more insight from our latest client-approved Investment Outlook.
Commentary
Q2 Investment Outlook: A Strong Start, but Don’t Be Complacent
Investors were dour heading into 2019 and while the mood became sunnier in the first quarter, there’s still plenty for investors to ponder and many potential threats to the relative calm.
Commentary
Investment Outlook: Turbulence Ahead but Opportunities Remain
Global markets are jittery as we start the new year with the same volatility drivers in place as last year. In our view, it's time for your clients to expect and prepare for periodic bouts of volatility.
Commentary
Food Inflation in Context
The news is full of reports about huge increases in prices for corn, wheat, and soybeans, as a result of a simultaneous, severe drought in many of the world's food-producing regions. Despite the dramatic headlines, the reality for U.S. consumers is that the food inflation they experience is likely to be much more tame. Indeed, the USDA projects a 2-3% increase in prices for fruits and veggies next year, with beef prices expected to rise a bit faster than that.
Commentary
Q1 GDP Revised Upward; Q2 Growth Remains Sluggish
The 1.5% rise in gross domestic product (GDP) for the second quarter was in line with market expectations, while growth for 1Q was revised up slightly to 2.0%. The major U.S. equity markets fared well, with the Dow Jones Industrial Average closing above 13,000 for the first time since may. In other news, the Federal Open Market Committee (FOMC) meets this week, which could result in a third round of quantitative easing.
Commentary
Wage Inflation in China: Implications for Inflation and Global Investing
The transformation of China's economy since the late-1970s when the country opened up to foreign investment and began to take steps to participate fully in the global economy has been nothing short of remarkable. The Asian giant has undergone a dramatic transformation from a comparatively small, underdeveloped, rural economy to a dynamic, urban, manufacturing-based economy that is now the second largest in the world.
Commentary
Chinas Growth Slows for Sixth Straight Quarter
Gross domestic product (GDP) growth in China, the world's second largest economy, dropped again on a year-over-year basis, from 8.1% last quarter to 7.6% for the second quarter. Growth is at its lowest level in three years. In domestic news, the major U.S. equity markets rallied last Friday and erased earlier losses to finish positive for the week.
Commentary
Another Employment Report Disappoints
Employers added just 80,000 jobs, falling short of expectations for the June employment report and triggering declines in the equity markets. The unemployment rate was unchanged from May (8.2%). Additionally, the U.S. manufacturing sector contracted in June for the first time since July 2009.
Commentary
Focus on the Fed: Interest Rates and the "Dual Mandate"
When creating the Federal Reserve (the Fed), Congress set out some vitally important objectives for monetary policymaximum employment and stable prices. We use this issue of Chart of the Week to provide some context around the Feds sometimes competing policy goals in its dual mandate, as well as simplify and summarize the inflation and jobs data informing Fed interest rate policy in a single graphic.
Commentary
U.S. Inflation Update: More Long-Term Threat than Near-Term
During the week of June 11-15, the U.S. governments Bureau of Labor Statistics (BLS) reported declines in May prices received by U.S. producers for their goods, as well as lower May prices paid by U.S. consumers. These May declines in the BLSs Producer Price Index (PPI) and Consumer Price Index (CPI) were largely the result of declining energy prices, particularly those for gasoline.
Commentary
What Makes Investors Buy High, Sell Low?
Conventional investment wisdom says: Buy when the price is low, wait for the investment to increase in value, and sell it at the top to realize gains. It seems like a straightforward strategy. So why dont investors follow it?
Commentary
Chart of the Week: Growth Dichotomys Diminished Influence
Despite weaker-than-expected U.S. employment data for May (released June 1) and other signs of slow economic growth, the Fixed Income Macro Strategy Team at American Century Investments does not believe the U.S. economy is headed toward another recession (though the marginal possibility of recession has increased). Rather, the team believes the economy remains on a sub-par recovery/slow (1-3%) growth path, with headwinds.
Commentary
Diversify to Take the Edge off Swings in Investor Sentiment
The investor sentiment cycle presented here is an excellent investor education tool. In a single snapshot, it captures both the cyclical nature of financial markets and the subjective, emotional response many investors have to those market movements. After all, saving and investing are relevant to the extent that they help us achieve profoundly important personal goals, such as funding retirement, a childs education, or a bequest to future generations. Under those circumstances, it is easy to understand why market swings would elicit an emotional response from investors.
Commentary
Charting the Benefits of a Diversified Approach
Weve written quite a bit about diversification recently. Rather than tell you about the potential benefits of a diversified approach, we thought wed use this initial issue of Chart of the Week to show you how a diversified portfolio can potentially smooth out performance and improve cumulative returns over time.
Commentary
Measuring Active Management: The Basics of Active Share and Tracking Error
Every investor needs to understand the basics of portfolio management. In a broad sense, portfolio management can be divided into actively managed and passively managed categories. Although we describe both approaches at the outset, we fasten our attention on active portfolio management in this piece. Specifically, we focus on the Active Share and Tracking Error approaches to measuring active management in equities. The goal is to further develop an appreciation for the multi-faceted complexion of active portfolio management.
Commentary
Our Fixed Income Insights on Yield Traps
From a fixed income perspective, we explain why aggressive yield-enhancing strategiesresulting from this extended period of historically low U.S. interest rates and yieldscan threaten the potentially valuable long-term portfolio benefits from holding fixed income positions. In particular, chasing yieldand stumbling into yield trapscan derail the important volatility reduction and diversification benefits offered by carefully selected and well-managed fixed income holdings.
Commentary
Diversification 301: Tailored Solutions for Your Portfolio
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.
Commentary
A New Wave of Foreclosures Could Challenge the Housing Market
The most recent data on the U.S. housing market suggests we may have reached a bottom. However, most experts anticipate the housing market will be hit by a large new wave of foreclosures that will substantially affect the current supply-demand balance for the remainder of this year and possibly into 2013. As a result, we may be looking at one more phase of price declinesparticularly in local markets where the housing bubble grew largest before it burstbefore we truly find the bottom to our five year housing crisis.
Commentary
Avoiding Equity Market Exposure
The year 2012 finds the search still on for income and capital appreciation with acceptably low volatility. Many investors remain leery of stocks and are also interested in opportunities that possess low correlation to equity markets. In addition, the low interest rate environment presents difficulties for those trying to achieve total return goals by relying on fixed income investments. Given these issues, some may wish to learn more about the techniques utilized by many equity market-neutral (EMN) strategies.
Commentary
Current Conditions Cater to Our Rigorous Muni Investment Process
The last four years have been a remarkable period in municipal bond (muni) market history. The 2008 Financial Crisis and the Great Recession transformed the high-grade U.S. muni market and how people invest in it. What was once a relatively homogenous bond sector in terms of its credit quality and ratings became much more heterogeneous. Under these conditions, we believe experienced professional credit research and portfolio management are now crucial to investment success. This article outlines our muni investment processes.
Commentary
Diversification 201: Implications of Diversification for Investor Behavior
Here we look at diversification as a tool to address many classic failings identified by the science of behavioral finance. Earlier we explained the rationale behind diversification and how it can be used for structuring a portfolio to help manage risk and maximize risk-adjusted performance. We also provided an Intro to Alternatives meant to highlight the types of strategies that can be used to diversify a traditional portfolio. In future months well address such topics as diversification in a post-Financial Crisis world, and what types of diversification strategies make the most sense.
Commentary
What Shall We Do with All Our New Natural Gas?
Youre probably aware of the revolution taking place in natural gas technology and supply. Horizontal drilling along with hydraulic fracturing has created the ability to capture huge quantities of natural gas trapped within large shale formations across the U.S. And so the United States is faced with an energy policy challenge and question not related to dealing with scarcity but instead what to do with this sudden windfall of new domestic energy. How we address this question will have important economic consequences for our various industries, employment and our economy overall.
Commentary
Uncovering Equity Yield Traps
As the low interest rate environment persists, uncertainties continue even as new marketplace concerns begin to emerge. This observation is especially applicable to investors that are desperate for current income opportunities. In their search for equity investments, many will opt to screen for opportunities using current yield as the main filtering criterion. In situations such as this, those in hot pursuit of rich rates find themselves at risk of falling prey to nasty yield traps. Although yield traps exist in the fixed-income space, this piece focuses on yield traps involving equities.
Commentary
Explaining the Stir over Recent Fed-Speak
The official statement from the Federal Reserves March 13 interest rate policy committee meeting was relatively ho-hum (no significant changes from Januarys statement), but other recent Fed communications have raised more of a stir. In particular, we explain what fiscal cliff and sterilized QE mean, and help put them into context. Its all part of a mixed, uncertain economic outlook in which slower mid-year growth, like last year, cant be ruled out, but higher inflation by next year is also a possibility.
Commentary
Diversification 101
In this edition of Weekly Market Update, Rich Weiss, discusses diversification-the rationale, the benefits, and ways to apply this approach. This is the first in a series of monthly write-ups on the topic with future pieces devoted to topics such as the state of diversification in a post-financial crisis world; portfolio rebalancing; and when and what types of diversification strategies make the most sense, among other topics. Outfitted with this information, investors can make better investment choices, improving portfolio diversification and risk-adjusted performance now and into the future.
Commentary
Oil and Gasoline Prices Rise Again: How High and How Long?
One year ago, we wrote on the recent up-tick in crude oil and gasoline prices which was caused by turmoil and revolution in the Middle East. A year later, were experiencing a similar rise in crude and gasoline prices. Last week, the average national cost for a gallon of unleaded regular gasoline was approximately $3.75 per gallon. One contributing factor has been the increase in tensions between Western countries (and Israel) with Iran over its continuing work to produce nuclear fuel which could be used in atomic weapons.
Commentary
Choosing the Right REIT Can Benefit Diversification
The quest for consistently high risk-adjusted return is an arduous, never-ending journey. This outline introduces the basics of Real Estate Investment Trusts (REITs). That REITs can serve as a useful portfolio diversifier can easily be made apparent. The next issue becomes which type of REIT? The emphasis of this write-up is on identifying the different types of REITs. Outfitted with this information, investors can make better REIT choices, aiding portfolio diversification now and into the future.
Commentary
Muni Outlook Q&A with Portfolio Manager Alan Kruss
Municipal bonds (munis) are back in the bond market spotlight, but for different reasons than a year ago (when widespread defaults were projected, and muni funds experienced heavy outflows). Muni performance has rebounded strongly since then, which has triggered follow-up questions about the muni market outlook. We posed them to Alan Kruss, Vice President and Municipal Portfolio Manager at American Century Investments.
Commentary
Weekly Market Update: Introduction to Alternative Investments
Alternative investments (or alts as they are commonly known) have exploded in popularity in recent years. What began as specialty investment strategies utilized by only the most sophisticated institutional investorssuch as pension plans and university endowmentsare now readily available to retail investors through a number of mutual funds and exchange-traded funds. Here we try to explain alts appeal in broad terms, discussing how these strategies are used and what role alts may play in an individual investors portfolio.
Commentary
Our Budget Deficit and the Coming Elections
One week ago, the CBO released its latest federal budget and economic outlook for the U.S. In the associated report, they explain that their ten year baseline budget projection is not a forecast of future events. Instead, it is provided as a policy benchmark that reflects what will occur to the federal budget and deficits if the existing taxation and spending laws are kept intact without additional legislative actions. Of course, we are now within nine months of a major election where a key issue will be what changes are needed to address our present fiscal woes.
Commentary
The U.S. Economy: This is How Our Game is Played
In an election year, it is impossible to escape the bombardment of political rhetoric. Politicians typically have little compunction as they encroach into the arena of economics. As a result, people from all walks of life, including investors, are often left confused and wondering which of the various economic theories and norms remain relevant. The goal of this piece is to consider what recompense we receive from government intervention in the economy. Some bitter divisions exist regarding the style of play that should be adopted to guide our nation as the slow economic recovery continues.
Commentary
Adding to Our Pro-Muni Arguments
Last month, we outlined multiple reasons why investors and investment advisors should consider high-quality muni investments as core fixed income portfolio holdings. In support of owning funds vs. individual securities, we focused primarily on credit-quality issueshow we believe most of the muni market remains fundamentally sound and resilient, but pressured by the economic and fiscal environment. We think this has created a heterogeneous muni market with generally strong credit quality but dotted with potential credit risks and pitfalls in select areas that require professional vigilance.
Commentary
Inflation: Wheres the Beef?
With inflation seemingly in check, we reevaluate the near- and longer-term inflation environment, and discuss implications for investor portfolios. It is easy to understand why this topic intrigues so many. Depending on your perspective, inflation can be said to be rising fairly rapidly from low levels seen just a few years ago; or it could be said to be quite restrained, given the calls in recent years for runaway inflation as a result of unprecedented U.S. monetary and fiscal policies and a number of pronounced global economic imbalances.
Commentary
A Look Back (2011) and Forward (2012)
The major US equity markets ended 2011 not far from where they began in terms of their index values. Now that the New Year has arrived, the question is where these markets might be headed in 2012. Three important considerations behind this question are: 1. How key macro-factorse.g. the EU debt crisisare or arent addressed 2. Can U.S. corporations continue to deliver the earnings growth they have for the past three years 3. What are the prospects for US consumers and householdsan increasingly important consideration as the global recovery slowed in the fourth quarter of last year.
Commentary
Value Traps and Investor Psychology
Many financial market participants are familiar with what is generally known as the two basic emotions felt by investors, greed and fear. Very often, over-enthusiasm is observed accompanying greed during bull markets and over-despondency is seen on the heels of fear during bear markets. Besides the cyclical aspects of investor psychology, there are other aspects of behavioral finance (another name for this branch of psychology) to explore that relate to value trap avoidance.
Commentary
The Credit Research Case for Using Muni Funds
We believe muni market credit quality remains generally high despite continuing changes and challenges, including the demise of the bond insurance industry (which has created a more heterogeneous muni market) and the slow economic recovery, which has put continued pressures on municipal budgets. However, we believe these challenges have made experienced, professional credit analysis more important than ever. One way for investors and advisors to access expert, experienced credit analysis is through the use of established muni mutual funds that have been through multiple market cycles.
Commentary
Some Perspective on Recent Stock Market Volatility
Both October and November exhibited substantial price volatility. For the full month of October, the index was up 10.9% on a total return basisthe best October performance for the S&P 500 in nearly 20 years. In contrast, for November the index was down -7.5% through Friday the 25th before a substantial rally the last three trading days of the month. Well take a closer look at the volatility of the S&P 500 from a historical perspective to provide some insights about market volatility its history, trends and causes.
Commentary
Week in Review: Worst Thanksgiving Week for Equities Since 1932
The continuing European sovereign debt crisis and the failure of the Joint Select Committee on Deficit Reduction to reach an agreement on the U.S. budget deficit weighed on the major equity indices, with the S&P 500 Index down 4.69%, and the Dow Jones Industrial Average down 4.78%. The European debt crisis continues to take center stage. While the peripheral countries of Greece, Portugal, and Ireland have dominated headlines for months, the bigger core countries of Italy, France, Germany, and Spain were the main acts this past week.
Commentary
The Holiday Spending Outlook Reflects Continued Consumer Caution About the Economy
Santa may not be especially generous, but at least hes planning on adding a little extra compared to last year. That outlook is according to the National Retail Federation. And while this forecast is not one to get retailers especially excited about the season, it is the second best outlook for growth in spending in the past five years. The major challenge for retailers will be that, while spending is forecast to increase slightly, consumers will be price-conscious and bargain-drivenmeaning that generating profit growth off any sales increases will be a difficult challenge.
Commentary
Alternative Investments in Focus
We recently conducted a survey of financial professionals to better understand their view and use of alternative investments. Alternative investments are defined as those outside the traditional big three of cash, bonds, and stocks. These alternatives include commodities, real estate, and inflation-linked securities, among many others. Alternatives have surged in popularity in recent years, as investors and their advisors seek out new and potentially more effective ways to diversify and reduce risk in traditional balanced stock, bond, and cash portfolios.
Commentary
Households Continue to Reduce Debt and Embrace Frugality
Many things are different about the current economic recovery compared with past. One of the most important differences is the lack of any meaningful resurgence in consumer spending. Households continue to reduce their debt levels, which can be good for our long-term economic outlook. But in the near term, deleveraging means consumers cannot play the same role they have of driving strong economic growth by a surge in spending that satisfies their deferred consumption during the downturn. Well take a look at how households and consumers are faring in their efforts to reduce debt.
Commentary
Outlining the U.S. Economys Growth Dichotomy
David MacEwen describes the growth dichotomy that has developed during the recovery from the Great Recession, and how its restricted the recovery, softened consumer sentiment, influenced the fixed income teams macroeconomic outlook, and shaped some of the teams sector outlooks. One of the key characteristics of the subpar, slow-growth recovery we have experienced since the Great Recession has been the clear divide between the recovery rates of the business and consumer sectors. Businesses have bounced back faster and stronger than the U.S. consumer who buys their goods and services.
Commentary
Global Equity OutlookFourth Quarter 2011
In this edition of Weekly Market Update, presents the teams outlook for global equity markets, based on the latest research and discussions with companies from industries and countries across the economy and the globe. The team focuses on individual security selection, building portfolios from the bottom up, rather than making top-down judgments about the economy. In their view, economic trends matter to the extent that they relate to corporate earnings power. As a result, the outlook focuses on corporate earnings and other areas they deem important to successful global equity investing.
Commentary
Our Fixed Income Macro OutlookFourth Quarter 2011
Our economic outlook has become a bit more defensive and cautious, compared with earlier this year. After improvement last year, economic conditions have slowed. In particular, the financial sector has come under renewed pressure from the European sovereign debt crisis and continued housing market stagnation. It remains to be seen if this slowing is transitory or more significant. Both the consumer and business sectors have experienced slowing. But a subpar recovery with headwinds remains our projected most-likely scenario, not a recession.
Commentary
Taxes, Income and Fairness
From a recent address by President Obama, it is clear that it wont just be the economy that will be a key issue in next years presidential election campaign. In addition, the question of fairness regarding taxationespecially among the wealthy and highest earning Americans who he believes ought to pay a greater amount of taxeswill be a major topic of debate. His speech has sparked a broad debate over who pays federal taxes in America and whether increasing tax rates on the highest earners is a wise move to both address our massive budget deficits and stimulate the economy.
Commentary
European Banks Under Pressure
On the surface, the European banking sectors status in the fixed-income markets should be on the upswing. The Basel III Accord strengthened capital requirements for banks and also set stricter guidelines for liquidity and debt. Helping reduce the risk profile of the banking sector, and this would normally be attractive to fixed-income investors. However, bond investors have had the opposite reaction, shunning the bonds of European banks in recent months. The gap between bank bonds and government bonds recently rose to levels not seen since the height of the 2008 Financial Crisis.
Commentary
More Focus on Fixed Income
G. David MacEwen, discusses how volatile market conditions, a population boom in the 65+ years category, and increasingly conservative investment behavior by those in that category as they approach retirement (including growing demand for more predictable outcomes) are shifting the focus of investment strategies toward fixed income. We strongly believe that the scheduled, mostly predictable payments of interest and principal from bonds are becoming progressively more attractive to a growing pool of investors and their advisors.
Commentary
Addressing Our Chronically High Unemployment Rate
Anyone who listened to President Obamas speech to Congress last Thursday should have come away with one overriding theme: His goal for the remainder of his first term in office is jobs creation. But the stubborn persistence of extremely high unemployment since the Great Recession officially ended over two years agoalong with the massive stimulus spending and record low interest rates that accompanied efforts to revive the economysuggest the challenge were facing in lowering unemployment is unlike any weve faced in past recessionary recoveries since World War II.
Commentary
Congressional Budget Office Updates Its Economic and Fiscal Forecast
Two weeks ago, the non-partisan Congressional Budget Office (CBO) released an update to their Budget and Economic Outlook that forecasts U.S. fiscal and macroeconomic trends over a ten year period (2012 to 2021). This update creates a baseline for negotiations by the Joint Select Committee on Deficit Reductionthat committee of six Democrats and six Republicans from Congress created by The Budget Control Act of August 2011 which resulted from the contentious debt ceiling negotiations in July. In this Weekly Market Update, well review what this baseline
Commentary
Updated Ideas for Fixed Income Positions
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.
Commentary
Perspective on the Fed, Inflation, and the Economy, as Well as Implications for Income Investors
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.
Commentary
The GDP Growth Downgrade
While much of the nation focused on events leading up to the credit rating downgrade for the U.S. by Standard & Poors last week, this was preceded by another downgrade to the estimates of our recent, past gross domestic product (GDP) growth, which was announced by the U.S. Bureau of Economic Analysis (BEA) on Friday, July 27. While garnering much less attention, this revision has some serious implications for our economic outlook at least through the end of this year.
Commentary
A Primer on Debt, Deficits, and Economic Growth
The recent kerfuffle in Washington over the extension of the debt ceiling presented investors with many competing arguments and seemingly contradictory information. On the one hand, we hear that debt is bad for growth. On the other hand, we are told that government spending is key to supporting the economy. And why is it that stocks tanked after an agreement was reached to avoid default and extend the debt limit? In this Weekly Market Update, we will try to provide some context for understanding these competing positions, as well as the recent market reaction to these events.
Commentary
Insights from the 2010 Census
The good news is that while we are aging as a nation, we are also growing both in absolute size and the size of our young population. How quickly we grow is tied to a number of factors. But two of the most important are continued healthy economic growth (where a sense of growing affluence and economic possibility is a strong incentive for young adults to have children) and how liberal or restrictive our future immigration policy will be. Based on how these factors play out, we could easily be a nation of 450 million (or more) to 360 million (or less) just in the next four decades.
Commentary
Why We Think the U.S. Wont Default on Its Debt
We believe its highly unlikely that the U.S. government will miss any of its scheduled debt payments in coming months, or that related market uncertainty and volatility will cause our money market funds to break the buck (be forced to transact share purchases and redemptions at prices less than the usual $1 per share). To help explain market behavior under unstable conditions, we often repeat the following adage: investment markets hate uncertainty. We tend to be leery of uncertainty because it can trigger investor skittishness, irrational behavior, and volatility.
Commentary
We See This Slowdown as Temporary Too
We?re experiencing another mid-year economic slowdown, with renewed fears of a double-dip recession. Will the recovery regain momentum, like last year? The fixed income team, thinks so. Two years after the Great Recession ended, we?re still struggling to escape its lingering grip. Major facets of that struggle include the market and financial extremes the recession generated. U.S. economic growth and financial market benchmarks are striving to shift back to more normal/average levels. These cyclical shifts from historic extremes interest us as sources of potentially value-adding positioning.
Commentary
Lessons from Investor Behavior Studies: Better to Have Patience and a Plan
Recent studies raise important questions about investor behavior and the likelihood that investors will successfully reach their financial targets. It seems that the best way to increase the odds of investing success is to take a balanced approach, providing exposure to the broad asset classes without leaving investors overexposed to any single area. Risk and financial reward exist in relation to one another. But diversification works on the principle that the relationship is not linear?you have the potential to get more return for each unit of risk you take by spreading out your investments.
Commentary
Macroeconomics and Presidential Elections
It?s now just 16 months until our next presidential election. Republican candidates have already begun the long process of party debates and fund-raising efforts. President Obama wasted no time as well, launching his re-election campaign effort in March. This upcoming election will likely focus on the economy and involve major debates over taxation, spending, job creation and the fundamental role of the government in our economy. As a result, the election outcome could have significant consequences for the types of policies, incentives and legislation that will be pursued post-November 2012.
Commentary
We?re Still Patiently Positioned for a Flatter Yield Curve
In this Weekly Market Update, we discuss the steep Treasury yield curve and our yield curve flattener trade. This economic cycle-based, duration-neutral, mean-reversion strategy?and how it fits with our other active positions?helps illustrate the investment process and outlook of the fixed income team. The gap between short- and long-maturity U.S. Treasury yields has been at or near historically wide levels since 2009. It?s an interesting facet of the latest economic cycle. One of our active positions is tied to an eventual narrowing of this spread to a more historically average level.
Commentary
The Economy Hits a Soft Patch?But How Soft and How Long?
Most economists concur that the economy recently has hit a ?soft patch.? The revised estimate of first quarter GDP1 growth was only 1.8% on an annualized basis. Nonfarm payrolls grew only 54,000 in May, a substantial downward change from February to April when approximately 200,000 new jobs were added each month. And average housing prices have now declined for six consecutive months. The question investors are asking is whether this slowdown is temporary or a sign of a longer-term slowdown that is coming just as the Fed winds down its latest round of monetary stimulus at the end of June.
Commentary
Gold at $1,500 an Ounce: Speculation or Fundamental Demand?
We believe gold?s performance in recent years and current price above $1,500 an ounce reflect solid fundamental demand, rather than speculative fervor. A key driver of gold demand in the current environment is buying by central banks around the world. In addition, it appears that investors looking for a hedge against both the falling dollar and broader economic uncertainty have been buying gold for its diversification benefits. Jewelry demand in India and China are other, underappreciated positives.
Commentary
High Unemployment Remains a Substantial Challenge for the Economy
Continued high unemployment and weak residential housing prices are two hangovers from the Great Recession that continue to act as brakes on the economy and current recovery. Some analysts say the housing problem is a several-year process of allowing prices to fall to where demand recovers. But the housing market is closely related to the labor market and the unemployment problem. However, no one has a definitive analysis of what?s wrong or what is needed to bring unemployment down from 9%. And adopting the same laissez-faire approach as the housing market is clearly not a solution.
Commentary
Global Mergers and Acquisitions Activity Continues to Rise
Mergers and acquisitions activity is on the rise worldwide. In the U.S. this increase has been accompanied by the return of mega-deals ($10 billion+) driven primarily by large multi-national corporations flush with cash. These deals (and the anticipation of more to come) have helped drive markets up in the first quarter of this year. But the question on the minds of many investors is whether acquiring companies are at risk of overpaying for acquisitions that?while deemed ?strategic?-may only end up transferring (not creating) value from shareholders of the acquiring to the acquired companies.
Commentary
Explaining U.S. debt levels, credit ratings, and recent bond market behavior
This week, we discuss the U.S. debt ceiling and the credit ratings for U.S. sovereign debt, plus explanations for seemingly counterintuitive bond market behavior. To fully comprehend the ceiling, we should first review the U.S. federal debt it?s attempting to cap, and why. The U.S. federal debt reflects what the U.S. government has to borrow to help pay for its multitude of operations, services, and financial commitments. Like some of its citizens, the U.S. government has been living beyond its means in recent years, spending more money than it has in reserve or receives in tax revenues.
Commentary
The Value of Gold Company Stocks and Gold?s Role in a Diversified Portfolio
Two questions we?ve heard a lot lately are ?Why haven?t the stocks kept pace with the metal?? and ?What?s the right amount of gold for my portfolio?? The recent disparity in performance between gold bullion and gold mining stocks is largely down to concern about higher costs to extract and refine the metal. Compare those fears with conditions in 2009 and 2010, when gold mining stocks did very well as the price of gold bullion surged, while changes in production costs were comparatively tame. This meant better top-line revenue and margin figures, making for attractive stock performance.
Commentary
Corn Price Increases Tell a Story About Why Commodity Prices Are Rising
In case you haven?t been watching, the price of corn for delivery in July (a futures price set on the Chicago Board of Trade) rose 35% just in the month of April from $216 to $293 per metric ton. As both a commodity and agricultural product, the demand and pricing of corn can provide interesting insights into whether inflation is rising, why and (if so) what factors are driving it. In this Weekly Market Update, we?ll take a look at the market dynamics for corn, what is driving recent price increases and how this is likely to unfold over the remainder of this year and beyond.
Commentary
Weekly Market Update
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.
Commentary
Retail Sales Continue to Grow?and Raise Questions About the Consumer
Last week, the U.S. Commerce Department released its monthly report on retail sales for March. With gasoline prices up almost a dollar over the past six months and consumer demand already challenged by sagging home prices plus high unemployment, investors and analysts were eager to see if the streak of eight months of positive growth in retail sales through February could be sustained in March. And the answer was ?Yes, but barely.?
Commentary
Expectations Are High for Continued and Impressive Earnings Growth
This week marks a quarterly ritual on Wall Street where companies report their actual financial results for the most recent quarter, and analysts use these results to update their forecasts for companies, including their target share price and sell or buy recommendations. Most expect to see a continuation of the growth that began in 2009 as the economy was struggling to exit the Great Recession. This recovery of U.S. corporations has been the one bright spot for our economy, which continues to struggle with high unemployment, record government budget deficits and a weak housing market.
Commentary
Weekly Market Update
?Dodd-Frank? is shorthand for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The main focus of the legislation is on increasing regulation/supervision of banks and other major players in derivatives, lending, and securitization businesses. Few of the law?s provisions are aimed directly at the registered fund industry, likely reflecting the industry?s distance from the 2008 financial crisis and general effectiveness of the framework already in place. Nevertheless, a number of provisions could affect mutual funds and their investment advisers in meaningful ways.
Commentary
Weekly Market Update
Last week brought more bad news regarding the residential housing market. There were declines in sales volume of both new and previously occupied homes for the month of February. Additionally, one major and closely followed home price index exhibited a 3.1% decline in January, marking the fourth consecutive month of price declines for this index. In most regional markets, the situation remains deflationary as prices continue to slip and (as is characteristic of deflationary markets) demand declines as buyers await further price declines before jumping in.
Commentary
Mixed Fed Messages Reflect Murky Outlook
Mixed. Unsettled. Not altogether reassuring. Sounding a lot like the current state of the U.S. economy, that was the tone of the policy statement issued March 15 by the open-market operations committee of the U.S. Federal Reserve. It certainly didn?t provide comfort to those fearing that the Fed is in the process of fueling future inflation flames, nor did it offer any encouragement to savers hoping for higher short-term interest rates in the near future. What the statement did accomplish was help support the economic, inflation, and Fed policy outlooks of the fixed income team at ACI.
Commentary
Could Gasoline Price Increases Affect the Economic Recovery?
The recent political uprisings in N. Africa have had a major impact on oil and gas pricing here in the U.S. Increases in energy prices have a negative impact on consumer disposable income and confidence, not just in the U.S but globally. When gasoline prices spiked in July 2008, consumer spending posted its biggest one month decline since September 2001. Higher energy prices also contribute to increases in the overall rate of inflation. These are risk factors in terms of sustaining our current economic recovery, bringing down unemployment, and continuing to drive growth in corporate earnings.
Commentary
Turmoil in the Middle East: Should It Have Been Predicted?
The turmoil began, when a young Tunisian college graduate immolated himself on December 17 after being harassed by police as he attempted to sell fruit on the street. Some claim the vendor, Mohamed Bouazizi, did not have the money needed to bribe police officials to continue peddling and earn a living. He died on January 4, sparking deadly demonstrations and riots throughout Tunisia (now called the Jasmine Revolution) in protest of social and political issues in the country. And just 10 days later, on January 14, President Zine El Abidine Ben Ali was forced to step down after 23 years.
Commentary
The Debate Over Spending and Taxes Kicks into High Gear
What impact might President Obama?s recently submitted 2012 federal budget have on future federal budgets? Using historical data as our guide, we?ve forecast how it could play out through 2021.
Commentary
January?s Employment Situation Report Generates More Questions than Answers
The conflicting trends in the January Employment Situation report has forced all labor market observers to wait for February?s report in hopes of discerning some clearer trends. Generally speaking, the underlying trends are positive, as we?ve shown using the JOLTS data. On the other hand, things are not nearly as strong as the .8 percentage point drop in the official unemployment rate over the past two months would suggest. And that rate will likely rise again in the short term before it begins a long-term trend back to levels consistent with full employment and a healthy economy.
Commentary
Responding to the Stubbornly Steep U.S. Treasury Yield Curve
Disciplined, active investment managers are constantly on the lookout for capital market extremes, which can provide value-adding opportunities for investors. One such market extreme has been developing in the U.S. Treasury market for the past three years, reaching historic levels in 2010 and earlier this year. We?re talking about the very wide, stubbornly persistent gap between short- and longer-maturity U.S. Treasury yields.
Commentary
The Housing Market Remains a Weak Link in the Current Recovery
Recent data on single family home selling prices for the 20 largest metropolitan areas in the U.S. indicate that prices in most markets continue to decline. The monthly decline for the Case-Shiller Home Price Index was -0.5% in November, which marks the 5th consecutive monthly decline. So while other measures of our economy such as GDP growth (3.2% annualized increase for the fourth quarter of last year) or corporate profit growth continue to show solid progress, home prices?which are important in affecting consumer confidence and spending?continue to exhibit vestiges of deflation.
Commentary
Deconstructing the Current Inflation Conundrum
As the old saying goes: ?The best time to buy flood insurance is when the river is still running low.? We suggest not waiting until inflation pressures increase further before making sure you have some inflation insurance in your portfolio.
Commentary
World Bank Says Developing Countries Driving Global Growth
During the recent Great Recession, developing countries such as China and India played a key role in sustaining global economic growth, while developed economies struggled to cope with issues such as the subprime market meltdown, sovereign debt issues, and soaring unemployment numbers. In the coming years, developing nations will continue to play an increasingly important role in driving the global economy.
Commentary
December?s Unemployment Report Masks Lingering Challenges
On January 7, the U.S. Bureau of Labor Statistics (BLS) issued its Employment Situation report for the month of December. On the surface, the news appeared very good: The national unemployment rate dropped 0.4% from 9.8% to 9.4%. That is the lowest rate of unemployment we?ve experienced in nearly two years (April 2009 was the last month unemployment that was under 9%). And nonfarm payroll employment increased in December by 103,000. However, financial markets reacted with some pessimism that day. Overall, the S&P 500 declined 0.2% while broader indices also registered slight declines.
Commentary
Inflation a Growing Concern for Emerging Market Countries
As a group, emerging market countries have rebounded from the Great Recession in much better shape than developed economies. And driven by higher commodity prices, robust domestic consumption, and a growing middle class with buying power, the emerging market asset class appears poised for more growth heading into 2011. While investors have been focusing on the European debt crisis, however, many emerging market economies have been getting a little overheated from the rapid pace of growth, and inflationary fears are quietly becoming a daily reality.
Commentary
Understanding Recent Municipal Bond Market Volatility
Municipal bonds have fallen in price recently. The price drop is not due to a new significant credit event or default, but rather, the decline is being driven by a host of other factors such as rising interest rates and a lack of liquidity stemming from increasing municipal supply, uncertainty surrounding the extension of Build America Bonds and the Bush tax cuts, and reduced investor demand. While municipal bond price volatility may continue into the beginning of 2011, we believe that municipal bonds still offer value over a long-term time horizon.
Commentary
Demographics and Sovereign Debt
Events surrounding what the press calls the European Sovereign Debt Crisis have been in the news for much of the past year. Unfortunately, this label masks an underlying major contributing factor: demographics. The combination of long life expectancies, relatively early retirement ages, generous retirement benefits and a shrinking base of workers to support the growing proportion of retirees in the population will put tremendous burdens on the budgets of these countries.
Commentary
Encouraging Signs of Life from the U.S. Consumer
Early data from the start of the 2010 holiday shopping season indicate this could shape up to be the best year for consumer spending (and retailers) since 2005. Some have attributed this simply to consumer psychology based on pent-up demand and frustration after nearly three years of relative austerity. However, there are other indicators suggesting that consumer finances are at least on the mend.
Commentary
'Shadow' NAVs for Money Funds Available
In January 2011, so-called "shadow" net asset values (NAVs) for money market funds (MMFs) will become available publicly for the first time. They will be posted by the SEC on their Web site 60 days after they are filed monthly with the commission by fund management companies, including American Century Investments(R). As one of the investment industry's MMF pioneers, American Century Investments supports the new regulations and manages five MMFs.
Commentary
Bond "Bubble" Fears Overblown
In this paper, we consider the argument that there is a bond ?bubble? in the context of current economic and market conditions. We examine academic literature for commonly accepted characteristics of speculative bubbles, finding little evidence to support the notion that the bond market is currently experiencing a ?bubble.?
Commentary
Global Tensions Rising Over Fed's QE2 Initiative
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.
Commentary
Education, Employment and Earnings
American Century Investments analyzes salary growth, real wages, and unemployment levels as a function of education levels to conclude that education plays a crucial role in our economy and in determining the opportunities for employment, the risks of unemployment and the level and growth of wages within our society. This was true 70 years ago when earning a high school diploma put one in a minority of workers, and it is even truer today when earning a bachelor?s degree or more is one of the best options a young adult can pursue to ensure a prosperous future.
Commentary
Latest GDP Growth Report Points to Continued Economic Weakness
After one quarter of robust gross domestic product (GDP) growth late last year - characteristic of an economy snapping out of a recession - the trend that has followed has been very uncharacteristic, with a substantial downward shift in GDP growth. American Century Investments investigates quarterly shifts in consumer spending and investing and other factors that effect GDP.
Commentary
'Bubble' Bashing Does Not Imply a Risk-Free Bond Outlook
The present bond environment still doesn't fit previous 'bubble' profiles. We are, however, in a period of historically low interest rates and Treasury bond yields, with more room to rise than fall. Future bond price declines are a realistic expectation, but these declines are unlikely to rival other post-bubble, extended price plunges. Bonds continue to provide a cushion for equity exposure in diversified portfolios and a source of steady income for those who need it.
Commentary
Have the Financial Markets and the Real Economy Become Disconnected?
There are solid and logical reasons why equity markets have been up substantially since the start of the third quarter. The U.S. economy remains in a fragile situation and the global financial system is far from healthy. Nonetheless, progress is being made and, barring any new crises or setbacks, the case for the market's recent rise can be justified. What's different this time is that two sectors that have traditionally led economic recoveries in the U.S. - consumer spending and real estate - will remain on the sidelines for the foreseeable future.
Commentary
The World According to TARP
Taken together, initiatives enacted under the Troubled Asset Relief Program will provide up to $45.6 billion in home mortgage foreclosure relief. Proponents of these programs argue that if they finally stabilize the housing market and pricing, all homeowners will benefit. Opponents believe they create a huge problem of moral hazard in the residential housing market. They also point out that stabilizing home values above what may be a lower floor based on market supply may preclude other individuals from being able to enter the market and purchase a home they can afford.
Commentary
The Great Depression, the Great Recession and Lessons from 1937-1938
While much shorter and less severe than the Great Depression, the recession of 1937-1938 added approximately three years to the recovery period. It is extremely unlikely that we will see a repeat of this type of recession. However, depending on the outcome of elections in November, there could be substantial shift in the fiscal and taxation policies of the federal government away from Keynesianism and toward fiscal discipline and supply side economics.
Commentary
Challenges and Solutions for Income-Seeking Investors
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.
Commentary
Is Deflation Still a Risk?
Last Friday's Consumer Price Index report found that prices rose 1.1 percent on an annual unadjusted basis in August. Because the U.S. Federal Reserve Open Market Committee noted in last week's statement that inflation is currently at levels somewhat below what it judges to be consistent with long-run price stability, some have suggested that the central bank is still concerned about deflationary pressures in the economy. Whatever happens, one thing is clear: As long as the residential housing crisis drags on without resolution, the risk of deflation should remain a concern for investors.
Commentary
American Century Investments
Among the first items the U.S. Congress is likely to deal with after the midterm election are the federal budget deficit and taxes. The accepted wisdom is that markets prefer the more incremental change based on political compromise brought by divided governments. However, median returns data looking back 60 years do not provide any strong support for this. Indeed, if a divided government leads to intransigence and gridlock, then it will take another two years and the next general election before key issues can be addressed.
Commentary
Latest Bond 'Bubble' Fears are Overblown
Despite considerable discussion in the financial media about the existence of a bond market bubble, the fixed-income team at American Century Investments finds little evidence to support this claim. Bond bubble proponents base their argument largely on record flows into fixed-income investments, bonds' extended outperformance over stocks, and record low interest rates. However, a confluence of economic headwinds argues for a prolonged period of low interest rates and inflation, while investor demographic and behavioral finance trends also appear to favor further bond inflows.
Commentary
Cheap Labor Helps Southeast Asia Compete with China, But It Won?t Be Easy
Labor disputes in China and other emerging market countries have been catching global media attention. As employees in the low-cost workshops of the world fight for higher wages and better working conditions, the longer-term outcome will be better standards of living and rising disposable incomes in emerging market countries. These changes hold positive implications for many global-based companies' present and future growth. A growing consumer class with 'buying power' will certainly be beneficial.
Commentary
Merger and Acquisition Activity Rises
Merger and acquisition activity has jumped dramatically in the past few months. The good news for investors is that increased M&A activity can help sustain the market during a period of economic softness or a slowdown that we may face in the next several quarters. The risk for investors is whether the money spent on M&A activity will be done wisely and with a clear eye on creating shareholder value. If not, that money is probably better spent buying back shares or increasing dividend payouts.
Commentary
India to Open Equity Markets to Foreign Retail Investors
While opening up its equity market to foreign retail investors will likely benefit India and increase capital inflows in that country, there is also more growth potential for investors who are prepared to accept the risks and invest for the long term. Over the next five years, India and emerging market economies will be driven not only by export demand from the rest of the world, but by growth in domestic consumption, including health care, technology, infrastructure, and finance. This will create huge opportunities for investors and companies doing business in these sectors.
Commentary
Consumers, Credit Cards and Deleveraging
The August 6 report from the Federal Reserve on consumer credit and indebtedness depicts consumers and households that are still in the throes of a difficult deleveraging process. In the longer term, this is exactly what is needed to help put the U.S. economy back on a solid foundation for recovery and renewed growth. Because deleveraging involves two steps, however - first, avoiding spending based on new borrowing, and, second, directing current discretionary income toward debt repayment rather than consumption - it limits how much consumers can contribute to the recovery.
Commentary
Comparing Our Path to Recovery with Past Recessions and Recoveries
What appears to be a preliminary trend in declining rates of GDP growth has led many to speculate that the current economic recovery is weakening, or that we are slipping into another recession. The latter scenario seems very unlikely given the number of simulative factors at work in our economy, such as record-low interest rates and record-high deficit spending by the federal government. But the fact that we are less than three months away from an important midterm election in the U.S. Congress means that the state of our economy will be hotly debated and in the headlines.
Commentary
Insights from the U.S. International Balance of Trade
The U.S. trade deficit increased to -$42.3 billion in May. Large and increasing trade deficits are sustainable as long as the rest of the world is willing to lend money to finance them. Growing trade deficits, however, are unhealthy in the long term. Trade imbalances also cause imbalances in capital flows. There was a time when it was argued that, as the U.S. entered a post-industrial society and economy, its growing trade deficit in goods would be offset by a growing trade surplus in services. Nearly three decades of experience, however, have demonstrated that this isn't the case.
Commentary
Sizing Up the Jobs Growth Challenge
While labor market data indicates the economy is still adding jobs, the pace of additions is far slower than what is needed to meaningfully reduce our 9.5 percent unemployment rate. Much of the half-a-percentage-point rise in employment during the second quarter of this year came from the hiring of up to 700,000 temporary workers for the decennial Census survey. Now that this effort is winding down, some economists are forecasting that short-term unemployment will rise again.
Commentary
World Growth on the Rise but Europe's Weakened Economy Threatens Global Recovery
Global economic activity is improving, but significant headwinds remain, particularly within the developed world, where mounting sovereign debt threatens long-term economic gains. So far, government responses to the crisis have varied, and this lack of coordination may lead to divergent economic performance in the year ahead. Emerging markets have held up relatively well, primarily because they have managed their economies frugally throughout the past several years. Globally, corporations are generally enjoying expanding profit margins, while balance sheets remain solid.
Commentary
Our Muni Market Perspective: The Sky is Not Falling
The muni market sky is not falling. Municipal credit downgrades and defaults are indeed likely to increase in the months ahead, even as the U.S. economy regroups and moves forward. It may seem odd that muni credit quality faces continued challenges at a time when businesses and other sectors of the economy are going ahead, but that's just an unfortunate feature of a lagging market, one that municipalities share with the labor market. In the long run, municipal bonds as an asset class still have credit quality second only to U.S. Treasury bonds.
Commentary
Liquid Assets Are at a 37-Year High on Corporate Balance Sheets: Is This a Bullish or Bearish Sign?
Whether bullish or bearish, the rapid growth in corporate liquid assets does reflect one undisputable fact: The corporate sector of the economy generally responded quickly and effectively to the Great Recession, cutting costs, shedding excess inventory and curtailing unnecessary investments. As a result, corporations are poised to perform well based on the overall strength of the current economic recovery. Earnings growth over the past five quarters has been impressive. However, whether this trend and rate of earnings growth can continue will increasingly depend on what happens to revenues.
Commentary
General Motors and Lessons of Externalities
The decline and collapse of GM was a long-term phenomenon and not that uncommon a story for corporations in the history of U.S. business, except for its sheer size and (perhaps) the length of time over which it unfolded. One after another attempts to salvage the company fell short of expectations. Why GM failed?and why other companies in similar situations have managed to execute successful turnarounds or avoid collapse is an important question.
Commentary
Indian Economy Poised for Double-Digit Growth
India was not severely impacted by the global economic recession and the country is projected to grow rapidly over the next decade. For investors, a consumer-based Indian economy holds positive implications because many global companies view potential Indian demand as a ticket to future growth. Indeed, India's is one of the biggest and fastest growing consumer populations in the world. Nevertheless, the government's inability to keep building infrastructure and power generation and tackle core problems in education, land reform, corruption and social reform may temper growth.
Commentary
'May Momentum Killers' Supported Economic, Rate Outlooks
Now that stocks are suffering a bona fide correction this quarter and Treasury yields are again pricing in low inflation expectations in the near term, the case for a long, slow, grinding economic recovery with continued low interest rates for months to come is a lot easier to make than it was seven weeks ago. Money market and FDIC-insured accounts should provide the most predictable path with the least price fluctuation. Investors who want more yield and return should consider high-quality short-maturity bonds and bond funds.
Commentary
Insight on the Current Status of the Housing Market
Both existing and new residential homes sales have seen impressive increases in volume over the past several months ending in April. Two factors will likely weigh on residential home sales for the remainder of this year, however. The first factor is the expiration of the homebuyer tax credit. The second is the rate of economic recovery and growth in employment for the remainder of this year. Over the next one to three years, little can contribute more to recovery in the residential housing market than reduced unemployment accompanied by rising incomes and increased consumer confidence.
Commentary
Global Equity Markets Slip on Greek Debt Crunch
Fears of a Greek default have heightened concerns about the financial stability of several other peripheral European countries. Spain, Ireland, Italy and Portugal, however, are not in the same situation as Greece. Italy in particular is in a separate, stronger category than the others. It is less reliant on foreign financing, with Italians owning a high percentage of their own sovereign debt. Italy also lagged in the economic boom prior to the global recession, a blessing in disguise because its banking sector is now not as over-leveraged to the housing market as banks in other countries.
Commentary
Three Reasons Why the Economy is Mending, Despite the Rise in Unemployment
Despite the rise in the unemployment rate to 9.9 percent in April, there are at least three reasons why the economy appears to be on the mend after the recent recession. First, growth in labor productivity foreshadows new hiring. Second, the economy is adding jobs. And third, the civilian labor force is growing again. These three trends mean we could continue to see official unemployment figures inch higher despite an improving economy overall.
Commentary
Understanding Recent Negative International Bond Returns
This year so far has been a challenge for U.S. investors in high-quality, unhedged international bonds, continuing a downtrend for this sector that began in December of last year. Fortunately, the long-term strategic reasons for holding international bonds remain intact, including inflation protection from a potentially weaker dollar as the U.S. budget deficit grows, and diversification benefits versus traditional domestic fixed income.
Commentary
Two 'Takes' on the Latest GDP Growth Figure
Overall, the preliminary report of first quarter GDP growth was good news for consumers, businesses and investors seeking to finally put the Great Recession in the past. Consumer spending and business investment are both showing healthy signs of growth, which is to be expected during the early phases of a recovery. Concerns are now focused not on whether we are in a recovery phase, but whether the recovery will be strong enough to pull us out of the large hole the recession created.
Commentary
Consumer Sentiment and the Economic Outlook
The animal spirits John Maynard Keynes described in 1936 as a substantial force in determining the direction of the economy are still with us today. At the moment we are in a prolonged period of below-average consumer sentiment that began in mid-2007. Ultimately, consumer sentiment will rebound. When this occurs, the change in sentiment as measured by the Consumer Sentiment Index is likely to be quick and large. However, there will likely have to be some change in the environment or course of events to convince the population that our difficult times are behind us.
Commentary
Financial Strains and Modest Gains for the Eurozone
The Eurozone fell into recession later than the U.S., and thus will recover later. European factories are heavily dependent on exports for growth. Investors should note that the global economic recovery and a stronger euro have been positive factors for the Eurozone's export machine. But with exports accounting for 35 percent of Eurozone GDP and half of that number going to other countries neighboring the Eurozone, major headwinds could soon be on the horizon.
Commentary
It's Census Time: Where in the World Are We Growing?
International population forecasts provided by the U.S. Census Bureau provide directional insights that can be useful to investors. The U.S. will continue to be a dynamic, growing and expanding country from a population perspective well into the 21st century. One implication is that we can deal with concerns over our rapidly growing government debt by growing out of the problem. In addition, despite the recent gloom caused by the housing bubble bursting, real estate values are likely to recover and continue growing long-term as a result of population growth.
Commentary
Sizing Up a Saw-Toothed Portrait of Potential Sustainability
A number of key leading indicators - including recent stock market performance, the expanding manufacturing sector, and the steep upward slope of the Treasury yield curve - point toward continued recovery. In addition, the unemployment rate, while still high, does not appear to be moving higher, and has in fact come down from its recent 10.1 percent high reached last October. History suggests that after an unemployment peak is attained, significant improvement follows soon afterward; there hasn't been a historical tendency for the unemployment rate to 'plateau' at levels near its peaks.
Commentary
Don't Discount Dividends
During long and sustained bull markets, investors tend to overlook the importance of dividends in long-term wealth creation for equity investors. Benjamin Graham and David Dodd emphasized the importance of dividends in the overall valuation process for equities in a classic 1934 text. Because of their consistency in both good times and bad, dividends and dividend reinvestment can help cushion the downsides as well as enhance ultimate wealth. Investors, therefore, should not 'discount dividends.'
Commentary
China's 2010 Growth Forecasts Upgraded by the World Bank
The World Bank raised China's 2010 growth forecasts to 9.5 percent last week from the 8.7 percent projected in November, but also predicted that China's growth will slow somewhat in 2011, to 8.7 percent. It also recommended higher interest rates and a stronger currency for China amidst growing concerns over rising inflation and a property sector bubble. The Chinese government emphasized the need for structural reforms in recent presentations to the National People's Congress.
Commentary
Barron's' Pension Warning Doesn't Change Our Pension Outlook
A recent Barron's magazine piece about unfunded public pension liabilities painted an otherwise solid bond sector with a broad negative brush. While pension liabilities are a serious problem for state and local governments, they are neither a new problem nor an immediate problem, and they are not the most pressing issue that municipalities face in the post-recession environment, according to American Century Investments credit research director David Moore. Despite unfunded pension liabilities, no state runs a serious risk of default on its general debt obligation.
Commentary
Latest Unemployment Report Reveals the Growing Problem of the Long-Term Unemployed
Four out of 10 unemployed workers are designated as long-term unemployed, meaning that they have been seeking a job for at least six months. This rate exceeds any other since the 1940s. As we have evolved towards a service- and knowledge-based economy, people with at least an undergraduate degree have fared better both in terms of lower unemployment rates and higher wages. This trend has become even more pronounced during the recession that began in December 2007 relative to the past two periods of peak unemployment in June 1992 and 2003.
Commentary
Underwater in the Housing Market
The number of negative equity mortgages, situations where the borrower owes more on their mortgage than the current market value of the home they bought, increased substantially since the housing bubble burst in 2007. While these homeowners continue to make payments, there is a weak correlation between how badly their mortgages are underwater and foreclosure rates. This is also a problem because many middle and lower income people use their homes as their most important source of retirement savings. In addition, negative equity may diminish labor mobility at a time of high unemployment.
Commentary
Eurozone's Economic Recovery Loses Steam in Fourth Quarter
Economic growth in the 16-country eurozone stalled in the fourth quarter of 2009, raising concerns about the durability of the region's nascent recovery. Output expanded just 0.4 percent on an annualized basis in the fourth quarter, down from 1.7 percent in the third quarter. Meanwhile, after negative growth in 2009, the world economy is projected to expand by 3.9 percent in 2010 and 4.3 percent in 2011. Asia and emerging markets will lead the charge, while advanced economies such as the eurozone will remain sluggish and dependent on government stimulus measures.
Commentary
Stock Market Performance and Inflation
The world is awash in liquidity as a result of the recent financial crisis and subsequent risk of deflation. Many investors are concerned that this "cheap money" will result in rising inflation. Historical S&P 500 data suggests, however, that the highest price to earnings ratios occur when inflation is between 1 percent and 6 percent.
Commentary
Growing Problems in the Residential Real Estate Market (Part 2)
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.
Commentary
Growing Problems in the Residential Housing Market
American Century Investments says in its weekly market update that rapidly rising delinquencies and foreclosures on residential housing could soon eclipse unemployment as an object of focus for economists, policymakers and the public. Delinquencies on loans secured by one- to four-unit properties, including home equity lines of credit, have soared since the end of 2007 to approximately 10 percent of the total value of mortgages.
Commentary
China's Strong GDP Up 10.7% in the Fourth Quarter, but is Inflation on the Horizon?
American Century looks at the sources of growth in the Chinese economy its future projected growth rate. Easy credit and stimulus measures are potentially leading to a real estate bubble and inflation. Exports from China grew in December, following 13 months of decline, and ??the world may have to continue to rely on China as the biggest engine of economic growth.?
