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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.
Why Can't We All Just Get Along?
The world is separating into two main groups those who have substantial and growing net worth, who have ready access to capital, and those who are drowning in an ever-expanding pool of debt, with few options to improve their situation. This phenomenon makes for some interesting comparisons and for countless prognostications about what the future might hold for all of us.
Why Can't We All Just Get Along?
The world is separating into two main groups - those who have substantial and growing net worth, who have ready access to capital, and those who are drowning in an ever-expanding pool of debt, with few options to improve their situation. This phenomenon makes for some interesting comparisons and for countless prognostications about what the future might hold for all of us.
The 20 Rules for a Successful Study Group
by Mike Walters,
Study groups are a great tool, allowing advisors to exchange helpful insights - but they can run your business into the ground. For your study group to succeed, you must know what you're getting into, the parameters you want to live by, and how you're going to be sure to get the best of, not the worst of, the experience.
Modern Day Fairy Tale of 3 Economic Wizards (Except It's True)
Once upon a time (today), in a land not so far away (USA), there lived a trio of economic wizards (economists), whose names shall remain anonymous (Paul Krugman, Greg Mankiw, Ben Bernanke). A fourth wizard, Murry Rothbard, is no longer among the living but resides in the netherworld. The above wizards seldom agree with each other because they come from competing schools of wizardry. (1) Keynesian School of Fiscal Voodoo and Witchcraft (2) Monetarist School of Monetary Voodoo and Witchcraft (3) Austrian School of Sound Money, Sound Economic Principles and Common Sense.
Gaming the Odds of a Greek Euro Exit With and Without Contagion
A key question on trader's minds is who will win the June 17th Greece election and whether it results in a Greek exit of the eurozone. Deutsche Bank gives it assessment in a report called Probability weighting EUR views on Greece. Under a variety of assumptions, the market pricing looks consistent with: a) significant odds in favor of Greece remaining part of the EUR zone and EUR/USD trading between 1.25 and 1.30; and, b) a worst case Greek exit global contagion scenario taking EUR/USD to 1.10, but not to levels as low as parity.
Tomorrows Europe
Our secular view is that the status quo is not an option for the eurozone. In the near term, we believe it is more likely than not that Greece will exit the eurozone. While a Greek exit would likely be messy and volatile, our baseline view is that a smaller union will persist. To be sustainable, it will have to be underpinned by much stronger fiscal union, greater support for the banking system, and mutualization of debt to mitigate cross-border capital flight risks.
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.
Global Investment Outlook
by Mike Turner of abrdn,
Investors continue to focus on the global macroeconomic backdrop, which is still relatively positive despite slightly disappointing data recently. There are signs that some of the imbalances within the Eurozone are starting to ease as competitiveness is improving in some of the peripheral countries and this is beginning to be reflected in trade figures. Looking further ahead, we feel that global consumption should be supported by falling headline inflation.
Can Government and the Corporate Sector work together again?
Can we find the right balance between government regulation and corporate entrepreneurship? History has shown that too much government intervention can strangle the creative energy of the private sector. Yet more recent history has shown that too little or perhaps ineffective regulation can have dire economic consequences as well. Is it possible to combine these opposing forces for our collective good, and for the collective good of the world? Sadly, in the midst of never-ending political rancour in this election year, it would appear to me that these forces are moving ever farther apart.
Adaptive Asset Allocation: A True Revolution in Portfolio Management
Modern Portfolio Theory has been derided by practitioners, academics, and the media over the past ten years because the dominant application of the theory, Strategic Asset Allocation, has delivered poor performance and high volatility since the millennial technology crash. Strategic Asset Allocation probably deserves the negative press it receives, but the mathematical identity described by Markowitz in his 1967 paper is axiomatic in the same way Pythagoras' equations describe the properties of right triangles, or Schrodinger's equations describe the positional probabilities of electrons.
Stocks Cheap? Not so Fast!
Markets seem to have forgotten that which ailed us just 4 months ago. Talk of another Lehman style meltdown by a major financial institution has given way to positive earnings results, record profit margins and a much publicized recovery in the US. Equities, have now taken center stage once again with many major asset management firms proclaiming their attractive nature. Over the course of the next few paragraphs, we will examine this argument in greater detail by deconstructing equity market returns into component pieces.
The Bernanke-Krugman Smackdown
Bernanke is trying like a madman to get banks to increase lending but Bernanke and Krugman both do not understand economic reality. Banks cannot lend because they are still capital impaired, hiding losses yet to come, and holding assets that are marked-to-fantasy instead of marked-to-market. Consumers are busted and holding interest rates at 0% when prices of food and gasoline are soaring exacerbates the problem. There are few credit-worthy businesses that want to borrow in this environment. The businesses that do want to borrow are not credit-worthy and banks would be foolish to lend to them.
Huge Dilemma: Do You Protect Your Job or Your Clients' Money?
I feel like a broken record. Jeremy Grantham, John Hussman, and Lance Roberts of Streettalk Live surely feel the same way. I have been preaching the "low returns for a decade" concept for quite some time. It is very tough preaching caution, when caution is routinely tossed to the winds. Yet history has proven time and time again, that such times are precisely when caution is warranted, even though timing the precise moment is simply impossible.
Is There a Bubble in Treasuries?
Both Sides of the Case; Explaining the 2011 Treasury Rally (It's Not What You Think); Where to From Here? People have been calling a bubble in treasuries for at least a decade. The shocking result, especially to hyperinflationists, has been a stair-step decline in yields for 30 years. That's quite a long time.
The Disingenuous ECRI Recession Call
Late last month in "ECRI Sticks with Recession Call on CNBC; More than a Bit of an Exaggeration by Achuthan to Make His Call?" I questioned the ECRI's use of coincident indicators to make a claim regarding recession....
In spite of all the above, I happen to like the ECRI recession call. Yes, I am biased, but it is hard to find anyone who is not....
To go out on a limb, I think GDP in 2012 is going to hugely surprise on the downside, and 1st Quarter GDP may be as low as zero to .5%. A negative number (or more likely a revised negative number) would not shock me in the least.
Americas DNA
The well chronicled economic and market woes over the past decade, as well as the ever-polarizing political process, have largely shattered our faith in our ability to solve the challenges we face. It is not surprising that there are so many doomsday predictions being made following these difficult times. Nevertheless, it is still possible that we can rediscover our faith in order to tackle these challenges with confidence.
Will Greece Survive the Ides of March?
As a point of curiosity, the Greek 1-Year Bond Yield touched 682% today, now down to a mere 666%. Bloomberg quotes the open as 566%, if correct, the one year yield soared 116 percentage points from the open to the high. Deal "Really" Finalized? Open Europe says Many questions around the second Greek bailout remain unanswered.
The Student Loan Debt Bomb
It's interesting to watch some of the terms bandied about in headline news. For example, the LA Times headline reads "S&P says student loan debt could be next financial bubble". Next? Could Be? What with the word "next"? Also what's with the words "could be"? Without a doubt student loans are in a bubble and have been for many years. Another way to describe the situation is "Debt Bomb".
Bernanke on the Unemployment Rate and Labor Weakness
I nearly always disagree with Bernanke on monetary and fiscal policy. Specifically, the Fed ought not have a monetary policy for the simple reason the Fed should not exist. Indeed, the Bernanke Fed and the Greenspan Fed have both proven beyond a shadow of a doubt they do not know what they are doing, where the economy is headed, or anything else of relevance in setting monetary policy. However, on rare occasions, Bernanke can say a few snippets that seem to make complete sense. For example, Bernanke Says 8.3% Unemployment Understates Labor Weakness.
Some Facts About the 'Falling' Unemployment Rate
Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers. Digging under the surface, the drop in the unemployment rate is nothing but a statistical mirage.
Debt and Deleveraging: A Five-Pronged Solution
Citing the latest report on "Debt and Deleveraging" by the McKinsey Global Institute, Ambrose Evans-Pritchard proclaims a light at the end of the tunnel and that America overcomes the debt crisis as Britain sinks deeper into the swamp. However, there is a big difference between alleged "light at the end of the tunnel" and "America Overcomes Debt Crisis" as Pritchard claims. US consumers may be one-third of the way through, but US debt-to-GDP ratios are low only because unsustainable government spending has taken up the slack.
Structurally High Unemployment for a Decade
Since 2008 I have been stating the US would have "Structurally High Unemployment for a Decade". Indeed, based on historical trends in labor force growth, the expected unemployment rate for the number of jobs created during the recovery would be well north of 11%. Yet, the unemployment rate is currently an artificially "low" 8.5% (not that 8.5% is anything to brag about). To show how difficult it will be to bring that rate down, let's take a look at job growth (or losses), for the last three decades (numbers in thousands).
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.
Rebalancing Resurrected, Part 3
This is a 'Canadian-ized' version of anarticlewe published on Monday, December 19, 2011, which featured a study of US equity and fixed-income markets. As we are located in Canada, we were motivated to see how well the same techniques work in our home market using the S&P/TSX Composite. As expected, it turns out that they work quite well.
Rebalancing Resurrected, Part 2
This is a 'Japan-amized' version of an article we published on 12/19, which featured a study of US equity and fixed-income markets. The Japanese experience since 1993 was dramatically different than the U.S. Japanese investors endured a seemingly endless series of intermediate term extremes of hope and despair as markets oscillated wildly above and below their long-term negative trend. Japans multi-decade crash and stagnation is unique among modern market economies (so far), so we wanted to see how well our volatility adjusted rebalancing framework worked in this difficult environment.
Rebalancing Resurrected
This is part 1 of a 3 part series that explores optimal methods of dynamic rebalancing between stocks and bonds. This study examines these methods in the context of a US equity / Treasury basket. The next 2 posts will explore the impact of our proposed techniques on Japanese and Canadian equity / bond baskets. The investment community is in the midst of an identity crisis, though admittedly many in the industry don't know it yet. At the heart of the matter is the following misconception: Investors perceive that investment professionals add value via security selection and market timing.
Dollar Soars Following FOMC No Hint of QE3; Looking Ahead, What's Next?
I have read countless articles recently regarding the inevitability of QE3. I have disagreed for four reasons:1.Price of oil near $100 give Fed little choice 2.Rising price of food gives Fed little choice 3.Stock market has risen on hype of European bailout giving Fed little reason 4.Falling unemployment rate (even though it's totally bogus) gives Fed little reason 5.Why should the Fed react when hot air from Europe gave a huge lift to the markets? I would have been surprised if the Fed tossed a QE3 bone under those circumstances. And it didn't.
Estimating Future Stock Market Returns
Investors would do much better to heed the results of robust statistical analyses of actual market history, and play to the relative odds. This analysis suggests that markets are currently expensive, and asserts a very high probability of low returns to stocks (and possibly other asset classes) in the future. Remember, any returns earned above the average are necessarily earned at someone else's expense, so it will likely be necessary to do something radically different than everyone else to capture excess returns going forward.
Decade-Long European Recession Coming Up
Reflections on the Un-Level Playing Field. What could possibly be more un-level than guaranteeing banks and bondholders will never take losses? When there are more losses, and there will be, the only way to guarantee banks do not take them, is to have someone else take them, namely taxpayers. If Sarkozy gets his wish, taxpayers, not bondholders will pay the price. The same holds true for Ireland, Spain, Belgium, and Italy. The only true way to level the playing field is to make banks and bondholders who take foolish risks to pay the price for their foolish actions.
Whether the U.K. is in the Euro or Not, We Are All in This Together
Can the U.K. economy withstand a further sharp deterioration in the European debt crisis? The prospect of European recession, coupled with the U.K.'s program of tight fiscal policy, points to a challenging economic outlook for the U.K. A weak eurozone means weak export prospects at a time when the U.K. is trying to rebalance its economy towards greater exports. The U.K. economy has made great strides in stabilizing its banking system, but it is not yet in a position where it can withstand a systemic European crisis involving multiple defaults.
Leading Indicators or Statistical Noise?
Inquiring minds are digging into the touted numbers of the day, the Conference Board's index of leading indicators. Month in, month out, one of the biggest leading indicator components is the treasury-Fed Funds Rate spread. One might think that the direction of the spread would be important, but one would think wrong. Month-after-month, the Conference Board woodenly add points to this leading index component.
France, Germany have"Intense Consultations" on Smaller Eurozone: Breakup Inevitable, but How?
Realization the Eurozone is no longer tenable is at long last at hand. In fact, "intense discussions" have been underway for months but are just now admitted to by senior EU officials. The Eurozone is a failed experiment. A breakup is inevitable just as it has been from the beginning. Structural flaws were too great, built up over the years. No currency union in history has ever survived unless there was also a fiscal union.
Perfect Storm: Eight Reasons to be Bullish on the US Dollar
One of my much appreciated contacts is Steen Jakobsen, chief economist for Saxo Bank in Copenhagen, Denmark. Today he passed on an "internal note" that he gave permission to share. Steen Writes..."One of my main themes over the last quarter has been a "relative outperformance" of the US economy relative to consensus. This has materialized and our call was almost entirely driven by Consumer Metric data which over the last three years has outperformed any other relevant predictor. This is now slowing down slightly, but still elevated..."
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.
Employment and Unemployment
The irony is that the better the economy the more people will be tempted to come back into the labor force and the more upward pressure on the participation rate and unemployment rate as well. Therefore, we cannot assume that 158,000 jobs per month will necessarily take the unemployment rate to 7% by 2017. Should the economy slip back into recession, and I think it already has, either employers shed more jobs, corporate earnings plunge, or both. I suggest both. On that basis, earnings growth is not sustainable and stocks are certainly not cheap.
Estimating Future Stock Market Returns
Investors would do well to heed the results of robust statistical analyses of actual market history, and play to the relative odds. This analysis suggests that markets are currently expensive, and asserts a very high probability of low returns to stocks (and possibly other asset classes) in the future. Remember, any returns earned above the average are necessarily earned at someone else's expense, so it will likely be necessary to do something radically different than everyone else to capture excess returns going forward.
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.
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.
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.
Investing Up the Value Chain
by Mike Lin of Matthews Asia,
Investors may be well served to look up the value chain in other industries where products may be trendy or have short cycles. Given this, we recently met with a leading manufacturer of mobile phone speakers and receivers that commands about a 30% market share in a duopolistic industry. Seeking exposure to the growing mobile phone industry in this way reduces the difficulty of having to identify the next winning handset maker but still taps the growth in mobile handsets. While companies that supply world-class brands may not receive much fanfare, investing in these companies can make sense.
Can U.K. CPI Really Get Back to Its 2% Target?
?U.K. CPI (Consumer Price Index) will likely continue to be buffeted by food and energy inflation. To generate the conditions necessary to bring inflation down more aggressively would put even greater pressure on U.K. households. The Bank of England is right to be cautious on raising the Bank rate given the current state of the economy.
Estimating Future Returns
There are several reasons why it may be useful to have a more robust estimate of future expected returns on stocks: People who are approaching retirement need to estimate probable returns in order to budget how much they need to save. A retiree's level of sustainable income is largely dictated by expected returns over the early years of retirement. And investors of all types must make an informed decision about how best to allocate their capital among various investment opportunities. Many studies have attempted to quantify the relationship between Shiller PE and future stock returns.
Estimating Future Returns: New Update
Traditional Advisors assume that the best estimate of future market returns in all market environments is the simple long-term average return on stocks: about 6.5% per year after inflation. We hypothesized that it is possible to construct a statistical model using long-term market data which will allow us to make much more accurate predictions about long-term returns. It turns out that we were right. Those who are interested in the process we used, and the specifications of our model, are encouraged to read our full report.
Results 251–300
of 313 found.