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Lacy Hunt on the Roadblock to Recovery
by Robert Huebscher,
'The fundamental key to prosperity is not governmental financial transactions, or even private sector financial transactions,' according to Lacy Hunt, the widely respected economist at Hoisington Investment Management, with whom we spoke last week. 'The key to prosperity is the hard work and creativity of our individuals in businesses.'
Beyond Reinhart and Rogoff
by Robert Huebscher,
My article two weeks ago, The Misreading of Reinhart and Rogoff, elicited a number of challenges, both from those who argued that excessive debt imperils our economic growth and from those who claimed that my proposed solution was unworkable. Among those challengers was Lacy Hunt, who raised several valid concerns. I will explain why I disagree with Hunt and others, and why the dollar's position as the reserve currency increases our borrowing capacity. But our ability to borrow cannot be a license to spend unwisely, and I will conclude by expanding on the policy choices the US must pursue.
Must Bond Investors Fear Rising Interest Rates?
by Andy Martin,
Thirty-one years ago, in 1981, the one-year Treasury reached its all time high of 14%. Today it hovers around 0.10%. Never before have interest rates fallen so far. Many economists and investment advisors, seeing nowhere to go but up, expect interest rates to climb from these historic lows. But that would not be the catastrophe that many bond investors fear.
Central Bankers Hold A Conference CallVery bullish
After the ECB announced late last week that they had bought bonds to create demand for the bond auctions of this week, they further stated that they had not sterilized all of those purchases. Some viewed this as a bearish event, but it made us become more bullish and we began to buy stocks on Monday 11/28. Europes bond buying without sterilization is QE, or money creation. New data came out yesterday saying that the ECB and Euro zones 17 national central banks balance sheets have grown to an all-time high of 2.4 trillion Euros. Some see this as a bad thingwe disagree.
A Micro Case For Future Stock Market Performance Optimism
by Chuck Carnevale of F.A.S.T. Graphs,
On November 14 Liz Ann Sonders, Senior VP and Chief Investment Strategist for Charles Schwab & Co. prepared a report that focuses on the stock markets micro opportunity. The following excerpts from Sonders report highlights several reasons supporting a rational shift in investors attitudes towards optimism. We will intersperse our own commentary among these excerpts in order to emphasize some of our key points. Our objective in sharing this information, is to support our thesis that common stocks are on sale today and, therefore, all the pessimism is more than likely already priced in.
It's All Greek to Me
by Michael Lewitt,
As one who has written that there is little chance of a long-term solution to Europe's problems without a radical rethinking of global economic policy, the Europeans still have little choice once they peer over the cliff to realize other than to step back and buy some time before taking the inevitable leap. For, in the end, they have no other options than to jump.
A Strategy with a 25-year Record of 25% Returns
by Robert Huebscher,
Indiana-based SBAuer Funds launched its inaugural mutual fund in December of 2007, after having established a successful track record with a separately managed account business. I spoke with Bob Auer, who has employed the same stock selection system used by the fund for the last 25 years, over which time returns have averaged 25% annually.
U.S.China Trade: More Than a Game of Chicken
by Milton Ezrati of Lord Abbett,
Now that the U.S. Senate has fired what might be the first salvo in a trade war with China, investors, already beset by a host of uncertainties, must consider anotherpossibly the most dangerous of all. If Congress can label China a currency manipulator, then tariffs aimed at China become likely, as does Chinese retaliation in a pattern that would hurt world trade, growth prospects in both countries, and asset values on both sides of the ocean and beyond. The Senates recent vote is still a ways from legislation, but the dangers here are so profound they demand a consideration.
ProVise Bullets
by Team of ProVise Management Group,
Low interest rates have certainly hurt savers, even more so those who live on a fixed income. The current bubble in bonds will eventually pop, and many people will be surprised. But this ProVise Bullet is not about the risk in bonds today. Its more about the fact there is some good news as it relates to interest rates. First, mortgage rates are near an all-time low. A 30 year mortgage loan is available at an interest rate slightly above 4% and 15 year mortgage loans have been quoted at just a little under 3.57%. Even the IRS is getting into the act.
The Euro is Dead. Long Live the Euro
by Axel Merk of Merk Investments,
To ensure the European sovereign debt crisis doesnt go to waste, the markets have kept policy makers and bankers on their toes. The naysayers of a European turnaround have become so overwhelming that it is stunning Europe hasnt submerged into the Atlantic Ocean yet. It appears that German Chancellor Angela Merkel, is about to turn the tide. A month ago, we turned cautious on the euro. However, in a world where policy makers are throwing billions and trillions at the problems, market fundamentals can quickly change. And so it is that our assessment of the outcome for the euro has changed.
Preparing for a Greek Default
by John P. Hussman of Hussman Funds,
The yield on 1-year Greek government debt ended last week at 110%, down slightly from a mid-week peak of 130%. Even with the pullback, the Greek yield structure continues to imply default with certainty. All the markets are really quibbling about here is the recovery rate. That figure was still hovering near 50% as of Friday, but was a bit higher than we saw a few days earlier. A bailout today does not avert default, but at best defers it to a later date, and squanders funds that could otherwise be used to stabilize the European banking system once that inevitable default occurs.
A Yuan, Euro and Dollar Walk Into a Bank...
Currency markets have been the pawns in central bankers chess games around the world in recent weeks, as each country looks to gain the slightest edge in todays economy. Weeks ago we saw an intervention from the Bank of Japan, which tried to stop the yens downward slide. Last week, the Swiss National Bank moved to improve the Swiss francs stature. Also recently announced was that the Hong Kong dollar will no longer be pegged to the U.S. dollar. Given the important role paper currency plays, weve developed a quiz so you can test how much you know.
The Risks of Exchange-Traded Products
by Dennis Gibb,
Every major financial crisis has been foretold by timely but ultimately ignored warnings. At the end of mania, the rush to secure more fees, investment performance and status trumps common sense. In the last few months, the drumbeats of warnings from financial journals and regulators about exchange-traded funds have been sounding. Few seem to be listening.
Are We There Yet?
A rogue summer. Markets fretted, politicos dissembled, bankers flinched. So that leads us to growth fears: 3Q is of course weaker but not enough to tip into recession. Why? i) there's no pressure in the economy and volatile measures like inventories and orders are holding up ii) personal and disposable income are barely moving; confidence is flat but that does not mean wholesale retrenchment iii) no inflation, either at the PCE, broad deflator, core or CPI level. The cumulative one year jobs story so far: private +1.7m and government -0.5m.
Austerity is not Enough
by Andrew Balls of PIMCO,
Before the Jackson Hole meetings over the weekend, it was no surprise that all eyes were on central banks. They have demonstrated in recent years that they can act swiftly and decisively when they choose to. While eurozone governments have failed to maintain a united front to deal with a sovereign debt crisis, and American politicians have concocted their own budget crisis, central bankers have retained the moral and operational high ground. Yet, given the problems of growth in the U.S., and of growth, solvency and the coherence of the eurozone, there is a limit to what central banks can do.
Letters to the Editor
by Various,
A reader responds to our article, Jeremy Grantham Guarantees Gold will Crash, which appeared on May 18, 2010. Another reader responds to Michael O. Kokesh's Letter to the Editor, published last week, which was in response to Paul Kasriel's July 26 commentary, Washington Had a Spending Problem.
A New Retirement Management Profession is Emerging
by Francois Gadenne,
The shift from accumulation to distribution is changing the investment industry's dominant business model from gathering assets to writing monthly checks to clients. Success in this environment will accrue to those advisors who act as true retirement professionals rather than to those who take a technician-oriented approach.
The Center of Gravity Shifts Slowly
To an extent not fully appreciated by the investing public, financial markets are influenced by human emotion just as much as they are by economic data, corporate earnings, and dividend yields. Of all human motivations, fear is perhaps the most powerful. When people get scared, the fight or flight instinct forces us to take action. Simple dangers prompt simple responses. If we unexpectedly encounter a bear on our driveway, we immediately run into the house and call animal control. But its harder to know what to do when financial danger stalks the stock market.
The Titanic Has Sailed
by Michael Lewitt,
It was entirely predictable that the U.S. equity market would rally on the news that Greek would not default this month, but it does little to convince me that the long-term outlook for European sovereign debt or the global economy has improved. Markets - particularly the equity markets - are trying to pretend that the global economy is experiencing a self-sustaining recovery. A hard look at the economic numbers would tell an objective observer that no such recovery is occurring.
Greeks Buy Time for Insolvent Bankers and Delusional Politicians
by John Browne of Euro Pacific Capital,
Last week, the Greek parliament voted by a narrow margin to pass an economically crippling austerity plan of some $40 billion in return for some $159 billon of fresh liquidity injections. Although many hailed the event as a needed first step on a long road to recovery, I believe the austerity program will make a bad situation worse. It is a flawed solution that stems from a false premise: that Greece should continue to be part of the euro zone, and continue to use the euro as its currency. To return to national economic viability Greece must abandon its use of the euro currency.
Fox in the Henhouse
In 1971, President Nixon ended the Bretton Woods gold standard currency system. That move set us on a path of debauching our currency through inflation. Ever since, we have counted on the Federal Reserve to preserve the purchasing power of our money. We have depended on the fox to protect our hens.
Chutes and Ladders
by John P. Hussman of Hussman Funds,
We are all playing a game of Chutes and Ladders where it is not at all clear which game-board is applicable. To believe strongly in a certain investment outcome is to imagine that there is only one correct model of the world, and that the correct model is in hand. Investors appear very eager to apply post-war norms to the economy, and to apply the elevated valuation norms of the past two decades to the stock market. I doubt that these models represent the correct view of the world, but our approach is to allow for these possibilities and dozens of alternate ones.
The Keynesian Bridge to Nowhere
by Tad Rivelle of TCW Asset Management,
All of us want growth and to see unemployment back down to where it belongs. In pursuit of these objectives, our national govern- ment has ?manufactured? liabilities ? Treasury bills, notes, and bonds ? and sold them to investors, many of which are based overseas. In so doing, the U.S. Treasury laid claim to resources ?released? by these lenders and put those re- sources to work in the U.S. today with a promise to return those resources, with interest, tomorrow. Economic pain inside the U.S. has been reduced in the here and now as a result of obtaining access to these borrowed resources.
An Important Challenge to ?Stocks for the Long Run?
by Geoff Considine,
Jeremy Siegel's dictum - to invest in stocks for the long run - faces a new challenge. A recent paper by Robert Stambaugh, a Wharton colleague, and Lubos Pastor of the University of Chicago says that once you take into account the uncertainty of estimating future returns, stocks are not nearly as attractive to retirement-oriented investors as Siegel has claimed.
The Consequences of Policy Failure
by Michael Lewitt,
Investment performance for the rest of the year will be determined by the macro-economic views of investment managers. While microeconomic factors are always extremely important in charting investment strategies, they are particularly important today as the U.S. and global economies continue to fight their way through the detritus of the global debt crisis. A compelling case can be made for weaker 2Q112 growth based on a combination of factors.
Expert Roundtable on Risk
by Mark W. Riepe, Liz Ann Sonders, Randy Frederick, Rob Williams, & Brad Sorensen of Charles Schwab,
The word "risk" has a negative connotation-something to steer clear of whenever possible. However, in the investing world, risk and performance are intertwined. Market sentiment can shift quickly depending on economic or political news, geopolitical events and even natural disasters and these shifts can sometimes send investors fleeing for safety or taking on more risk as they seek higher returns. Mark Riepe, led a roundtable discussing the concept of risk in investing, strategies for reducing portfolio risk, and investment suggestions tailored to both risk-seeking and risk-averse investors.
Hedging In an Inflationary World
by Andrew Foster,
These days, given the complex web of global financial transactions in which companies are enmeshed, it is unrealistic to expect management to avoid hedging. When I invest, however, I search for companies that follow simple, consistent, and short-term hedging policies ? and whose business models are strong enough to adapt to the inherent volatility and uncertainty of the marketplace.
Housing Fears Still Lurk in the Shadow
by Milton Ezrati of Lord Abbett,
Housing remains a focus of uncertainty and anxiety. Its collapse largely created the 2008 financial crisis and recession. Housing concerns formed the basis of last year?s ?double-dip? recession scare. Many fear that further problems in the area could thwart the present economic recovery. Of particular concern now is the still large overhang of vacant, unsold properties and the even larger overhang of properties on which lenders have delayed foreclosure, the so-called ?shadow inventory.? The inventory situation will hold back real estate prices and building activity for a long time to come.
The WikiLeaks of the Economics Profession
by Michael Edesess,
What Caused the Financial Crisis presents the most comprehensive account I have seen of the regulations that, when considered as a whole, have incentivized unprecedented self-delusion and risk-taking in the subprime mortgage market. To put it in a manner that financial advisors will understand, the book shows that the policies and regulations greatly increased the Sharpe ratio of the financial industry - they increased the return for taking risk.
The Smooth Illusion
by Michael Lewitt,
In retrospect, the Federal Reserve's interminable zero-interest policy and its quantitative easing programs are likely to be seen not only as ineffective but damaging to the prospects for sustainable long-term economic growth. A number of asset classes are beginning to exhibit bubble-like behavior, something that would be far less likely to occur were interest rates normalized.
Ethics Among Thieves
by Michael Edesess,
'Inside Job' is a thoroughgoing indictment of the financial industry that has its virtues but relies on some unsavory vices. On the one hand, through interviews, congressional testimony, and other video, the film exposes cronyism, corrupt ethics, and excessive power at the core of the financial industry. On the other, the movie at times unfortunately feels more like a polemic than a hard-hitting, fact-finding investigative reporting piece.
Are You Watching Your Brokered Deposits? Bob Eisenbeis: What's a Central Bank to Do?
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst, we feature a comment from Bob Eisenbeis, Chief Monetary Economist of Cumberland Advisors. Bob clearly states the obvious in his excellent analysis of the choices facing the Federal Open Market Committee, namely that the Fed continues to steer monetary policy based upon largely domestic factors, this even as the global role of the dollar creates dangers for the US and other nations as they flee the perils of deflation.
Is Europe at the Tipping Point? Sol Sanders & Bill Alpert on Keynes, Keynesianism -- and Keynesianit
by Team of Institutional Risk Analyst,
With the world preparing for the collapse of the post-WWII, post-Bretton Woods economic order, we thought it might be useful to look at what Keynes actually said. We depart from our optimism due to the situation in Europe. Forget the threat of a ratings downgrade by S&P, Washington on debt ceilings or our part-time POTUS, the final collapse of the southern states of Europe is accelerating. Most banks in the EU are insolvent and the states supposedly backing them cannot access the global markets. The collapse of the EU bank bailout effort could be the next catalyst for global contagion.
A Close Look at the PIMCO-Met Life Retirement Strategy A Marriage Made in Investment Heaven?
by Michael Edesess,
If you embrace their recently announced co-marketing strategy, when you're relatively young you use PIMCO's Real Income Funds for stable income in the near term. When you're older Met Life's Longevity Income Guarantee kicks in and takes it from there. You're set with secure income for life. We examine these products more closely and analyze whether they are good deals, either separately or together.
Expert Roundtable on Inflation: Should You Be Worried?
Inflation is a rise in the general level of prices of goods and services; your money buys less. With oil and other commodity prices rising, the Federal Reserve's current easy monetary policy and the economy picking up, many investors are worried about inflation. Mark Riepe, head of Financial Research and president of Charles Schwab Investment Advisory, led a roundtable discussing why Wall and Main Street may have different perspectives on inflation. The roundtable also covers our inflation outlook, ways to protect your investments and inflation-savvy investments you might want to consider.
The Inflation Knuckleball
For the past 40 years or so, every country on the planet has relied on fiat money. To a very large extent, this means that the national economies are far more exposed to the whims of their central bankers than they have been in the past. So, if central bankers go off their meds, the danger to the currency becomes profound. Unfortunately, at America's Federal Reserve, it seems the inmates are now running the asylum.
Statistical Insights into Everyday Problems
by Sam Parl,
You know that the volatility of an investment matters as much as its overall return. But you may not know that research into this fundamental investment principle has been applied in many other disciplines to explain phenomena as unexpected as waiting times in lines at Disney World.
Running on Empty
by Michael Lewitt,
Despite the increasing undercurrent of negative news creeping into the financial markets, the stock market remains strong. HCM expects equities to continue to perform well for the foreseeable future (i.e. through the end of June) although most of this letter will discuss the reasons why it shouldn't. In some ways, this market is a lot like Charlie Sheen. It pretends to have tiger blood and the powers of a warlock, but deep inside it is suffering from an addiction to a substance (i.e. debt) that will ultimately kill it.
Fed and ECB - A World Apart
by Axel Merk of Merk Investments,
The U.S. Federal Reserve and the European Central Bank are divided by a common goal: price stability. Fed Chairman Bernanke has made it clear in his recent testimony and speeches that the Fed would react should food and commodity inflation lead to an increase in core inflation. The Fed is ready to R E A C T. We are not aware of any central bank that is proud of reacting, but rather acting preemptively to mitigate inflationary concerns; a central bank may often be forced to react, but to do so by design puts the cynical view that central bankers are too far behind the curve into a new light.
Subsuming the Efficient Market Hypothesis
A recent article highlighted important gaps in the efficient markets model (EMH) that limit its practical applications. It encouraged a search for a new theory of markets that builds upon EMH by rendering it as a special case within a broader, more general theory. Mordecai Kurz? Rational Belief Equilibrium is such a theory.
Simon Johnson on the Unconscionable Risks We Face - Video
by Dan Richards,
Simon Johnson is a professor of economics at MIT and was the chief economist for the International Monetary Fund. In this interview, he explains why the underlying factors which led to the financial crisis remain unresolved. This is the video; a transcript is also available.
Understanding Variable Annuities with GMWBs
by Robert Huebscher,
It's very tempting: a variable annuity with minimum lifetime payout that can increase - but never decrease - based on market performance. That temptation comes in the form of an increasingly popular variable annuity rider known as a guaranteed minimum withdrawal benefit. We explain the flaws in a widely publicized study by Morningstar/Ibbotson, and provide our own analysis of the product.
Debt Limit Brinksmanship
Don?t get us wrong. The budget is a total mess. The equivalent of a financial root canal is necessary. We fully support newly elected lawmakers who want to maximize the political leverage created by the debt limit issue to move in this direction. In fact, we?d like to see only short-term increases so the issue can be revisited time and time again, to hold the spenders? feet to the political fire. But ripping all the teeth out at once is not the answer.
Journey to the Center of the Average
by Mariko Gordon,
Averages, while comforting in their simplicity, often do more to hide the truth than reveal it. This article is inspired by a recent conversation with author and statistician extraordinaire, Kaiser Fung, who shares my suspicion of this often-abused mathematical construct.
The Stuxnet Paradigm
by Michael Lewitt,
Michael Lewitt discusses the situation in Egypt, the economy, rising risk appetites in the market, sovereign debt and municipal bonds. 'It might be very easy,' he writes, 'to be impressed by the 'two years and thousands of man hours' that Ms. Whitney spent researching the fiscal condition of the 15 largest states. What in the world required so much time and effort? It shouldn't have taken nearly so long to determine that these states are in severe financial trouble and that their options for dealing with it are limited.
Random Thoughts from the Lone Star State
by David A. Rosenberg of Gluskin Sheff,
I still consider this to be a bear market rally. With respect to the economy, the illusion of sustainable prosperity has done wonders for consumer spending in the U.S. The consumer has been an upside surprise and the ISM was a whopper too as these manufacturing indices have been in general around the globe. There are so many other headwinds out there. Dramatic cutbacks and tax hikes at the state and local government levels are in motion. Federal government austerity is next. The housing market has not yet stabilized.
Pie in the Sky
by John Browne of Euro Pacific Capital,
Investors would be well-advised to retain a jaundiced view of all political statements, especially those of central bankers and politicians positioning themselves for the next election. In 2011, investors should focus their eyes not on the sky, but at the brick wall our Union is fast approaching.
Is Bank America the Most Sued Company in America? Sol Sanders on Charting the Arab Dark
With more than half of Tunisia's population under 30, increasing unemployed youth want more. It remains to be seen who will come out on top in Tunis. But across North Africa - from Egypt to Morocco - underground religious Muslim opposition festers. Alas! in Tunisia, as elsewhere, the Iranian mullahs' total corruption and Saudi Arabian hypocritical lifestyle notwithstanding, the Islamicists' appeal is growing.
The Two Elephants Facing the US Economy
by Michael Lewitt,
The consensus has reached the conclusion that financial markets will enjoy a strong start to 2011. This is reason enough to approach the markets with caution as the year begins. When everybody is leaning to one side of the boat, the vessel is far more likely to tip over, particularly if it hits an unexpected wave.
Results 2,851–2,900
of 2,955 found.
