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Inflation Outlook: Approaching Target
by Mihir Worah of PIMCO,
Over the next three to five years, PIMCO expects the global economy will continue along a New Neutral path in which major economies tend to drift along at modest growth rates. At our annual Secular Forum last month, our global investment professionals rigorously debated the longer-term, or secular, outlook for the global economy and markets, and the broad conclusions we reached are detailed in “The New Neutral Revisited.”
Putting the Pieces Together: Midyear Economic Outlook
by John Canally Jr. of LPL Financial,
We continue to expect that the U.S. economy will expand at a rate of 3% or slightly higher over the remainder of 2015, once economic conditions recover from yet another harsh winter—and other transitory factors—that held back growth in the early part of 2015. This forecast matches the average growth rate over the past 50 years, and is based on contributions from consumer spending, business capital spending, and housing, which are poised to advance at historically average or better growth rates in 2015. Net exports and the government sector should trail be hind.
The Inventor of Behavioral Finance Looks Back
by Laurence Siegel,
Behavioral finance is one of the great discoveries of our time, and the University of Chicago professor and investment manager Richard Thaler is one of its principal discoverers. Misbehaving is Thaler’s personal account of his discoveries, which influence the way assets are managed, policy is conducted and economic theory is understood and taught.
What Do Rising Interest Rates Mean for the Housing Market?
Today, I want to revisit a post I wrote just over two years ago. I’ve updated some of the data, but the concerns and the conclusions remain timely. In keeping with one of my recurring themes, this is also an example of how rising interest rates won’t mark the end of the world but, rather, a return to a more normal environment.
Pickles?!
by Jeffrey Saut of Raymond James,
I have been traveling a lot recently and this week will be no exception as I am in Victoria, British Columbia currently and am leaving for Vancouver tomorrow. While traveling is exciting and educational, it is also exhausting. Moreover, sleeping in strange beds doesn’t help the exhaustion factor. To be sure, I often find myself suffering from dyssomnia in a fitful sleep accompanied by some pretty strange dreams.
Public Pensions: Live and Let Die
by John Mauldin of Mauldin Economics,
I am not sure if my heart was ever that much of an open book, but I like to think I’m still relatively young. Nevertheless, I must admit that sometimes I want to “give in and cry.” This is especially so when I look at our nation’s public pension funds.
Gold and Health Care Stocks Get a Clean Bill of Health
Even though the Federal Reserve announced this week that it would wait a little longer to raise rates, spooked investors fled to gold bullion, helping to drive prices above $1,200 an ounce. It was the greatest single-session surge by percentage in nearly a month and a half for the yellow metal, widely seen as a safe-haven investment. As I told MarketWatch yesterday, $1,200 is an important threshold for gold miners because it helps increase profitability and spur production.
ECRI: "Shifting Patterns in Recessions and Recoveries"
ECRI's most recent article presents slides and notes from ECRI's Lakshman Achuthan talk at the Madrid Fund Forum conference. He discussed the relationship between lower trend growth and recessions. "ECRI believes that minimally we're returning to a period of more frequent recessions, as we saw in much of the twentieth century....Going back to at least the 1970s, growth has been stair-stepping down during each successive expansion."
Federal Reserve, Abenomics, Trans-Pacific Partnership
by Carl Tannenbaum of Northern Trust,
Central banks around the world have held interest rates at or near zero for quite a while. This action was justified in the wake of the financial crisis. But there are those who think that zero, in this setting, has become a dangerous concept.
Picking U.S. Energy, Housing and Other Credit Sectors for the Long Haul
by Mark Kiesel of PIMCO,
Persistent trends in economies around the world are providing opportunities for focused, long-term investors in the credit markets. Mark Kiesel, Chief Investment Officer Global Credit, discusses promising themes PIMCO sees over the next three to five years, including the U.S. energy revolution, the rising Asian consumer, the ramifications of global banking regulation and latent demand in the U.S. housing market. PIMCO’s global investment professionals gathered in May at our annual Secular Forum to discuss our long-term, or secular, views of economies and markets around the world.
Are Grantham and Hussman Correct About Valuations?
by Larry Swedroe,
For several years, well-respected financial experts such as Jeremy Grantham and John Hussman have been cautioning investors that the market, specifically the S&P 500, is vastly overvalued. Their warnings are based on the Shiller CAPE 10-year ratio compared to its long-term average. Their warnings should be taken with more than a few grains of salt.
June Economic Update
A drop in exports, poor weather, and shipping yard difficulties led the U.S. economy back into negative territory after GDP was revised downward to -0.7%. Many economists believe this is a similar situation to what we saw in 2014 with a drop in GDP during the first quarter, and a subsequent rebound in the following quarters. However, the strong dollar effect has continued into April and May and will continue to provide a headwind for GDP. The preference by consumers to save additional earnings instead of spend is also putting downward pressure on growth.
ECRI: "Trend Real GDP Growth Is Converging to 1% a Year"
ECRI's most recent article offers a compelling analysis of the relationship between GDP and two key factors: productivity and the labor force: "With productivity growth and potential labor force growth both averaging 1/2% a year, trend real GDP growth is converging to 1% a year."
The Knowledge Effect: Excess Returns of Highly Innovative Companies
What drives stock returns? Answering this question has been a goal of investors ever since Harry Markowitz introduced his Modern Portfolio Theory in the 1950s. Later, William Sharpe’s Capital Asset Pricing Model illustrated that the market itself is the first and foremost element in explaining a stock’s performance. However, empirical research over the past several decades has identified many other effects beyond simply the market that exhibit a strong explanatory power of stock returns.
U.S. Stands Out Amid Global Sluggishness
by Scott Mather of PIMCO,
A year ago, PIMCO said the world was in The New Neutral, as the path to recovery dragged on years after the financial crisis. Last month, at our annual Secular Forum in which our global investment professionals gathered to discuss our long-term outlook, we affirmed that thesis, and we recently published “The New Neutral Revisited” detailing and updating our views. Scott Mather, Chief Investment Officer U.S. Core Strategies, discusses how the outlook for the U.S. differs, to a degree, from other large economies.
In Defense of ‘Smart Beta’
by Keith Goddard,
In a recent article, Why Smart Beta is Really Dumb, Michael Edesess encouraged investors to be skeptical of the growing number of factor-based investment strategies being marketed under the moniker of "smart beta." While I applaud Edesess' call for skepticism, I am compelled to play the role of public defender and cross-examine his accusations.
The Importance of FIFA
Swiss authorities recently arrested several top officials affiliated with FIFA on various charges, mostly related to corruption. The ongoing investigation continues to unfold, so we will not spend much time on arrests or new charges. Instead, we offer a short overview of the arrests and the election and resignation of FIFA President Blatter, discussing FIFA’s structure and how the organization is prone to corruption. We follow this discussion with the most important part of the report, the extension of U.S. law enforcement into the international realm as a function of the superpower role.
Why Stocks are Not "Cheap Relative to Bonds"
by John Hussman of Hussman Funds,
One of the constant refrains we hear at present is that while stocks may be richly valued on an absolute basis, they are “cheap relative to bonds.” At least one professor recently told students that valuations are meaningless because the P/E on cash is 100. Technically, with T-bill yields at just 0.01%, the P/E on cash is more like 10,000, but let’s not quibble. Using simple P/E ratios or inverted interest rates as a standard of value only makes sense if you have no appreciation for how securities are valued.
Risk Revisited Again
In April 2014, I had good results with Dare to Be Great II, starting from the base established in an earlier memo (Dare to Be Great, September 2006) and adding new thoughts that had occurred to me in the intervening years. Also in 2006 I wrote Risk, my first memo devoted entirely to this key subject. My thinking continued to develop, causing me to dedicate three chapters to risk among the twenty in my book The Most Important Thing. This memo adds to what I’ve previously written on the topic.
Bond Tug-of-War
by Anthony Valeri of LPL Financial,
The bond market tried to end the month of May on a high note but did not quite make the mark. The last 10 days of May 2015 witnessed fairly steady improvement in high-quality bond prices after a difficult five weeks, but it was still not enough to offset losses for the month. The broad Barclays Aggregate Bond Index still finished 0.24% lower in May and posted consecutive monthly declines for the first time since the last two months of 2013.
Employment, Wages and Housing Leading The Economy Higher
by Urban Carmel of The Fat Pitch,
The majority of US economic data points to strength. Employment growth is the best since the 1990s. Wages and compensation are growing at the highest rates since the recession ended. And housing, both new construction and sales, are the best in 8 years. The overall economic trend remains positive.
Those Were the Days, My Friend
by Paul Kasriel of The Econtrarian,
Although I believe that the nature of the cause of the last recession, a financial crisis, is the principal factor accounting for the relative weakness of the current economic expansion, I also believe that the trend rate of growth of U.S. real GDP in the decades to come will be less than that in the preceding decades. The primary reason for this is related to demographics. A secondary reason is that the credit excesses that preceded the last recession will not be allowed to occur again for some time.
Recession Probability Models - June 2015
by Ted Kavadas of StratX, LLC,
There are a variety of economic models that are supposed to predict the probabilities of recession.
While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.
U.S. Oil Production Dynamics: Now and To Come
by Tim Gramatovich of AdvisorShares,
In our last commentary (“Energy Markets: There Will be Winners and Losers), we gave our current thoughts on long-term US oil production and the vulnerable sub-sectors within the energy industry. So far this year, US production has been resilient even with rig counts falling over 50% from their highs and capex budgets being slashed
Global Tactical Asset Allocation: Just the Facts (Part 1)
We recently came across a couple of articles making the sensational claim that TAA is nothing more than a repackaged and dressed-up version of market timing. Both articles – and others, we’ve subsequently learned – point to a Morningstar study showing that TAA has underperformed the Vanguard U.S. 60/40 balanced fund over the past few years.
Greece: An Update
In February, we reported on the situation in Greece. Over the past few months, there has been no resolution to Greece’s debt problem, despite numerous deadlines and meetings. In our earlier report, we framed the conflict between Greece and the EU in terms of game theory. In this report, we will begin by recapping our earlier analysis. Using this framework, we will discuss how a third option has evolved which will likely force PM Tsipras to acquiesce to the EU. As always, we will conclude with potential market ramifications.
Are Bond Investors Crying Wolf?
Since we last wrote to you there has been quite a dramatic increase in interest rates in most markets and in Germany in particular. In this letter we look into whether this is the beginning of something much bigger.
For those of you with too little time on your hands we conclude that it is NOT. Economic growth will stay low for many years to come, and central banks have no intention of suddenly flooding the bond market with sell orders.
Tantrum Potential at Home, Opportunity Overseas
by Russ Koesterich of BlackRock,
U.S. equities continue to climb, but BlackRock Global Chief Investment Strategist, Russ Koesterich, discusses why the best opportunities may reside outside the United States, which, in fact, has been the case so far this year.
Annual Cost of Healthcare for a Typical American Family of Four Approaches $25,000
In 2015, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $24,671 according to the Milliman Medical Index (MMI).1 The amount will almost certainly surpass $25,000 in 2016.
US Equity and Economic Review For the Week of May 18-22; Housing Rebounds But the Markets Continue G
by Hale Stewart,
Last week’s fundamental news was encouraging. Although we’re still in a shallow industrial recession, other sectors of the economy are printing solid results. However, large multi-nationals face sufficient headwinds from a strong dollar, weak international environment and declining oil prices to prevent a sustained advance.
The Affordable Care Act and Low Interest Rates: A One-Two Punch for Health Insurance Portfolios
Two common themes emerged from a recent PIMCO survey of U.S. health insurers: Underwriting performance will be a larger factor in asset allocation, and there will be more emphasis on liquidity and income. For now, health insurers generally expect increased premium volumes and shifts in insured profiles as a result of the Affordable Care Act. Re-examining investment policies and tiering liquid assets can help investment portfolios maintain flexibility while potentially contributing more to the bottom line.
ECRI: "Fed Rate Hike May Be Postponed Due to Inclement Data"
Friday's release of the publicly available data from the Economic Cycle Research Institute (ECRI) puts its Weekly Leading Index (WLI) at 133.9, down slightly from 134.6 the previous week. The WLI annualized growth indicator (WLIg) is at 1.5, up from the previous week's 1.2, and off its interim low of -4.7 in mid-January.
Results 5,151–5,200
of 6,535 found.
