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Weekly Economic Commentary
by Carl Tannenbaum of Northern Trust,
From the Suez Canal, to Japanese bullet trains, to the American interstate highway system, to the Millennium Bridge to the Three Gorges Dam, the grandeur of infrastructure is on full display the world over. Awe-inspiring and beautiful to some, these fixtures also play a critical role in the functioning of the global economy. The choices nations make in the area of infrastructure can bear critically on prosperity.
Perspectives from the Franklin Templeton Fixed Income Group
by Christopher Molumphy, Michael Materasso, Roger Bayston, Michael Hasenstab, and John Beck of Franklin Templeton Investments,
In early July, there was a noticeable disconnect between the median forecast of Fed officials for interest rates by end-2015 and the markets forecast, as expressed in the federal funds futures rate. But if unemployment continues to decline and inflation to pick up in the coming months, the danger for bond market participants is that their predictions for interest rates may be too low and will have to be adjusted.
Comparison of Rising Rates Strategies
by Yung Lim of AdvisorShares,
With the ultra low interest rate environment becoming more of a norm in many investors mind, complacency has driven portfolio managers to maintain the status quo and stick to traditional duration and asset allocation targets. Recent history of bond market behavior has also supported this view. On a forward looking basis, however, the important questions center around how risk/return profiles change under rising interest rate environments and what investors should consider in evaluating the risk of their current portfolio mix.
Why We Favor Owning Gold in Euro Terms
by Ade Odunsi of AdvisorShares,
In this discussion piece we discuss the rationale for why investors looking to buy gold as a defensive asset during these uncertain times should consider buying gold in euro terms. When an investor buys gold in dollars they are expressing the view that they expect the price of gold to increase relative to the dollar. Similarly when an investor buys gold in euro, they express the view that they expect the value of gold to increase relative to the euro.
Dissecting the Japan Hedged Equity Rebalance
by Jeremy Schwartz of WisdomTree, Inc.,
We think it is important to be mindful of how an annual rebalance back to an underlying fundamental such as dividends can help manage valuation risks. With market capitalization-weighted indexes, when constituents increase in price compared to other stocks, they gain greater weight and increase their impact on the performance of the index.
Analysis of Ayres and Curtis Critique of 401(k) Plans
In our previous article we reviewed [Professors Ayres and Curtis's paper Beyond Diversification: The Pervasive Problem of Excessive Fees and 'Dominated Funds' in 401(k) Plans] (John M. Olin Center for Studies in Law, Economics, and Public Policy Research Paper No. 493). Our purpose in that article was simply to describe what Professors Ayres and Curtis are saying. In this article we evaluate their findings and proposals, discussing the limits of and possible objections to their conclusions.
The New Neutral: Investment Implications for Insurance Companies
by David Braun of PIMCO,
Low rates are unhelpful to an industry with legacy long-term liabilities containing rigid embedded credited rates; they exacerbate asset-liability mismatches and pressure earnings margins. Insurers may want to recalibrate their expectations of future interest rates, as well as broad bond and equity market returns. In The New Neutral, with beta from stocks and bonds likely to be relatively low, insurers should look to enhance buy-and-hold return potential via active management.
Retirement Planning with Annual Available Spend
by John Craig,
Sound financial planning requires neither the determination of safe withdrawal rates nor the use of Monte Carlo simulations. Relying on the past to predict the future is unnecessary. Instead, one must focus on how much can be spent each year, given expected returns and inflation, and then consider how negative and worst-case scenarios would affect retirement planning. That is the basis for the annual available spend methodology I describe here.
The Dollar Weapon
Over the past few years, various prosecutorial arms of U.S. government entities have brought charges against foreign banks that have violated U.S. sanctions that were placed on different countries. In this report, we will discuss the general nature of U.S. sanctions and how these banks violated American law. From there, we will reiterate the dollars reserve currency role from both a historic and theoretical perspective and show how this role makes the currency and the U.S. financial system pivotal in the global economy. We will conclude with market ramifications.
Two Top Experts Debate the Outlook for Growth
by Laurence Siegel,
Growth may slow, as Robert Gordon contends, at least when measured by GDP - if only because population growth is slowing. But that is not a foregone conclusion. And even if it were to happen, it doesn't mean that global standards of living would face a similar deceleration. Moreover, GDP doesn't fully capture the improvements in the standard of living that come with advanced technology.
The End of Quantitative Easing
During the Financial Crisis, as the capital markets seized up and interbank lending froze, traditional tools of monetary policy proved ineffective. The Federal Reserve implemented a series of initiatives called Quantitative Easing that essentially used the central banks balance sheet to purchase bonds in the open market and directly manipulate interest rates lower. This tool proved extremely powerful and allowed the Fed to manipulate interest rates across the yield curve which, in turn, allowed for a wave of refinancing activity that helped to lower borrowing costs.
Europes Dividend Growth Explained
by Jeremy Schwartz of WisdomTree, Inc.,
An interesting aspect of the WisdomTree annual rebalance process is identifying trends in aggregate regional Dividend Stream of major markets. As we just rebalanced our developed world Indexes, including Europe, we wanted to provide some insight into how Europes dividends grew in the 12 months prior to the rebalance.
Gut Wrenching
by Scott Brown of Raymond James,
The greater-than-expected downward revision to first quarter GDP was a shocker (even more of a surprise than Spain, Italy, and Portugal not making it out of group play in the World Cup). However, investors were willing to dismiss the bad first quarter performance. An inventory correction and a wider trade deficit subtracted 3.2 percentage points from 1Q14 GDP growth.
Managing Valuation Risk by Rebalancing
by Tripp Zimmerman of WisdomTree, Inc.,
We think it is important to be mindful of how an annual rebalance back to an underlying fundamental such as dividends can help manage valuation risksa key factor in why the non-cap-weighted indexes are included in the smart beta category of indexes.
The Power of Share Repurchases
One of the most effective stock selection strategies in the U.S. over the past several decades has been to buy stocks that are in the midst of repurchasing significant quantities of their sharesbut just blindly following buybacks isnt always the best strategy. While many companies that are repurchasing large quantities of their shares make for great investments, others are dangerous and should be avoided. There are several important factors that should be considered when evaluating a stock with impressive buybacks.
Why Free Trade Hurts Economic Growth
by Marianne Brunet,
Free trade, deregulation and limiting the federal government's powers form what Columbia professors Joseph Stiglitz and Bruce Greenwald call the Washington Consensus - the core precepts that have dominated policymaking for the last 50 years. But those ideas are misguided, they contend. Tariffs and trade restrictions, for example, are fine, especially if they are part of a broad framework that stimulates learning throughout a society.
Quotes on a Screen and Blotches of Ink
by John Hussman of Hussman Funds,
The ratio of market capitalization to GDP, which Warren Buffett (correctly) observed in a 2001 Fortune interview is "probably the single best measure of where valuations stand at any given moment" is now about 150% (not just 50%) above its pre-bubble norm, and beyond every point in history except for the final quarter of 1999 and the first two quarters of 2000. Much of what investors view as "wealth" here is little but transitory quotes on a screen and blotches of ink on pieces of paper that have todays date on them. Investors seem to have forgotten how that works.
Reality-Based Cost Of Living Index Tells The Real Reason Why So Many Americans Are Struggling
Ever wonder why rises in the Consumer Price Index ("CPI") seem low compared to your own personal experiences? Or why social security annual cost of living increases seem to get smaller and smaller? Or why inflation-adjusted pensions can't seem to keep up with general price increases? Or why the American worker gets such meager annual raises (if at all) that they seem to fall further behind year after year?
The Moneyball of Quality Investing
Factor investing has rightfully gained adherents among investors seeking superior risk-adjusted returns. Our research reveals that quality is not a factor that reliably commands a premium in its own right. Nonetheless, value investing conditioned upon certain indicators of company quality is a promising strategy.
A Perspective on High Yield Spreads
by Heather Rupp of AdvisorShares,
There have been recent headlines about yields in the high-yield market hitting all-time lows. Yes, this is true, but lets put this in some context. First, interest rates have been at or near all-time lows for years, pressuring yields in all fixed income securities as investors search for places to generate returns. Comparatively, we believe the high yield market still looks very attractive.
What an Elite Group of Younger Advisors Has to Say
by Bob Veres,
I recently served as a facilitator for the annual NexGen conference, this year held on the campus of Augustana University in Moline, IL. I was able to gain insight into the very different way that the financial planning landscape looks through the eyes of younger advisors just starting their careers - and in many cases, from the bottom end of a planning firm's organizational chart.
Taking a Balanced View of Equities
With the US S&P 500 Index and Dow Jones Industrial Average advancing into record territory this year and some European equity benchmarks likewise nearing new highs, some investors may be wondering whether its still wise to be jumping into the market at this stage. Lisa Myers, executive vice president, Templeton Global Equity Group, thinks that a long-term investment horizon, supported by bottom-up analysis, can reveal hidden value.
The New Normal of Healthcare Spending
by John Mauldin of Mauldin Economics,
A rather interesting shockwave came across the newsfeeds this week. I was actually doing a TV interview when the host announced that GDP was down 2.9% for the first quarter. There was not much else I could do but note that that was a really bad, ugly, terrible, not very good number.
The Delusion of Perpetual Motion
by John Hussman of Hussman Funds,
The Federal Reserves promise to hold safe interest rates at zero for a very long period of time has not created a perpetual motion machine for stocks. No it has simply created an environment where investors have felt forced to speculate, to the point where stocks are now also priced to deliver zero total returns for a very long period of time. Put simply, we are already here. Investment decisions driven primarily by the question What other choice do I have? are likely to prove regrettable.
A Brief Note on Gold as a Defensive Asset
by Ade Odunsi of AdvisorShares,
In previous notes we have written about the defensive nature of gold relative to the broad equity market. Much of the discussion has focused on the low correlation and beta of gold versus equity markets. In fact, the ten year monthly returns of gold (priced in US dollar terms) and the S&P 500 show a correlation of zero with the beta of monthly gold returns versus S&P 500 returns also being essentially zero (0.1).
Just Because the Fed Is Doing the Right Thing Now Is No Guarantee It Will Continue to Do So
by Paul Kasriel of The Econtrarian,
The Fed is continuing to slow the growth in the amount of credit it is creating. In December 2013, the year-over-year growth in the sum of Fed outright holdings of securities and its net repurchase agreements (repurchase agreements minus reverse repurchase agreements) was 41.1%. As of May, the year-over-year growth in this sum had slowed to 24.8%.
The Over-Capitalization Curse
At Smead Capital Management we are conscious of the few, but significant pitfalls which we believe exist for the long-duration common stock investor. One of the main pitfalls we want to avoid is the over-capitalization curse. This is a situation where investor enthusiasm gets very high, prices get historically high and investors drown the company, industry or sector with capital. In our experience, it pays to avoid the over-capitalized areas for as long as five to ten years as they work their way back to being hated and contentious.
Hexavest Viewpoint: Neutral on Japan
by Frederic Imbeault of Eaton Vance,
Macroeconomy: With little traction from fiscal policy and structural reforms, the pro-growth policies of Prime Minister Shinzo Abe known as Abenomics will continue to rely on the Bank of Japans loose monetary policy to maintain economic momentum. Valuation: Rising profits and the 2014 correction have pushed down P/E ratios on Japanese equities into more attractive territory. Investor sentiment: As contrarians and as the crowd has become less bullish on Japanese stocks, we have become more constructive about investor sentiment.
Italy: When Hope Is a Strategy
by John Mauldin of Mauldin Economics,
I came back from Italy this week, and one of my guilty pleasures was being able to sit down and watch the last three episodes, including the season finale, of Game of Thrones. For those readers who are not enthralled with the fantasy epic from HBO or have not read the first five books (will he ever finish?), author George R.R. Martin has written one of the most complex fantasy series ever, about a world where everyone is occupied with who will sit on the Iron Throne.
Designing Balanced DC Menus: Considering Inflation-Hedging Strategies????
by Stacy Schaus, Ying Gao of PIMCO,
Inflation-hedging strategies are fundamental to DC investment lineups and participants? need to build and preserve purchasing power in retirement. Plan sponsors should evaluate these assets separately and in combination before adding them to core lineups and target-date strategies. Selected assets or blends should be designed to deliver the primary benefits of inflation responsiveness, diversification relative to stocks, volatility reduction and downside risk mitigation.
Getting in Gear for The New Neutral – What Does It Mean for Investors?
by William Benz of PIMCO,
Smart beta is increasingly important when returns are likely to fall short of what most investors need and expect. Active managers can use multiple tools to help generate higher returns. With outcome-oriented strategies, investors can align their portfolios toward meeting specific risk and return objectives. Investors with more aggressive income or return needs may benefit from bespoke, multi-asset solutions. ?
Fed Outlook: Playing It Close to the Vest
by Scott Brown of Raymond James,
The Federal Open Market Committee will meet this week to set monetary policy. The FOMC is widely expected to further taper the monthly pace of asset purchases (not on a preset path, but continuing in measured steps). The bigger question is when the Fed will begin to raise short-term interest rates. The correct answer is it depends. Fed officials are currently debating the order of steps to be taken as they begin to normalize monetary policy.
Boko Haram
On April 14, the Nigerian terrorist group Boko Haram kidnapped 276 girls from their school in the town of Chibok, Nigeria. Investor interest in African economies has been increasing over recent years, piquing an interest in the continents rising economic and demographic power, Nigeria. This week, we will take a look at the country of Nigeria, including its history and economy. We will then describe the evolution of the terrorist group Boko Haram and its strategic goals and leadership. We will conclude with items of importance when investing in Africa, in general, and Nigeria, specifical
Many Moving Parts
by Scott Brown of Raymond James,
The U.S. economy contracted in the first quarter, but it appears very unlikely that weve entered a recession. Weather disruptions and the late Easter have made it difficult to gauge the underlying trends in the economic data, but a significant second quarter rebound appears to be baked in. Still, taking the first two quarters together, growth in the first half of the year is likely to be disappointing relative to earlier expectations.
US Regional Banks Attractiveness Jumps in June
Our Sector-level heat map looks much the same as it did last month, save for the fact that the shade of green has deepened for the Utilities and Financial Services sectorsindicating a larger number of companies screening undervalued according to YCharts Value Score.
The American Oil Weapon
In this report, we will begin with a basic analysis of the oil markets. From there, we will examine Russia's economic dependence on energy and offer a historical analysis of Saudi Arabia's decisions in 1985 and 1997 to retake oil market share and the impact these choices had on the Soviet economy. Using this historical parallel, we will offer an example of how the U.S. could drive down oil prices in a bid to undermine Russia's economy.
Stocks' Correlation to Real Interest Rates was the Most Significant Factor Driving Returns Last Week
by Team of GaveKal Capital,
Real interest rates as measured by TIPS yields proved to be the most significant factor driving stock prices last week while other macro factors such as stocks' correlation to the Japanese yen and euro were also important. It is also noteworthy that the beta factor is making its way back to the top of the list after having been insignificant over the last one and three months. Below we show the top ten factors driving returns for each region.
Can Central Planners Revive Chinas Economic Miracle?
by John Mauldin of Mauldin Economics,
We are going to try gamely to finish with China today, having left at least three or four letters worth of copy on the editing floor. There is just so much information and misinformation to cover. Im going to turn it over to Worth and then follow up with a few final thoughts of my own.
Emerging Markets: PR is on the Upswing
by Nick Niziolek of Calamos Investments,
Since March, the tide has turned, and there has been a strong reversal in both news flows from and equity flows into EMs. Headlines have transitioned from "Currency Crisis" to "Modi Wins," and Russian equities have moved above the levels seen since before the Ukraine crisis began. Moreover, weve identified several near-term catalysts that could further support the equity breakout that is underway. Only in EM investing could a military coup be viewed as a potentially beneficial catalyst.
Results 5,551–5,600
of 6,446 found.
