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A Bubble in Complacency
by John Mauldin of Mauldin Economics,
The simple fact is that we are in what I call a Muddle Through Economy. Things arent terrible, but they are not great, either. Weve come through a devastating Great Recession caused by a crisis in the financial sector. It is quite typical for the effects of such a crisis to linger for a decade or more. So compared to where we were at the bottom of the Great Recession, the glass is half-full. But compared to the expectations we have for economic recovery and the resumption of vibrant growth, half-full seems like an exaggeration. And for many people, the glass is simply empty, whil
Scarce Growth - Can the Tortoises Continue to Outpace the Hares?
For some time we have suggested that in a world slowly recovering from the 2008 financial crisis, aggregate global growth would be sub-par and that investors would benefit from seeking scarce growth, so long as that growth did not become wildly overvalued. Recent market action has tested that stance severely.
A Revised Bond Market Outlook?
by Scott Brown of Raymond James,
A year ago, as Fed Chairman Bernanke spoke of the possibility of tapering the Feds Large-Scale Asset Purchase program (QE3), bond yields moved higher. Theyve been range-bound over the last year, but have more recently dipped to the lower end of that range. Whats driving the bond market?
Which Resource Areas Show Signs of Strength?
Global synchronized growth, as measured by the Global Purchasing Managers Index (PMI), remained stable or positive for the past 12 months until Japan reversed the momentum in April with a precipitous drop in its PMI. China is contributing modest growth but, fortunately, the U.S. and Europe are rebounding. This lack of consistent global momentum has created a short-term, volatile, hot and cold, stop-and-go sentiment. Global real GDP growth peaked in 2010 at 5.2 percent then slowed for the next three years to 3 percent.
Which Resource Areas Show Signs of Strength?
Global synchronized growth, as measured by the Global Purchasing Managers' Index (PMI), remained stable or positive for the past 12 months until Japan reversed the momentum in April with a precipitous drop in its PMI. China is contributing modest growth but, fortunately, the U.S. and Europe are rebounding. This lack of consistent global momentum has created a short-term, volatile, hot and cold, stop-and-go sentiment. Global real GDP growth peaked in 2010 at 5.2 percent then slowed for the next three years to 3 percent. Global growth in 2014 is likely to accelerate, for the first time in four y
Concerned Optimism
by Scott Brown of Raymond James,
In her congressional testimony, Fed Chair Janet Yellen chose her words carefully. She indicated that if the economic outlook evolves as anticipated (growth picks up, the labor market tightens, and inflation moves toward the Feds 2% goal), then the Feds asset purchase program (QE3) will likely end in the fourth quarter. However, she refused to be pinned down on when the Fed would begin raising short-term interest rates. Global concerns and the housing sector will bear close observation.
Mixed Signals and the Road Less Traveled
As the markets flirt with all-time highs and a potential shift in Fed policy, earnings season has not altered the fact that the level of investor uncertainty feels elevated. Throw in the case of a really bad winter, a geopolitical environment that rhymes with events just prior to World War I, and poor trading volumes, and it all suggests that heightened levels of unease remain.
Microsoft: The Progression of a Maturing Business
by Team of F.A.S.T. Graphs,
Everyone is keenly aware of the $300+ billion dollar company that is Microsoft (MSFT). From the classic Windows and Office products to the latest Xbox and Skype, the business doesnt exactly need an introduction. In fact, its quite likely that you are using or near a Microsoft product now; we used a couple just to get this article to you. So instead of providing a generic opening, we thought it might be interesting to highlight the company with some numbers.
Schroders Monthly Markets Review: Overview of Markets in April 2014
Global equities edged higher in April. Some stronger macroeconomic data from developed economies helped to support returns but the ongoing crisis in Ukraine remained a headwind for equities. Developed markets outperformed emerging markets. In the US, a generally firmer tone to macroeconomic data and a broadly encouraging corporate earnings season supported sentiment. Investors were also reassured by comments from Federal Reserve (Fed) Chair Janet Yellen about maintaining low interest rates.
Washington Hates Carrots, Loves Sticks
by John Browne of Euro Pacific Capital,
A widely-held maxim tells us that money tends to flow from where it is treated badly to where it is treated well. This trend has taken center stage in the ongoing battle between U.S. states to attract and retain top employers. In that conflict, high tax states like California have been losing ground to relatively low tax states such as Texas and Florida.
The Good, the Bad and the Opportunity
Twice a day, in the morning and at lunch, our investment team sits down together to discuss what?s important and what?s immaterial. This past week, in my opinion, the good outweighed the bad. Much of the economic news was a direct result of government policies, both fiscal and monetary. Here are my findings, which I hope will help you filter through the noise.
The Job Market, GDP, and the Fed
by Scott Brown of Raymond James,
The U.S. economy added 1.15 million jobs in April thats prior to seasonal adjustment. We normally see large (unadjusted) job gains each spring. This year appears to be stronger than normal, partly reflecting a rebound from a bad winter. Strength in the seasonally adjusted payroll figure is certainly good news, but it may not necessarily be suggestive of a sharper underlying trend in job growth. There is still a very large amount of slack in the job market.
The Top Five Government Policies I’m Watching This Week
Every morning when I meet with the investment team, we review the news of the previous day, the movements of the markets around the world, and corporate actions that may affect our funds. This is how we keep our ears open in order to manage money that shareholders like you have entrusted us with. We meet again at lunchtime, daily, to share ideas, because something happening in China may affect the U.S. markets, or an energy company might have news that can benefit our domestic funds as well as our resources funds.
Economic Capital Market Summary
After the Financial Crisis and the resulting Dodd-Frank Act and Affordable Health Care Act, we knew there was no way we would go back to normal, whatever normal really was. Our world changed and we still continue to feel the uncomfortable mutations after the crisis. The management of Citigroup showed another disconnect with regulators as its 2014 capital plan was rejected. After several attempts to launch its healthcare website, the Obama administration announced that over 8 million people had signed up for health care insurance through the government exchange.
A Yen for a Mortgage
by John Mauldin of Mauldin Economics,
For some time I have been saying that I was going to close the mortgage on my new apartment and then hedge it in yen. I promised to tell you the story, including what type of loan I got and how I am doing the hedge. This week I was finally able to pull the trigger. This topic will also let us re-examine why I think the Japanese yen is a screaming short. This is not a big think piece, but I think many of you will find it interesting. It outlines how I put my economic thinking into actual practice, and names names, if you will, of those who helped me do it.
Small-Cap Valuations: Way Too High or Room to Run?
by Adam Peck of Heartland Advisors,
Small-cap stocks have been on a tear for several quarters. Conventional wisdom in this situation would be to shift assets away from small-caps, and reallocate them to other asset classes. The concept sounds reasonable, but is it well-grounded in fact? What is the state of small-cap valuations today? These questions merit a closer look.
Europe Part 2: The Smart Beta Portfolio
by James Calhoun of AdvisorShares,
In our last post we discussed the attractiveness of European equities in aggregate, and assessed the pros and cons of implementing this regional investment theme with a market capitalization weighted ETF (VGK ? Vanguard). It was our conclusion that the most effective way to gain exposure to the expected advance in European equities was through a multi-factor ?smart beta? portfolio.
Achoo!
by William Gross of PIMCO,
There?s nothing like a good sneeze; maybe a hot shower or an ice cream sandwich, but no ? nothing else even comes close. A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500.
De-Risking Pensions in a Time of Tapering
by Rene Martel, Markus Aakko of PIMCO,
Despite improved funding in corporate defined benefit pension plans, some sponsors concerned about rising rates may be tempted to delay glide path prescriptions to boost fixed income allocations. For these sponsors, a better approach might be to break de-risking into two steps, potentially allowing for significant risk-reduction benefits yet preserving tactical flexibility in timing purchases of long-duration bonds. Any reduction in equity and other return-seeking assets should be implemented in short order to lock in recent market gains. ?
How High Expectations Can Hurt Your Business
by Dan Richards,
Its conventional wisdom that ambitious goals and high expectations go along with success. But a recent conversation with a top-performing advisor and some groundbreaking research show that having expectations that are too high will actually damage your business.
Why Are Hedge Funds Struggling in 2014?
by Chris Maxey, Ryan Davis of Fortigent,
2014 has been a year marked by shaky equity markets and relatively higher volatility than observed in 2013. With falling equity market correlations and increased stock dispersion, it was presumably a more favorable environment for hedge funds. Unfortunately, that has not been the case as most alternative investment approaches are posting less than stellar results so far this year.
Europe: Market Capitalization vs. Smart Beta
by James Calhoun of AdvisorShares,
A bullish investor consensus for European equities appears to be building. More and more, we are hearing and reading that European equities are attractive and undervalued. It may be the right time for greater exposure to developed international equities, and Europe might be the right place for investors to focus. However, why stop there? Why stop at the regional level?
The Devolution of Diversification
by Chris Richey of Neosho Capital,
We are only some 40 years removed from an era when the typical investment account had 12 or fewer individu-al holdings, and less than 20 years removed from a time when respected stock funds might hold 20-30 stocks and be considered ?fully diversified?. Now we find that the typical active equity portfolio or fund holds between 50-100 individuals stocks and that there are generally three or more such active equity managers for each institutional or high net worth account, all adding up to hundreds of underlying holdings.
ECRI Recession Watch: Weekly Update
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 134.9, up from last week?s 133.6 (revised from 133.5). The WLI annualized growth indicator (WLIg) rose to 3.3 from last week?s 3.0. Here are some notable developments since ECRI?s public recession call on September 30, 2011: 1) The S&P 500 is up 61.0% at yesterday?s close, although off its record close on April 2nd. 2) the unemployment rate has dropped to 6.7%, and 3) Q4 GDP was revised upward to 2.6%.
A Strong Balance Sheet
In his book, Great by Choice, Jim Collins points out that companies he defines as great have good luck and bad luck just like all the other companies do. The great companies handle difficult circumstances better than good companies and take the most advantage of the breaks they get in business.
"The 10 Plagues" of Retirement Investing
Last Tuesday marked the end of the Passover holiday, in which Jews around the world celebrate the exodus from Egypt in biblical times (see the classic movie ?The Ten Commandments? for a visual version of the story). One highlight of the ?Seder? dinner conducted on the first two nights of the holiday is for all gathered to recount a part of the story known as ?The 10 Plagues.? Biblical references aside, it got me thinking about 10 plagues that today?s retired and retiring investors must grapple with. Here they are, sans the Matzoh Ball soup.
Hasenstab: Separating the Wheat from the Chaff
Fixed income investors have dealt with a number of headwinds in early 2014, including unrest in Eastern Europe, the prospect of rising interest rates in the United States and fears about slowing growth in China. Michael Hasenstab, executive vice president and CIO, Global Bonds, Franklin Templeton Fixed Income Group, has been on a global tour to assess conditions in select countries first-hand, looking beyond what the media headlines portray.
2016 (Part 3, The Election Situation)
In this final report, we will analyze why we think 2016 may be a pivotal election and examine the potential that it could bring about a coalition change similar to the 1932 and 1980 elections. We will discuss the various methods of addressing the current high level of private sector debt and offer what we believe to be the three highest probability scenarios of how the current problems can be addressed and their impact on the domestic political scene and on America?s superpower role. Unlike our last two reports, we will conclude with market ramifications.
The Federal Reserve's Two-Legged Stool
by John Hussman of Hussman Funds,
In viewing the Fed?s mandate as a tradeoff only between inflation and unemployment, Chair Yellen seems to overlook the feature of economic dynamics that has been most punishing for the U.S. economy over the past decade. That feature is repeated malinvestment, yield-seeking speculation, and ultimately financial instability, largely enabled by the Federal Reserve?s own actions.
Quarterly Review and Outlook
After examining much of the latest scholarly research, and conducting in house research on the link between household wealth and spending, we found the wealth effect to be much weaker than the FOMC presumes. In fact, it is difficult to document any consistent impact with most of the research pointing to a spending increase of only one cent per one dollar rise in wealth at best. Some studies even indicate that the wealth effect is only an interesting theory and cannot be observed in practice.
Designing Balanced DC Menus: Considering Diversified Fixed Income Choices
by Stacy Schaus, Ying Gao of PIMCO,
Sponsors of defined contribution plans face a dual challenge: They must present investment options appropriate for plan members and design menus that encourage selection of well-structured portfolios. We believe that actively managed strategies designed to potentially reduce risks, invest globally and enhance yield relative to the index may improve diversification and lower concentration risk in fixed income offerings. Plan sponsors may consider a range of return and risk measures as they evaluate current and prospective fixed income offerings.
Why Energy is Catching the Market's Eye
Over the last month the energy sector has outperformed the market, and as you can see in the chart below, has done so by 6.5 percent. Year-to-date the sector is beating the S&P 500 Index by over 3 percent. In a spectacularly performing market during 2013, energy lacked some of the incredible performance seen throughout the other sectors, but recently it has turned up, catching the attention of the market yet again.
What to Make of the Rebound in Emerging Market Equities
by Dara White of Columbia Management,
A month ago, much of the news from the emerging markets (EM) was negative. We saw headlines highlighting the liquidity headwinds created by U.S. QE tapering, Russia?s aggressive opportunism in the Ukraine, and China?s imminent hard landing.
Equity Outlook
by Team of Osterweis Capital Management,
Short term, we would not be surprised if the market took a breather after its strong gains last year. Additionally we may see volatility related to news coming out of the Middle East and Russia. But longer term, we remain very optimistic on the outlook for U.S. equities. In addition to the reasons we discussed above we believe U.S. equities are very attractive relative to the alternatives. The great bull market in bonds appears to be over. The great decades of emerging market growth appear to be behind us.
Weekly Commentary & Outlook
Stocks fell last week upset by the growth sectors of biotechnology and social media stocks. Energy issues and related infrastructure were largely unaffected. It is clear that hedge funds and others have become forced sellers as their macro bets on being long growth areas, but being short the bond market have blown up in their faces. Until this settles down the overall market is likely to continue its correction.
Approaching a Pause? A Market Review
First quarter market performance was as whippy and volatile as the weather. Unusually cold temperatures in the U.S. not only froze much of the countrys population, but it also wreaked havoc on the quality of economic data, and kept markets on edge regarding how investors should be positioned. Geopolitical issues also rose from the ashes as various emerging markets had currency issues and Russia showed poor sportsmanship and invaded the Ukraine shortly after the conclusion of the Olympic Games.
Credit Availability Underpins Recovery in Commercial Real Estate Prices, But Also Poses Risks to CMB
Credit availability, low interest rates, limited new construction and improving economic conditions have contributed to the recovery in commercial real estate (CRE) prices. We expect a strong 2014 in the commercial mortgage-backed securities (CMBS) market, which has been a primary source of CRE credit expansion. Increasingly aggressive loan underwriting is a concern. CMBS investors need to speak with their wallets and push back on either valuations or underwriting standards if recent trends continue.
What's Next for Emerging Markets?
by Nathan Rowader of Forward Management,
Emerging markets (EM) have been an enduring growth story, but their recent stretch of underperformance and fears of a global economic slowdown are chilling investors enthusiasm. Pulled between opportunity and risk avoidance, many investors have been left uncertain as to what they should do next.
Results 5,701–5,750
of 6,534 found.
