Last week’s turbulence shined a harsh spotlight on the stock market. Appropriately so, if that’s where your investments are. But in the hubbub many investors are missing the deeper and far more urgent bond market issues.
Today I’d like to share a few words about the Olympics, but first, two words: Don’t panic.
It has been a long time since we had something that resembles normal interest rates and normal economics. Some even called the financial environment we live in as the “New Normal”. Retirees and savers have suffered the most during this prolonged low rate period.
Monday’s monster stock selloff is exhibit A for why I frequently recommend a 10 percent weighting in gold, with 5 percent in bullion and jewelry, the other 5 percent in high-quality gold stocks, mutual funds and ETFs.
Back in the 1970s, supporters of the status quo said there was nothing to be done about stagflation (high inflation and slow growth). It was a "fact of life" that Americans had to accept after experiencing faster growth and lower inflation during the decades immediately following World War II.
“Animal spirits” were once again at large in global equity markets during the fourth quarter of 2017 as economic growth perked up in many parts of the globe and equity market returns followed in kind.
GDP growth slowed in the fourth quarter to 1.9% down from 3.5% in the third quarter. Both numbers were skewed by trade data. Third quarter GDP was lifted by .7% from the export of soybeans to South America, while imports shaved -1.7% from fourth quarter GDP.
Rarely do we move directly from boom to bust; but when the shift comes, it can develop quite quickly, even though the transition isn’t usually obvious in real time. As I look at the data and talk to my contacts, I’m beginning to conclude that we’re approaching one of those transitional phases. I think we’ll look back at 2018 as an in-between year… from good times to something eventually not so good.
Given the events of a decade ago, 2018 promises to be a year filled with reminiscence. Chroniclers will recall the signs of the gathering storm: falling U.S. house prices, rising mortgage defaults and spreading institutional failures.
On the campaign trail, then-presidential candidate Donald Trump pledged to invest as much as $1 trillion in U.S. infrastructure if he were elected. This week during his first State of the Union address, now-President Trump added half a trillion dollars more to that figure.
The macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.
Recent media coverage has often equated future Fed rate hikes as disastrous for the bond market. We explain why that’s unlikely to be the case.
At the end of the day, equity returns are driven by ROE, and we argue in this month's Absolute Return Letter that ROE is likely to drop as 2018 unfolds, partly due to rising inflationary pressures – particularly wage inflation – and partly due to rising borrowing costs. Perhaps more surprisingly, the new US tax reform could also negatively affect ROE. Continue to read if you want to understand why.
The global economy continues to grow, global manufacturing is solid, corporate earnings are strong, and we already are beginning to see here in the US the potential growth catalyst provided by the year-end tax legislation (bonuses are being paid, hiring is increasing, and capital investments are increasing).
Investors in Europe are more optimistic than they have been in years, but there is growing concern that U.S. dollar weakness could make the euro too strong.
The most significant economic news of late was last Friday’s disappointing report on 4Q Gross Domestic Product which came in at only 2.6% (annual rate) versus the pre-report consensus of 3.0%.
Stocks have ripped higher to start the year and “melt-up” has become a popular descriptor; but it’s time to judge whether the flame’s too hot.
For fixed income investors eyeing opportunities in Europe, 2018 should be the year economic fundamentals reassert their worth, according to David Zahn, Franklin Templeton’s head of European Fixed Income. Nonetheless, Zahn believes many investors are underappreciating the long-term implications for Europe of the biggest political uncertainty for the region—Brexit.
David Enrich’s The Spider Network is an engaging chronicle of how employees of financial companies conspire to move LIBOR and its offshoots by small amounts for the sole purpose of benefiting derivatives traders who profited from the moves. The book implicitly raises a key question for the financial industry, indeed for the entirety of capitalism: Is there an ethical code that must be followed, apart from and beyond the requirements of the law; or is all that is necessary to be ethical merely to adhere to the law?
We are at an interesting point in this economic and capital market adventure we have been through for almost ten years. We hesitate to use the word “cycle” because that implies that economic activity, measured by the output of our country, and in turn the capital markets, would actually turn down.
This time last year, the Invesco International and Global Growth team was optimistic about the better relative earnings potential that we saw building in Europe. Indeed, the trends played out to our benefit over the course of 2017. In dollar terms, European equities outperformed US equities by 3% in 2017, the first time since 2012.
Conferences can be great fun and the final evening usually ends with a gathering at the hotel bar. This year’s Inside ETFs Conference ended with a bang for me. Sitting outside on a couch, 72 degrees, clear sky and comfortably positioned between the hotel bar, pool and ocean, daughter, Brianna, snuck up on me and grabbed the wine from my hand.
Disruption was definitely top of mind during many of the presentations and interviews at Inside ETFs, including that of producer and composer Quincy Jones, who was at the conference to promote a new stock index that tracks music and entertainment companies
U.S. stocks may have entered a melt-up phase but for now it is relatively well supported by earnings growth; and although sentiment is extended, behavioral measures indicate still some skepticism. However, given elevated valuations, and the aforementioned overly optimistic sentiment, volatility is likely to increase and more frequent pullbacks are possible. The bull should continue to run, but likely with a bit more drama, so it’s important to stay diversified and disciplined around your long-term asset allocation.
For more than a year, the U.S. Dollar (USD) has been losing value relative to most other currencies. When asked about this trend this week in Davos, U.S. Secretary of the Treasury Steven Mnuchin seemed unconcerned, and even supportive.
The year was 1963, the singer was Lesley Gore, and the song was “It’s My Party.” Clearly, that song seems appropriate given the government shutdown over the weekend. Indeed, “It’s My Party” and the blame rests with both parties in the political equation.
Many investors think that this bull market and economic expansion have gone on long enough and a bear market and a recession will take place soon. In my view, we have at least a year or two before the next major downturn in either the market or the economy, barring a major geopolitical conflict such as a shooting war with North Korea, Russia or Iran.
Is the end of quantitative easing (QE) a big deal? Might tax reform provide an added boost to the US economy? Should investors brace for more volatility in 2018? Yes, yes and yes.
Over the last several months, I have written often about how the US economy has strengthened significantly since the disappointing 1Q of last year. This time last year, most forecasters felt the economy would do well to grow by 2% in 2017.
Travel to clients abroad and preoccupation with my coming book on cycles (final draft submitted just the other day) have combined to keep me from writing a memo since September, but fortunately not from thinking. Thus I have ideas to set down on two significant subjects: the market environment and the new tax law. Further, I’m highly motivated to do so, since if I skip a few months, people start writing in, “Are you sick?”
At the beginning of every year, a number of investment professionals at Thornburg voluntarily place their informal, internal-only bets on which three securities—from stocks to currencies or other financial assets—might together produce the best beta-adjusted returns in the year ahead.
Long term success in common stock ownership is much more about patience and discipline than it is about mathematics. There is no better arena for discussing this truism than in how investors measure risk. It is the opinion of our firm that measuring a portfolio’s variability to an index is ridiculous, because it is impossible to beat the index without variability.
In this far-reaching interview, Jack Bogle comments on the future of index funds, argues that the value premium has been arbitraged away and attacks publicly-held mutual fund companies.
We have all been taught to “play by the rules” since the very beginning of our lives. Our parents did the best they could to teach us rules of proper behavior. That list of rules continued to grow longer the older we got, governing our day to day interactions with others.
Imagine this: Rising interest rates and reduced foreign capital flows combine to push housing prices down in places like Vancouver. Leveraged players who own speculative homes start to liquidate their properties, pushing prices down further. Banks find themselves holding properties they neither need nor want. The dominoes begin to topple.
This week the U.S. Global Investors office was visited by a living legend in the junior mining industry, billionaire founder and executive chairman of Ivanhoe Mines, Robert Friedland. In case you don’t know, back in the mid-1970s, Robert was caretaker of an apple orchard south of Portland that one of his buddies from Reed College would often visit. That buddy’s name was Steve Jobs, who later went on to found a little company he named—what else?—Apple.
In sum, while there are certainly signs of excessive risk-taking in some areas, we feel that they are not systemic risks such as we saw in 2008. A healthy tailwind to corporate profit growth aided by the recent corporate tax rate cuts means that we will not likely see signs of economic weakness for a few years.
The constructive conditions for the US economy remain in place, in our view, in keeping with an increasingly solid expansion across the rest of the world. US consumers have been benefiting from an economy that appears close to full employment and a stock market at record levels, while a vibrant corporate sector has been buoyed further by recent tax changes.
Amid the seemingly endless noise that poses as news, Rick Rieder and Russ Brownback focus in on three of the most critical themes that investors need to consider for 2018.
In the fall of 1981, the twenty-year US bond yield peaked slightly above 15% and has been zig zagging down through each successive business cycle since. During the last one hundred and sixty-years or so, the average secular, (very long-term) trend in rates has lasted around twenty seven-years. After thirty five-years of declining rates, the current secular bear is getting long in the tooth.
Every year I take the holidays off in order to reflect on what I have accomplished for the year, but more importantly, to think deeply about and contemplate what I might do better in the upcoming New Year. This process has provided me with numerous inspirations over the years, and this particular year was no exception.
Since the dawn of time music has played a pivotal role in the defining of the times and the progression made. We would like to utilize the artistic genius of these maestros to bring some context to the current pivotal point in the economy and capital markets.
What a difference a year makes. It is hard to recall but at the turn of calendar to 2017 investors were debating whether stronger economic growth would ever return, largely because it had been so weak for much of late 2015 and 2016.
It is important to separate mini-manias from true bubbles. Unfortunately, the difference is mostly the amount of money chasing the folly. Millions and even billions of dollars lost (and thousands of jobs) equate to fads, while trillions of dollars lost (and rampant unemployment and recessions) are bubbles.
Like much of 2017, politics remained keenly in focus at the end of the year. Tax reform took center stage in the U.S., and President Trump wrapped up this major legislative victory just in time for the holidays. The sweeping tax overhaul moved quickly through both chambers of Congress after the House and Senate drafted amended versions from the separate ones each had previously passed.
My partner and I are at a crossroads in our advisory firm. For years we have been in sync about our values and culture, how we should grow and even the people we have hired to join our team. In the last few months, though, he has become aligned with some radical political philosophies.
Fear of overvaluation – particularly for U.S. equities – has driven far too many investors to miss the strong bull market. For market bears to be proven right, according to Albert Edwards, it will take one or more of several triggers.
At the beginning of every year, we update what’s typically one of our most popular pages, the Periodic Table of Commodity Returns. I encourage you to explore 10 years’ worth of data on basic materials such as aluminum, zinc and everything in between. A word of warning, though—the interactive feature makes the table highly addictive.
The Osterweis Total Return Fund (OSTRX) seeks to preserve capital and attain long-term total returns through a combination of current income and moderate capital appreciation. The fund invests primarily in investment-grade securities and employs tactical shifts in sector allocation, interest rate/yield curve risk and credit quality, attempting to capture return across credit, interest rate and volatility cycles. Its inception date was 12/30/16 and it is managed by lead manager Eddy Vataru.
Invesco Fixed Income’s macro factor framework provides an understanding of how developments in growth, inflation and financial conditions globally are likely to impact markets.
