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Can You Hear Me Now?
Under normal circumstances, I provide insight and analysis on the monthly jobs report at the beginning of each month. This month Washington politics has interrupted my routine with the partial government shutdown postponing several important data releases this week and pessimistically next week as well. Not only that but several agencies have completely shut down their websites denying access to already released data and historical databases, which is completely unnecessary.
Economic and Market Overview: Third Quarter 2013
The economic environment in the third quarter was one of growth, albeit at a slower pace than most economists, and the Federal Reserve (?Fed?), believe can be self-?sustaining. The slow but steady gains the economy made were enough to buoy the stock market, but likely only because the Fed has seen it necessary to maintain its aggressive monetary policy. While employment gains were anemic during the quarter, the unemployment rate actually declined to 7.3%, largely due to a contraction in the labor force.
The Futility of the Endowment Model
by Robert Huebscher,
In the past two decades, the so-called endowment model has been adopted by hundreds of endowments, foundations and advisors ? particularly those serving ultra-high-net-worth clients. By aggressively allocating to illiquid alternative asset classes, those investors hoped to duplicate the results of Yale and other top-tier institutions. New research exposes the futility of those efforts.
A Decade of Low Volatility with High Dividends
Over the past few years, both low volatility and dividend strategies have resonated with ETF investors, many of whom were seeking more conservative approaches by which to increase exposure to stocks. Adding further demand for these strategies is a growing body of evidence that suggests an association between both factors and improved risk-adjusted returns.
The Economy, the Fed, and Politics
It was a good quarter to invest in equities, and despite a down second quarter, overall a good year as well. The Dow was up 1.5%, the S&P 4.7% and the NASDAQ 10.8%. Year-to-date returns were very positive with the Dow up 15.5%, S&P up 17.9%, and NASDAQ up 24.9%. International equities were also positive for the quarter and year with the MSCI ACWI ex US up 9.4% and up 7.5% year-to-date. While emerging market equity indices were up 5% for the quarter they remained negative -6.4% for the year.
Are Investors Paying More Attention to Quality Small-Caps?
by Francis Gannon of The Royce Funds,
Although it covers only a brief time period, recent research by Furey Research Partners showed that since the beginning of May 2013 through September 30 the lowest leveraged companies outperformed the highest leveraged companies within the Russell 2000to us a long-anticipated reversal and an encouraging signal that suggests investors have not abandoned quality despite an environment of easy money and near-zero interest rates.
Nowhere to Hide: Navigating Rising Rate Risk in High-Yield Markets
Over the past few years, investors have flocked to high-yield credit, many believing it a good way to mitigate their interest rate risk as well as capture additional yield. However, they may not realize the level of rate risk that has followed them. High-yield indices, negatively correlated to five-year Treasury bond yields over the past 15 years, have been positively correlated for the past year.
What Is The Correct Discount Rate To Use? Part 2B
by Chuck Carnevale of F.A.S.T. Graphs,
One of the most widely-accepted and utilized methods of valuing a business in todays world of modern finance is discounted cash flow (DCF) analysis. Obviously, in order to calculate valuation, practitioners must rely on mathematical formulas. However, the challenge with utilizing mathematical formulas to determine the net present value (NPV) of a future stream of income is in determining the proper inputs. Consequently, the accuracy of our result is subject to the principle garbage in garbage out.
Putin's Gambit
Earlier this month, President Obama found himself in a very difficult position regarding Syria. An ill-advised comment about making the use of chemical weapons a red line forced a response when the weapons were clearly used in Syria. The administration began moving toward a military response. However, support for military operations was lacking both domestically and internationally. The clearest signal of this opposition was the British Parliaments vote to prevent P.M. Cameron from authorizing military action in support of the expected U.S. military strike.
DC Follies, Puerto Rico and A Report on Defaults and Bankruptcy
by Gregg Bienstock of Lumesis,
I start this week with some observations on the follies taking place in our nations capital, then provide some data around Puerto Rico and, finally, a look at a recently released report around municipal defaults. One might argue a common thread just might run thru this commentary. Be on the lookout for a special release later this week as the Geo Score is updated for States, Counties and over 330 Cities.
How to Strengthen Your Portfolio Core
In strength training and investing, your core is everything. Its the foundation or base from which you build upon to reach new levels of success. Without a solid core, you are doomed to underachieve because you dont have the right balance needed to attain your goals. By starting from the ground up using concrete core holdings, you can add additional tactical positions from which to enhance your returns. That way you will have a well-rounded portfolio strategy that is easy to understand.
Read My Lips...
Chairman Ben Bernankes press conference this week, commenting on the decision by the Federal Open Market Committee (FOMC) not to taper, reminded us of the famous slogan of Presidential hopeful George H.W. Bush at the 1988 Republican National Convention Read my lips: no new taxes. Yet, after he won the election, he raised taxes in an effort to reduce the public deficit.
One Trick Pony: Whipping the GDP Donkey into a Stallion
The difficulty since 2012 has been that if you are not significantly overweight US equities, then your returns are less than stellar. Employing a diversified, risk-averse investment strategy in 2013 has in hindsight been the wrong thing to do, given that every other asset class is negative year-to-date, while US stocks are up double digits. The combination of the Feds Zero Interest Rate Policy and the artificial bubble in Treasury bonds has forced conservative investors into riskier positions in order to find risk-adjusted returns.
Active ETF Market Share Update & Weekly Market Review
Last week, total AUM in all active ETFs increased by almost $80.2 million. Assets in the two largest categories Short Term Bond and Global Bond fell by $20.65 million and $38.585 respectively. As the dollar weakened on the Federal Reserves decision to delay tapering, the Foreign Bond category increased by $65.725 million and Currency active ETFs added $7.43 in value. Just like the previous week, the second largest increase in AUM came in the High Yield ETF category, which this time rose by over $44.35 million, main
Lehman Five Years LaterLessons and Threats
by Dean Curnutt of Macro Risk Advisors,
The five-year anniversary of the Lehman bankruptcy and onset of financial crisis is here and so too is the raft of opinion pieces around what caused the meltdown and how it is different this time.In a recent interview with Charlie Rose, when asked about the risk of another 2008 event, Morgan Stanley CEO James Gorman said, The probability of it happening again in our lifetime is as close to zero as I could imagine.
ENERGY MLPs: A Suitable and Sustainable Asset Class
Key Takeaways: MLPs have provided income with little correlation to other asset classes and little sensitivity to interest rates, commodity prices or economic cycles. The market for MLP stocks has expanded greatly and offers liquidity which appeals to long-term institutional investors. The renaissance in U.S. energy production is driving sustainable growth in the infrastructure that MLPs own and operate
Enhanced Dividend for Income
It is axiomatic in the financial planning canon that investors searching for a steady source of income should rely heavily on bonds. Stocks are for capital appreciation and bonds for income. The practice is so ingrained, that I have not heard of many investors who would make the case for using an equity portfolio to generate income. Bonds also appeal to advisors because of their inherent principal protection advantage. As a bond owner, you are a creditor, not an owner.
Growth and Rising Stars
by Mark Kiesel of PIMCO,
While developed market growth in several regions is picking up cyclically from low levels, overall global economic growth should remain subdued over the next several years. We believe credit spread tightening and rating upgrades are most likely for specific companies in industries and areas with strong growth. We see these "rising star" companies in the U.S. and European auto sector, the gaming, energy and chemical industries and in sectors tied to the U.S. housing market.
The Taper That Wasn't
by Peter Schiff of Euro Pacific Capital,
The Feds failure today to announce some sort of tapering of its QE program, despite the consensus of an overwhelming percentage of economists who expected action, once again reveals the degree to which mainstream analysts have overestimated the strength of our current economy. The Fed understands, as the market seems not to, that the current "recovery" could not survive without continuation of massive monetary stimulus.
Stock Funds' 5-Year Track Records Set to Double
Many investors focus on the previous five years annualized return when analyzing which mutual funds to buy. We also pay a good deal of attention to the 5-year performance number when analyzing mutual fund and ETF returns at Halbert Wealth Management. And currently the 5-year average returns for most equity mutual funds are not all that attractive.
The Debate on DFAs Research
by Various,
We received many responses to Michael Edesess article, Why DFAs New Research is Flawed, which appeared last week. We provide the responses from individuals who disagreed with Edesess findings, followed by Edesess response and then by responses in agreement with his findings.
Europe's Fragile Recovery
Investors have tentatively begun to buy into the European recovery story, but remain fearful of the regions fragility. A few bits of upbeat economic data recently have provided grounds for optimism, and the European Central Banks continued commitment to holding the Eurozone together has boosted confidence. Tucker Scott, portfolio manager forTempleton Foreign Fund, still sees a few economic roadblocks in Europe but also plenty of progress. He shares where hes finding signs of strength and investment opportunities.
ECRI Recession Watch: Weekly Update
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 132.3, an increase from last weeks 131.5. The WLI annualized growth indicator (WLIg) rose to 4.1% from last weeks 3.9%.... At this point the company is still featuring a commentary posted at the end of July, Becoming Japan, which highlights the decline in GDP growth for Japan and seven other major economies, including the US.
Trumping Cheap Labor
by Teresa Kong of Matthews Asia,
Wages in China have surely risen, and some pundits argue that this growth will eventually make the country less competitive. But more nuanced and recent theories suggest that manufacturing centers can cluster around pools of more skilled labor, transportation networks and economies of scale. This month, Teresa Kong, CFA, examines the reasons why China is about more than just low-cost workers.
Pacific Basin Market Overview August 2013
by Team of Nomura Asset Management,
Asian equity markets ended lower in August, chiefly due to concerns about currency weakness in India and Indonesia, while improved macroeconomic data from China contributed to this markets outperformance. The MSCI AC Asia Pacific Free Index including Japan fell by 1.3% while the MSCI AC Asia Pacific ex Japan Free Index closed 0.71% lower during the month. (All performance figures are based on MSCI indices in U.S. dollar terms with dividends included unless otherwise stated.)
Brave New World
If the monotony of high school lulled you into a catatonic state the semester you were supposed to read Brave New World, heres the CliffsNotes summary of what you missed. Aldous Huxley imagined a futuristic utopia in which the government promotes economic and emotional stability through the plentiful use of a soporific opiate called soma. Soma allows the mind to take a holiday from worldly problems via a gram, or two or three. Imagine the chaos into which this fictional world would descend were the government to abandon its role as pharmacist to the masses.
Absolute Return Letter: A Case of Broken BRICS?
EM currencies, stocks and bonds have struggled since the Fed signalled its intent to change course in late May. This has seemingly triggered an exodus of speculative capital from emerging markets but, as is always the case, there is more to the story than that. EM countries (ex. China) no longer run a current account surplus with the rest of the world, and this hurts global liquidity. It is not yet a re-run of the 1997-98 Asian crisis, but it has the potential to become one with all sorts of consequences for bond yields in developed markets, currency wars, etc.
Some Scary Bumps in the Road Just Ahead
The major stock indexes moved lower after setting new record highs in early August, although prices have recovered somewhat in the last few days. So was the weakness in August just an overdue correction before moving even higher? Maybe, but there are a number of things coming up in the next month or so that could rattle the markets even more, including whether or not we go to war with Syria. Well talk about those today.
Weekly Market Review
The major US stock indexes fell once again last week, capping off the worst monthly performance of the S&P 500 in over a year. However, the index is only 4.69% below its all-time intraday high reached on August 2nd. While fear that the Fed would vote to start ending extraordinary stimulus measures at the next meeting late in September was the main reason cited for the decline, thin trading volume in August and especially the week before Labor day may have made led to increased volatility and price declines.
ECRI Recession Watch: Weekly Update
Last year ECRI switched focus to their version of the Big Four Economic Indicators that I routinely track. But when those failed last summer to "roll over" collectively (as ECRI claimed was happening), the company published a new set of indicators to support their recession call in a commentary entitled The U.S. Business Cycle in the Context of the Yo-Yo Years (PDF format). Subsequently the company took a new approach to its recession call in a publicly available commentary on the ECRI website: What Wealth Effect?.
The Big Four Economic Indicators: Nonfarm Employment
Ive now updated this commentary to include todays release of the August Nonfarm Employment data. As the adjacent thumbnail illustrates, the trend in this indicator has been ever upward, but at a frustratingly slow pace. Todays announcement of only 169K new jobs was below forecasts. Moreover, the nonfarm jobs number for July was revised downward from 188K to 172K and the June number was revised downward from 162K to 104K for a combined decline of 74K from last months report.
Off to the Races
Summer is traditionally a slow season for precious metals, but this summer started with a rout. In the last week of June, gold and silver hit 2-year lows of $1,192 and $18.61 respectively. Fortunately, after staggering along the lows, the precious metals are off to the races once more - with gold rallying more than 18% and silver 31%. This remarkable performance continues even in the face of the Feds sustained tapering threats.
So Step Right Up, Pick Your Favorites...
by Blaine Rollins of 361 Capital,
So with the backing of The White House, the State Department, the Senate & The Economist, the United States is going to launch Tomahawks on Syrian targets. The President did say that he will let Congress vote on a strike, but both he, Secretary Kerry and Senator Reid let it be known that they will be lighting fuses soon. So as a refresher as to who is supporting whom in Syria, the chart below will both assist and thoroughly confuse you...
Getting Prospects to Respond to Your Emails
by Dan Richards,
The chances that a prospect will open an email from someone they dont know are slim. Advisors who rely on mass emails are increasingly challenged to find creative ways to get their message through. But a few advisors who are succeeding in attracting clients via email invitations told me of five ways they get past inbox filters.
Where's the Job Growth? Puerto Rico & Illinois and the ACA
by Gregg Bienstock of Lumesis,
Welcome back from your Labor Day weekend. This week we take a look at the employment data (pre-First Friday Employment Report) and try and find where there is Job Growth of any kind. We then take a closer look at Puerto Rico against the backdrop of some recent changes and comparative data, and close out with a look at the Affordable Care Act (aka Obamacare).
The Unfriendly Skies
by Peter Schiff of Euro Pacific Capital,
As if the federal government were not already doing enough to kill the U.S. airline industry with restrictive workplace rules, over-regulation, and a monetary policy that supports higher fuel prices, earlier this month anti-trust authorities at the Justice Department blocked the merger between American Airlines and US Air.
Results 5,951–6,000
of 6,534 found.
