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The Adjusted Gold/XAU Ratio as an Indicator of Forward Returns for Gold Stocks
by Georg Vrba, P.E.,
While the recent bull market took gold prices to new highs, the prices of gold-mining companies lagged. Some claim those companies are now drastically undervalued, and we can investigate that claim by examining the relationship between gold and gold-mining prices.
The Impact of Uncertainty
by Teresa Kong of Matthews Asia,
While markets act like toddlers over the short term, what are the key drivers over the long term? The impact of the European crisis on global growth will be the key determining factor on market performance. Small, open economies such as Hong Kong, Singapore and Taiwan will likely be more greatly impacted. Countries with domestic consumption as large drivers of GDP, China, Indonesia and India, might be relatively sheltered due to their relatively large internal markets. While risk aversion may cause markets to overreact in the short term, we believe long-term structural growth should continue.
Fed Extends Maturities
Fed Notes-The TwistObservations and takeaways on the Fed's two day meeting this week.
Bank Bondsplus Extraordinary Calls on Trust Preferred SecuritiesWe elaborate on factors affecting the banking sector.
Obama Bill Questions Exemption on Muni bondsOur view on one piece of the job proposal presented by the Obama administration.
Liquidity- Ignore at Your PerilWe highlight some reasons why liquidity, especially in volatile markets, is an important investment factor.
The Great American Economic Lie
The idea that the economy has grown at roughly 5% since 1980 is a lie. In reality the economic growth of the U.S. has been declining rapidly over the past 30 years supported only by a massive push into deficit spending. From 1950-1980 the economy grew at an annualized rate of 7.7%. This was accomplished with a total credit market debt to GDP ratio of less than 150%. The CRITICAL factor to note is that economic growth was trending higher during this span, going from roughly 5% to a peak of nearly 15%. The end game of three decades of excess is upon us.
If Some Dare Call It Treason, Was Milton Friedman a Traitor?
by Paul Kasriel of Northern Trust,
The principal factor accounting for the current exceptionally weak economic recovery is not unusually high uncertainty, too burdensome regulation and taxation, excessive federal government spending and/or debt or a major structural change in the economy, but rather inadequate depository institution credit creation. The reason depository institutions are not creating normal amounts of credit is that they suffered enormous losses after the residential real estate bubble burst and they remain concerned about current and/or future capital adequacy.
Five Strategies for a Sideways Market
If this slow growth environment coupled with asset price volatility continues for (to steal a quote from Fed Chairman Bernanke) 'an extended period,' what additional portfolio strategies might aid the overall risk/return profile of investor portfolios? More specifically, how do you manage investments in a sideways market?
Matt Ridley Makes a Case for Optimism
Matt Ridley's new book, The Rational Optimist, uses powerful examples from history and compelling logic drawn from economic theory to remind us that human achievement is cumulative, and the future looks bright, particularly for the less fortunate in the world. It is especially welcome at this discouraging moment in time.
Warren Buffett Said Ignore Political and Economic Forecasts
by Julie Carnevale of F.A.S.T. Graphs,
This article is about casting a light of reason on the longer-term perspective, in contrast to what is typically an emotionally charged attitude about short-term volatility. It is human nature to judge the performance of our portfolios based on their closing stock price for any given day, week, month, or even quarter. The point we're trying to make here is that it is not the most important factor, unless you were actually planning to sell on the day you measure it. Otherwise, the intrinsic value derived from the operating results that you generate is more important than price volatility.
How Conservative Investing Threatens Retirement
by Dan Richards,
Just as the Great Depression left a generation with a poverty mentality that still persists, the two bear markets of the last 10 years risk shaped an entire generation's attitude to investing. That's a key finding from a survey of affluent Americans commissioned by Merrill Lynch and released earlier this year, and it raises important implications for how financial advisors should deal with conservatively-minded investors.
Can American Become Greece?
Investors face four possible implications from the recent downgrade of America's long-term credit rating by Standard & Poor's: 1) Lower prices for financial assets; 2) Higher volatility in the asset markets; 3) Greater potential for trend-following investment strategies, and 4) Attractive opportunities in 'blue chip' stocks.
Urbanization: Driving Commodity Demand
Increasing economic activity in emerging markets has continued to push up the demand and prices for key resources such as metals and oil. Infrastructure spending is a key factor driving this rising demand, as more of the working population in emerging markets move from rural areas to the cities, increasing consumption and putting upward pressure on both hard and soft commodities. Long-term commodity prices are likely to be driven by rising global demand as well as increasing costs to obtain these commodities.
Making Sense of Thursdays Violent Market Sell-Off
by Mohamed A. El-Erian of PIMCO,
Technical factors played a role in Thursday's unsettling market moves, including the disorderly across-the-board collapse in the price of risk assets in the final hour of trading and the related surge in U.S. Treasurys. But they were not the cause. Rather, they amplified three factors that will determine the fate of markets in the weeks ahead. First, it is now undeniable that the U.S. economy is weakening across the board. The second factor relates to confidence. Markets are worried that policymakers will not be able to put the economy back on the right path. And then there is Europe.
Seven Implications for the Coming Retirement Revolution
by Dan Richards,
Most advisors look to seniors as a core part of their client base. That's why it's essential to understand how boomers are going to transform retirement, just as they have redefined every other stage of their lives. Let's look at three new pieces of research and the seven implications they carry for retirement planning.
Survey Results: Advisor Use of 529 Plans
by Paul Curley, CFA,
With investor sales volume returning to the 529 industry, financial advisors have an opportunity to grow their business. However, they are missing out: Asset growth within the advisor-sold channel has not kept pace with the growth experienced by the direct-sold channel.
On Your Mind: Debt Ceiling and the US Dollar
by Team of Charles Schwab,
The uncertainty surrounding the upcoming decision on the debt ceiling has been a negative factor for the dollar. A US default and/or a downgrade of the US credit rating would almost certainly be negative also. It could weaken confidence in the dollar and cause it to fall. However, there are many global factors driving demand, including support of Japan and China, which continue to be large holders of US Treasuries. It would not be in their interest to sell dollar-denominated assets, including Treasuries, if there was simply a rating change or short-term default.
Gundlach: A Debt Ceiling Impasse Could Drive Rates Lower
by Robert Huebscher,
Failing to raise the debt ceiling would be a 'huge financial calamity,' according to Federal Reserve Chairman Ben Bernanke and the general consensus view. But that opinion is 'exactly wrong,' at least as far as the Treasury market is concerned, DoubleLine's Jeffrey Gundlach said in a conference call with investors last Tuesday.
A New Approach for Forecasting Market Returns
by C. Thomas Howard,
I propose a method for predicting future market movements, which I call the strategy market barometer (SMB). The SMB is calculated by measuring the extent to which investors are rewarding specific investment strategies being pursued by active equity managers. My research reveals that equity strategy performance ranking is a useful predictor of future market returns, and tests confirm that market returns vary in line with SMB measurements.
The Real Story behind Bond Yields
by Michael Nairne,
One of the most important questions that individuals should ask before making any investment is 'Am I being paid enough for the risk of this investment?' I analyze the returns available today from government bonds and answer this important question for this asset class.
An End-of-Quarter Letter to Clients
by Dan Richards,
Given recent unrest in Europe and uncertainty about economic growth, many clients are looking to their advisors for direction. This template for an end-of-quarter letter is a starting point for your own letter to clients, one that can be a catalyst for a conversation about how to position portfolios.
A Million Dollar Meeting Gone Wrong - A Lost Prospect Tells All
by Dan Richards,
Over lunch last week, a long-time friend who's a partner at a Toronto law described a recent meeting with a financial advisor seeking his business and how some subtle errors and obvious mistakes cost the advisor the opportunity to do business.
An Important Challenge to ?Stocks for the Long Run?
by Geoff Considine,
Jeremy Siegel's dictum - to invest in stocks for the long run - faces a new challenge. A recent paper by Robert Stambaugh, a Wharton colleague, and Lubos Pastor of the University of Chicago says that once you take into account the uncertainty of estimating future returns, stocks are not nearly as attractive to retirement-oriented investors as Siegel has claimed.
Higher Commodity Prices and the End of Economic Growth Without Inflation
by Mihir P. Worah of PIMCO,
Global inflationary patterns may shift amid higher commodity prices.
We expect commodity prices to be generally rising going forward, though with volatility and differentiation among commodities.
Emerging markets going through a particularly commodity and energy intensive phase of growth may affect what developed-world consumers pay for commodities.
Currencies are another factor. If developed-world policymakers attempt to make their economies more competitive via a cheaper currency, that could lead to higher inflation for those that are net importers.
A Proven Path to Business Breakthroughs
by Dan Richards,
In my conversations with advisors, implementing change often tops the list of business challenges and frustrations. To advance your business, one proven strategy that has demonstrated remarkable success over not just years but decades is tapping into the power of peer-performance groups.
What Fama and French?s Latest Research Doesn?t Tell Us
by Michael Edesess,
With the high name recognition and respect that the team of Eugene Fama and Kenneth French enjoys in the world of finance, anything they publish warrants attention. Their latest offering, Size, Value, and Momentum in International Stock Returns, offers some interesting data on global equity performance. But they fail to offer any insights that explain the reasons behind their findings.
Understanding Recent Market Movements
by Mohamed A. El-Erian of PIMCO,
Despite massive fiscal and monetary stimulus, the U.S. economy has frustratingly failed to gain proper traction.
The U.S. economy faces structural impairments in housing, credit, public finances, and the functioning of the labor market.
The situation in Europe is another factor undermining market sentiment.
Structural problems require structural solutions that are adopted within a clearly communicated overall vision.
ProVise Bullets
by Team of ProVise Management Group,
As the first of the Baby Boomers begin to turn 65, they are being greeted with some bad news concerning Medicare and Social Security, especially since they hope to enjoy a longer time in retirement. Social Security is now scheduled to be exhausted by 2036, a year earlier than was projected last year. In addition to longer life spans, the 2% reduction in Social Security tax this year was a major factor in this updated information. As bad as things are for Social Security, things are worse for Medicare, which is projected to be bankrupt by 2024, five years sooner than was projected last year.
Doubling the Turnout to Client Events
by Dan Richards,
Many advisors are puzzled and frustrated by just how hard it is to get clients to show up when they organize events for them. Achieving great turnout isn?t easy, but it can be done - I recently spoke to an advisor who made a couple of simple changes to his annual event and doubled attendance as a result.
The WikiLeaks of the Economics Profession
by Michael Edesess,
What Caused the Financial Crisis presents the most comprehensive account I have seen of the regulations that, when considered as a whole, have incentivized unprecedented self-delusion and risk-taking in the subprime mortgage market. To put it in a manner that financial advisors will understand, the book shows that the policies and regulations greatly increased the Sharpe ratio of the financial industry - they increased the return for taking risk.
Profit Margin Squeeze Continues to Grip the Economy
by Doug Short,
The two charts below offer clues for evaluating the risk of profit margin squeeze in the current economy. One is the ratio of crude to finished goods in the Producer Price Index (data through April). The other is an indicator constructed from two data series in the Philadelphia Feds Business Outlook Survey through todays release. It is the spread between the Philly Feds prices paid (input costs) and received (prices charged) data. A major risk factor for margin squeeze is the increase in commodity prices over the past several months with the price of oil and gasoline as the dominant factor.
Howard Marks on the Human Side of Investing
by Robert Huebscher,
Howard Marks is widely regarded for his thought-provoking essays on the discipline and process of value investing. He is the chairman and co-founder of California-based Oaktree Capital, and he delivered the keynote address at the Value Investing Congress in Pasadena last week.
P/E: Future on the Horizon
by Ed Easterling,
Most people expect P/E to measure current valuation and to show historical patterns. But more features are available from some versions of P/E. The methodology behind the Crestmont P/E enables investors to anticipate the future. It may not precisely predict the market ten years away, but it frames within a relatively tight range the likely outcome. One component from determining the Crestmont P/E is a means to assess the future trend line for EPS using estimates of future economic growth (GDP).
Why Demographics will Drive Global Growth
by Sam Parl,
When economic pundits trade heated predictions about the massive economic shifts we see internationally, it is easy to forget the subtleties that shade their forecasts. One such shadow overhanging any intelligent debate about our global economic future is global age demographics, according to Harvard Professor Richard Cooper.
Managing Exposure to Extreme Markets
by Geoff Considine,
Volatility in the equity markets has subsided, courtesy of a strong bull market and fading memories of the 2008 financial crisis. Risks remain, however, ranging from the turmoil in northern Africa to sovereign debt instability in Europe. Investors can take advantage of the complacency in the equity markets by purchasing inexpensive insurance against adverse events.
The Return of the Carry Trade?!
by Jeffrey Saut of Raymond James,
There may be an increase in the carry trade in both dollars and yen, but I dont think this is the main factor behind the rise in commodity prices and demand for risk assets. Bank policies matter a lot for currencies. However, the U.S. is not going to raise rates anytime soon, implying a somewhat softer dollar. Youre hearing inflation concerns among some of the district bank presidents, but that is a minority view. The Fed sees higher oil prices as bad for growth, not a catalyst for a higher trend in underlying inflation; but officials will be watching the trend in core inflation, and wages.
Dumb, Dumber and Dumbest
The two stupidest characters ever to grace the big screen - Lloyd Christmas and Harry Dunne - were first introduced to the world in Jim Carrey's 1994 movie, Dumb and Dumber. If that movie were made today, its leading characters could easily be our government and the supposedly independent Federal Reserve Bank. Both of these institutions have foisted their misguided policies on the American public, who, in their passive acceptance, have proven themselves to be the dumbest of all.
Why High Oil Prices Are Likely Here to Stay
A number of forces continued to push oil prices higher this week, reaching their highest levels in the U.S. since September 2008. One factor fueling the run has been the continued decline of the U.S. dollar. Oil and the dollar historically are negatively correlated. This means that a rise in oil prices generally coincides with a decline in the dollar, and vice versa. The U.S. dollar has seen a dramatic decline since the beginning of the year as oil prices have moved some 30 percent higher. This could be due to fact that roughly two-thirds of the U.S. trade deficit is related to oil imports.
The Future of Investment Manager Due Diligence (and a Look Back at Q1 Performance)
by Ron Surz,
Despite the continuing global financial crisis, the uprisings in the Middle East and the Japanese disaster, global stock markets delivered positive results in the first quarter of 2011, as described in this capital market review. In the second part of the article, you'll discover what due diligence procedures need to change and why.
Inflation versus Deflation: Two Experts Disagree
by Robert Huebscher,
An important question for all investors is whether low inflation rates will persist or whether the economy is heading toward much higher inflation. The answer to that question will dictate asset class allocations, portfolio construction and ultimately the rates of return investors should expect.
Profit Margin Squeeze and Inflation Risk
by Doug Short,
A major risk factor for margin squeeze is the increase in commodity prices over the past several months. The latest turmoil in the North Africa and the Middle East has now put oil prices in the spotlight. At present, in light of the unemployment rate and the ongoing demographic shift, the rise in commodity prices probably poses more risk of margin squeeze than run-away inflation. Some degree of cost-push inflation may be a near-term risk, but the demand-pull inflation we saw in the 1970s is difficult to evision in the US economy of this decade.
Barbie's Lesson from Shanghai
by Winnie Phua of Matthews Asia,
Mattel?s Barbie store in Shanghai closed March 7, 2011. The sudden closure of the Barbie store left many baffled. The U.S. toy maker has stated that it is reorganizing its China strategy. Others, however, argue that the store is closing because Barbie?s classic western appeal has not caught on in China where girls tend to prefer cute animated characters, such as Hello Kitty, over a womanly life-like doll. Barbie?s price point (US$15 to US$30) has also been criticized as too high, particularly for a toy with limited brand recognition or nostalgic factor for parents who hold the purse strings.
Toward an Understanding of Risk - Part 2
by Robert Huebscher,
How should clients think about risk in their portfolios? Advisor Perspectives put that question to a cross-section of prominent advisors and academics. Their answers encompassed diverse opinions and underscored how crucial that question is to the investment process. In part one of this series, which appeared last week, we heard from seven practitioners in the financial planning community. This week, we hear from seven well-known academics, including two Nobel Prize winners.
David Laibson on the Hidden Challenges of Aging Clients
by Dan Richards,
In this interview, Harvard economist David Laibson discusses his research into the challenges of helping elderly clients with their financial planning. He also discusses how to overcome the procrastination and laziness that often result in inferior investment decisions. This is a transcript of the interview.
Optimizing Your Fixed Income Allocation
Here's a little-known fact: The traditional 60/40 portfolio, when using the aggregate-bond index for its fixed-income allocation, has a 99% correlation to the returns of the S&P 500. One way to overcome the limited diversification value offered by the aggregate index is to use a risk-parity approach. In this article, I explore the concept of risk parity in asset allocation and how it provides value for portfolio management.
Go for the Long Bond: Technical Indicators are Positive
by Georg Vrba, P.E.,
My article, Seeking Beta in the Bond Market: Update December 31, 2010, showed that my Bond Value Ratio (BVR) model indicated the beginning of an up-market for high-beta bond funds on 12/17/10. I present a further indicator here which reinforces this signal.
Richard Bernstein: The Antidote to Pessimism
by Robert Huebscher,
For an antidote to the bearish sentiment coming from David Rosenberg, look at Richard Bernstein. In contrast to Rosenberg's vision of Japan's lost decade, Bernstein expects the S&P to outperform emerging markets, at least in the near term.
The 2011 Economic Outlook ? Credit Given Where Credit Is Due
by Paul Kasriel of Northern Trust,
With regard to 2011 real GDP growth, we now expect Q4/Q4 growth of 3.3% vs. 3.0%. An upward revision of 2011 Q4/Q4 real consumption growth to 2.9% from 2.5% in November is the primary factor accounting for the upward revision to the real GDP growth forecast. We are more optimistic about 2011 real GDP growth primarily because QE2 implies that the Fed will be purchasing all of the additional Treasury debt issued in conjunction with the Obama-McConnell tax and unemployment insurance compromise. We currently see more upside risk to our 2011 real GDP growth forecast than downside risk.
Results 6,301–6,350
of 6,445 found.
