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The Fed Prepares to Dive
by John Mauldin of Mauldin Economics,
This week’s letter has two parts. The first deals with some of the practical aspects of negative rates and what the Fed is really signaling. The second part, which is somewhat philosophical, deals with why the Fed will institute negative rates during the next recession. This letter is longer than usual, but I think it’s important to understand why we will see negative rates in the world’s reserve currency (and the currency in which most global trade is conducted). This policy trend is truly a foray into unexplored territory.
A Better Week but Traders Have the Upper Hand
A short week and, with China closed the prior week, we thought markets may regroup. And they did. The U.S. market rose around 4%, U.S. small caps by 5% and major international markets by around 4%. We don’t usually like to show weekly market moves...there's a high signal to noise ratio, but here it is.
Signs of Hope Emerge, but Pessimism Remains High
Equity prices soared higher last week around the globe. In the United States, the S&P 500 Index climbed 2.9%, and gains in Europe and Asia were even higher. However, U.S. stocks continue to lead the pack year to date. At least some of the gains can be attributed to an oversold bounce and overly negative sentiment. Relative stability in oil prices and in China, along with decent economic and earnings data, helped as well.
Weekly Market Summary
by Urban Carmel of The Fat Pitch,
Equities followed through on last week's reversal, gaining 3-4%. Importantly, the rally came on unusually positive breadth: this has a strong propensity to push equity prices higher in the weeks ahead. Further upside also seems likely given extremes in investor pessimism, with fund manager cash levels rising to a 14 year high this month. Aside from the unpredictable path of oil, the biggest watch out is volatility.
Global Economic Perspective: February
The impact of China’s rebalancing is likely to remain a headwind, particularly for countries that have relied on its appetite for raw materials. But this is likely to be counterbalanced by the continuation of the various accommodative monetary policies that are in place around the world.
Window Still Open on Social Security Rules Changes
It is important to note that file and suspend will remain available for those who reach full retirement age (66) prior to the law taking effect May 1, 2016. For those who were born on or before January 1, 1954, a group that was in effect grandfathered under the law, restricted application will remain available for an additional four years in its current form. Even with the pending changes, there are still strategies available to maximize Social Security benefits for these two populations, including those who have been divorced.
Do a Grouch a Favor
Investors should consider rebalancing their portfolios away from trying to maximize return in favor of maximizing consistency of the return.
I would also strongly favor strategies that aim to directly manage the volatility of a portfolio rather than the return.
While such strategies may result in lower projected returns, investors who employ them are more likely to achieve those returns because lower volatility goes hand in hand with staying invested.
5 Myths About the Recent Decline in the Stock Markets
The financial news in early 2016 hasn’t been good. When we say the news hasn’t been good what we really mean is that the news media has been hyperbolic in their treatment of the weak market. Here are a few of the adjectives used to describe market activity: nightmarish, plunged, dive, rocked, plummeted. And this is just from a single article! Yes, we know the market is down and frankly we’re not happy about it. But…
5 Reasons to Keep Calm and Stay Diversified
Recent market turmoil underscores the necessity of active management and the ability to take advantage of volatility. US Investment Strategist Kristina Hooper says this is not a time to move to cash, but to take a longer-term view—with confidence—through periods of tumult.
Weekly Market Summary
by Urban Carmel of The Fat Pitch,
The move into the perceived safe havens of treasuries and gold in 2016 appears to have reached a point of short-term exhaustion. That trend might resume, but odds suggest a pause is ahead. If optimism reached a peak in safe havens, pessimism likely reached a trough for equities. None of this will matter if oil and equities continue to be highly correlated and oil is unable to stop falling. A strong 2-day rally still left oil lower than it was on Tuesday. Unlike last week, equities now have a bottom to trade against.
A Recession Remains Unlikely Despite Market Turmoil
Equity prices fell again last week, with the S&P 500 Index dropping 2.6% despite a significant bounce on Friday. Investors continued to focus on downside risks and fears of slowing growth. Rising concerns over central banks adopting zero or negative interest rate policies also detracted from market sentiment, drove confidence lower and resulted in a sharp sell-off in banking sector stocks.
On My Radar: What We See Working
Let’s begin today with the argument that we are in a long-term “secular” bull market regime and look at a few stats. There have been four secular bull periods dating back to 1921 (1921-1929, 1942-1951, 1982-2000 and 2009-present). Within those four secular bull market periods, there have been eight short-term “cyclical” bear market periods.
Don’t Count on Your Message to Persuade Prospects
by Dan Solin,
I once represented a woman whose farm had been contaminated by oil that leaked from huge tanks across the highway from her property. Opposing counsel was far more experienced in this kind of litigation. But I learned that outcome of the case itself had less to do with the facts than how I conducted myself – a lesson that applies when advisors present to prospects.
Thornburg Investment Management: Our Unique Investment Approach
by Robert Huebscher,
Thornburg Investment Management’s first equity fund, the Thornburg Value Fund, has returned 6.80% since its inception in 1995, versus 5.23% for the S&P 500. On February 8, I spoke with Bill Fries, who is in the process of transitioning to senior advisor this year, Connor Browne, the manager of the Value Fund and who was mentored by Bill when he managed that fund and Jason Brady, president, CEO and the head of global fixed income.
International Economic Week in Review: Data Points To Continued Weak Growth, Not Recession, Edition
by Hale Stewart,
Most major economies are OK. Yes, there are potential issues related to emerging market weakness bleeding into larger, advanced economies. But, as of this writing, we’re still in a slow, grinding growth.
Are Unicorns for Real?
by Lee Robinson of Altana Wealth,
The world is a rapidly changing place. We see lots of disruption with many losers and winners. For asset owners, spotting and removing those stocks and bonds that could fall 80-100% is just as important as finding those new winners. Arguably the former is much easier than the latter.
Trump: We’re Getting Railed by High Taxes and Regulations
It’s not the first time Trump has made a wild claim, but in this case he’s right, by one very important measure—the corporate statutory tax rate. Since 1990, this rate has hovered around 39 percent, making it the highest among OECD nations, and for the largest GDP in the world.
2016 Economic & Capital Market Outlook
This year will likely be a challenging one for both the capital markets and investors. Investors are facing one of the worst stock markets in sixty years as stock prices plunge on news of slowing growth in China and plunging oil prices. We believe the risks in the economy are skewed to the downside and expect to see growing problems in manufacturing and the consumer sector. However, at the same time, this will prove to be a year of opportunity as stock prices of quality companies decline to levels that are now attractive and investors are adequately compensated for taking risk.
Through the Looking Glass on Rates
by John Browne of Euro Pacific Capital,
On January 29th, Japan’s central bank governor, Haruhiko Kuroda, announced that the Bank of Japan would introduce a Negative Interest Rate Policy, or NIRP, on bank reserve deposits held in excess of the minimum requisite. The European Central Bank, and central banks in Switzerland, Denmark and Sweden have already partially blazed this mysterious trail. The banks have done so in order to weaken their respective currencies and to light a fire under inflation.
Russia's Struggles
Over the past year, Russia has faced a growing number of challenges that have the potential to weaken President Putin’s hold on the reins of power. In this report, we will discuss recent trends in the country, including the economic problems caused by falling oil prices and the military operations occurring in Ukraine and Syria. We will examine the Putin government’s responses to these issues. As always, we will conclude with market ramifications.
Is the Year of the Monkey a Good Sign for Bulls?
by John Canally of LPL Financial,
Yesterday was the Chinese New Year, and with it comes the year of the Monkey. There are 12 animals in the Chinese zodiac, as it is based on a 12-year cycle. Take note that the Chinese New Year starts anywhere from mid-January to mid-February and is based on the lunar calendar.
A View From the Hill
by Team of Cedar Hill Associates,
Investors cautious after rocky 2015, but recession appears remote. Investors stomached a white-knuckle ride through much of 2015 as the financial markets searched for direction. Although global equity indices bounced off their September lows during the fourth quarter, returns for the full year proved disappointing.
Suffering Stock Market Stress?
by Chuck Carnevale of F.A.S.T. Graphs,
It would be an understatement to call the recent stock market activity turbulent. High stock price volatility makes investors anxious and some people even become downright frightened. These emotional responses are often exaggerated for people in or near retirement. Therefore, I contend that all investors need to find ways to keep their emotions in check in order to avoid panicking, which typically leads to the making of a devastating financial mistake.
Learning from Taylor
While attending one of my son’s downhill ski races over the weekend, I found myself riding the chairlift back to the top of the hill listening to the fifth Taylor Swift song in a row, blaring from the loud speakers. I thought, isn’t it possible that we’ve had too much of Taylor Swift? I mean she is everywhere on country and pop radio and has been for many years. And that had me thinking about last week’s news from central bankers, here in the U.S. and abroad.
Quarterly Letter
by Team of Grey Owl Capital Management,
The Grey Owl investment process starts and ends with robust risk management. Our goal with the Grey Owl Opportunity Strategy is to provide equity-like returns, but with lower drawdowns and volatility than the major equity indices. As such, we worry about the downside first. We do not want clients to fear opening their monthly statements, and we certainly do not want to put regular withdrawals at risk, regardless of what the indices are doing.
Deflation Rears Its Ugly Head
Several years ago we developed a view that the U.S. economy and its equity market were misunderstood, out of favor and undervalued. The world was infatuated at the time with the mesmerizing growth rates of many emerging market economies while the U.S. was viewed as having been bumped from center stage by the ascendant BRIC (Brazil, Russia, India and China) economies. Over the five years, 2009-2014, investors moved a stunning $1.6 trillion into emerging market funds.
GMO Quarterly Letter
by Ben Inker, Jeremy Grantham of GMO,
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker examines U.S. high yield corporate bonds, an "asset class that had a notably bad year," concluding, "at current spreads, high yield seems to be no worse than fair value and probably better than that... In today's environment, that makes it one of the best available risk assets for investors" ("Giving a Little Credit to High Yield").
Revenge of the Nerds
In a classic 1984 film, “Revenge of the Nerds,” a group of out-of-favor college students (“nerds”) assert themselves at the expense of highly-esteemed fraternity athletes and popular sorority girls. Here is how imdb.com describes the movie on their website:
“At a big campus, a group of bullied outcasts and misfits resolve to fight back for their peace and self respect.”
Gold to Beat Stocks?
by Axel Merk of Merk Investments,
"Stocks beat gold in the long run!" is a 'rallying cry' to buy stocks we have heard lately that gets me riled up. It’s upsetting to me for two reasons: first, an out of context comparison, in my opinion, misguides investors. It might be the wrong assertion in the short to medium term.
A Little Chaos Is a Good Thing
by John Mauldin of Mauldin Economics,
Longtime readers know that I rarely delve into partisan politics. That’s not the usual focus of this letter. While I am sure that most readers suspect that I generally lean Republican, I try not to let that enter into our macroeconomic and investment discussions. And I’m not really going to change that policy today. What I do want to talk about are the rather arcane topics of how the delegates to a national convention are chosen and what a “brokered convention” would actually look like.
On My Radar: The Last Bull Standing
Today, I share with you some of my high-level notes from this week’s Inside ETFs Conference in Hollywood, Florida. The forward return theme was consistent, from Vanguard to Wharton Professor Jeremy Siegel: expect low equity and fixed income returns. Jeffrey Gundlach left the audience in a state of depression (well the audience, not Gundlach) and Mark Yusko spoke of likely recession citing poor ISM numbers. This left Prof. Siegel to later say, “It appears I’m the only bull at the conference.”
Researching United Technologies: Here’s How I Do It
by Chuck Carnevale of F.A.S.T. Graphs,
One of the greatest challenges that authors face when posting articles on financial blogs is how much information they should include and how much they should exclude. Space is limited, and many readers prefer a short write-up over long dissertations. Therefore, most authors (yours truly included) attempt to summarize their positions in the fewest words possible. However, this approach implies that readers will fill in the blanks between what is said and what is left out. Unfortunately, that is not what always happens.
What Would Minsky Do Now?
In the two decades since his death, Hyman Minsky’s stature has grown enormously. He foresaw the great financial crisis of 2007-2009, and economists routinely refer to “Minsky moments” as the tipping point when seemingly stable financial markets collapse with catastrophic consequences. It’s instructive to speculate on how Minsky would view our post-crisis economic recovery, and a new book allows us to do just that.
A Frail New World
In this month's Absolute Return letter we argue why the long-term outlook for GDP growth and for returns on risk assets is uninspiring. We are often 'accused' of allowing the negative long-term demographic outlook to colour our view on risk assets in general, but in the February letter we argue why the demographic outlook is only one of (at least) four factors, which will hold back GDP growth as well as returns on risk assets in the years to come.
Tokyo Doubles Down
by John Mauldin of Mauldin Economics,
I’ve been busily writing a letter on oil and energy, but in the middle of the process I decided yesterday that I really needed to talk to you about the Bank of Japan’s “surprise” interest-rate move to -0.1%. And I don’t so much want to comment on the factual of the policy move as on what it means for the rest of the world, and especially the US.
Recession on the Horizon? Look at the Big Picture
Whether or not a recession is imminent, I believe it's a good idea for investors to be prepared by having a well-diversified portfolio, including assets such as gold and municipal bonds. Gold has tended to have a low correlation with stocks, meaning that even when stocks were tumbling, it's managed to retain its value well. The same can be said for short-term, high-quality munis, which have been shown to offer a greater amount of stability than some other types of securities, even during market downturns.
Crude Oil: The Bane of a Commodity Trader’s Existence
Oil traders everywhere probably had their fingers crossed that oil’s craziest trading days would not persist into the New Year. In 2015, we watched benchmark oil indices drop over 30% and the sheer number of shuttered commodity hedge funds is testament to how difficult trading ‘black gold’ has been. Unfortunately, I expect 2016 to be no easier – full of fits and starts with lots of volatility in between. However, by end of 2016 I expect crude prices to rise to $45-50 from current levels of just under $30.
Results 7,301–7,350
of 10,166 found.
