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Four Reasons to Consider Investing in Municipal Bonds
by Stephanie Larosiliere of Invesco,
In today’s low interest rate environment, the Invesco Municipal Bond team believes there are still attractive yields in the municipal bond market, making the asset class a compelling stand-alone opportunity or addition to a broader investment portfolio.
The Geopolitics of Helicopter Money: Part 2
Last week, we described in some detail the process of “monetary funded fiscal spending” (MFFS). Part 1 of this series included a discussion of why MFFS might be implemented, how it would work and the potential problems that come with using it. In this week’s report, we will examine two historical examples where forms of MFFS were implemented, Japan in the 1930s and the U.S. during WWII. Next week, we will conclude the final report of the series with market ramifications.
On My Radar: Stan Says Sell
At the beginning of each month, I like to look at equity market valuations. The stock market moved higher in April, yet for the fourth quarter in a row, corporate earnings were down. The good news about market valuations is that they can tell us a great deal about the annualized returns we are likely to get over the coming 10 years. The bad news is they tell us little about returns over the coming two years.
GMO Quarterly Letter
by Ben Inker, Jeremy Grantham of GMO,
The past five years have been challenging for long-term value-based asset allocation. We do not believe this constitutes a paradigm shift, dooming such strategies in the future. The basic driver for long-term value working historically has been the excessive volatility of asset prices relative to their underlying fundamental cash flows, and recent history does not show any evidence of that changing. Outperforming the markets given that pattern requires either betting that the excessive swings will reverse over time or accurately predicting what those excessive swings will be. The former strategy amounts to long-term value-based investing, while the latter requires outpredicting others as to both what surprises will hit the markets and how the markets will react to them. Our strong preference is to focus on long-term value, despite the inevitable periods of tough performance that strategy will entail.
John H. Cochrane for President
by Jeffrey Saut of Raymond James,
The erudite professor goes on to note that while the differences between 3.5% growth and 2% may seem small, the resultant consequences are large. For example, by 2008 Americans were three times better off than they were in 1952. He writes, “Real GDP per person rose from $16,000 [per year] to $49,000.” However, if growth in the 1950 to 2000 timeframe was only 2%, instead of 3.5%, the per capita income metrics for that same timeframe would have been just $23,000, not $49,000.
Any Gas Left in the High-Yield Municipal Tank?
A favorable credit environment and technical factors have contributed to strong high-yield municipal performance.
We see limited room for further appreciation with yields near historical lows, tighter credit spreads and a municipal curve as flat as it was pre-financial crisis.
Weaker relative value and the late stages of economic expansion argue for conservative high-yield muni positioning.
Metals and mining: The worst appears over for these bonds, but risks remain
Since early January, metals prices have turned sharply higher, thanks in part to a weaker US dollar and improved sentiment about China. In turn, we have seen a strong reaction in the bonds of metals and mining companies — investment grade and high yield metals and mining bond yields are tighter by 300 and 500 basis points, respectively.1 Following such strong moves, the question now is whether there is still value in metals and mining bonds.
Misbehavioral Finance: Countering Emotional Investment Decisions
Today’s concerns over the uneven state of the global economy, the direction of interest rates, and the price of oil – to name just a few current issues -- create a risk that emotions may unduly influence investment decisions. In our view, short-term market events and the emotions they can trigger should not drive investment choices. But how, exactly, can these factors be acknowledged while maintaining a proper focus on long-term goals and long-term investment strategies?
For financial professionals, we believe today’s environment demands a renewed focus on “softer” skills such as managing behavior. Here are five common behavioral biases we often see in the marketplace as well as potential solutions we often discuss with clients.
Abnormalities in the New Normal
Certain investment dynamics are behaving very differently post the 2008 Global Financial Crisis. Understanding these changes are important as they can provide opportunities for investors. In this month's Absolute Return Letter, we will look at the impact of some of these 'abnormalities' and how investors can profit from them. Enjoy the read.
Stockbroker Economics and Overestimating Diversification
by John Coumarianos,
The English journalist and economist Andrew Smithers has called “stockbroker economics” the belief that all news is good news and stocks are always cheap. Advisors recognize the fallacy of that logic and rely on diversification to counter the inevitable asset-class volatility that markets deliver. But, according to many forecasts – including those from GMO – virtually all asset classes are likely to perform poorly over the next decade.
"Justified" Consequences
by John Hussman of Hussman Funds,
Market conditions continue to be characterized by the likelihood of extremely poor long-term and full-cycle outcomes, with expected 10-12 year estimated S&P 500 nominal total returns in the 0-2% range, negative expected real returns on both horizons, and the continued likelihood of a 40-55% interim market loss over the completion of the current cycle; a decline that would represent only a typical run-of-the-mill cycle completion, based on valuation measures most tightly related with actual subsequent market returns across history.
Diversification Pays While Low Inflation Stays
by Brad Tank of Neuberger Berman,
Neither rising rates nor rising defaults would spell the end of opportunistic, diversified fixed income. There is one piece of conventional wisdom you may have heard in recent years. It says that opportunistic fixed income investors have been forced into high yield and emerging market debt because conventional bond yields have been so low, and that “chasing yield” like this always ends badly.
Are Investors in Europe Stuck in Bonderland?
by John Taylor of AllianceBernstein,
Like Alice when she fell down the rabbit hole, Europe’s bond investors find themselves in “curiouser and curiouser” terrain. That’s because souped-up ECB bond-buying is creating confusing new oddities—plus potential risks and opportunities.
On My Radar: He Ain’t Heavy, He’s My Brother
He sure feels like he’s heavy. From The Wall Street Journal this morning, “U.S. Growth Starts Year in Familiar Rut.” “A sharp pullback in business investment and weak global demand dragged down an already-lackluster U.S. economy in the opening months of 2016, the latest setback in a bumpy expansion entering its seventh year.” That marked the economy’s worst performance in two years.
Altitude Adjustment: Investing During a Period of Lower Returns and Higher Volatility
It can be difficult to adjust to the end of a good run. For years following the financial crisis of 2008, investors benefited from a rally in financial markets facilitated in part by expansionary policies of the Federal Reserve and other central banks around the globe.
Weekly Market Summary
by Urban Carmel of The Fat Pitch,
Equities fell this week, led by an 11% drop in the US's largest stock, Apple. For the first time since the February low, the near-term trend in SPY is weak: the current set up normally leads SPY, through price and time, to its 50-dma and lower Bollinger Band, both currently about 3% lower. Overall, breadth, sentiment, macro, commodities and seasonality support higher equities prices in the week(s) ahead. The month of May typically starts strong and the NDX has been down 7 days in a row: combined, these suggest a positive start to the week is likely.
Boring Ol' TIPS - Not So Boring Now
by Elaine Kan of Loomis, Sayles & Co.,
TIPS seem to be en vogue. Why the interest in this relatively unexciting, high-quality asset class? Some of the recent attention can be attributed to strong TIPS performance so far this year versus last year. But I also suspect that forward-looking investors are intrigued by the asset class as they keep a close eye on some looming market changes.
Second-Longest Bull Market Ever, Yet Investors Remain Skittish
If the US stock markets don’t collapse between now and Friday, this will be the second-longest bull market on record. Really. The current bull market began in March 2009 and will have lasted for 2,608 days (7.2 years) on Friday. If so, it will top the former second-longest bull market which ran from 1949 to 1956 (2,607 days). That’s quite impressive.
Should You Hedge Your Foreign Currency Exposure?
by Remy Briand of MSCI,
The volatility of currency has ticked up in recent years as a combination of monetary policy and currency wars fuel swings in the foreign exchange market. That leaves managers of global equity portfolios with a dilemma: disregard the volatility and leave their exposure to foreign currency unhedged, or apply fully hedged strategies that can prove costly over time.
On My Radar: Glut – The U.S. Economy… in the Age of Oversupply
Today, my plan was to highlight two of my favorite analysts, Dr. Lacy Hunt and Dr. Gary Shilling. But that plan has changed and importantly, I believe, what I share this week can give us a better understanding of the structural issues we face. And how they might be fixed. Listening to Bloomberg’s Tom Keene early this week, I stood quiet as he interviewed Daniel Alpert.
Earnings Remain Key to Equity Forecast
Equities climbed yet again last week, with the S&P 500 Index rising 0.5%.
Corporate earnings were mixed, and the biggest market story was ongoing
strength in commodities, particularly oil and metals. Bank stocks rallied
strongly for a second week, while defensive market segments struggled to
keep pace.
The ECB Remains Focused on Its Targets
by Rob Waldner of Invesco Blog,
The European Central Bank (ECB) surprised markets once again on April 21 with the timing of some important announcements and also the scope of its bond purchasing program. While the ECB kept all three of its policy interest rates on hold — as expected — and the size of its asset purchase program unchanged at EUR80 billion a month, ECB President Mario Draghi provided new details in a news conference on the implementation of the bank’s program and on the scope of what assets it can buy. At a high level, Draghi summarized by saying that the ECB’s monetary policies are working, but they need time to be more effective.
Weekly Market Summary
by Urban Carmel of The Fat Pitch,
SPY made a new all-time high this week. The short and long term trend is higher. Despite a gain of 16% over the past 10 weeks, the majority of evidence indicates that investors largely remain skeptical and defensive. That, together with strong breadth, implies that higher highs still lie ahead. Shorter term, SPY is back to where it failed, repeatedly, to go higher in the spring, summer and fall of 2015. In the best scenario, attaining and then holding significant gains will likely take time.
Echoes of 1999: The Tech Bubble and the "Asian Flu"
by Rob Arnott of Research Affiliates,
Four market conditions now parallel the extremes last experienced in December 1998, setting up 1999 as the first year in a decade of outperformance by inflation-fighting and diversifying assets. Now is the time to rotate into these unloved asset classes.
Why Today's Bond Environment Is Different (in 4 Charts)
by Rick Rieder of BlackRock,
Over the last seven years—as central banks have rolled out more quantitative easing programs and moved benchmark interest rates below, or close to, zero—global fixed income markets have dramatically changed. Here’s a quick look at four charts showing just a few of the interrelated ways the fixed income landscape is different today.
Mixed Messages From Municipals
by Anthony Valeri of LPL Financial,
Low yields coupled with fair valuations send a mixed message from the municipal bond market. The shift from a challenging seasonal period to a more favorable one provides another. The passage of April 15, or April 18 as is the case this year, marks not only the tax deadline but also the end of a challenging seasonal period for municipal bonds. Tax-related selling can often pressure municipal prices as soon as the start of March, but lackluster performance in both stock and bond markets in 2015 limited capital gains that might result in municipal bond sales.
Corporate Management: Discerning Opportunities and Risks in Asian Credit
by Raja Mukherji of PIMCO,
The annual movement of wildlife across the Serengeti-Mara ecosystem in Africa is one of the greatest spectacles in the natural world. The horizon fills with wildebeest, zebra, eland and gazelle migrating for fresh grass, tracked by Africa’s great predators.
April Market Outlook Update
by Jim McDonald of Northern Trust,
The renewed appetite for risk assets continued during the last month, maintaining the strong rally after global equities registered a 20% decline from their highs on February 11. After triggering risk aversion in January, the news out of China is beginning to show some positive effects from their multi-pronged policy approach. The markets have also been supported by more realistic utterances from the Federal Reserve. Not only has the full committee reduced their expectations closer to the market, Fed Chair Janet Yellen has gained some ground in convincing investors that she's in control of policy making at the Fed.
Following the Money in EM Currency Markets
by John Canally of LPL Financial,
Emerging markets (EM) tantalize investors with the prospects of higher returns; yet the key to these returns may be the value of the U.S. dollar. Currency movements impact all aspects of international investing, starting with the basic impact of adjusting gains for the change in currency value when determining total returns. However, changes in currency also impact areas like corporate earnings, the ability to repay debts, and the overall economic health of the country. These impacts are greater for EM investments, where currencies are more volatile and countries are more economically dependent on trade.
The Metal Ratios Are An Ominous Sign For US Inflation Trends
by Eric Bush of GaveKal Capital,
The gold/silver ratio recently took out 2009 highs and the gold/copper ratio is at its highest level since 2009. This is a negative signal that US inflation, using CPI, could be headed for another leg lower. Since 2008, the gold/silver ratio has had a -73% correlation to the year-over-year change in US CPI (with a 2-quarter forward lag for the gold/silver ratio) . So as the gold/silver ratio increases, the year-over-year change in the CPI tends to fall.
Gundlach’s Bond Market Outlook (and a Warning for Junk Bonds)
by Robert Huebscher,
The first third of 2016 has been good for bond investors, but don’t expect that performance to continue for the remainder of the year, according to Jeffrey Gundlach. It has left many sectors of the bond market overvalued. In particular, junk bond investors should be wary of pending defaults and lower recovery rates.
How Do You Measure Which Retirement Income Strategy Is Best?
by Michael Kitces,
In framing different retirement income strategies – and the trade-offs they entail – it’s important to scrutinize the measuring stick used to evaluate the outcomes. The best retirement income strategy will depend on whether you measure based on wealth, spending, probabilities of success, magnitudes of failure or utility functions that weigh both the upside and downside risks!
Why One Analyst Believes Gold Could Hit $3,000 an Ounce
After finishing its best quarter in 30 years, gold extended its gains, rising more than 17.2 percent year-to-date to become the best performing asset class among other commodities, U.S. Treasury bonds and major world currencies and equity indices.
On My Radar: First, Do No Harm
My 18-year-old son, Matthew, came to me asking about how the economy works. This summer he will be an intern and task one prior to his start date is to read “How the Economic Machine Works.” There is much we can learn from history and it makes sense to study the research from some of the brightest amongst us. From there, he and I will begin a dialogue.
March CPI Report: Valuations Matter
by Jeremie Banet of PIMCO,
The March report on the U.S. Consumer Price Index didn’t paint the rosy picture some were expecting. Headline CPI year-over-year was 0.9% versus the expected 1% and core CPI ticked lower to 2.2% for the 12 months ended March, down from 2.3% in February. Despite this March surprise, we believe Treasury Inflation-Protected Securities (TIPS) can weather much more before they underperform nominal Treasuries.
Results 8,651–8,700
of 11,871 found.