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Fed Credibility Dwindles, Pension Funding Crisis Looms
Fed officials jawbone the markets and spread disinformation. They figure it’s part of their job as central planners. It’s not enough to pull the levers and twist the knobs on interest rates, the money supply, and asset prices. They also use propaganda to manage investor psychology. It’s all smoke and mirrors.
Dividends’ True Contribution to Total Return May Surprise You
by Chuck Carnevale of F.A.S.T. Graphs,
In recent years, dividends’ contribution to total return has been one of the most heavily-studied topics in the investment world. Several conclusions about the contribution that dividends make to total return have been claimed. However, these conclusions vary greatly. I have seen studies claiming that 90% of returns are attributed to dividends, several claiming 50% or more, and others arguing for a 30% contribution. Ironically, they all seem to be correct depending on the data-sets and/or timeframes being measured.
Are DIAs Better Than SPIAs – Maybe Not?
by Joe Tomlinson,
Deferred-income annuities (DIAs) have been receiving favorable press based on claims that they generate greater retirement income than traditional single-premium immediate annuities (SPIAs). DIAs have also been promoted by the Treasury Department, which has introduced new rules to facilitate their use. But I’ll present a contrarian view and demonstrate that retirement strategies built on SPIAs can outperform those that utilize DIAs.
Indian Government Sovereign Paper - the Search for Carry Ends Here
by Ritesh Jain of Tata Asset Management,
Investors need to look at the INR and Indian sovereign G-sec through a fresh pair of lens. Last year, in a major monetary policy overhaul, RBI adopted inflation targeting as a guide to its monetary policy for the first time. India is among the few EM countries in the world with inflation targeting as a monetary policy tool. Inflation targeting will mean that the INR’s depreciation will not be as severe as in the past which will leave more carry in the hands of the investors.
The Fed's Spring Surprise
by John Canally of LPL Financial,
As 2016 began and 2015 ended, global financial markets faced plenty of uncertainty in the wake of the first rate hike by the Federal Reserve (Fed) in nearly nine years. Although the rate hike was well anticipated and priced in by many market participants, the Fed’s move forced markets to focus on imbalances in the global economy and financial markets that had been simmering for years. The fears about how (and when, if ever) those imbalances would be resolved led to an extreme bout of financial market volatility over the first few months of 2016.
What Tools Does the Fed Have Left? Part 2: Targeting Longer-Term Interest Rates
by Ben Bernanke of Brookings Institute,
Although the U.S. economy appears to be on a positive trajectory, history suggests that at some time in the next few years we may again face a slowdown, with a weakening job market and possibly declining inflation. Given that the historically low level of short-term interest rates is likely to limit the scope for conventional rate cuts, how would the Federal Reserve respond?
Mixed Economic Data Supports Gold and Short-Term Munis
A batch of mixed economic data was released this week and last that underlines continued strength among U.S. businesses and manufacturers. But consumer confidence still seems to be held back by the global slowdown, central bank policy concerns and other factors. This suggests investors should remain cautious and might want to consider assets that have demonstrated an ability to preserve capital in times of uncertainty—gold and short-term municipal bonds among them.
Looking for Yield in All the Right Places: A Post-FOMC Playblook
The Fed took out an insurance policy in order to stay on a rate hiking path. A shallower path of rate hikes should temporarily ease pressure on the U.S. dollar and help improve financial conditions.
Bond investors should take cues from the TIPS and credit markets. The Fed wants to see tighter credit spreads and higher inflation expectations before raising rates much more.
We view investment-grade corporate bonds and commercial mortgage-backed securities as attractive sources of income in this environment.
What tools does the Fed have left? Part 1: Negative interest rates
The Fed is not out of ammunition, and monetary policy could help cushion a possible future slowdown. That said, there are signs that monetary policy in the United States and other industrial countries is reaching its limits, which makes it even more important that the collective response to a slowdown involve other policies—particularly fiscal policy. A balanced monetary-fiscal response would both be more effective and also reduce the need to use unconventional monetary tools.
Rising Global Taxes and Regulations (Indirect Taxation) Are Chipping Away at the Benefits of Low Int
Compliance and regulation measures have intensified from the financial sector to the food industry, from the U.S. all the way to Brazil. Many CEOs of banks, as well as brokers that I have spoken with recently, have lamented on the financial burden of excessive regulation and the indirect taxation that comes along with this rise in rules on steroids. Regulations are fueled with good intentions; however, the unexpected consequences like slow global growth need to be adjusted.
In the Know: Clean Power Plan Faces Supreme Challenge
With or without a federal mandate to cut carbon dioxide emissions, carbon reductions are happening throughout the industry for economic reasons. Low natural gas prices and low-cost renewables are driving investment decisions away from higher-carbon sources of energy.
Schwab Market Perspective: Sigh of Relief
Beaten down areas of the market have staged a nice turnaround. Stocks have moved well off the lows and the S&P 500 is now within shouting distance of the flatline for the year. Areas of the market that were some of the hardest hit—such as materials, energy and financials—have posted some of the best gains over the past month.
Fear…Not?
The fears that had cast a pall over January weighed on the markets in early February as well, but sentiment improved sharply as the month progressed. Encouraging U.S. economic data contributed to an improvement in global risk appetite.
Investors marveled at yet another V-shaped trajectory in the markets in February, but concerns still lingered.
FOMC FAQS: All About the Dots
by John Canally of LPL Financial,
The Fed holds its second of eight FOMC meetings of 2016 this Tuesday and Wednesday, March 15–16, 2016.
The FOMC’s “dot plots” are likely to be at the center of attention.
Fed Chair Yellen’s first post-FOMC meeting press conference of 2016 provides an opportunity for the Fed to add color to its view of the economy, inflation, and financial market volatility.
Seven: Happy Anniversary Bull Market (?)
by Liz Ann Sonders of Charles Schwab,
Last week we celebrated the seventh anniversary of the U.S. bull market, which commenced on March 9, 2009 and has since generated a total return for the S&P 500 of 247%. The traditional gift for the seventh anniversary is copper, which is fitting since the strong rally many “risk-on” assets have staged since U.S. stocks bottomed on February 11, has been accompanied (driven?) by a surge in commodities, including copper and more importantly oil.
Five-Year Outlook: Make Headwinds Your Tailwinds
This outlook report informs BMO GAM’s longer-term strategic portfolio allocations and has been distilled into three possible scenarios expected to dominate the global economy over the next three to five years. The report helps drive BMO GAM’s investment strategies and often plays a role in guiding active global asset allocation opportunities across the firm’s global investment centers. The firm’s primary case calls for a broadening of U.S.-led global growth into key geographies, particularly Europe and Japan.
Why I Love Christmas In My Bathing Suit
In our 2016 Market Forecast we postulated that this would finally be the year of rising interest rates!
So far this forecast is a bust with the 10-year rate dropping precipitously to a (panic) low of 1.57% in February.
Our thinking has been that Government Bonds would be the recipient of any flight to safety during an equity market sell-off which is indeed how things have worked out -- so far.
Is the U.S. Heading Toward Recession?
Higher recession risks will center on a further slowdown of economic momentum and continued tightening of financial and credit conditions.
Any weakness in job growth and consumption will signal the expansion is at extreme risk and hopefully prompt the Fed to delay hiking rates.
While there is little near-term risk of recession, that risk is likely to grow later this year and into 2017.
A Market Valuation Gauge That Works
by Theodore Wong,
In my previous article, I examined many popular metrics that show that U.S. equities have been overvalued for over 20 years. The conventional explanation is that the overvaluation and its unusually long duration is a statistical outlier. But until the anomaly is better understood, naively equating the lack of mean reversion with overvaluation will lead to ill-advised investment strategies.
Did Oil Prices Just Find a Bottom?
On a global scale, oil production is finally dropping—and that’s constructive for prices. In a report released today, the International Energy Agency (IEA) writes that “prices might have bottomed out,” citing a February decline in both OPEC and non-OPEC output and hopes of U.S. dollar weakness.Although I’m cautious, the current recovery is in line with oil’s seasonality trends for the five- and 15-year periods, which show that prices have risen between March and the beginning of the busy summer travel season.
Bearishness Is Strictly For Informed Optimists
by John Hussman of Hussman Funds,
The completion of every market cycle in history has taken the most reliable equity valuation measures toward or below their historical norms - levels associated with subsequent total returns approaching 10% annually. That includes two cycle completions since 2000, as well as cycles prior to 1960 when interest rates regularly hovered near present levels. After an unusually extended speculative half-cycle, we doubt that the completion of the present cycle will be any different. It has taken the third speculative bubble in 16 years to bring the nominal total return of the S&P 500 since March 2000
NIRP -- No Need to Go There
by Paul Kasriel of The Econtrarian,
Despite the success of QE by the Fed in stimulating growth in US nominal domestic demand, many a talking twerp is discussing the necessity of NIRP to bring the US economy out of its next recession. First, why worry about the next US recession when there is none on the horizon? Second, if QE worked to help get the US economy out of its worst recession since the early 1930s, why don’t you think it will work in producing a recovery from the next US recession, whenever it may come?
Is the Perfect Storm Over for Markets?
So far this year, financial markets around the world have been navigating a perfect storm – that is, a violent disruption fueled by an unusual amalgamation of smaller disturbances. The spike in volatility of financial markets is the direct result of three distinct factors.
High Yield Improvement Trend Appears Entrenched
by Matthew Past of BTS Asset Management,
The most important indicators for high-yield bond prices are the sector’s own price trends. At present, technical indicators strongly suggest a continuation of the high-yield bond strength that began in mid-February as the flight-to-quality urge faded. In addition to technical price trends, several backdrop indicators also suggest a favorable outlook for high-yield bonds, including GDP, oil, and the dollar.
On My Radar: Stick With the Drill – Stay Wary, Alert and Very, Very Nimble
I was in Florida this week attending the 32nd Annual Chicago Board of Options Exchange (CBOE) Risk Management Conference. Attendees were mostly asset managers and larger pension and endowment managers. Several comments stood out to me; particularly the one above from Paul R.T. Johnson, Jr., Board Member of the State University Retirement System. “42% funded?” He added that the good news is that his is the most funded of all the states. Yikes.
When Helping Hurts: What More Can Monetary Policy Accomplish?
Global markets in February followed a path similar to the one they followed in January: selling off through mid-month, only to recover in the second half. Global rates continued their descent, reflecting increased skepticism over the prospects for global growth.
Bob Doll on His 2016 Predictions
by Robert Huebscher,
Bob Doll is a senior portfolio manager and chief equity strategist at Nuveen Asset Management, and prior to that held similar roles at Blackrock, Merrill Lynch Investment Managers and Oppenheimer Funds, Inc. We spoke with Bob to get an update on his 2016 predictions for the financial markets.
Weighing the Week Ahead: What Does the Election Mean for Financial Markets?
Last week’s economic calendar was the biggest of the year and this week’s is the lightest. In the absence of important economic news and earnings, where will financial media turn to fill that space and time? The Presidential election campaign is providing a lot of zest as well as a little substance. I expect financial pundits to be asking:
What Does the Election Mean for Financial Markets?
Equity Prices Advance Again as Negative Signals Diminish
The “risk-on” trend continued last week, helped mainly by stronger U.S.
economic data, heightened expectations for more European Central Bank
stimulus and additional stabilization in oil prices. High yield spreads fell and
equities rose, with the S&P 500 Index climbing 2.7%. Over the past three
weeks, U.S. stocks have nearly recovered all of the ground they lost earlier
in the year.
Weekly Market Summary
by Urban Carmel of The Fat Pitch,
SPY has now rallied 10%, back to a level that was major support throughout most of 2015. It would be easy to say that the rally ends here, but strong breadth, persistent investor pessimism and strength in other asset classes suggest that further upside ultimately lies ahead. That said, by the end of the week, the advance showed several signs of being overextended; weakness early next week would be normal. In fact, if equities continue with an uncorrected rally, those gains are likely to be given back in the weeks ahead.
An International Perspective
by Anthony Valeri of LPL Financial,
International factors can help explain the relative resilience of longer-term bonds from mid-February to the start of March. Since Treasury yields bottomed on February 11, 2016, the 2-year Treasury yield has increased by 0.15% compared with a more muted 0.09% rise in the 10-year Treasury yield. The relative resilience of longer-term .
Results 8,751–8,800
of 11,871 found.
