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The Economic Outlook
The United States forecast is for solid average annual economic growth of 3.1% in 2015 -- fastest in the economic recovery to date overall, although areas of the economy with high energy or international exposure will likely encounter headwinds. Strengthening employment conditions, continual improvements in consumer finances and steadily rising housing markets are likely to reestablish the consumer’s lead role in the U.S. economy in 2015.
How do Deferred-Income Annuities Stack Up Against Rival Products?
by Joe Tomlinson,
Deferred-income annuities (DIAs) have received a lot of attention with new Treasury Department regulations encouraging their use. Many tout them as providing the most cost-effective way to generate retirement income. But retirement products are not one-size-fits-all. I'll show where DIAs fit among the products and investment solutions available to advisors.
Monetary Policy and the Economy: The Case for Rules Versus Discretion
by John Hussman of Hussman Funds,
Deviations in monetary policy from what one would have predicted (using past non-monetary variables alone) have zero correlation or ability to explain subsequent GDP growth (versus the levels that would have been predicted by past non-monetary variables alone). In other words, once we allow for the component of monetary policy captured by a fixed linear rule (the Taylor Rule comes close – and currently indicates an appropriate Fed funds rate of about 3% here), one can find no evidence in the historical record that additional activist monetary policy is useful.
Central Bank Policies And Market Distortions
Recurrent countercyclical monetary policies have given way to several distortions in the economy. It is believed that printed dollars have inflated both stocks and bonds in the US, but that is a misunderstanding! Still attractive, US Treasury Bonds may provide the basis for a sustained appreciation of the US dollar against foreign currencies. Once more, the widely anticipated interest rate hike by the FOMC may get postponed… further into oblivion!
Optimism, Pessimism and Opportunity
Given that the S&P 500 has been on a tear since 2008, logging double-digit returns in five of the past six years, and US Treasury rates remain near historical low levels, many investors are questioning their prospects for long-term total return. Ed Perks, chief investment officer and portfolio manager, Franklin Equity Group®, offers his views on why he remains optimistic about the US market’s prospects, and where he’s looking for investment opportunities today.
Northern Trust Perspective
by Team of Northern Trust,
The long-telegraphed launch of quantitative easing by the European Central Bank (ECB) has added some accelerant to financial market trends in place so far this year. European stocks, which had been strong performers in local currencies, have continued their strong performance while European bond yields have declined even further.
Navigating Interest Rate Cycles with the Laddered Bond Portfolio
The purpose of fixed income for most investors is to generate income and serve as ballast in their broader portfolios. It’s not meant to be the fastest boat in the water, but rather the most seaworthy. Since the global financial crisis, major central banks have kept interest rates at rock-bottom levels and provided abundant liquidity through asset purchase programs more commonly known as quantitative easing.
Muni market – Favorable environment remains in place
Municipal bond market volatility in early '15 may have investors wondering if they should sell today and lock in their gains from 2014. After 13 consecutive months of positive returns, the muni market turned negative in February and the first two weeks of March as interest rates rose. After such a long and strong run, it is not surprising that the muni market has taken a step backward. That said, we do not see reason to panic and continue to believe that the muni market remains on sound footing due to supportive market fundamentals and technicals, as well as our entrenched high tax environment
Cabela’s: Little Room for Error
Through our research process, we attempt to identify actionable investment ideas, but we often conclude that a company does not present an immediate long or short investment opportunity. A decision not to invest in a company is valued just as much as a decision to invest in one, but we are always expected to stay current on our area of coverage in case conditions change.
Patiently Waiting
by Anthony Valeri of LPL Financial,
The Fed faces a number of obstacles now and may require greater justification to suggest raising interest rates as soon as June. Bond market reaction to recent Fed meetings has been initially bearish but muted overall. Maintaining the word “patient” could have different implications for segments of the bond market.
De-risking Goes Beyond Interest Rate Risk: The Case for Dynamic Asset Allocation in an LDI Solution
by Catherine LeGraw of GMO,
In this piece, we introduce a measure of valuation risk, and demonstrate how rotating growth assets into a valuation-aware dynamic strategy can help to reduce risk, improve long-term returns, and help improve funded status in the case of a reversion to the mean.
Alpha Matters More in Muted Equity Markets
by Chris Marx of AllianceBernstein,
In a Wall Street Journal article last week, financial advisors described how exuberant investors had unrealistic expectations for stock market returns after a six-year rally. We think a more pragmatic approach should aim to beat a slower-paced market in an effort to capture compounding returns.
How Advisors Are Positioning Fixed-Income Portfolios
by Bob Veres,
I asked the readers of my Inside Information newsletter service to tell me how they're preparing for an impending Fed rate hike. To date, I've received 178 pages of responses from advisors all over the country and across the spectrum, from indexers to fervent believers in active management, representing large and small firms investing on behalf of wealthy or middle-income clients.
The Art of Pension Hopping
Clients who are unlikely to complete a traditional 30-year defined-benefit pension and are willing to pursue an un-orthodox strategy of switching work locations, continually re-purchasing prior service completed in another location will increase their work options, their retirement security and their overall pension income.
Monetary Policy Concerns Continue to Weigh on Markets
Investors continued to focus on global monetary policy last week. The divergence between the start of the European Central Bank’s quantitative easing program and the pending shift in the Federal Reserve’s policy stance caused the euro to fall, the U.S. dollar to rally and acted as a drag on U.S. equities. Concerns over a weakening corporate earnings environment acted as an additional headwind for stock prices. the S&P 500 Index declined 0.8% for the week.
The Messy Politics of Economic Divergence
The world is increasingly characterized by divergence – in economic performance, monetary policy, and thus in financial markets. Though there is a broad consensus on what must be done to rebalance the global economy, political leaders remain unwilling to fulfill their economic-governance responsibilities.
FOMC Preview: When, How Often, and How Much
by John Canally of LPL Financial,
What the FOMC says, if anything, about the rising dollar and its implications, could have ramifications for monetary policy over the next several quarters and beyond. In addition to “when,” market participants may start asking “how much” and “how fast” rates may increase once the Fed begins to raise the rates. We are watching several factors to gauge when the Fed may begin to hike rates, including wages, the output gap, inflation, and inflation expectations.
How Scary Is the Bond Market?
by Robert Shiller of Project Syndicate,
With the bond market appearing ripe for a dramatic correction, many are wondering whether a crash could drag down markets for other long-term assets, such as housing and equities. But when an event has never occurred, it cannot be predicted with any semblance of confidence.
On My Radar: Rate Hike Ahead, Bond Model Says Sell
I wrote a piece in Forbes this week titled “Rate Hike Ahead, Bond Model Says Sell”. The gist of the piece is about a tug of war between opposing views on the direction of interest rates. The outcome of this contest will enrich some and demoralize others.
Should Greece Stay or Go?
by Jeremy Schwartz of WisdomTree, Inc.,
Professor Jeremy Siegel and I spoke with University of Texas professor James Galbraith on February 27. Professor Galbraith has an inside look on the ongoing Greek debt dynamics, as he became friendly with the current Greek finance minister Yanis Varoufakis as a colleague at the University of Texas.
Keep it Short? The Limited-Term Fixed Income Market
Concern about interests rates has made fixed income investors more aware of the potential for interest rate risk – or the risk that a rise in rates will reduce the value of their longer-maturity securities. This risk, which is often expressed as a bond or bond fund’s “duration,” has led some investors to consider investments believed to have less potential risk. These securities, which are considered to have a lower duration, are seen as less vulnerable to market volatility.
Could the Search for Income Lead to Instability?
Years of quantitative easing has pushed yields on government bonds down to record lows, and income-starved investors are being pushed out the risk spectrum, forced to choose between more volatile assets to find income. Finding acceptable levels of income exposes portfolios to greater instability ahead—we believe a multi-asset approach can help.
Optimal Diversification Portfolio for Upcoming Interest Rate Environment
by Chuck Self of iSectors,
Historical patterns in interest rates leading to the current trend; Macroeconomic activity supporting future rising interest rates; Recommendations for optimizing client portfolios in such an environment
The Expansion Settles, but Its Foundation Is Strong
by Team of Northern Trust,
Growth in the U.S. economy tapered a bit in the fourth quarter, but the outlook ahead remains very positive. Real gross domestic product (GDP) grew 2.2% in the fourth quarter after a 5.0% increase in the third quarter, but some special factors were at play that should ease as the first quarter of 2015 winds down.
Q&A with Jeff Knight: What’s in store for 2015?
by Jeff Knight of Columbia Management,
I believe we are still going through a process that is flattering to financial market returns. But after six years and a tripling of the stock market, recognize that we're getting late in the game. Does Europe hang together? Do events in the Ukraine or Greece disrupt the economic recovery in Europe? Is the Fed’s tightening appropriate, or does it represent a threat to financial markets? Will those who come out on the short end of oil’s dramatic repricing emerge as a threat to capital markets either through default and bankruptcies, or worse through geopolitical tensions?
Stranded in NYC
by Jeffrey Saut of Raymond James,
The week began well enough as I arrived Sunday a week ago in Orlando for the 36th annual Raymond James Institutional Investors conference. As previously stated, there were more than 1,000 portfolio managers (PMs) and analysts there to listen to some 300 companies’ presentations. In addition to the PMs and their analysts, our analysts anchored the presentations by the CEOs and CFOs of those companies.
America's China Codependency
by Michael Edesess,
The massive Chinese investment in Treasury securities helps keep interest rates extremely low. This hugely increases the incentive for Americans to borrow. All that is needed is "collateral," and Americans will go out and borrow to their hearts' content and buy Chinese goods.
On My Radar: Rut Ro Rastro
At the beginning of each month, I like to look at a series of valuation metrics: Median PE, Price to Sales and Price to Operating Earnings. Let’s look at them today. The logic, of course, is simple. When expensively priced, reduce exposure and reduce return expectations. When inexpensively priced, overweight exposure and increase return expectations. Let’s also take a look at what has been driving the market higher. Some argue that individual investors are still on the sidelines. I don’t think so and I show evidence that they are almost as fully invested as they were at the 2000 and
Why Is the Fed’s James Bullard Optimistic about the U.S. Economy?
by Jeremy Schwartz of WisdomTree, Inc.,
On February 20, Professor Jeremy Siegel and I had the pleasure of speaking to St Louis Federal Reserve Bank (Fed) president James Bullard, who is a member of the Fed monetary policy committee. 2015 is shaping up to be an interesting year for monetary policy, with the Fed expected to hike interest rates.
What Does That Difference Mean?
by John Hussman of Hussman Funds,
The difference between actual market returns over a given time period, and the returns that one would have projected earlier based on reliable valuation measures, is extremely informative about where current valuations stand, and about where future market returns are headed.
After a Dismal 2014 Business Development Companies Poised to Outperform in the New Year
After a dismal performance in 2014 business development companies are enjoying a reversal of fortune, floating to the top of the leaderboard in the New Year. They’re outpacing their interest-rate sensitive brethren, utilities and REITs, bonds and the S&P 500 alike amid widespread anticipation that the Federal Reserve will lift interest rates mid year. As the stock market grows ever more expensive and profit margins are reaching record highs, the catalysts that should drive outperformance in BDCs grow stronger and stronger considering that most BDCs are trading at single-digit multiples.
Hot and Cold Bonds
by Anthony Valeri of LPL Financial,
January 2015 was the best month for high-quality bonds since December 2008. In February 2015, high-quality bonds posted their worst monthly performance since June 2013 and the taper tantrum sell-off. High-yield bonds experienced ups and downs thus far in 2015. After a muted January, high-yield bonds returned 2.4% in February, the largest single month gain since October 2013. After a wild first two months, we expect more muted returns over the remainder of 2015.
Positioning U.S. Community Bank Investment Portfolios for 2015
When market uncertainty is elevated and bank profitability is an ongoing concern, taking an extreme view toward investing cash or harvesting liquidity is not optimal. Currently, we do not see as much value in interest rate or duration risk for bank portfolios as yields imply a moderate path for future policy rates. We believe there are opportunities for banks to earn income without taking excess interest rate risk or limiting flexibility against the need to fund future opportunities.
Municipal Market Perspectives
A much colder than normal winter throughout the United States has impacted daily activities. Folks are remaining indoors and waiting for the March thaw. Not only are there fewer pedestrians, but runners are a rare sight. The logical inference is that many dedicated exercisers have retreated to the warmth of their basements or local health clubs for exercise, and are instead logging miles on stationary treadmills.
Tigers in Africa
This month's Absolute Return Letter is about unrealistic expectations which is something we are all guilty of from time to time. We look at why it is unrealistic to expect equity returns to be in the double digit range over the next several years, why central banks are not printing money like many believe, plus a few other topics.
Results 9,551–9,600
of 11,878 found.
