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Nassim Taleb on the Anti-Fragile Portfolio and the Benefits of Taking Risks
by Ben Huebscher,
As we recover from the most recent financial crisis, how we can we learn from the mistakes to best prepare for the future? Nassim Taleb tackled this very question in his latest book, Antifragile: Things That Gain From Disorder, which built off his previous works and applies the lessons learned to today’s biggest challenges. Taleb examined how small doses of volatility can help systems handle larger disruptors in the future.
A Tale of Two Markets: Equity Bulls and Bond Bears
Surging equity markets absent an accompanying rate rally is a red flag, as Treasury yields remain well below normal. While investors renewed enthusiasm for equities is warranted, they must be careful to avoid the folly of gaming diversification. Corporate earnings have impressed, though revenue has struggled due in part to a moribund Europe. Divergent markets mean investors should stay broadly diversified in equities and real bonds not near-cash and ever alert to the fundamentals.
Europe (and Italy's Rivals) Appear on Road to Recovery
When Europes debt disease spread to Cyprus, accompanied by bank runs and public unrest, some doubted the European Central Banks (ECB) ability to contain the contagion. And, even more recently, Slovenia turned up sick, warning of escalating debt problems and faltering banks. But with the setbacks have come some surprising steps forward, too, including progress in Italy, which recently formed a new coalition government.
Quarterly Letter
by Team of Grey Owl Capital Management,
In his April 2013 commentary, PIMCOs Bill Gross wrote, PIMCOs epoch1, Berkshire Hathaways epoch, Peter Lynchs epoch, all occurred or have occurred within an epoch of credit expansion What if an epoch changes? What if perpetual credit expansion and its fertilization of asset prices and returns are substantially altered? What if a future epoch favors lower than index carry or continual bouts of 2008 Lehmanesque volatility ?
Stockman to America: Sinners, Repent!
In a massive volume that melds economic history and social criticism, the former Reagan administration budget director David Stockman has documented countless ways in which America went astray over the last century. Most notably, he decried the corruption of free-market capitalism by those seeking effortless profits at the public?s expense. This is the source of his book?s title, The Great Deformation.
New Highs Bring New Worries
by Richard Golod of Invesco,
The sustainability of the rallies in US and Japanese equities this year so far is looking uncertain amid slowing year-over-year earnings growth and mixed global economic signals. European and emerging market shares have traded lower year to date and seem likely to continue lagging in the near term. However, on balance, I remain optimistic about global equities, seeking yield opportunities and investments with an actively managed, more selective approach.
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now?
by Chuck Carnevale of F.A.S.T. Graphs,
To me, theres almost nothing better than finding a great company that I truly want to own at a fair valuation, or better yet, undervalued. In the long run, it has been my experience that this usually leads to outsized future returns, especially if you buy stocks when they are undervalued at the time. But there is quite often a side effect that can prove very disconcerting. Once an undervalued stock starts moving to the upside, momentum will often carry it above what prudent fair valuation would dictate.
A Playbook for Investors: How to Shoot, Score, Win
So, in the competitive spirit of the NBA playoff season, I?ve gathered a series of plays that investors can use to shoot, score and win during this year?s market. I?m happy to say they include all the elements of an exciting game, including a comeback kid, an upset and an underdog.
Like Air Out of An Untied Balloon...
by Blaine Rollins of 361 Capital,
Earnings hit the market like a ton of bricks this week. It wasnt that the reported numbers were a disaster, but that the new data points did not change the trajectory of the current buying and selling patterns. Investors rewarded the defensive earners (bought more Coca-Cola, Johnson & Johnson, and Microsoft) and sold their shares in more cyclical stocks (Industrials, Semis, and Oil Services). Financial stocks survived the week, but few owners went home Friday feeling better about their bank names than at the start of the week.
Europe's Sovereign Debt Problem: A Call for a Clear Destination
Without political commitment to a common fiscal destination, the long-term instability and market distortions within Europes capital markets are likely to intensify. To preserve the euro, the eurozone must develop federal fiscal policies that tackle significant economic, cultural and societal differences and define a credible roadmap to achieving structural reforms, a banking union, political union and fiscal union. Historical precedents in Europe may help guide the way.
How to Help Your Middle-Class Clients Retire
by Dan Richards,
The burgeoning field of behavioral finance points to some simple methods to help clients save more, invest their savings more effectively and maintain motivation through tough patches. Using these methods, advisors can help middle-income clients take the steps to increase the odds of being able to retire when they want, how they want ? and to reduce their stress along the way.
The Next Steps For the Euro: What Is Needed to Ensure Its Survival?
The near term outlook for the Eurozone remains bleak, with the latest International Monetary Fund (IMF) forecasts showing 2013 as another year of falling output for the region. Better growth is desperately needed and there is a case for more cyclical support through easier monetary policy, but there are also structural obstacles to stronger growth. Unless these are addressed, any pick-up in growth will ultimately flounder. In this Talking Point I look beyond the near term cyclical challenges and consider what the Eurozone needs to do to ensure its long term viability.
The Pharaoh's Dream
by Andrew Bosomworth of PIMCO,
As yields on assets decline, central banks ultra-loose monetary policies are effectively forcing investors further out the concentric circles into lower quality, more illiquid sectors in search of positive yielding assets after deducting inflation. In order to achieve 6%-7% returns in the future, investors may be required to take on more risk. Allocating part of a portfolio away from middle circle asset classes into assets with higher return potential as well as assets offering liquidity is the right strategy in our opinion.
The Lure of Hedge Funds
by John West of Research Affiliates,
Investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. We see this today where we witness the continued explosive growth of hedge funds. But, a careful examination of the data reveals that these fancy lures fail to hook as much in excess, after-fee returns as more time tested strategies.
The Great Secret
by Jeffrey Saut of Raymond James,
When I was a young boy, I remember my father coming home looking very ashen from a visit with a dear friend dying in the hospital. His name was Dell Zink and he was one of my fathers closest friends. Mr. Z, as we kids affectionately called him, was a very religious man; a man who was regarded by his friends as intelligent and philosophical.
Investing for Income? Safe Bets Can be Surprisingly Risky.
by Joe Kringdon of Pioneer Investments,
The recent, seemingly terminal decline in interest rates has been difficult on many investors who have been planning their income needs for the future. Interestingly enough, a wise presenter at a meeting I attended in January* addressed this very point with a wow factor of quite a different nature.
PIMCO Cyclical Outlook for Asia: How Leadership Changes Are Shaping Asia's Outlook
For Asia, slow but not slowing global growth will likely keep external demand neutral, and policy developments will therefore help shape the economic outlook. In Japan, we see a significant boost to aggregate demand coming from the concerted monetary and fiscal expansion of the new Abe government. In China, concerns about inflation, housing market excesses, and long-term financial stability are prompting policy restraint that should keep growth below 8% this year.
PIMCO Cyclical Outlook for the U.S.: Back From the Brink
by Josh Thimons of PIMCO,
We expect the largest contributors to U.S. growth this year will be housing and related industries, increases in capital expenditures (albeit from very depressed levels), certain manufacturing sectors, such as the auto industry, and the energy sector. We see roughly 1.7 percentage points of drag on GDP coming out of Washington far less than the four to five percentage points of potential drag had there been no fiscal cliff resolution. We believe the Fed will continue with hyperactive monetary policy, which we now call QE Infinity, that does not have an explicit end date or progr
The Stockman Backlash
by Peter Schiff of Euro Pacific Capital,
This week, while economists should have been closely considering the implications of the actual bankruptcy of Stockton, California, they instead heaped scorn on the perceived ideological bankruptcy of David Stockman. In other words, Stockman trumped Stockton.
What's Next for U.S. and European Markets?
by Mike Temple of Pioneer Investments,
I was asked recently to provide some color around the state of global fixed income markets as we close out the first quarter of 2013. Of course, one of the more watched situations in the global markets has been Cypruss banking crisis. I wont go into too much depth on the subject here, as my colleague, Cosimo Marasciulo, has recently provided a comprehensive analysis.
Could Consumers Change Japan's Tide?
by Team of Matthews Asia,
This year, investor attention has focused on Japan and its macroeconomic policy with hopes that rising inflation expectations might spur businesses to invest and consumers to spend. Since Prime Minister Shinzo Abe and Japans ruling Liberal Democratic Party (LDP) regained power late last year and proposed more aggressive monetary policies, including an ambitious inflation target, the yen has weakened more than 20% against the U.S. dollar and more than 15% against the euro.
China's Uncertainties Won't Stop Renminbi's Rise
by Hayden Briscoe of AllianceBernstein,
Recent data releases and the transition to new political leadership have created some uncertainty about Chinas short-term economic outlook. While positive growth surprises are unlikely in 2013, we still think nothing can stop the long-term appreciation of Chinas currency, the renminbi (RMB).
Surprise! 2013 Rally Pales in Comparison to 2012 “Stealth” Rally
Despite the hoopla over first quarter market performance, it paled in comparison to the first three months of 2012. Driven in part by an extremely accommodative Fed, the U.S. economy is gaining traction, but Europe continues to flounder. After their first negative print in three years during the third quarter, S&P 500 companies returned to positive earnings growth in the fourth. A broad, globally diversified portfolio is the best way to balance the desire for wealth accumulation with an appreciation of volatility.
The Crisis in Cyprus
Over the weekend of March 16, Cyprus announced it was taxing deposits in order to recapitalize its banking system. The proposal, which levied a tax of 9.9% for deposits under 100k and 12.5% for amounts over that level, caused a severe political backlash. The Cypriot legislature would not approve the measure. In the days following, a banking holiday was put in place to prevent banking runs. The Troika (the EU, the IMF and ECB), who approve bailouts for the Eurozone, negotiated into late Sunday, March 24, before reaching a deal.
A Q1 Letter to Clients: Why Warren Buffett is Bullish on Stocks
by Dan Richards,
Since 2008, I have posted templates to serve as a starting point for advisors looking to send clients an overview of the year that just ended and the outlook for the period ahead. This quarter’s letter draws on Warren Buffett’s most recent letter to shareholders, and why he is bullish on the US equity market.
A Fresh Milestone
by Jeffrey Saut of Raymond James,
Last Thursday the S&P 500 (SPX/1569.19) notched a new all-time causing Ms. Scaggs to pen the aforementioned story in Fridays Wall Street Journal. I was particularly interested in a sentence further down in the article that read, The rally in stocks comes as investors warm up to stocks for the first time in years. That prose sparked memories of an era gone by.
What Happened to That Export-Led Recovery?
With nearly 50% of the UKs total exports going to Europe, an economic area constantly flirting with its own recession, it is no surprise to see that UK trade performance has been challenged.As the US continues to re-heal, and trade becomes more geographically diversified, we should see exports start to grow once more, albeit off a modest base. The easing in sterling is undoubtedly welcome and will improve prospects for exports, but it is unlikely to be a game changer.
You Can't Be Serious
I admit to being surprised by Cyprus. Oh, not the banking crisis or the sovereign debt crisis or the fact that its banks were eight times larger than the country itself or even the fact that the banks were bloated with Greek debt that had been written down. I wrote about all that a long time ago. What surprised me was that all the above was apparently a surprise to European leaders.
A Cry for Help from Income Investors
Confronted with the stark realities of income investing now, affluent investors all over the world are rethinking their approach, notes Legg Masons just-released Global Income Survey. Yet the Survey also found income investors hungry for more knowledge and ideas -- creating opportunities for savvy financial advisors.
The Stimulus Trap
by Peter Schiff of Euro Pacific Capital,
For years we have been warned by Keynesian economists to fear the so-called "liquidity trap," an economic cul-de-sac that can suck down an economy like a tar pit swallowing a mastodon. They argue that economies grow because banks lend and consumers spend. But a "liquidity trap," they argue, convinces consumers not to consume and businesses not to borrow. The resulting combination of slack demand and falling prices creates a pernicious cycle that cannot be overcome by the ordinary forces that create growth, like savings or investment.
Throw the Book at Him
On February 2, Ground Hog Day, Punxsutawney Phil failed to see his shadow forecasting, and as legend has it an early spring. Yet on the first day of spring, I looked out my back window at a lake still more than half frozen with my view partially obscured by a wicked little snow flurry. So much for forecasts!
Power of Positive Screening: Pursuing Strength of Social and Financial Returns
Market volatility and sweeping changes to mainstream views of investing are catalyzing acceptance of tactics that combine fundamentals with a progressive outlook on social issues. Positive screening brings balanced companies to the fore of the investment landscape: this practice isolates sound equities that demonstrate strength of balance sheet, dependability of management, and a commitment to act as part of a global community focused on positive change.
Will the Real Unemployed Please Raise Your Hands?
This weeks letter will be a very short part of a book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the future of employment. It has taken longer to write than I initially anticipated, for a host of reasons, chief among which is that the future is not as obvious as I originally thought. Diving into the data has brought a few surprises.
Playing with Fire in Cyprus
by Fred Copper of Columbia Management,
Early Saturday morning, after 10 hours of negotiations, it was announced that Euro Area (EA) finance ministers had agreed upon a bailout package for the government and banking system of Cyprus. The total financing needs of Cyprus are 17 billion euros ($22 billion), which equates to approximately 100% of Cypriot gross domestic product (GDP), making this by far the largest bailout relative to the size of the economy yet in the EA.
The Eurozone Crisis: Time for a Reset
The crisis in the Eurozone (EZ) has reached a dangerously unstable condition, politically, socially, financially and economically. Without a return to growth in the peripheral economies a disorderly outcome is becoming probable as the debtor countries approach the 100% debt-to-GDP default horizon. They will not return to growth while they share a currency with Germany. It is time for a reset.
Rising Political Risk and Ongoing Economic Weakness Challenge a Difficult Journey to Recovery
by Andrew Balls of PIMCO,
Looking ahead, it will continue to be a very bumpy journey as we anticipate economic contraction in the eurozone by -0.75% to -1.25% over the next year, hampered by growing political risk and fiscal tightening. Although we expect the pace of contraction in the eurozone to diminish over 2013, the duration of the recession is likely to be longer than consensus forecasts.
The Outlook for Equities
It doesnt take much to get me started on a memo. In this case one sentence was enough, in an article from the February 4 online edition of Pensions & Investments, as described by FierceFinance on February 28: The long-term equity risk premium is typically between 4.5% and 5%.
Washington May Be Ready to Take a Break From the Brink
With Washingtons dysfunction not in the forefront, the economy could be more unencumbered to grow, with markets trending in a similar direction. The Feds proactive policies should continue to favor overweight positions in the five-year through 10-year part of the Treasury yield curve and support interest-rate-sensitive sectors of the economy most notably housing. In the longer term, however, we would advise investors to be cautious: Without meaningful long-term structural deficit reform, real growth will inevitably lag in the U.S.
Bill Ackman on What Makes a Great Investment
by John Heins,
In addition to commenting on his high-profile current investments, Pershing Square Capital's Bill Ackman in a recent interview with Value Investor Insight describes the general company traits he looks for in both active and passive investments, why a high public profile is an important element of his strategy, whether his thesis on J.C. Penney has evolved, what lessons he's learned from a few prominent mistakes, and why his short conviction on Herbalife is as high as ever.
Letters to the Editor
by Various,
Two readers respond to Joe Tomlinson's article, Can Advisors Add Value Through Fund Selection?, which appeared on February 26, and a reader responds to Wade Pfau's article, Breaking Free from the Safe Withdrawal Rate Paradigm: Extending the Efficient Frontier for Retirement Income, which appeared last week.
The Retirement Income Problem
The most vital and pervasive issue investors will face in the next decade is how to wring out enough income from the savings they have amassed to maintain or enhance their lifestyle. To do so, they will need to be far more flexible in their investment approach. They also must adapt to an environment for "high quality bonds" (Treasuries, Municipals and Corporates) that does not at all resemble that which they are accustomed to.
The 2030 Increasing Inequality Scenario
Last month we started looking at the 2030 alternative world development scenarios as laid out by the National Intelligence Council (NIC). The NIC forecasts the likely paths that are either currently underway or are forecast to occur in the future. In its most recent report, the NIC projects four possible global political and economic states based on expected trends. Last time, we presented the most likely best case scenario. This week, we will explore the third scenario, under which the world gets wealthier as a whole, but inequalities increase.
Two Myths and a Legend
by John Hussman of Hussman Funds,
The present market euphoria appears to be driven by two myths and a legend. Make no mistake. When investors cannot possibly think of any reason why stocks could decline, and are convinced that universally recognized factors are sufficient to drive prices perpetually higher, euphoria is the proper term.
How to Keep Calm and Invest On
The market noise of today will not be going away. However, investors can gain confidence in the following wisdom of the crowd. As famous investor Benjamin Graham said, "The individual investor should act consistently as an investor and not as a speculator. Keep calm and invest on.
Freewheeling?
Ignoring threatening clouds in the distant horizon, the financial markets are wrapped in a blanket of complacency. Consider the following. The Dow Jones Index has been flirting with the 2007 record peak. Implied stock market volatility, as measured by the VIX Index, is in the basement. Junk bond yields are at record lows, compressing spreads to within shouting distance of risk-free Treasuries. Securitization is back from the dead, while the drought in M&A activity is now getting plenty of rainfall.
Results 2,401–2,450
of 2,772 found.
