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Stocks Still Undervalued Despite Sluggish Economy
Investors are struggling to reconcile the disconnect between an undervalued stock market and an economy stuck in neutral. ClearBridge Advisors' CIO Hersh Cohen explains why he continues to believe that high quality companies will remain the best place to be for the next several years.
The Next Generation of Income Guarantee Riders: Part 3 (The Income Phase)
by Wade Pfau,
In this third and final installment in my series on guarantee riders, I'll focus on the post-retirement income supported by income guarantee riders for variable annuities (VA/GLWBs), stand-alone living benefit riders (SALBs), and an unguaranteed portfolio of mutual funds. I'll highlight how differences among these products affect their end results, while also investigating what roles guarantees can most appropriately play in a retirement portfolio.
Up, Then Down
Five losses in a row for my Detroit Lions, and every one a heartbreakerin most of the games they led by at least ten points at one time. Getting ahead but still losing is a pattern that is not restricted to sports, but is also encountered in investing. It's surprising that conventional stock market investing has not seemingly developed any effective ways to counter it. Yet with profits in most of our strategies so far this year, it's important to seek to do so.
Surprising Choices in the Search for Safety Near-Certain Loss of Purchasing Power versus Short-Term
Risk, in its many guises, is unavoidable, and investors today are taking on significant amounts of credit risk, duration, and leverage to obtain high yields from many presumably safe bonds. But certain types of risk are often mispriced. By overweighting one's portfolio to those sectors that currently offer attractive risk-adjusted returns, investors will be better positioned to meet their long-term goals.
A Critique of Grantham and Gordon: The Prospects for Long-term Growth
The vigorous global economic growth of the last two centuries is over, according to Jeremy Grantham and Robert Gordon. That prediction, if correct, has profound and worrisome implications for investors. And the short-term trend is indeed disquieting: Growth has been close to zero over the last decade in advanced countries. But the most likely outcome is that per capita GDP growth going forward will approximate its U.S. historical average of 1.8%, and it will grow faster in developing markets.
Over the Cliff: Alan Simpson and Erskine Bowles on the Looming Deficit Crises
by Michael Skocpol,
As President Obama and Congressional leaders hurtle Thelma-and-Louise-style toward a budgetary precipice, another deficit-tackling duo hit the road earlier this month to deliver a simple message: This all could have been avoided.
Kyle Bass on the Next Big Crisis
by Robert Huebscher,
If economics could be studied in a laboratory, scientists might concoct something like the circumstances now unfolding in Japan ? and policymakers should be paying close attention. According to Kyle Bass, Japan's currency ? and its bond market ? are about to collapse under the weight of the country's unsustainable fiscal deficit.
Euro Crisis: Major Implications For Investors
by John Browne of Euro Pacific Capital,
The euro crisis has begun to feel like an everlasting steeplechase with high hedges and water obstacles blocking the path to economic resurgence on the Continent. Each time a hurdle has been cleared another problem emerges to potentially block the track. The latest developments involve ugly anti-austerity riots across the southern tier and open rifts emerging among the creditors, most notably between the International Monetary Fund and northern nations.
Little Dutch Boy
by John Hussman of Hussman Funds,
In the Mary Mapes Dodge book titled Hans Brinker, there is a fictional story within the story of a little Dutch boy who, on his way to school, notices a hole in the dyke. Having nothing else to fix the leak, he plugs the hole with his finger and stays there through the night until workers come to repair it. We are now into the fourth year of efforts to print trillions of little Dutch boys out of dollars and euros in order to stop a tide from crashing through a fundamentally damaged dyke. All of this has bought time, but no workers have arrived, and no real repairs have been done.
Emerging Markets: Maintaining Perspective
by Robert O. Abad,
In this Q&A, Western Asset Portfolio Manager Robert Abad discusses the latest dynamics and trends within emerging markets (EM). Although EM continue to demonstrate resiliency, Mr. Abad believes that given the amount of global uncertainty today, it is important that investors evaluate opportunities alongside a manager equipped to guide them through the risks and rewards of this evolving asset class.
Lacy Hunt on Our Economic Future
by Robert Huebscher,
Last week I spoke with Lacy Hunt, an unequivocal advocate of deficit reduction. Hunt defended ? as persuasively as few others can ? the need to address our fiscal imbalances. But equally respected economists are advocating for the other extreme, and he shares some common ground with them.
World's Economies Come of Age
As we grow and age, our needs and habits often change. The same is true of economies, which grow and change along with their people. Short-term statistics that impact a country's economic growth rate, such as consumer spending, exports and the like are certainly important, but there are also long-term shifts that can have significant economic implications for the future. Changing demographics is one of them. As a long-term investor, I have to look not only at today's opportunities, but also plan for tomorrow's developments.
The Yield Hunt
by Michael Lewitt,
The high-yield market is not in danger of imminent collapse as some have argued. As long as defaults remain relatively low, and interest rates remain invisible, investors will continue to chase yield. But a few things could cause a sharp sell-off in the near future.
October 2012: Fixed Income Investment Outlook
by Team of Osterweis Capital Management,
Like last year, this summer's quarter was eventful. Investors entered the quarter with high expectations that the European Central Bank (ECB) and Federal Open Market Committee (FOMC) would provide the markets with more monetary largesse. On July 26th, Mario Draghi, President of the ECB, vowed to "do whatever it takes" to preserve the euro. Risk assets then began an anticipatory rally heading into some key events in mid-September.
The New World of Credit
In an era in which economies are driven by the creation of fiat money by central banks, and where the base of hard money is dwarfed by the volume of outstanding debt, every form of capital is tied to credit. In 1919, William Butler Yeats famously wrote that 'the center cannot hold.' A century later, there is no center.
Central bank involvement spurs risk appetite
David Jacob provides an update on third quarter market conditions including the significant shift in sentiment due to central bank involvement. Most notably, the European Central Bank?s commitment to the protection of the euro and the Federal Reserve?s announcement of an unlimited QE3. Mr. Jacob explains how this involvement has underpinned today?s risk appetite in the market. He believes markets will continue to trade with a positive tone, but that he anticipates continued volatility out of Europe as they wrestle with funding problems from some of the peripheral states.
Confronting the Unemployment Crisis
by Robert Huebscher,
Policymakers seeking a path to economic recovery must first answer one crucial question: Is our persistently high unemployment structural or cyclical? If it's cyclical, then monetary and fiscal measures designed to boost consumer spending will restore the US to full employment in due course. But if we face a structural problem, then quick fixes won't work until we correct deeper imbalances that have left 12.5 million Americans without jobs.
Value Investing in a Macro-Driven Environment
by Robert Huebscher,
The GoodHaven Fund (GOODX) is managed by Larry Pitkowsky and Keith Trauner. For most of the previous decade, Larry and Keith held research, portfolio management, and executive positions with the Fairholme Fund. I spoke with them last week.
ECB Throws Euro a Life Preserver
A few short months ago, the euro appeared to be in critical condition. The crushing weight of debt, particularly in Southern Europe, seemed to be sucking the life out of the European Union. Now that the European Central Bank has announced that it stands ready to provide some life support to the euro, the contagion fears seem to have ebbed, and one might even say predictions of its death were perhaps greatly exaggerated.
The Ramifications of a Robin Hood Tax
Could a transaction tax have unintended consequence for American banks? While the jury is still out on that answer, Hungarys example is a reminder to policymakers to comprehensively consider the rewards of collecting a Robin Hood tax along with the risks. Profits and bank credit growth rates across Hungary plummeted due to the hefty bank levies imposed.
Campaign Rhetoric and Our Energy Future
by Michael Edesess,
At their respective conventions, both President Obama and Mitt Romney spoke to a centrally important topic for America and the world: energy. Their positions ? political posturing aside ? are broadly similar. But rather than a coherent, sustainable vision for the energy future of the United States, both men's rhetoric reflected the usual exercise in political base-touching, apple pie-polishing, and third-rail avoidance. And two important, perhaps crucial, pieces of the energy puzzle were hardly mentioned at all.
Ponzi Games
by Michael Lewitt,
Whatever schemes the European Central Bank may cook up over the next few months will only prove short-term liquidity relief to what are long-term insolvency problems. Like any Ponzi scheme, the last money in is going to be hurt the worst when the charade comes to an end. In the meantime, investors proceed at their own risk.
Who?s Fooling Whom?
by Michael Lewitt,
Equity markets are exhibiting a remarkable degree of complacency. The VIX is currently at extremely low levels and it can maintain those levels for a long period of time. The worse things get in terms of the economic data, the higher the market goes on hopes of central bank stimulus. At this rate, the Dow will peak just as the world is coming to an end!
And That's the Week That Was
by Ron Brounes of Brounes & Associates,
Once upon a time, Facebook and Groupon were prospective Wall Street darlings. Now both they are pushing all-time lows with analysts questioning their overall revenue models. For now, they are in the minority, as some decent earnings numbers and economic data brought back the "bulls" (at least those who arent on vacation) and sent the major indexes higher (again). Europe still has plenty of issues; the jury is still out on the Fed's next moves; and the campaign season is heating up.
Blind Faith
by Michael Lewitt,
Central banks are facing political and practical obstacles that will render it very difficult for them to deliver anything more than anodyne words and actions as summer moves into the always dangerous August holiday season. IPhones should be kept on alert at the beach through Labor Day.
And Then There Is Disaster C
I have contended for some time that Europe is faced with two choices: Disaster A, which is the break-up of the eurozone, or Disaster B, which is the creation of a fiscal union, which keeps the euro more or less intact. Over the last few months I have come to realize that there is indeed a third option, which now looks increasingly possible. European leaders might do nothing more than deal with the problem immediately in front of them, moving from crisis to crisis in a slow-motion drift toward fiscal union.
Dividend Taxation and Stock Returns
by Team of Neuberger Berman,
With bond yields declining globally, stocks with high dividends have become increasingly popular as income seekers face a narrowing set of investment choices. The increased demand has caused dividend-paying stocks to outperform broader markets over the past few years, but as the expiration of the Bush tax cuts looms ever larger heading into year-end, investors are concerned that these stocks might grow less attractive. We explore the potential impact of higher taxes on dividend-paying stocks and how investors should be positioned in the months ahead.
Expect Headwinds for Stocks If Hoisington is Right about Bonds
Might today's historically low interest rates in the U.S. persist for years to come? The latest Quarterly Review and Outlook from Hoisington Investment Management forces readers to consider that possibility, refuting the reversion-to-the-mean mindset that causes many people to expect higher interest rates in the not-too-distant future. If the Hoisington model for the economy turns out to be right, the implications for the stock market are unfavorable.
Housing, Profits Shine Amid Rain in Spain
Despite continued crisis in Europes periphery pressuring stocks, a rebound in housing, surprisingly strong profits and a spike in M&A activity may point to a healthier U.S. economy. And institutional equity managers are more optimistic on the stock market. However, with employment still showing weakness and the euro-zone crisis remaining a critical concern, one has to wonder why these institutional investors are becoming more bullish. Heres some insight into why they may be keeping the faith.
Equity Investment Outlook
by Team of Osterweis Capital Management,
In the politically correct atmosphere that permeates many of our college campuses, the euro-centric view of world history is regarded as hopelessly anachronistic, small-minded and possibly even racist. In the last year, they have become hopelessly euro-centric, rising or falling in concert with the news coming from the eurozone. A few years ago the markets focused on growth in emerging markets. Today, they focus on problems in the developed world.
Fixed Income Investment Outlook
by Team of Osterweis Capital Management,
Recent escalations in the euro crisis and weaker-than-expected global economic data have led to widespread calls for further stimulus. Global leaders believe they are addressing the issue, with China and the ECB lowering interest rates and the Bank of England announcing an additional 50 billion sterling of quantitative easing. We are skeptical about the benefits of such policy action and believe that the U.S. and Europe each require different solutions to solve their fiscal issues.
Can you Beat SPIAs with Long-Term Bonds?
by Michael Edesess,
While single-premium income annuities (SPIAs) guarantee a specific income as long as the purchaser lives, their rates of return generally compare unfavorably with long-term bonds over normal life expectancies. This makes SPIAs look like the inferior investment, notwithstanding their value as longevity insurance. But considering the low level of interest rates and the potential for future volatility, SPIAs are still a good choice for many retirees.
Breaking Bad
by Michael Lewitt,
With our largest business and government institutions committing every conceivable act of legal or moral anomie, we have every right to ask who is going to protect the rest of us from those who have been entrusted with so much power and influence. The institutions that were supposed to be the lifeblood of our economy are the same institutions that inflicted the greatest harm on society. When the family has to be protected from the man who is supposed to protect the family, the family is in serious trouble.
Investing and the Euro Crisis
by David Kelly of J.P. Morgan Funds,
In the summer of 2012, the Euro Zone crisis continues to dominate financial markets as it has done over each of the past two summers. While the solution to the problem remains relatively straightforward, it requires a level of economic understanding, political courage and communication among policymakers that has been absent thus far. Without this, the crisis is likely to lurch forward with only a very slow and painful resolution.
Economic Insights: U.S. Exports: A Lower Gear, but Still Cruising
by Milton Ezrati of Lord Abbett,
The growth of exports at times has added as much as two percentage points to the overall pace of the economys expansion and is a major reason why American manufacturing has staged a comeback in recent years - a renaissance some have called it. But of late, with the dollar rising against both the euro and the yen, and with growth overseas slowing or, in Europes case, falling, questions have arisen about the sustainability of U.S. export strength.
European Summit - Something for Bulls and Bears
by Fred Copper of Columbia Management,
The European summit outcome was fascinating; it had something for everyone, both bulls and bears. The net result was a positive surprise with at least one major concession by Germany. In concurrent news, three of the four semifinalists in the Euro 2012 soccer tournament were PIGS (Portugal, Italy, Greece and Spain) and the other was Germany. Spain won the competition on Sunday, symbolic of the PIGS power within Europe it isnt all about Germany.
The Euro's Latest Reprieve
by Joseph Stiglitz of Project Syndicate,
Like an inmate on death row, the euro has received another last-minute stay of execution. The markets are celebrating, as they have after each of the many euro crisis summits until they come to understand that the fundamental problems have yet to be addressed.
An Ending Made For Gold
Over the past several months, the markets have tested investors conviction to gold. Since February, the price of the yellow metal has steadily stepped lower, rallying somewhat in May before falling again when Ben Bernanke disappointed by not providing the U.S. with more stimulus. Meanwhile, the dollar gained ground as global investors fled the euro.
And That's the Week That Was
by Ron Brounes of Brounes & Associates,
Ahthe doldrums of summer. Sure Greece just completed crucial elections that could have dramatic impact on the euro-zone and the global economy; AND Spain just saw its interest rates rise above the key seven percent level into traditional bailout territory; AND JP Morgan, of failed hedging fame, just received a major ratings downgrade by Moodys Investors Services; AND Facebook disappointed the investment world with its disastrous IPO, a comedy of errors for most everyone involved
Retirement Floors and Implications for Evensky's Cash-Reserve Strategy
by Wade Pfau,
Does sensible retirement planning call for funding basic needs with less volatile assets and investing more aggressively for aspirational goals? Or, with client goals clearly defined and prioritized, does sensible planning call for a total returns approach? Multiple schools of thought have emerged, but there is not yet any consensus about what constitutes a proper retirement income floor. These lingering unresolved disagreements reinforce the benefits of Harold Evensky?s and Deena Katz? popular strategy.
A Busy Weekend in Europe
by Fred Copper of Columbia Management,
The headline story is the election in Greece. The initial market reaction to the vote result was positive, with the Euro and Asian markets up strongly. Apparently, the market is realizing that though a disorderly Greek exit scenario has been taken off the table, at least temporarily, by the majority given to pro-bailout parties, we are really just back to where we were before, between the rock of an economy in free-fall and the hard place of an unsupportable and expanding mountain of debt.
The Tip of the Iceberg For Dividend Stocks
by Team of Columbia Management,
Post-crisis equity investors seek to lower portfolio volatility. Dividend stocks have provided higher returns with less risk compared with non-dividend payers. Baby boomers are retiring now with much smaller nest eggs than they had anticipated. They need reliable sources of income and growth. Cash-rich companies are in a position to pay and potentially grow dividends, while dividend payout ratios are historically low. Active managers leverage in-depth research to uncover promising opportunities among companies likely to initiate or raise dividends.
The Problems with Trying to Benchmark Unconstrained Portfolios
by Ken Solow,
Benchmarking unconstrained, 'go-anywhere' managers is difficult. Common methods to determine an appropriate benchmark - such as an ex-post regression of how the fund was invested - can obscure the actions of the manager. Is the only solution to simply select an arbitrary benchmark and proceed accordingly?
Kingdoms of the Blind
by Michael Lewitt,
Recent events offer a rare illustration of the combined effects of the failure of monetary, fiscal and regulatory policy to coordinate a meaningful response. Rising budget deficits, record low interest rates, J.P. Morgan's proprietary trading blunder and the botched Facebook IPO process speak to abject policy failures in virtually every aspect of finance. It's not even a question of not having learned our lessons; our collective policy intelligence actually appears to have diminished.
Results 2,501–2,550
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