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Weekly Aisa Update
by Robert J. Horrocks of Matthews Asia,
Italys government bond yields have been spiking as investor concerns threaten to become self-fulfilling prophecies that raise the specter of default in Italy and dismemberment of the euro. While, China is stepping more than a little lightly on the monetary brakes, along with other countries across Asia, over fears that inflation is getting out of control. And the markets response is to push up the price of U.S. bonds and sell down equities across the globe. Obviously, slowing growth is of far greater concern to investors than the opinion of the rating agencies.
Survey Results: Advisor Use of 529 Plans
by Paul Curley, CFA,
With investor sales volume returning to the 529 industry, financial advisors have an opportunity to grow their business. However, they are missing out: Asset growth within the advisor-sold channel has not kept pace with the growth experienced by the direct-sold channel.
An Economy at Stall Speed
The economy is at stall speed, it is quite possible well see further downward revisions to the already anemic growth numbers, and Congress and the President are dithering over the debt ceiling. It will not take much to push us into an outright recession. We can go a few days, I think, with the latter problem, but not too long or the markets will throw up.
Sector Insights - Focus: Materials & Processing
There has been a trend in the last decade for companies to increase in size through M&As, with a focus on removing competition, growing larger, and cutting costs to achieve economies of scale. In businesses that are commodity-oriented, scale is vital to success. This consolidation is occurring in part because it is becoming increasingly difficult to add economic value in this sector of the market. An agricultural revolution is underway, which is advantageous to many companies in the agricultural chain. Demand in the emerging world in particular is providing opportunities to grow revenues.
Looking Past a Weak Q2
While some economists are reducing their projections for second half growth, we remain confident in a relatively strong rebound from a weak first half. We forecast that real GDP will grow at a 4% to 4.5% average annual rate in Q3 and Q4 2011. Productivity is strong, monetary policy is loose and fiscal policy is getting no worse. Jobless claims are falling again and auto production is set to surge. In addition, with full expensing allowed for tax purposes this year, record levels of both profits and cash will fuel growth in business investment.
Pacific Basin Market Overview ? June 2011
by Team of Nomura Asset Management,
Faced with the imminent withdrawal of the Fed?s QE2 policy, the ongoing sovereign debt woes in the Euro-zone, and concerns over a slowdown in China, the Asian equity markets were at best only able to range trade during the second quarter. The broad indices remained relatively flat, with the MSCI AC Asia Pacific Free Index declining by 0.50% while the MSCI AC Asia Pacific declined 0.87%. As the immediate concerns over the sovereign debt crisis in Europe subsided, a steady recovery in domestic production also helped to lift the Japanese market and trigger a late rebound in equity prices.
The Titanic Has Sailed
by Michael Lewitt,
It was entirely predictable that the U.S. equity market would rally on the news that Greek would not default this month, but it does little to convince me that the long-term outlook for European sovereign debt or the global economy has improved. Markets - particularly the equity markets - are trying to pretend that the global economy is experiencing a self-sustaining recovery. A hard look at the economic numbers would tell an objective observer that no such recovery is occurring.
The Greek Comedy
by Michael Lewitt,
It is no longer prudent to dismiss the possibility of a worst-case outcome for the Greek debt crisis. Greece is not only laying bare the flawed structure of the European Union, but the fragility of the global financial system. An interconnected and networked global economy cannot ignore problems on its so-called periphery because there is no longer any periphery. Derivatives and other counterparty relationships have seen to that.
The Consequences of Policy Failure
by Michael Lewitt,
Investment performance for the rest of the year will be determined by the macro-economic views of investment managers. While microeconomic factors are always extremely important in charting investment strategies, they are particularly important today as the U.S. and global economies continue to fight their way through the detritus of the global debt crisis. A compelling case can be made for weaker 2Q112 growth based on a combination of factors.
A Proven Path to Business Breakthroughs
by Dan Richards,
In my conversations with advisors, implementing change often tops the list of business challenges and frustrations. To advance your business, one proven strategy that has demonstrated remarkable success over not just years but decades is tapping into the power of peer-performance groups.
Emerging Europe: Economic Review May 2011
by Team of Thomas White International,
According to data from EuroStat, inflation in the Euro-zone touched a 30-month high of 2.8 percent in the month of April as prices of fuel, electricity, and housing continued to soar. In line with the broader trend, the inflation gauge in the 27-member European Union, which also includes Poland, the Czech Republic, and Hungary registered an annual 3.2 percent in April, a touch above the 3.1 percent recorded in March. Among the east European economies, the Czech Republic recorded the lowest rate of inflation during the month.
The Smooth Illusion
by Michael Lewitt,
In retrospect, the Federal Reserve's interminable zero-interest policy and its quantitative easing programs are likely to be seen not only as ineffective but damaging to the prospects for sustainable long-term economic growth. A number of asset classes are beginning to exhibit bubble-like behavior, something that would be far less likely to occur were interest rates normalized.
Howard Marks on the Human Side of Investing
by Robert Huebscher,
Howard Marks is widely regarded for his thought-provoking essays on the discipline and process of value investing. He is the chairman and co-founder of California-based Oaktree Capital, and he delivered the keynote address at the Value Investing Congress in Pasadena last week.
A Roadmap For The Coming Changes In Fed Policy
Last week?s FOMC statement, and Bernanke?s first press conference, were predictably anticlimactic. But they did confirm what the FOMC plans to do this summer, and what they currently think should be the next steps thereafter. Based on this apparent plan, market participants would be right to assume that Fed policy will continue, well after QE2 ends in June, to weigh on the Dollar and support the already elevated Euro, commodity prices, commodity currencies, etc? In other words, the Fed?s telegraphed trajectory would continue to contribute to the world?s biggest macro risks today.
Gary Shilling - Five Things that can Derail the Recovery
by Robert Huebscher,
Die-hard deflationists - those who foresee a continued bull market in bonds - are so few in number these days they could all share an elevator, according to Gary Shilling. One is Gluskin Sheff's David Rosenberg, whose views are considered elsewhere in this issue. But the loudest such voice belongs to Shilling himself, who has advocated for a long position in Treasury bonds continuously since 1980, a stance that has always proved prescient so far.
European Engines of Growth
Emerging countries in Europe are expected to outpace their developed counterparts over the next two years, with Latvia, Poland, Romania and Slovakia leading 2012 GDP growth, according to The World Bank. In its ?EU10 Regular Economic Report,? the organization expects Romania to lead the way with 2012 GDP growth of 4.4 percent followed by Slovakia?s projected growth of 4.3 percent. Poland?s GDP is anticipated to grow by 4 percent this year and 4.2 percent next year. As domestic demand recovers, Latvia is set to produce a GDP of 4 percent by 2012.
Rear View Mirrors
It was another positive quarter for U.S. equity investors. The market?s resilience in the face of the Fukushima earthquake, Middle East rebellions, and euro uncertainties was remarkable. The U.S. economy continued to demonstrate significant signs of recovery with new jobs in March and a 1% drop in the unemployment rate since November. While European markets were up 6.5% in dollar terms, Asian indices were down 2%. Bond market was mixed, with treasuries down and diversified indices flat. Oil prices were up over 16% while the dollar fell 6.4% relative to the euro but up 1.3% to the yen.
Mexico: Conquering its Challenges
Mexico has a wonderful combination of a dynamic economy with an active cultural scene. Just like other markets, Mexico?s stock market suffered a crash at the end of 2008 and the beginning of 2009, moving from the 2007 high of almost 32,473 points to an October 2008 low of 16,979 points, a huge decline. Since then it has climbed steadily, more than doubling to reach 38,600 points at the beginning of this year. The Mexican economy has mirrored the stock market. After a disastrous 6% contraction of the economy in 2009, Mexico grew by more than 5% last year and is expected to grow by 4% in 2011.
Been Down So Long It Looks Like Up To Me
by Michael Lewitt,
"The budget crisis is a crisis of leadership," writes Michael Lewitt in the latest issue of the HCM Market letter. "There is no intellectual mystery involved in cutting the budget - entitlement spending must be reduced through the adoption of tighter eligibility standards... The markets will also have to evaluate whether Congress and the Obama administration can make any meaningful progress on budget reform, which will mean tackling the entitlement issue. The failure to rein in federal deficits remains a profound threat to the dollar and interest rates."
China Part II ? Looking Beyond Its Shores
China?s latest 5 Year Plan is focusing on growing the domestic economy with a focus on harmony. A lot of the foreign investments and the large capital inflows into the Chinese market have all been focused on tapping into one of the world?s largest consumer markets. However, what many are missing is that China is the world?s fifth largest investor in terms of outbound direct investment at about US$56.5 billion in 2009. Last December, China announced US$16 billion in deals in India and this year, Chinese officials pledged to purchase as much as 6 billion Euro worth of Spanish gov bonds.
Confessions of an Investor
Woody Brock is advocating a regime change. Throw away the generally accepted approach of two generations of investment ?experts? and start again, is Woody?s recommendation. As a practitioner, I certainly recognise the limitations of MPT and I agree that, in the wrong hands, it can be a dangerous tool, but there is also a discipline embedded in MPT which carries a great deal of value. And, in fairness to Woody, he does in fact agree that you can take the best from MPT and mix it with a good dose of ?common sense? and actually end up with a pretty robust investment methodology.
Wanted: Private Investors Seeking First Loss Exposure on RMBS
In a market where volatility is this high,even with the Fed removing trillions of dollars in duration from the markets via QE, just how are private obligors going to price trillions of dollars in first loss RMBS exposure in this imaginary private market that pro-reform elements in Congress have in mind? Fact is, when the Fed ends QE. market dependence upon the GSEs for liquidity support will grow. Like we said, raise the G fees and the conforming loan limit in the name of market forces, Congress needs to find some ways to increase the volume of mortgage loan refinancing and modifications.
Running on Empty
by Michael Lewitt,
Despite the increasing undercurrent of negative news creeping into the financial markets, the stock market remains strong. HCM expects equities to continue to perform well for the foreseeable future (i.e. through the end of June) although most of this letter will discuss the reasons why it shouldn't. In some ways, this market is a lot like Charlie Sheen. It pretends to have tiger blood and the powers of a warlock, but deep inside it is suffering from an addiction to a substance (i.e. debt) that will ultimately kill it.
The Apartment Market Has Room to Run
The stars are aligning for an apartment boom. Other than housing affordability, all signs are pointing to a surge in rentals. Tighter lending standards, a shortage of consumers with a down payment, and strong demographics all point to rentals as the economy recovers. Look at the coming surge in demographics: The number of 20-24 year olds will grow 1.2% per year through 2013. The number of 25-34 year olds will grow 1.4% per year through 2015. This translates to an additional 1.3 million renter households. And finally, more than 1.2 million young adults moved home from 2005 to 2010.
Money Supply Data and Inflation
You might think that considering money supply data would be easy and non-controversial. You would be wrong! Michael Pento, most recently affiliated with Euro Pacific, well known as an aggressive advocate in both print and broadcast media. That is probably an understatement given his controversial nature and style of engagement. Most people would view him as an aggressive advocate for the viewpoint that inflation is spiraling and the Fed is responsible. To set the stage, he compares the US Dollar to Enron shares in 2001.
Toward an Understanding of Risk
by Robert Huebscher,
How should clients think about risk in their portfolios? Advisor Perspectives put that question to a cross-section of prominent advisors and academics. Their answers encompassed diverse opinions and underscored how crucial that question is to the investment process.
The Stuxnet Paradigm
by Michael Lewitt,
Michael Lewitt discusses the situation in Egypt, the economy, rising risk appetites in the market, sovereign debt and municipal bonds. 'It might be very easy,' he writes, 'to be impressed by the 'two years and thousands of man hours' that Ms. Whitney spent researching the fiscal condition of the 15 largest states. What in the world required so much time and effort? It shouldn't have taken nearly so long to determine that these states are in severe financial trouble and that their options for dealing with it are limited.
Q4 2010 Market Commentary
All in all, it should be a year of recovery, both economically and for the equities markets. The market undoubtedly will once again climb the proverbial wall-of-worry with negatives and risks including: Unresolved euro currency issues, government debt growth, federal and municipal, and municipal solvency issues. We also believe that consensus 2011 real GDP growth, currently expected to be about 3.5%, a number that has moved up in the past few months, is supportive of a 16-multiple for the market as seen to the left. Therefore we must believe P/E?s are going higher rather than lower.
Beyond the Efficient Market Hypothesis
by Michael Edesess,
John Cassidy's 2009 book, "How Markets Fail," drives the final nail in the coffin of the Efficient Market Hypothesis. Well, perhaps the penultimate nail - as I'll explain. It is the most compelling argument I have read that we need a new and improved theory of markets, a theory that subsumes the efficient market hypothesis, much as Einstein's relativity theory subsumed Newtonian physics.
'The Feeling is... Mutual!'
by David A. Rosenberg of Gluskin Sheff,
As they chase performance, retail investors plowed a hefty $6.54 billion into equity funds in the week of January 12. TD Ameritrade has reported that margin lending has soared 31% from year-ago levels. Uh oh. The one industry that is being hammered right now is the municipal bond fund space ? with net outflows last week of $2.37 billion, the tenth week in a row. While there is no doubt that we remain cautious on the equity market as an asset class, we like the large-cap, blue-chip, cash flow generators and reliable dividend payers.
Build Loyalty through Annual Client Reviews: Four Questions All Advisors Must Ask Their Clients
by Ani Yessaillian,
In today's highly competitive marketplace, you'll never be able to grow your business if you're losing clients. Trust fosters loyalty - but how do you build that kind of trust with your clients? The annual review is one of your best opportunities.
Tolerable Accuracy
It paid to be practical in 2010. We started the year with relief that we averted catastrophe but were dimly aware it would be tough. How could it not be? Financial markets were in disrepair and the economy looked like it had only just made it through a re-stocking cycle. All other parts of the economy looked down for the count. But in the end, despite euro sovereign emergencies, deflationary fears and a phony currency war, both the real economy and financial assets had a strong year.
The Two Elephants Facing the US Economy
by Michael Lewitt,
The consensus has reached the conclusion that financial markets will enjoy a strong start to 2011. This is reason enough to approach the markets with caution as the year begins. When everybody is leaning to one side of the boat, the vessel is far more likely to tip over, particularly if it hits an unexpected wave.
The Key to Scaling Your Practice
by Bob Oros,
Independent advisors who are ill-equipped to handle a large influx of business from retiring baby boomers will struggle to harness the swelling demand. To capitalize on this new wave of assets, advisors need an edge. Many forward-thinking advisors have already discovered such an advantage in model portfolios.
The Coming Decade of Sideways Markets
by Robert Huebscher,
'We are in the middle of a sideways market, and we still have another decade to go,' says Vitality Katsenelson. In this interview, Katsenelson shares his insights on the decade ahead and the many factors that may keep China from leading us out of the recession.
The European Union?Will It Hold Together?
by Milton Ezrati of Lord Abbett,
With an Irish rescue seemingly in place, Europe must now look to Portugal, Spain, and Belgium. The continent?s sovereign debt crisis threatens the euro?and the EU itself. We can make some tentative conclusions: 1) Europe?s existing rescue resources are more than ample for Greece, Ireland, and Portugal. 2) The great danger lies with Spain, less because of government profligacy and more because of the potential fallout from that country?s collapsed real estate bubble. 3) The EU has shown determination to deal with the problem and protect the euro and the union.
Looking Back at a Year of Policy Mistakes
by Michael Lewitt,
As we approach the end of 2010, the global economy remains captive to a boom-and-bust cycle resulting from years of pro-cyclical monetary, fiscal and regulatory policies. With very limited exceptions, the same policies that contributed to the 2008 financial crisis remain in place. The only difference is that government balance sheets are far more leveraged than they were heading into that crisis.
Year-end Letter to Clients: Investment Advice from Winston Churchill
by Dan Richards,
For the past 18 months, my draft letters have been designed to balance some of the extreme pessimism among many investors with an objective, positive outlook - the draft year-end letter for 2010 continues with that goal. In it, I borrow from Winston Churchill's insight into the difference between optimists and pessimists.
QE2: Beware the Perils of its Success
QE2 is like a drug prescription that comes with a list of side effects that are often worse than the disease it was supposed to cure. It is difficult to know the unintended consequences of QE2, but it may result in a substantial decline in the dollar, stagflation, lower economic growth and much higher interest rates.
Investment in Life Settlements: Certainty in Uncertain Times
by J. Mark Goode,
Life settlements are not directly correlated with traditional bond and equity markets and have the potential to yield above-market returns in the intermediate and long terms. Unlike the equity and bond markets, the returns on life settlements are uniquely tied to mortality.
Weekly Commentary & Outlook
Despite high profile news items such as the bail out of Ireland (and soon to be other nations in the Euro zone), the monetary tightening occurring in China and the high profile campaign to attack our country?s monetary policy, the stock market was as flat as a pancake last week which did not sit well with the many prognosticators calling for a significant pullback.
Through the Looking Glass with Steven Rattner
by Jack Falvey,
Steven Rattner, the one-time 'Car Czar' and author of Overhaul, has been busy redefining terms while trying to put his considerable spin on history. He wants to convince us that the auto industry was magically transformed from a cash-bleeding rusting hulk to a paradigm of corporate profitability. The auto industry was not overhauled. In fact, Dismembered would have been a far more accurate title.
Income Theme Still Intact
by David A. Rosenberg of Gluskin Sheff,
Spasms don't throw secular trends away. The bond market is going through a corrective phase right now. The sharp selloff in the municipal bond market is an over-reaction to default risks - there is a lot of supply coming onto the market and the end to Build America Bonds is looming. We have been advocating relatively low weightings in the equity market, but certainly not a zero exposure despite our cautious outlook. Our exposure is running between 20-25 percent with a barbell approach - income equity on one side, balanced by raw materials on the other.
A Reading List for 2010
Updated for 2010 and in time for the holidays, here is the latest installment of my recommended books. I originally wrote this list in 2008 and again last year. I intend to keep adding to and revising it every year. It contains seven sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, Risk and Books for the Soul. The first three sections are presented below and the remaining four will be presented next week.
Results 2,651–2,700
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