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Keynesian Confusion
by Michael Lewitt,
Keynesian policies are inflicting untold damage on the U.S. and global economies today. Keynes did not have to be misread. The reason that the current recovery is below par is that the economy is experiencing a massive paradox of thrift. We doubt that reducing already low rates is going to stimulate much of anything other than more frustration on the part of savers. Sooner or later, everything being earned on the upside of this liquidity-induced rally will be given back in spades - the only question is when.
Don't Fear the Euro
When the euro hit a low of $1.1917 against the US dollar on June 7th, 2010, the airwaves crackled with assertions that the European common currency, beset by Greek debt problems and intra-union discord, was destined to trade at parity with the greenback. They were wrong. Since then, the euro has risen over 17% against the dollar, hitting $1.3961 today. The current upswing, delivered courtesy of the Fed, has at least temporarily silenced the euro?s critics.
Beggar Thy Neighbor, Beggar Thyself
by Michael Lewitt,
In the latest edition of the HCM Market Letter, Michael Lewitt argues that reported attempts by countries to devalue their currencies will only result in higher inflation and not economic growth. QE2 will similarly fail, and the necessary "heavy lifting" for the economy should be through fiscal, not monetary, policy. A continuation of Keynesian policies, as advocated by Paul Krugman, will also fail. Lewitt warns of dangers in ETFs and offers his investment recommendations.
Liquidity Flowing into Asia and Western Latin America
Liquidity will flow into the Asian region raising consumer spending, stock prices and currency values. In the following countries: India, Indonesia, Malaysia, Thailand, Singapore, and China much new liquidity will enter. It will be in the form of foreign direct investment and investment money moving into stocks and bonds. With the exception of China, which is being singled out for a trade battle by the U.S. Congress, all of these countries will see their currencies rise and their economies grow.
Too Soon to Call for Asian Decoupling
Even without a double-dip, weak U.S. and EU recoveries will cause export-dependent Asian economies to grow below their 2003-07 trends in the coming years. Nonetheless, widening growth differentials with the G7 countries and healthy public- and private-sector balance sheets - along with rising incomes and expanding middle classes - will drive economic growth and foreign investment in Asia and increase intra-Asia and EM trade and investment.
The Centre Cannot Hold
by Michael Lewitt,
"A refusal to shed discredited monetary and fiscal policies and embrace creative and politically bold solutions is keeping our economy mired in high levels of structural unemployment and below-trend growth," writes Michael Lewitt in the latest edition of the HCM Market Letter. He also believes that "misguided faith in Keynesian solutions to debt crises, a near-religious belief that mild deflation must be avoided... and uninformed media hype about the alleged benefits of mergers and acquisitions" should be added to the list of bad ideas that lead economic policy and markets astray.
This is No Way to Run a Railroad
by Michael Lewitt,
In the latest edition of the HCM Market Letter, This is No Way to Run a Railroad, Michael Lewitt says the railroad known as the United States economy is chasing its own tail these days. Driven by misbegotten fiscal and monetary policies that ignore the lessons of history in favor of discredited financial and economic theories, the economy is trapped in a cycle of boom and bust. Lewitt also comments on the bond market, the European stress tests, GM, and the private equity industry.
Build America Bonds Power the US States
A skeptical attitude toward new products has long served the best interests of advisors and their clients, almost without fail. However, in this guest contribution, Hildy Richelson argues that advisors should not be afraid to embrace one of the market's most prominent recent innovations: the Build America Bond (BAB).
Malaysia, Truly Asia?
by Jesper Madsen of Matthews Asia,
Malaysia will need to proceed further down the path of liberalization in order to ensure that it stays relevant in an ever more competitive environment and truly grow with the Asian continent. Fortunately, over the past few years, policymakers have scaled back parts of the country's affirmative action system and placed emphasis on the expanding the services sector - both of which are long-term positives that could bode well for Malaysia relevance, not just as a tourist destination, but for long-term capital appreciation.
Cerulli Survey Results: New Themes in Advisors? Portfolio Strategies
by Bing Waldert,
New ideas, such as tactical asset allocation and the use of alternatives, have seen some uptake even before the market crisis, particularly within large institutions, but they are receiving increased attention as solutions for risk-averse clients. This article examines some of the evolutions, using data from a Cerulli Associates survey of Advisor Perspectives readers conducted in June and July of 2010.
Weekly Investment Commentary
Many risks remain to the current cautiously optimistic outlook, including the failure of the housing market to stage a meaningful recovery, the need for ongoing consumer deleveraging and the move toward fiscal austerity in many markets. As long as the economy does not fall back into recession, however, equity markets should be able to grind higher over time. Economic growth of around 2 percent should be enough to allow corporate earnings to continue to grow, and that backdrop, combined with still-attractive valuations, should make for an equity-friendly environment.
The Emerging Markets IPO Frenzy
In recent years, we have seen a rise in initial public offerings in emerging markets as EM companies begin to recognize the advantages of going to the market to raise capital in order to expand and grow. Investors should proceed with caution, however, before chasing IPOs and short-term gains. Not all listings are created equal. There is generally a lot of promotion surrounding all new listings. It is therefore important to conduct your due diligence and evaluate the stock based on its fundamentals with a long-term investment perspective.
What Multiples Are Telling Us Now
by Milton Ezrati of Lord Abbett,
The market will begin the next 18-24 months with multiples neither high nor low. Treasury and corporate bond yields, however, look low relative to the same history over which the historical multiples are calculated, seemingly leaving room for stocks to carry higher-than-average multiples. At the same time, prospects for further earnings gains seem good. Earnings have come in 25?30 percent above the easy comparisons of the past year, and as long as the economy continues to grow, which is likely, these good earnings figures should continue.
Rediscovering Your Listening Skills
by Justin Locke,
Listening may be the most critical part of your job, both for acquiring new clients and for maintaining current relationships. Everyone's listening abilities are unique, but many common fears and anxieties can interfere with your innate listening skills. In this guest contribution, Justin Locke identifies a few common problems and suggestions for how to work around them.
Sediment or Sentiment?
by David A. Rosenberg of Gluskin Sheff,
The growth rate on the ECRI leading index sank further into negative terrain, to -9.8 percent during the week ending July 9, down from -9.1 percent the prior week. This was the 10th deterioration in a row. We have never failed to have a recession with the ECRI at current levels. There is, however, an inherent volatility in the index that requires acknowledgment. In the past few weeks, the index has gone from pricing in even-odds of a double-dip to two-in-three odds. It may take a while, but Mr. Market will figure it out before long.
Emerging Market GDP Growth: The Past Two Decades, and Our Projections for the Next Decade
Even with all the problems currently experienced in Japan, Europe, and the U.S., some parts of the world continue to grow vigorously. Guild's focus will be on the countries above which have strong prospects for growth. They will also focus on high-yielding income stocks which earn cash flows from the production of oil, and from gold, which will provide an anchor to windward in the current turbulent economic times. Today's markets will continue to produce those opportunities in the form of price weakness if we remain patient.
Timber as an Asset Class: If a Tree Falls in the Forest, Should you Buy It?
by Charlie Curnow,
"If the sun shines and it rains, the trees grow about on schedule," wrote Jeremy Grantham, chairman of Boston-based investment firm GMO, in his quarterly newsletter in April 2007. Grantham's enthusiasm for timber, which remains true to this day, may be excessive, despite the fact that, on the surface, historical data seems to support his optimism. If a tree falls in the forest, should you buy it?
Inflation Protection Investment Strategies
by Vern Sumnicht,
The value of the dollar is sure to erode, and investors will be left to grapple with the inflationary consequences. As Vern Sumnicht shows in this guest contribution, recent policies suggest steep inflation may be just around the corner. Fortunately, investors have some options to bolster their portfolios against the threat of inflation.
Niall Ferguson on Japan, China, and the US
by Dan Richards,
Harvard's Niall Ferguson is arguably today's leading economic historian. In part two of this interview, Ferguson explains why he fears the future is bleak for Japan, why China may someday be the leading global superpower, and what all this means for the US. We provide a video and a transcript.
Life in the Fast Lane: Volatility and Uncertainty Abound!
by Liz Ann Sonders of Charles Schwab,
A 'square root' recovery is the most likely scenario: a V-shaped initial recovery followed by a flat-line period of growth. With the peaking in the US leading indicators in April, a likely double-dip in the euro area, slowing growth in China and rising US taxes, the beginning of a soft patch for the economy is likely upon us. This next phase has been accompanied by heightened volatility, a characteristic that is unlikely to go away. However, the current rally off the recent lows has legs.
Getting a Grip on Reality
by David A. Rosenberg of Gluskin Sheff,
Double-dip risks in the U.S. have risen substantially in the past two months. While the economy's 'back end' of industrial production is still performing well, this lags the cycle. The 'front end' of consumer sales and housing leads the cycle. We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June is pointing to subpar activity. The housing sector is going back into the tank - there is no question about it. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions.
Why Wall Street Won't be Reformed
by Robert Huebscher,
Michael Lewitt, author of the highly respected HCM Market Letter, has just released a new book, The Death of Capital. In this interview, he identifies the challenges facing those who seek to regulate Wall Street, and why most of the proposed reforms are likely to fail.
What?s Driving Investment Management Outsourcing?
Advisors who fully outsource their investment management want to free time for clients and grow their practice. But, as Northern Trust Investments' research explores, not all advisors are comfortable with full outsourcing. We thank Northern Trust for their sponsorship.
The First Thing We Do, Let?s Kill All the Quants
by Michael Lewitt,
In the latest issue of the HCM Market Letter, Michael Lewitt draws the parallels between the Gulf of Mexico oil spill and financial reform - both, he says, demonstrate our inability to learn from our mistakes. Lewitt also comments on quantitative trading strategies, economic recovery and the capital markets.
The Burden of Choice
by Charlie Curnow,
Columbia business professor Sheena Iyengar, author of The Art of Choosing, is the woman behind the famous jam study. Her research, which has been cited by Dan Ariely and others, shows the implications of providing consumers with choices that are too numerous or complex to easily evaluate. Charlie Curnow reviews her book.
European Discord?
German taxpayers have started to view the European Union merely as a 'transfer union,' where they incur tax hikes and spending cuts in order to make transfers that enable their southern neighbors to maintain social welfare provisions. Sooner or later, the political willingness to continue this pattern merely in order to sustain a common currency will cease. At that time, the choice will be to reconstitute the euro area, or agree that weaker nations with debt problems need to reduce and restructure their debts rather than pile on more.
Weekly Commentary & Outlook
The euro represents one currency, backed by 19 countries with various fiscal policy problems that range from bad to hopeless. The runaway government spending that dominates the euro area is now calling the future of the monetary union into question. One would hope that the Obama administration would look at Europe and wonder whether deficits in the U.S. at the federal, state and local levels could cause problems there. So far it is business as usual.
Difficult Choices Still Facing Europe
by Mohamed A. El-Erian of PIMCO,
The beneficial impact of last weekend?s $1 trillion 'shock and awe' intervention by Europe to save Greece and safeguard the euro is fading - even more quickly than officials had feared. This is the result of two main factors. First, having analyzed the news out of Europe in depth, markets recognize that the liquidity-based approach cannot sustainably address what is at heart a solvency problem. Second, markets are concerned that short-term stability is being pursued at the cost of long-term viability.
Europe Throws a Hail Mary Pass
This week's $1 trillion EU bailout is analogous to the US TARP program, and represents a "Hail Mary" last-ditch attempt to save the eurozone. The problems in the EU run deeper than government debt; when private debt is included, overindebtedness is even more striking. Mauldin says the prospects for growth in the EU are dim, the euro will go to parity with the dollar, and the EU will dissolve in the next 5-7 years.
A Typical European Response To An Atypical European Problem
by Victoria Marklew of Northern Trust,
Markets heaved a sigh of relief this week after European Union officials announced their $1 trillion rescue plan to save the euro. European states, however, will still have to face medium-term problems concerning fiscal deficits and economic restructuring. Demands that Spain make a renewed commitment to fiscal austerity suggest a new level of cross-country intervention. And the big issue has been swept under the carpet: how to ensure prudent fiscal policy-making across the 16 members of a monetary alliance with strong national identities and prickly memories of past hostilities.
God Is Dead: The Implications of the Goldman Sachs Case
by Michael Lewitt,
Michael Lewitt provides us with the most recent issue of the HCM Market Letter, where his discusses the implications of the Goldman Sachs case. Lewitt says Goldman faces a terrible dilemma, and should heed the lessons of the downfall of Drexel Burnham two decades ago. Lewitt also comments on the private equity industry, public pension funds, and bank capital requirements and the ratings agencies.
'Tis a Short-Term Panacea, More Challenges in Store
by Asha Bangalore of Northern Trust,
The colossal rescue package from Europe consists of coordinated contributions from euro area governments, the IMF, and an EU emergency fund, amounting to a sum total of ?750 billion ($955 billion). World markets have responded positively, and have moved to calmer waters compared to recent turbulent market sessions. It is only a short-term respite, however; markets are bound to get jumpy again. The industrialized world is awash with public debt at levels never before seen in peacetime.
ECB Sterilization -Trichet's Maginot Line?
by Paul Kasriel of Northern Trust,
European Central Bank president Jean-Claude Trichet has stated that the ECB will drain by other means the amount of base money it creates through sovereign debt purchases. If Milton Friedman was correct that inflation is everywhere and always a monetary phenomenon, however, then Trichet need not worry about a sustained acceleration in euro area inflation given recent declines in euro area money and credit aggregates. Northern Trust also comments on the Federal Reserve's swap lines with other central banks, and a recent small business survey.
Weekly Commentary & Outlook
The concern in Europe is justified. Their one currency with multiple fiscal policies has led to this disaster. The Euro is now doomed to second tier status and may soon be out of existence altogether. The prospect of this scenario caused the European authorities to cobble together a rescue package (complete with huge support from the U.S. taxpayer via the International Monetary Fund) that sent world markets soaring. Meanwhile, the outlook for our economy remains solid. High unemployment rates will keep interest rates low, which will be very good for the stock market.
All Part of the Global Deleveraging Story
by David A. Rosenberg of Gluskin Sheff,
Greek default now seems inevitable, as does an exit from the euro zone. This is all part and parcel of the global deleveraging cycle. Entities or countries that massively overextended themselves during the boom years are going to be paying the piper, as we are now, on the opposite side of the credit cycle - the secular contraction phase. It may have started with U.S. banks and American real estate three years ago, but it is now about European banks and welfare states within the euro zone.
European Debt Crisis Keeps Expanding
The European sovereign debt crisis will continue to wax and wane, but will stay with us until European governments take much stronger actions to reign in excessive outlays of all types, including social and military spending. The euro and British pound will continue to fall in value versus the U.S. dollar and other better-managed currencies such as the Australian, Canadian and Singapore dollars, the Chinese yuan and the Brazilian real. Guild remains bullish on the strong currencies mentioned above, oil, gold, several Asian markets and exporting companies around the globe.
Greece, Europe and the Significance of Yesterday's Market Action
by David A. Rosenberg of Gluskin Sheff,
The Euro bounced back this morning, and the flight to higher quality German and French bonds has partly reversed course as markets swirl with speculation that the IMF will announce a stepped-up aid package. The problem, however, is that if Greece is bailed out then Portugal, Ireland, Spain and perhaps Italy may not be far behind. The inability of Greece - and others within European monetary union - to enact an independent monetary policy at a time of crisis has exposed the flaws of the union. The lack of a cohesive national government is another flaw in times of turbulence.
Financial Strains and Modest Gains for the Eurozone
by Team of American Century Investments,
The Eurozone fell into recession later than the U.S., and thus will recover later. European factories are heavily dependent on exports for growth. Investors should note that the global economic recovery and a stronger euro have been positive factors for the Eurozone's export machine. But with exports accounting for 35 percent of Eurozone GDP and half of that number going to other countries neighboring the Eurozone, major headwinds could soon be on the horizon.
U.S. Politics and Bank Reform Legislation
Election years often bring wild political actions as politicians defend their poor records by blaming anything that comes to mind. If the rhetoric against banks is not too strong, the rally could continue. If the rhetoric gets out of hand, we will see a market correction for a few weeks with a resumption of stock price increases later in the year. Guild continues to invest in Asian growth countries, oil, gold, and export driven companies who can grow earnings while shipping products worldwide.
The Random Walk Spoiled: A Flawed Assumption for Long-term Equity Portfolio Simulation
by Manish Malhotra,
To optimize portfolios, the investment and wealth management industry still assumes a random walk of prices when running long-term simulations of equity portfolios, despite plenty of existing research pointing to serial dependency in returns, writes Manish Malhorta in this guest contribution. The random walk assumption for equities gives results that are counterintuitive and unobservable in practice. He recommends against using it.
Greek Rescue: Third Time is Still Not a Charm!
Global markets reacted positively to the European Union's display of solidarity Sunday with debt-burdened Greece. Should Greece need a bailout, European finance ministers said, the country would be able to borrow up to 30 billion euros at about a 5 percent interest rate for a three-year loan. Assistance from the International Monetary Fund could add another 15 billion euros, for a total aid package of 45 billion euros. The eventual, sustainable solution, however, is to reduce Greek debt to a level that the Greek economy can service rather than pile on more debt.
Are Public Employees Bankrupting the Nation?
by Charlie Curnow,
While markets may be recovering, public debts are still mounting. Charlie Curnow reviews Plunder, the new book by Steven Greenhut, which blames public sector unions for a large portion of these debts. To Greenhut, we the taxpayers are helpless villagers, while corrupt public employee unions are barbarians at the gate, raiding government treasuries and leaving us with nothing but unfunded liabilities.
Postcard from Japan - A Pleasant Surprise
by Kenichi Amaki of Matthews Asia,
While most Japanese companies are still cautious over the medium term, the tone is certainly becoming upbeat. Management teams are gaining confidence as the economy recovers, which bodes well for the outlook on capital expenditure and consumption. With their high operating leverage, profits at Japanese manufacturers tend to rebound quickly when sales start to grow. Japan has been the best performer among major global equity markets so far this year, and we hope to see further improvements soon.
Health Care RX
by Milton Ezrati of Lord Abbett,
It will take months to sort out all the implications of the immense health care bill, with all its arcane provisions and so-called 'fixes.' For all the uncertainty, however, it seems definite that the government will play a new role in student lending, that taxes will rise, that insurers will receive millions of new customers, that generic pharmaceuticals will benefit and that federal budget deficits will grow despite Congressional Budget Office projections. Finally, if the November elections bring a backlash, there could be new rounds of negotiations and reforms.
Surprising New Research on Diversification from Emerging Markets
by Dan Richards,
Historically there have been two reasons to invest in emerging markets: the promise of higher returns that come with faster growing economies, albeit with greater volatility, and the prospect that emerging markets will offer diversification from the performance of stocks in developed economies. Dan Richards reports that new research into the impact of global diversification, though, has produced some surprising results.
Game On!
by Lance Paddock,
Advisor Lance Paddock comments on the exchange between Wealthcare's Dave Loeper and SCM's Roger Schreiner. Paddock lauds Loeper's focus on managing assets based on client goals, but says Schreiner's challenge is nonetheless fair, and urges Loeper to accept Schreiner's terms.
The Threat to Muddle Through
Mauldin criticizes Krugman's call for a 25% tariff on Chinese imports, and instead predicts that China will allow its currency to appreciate 5-7% per year for the next several years. Protectionism, he says, is the biggest threat to global recovery. In defense of his argument, Mauldin says similar tariffs could be imposed if the euro, Yen and the Canadian dollar continue their current trends. The larger problem is the growing US deficit, which must be dealt with in the medium term, or there will be no long term.
Implications of the Current Shiller P/E Ratio
In this guest contribution, Keith Goddard and Channing Smith expand on ideas presented in a previous article, Return Distributions and the Shiller P/E Ratio. They study the historical behavior of U.S. stocks during three-year holding periods that began at with valuations comparable to recent market conditions, as measured by the Shiller P/E ratio.
Greeks Bearing Gifts
by Michael Lewitt,
We are again privileged to publish the most recent edition of Michael Lewitt's HCM Market Letter, Greeks Bearing Gifts. Lewitt comments on Goldman Sachs' derivative transactions that helped Greece hide its debt and its larger implications for the financial system, for the European periphery and for Spain in particular. Lewitt also addresses the state of decline of the US economy and other topics.
Communicating with Ease
Advisors, like so many people in relationship-oriented businesses, depend on strong communication to maintain and grow their businesses. In this guest contribution, author Beverly Flaxington discusses her new book about how advisors can communicate with ease and strengthen their bonds with clients.
Results 2,701–2,750
of 2,772 found.
