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Unseen Risks for Investors
As we have mentioned in our recent pieces, investors are very conscious of the seen risks (especially exogenous risks) in the investment markets. Under the assumption that the seen risks are accurate and well known, let’s look at a few of the unseen risks in the stock and bond markets over the next two to three years which could frustrate investors.
Will the Gold Bull Market Resume After the Summer Correction?
Only time will tell which candidate will be triumphant in November, but in the meantime, one of the winners might very well be gold, which has traditionally attracted investors in times of political and economic uncertainty. In the United Kingdom, which voted one month ago to leave the European Union, gold dealers are seeing “unprecedented” demand, especially from first-time buyers. Some investors are reportedly even converting 40 to 50 percent of their net worth into bullion, though that’s not advisable. (I always suggest a 10 percent weighting, diversified in physical gold and gold mining stocks.) In Japan, where government bond yields have fallen below zero and faith in Abenomics is flagging, gold sales are soaring. It’s not unreasonable to expect the same here in the U.S. between now and November (and beyond).
The Perils of Populism
by Carl Tannenbaum of Northern Trust,
Populism is not new, and its current incarnation is certainly not its most extreme expression. Wikipedia describes populism as “a political position which holds that the virtuous citizens are being mistreated by a small circle of elites...the elites are depicted as trampling in illegitimate fashion upon the rights, values and voice of the people.”
Midyear Outlook 2016: Believing in the Potential of the U.S. Economy
by John Canally of LPL Financial,
For the first half of 2016, the U.S. economy—as measured by real gross domestic product (GDP)—is on track to grow at around 2.0%. Looking out into the second half of the year, aided by a dollar tailwind, stable oil prices, steady consumer spending, record high household net worth, and a slowing, but still solid labor market, the U.S. economy may grow between 2.0% and 2.5%. But even at just over 2%, actual GDP is growing faster than potential GDP (the maximum pace the economy can grow without causing inflation), taking up slack and slowly pushing up wages and inflation.
Voting for a Return to a Time that Never Was
British citizens went to the polls on June 23rd and, to the surprise of many and the applause of bookmakers, voted to exit the European Union (“E.U.”). Markets convulsed as investors across the globe grappled with the possible ramifications of the “Brexit.” What does this mean for the world economy?
The Evolution of Korea’s Industrial Structure
Over our previous writings on AlphaBaskets, we have covered the reasons why the services sector's growth potential exceeds that of manufacturing and why consumer sectors are better positioned than industrials. This is not a temporary phase, but a structural change as Korea evolves into a developed economy.
Why I Don’t Believe Trump or Hillary Would Tax this Important Asset Class
U.S. municipal bonds have had a spectacular first half of the year. As of July 1, they returned 6.2 percent on a tax-adjusted basis, compared to the 2.7 percent for the S&P 500 Index, placing them among the top performers of 2016 so far. Last month was munis’ best June performance since 2000, according to Bloomberg, spurred largely by negative bond yields around the globe and investor uncertainty following the Brexit referendum in the U.K.
I love . . . NYC!
by Jeffrey Saut of Raymond James,
For me, last week began on Sunday night at Michael Jordon’s restaurant in Grand Central Station with some portfolio managers (PMs). The conversation was informative as were the investment ideas exchanged (more on those ideas after I have had time to study them). It was more of the same at breakfast the next day with another PM. Around 11:00 a.m., my colleague (Andrew Adams) arrived to accompany me to Jersey City for a three-hour stint with PMs at the venerable firm of Lord Abbett.
Meet Theresa May
On Monday, July 11, U.K. Energy Minister Andrea Leadsom withdrew from the race for prime minister. The Tories decided to end the leadership contest with Leadsom’s exit, giving the PM job to Theresa May. She officially took over the role on Wednesday, July 13. In this report, we will begin with a discussion of how she won.
Weighing the Week Ahead: What Might Derail the Stock Market Rally?
This week’s calendar includes a light schedule for data with an emphasis on housing. Earnings season is in full swing with important reports every day. The early reception has been surprisingly good, creating plenty of mystified pundits. The financial media will be asking: What Can Derail the Rally in Stocks?
Is this the Airlines Liftoff Investors Have Been Waiting For?
A flurry of good news lifted airline stocks higher this week, reversing a drop in altitude that’s weighed on the industry so far in 2016. Fueled primarily by a bullish report from Deutsche Bank, American Airlines, Delta Air Lines and United Continental collectively advanced 6.5 percent on Tuesday alone. The German bank’s all-clear signal halted a six-month slide on overcapacity, Brexit uncertainty and heightened fears of global terrorism.
Mid Year Market Commentary
Here at the mid-point of 2016 it is worth noting the remarkable turn of events, both inside and outside of the financial world in which we, as professionals, occupy. The last six months have been “bookended” by great (more or less) market tumult: first with plummeting energy prices and confidence in Chinese markets in the first quarter calling into question the direction of US and Global economies, and second, by the stunning vote of British citizens to divorce themselves from the union they’ve shared with the 27 other members of the European Union for the last 40 years.
The Promise of Regrexit
by George Soros of Project Syndicate,
Just as Brexit was a negative shock, the response to it – a massive swing in popular sentiment in favor of the European Union – has been a positive shock. Europe's leaders should seize the opportunity to save the EU by fundamentally reforming it.
Is "Brexit" The Beginning of the End For European Union?
Just about everywhere I go lately people ask me what I think about “BREXIT” and the ramifications it will have for Great Britain, Europe and even the United States. My standard answer since the vote on June 23 is that I don’t think about it much.
A Surprise Brexit Leaves the Markets in Uncertain Territory Once Again
The unexpected occurred late last month: The UK voted to leave the European Union (EU). Global markets are reacting swiftly to this announcement, punishing stock prices around the globe and swinging currencies wildly. Although the markets were predicting a UK “stay”, this vote was always a very close race, with voters divided and the polls only a few points apart.
These Are the Only Dividend Aristocrats I Would Consider Today
by Chuck Carnevale of F.A.S.T. Graphs,
Generally speaking, the overall stock market is fully valued at best, and in many cases significantly overvalued. Therefore, it is very challenging to find sound and attractive stocks to invest in today. The challenge to find good value today is even more pronounced for the prudent dividend growth investor. Low interest rates and a flight to quality have driven the prices of best-of-breed dividend growth stocks to unprecedented highs.
Europe Is a Minefield
by John Mauldin of Mauldin Economics,
As Donald Rumsfeld more or less said, there are things we know and things we don’t know and things that we can’t even imagine. Brexit falls into all of those categories. So before we start speculating ourselves, let’s take a trip down Reality Lane in Europe. Then, after we have, I will offer a few of my own … speculations.
Four Winners to Emerge from Brexit
If nothing else, this alone should be seen as a positive consequence of Brexit. It’s too early to tell what direction the EU will take post-Brexit, or whether any material policy changes will be made, but it seems as if the cries of resentment and frustration that have risen up from England and Wales (and, to a lesser extent, Scotland and Northern Ireland) have not fallen on deaf ears.
How Will Brexit Affect EU Sanctions Against Russia?
Brexit has dominated world headlines for the last couple of weeks, and with good reason: The U.K.’s historic referendum has already roiled markets around the globe; raised serious questions about immigration, trade and diplomacy; cast a harsh spotlight on the EU’s avalanche of rules and regulations; and divided member states on the best way forward. Among other far-reaching consequences, Brexit could end up causing Europe to rethink its sanctions policy against Russia, following a vote in Brussels last week to extend them another six months.
Bet You Didn't See That Coming…
by Blaine Rollins of 361 Capital,
In a pickle is where the financial world now finds itself. The markets do not like uncertainty and they do not like volatility. With the U.K. voting to leave the European Union (EU) on Friday, we now have both uncertainty and volatility. As the world wonders if Brexit will lead to other EU members following the same path, we have significant confusion on so many items. Who will the new leaders of the U.K. be?
Apple Falls To Earth
by Phil Segner of The Leuthold Group,
It was just over a year ago that we celebrated Apple’s re-admittance to the esteemed Four Percent Club following a two-year hiatus. We speculated that given the brief membership of past Four Percenters and the law of large numbers, Apple was doomed to fall back to Earth. From the dizzying heights of a $775 billon valuation on February 23rd, 2015, the value of Apple declined by the equivalent of one General Electric or two IBMs. Poof, gone. Looking back at the performance history of past Four Percenters, we probably shouldn’t be surprised by Apple’s rapid descent.
How Mistakes Can Improve Client Satisfaction
by Dan Richards,
When it comes to mistakes, there’s good news and bad news. The bad news is that no matter how hard you try, if you run a large practice a certain number of mistakes is inevitable. The good news: Provided that problems are relatively minor and are one-off in nature, the right process to handle mistakes will actually strengthen client loyalty and improve satisfaction.
Uncertainty Not All Bad
If you listen to elite policymakers around the globe, they all seem to agree on one thing: the need to avoid "uncertainty." In their thinking the battle against uncertainty is a never-ending struggle, and if only the world were more certain the economy would be doing much better.
A Low-Cost Tactically Managed ETF Solution
by Robert Huebscher,
Sage Advisory Services was founded in 1996 by Robert G. Smith, III and Mark C. MacQueen with a simple mission: to better meet the unique investment management needs of institutions and individuals through industry-leading analytical services, innovative investment solutions and an unwavering focus on risk management. I spoke with Bob Smith about Sage’s strategies and how they are helping advisors achieve their clients’ investment objectives.
Brexit Breakdown
by John Canally of LPL Financial,
Financial markets reacted swiftly and sharply on Friday, June 24, 2016, to the unexpected decision by the United Kingdom (U.K.) to leave the European Union (EU) in a nationwide referendum held on June 23, 2016. Ahead of the vote, most financial market participants and political observers thought that the U.K. would vote to remain in the EU, and markets spent most of the day Friday adjusting to the reality that the U.K. will likely leave, sending equity prices lower, and bond and gold prices higher. The uncertainty in the markets, tightening financial conditions, and other potential impacts to the U.S. economy may influence the Federal Reserve’s (Fed) path of future rate hikes.
A Classic Case of Failed Socialism: What’s Next After the Brexit?
Defying sentiment polls leading up to yesterday’s historic Brexit referendum, British voters said “thanks, but no thanks” to excessive EU taxation and regulation, choosing to take back Britain’s sovereignty in financing, budgeting, immigration policy and other areas essential to a nation’s self-identity. It was a momentous victory for the “leave” camp, led by former London mayor Boris Johnson and U.K. Independence Party leader Nigel Farage, who invoked the 1990s sci-fi action film “Independence Day” by declaring June 23 “our independence day” from foreign rule.
Our Perspective on the Brexit Vote
by Team of Litman Gregory,
Britain's decision yesterday to leave the European Union roiled global markets today. Investors' significant negative reaction reflects several fears and concerns over the lasting impact of the vote. While we acknowledge Brexit may increase both the likelihood and magnitude of shorter-term downside risk, we have positioned our broadly diversified portfolios for resilience across a wide range of scenarios, including periods of increased volatility like this one. We will follow up if our assessment results in material changes to our views or portfolio positioning.
Overcoming A Wall Of Worries
by Burt White of LPL Financial,
With weaker than expected jobs growth in May, the Federal Reserve’s (Fed) recent disappointing economic forecast, negative interest rates around the globe, and the Brexit, the list of worries for investors continues to pile up. The U.S. economic recovery will turn seven at the end of this month, but very few realize that or feel like it has helped them. In the face of all the bad news, the S&P 500 is still only 2.8% away from a new all-time high. So maybe things aren’t so bad?
Playing Dress-Up
When Keynes expressed his thoughts in 1946, the world was beginning to recover from World War II and the Great Depression of the 1930s. As we cross the midpoint of 2016, the market is again staring into the dark, looking for a few sparks of global economic growth to light its path. In many ways, this is more than just a redux of the double-dip recession fears we waded through during 2010 and 2011.
Eurozone Secular Outlook: Europe’s Fragile Environment Spells Caution for Investors
by Nicola Mai of PIMCO,
With our baseline view of 2%–3% nominal growth over the next three to five years, Europe’s economic, fiscal, social and political environment will remain fragile. Investors should be cautious.
What Brexit Is All About: Taxation Without Representation
I want to continue the Brexit conversation from last week. With only six days left before U.K. voters head to the polls, expectations of which side might win are beginning to shift toward the “Brexiteers,” while betting markets are still putting money on the “stay” campaign. However, the probability of victory for those who favor keeping their European Union membership has weakened rather remarkably in the last month, falling from over 80 percent in mid-May to around 62 percent today, according to BCA Research.
June Market Outlook Update
by Jim McDonald of Northern Trust,
It appears that, once again, the Federal Reserve’s hopes to raise interest rates are being stymied by the economy. Just last month the Fed’s minutes showed a predisposition to raise rates soon, and Chair Janet Yellen said it would probably raise rates “in coming months” should the data continue to meet expectations.
Impact Investing and Goals-Based Financial Planning
by Margaret Towle on behalf of Investment Management Consultants Association (IMCA),
Impact investing has moved front and center on advisors’ radar screens, and rightly so. Clients from millennials to baby boomers are exploring the opportunity and encouraging their advisors to come up with options for investing in the space.
On My Radar: “Float Like a Butterfly, Sting Like a Bee”
Our team spends a great deal of time debating the economic outlook and to say PJ Grzywacz is bright would be an understatement. Sometimes our discussions get passionate and I think it is a good thing. To wit, passion in everything is a good thing. PJ challenges all things that might lead to “groupthink” biases. Something we think about a lot.
Like Water Out of a Sponge
by John Hussman of Hussman Funds,
Last week, the 10-year Treasury yield dropped to just 1.6%. Technician Walter Murphy noted that his index of global 10-year yields also plunged to an all-time low. The overall structure of global bond yields is undoubtedly the outcome of years of aggressive monetary easing, though the break to fresh lows among European bank stocks may convey some additional information content. Of course, the compression of prospective investment returns isn’t limited to bonds. On the basis of the valuation measures best correlated with actual subsequent S&P 500 total returns across history, prospective 10-12 year S&P 500 nominal total returns have declined to just 0-2% by our estimates, with negative real expected returns on both horizons.
Results 3,001–3,050
of 4,353 found.
