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Forward P/E is Poor Valuation Tool
I cringe when I hear someone on Wall Street say that the market is cheap based on forward P/E (price-earnings ratio). Unfortunately, profit margin cycles change (revert back to trend) and those lofty earnings estimates get revised lower, making forward P/E a poor valuation tool. I came across this chart this week. Note where forward P/E was in October 2007 (15.2) and where it is today (15.6).
Dealing With Red-Hot Markets
This summer the streets are sizzling… and so is the stock market. To the chagrin of value investors, US equities have not experienced a normal correction since May 2013. But what is “normal” and what is “hot”? This article discusses a behavioral measure of market extremity, the put/call ratio, and offers some basic advice for dealing with the current environment.
Will Latest Jobs Report Force the Fed to Act?
by Chris Maxey, Ryan Davis of Fortigent,
After a reasonably bleak winter, labor markets are on the rebound, just in time for the Federal Reserve to decide when they should stop asset purchases. Recent figures suggest that labor markets are very near Fed targets, raising the possibility that interest rate hikes could begin sooner than expected.
The Power of Share Repurchases
One of the most effective stock selection strategies in the U.S. over the past several decades has been to buy stocks that are in the midst of repurchasing significant quantities of their sharesbut just blindly following buybacks isnt always the best strategy. While many companies that are repurchasing large quantities of their shares make for great investments, others are dangerous and should be avoided. There are several important factors that should be considered when evaluating a stock with impressive buybacks.
Quotes on a Screen and Blotches of Ink
by John Hussman of Hussman Funds,
The ratio of market capitalization to GDP, which Warren Buffett (correctly) observed in a 2001 Fortune interview is "probably the single best measure of where valuations stand at any given moment" is now about 150% (not just 50%) above its pre-bubble norm, and beyond every point in history except for the final quarter of 1999 and the first two quarters of 2000. Much of what investors view as "wealth" here is little but transitory quotes on a screen and blotches of ink on pieces of paper that have todays date on them. Investors seem to have forgotten how that works.
Central Bank Smackdown
by John Mauldin of Mauldin Economics,
And so it is that on a beautiful July 4 weekend we will amuse ourselves by contemplating the serious smackdown that central bankers are visiting upon each other. If the ramifications of their antics were not so serious, they would actually be quite amusing. This weeks shorter than usual letter will explore the implications of the contretemps among the worlds central bankers and take a little dive into yesterdays generally positive employment report.
I'm Grateful to Live in America. Here's Why.
An important principle of our investment process at U.S. Global Investors is a belief that government policies are a precursor to change. As a result, we closely monitor the fiscal, monetary and other impactful governmental policies of the worlds largest countries, both in terms of economic stature and population. Were always listening for the proverbial shot heard around the world. As we approach Americas Independence Day, this belief rings especially true.
Reality-Based Cost Of Living Index Tells The Real Reason Why So Many Americans Are Struggling
Ever wonder why rises in the Consumer Price Index ("CPI") seem low compared to your own personal experiences? Or why social security annual cost of living increases seem to get smaller and smaller? Or why inflation-adjusted pensions can't seem to keep up with general price increases? Or why the American worker gets such meager annual raises (if at all) that they seem to fall further behind year after year?
The Moneyball of Quality Investing
Factor investing has rightfully gained adherents among investors seeking superior risk-adjusted returns. Our research reveals that quality is not a factor that reliably commands a premium in its own right. Nonetheless, value investing conditioned upon certain indicators of company quality is a promising strategy.
Health Care Sector Spurred by Population Growth and M&As
Recently I spoke with John Derrick, director of research here at U.S. Global, to pick his brain about what he thought was the most interesting sector right now. You might expect him to have said energy, perhaps because of the intensifying violence in Kurdistan Iraq, a major oil producer. But instead, he said that he had his eyes on health care.
Red Sky in the Morn', Junk Bond Investors Be Warn'd.
by Bryce Fegley of Saturna Capital,
Investor appetite for income has pushed yields and spreads on high-yield bonds to very low levels, while corporate borrowers have fed that demand with record issuance of new debt. On top of low yields and heavy issuance, bond dealers have retreated from corporate bonds in response to new financial regulations. As a result of these factors, we believe now is a particularly risky time to invest in high-yield bonds. Here we offer some of our suggestions for seeking income and yield with less risk.
Hexavest Viewpoint: Neutral on Japan
by Frederic Imbeault of Eaton Vance,
Macroeconomy: With little traction from fiscal policy and structural reforms, the pro-growth policies of Prime Minister Shinzo Abe known as Abenomics will continue to rely on the Bank of Japans loose monetary policy to maintain economic momentum. Valuation: Rising profits and the 2014 correction have pushed down P/E ratios on Japanese equities into more attractive territory. Investor sentiment: As contrarians and as the crowd has become less bullish on Japanese stocks, we have become more constructive about investor sentiment.
Italy: When Hope Is a Strategy
by John Mauldin of Mauldin Economics,
I came back from Italy this week, and one of my guilty pleasures was being able to sit down and watch the last three episodes, including the season finale, of Game of Thrones. For those readers who are not enthralled with the fantasy epic from HBO or have not read the first five books (will he ever finish?), author George R.R. Martin has written one of the most complex fantasy series ever, about a world where everyone is occupied with who will sit on the Iron Throne.
Euro-Sterling Credit: Yield and Spread Still Appeal
by Ketish Pothalingam of PIMCO,
Framed by ongoing renormalisation in Europe and stronger UK growth, euro-sterling investment grade credit markets are in a favourable part of their respective cycles as corporates continue to deleverage, default rates are expected to remain low ahead and market liquidity has improved across Europe. We believe the sterling credit market provides a more balanced credit market and offers investors the opportunity for better total carry versus euro and global investment grade credit markets.
Unconstrained Bond Investing in The New Neutral
by Mohit Mittal, Saumil Parikh of PIMCO,
At our recently concluded Secular Forum, PIMCO investment professionals from around the globe gathered in Newport Beach to discuss and debate the secular outlook for major world economies. With insight from guest speakers and new MBA/PhD hires, PIMCO coined the phrase The New Neutral to define its secular three- to five-year outlook for the world economies. In his most recent Investment Outlook, Bill Gross further elaborated on The New Neutral.
The US Economy The Good, The Bad & The Ugly
As is true more often than not, there are mixed signals in the economy. There are indeed some green shoots emerging that suggest the economy is finally gaining some momentum. Yet there are also continued troubling signs that, while not warning of an impending recession, suggest that we could be stuck in a structural period of continued below-trend growth.
Why are bond yields and volatility so low?
This years mid-point review would not be terribly kind to me or to other forecasters. None of us foresaw a big U.S. economic contraction during the first quarter of the year, although we should have better times ahead (as long as the Polar Vortex doesnt return). A more vexing surprise, however, has been the steep decline in U.S. Treasury yields and the persistently low market volatility during the years first half.
China Leads the World in Green Energy, Gaming and Gambling Markets
Last month, Xian Liang, co-portfolio manager of our China Region Fund (USCOX), attended the 19th CLSA China Forum in Beijing. There he and hundreds of other global attendees were given the opportunity to meet with representatives from Chinese corporations, some of which U.S. Global owns. Xian also managed to get a sense of how the nation?s recent changes in consumer behavior and governmental policy reforms might affect its investment outlook. Although China remains an emerging market, it has lately taken a number of considerable strides to position itself as one of the world?s most
ECRI Recession Watch: Weekly Update
by Doug Short,
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 134.9, down from the previous week's adjusted 135.3. The WLI annualized growth indicator (WLIg) fell to 4.8 from 5.3. Last Friday (May 30th), ECRI posted a brief overview of post-recession GDP forecasts from the Fed's Open Market Committee and the less optimistic series from the Congressional Budget Office.
ECRI Recession Watch: Weekly Update
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 134.9, down from the previous week's adjusted 135.3. The WLI annualized growth indicator (WLIg) fell to 4.8 from 5.3. Last Friday (May 30th), ECRI posted a brief overview of post-recession GDP forecasts from the Fed's Open Market Committee and the less optimistic series from the Congressional Budget Office.
Mounting Momentum?
Although the stock market remains sluggish, with the potential for a correction elevated, the U.S. economy appears to be improving. There is probably no great rush to get into the stock market at this point, but maintaining a steady investing discipline in the face of what we think is a continuing secular bull market is key. Investors frustrated with the low yield environment should be careful about adding too much risk to a portfolio in search of higher yields.
Irans Iraq
The last American combat troops left Iraq in December 2011, marking the end of direct U.S. involvement in a nearly eight-year war. In this report, we will discuss recent developments in Iraq, including elections that were held on April 30. We will analyze Irans growing influence in the region and how the Iraq War furthered that influence. As part of this analysis, we will examine how Irans growing power and Americas apparent withdrawal is changing the behavior of other nations in the region. As always, we will conclude with market ramifications.
Throwing Babies Out With Bathwater
Instead of behaving wisely, we think investors have been "throwing babies out with the bath water" this year. We believe speculators have fled out of the Biotech ETFs and have unwittingly sold Amgen (AMGN) between $129 and $109 per share because it is the largest holding of most of these targeted vehicles. From our vantage point, investors have tossed out EBAY (EBAY) in the internet space, Gannett (GCI) in media, Pfizer (PFE) in Pharma and Bank of America (BAC) and JP Morgan (JPM) in the banking sector.
Which Resource Areas Show Signs of Strength?
Global synchronized growth, as measured by the Global Purchasing Managers' Index (PMI), remained stable or positive for the past 12 months until Japan reversed the momentum in April with a precipitous drop in its PMI. China is contributing modest growth but, fortunately, the U.S. and Europe are rebounding. This lack of consistent global momentum has created a short-term, volatile, hot and cold, stop-and-go sentiment. Global real GDP growth peaked in 2010 at 5.2 percent then slowed for the next three years to 3 percent. Global growth in 2014 is likely to accelerate, for the first time in four y
El Nio
In our investing process, we look across the spectrum at a multitude of possible events, their probabilities, their effects on markets and weigh them against market prices. Sometimes these discrepancies come from unexpected places. This week we will explore the ramifications of a weather event, El Nio. The soft-commodity markets (grains, sugar, coffee, cocoa and other annual crops) seem to have priced in about a 20% likelihood of an El Nio occurrence this year, while last week the Climate Prediction Center issued a 65% probability for this summer.
Dollar Bulls Drop Their Heads in Frustration
by Chris Maxey, Ryan Davis of Fortigent,
For some time, strategists have been bullishly positioned on the U.S. Dollar, anticipating a rally that failed to materialize. The arguments were straightforward the Federal Reserve is exiting its easing cycle, Europe is facing deflationary pressure and likely to ease further, and the economy in the U.S. is on improving footing. Those expectations, while true to some extent, are not translating into gains for the Dollar, leaving many frustrated. The Dollar is suffering from a bad case of dejection and could struggle to see a sustained breakout for some time.
Market Perspective
US equity markets have seen what we would describe as mild volatility over the last few weeks, mostly attributed to geopolitical tensions emanating from the Ukraine-Russia belligerence. For the first quarter, the S&P 500 rose 1.30%, while the Dow Jones Industrial Average and the NASDAQ composite were both down slightly.
The Good, the Bad and the Opportunity
Twice a day, in the morning and at lunch, our investment team sits down together to discuss what?s important and what?s immaterial. This past week, in my opinion, the good outweighed the bad. Much of the economic news was a direct result of government policies, both fiscal and monetary. Here are my findings, which I hope will help you filter through the noise.
Financial Genius isa Bull Market
In his latest piece, Francois Sicart, Founder and Chairman of Tocqueville Asset Management, reviews the events that caused the great recession and cautions that although we already have suffered a serious and global recession and financial crisis, he still believes the question is not, Will there be pain? but rather, When will there be pain, and how much of it?
Weekly Market Update
by Team of Castleton Partners,
US Treasury yields declined across the entire maturity spectrum last week, as renewed geopolitical risk more than outweighed a strong employment report. With inflation remaining well below the Fed?s target rate of 2%, long dated Treasury yields continued to decline at a faster rate than shorter dated yields, further flattening the yield curve.
Labor Markets Bounce Back from Winter Hibernation
In a less than surprising development, U.S. non-farm payrolls grew by 288,000 in April. While some are loathe admitting the positive nature of Aprils report, there was plenty to be happy about in the latest release, suggesting the economy continues to move towards a more favorable footing. As always in the post-2008 world, caveats remain and the trend in the months ahead will provide a clearer picture into the pace of recovery.
Albania's Fertile Grounds for Oil Opportunities
Texas is oil country. The state I now call home leads the nation in oil production and would be one of the top oil-producing nations if it were its own country. But that doesn?t stop us from exploring other promising oil opportunities further afield. Last week I traveled to Albania to check out a drill site of Petromanas Energy, a Calgary-based international oil and gas company focused on exploration and production throughout Europe and Australia. We own the junior stock in our Global Resources Fund (PSPFX) and Emerging Europe Fund (EUROX).
Strong Insider Ownership: Do as I Do, Not as I Say
At Smead Capital Management, we often get asked if we visit the top management of the companies we research. While we read everything we can and do get exposed to the management of our companies over time, we believe it extends credulity to think that a 15 to 30 minute meeting with a senior executive of one of our firms is going to produce alpha for our clients. And, even if the meetings were useful, is there a single senior manager in the US who would tell us that they have big problems around the bend or that their common stock is immensely over-valued?
Henny Pennies
While the Fed?s qualitative guidance may have increased uncertainties over monetary policy, volatility will likely remain contained by powerful short- and long-run forces related to the economic outlook. In the UK, we should at least respect the risk of a hike late in the first quarter of 2015, earlier than what is currently priced in. In Japan, we believe the BOJ will remain full throttle on its current monetary easing for some time.
The Future is Now
by John Hussman of Hussman Funds,
The Federal Reserve has stomped on the gas pedal for years, inadvertently taking price/earnings ratios at face value, while attending to ?equity risk premium? models that have a demonstrably poor relationship with subsequent market returns. As a result, the Fed has produced what is now the most generalized equity valuation bubble that investors are likely to observe in their lifetimes.
ECRI Recession Watch: Weekly Update
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 134.9, up from last week?s 133.6 (revised from 133.5). The WLI annualized growth indicator (WLIg) rose to 3.3 from last week?s 3.0. Here are some notable developments since ECRI?s public recession call on September 30, 2011: 1) The S&P 500 is up 61.0% at yesterday?s close, although off its record close on April 2nd. 2) the unemployment rate has dropped to 6.7%, and 3) Q4 GDP was revised upward to 2.6%.
The Flaws and Potential of Asia's SOEs
by Sherwood Zhang of Matthews Asia,
Asian governments own a large amount of productive assets in the form of state-owned enterprises (SOEs). These firms are typically in strategic industries of national interest, but among the broader investor community they are often viewed negatively, marked by reputations for inefficiency and potential conflicts of interest. This month Asia Insight explores the challenges that face SOEs and possible models that could be positive for business.
2016 (Part 3, The Election Situation)
In this final report, we will analyze why we think 2016 may be a pivotal election and examine the potential that it could bring about a coalition change similar to the 1932 and 1980 elections. We will discuss the various methods of addressing the current high level of private sector debt and offer what we believe to be the three highest probability scenarios of how the current problems can be addressed and their impact on the domestic political scene and on America?s superpower role. Unlike our last two reports, we will conclude with market ramifications.
Emerging Europe: Regional Economic Review - Q1 2014
by Team of Thomas White International,
The International Monetary Funds latest assessment of the global economy pointed out that robust economic recovery in developed countries has significantly reduced the risk of a downturn this year. The Washington-based lender said it sees growth in emerging and developing Europe as a whole at 2.4 percent in 2014, which is expected to accelerate to 2.9 percent next year.
Results 3,051–3,100
of 3,702 found.
