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Stocks Plunge Most On Record Last Week, Oil Down 10%
In the first week of 2016, US stocks plunged by more than in any other first week of January since records have been kept (before 1900). The Dow Jones Industrial Index fell over 1,000 points from 17,591 at the close on December 31 to 16,519 at the close last Friday – a loss of over 6% in one week.
The Saudi Executions
On January 2, Saudi Arabia executed 47 people accused of various crimes against the state; 46 were Sunni jihadist radicals and one was a Shiite cleric, whose execution set off protests in Iran and the Saudi embassy in Tehran was sacked. In response, the Saudis broke off diplomatic relations with Iran and several other Sunni nations have either followed suit in breaking off relations or recalled ambassadors in protest. These executions are the result of many important trends affecting Saudi Arabia and the Middle East. In this report, we discuss the executions and the signals they send.
Should Investors Worry About China Selling U.S. Bonds?
At BTS we often say investors should increase the level of attention they pay to the price side of bonds, because we believe the risk of principal loss, especially in a low?interest rate environment, is higher than many people realize. It’s important to focus on supply and demand factors as part of that focus on bond prices.
Frontier Markets in Focus: 2016 and Beyond
Frontier markets represent exciting long-term investment opportunities for our team. We see favorable fundamentals including strong economic growth, abundant natural and human resources, favorable demographic profiles, the potential for rapid technological progress, and potential benefits from improving infrastructure and improving standards of governance.
No More Excuses!
What’s really important going forward is not the Fed’s recent decision?—?which was widely conveyed ahead of time?—?but the course of several issues that will play out globally. These issues include the type and duration of monetary policies that will be pursued by the world’s central bankers, and the trends in commodity prices, currency values, credit spreads and longer-term interest rates.
Economicus Terra Incognita
by John Mauldin of Mauldin Economics,
Welcome to 2016. Tradition dictates that you spend the first few weeks or so reading forecasts for the coming year. I can say with certainty that most of them will be wrong. A smaller number may hit the target. Unfortunately, no one knows which forecasts will fall into which category.
On My Radar: China, Valuation Charts and Recession Watch Charts
China marked its currency lower once again yesterday. That makes eight days in a row they lowered the yuan. Last August, they devalued the yuan and that sent global equity markets into a dive. As Yogi Berra would say, “It’s déjà vu all over again.”
China Reset
And we’re off. The China stock market sucked the air out of the room last week. It’s a strange beast. The size of the market relative to GDP is around 58% compared to 150% for the U.S. But the free, or tradable, part is about one-third as small again. And it runs on high levels of retail margin. What we saw was pent-up selling, circuit breakers kick in, the market close and then repeat for two more days. The authorities dumped the circuit breaker system and allowed the market to settle.
Complex Systems, Feedback Loops, and the Bubble-Crash Cycle
by John Hussman of Hussman Funds,
Our expectations for a global economic downturn, including a U.S. recession, have hardened considerably in the past few weeks, with a continued expectation of a retreat in equity prices on the order of 40-55% over the completion of the current cycle as a base case. The immediacy of both concerns would be significantly reduced if we were to observe a shift to uniformly favorable market internals. Last week, market conditions moved further away from that supportive possibility.
International Economic Week in Review: New Year, Same Problems, Edition
by Hale Stewart,
As the new year starts, the world economy is still in a difficult situation. The Chinese slowdown is impacting a number of developing countries, slowing their top-line growth. Deflationary pressures continue. But now, we have an event (the Chinese market drop) that triggered concerns about global, leading to action (a global sell-off). Don't be surprised to see increased volatility in the coming few months.
How Gold Got Its Groove Back
After five straight positive trading sessions, the yellow metal climbed above $1,100 on a weaker U.S. dollar, its highest level in nine weeks. The rally proves that gold still retains its status as a safe haven among investors, who were motivated this week by a rocky Chinese stock market, North Korea’s announcement that it detonated a hydrogen bomb on Wednesday and rising tensions between Saudi Arabia and Iran.
You Cannot Manage New Economies with Obsolete Measuring Tools
In his latest piece, Francois Sicart, Founder and Chairman of Tocqueville Asset Management, discusses how misleading macroeconomic averages and aggregates can be as they often consist of components that could both signal either economic weakness or an acceleration with the potential to rekindle inflation.
Franco-Nevada: Royalty of the Gold Industry
In 1983, my friends and early mentors Seymour Schulich and Pierre Lassonde founded Franco-Nevada Mining, the world’s first gold royalty company.
The two uniquely gifted money managers were on to something big. It was originally Seymour—then an oil analyst at the Canadian investment firm Beutel, Goodman & Company, where he and Pierre met—who recognized that the royalty model used in the oil and gas industry had some of the highest returns on capital.
Passive or Active Equities: Why Choose Just One?
Passive investing is popular—but it isn’t risk free. By combining active and passive approaches in an equity allocation, we think investors can effectively reduce risk relative to a single manager and also enjoy better returns than those of the benchmark.
2016 Outlook
There are pockets of hope in 2016 for a more sustainable economy. The jobs picture, at least portrayed by the government, has improved based on their measures. Inflation is low. Corporate profits are high. Under the light of the media the economy is improving. However, as I have been sifting through the data, there are two areas of concern I think we need to discuss. First is Government Debt. We owe as a nation, $18 Trillion in total debt, and we are borrowing $500 billion a year.
A Year for Value?
While global equities appear vulnerable to near-term volatility, Templeton Global Equity Group’s Norm Boersma and Cindy Sweeting are optimistic about the year ahead. And, they believe the environment appears favorable for value investing to shine. Read on for the team’s 2016 outlook.
Weighing the Week Ahead: A Parade of Pontificating Pundits!
Last week’s stock market had a Jekyll and Hyde feeling, setting the background for the two weeks ahead. We will have lighter volume and plenty of people taking vacation during the holiday-shortened weeks. With plenty of explaining to do and a new year ahead, we can expect: A Parade of Pontificating Pundits!
On My Radar: Henry Hazlitt and Inflation
There is a battle going on between deflation and inflation. Right now, deflation is winning. It is winning globally. In the extreme, neither is desired, yet perhaps the worst of the two is deflation as it leads to depression. The global central banks are fighting to create inflation and it is fight that I think they will ultimately win (though it may take years).
Seeing the Silver Lining for Fixed Income in Fed Move
As we look ahead to 2016, we finally have entered this long-anticipated rising-rate environment. However, it’s likely to be slow and steady, and certainly not something we believe should cause major portfolio dislocations for fixed income investors.
The Seven Fat Years of ZIRP
by John Mauldin of Mauldin Economics,
In today’s letter we are going to examine the problematic credit markets, and I want to focus on something that is happening off the radar screen: the continuing rise of credit in private lending. I predicted the rise of private credit back in 2007 and said that it would become a major force in the world, but I got strange looks from audiences when I talked about the arcane subject of private credit. Today the shadow banking system is taking significant market share from traditional banking.
How Much Oil Is Needed To Power Santa’s Sleigh?
by Michael McDonald of OilPrice.com,
Every year around the world, hundreds of millions of children wait anxiously for Santa Claus to arrive and bring presents and good cheer. But what if Santa never came? What if this year the reindeer all fall ill, perhaps due to Crazy Reindeer disease (the analog to Mad Cow) and Santa is forced to cancel Christmas? The result would be devastating.
The Fed Awakens: A New Hike
On Wednesday, Chair Yellen announced that, for the first time in seven years, easy money will become slightly less easy. The target rate will be set at between 0.25 and 0.50 percent, which doesn’t sound like much, but it’s important that the Fed ease into this cycle cautiously and gradually. Plus, this comes at a time when fellow industrialized nations and economic areas around the globe are considering further monetary easing measures.
FOMC FAQS
by John Canally of LPL Financial,
The Fed holds its eighth and final FOMC meeting of 2015 this Tuesday and Wednesday, December 15–16, 2015.
As of Monday, December 14, 2015, the fed funds futures market has priced in about an 80% chance of a 25 basis point (0.25%) rate hike at this week’s meeting.
Our view remains that the timing of the first hike matters less than the pace of the hikes; the end point for the fed funds rate in this tightening cycle and the gap between the Fed’s own view of rates and the market’s view remain crucial.
It's Beginning to Look a Lot Like Christmas . . . Not
by Jeffrey Saut of Raymond James,
Many of you know that around this time of year I journey to New York City for the Christmas tree lighting and the Friends of Fermentation (FOF) Christmas party; this year was no exception. However, it sure did not feel much like Christmas in Manhattan. The temperatures were in the 50s and 60s, so the top coat I brought was never used. Such warm climes brought about thoughts of the much discussed topic, “global warming.”
Positioning Portfolios for the Next Tightening Cycle
Credit is trading at much more attractive spread levels relative to past hiking cycles, reinforcing our view that credit risk can perform well following liftoff.
Opportunities may present themselves to add duration risk further out the curve while the potential pullback in the dollar could create an opening to add currency risk.
Performance of inflation risk is mixed, with underperformance accelerating throughout the tightening cycle as the Fed lowers market expectations of future inflation.
The Risk and Opportunity in Peer-to-Peer Investing
by Michael Kitces,
In today’s low-interest-rate environment, advisors must add value to fixed-income allocations. Unfortunately, some of the higher yielding segments of the fixed-income markets – such as peer-to-peer (P2P) investing – don’t fit into the typical financial advisor investment platforms. But that will soon change.
Weakness in Oil Puts Downward Pressure on Equity Prices
U.S. equities fell sharply last week, with the S&P 500 Index declining 3.7%.
This was its largest loss since August and the second-largest downturn of the year.
A sharp sell-off in oil prices was the main cause, along with credit and liquidity
concerns within the high yield market. The energy sector was the worst
performer last week and financials also took a hit.
In contrast, more defensive areas such as utilities, consumer staples and health care held up better.
Stock Market Control
We saw the chart below in a recent Marketwatch.com column from Mark Hulbert. It shows the likelihood of the stock market going up or down in the next year, based on how it did the prior year. This got us thinking about what you can and can't control in the U.S. stock market. After all, the reason that stocks outperform other liquid asset classes over long stretches of time is the uncertainty and variability of returns. Here is a short list of things which can't be controlled in the U.S. stock market.
On My Radar: El-Erian’s 2016 Outlook & The T Junction
I spent a few days earlier in the week in Scottsdale, Arizona. I was invited to present on portfolio positioning and best execution at the 20th annual IMN Global Indexing and ETF Conference. One of the big highlights for me was El-Erian’s keynote presentation.
Today, I share with you my notes from El-Erian’s speech. He is humble, balanced and brilliant. I have listened to my recording of his presentation several times. Stop-start-rewind-replay-rinse-repeat. Fun for me and well worth the effort.
In short, he puts the odds for a good outcome at 50/50 saying he, “hates to say that."
George Friedman’s World of Geopolitics
by John Mauldin of Mauldin Economics,
In today’s letter, I have transcribed a conversation George Friedman and I had a few days ago. In it, we talk about how our new joint effort came about and why George has left Stratfor to create his new firm, Geopolitical Futures.
Why Getting Valuation Right Is So Important To Retired Dividend Growth Investors
by Chuck Carnevale of F.A.S.T. Graphs,
Although getting valuation right before you buy a stock is critically important to the long-term oriented retired dividend growth investor, it is not a short-term market timing concept. My point is that short-term market movements are typically volatile and unpredictable. The reason is simple. Over short periods of time, which I define as less than a business cycle (3- 5 years), emotion has a major effect on stock prices.
Back to a Routine: 2016 Economic Outlook
by John Canally of LPL Financial,
Our view is that the U.S. economy—as measured by real gross domestic product (GDP)—is likely to post growth of 2.5–3.0% in 2016. This rate is below its post-World War II average of 3.2%, but above the 2–2.5% average growth rate seen in the first six-and-a-half years of this expansion, based on the factors discussed below. Despite the length of the current expansion (already the fourth longest on record), it has not followed what would be considered a routine path.
The Evolution of IS
An IS affiliate downed a Russian flight in October. In November, IS-affiliated terrorists launched a series of attacks in Paris. These two events suggest a significant change in IS’s behavior. Prior to the Paris attacks, IS appeared focused on building a caliphate in Syria and Iraq. The shift to terrorist acts suggests a new strategy. In this report, we recap the strategies radical jihadists have employed against the West, highlighting the differences between al Qaeda and IS.
US Bond Market Week in Review: Is the Fed Getting Inflation Wrong? Edition
by Hale Stewart,
Chairperson Yellen offered her assessment of the US economy in a speech to Economic Club of Washington. First, the good news. Growth, while moderate, is still positive, printing at 2%-2.5% for the first three quarters of 2015. And real final domestic purchases were over 3% in the 3Q. This tells us that consumers continue to spend and businesses are investing.
You Have Questions, I Have Answers
by John Mauldin of Mauldin Economics,
Rather than dive deeply into a single topic today, I will weigh in on some of the week’s top financial stories. I recently did a webinar debate with my friend Frank Trotter, hosted by Robert Huebscher of Advisor Perspectives, on whether the Fed should raise rates in December. I argued they should, for reasons I’ve written about before, so we won’t go into that. But we did get a number of incisive, timely questions during and after the webinar. I will try to answer most of them in this letter.
Results 3,201–3,250
of 4,316 found.
