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Will Rate Rise Derail Housing Recovery?
by Chris Maxey, Ryan Davis of Fortigent,
As the Federal Reserve grapples with when and how to unwind quantitative easing, interest rates climbed more than a point since the end of 2012. This caused mortgage rates to increase to their highest levels in two years last week, with the average conforming 30-year loan jumping to 4.58% from 4.40% the week prior. Rising financing costs is presenting a headwind for one of the biggest bright spots in the US economy over the past 12 months.
Policy Uncertainty on the Rise
Congress seems to be digging in and ramping up the rhetoric in advance of a possible government shutdown, a debt ceiling increase and a probable selection of a new Fed chair. We think it is likely policymakers will agree to a short-term deal to fund the government and avert a shutdown, and also cobble together a resolution on the debt ceiling, although neither is likely until the last minute. The Fed chair debate will likely continue to sway markets over the next few months, leading to greater uncertainty and greater market volatility.
Surviving a Road Trip
The earnings and economic news never seem to quit. And every position, and each action be it buy, sell or hold has commentators and gurus voicing an opinion on every side of the subject. For many investors, it is impossible to sort out the right direction to be heading in, let alone whether you should be on the entrance or the exit ramp for the investments making up your portfolio.
Emerging Markets Feel the Ripples of Fed Tapering
by Sam Wardwell of Pioneer Investments,
Many Emerging Market currencies (notably those of India, Brazil and Indonesia) have been weak since the beginning of May. The declines accelerated sharply in recent weeks, leading to something approaching panic in several markets last week.
Equities Relatively Flat as Crosscurrents Remain
by Bob Doll of Nuveen Asset Management,
U.S. equities finished mostly higher last week, and the S&P 500 advanced 0.50%.1 The Dow Jones Industrial Average was the only the only major U.S. index to falter last week.1 Market sentiment was dominated by the notion that the market had become too bearish in the wake of the prior weeks sell-off in equities and credit. Continued improvement in global recovery sentiment seemed to provide a notable tailwind. The Fed dominated headlines markets appear obsessed with policy normalization and succession issues.
5 China Charts That Look Bullish for Commodities
Over the past few months, investors have seen better economic data coming out of Europe. Consumer confidence in the continent has been rising, manufacturing data is improving and the fiscal situation is on the mend. Now, China appears to be strengthening as well, which could signal better times ahead. Below are five charts that look bullish for China and commodities. While not meant to be comprehensive, they do point to areas where investors might want to pay close attention.
What Does an Improving Economy Mean for Stocks and Bonds?
by Charlie Dreifus of The Royce Funds,
With the economy improving, inflation tame, and a Federal Reserve meeting approaching in September, Portfolio Manager and Principal Charlie Dreifus believes that small-caps remain an attractive option within the equities market.
Buckle Up
Caution is warranted near-term. For investors that have a solid strategy of dollar-cost averaging into the market, we dont recommend deviating from that path. However, for investors who are more tactical, better entry points are likely yet to come. Longer-term, we remain bullish on US equities and prefer developed international markets over emerging markets.
Summer Whale Watching
One of our familys most memorable and pleasant vacations took place years ago when we visited Cape Cod, Massachusetts for the first time. I thought of this trip in pondering some of the market news this week, where Wall Street was practicing its very own version of whale watching.
Change is Coming
by Chris Maxey, Ryan Davis of Fortigent,
The summer months brought a period of calm to global markets and economies. Nearing the move to autumn, it is time to look ahead and see what resides on the horizon. Investors could be due for a renewed bout of volatility based on any number of events set to happen before year-end.
A Lot Of Action In What Was Expected To Be A Quiet Week
by Sam Wardwell of Pioneer Investments,
Most of the U.S. economic data released last week was rather ho-hum, consistent with continuing slow growth, but markets werent boring. Maybe markets are thin because its August, but the U.S. Treasury market had one of its worst weeks in a long time, and the selling spilled over into the U.S. stock market.
Purgatory Is Heaven
by Tony Crescenzi of PIMCO,
Since June, the Fed has stressed three messages: Tapering is not tightening, the federal funds rate will not move in tandem with a slowdown in asset purchases, and any change in Fed policy will rely on data, rather than a date. If Ben Bernanke leaves the Fed when his term expires, whoever is chosen to replace him will be bound by rules and the strength of the institution. The outlook for interest rates depends more on the Feds overall approach to the policy rate, and PIMCO believes the Fed will not increase that rate until 2016.
Why GDP Deserves Less Attention
by Zach Pandl of Columbia Management,
Before joining Columbia Management I worked for several years as an economist at a few of the large broker-dealers in New York. One of my primary functions was to maintain an ongoing estimate of growth in the nations gross domestic product (GDP)a so-called GDP bean count. Most investors use GDP as their primary summary measure of overall economic performance, so they are keenly interested in how incoming data are likely to impact the estimates. Our running tally of GDP growth for the current quarter was one of the most sought after pieces of research we produced.
And That's the Week That Was
by Ron Brounes of Brounes & Associates,
When the Fed talks, people listen (and it doesnt even have to be Bernanke). This week, a few key policymakers (not named Bernanke) expressed their views that the bond buying program may begin to be tapered this year, perhaps as early as the September meeting. Some investors used the opportunity to sell stocks and book some profits, though news from China eased certain concerns that the global economy was on shaky ground.
Lower Your Expectations for Future Return
by Cory Fulton of Mesirow Financial,
While equities are not priced particularly well and the current environment does not bode well for future long-term expected real returns, they are currently a better choice for investors relative to the alternative. Right now, any meaningful shifts in one direction or the other could be setting the investor up for additional disappointment. At this stage in the game, equities look to offer better prospects in the long-term. However, the time is not right to abandon your long-term investment plan in the face of the positive market headlines and lofty predictions emanating from Wall Street.
A Generational Selling Opportunity for the U.S. Long Bond
Because investors tend to extrapolate what their general experience in markets has been recently well into the future, its easy to see why investors are having a long-term love affair with bonds. Yet the data in this paper suggests that a crisis in long bonds is coming and, given this information, individual and institutional investors alike should reconsider the bond portion of their portfolios.
Is The Financial Crisis Over For Financial Stocks?
by Chuck Carnevale of F.A.S.T. Graphs,
The cause of the financial crisis of 2007 -2008, also known as the Great Recession of 2008, is attributed to many different theories. However, one of the most common theories is an easy money regulatory environment that led to an abundance of subprime loans, which in turn inflated real estate prices to bubble levels. Additionally, many blame the Financial sector, predominantly the money center banks, for exploiting the lax lending requirements with reckless and greedy behavior.
The Role of Confidence
The so-called wealth effect plays an important and well recognized part in the functioning of an economy. When assets appreciate in value, the owners translate their increased wealth into increased spending. While at first glance this is unsurprising, it should be noted that this is true even if the appreciation is unrealized, and thus the increased wealth exists solely on paper. The relationship can be stated as follows: the richer people feel, the more they spend. Changes in confidence have an impact on behavior similar to the wealth effect. Thats what this memo is about.
Quarterly Letter
by Team of Grey Owl Capital Management,
To begin, let us state that we are tired of writing about macroeconomic issues. We suspect you are tired of reading about them. We would like nothing more than to send out a quarterly letter full of updates on the companies we own and the rationale for individual buy and sell decisions. Nevertheless, we must address the market action following Federal Reserve Chairman Ben Bernankes May 22nd testimony before Congress, where he merely floated the idea of tapering the Feds quantitative easing efforts.
Bond Wars
by William Gross of PIMCO,
Adaptation is tantamount to survival in the physical world. So argued Darwin, at least, and I am not one to argue with most science and its interpretation of natural laws. Adaptation has been critical as well for the survival of countries during wartime, incidents of which I am drawn to like a bear to honey, especially when they concern WWI. Stick with me for a few paragraphs on this the following is not likely to be boring and almost certainly should be instructive.
Dcf Vs. Multiples
Valuing a stock is arguably one of the investment managers most difficult tasks. A variety of tools and methodologies exist to value equities, and the assumptions used in those are estimates of future unknowns. According to Aswath Damodaran, a valuation expert and finance professor at New York University, multiples are the most common method used by investors to value stocks.
Adapt or Die...
by Blaine Rollins of 361 Capital,
Bond king Bill Grosss $261.7 billion Total Return Fund at Pacific Investment Management Co. suffered a $7.5 billion net outflow last month, according to data from fund tracker Morningstar Inc. on Friday. It is the third straight monthly outflow for the Fund, on the heels of nearly $10 billion in redemptions in June. Clients have yanked $15.6 billion from Grosss Fund in 2013 through July. Jeffrey Gundlachs $37.9 billion DoubleLine Total Return Bond Fund suffered $580 million net outflow in July, according to Morningstar.
The Minsky Bubble
by John Hussman of Hussman Funds,
In his classic treatise on speculation, Manias, Panics and Crashes (originally published in 1978), the late Charles Kindleberger laid out a pattern of events that has periodically occurred in financial markets throughout history. Drawing on the work of economist Hyman Minsky, the conditions he described are likely far more relevant at the present moment than investors may recognize.
Can It Get Any Better Than This?
What in the world is going on?! As I write this letter from the Maine woods, the S&P 500 has just cleared 1,700 for the first time. The German DAX continues to set all-time highs above 8,400. The United Kingdoms FTSE 100 is quickly approaching its 1999 record high of 6,930, and its mid-cap cousin, the FTSE 250, just broke through to its all-time level above 15,000. And last but not least, Japans Nikkei 225 is extending its gains once more, toward 14,500.
Still High Time for High Yield?
Given recent strong performance and yields hovering at historic lows, a current topic of debate has been whether the high yield bond market has become an asset bubble and how much of a risk is the potential end to the Federal Reserve?s accommodative monetary policy to high yield investors. While we at Rainier acknowledge there are current risks in the fixed income market, we believe these concerns are not unique to high yield bonds.
Economic & Capital Market Summary
We are approaching the five year anniversary of the beginning of the Financial Crisis. By this time in 2008 we had already experienced the complete seizure of the Auction Rate Preferred securities market and the takeover of Bear Stearns by JP Morgan Chase. In August of 2008, we would see the collapse of Lehman Brothers and the government takeover of AIG. We stand here today, shoulders slumped, and heads bowed mourning the lack of real progress in addressing the structural problems that are impeding sustained economic growth and private credit expansion.
Conflicting Crosscurrents Move Equities Sideways
by Bob Doll of Nuveen Asset Management,
U.S. equities finished last week narrowly mixed, with the S&P 500 falling -0.02%.1 While the second quarter earnings per share growth continues to move higher, revenue growth remains below trend. The economic calendar is focused on this weeks release of the July employment report. Global macro headlines generated more uncertainty than direction for the markets.
Who Let the Ferrari Out of the Garage?
by Blaine Rollins of 361 Capital,
With just three trading days left in the month, July is in the running for the title of least volatile month of the year, with the Standard & Poors 500-stock index averaging moves of just 0.39% this month through Thursdays close. That is lower than the 0.41% and 0.42% averages of January and March, respectively, when stocks were grinding slowly, but steadily higher.
Wedding Bells in Romania
I was invited to attend the wedding of one of our Romanian staff in June, and I jumped at the opportunity to celebrate with the happy couple, visit a different part of Romania, and talk to locals about life there. The celebration represented a microcosm of the juxtaposition of old and new in Romania, and this is similar for investors there as progress continues toward market reform.
Summer Quarterly Commentary
Recently the Fed indicated it may begin returning control over market pricing and interest rates to Adam Smiths invisible hand... and borderline chaos erupted. The episode began mid-day May 22nd as Congress questioned Fed Chairman Bernanke and suddenly the cat was out of the bag and a paradigm shift ensued. Bond funds suffered some of their largest weekly redemptions on record. Rates spiked and markets swooned around the world through late June as investors assumed the worst.
The Damage Potential of Rising Rates
The initial goals of the Federal Reserves Great Monetary Experiment to keep rates low, create negative real yields, spur consumption and cushion the budgetary consequences of fiscal stimulus have largely been accomplished. Investors could now face the threat of rising bond yields. Various bull and bear scenarios might ensue. What are they and what could trigger them? What are the risks to portfolios?
Bursting of the Bond Bubble
Our April newsletter focused on the extreme overvaluation in the bond market. I argued that money market funds (or cash) were likely to outperform bonds and bond funds over the next decade. In May I applied the same logic to US stock prices and the inherent fallacy in the prevailing TINA (there is no alternative to stocks) hypothesis. Although stocks are likely to outperform bonds over the next decade, both asset classes remain seriously overvalued. In a world of overvalued assets, zero return looks much better than large potential losses even when that means foregoing transitory
Earnings Acceleration Likely Needed for Next Upturn in Stocks
by Bob Doll of Nuveen Asset Management,
U.S. equities finished mostly higher last week. For a fourth straight week, the S&P 500 and Dow Jones Industrials were up (returning 0.73% and 0.57% respectively for the week), while the NASDAQ underperformed at -0.34%. It was a busy start for second quarter earnings. More than 70% of the 100 S&P 500 companies that have reported earnings have beaten consensus earnings per share expectations by approximately 3% in aggregate.
And That's the Week That Was
by Ron Brounes of Brounes & Associates,
Well, at least, the Tigers are leading the AL Central. The city of Detroit filed for Chapter 9 bankruptcy protection this week and pension owners and creditors are lining up to ask for pennies on the dollars on unpaid moneys owed. Detroit officially becomes the largest city in US history to file for such protection as it continues to suffer from a falling tax base after losing 250k residents between 2000 and 2010.
Will Buffett Be Right on Wells Fargo?
A long time friend once said, "Bill, on the stocks that worked it didnt make any difference what you paid!" What he was referring to were the stocks which rose to many times your original purchase price and the investors who participated over the long run in the shares ended up happy and wealthier. Is Wells Fargo (WFC) one of those companies and will Warren Buffetts recent purchases get vindicated? As we enter the second half of 2013, this is a great discussion point for long-duration common stock investors in a market which has been strong since September of 2011.
Did Bernanke's Dovish Comments Please the Markets?
by Sam Wardwell of Pioneer Investments,
The key phrase: About half of these participants indicated that it likely would be appropriate to end asset purchases late this year. Many other participants indicated that it likely would be appropriate to continue purchases into 2014. Bonds rallied, suggesting that the sell-off of the past few weeks had exhausted itself or overshot (at least for now).
European Equities: Beyond the Headlines
Its fairly easy for investors to find reasons to shun European equities. While struggles in some Eurozone periphery countries continue to make eye-catching headlines, the broader story of Europe is far less fatalistic, according to Mutual Series Executive Vice President Philippe Brugere-Trelat, who manages the Mutual European Fund, Mutual Global Discovery Fund and Mutual International Fund. When it comes to Europe, he says one shouldnt throw out the baby with the bathwater, so to speak.
Investment Bulletin: Emerging Markets Equity
by Team of Bedlam Asset Management,
For the half year to end June the index was buffeted, falling 3.1%. In contrast, the portfolio managed a gain of 8.3%, more than 1,000 basis points better. During the month of June, the Emerging Market index was whacked by 6.4%; the portfolios value also fell, but by a lesser 6.2%. The relative year-to-date and longer term falls in some of the regional indices have been grim (Chart 1, p.4): for example, in the first six months of 2013, EM equities underperformed those in developed markets on a total return basis by 16%, and by 14% over the last 12 months.
Detroit, Addicted to Fed $$
by Gregg Bienstock of Lumesis,
Last week, I left you with a hint that the July 8 commentary was to be a collectors edition. After reading this weeks you will know why (hint: it is in the title). I start this week with a guest commentary from Kate McDonough who takes a look at the Detroit Emergency Managers Proposal for Creditors. I then take a look at just how reliant we are on the Federal Government for revenue (beyond what the Federal Reserve is doing).
Making Sense of the Bond Market
by Phelps McIlvaine of Saturna Capital,
The great challenge for investors and advisers today is to forecast where interest rates and bond prices will be once the influence of radical central bank intervention dissipates. Measures of inflation expectations are declining, and deflation remains the dominant influence on interest rates. In assessing whether to trim bond allocations, it is important to revisit the reasons for selecting a particular asset allocation before modifying or abandoning it.
Commodities 2013 Halftime Report: A Time to Mine for Opportunity?
It was a challenging first half of the year for most commodities, with only two resources we track on our Periodic Table of Commodities Returns rising in value. Natural gas and oil rose 6.5 percent and 5 percent, respectively, while silver lost a third of its value and gold lost a quarter of its price from the beginning of the year.
TIPS Get Hammered in the 2013 Second Quarter
by Stephen Percoco of Lark Research,
The beginning of the return to normalized interest rates took a big toll on straight Treasury securities in the 2013 second quarter, but TIPS got hit even harder. For the quarter, the average TIPS security lost 6.6%, worse than the average loss of 3.0% on comparable maturity Treasurys and by far the worst losses seen in the TIPS market since the 2008 financial crisis.
Results 3,351–3,400
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