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Is it Time to Review Your European Investment Strategy?
by Team of Thomas White International,
A sharp equity and bond market reaction is likely expected in response to the outcome of Italy's February 24-25 general elections, several media sources such as THE GLOBE AND MAIL have reported. While the poll result is uncertain, these reports indicate that in the event of a clear victory for Silvio Berlusconi's political party, buying interest in equities and lower-quality debt may be affected.
A Test of Strength for Gold
This week, we saw the gold bears growling louder and gaining strength, as the worlds largest gold-backed ETF, the SPDR Gold Trust, experienced its largest one-day outflows since August 2011. The Fear Trade fled the sector following the Federal Reserves meeting that revealed a growing dissension among some of its members over the central banks bond-buying program.
Finding What's Real in Real Estate
The U.S. financial crisis in 2008-2009 left many investors with a reluctance to take investment risks, particularly those related to any of the world's wilted housing markets. However, as your local real estate agent would likely tell you, the market in one location can be vastly different than it is in another. Wilson Magee, co-manager of Franklin Global Real Estate Fund would agree that the adage "location, location, location" applies not only to individual home buyers and sellers, but to investors seeking opportunities in the commercial real estate sector, too.
When It Comes to Gold, Stick to the Facts
During short-term gold corrections, its much more important to focus on the facts, including the fact that gold is increasingly viewed as a currency. Rather than buying real estate, lumber or diamonds, central banks around the world are buying gold. According to the World Gold Council (WGC), over 2012, central bank demand totaled 534 tons, a level we have not seen in nearly 50 years.
Is Love in the Air?
This week includes Valentine's Day, the day millions worldwide exchange cards, letters, candy, flowers and other gifts with the center of their affection. Surely there must be a study of Valentine's Day. But search as I might, I could not find a single study of the influence of this fabled day on our financial markets. I did find one in Australia that dared to show that the chances for an up or down day in their stock market were, what else, 50-50. Could it truly be that we had finally found a seasonal event that was dare I say it random?
Currency Wars? What Currency Wars?
There's much talk of currency wars right now. We think they're way overblown. The source of the problem lies with Japan, which has made explicit a strategy to lower the yen, increase domestic demand and increase inflation. It needs to do all three. The twenty year old balance sheet recession and deflation in Japan has been a costly error in targeting inflation and not much else.
We Have Met the Enemy, and He Is Us
If modern portfolio management has a single defining urge, it is almost certainly diversification. We look for diversifying assets, strategies, and managers. A thoughtful investor can argue against almost any asset class stocks, bonds, hedge funds, private equity, commodities, you name it but arguing against diversification is like arguing against indoor plumbing. I dont want to sound like I'm calling for a return to chamber pots and outhouses, so I'm not actually going to argue against diversification.
Investing in a Low-Growth World
by Jeremy Grantham of GMO,
This quarter I will review any new data that has come out on the topic of likely lower GDP growth. Then I will consider any investment implications that might come with lower GDP growth: counter intuitively, we find that investment returns are likely to be more or less unchanged a little lower only if lower growth brings with it less instability, hence less risk. Finally I will take a look at the reaction to last quarter's letter, specifically about my outlook for lower GDP growth.
Focus on Fixed Income
Last week Administration officials, including the President, clearly ruled out using extraordinary legal measures to avoid defaulting on Treasurys financial obligations in the absence of a debt ceiling hike by Congress. The two legal measures most discussed, going back to the summer 2011, were invoking the 14th Amendment and minting a trillion dollar platinum coin. The coin idea was dismissed as Fed officials commented that the central bank would not honor the coin as a deposit, and the amendment idea has been shelved a number of times.
GDP Report Tanks - Is A Recession Looming?
We will cover a lot of ground today. We begin with a new report from Goldman Sachs which argues that the US economy will remain the strongest in the world for many more years. The report rebuts claims that America is a nation in decline. Quite the contrary, say Goldman analysts who claim that there is a growing"awarenessof the key economic, institutional, human capital and geopolitical advantages the U.S. enjoys over other economies."
2012 Equity Market Market Year in Review
Equities started the year strong as global inflation remained tame, and aggressive, accommodative monetary policy by central banks around the globe helped equity markets rally hard off their lows posted in the fall of 2011. Continuously improving U.S. economic data, strong corporate earnings, and policy steps toward mitigation of the sovereign debt crisis in Europe also provided support for the equity markets worldwide.
2013 Annual Forecast
It's that time again. January will be over by the time you read this which means we are out of holiday excuses or "just ramping up for the new year" reasons for not getting back to work. Having said that, I'd like to offer my excuse for the Annual Forecast getting to you in February instead of the first week of the year. Hand over my heart, we started early this go-round.
A Gross Underestimate
As we enter 2013, we felt it would be an appropriate time to revisit one of last years most controversial predictions of future equity performance. We acknowledge that equities in general may not continue to deliver the same real rate of return they have over the last century; however, we believe the glum outlook for the asset class forecasted by Bill Gross last year misses the mark. Our estimates of future equity returnsbased on three different approachesall point to a meaningfully higher forecast than Gross' pessimistic prediction.
A Reluctant Bear's Guide to the Universe
by John Hussman of Hussman Funds,
In recent years, I've gained the reputation of a "perma-bear." The reality is that I'm quite a reluctant bear, in that I would greatly prefer market conditions and prospective returns to be different from what they are. There's no question that conditions and evidence will change, unless the stock market is to be bound for the next decade in what would ultimately be a low-single-digit horserace with near-zero interest rates. For my part, I think the likely shocks are larger, and the potential opportunities will be greater than investors seem to contemplate here.
For All the Sad Words of Tongue and Pen...
by Jeffrey Saut of Raymond James,
"For all the sad words of tongue and pen, the saddest are these: It might have been." ... John Whittier; an influential American Quaker poet. Certainly, American poet John Greenleaf Whittier's apothegm has stood the test of time, serving as a universal lament for what "might have been." I was reminded of this maxim last week as Wall Street heard increasing laments from investors on the Street of Dreams.
Hasenstab: Little Value in U.S. Treasuries Right Now
The financial markets may have let out a collective sigh of relief on January 1 when U.S. politicians managed to avoid falling off the fiscal cliff, but the fact is the fundamental issue plaguing the U.S. still hasn't been addressed mounting debt. As a result, Dr. Michael Hasenstab, co-director of the International Bond Department and portfolio manager for the Templeton Global Bond Fund, says he doesn't see much value in U.S. Treasuries right now. He does see it elsewhere in the world, though, including Ireland and select emerging markets where fiscal houses appear in much better order.
Taking a Dip?
In the cold Midwest in January, the only talk of dips tends to be at Super Bowl parties or during the annual Polar Bear Club celebrations when a few hardy, scantily clad individuals jump into the frigid winter waters. Of course, in the summer those dips are much more inviting, following which a double "dipped" cone from the ice cream parlor has plenty to recommend it. But tune in to any financial news program or pick up your favorite financial read and you'll see that dips are all the rage. In this case, the reference is to "buying on dips."
An Apple's First Worm
Writing about Apple is painful. Not because I have lost money in recent months or have no insight to provide, but because the media will likely report on it ad nausea for the next few days. It is perhaps human nature that the news which is most readily produced is also the news that is most easily consumed. If you want to be read, it's best to write words that people will read. While this makes for great entertainment and advertising, it hasn't typically been the best way to get new investment ideas.
Strategies for Speculating on the Crisis in Japan
by Simit Patel,
Bears on Japan are finally, after nearly two decades of being on the wrong side of the market, getting some vindication. The end of 2012 was marked by a significant decline in the Japanese yen and a rise in the yield on 30-year Japanese Government Bonds (JGBs). Should those trends continue, the conventional wisdom is that investors will do best by shorting JGBs. But a superior strategy is to short the yen itself.
How Much Help from Housing?
by Alan Levenson of T. Rowe Price,
We expect the ongoing recovery in new housing construction from unsustainably low levels to contribute roughly percentage point to real GDP growth this year, and emphasize the risks to the upside of this forecast. Imminent employment growth in housing-related industries will provide an important channel for secondary "multiplier" effects of the housing recovery. Applying recent house price increases to the entire stock of owner-occupied housing overstates their likely wealth effect on consumer spending.
Emerging Asia Pacific: Regional Economic Review 4Q 2012
by Team of Thomas White International,
Emerging Asia Pacific economies showed strong signals of a rebound in economic activity amidst generally rising exports and stabilizing inflation. While some major economies like China, which had cut interest rates throughout 2012 to stimulate the economy, saw a mild resurgence in inflation, many countries like South Korea, Taiwan, Malaysia and Philippines saw inflation stabilize significantly during the quarter. Still, India, the region's second largest economy, continued to be troubled by rising prices despite high interest rates.
Keep Your Eye On The Ball - 2012 Year End Letter
by Team of Sloan Wealth Management,
The members of the Portfolio Management Team at Sloan Wealth Management (SWM) coach two baseball teams, two soccer teams, one T-ball team and one basketball team for our collective young children. Thus, we find ourselves stressing the basics. Learning the fundamentals of how to catch a pop-up will eliminate some of the fear of getting hit in the face. In 2012, we found many parallels to the capital markets as our portfolios posted high double digit returns in the face of fear.
The Year Past, The Year Ahead
by Michael Gomez of PIMCO,
The multiyear run of performance by emerging market (EM) sovereign external debt has been remarkable but residual valuations look either just fair (investment grade) or expensive (high yield) versus other comparable credits. We still see abundant opportunities in EM local markets, while EM equities are poised to benefit from a relatively low starting point for both earnings and earnings expectations.
Forecast 2013: Unsustainability and Transition
As we begin a new year, we again indulge ourselves in the annual rite of forecasting the year ahead. This year I want to look out a little further than just one year in order to think about the changes that are soon going to be forced on the developed world. We are all going to have to make a very agile adaptation to a new economic environment (and it is one that I will welcome). The transition will offer both crisis and loss for those mired in the current system, which must evolve or perish, and opportunity for those who can see the necessity for change and take advantage of the evolution.
The Year Past, The Year Ahead
by Michael Gomez of PIMCO,
While not immune to global economic headwinds, emerging market investments remain well positioned to outperform their developed world counterparts over time. The multiyear run of performance by emerging market (EM) sovereign external debt has been remarkable but residual valuations look either just fair (investment grade) or expensive (high yield) versus other comparable credits. We still see abundant opportunities in EM local markets, while EM equities are poised to benefit from a relatively low starting point for both earnings and earnings expectations.
It's Not What Happens That Matters
Late in 2008 and in early 2009, a group of what we like to call "brilliant pessimists" hit the airwaves with their economic theories. The prognosticators' vision of the future was and is predicated on the history of similar situations and the mathematical realities of the huge debt overhang from the prior ten years of profligate economic behavior. They put very effective names on their visions like "new normal" and "seven lean years". They marketed their visions incredibly well to the point of shaming anyone who might disagree with their theories.
Bond Market Review & Outlook
by Thomas Fahey of Loomis, Sayles & Co.,
The ?nal quarter of 2012 was the icing on the cake of an exceptional year for the credit sectors. Fourth quarter credit gains stemmed in part from uncommonly aggressive monetary policy responses in the third quarter. As economic growth continued to undershoot expectations, major central banks made clear that they were dissatis?ed with the status quo of tepid economic growth and high unemployment. The Federal Reserve went so far as to tie its monetary policy to the level of the unemployment rate.
Thanks, Everybody...We'll be Right Back!
by Colin Moore of Columbia Management,
The Washington Comedy Club has taken a brief intermission and will be back in session shortly to resume the show. Please enjoy the facilities of this great country, free of charge, while you wait. Ignore the "Nero" character in the far corner playing the fiddle. Apparently, he isn't part of the show. Economic uncertainty emanating from fears of the U.S. fiscal cliff has been deferred but not avoided.
Special Edition: The Outlook for 2013
by Team of Northern Trust,
At this time of the year we typically get warm and generous wishes for the New Year and, of course, numerous questions about what our crystal ball has in store for 2013. While many economists publish their perspectives prior to January 1, we opted to wait in the hope of having a clear fiscal picture for the United States. A lot of good that did us...
Defense as a Good Offense
Oddly, defensive names that ordinarily trade at premiums to the market are trading at big value discounts. These companies that have the ability to grow in any economic environment are a part of the portfolio, as well as companies riding pockets of growth around the globe. There is a lot to be excited about in 2013 for value stocks.
And That's the Week That Was
by Ron Brounes of Brounes & Associates,
Welcome to the end of 2012. Investors are hardly basking in the glow of a positive year for stocks. They are less than enthusiastic about the recovery in housing. They seem to be overlooking the actions of the Fed and the implications for the indefinite low rate environment. Two words remain firmly entrenched in the minds. FISCAL CLIFF. What say you (besides bickering and backstabbing)Prez O, Speaker Boehner, Senators McConnell and Reid? Time is running out and five straight down days proves that investors are growing more and more nervous. Happy New Year (I think).
And That's the Week That Was
by Ron Brounes of Brounes & Associates,
Welcome to the end of 2012. Investors are hardly basking in the glow of a positive year for stocks. They are less than enthusiastic about the recovery in housing. They seem to be overlooking the actions of the Fed and the implications for the indefinite low rate environment. Two words remain firmly entrenched in the minds. FISCAL CLIFF. What say you (besides bickering and backstabbing)Prez O, Speaker Boehner, Senators McConnell and Reid? Time is running out and five straight down days proves that investors are growing more and more nervous. Happy New Year (I think).
Mish Shedlock Exposed
by Peter Schiff of Euro Pacific Capital,
In January 2009, just as the "Peter Schiff was Right" YouTube video that catalogued my previously derided predictions about a coming financial collapse was racking up views and attracting mainstream attention, a blogger and investment advisor named Mike Shedlock (aka "Mish") saw an opportunity to make an unethical grab at my current and prospective clients by breaking the nascent wave.
The Next Generation of Income Guarantee Riders: Part 3 (The Income Phase)
by Wade Pfau,
In this third and final installment in my series on guarantee riders, I'll focus on the post-retirement income supported by income guarantee riders for variable annuities (VA/GLWBs), stand-alone living benefit riders (SALBs), and an unguaranteed portfolio of mutual funds. I'll highlight how differences among these products affect their end results, while also investigating what roles guarantees can most appropriately play in a retirement portfolio.
Loomis Sayles' Matt Eagan on the Macro and Fixed Income Outlook
In this interview, Loomis Sayles' Matt Eagan discusses the fixed income universe, Fed policy and issues facing the global macro economy. Eagan is the co-manager, along with Dan Fuss, of the Loomis Sayles Bond Fund and he manages the Loomis Sayles Strategic Alpha Bond Fund.
Cliff Diving
by Michael Lewitt,
While there may be compromise to avoid the self-inflicted crisis of the fiscal cliff, the course of fiscal policy is unlikely to alter significantly. There is a great deal of bold talk about tax reform, but the odds of our current leaders replacing our profoundly flawed tax regime with one that would breed economic growth and productivity are low. Congress will be lucky to avoid the fiscal cliff; asking it to alter the economy's DNA is unrealistic.
How Well Does the Next Generation of Guarantee Riders Protect Your Income? Part 2 - Starting the Inc
by Wade Pfau,
Unlike traditional VA/GLWBs, the future payments from stand-alone income riders are tied to 10-year Treasury rates. That's bad news for retirees, who may find their future benefits compromised if interest rates remain at historically low levels - regardless of how the stock market performs.
Alternative Thoughts - All That Volatility For Nothing?
In 2011, the S&P 500 had one of the smallest price changes in its history, but investors experienced significant daily volatility. Stock investors experienced an extraordinarily tumultuous 2011 marked by the collapse of governments, standoffs over raising the national debt ceiling, and an escalation of the sovereign credit crisis in Europe. Markets rose and fell several percentage points in minutes on the barest of rumors from Washington and Brussels and frequent surprises in economic data around the globe.
Report Raises Questions About Central Bank Gold Holdings
by John Browne of Euro Pacific Capital,
For years I have cautioned that changes in the ownership of gold held in the vaults of key central banks around the globe may not have been accurately reported. A report issued last month in Germany has once again brought these issues to the fore. In today's environment of rampant money creation and questioning of central bank activities, such uncertainty is bound to spark the curiosity of an increasing number of investors.
The Three Most Important Hours for Your Business
by Dan Richards,
Rocky markets mean that you can't rely on referrals alone. If you've built a significant client base, you want to continue to dedicate the bulk of your time to communicating with them. But for your business to stay healthy, you need to bring in new clients ? advisors need to carve out three hours a week to focus on reaching out to prospective clients.
The Next Generation of Income Guarantee Riders: Part 1 - The Deferral Phase
by Wade Pfau,
Clients no longer need to move their assets to a variable annuity with a rider to guarantee lifetime withdrawal benefits, thanks to the RetireOne stand-alone living benefit (SALB) rider from Aria Retirement Solutions, which can be applied to a portfolio of mutual funds and ETFs. Despite this enticing promise, however, the SALB may not offer as much downside protection as advisors and clients expect.
International Equity - Monthly Product Commentary: September 2012
by Team of Thomas White International,
International equities made strong gains in September as aggressive policy action from central banks in Europe and the U.S. helped offset concerns over moderating economic growth across the globe. The European Central Bank (ECB) announced a program to buy unlimited quantities of debt issued by troubled countries such as Spain, Portugal, and Greece, provided they adhere to a strict fiscal adjustment timetable.
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