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Quarterly Review and Outlook - Third Quarter 2012
Entering the final quarter of the year, domestic and global economic conditions are extremely fragile. Across the globe, countries are in outright recession, and in some instances where aggregate growth is holding above the zero line, manufacturing sectors are contracting. The only issue left to determine is the degree of the downturn underway.
Getting in Touch with Your Inner Rich Kid
by Justin Locke,
What does it mean to be wealthy? When I recently spoke at a gathering of wealth managers, I saw my chance to find an answer this question, which has bugged me for years. How much must you have before your 'money' is sudden transfigured into 'wealth'? This all fits into a larger, ongoing quest of mine ? to understand why rich and poor kids approach life so differently.
High Yield and Bank Loan Outlook
The leveraged credit market turned in an impressive Q3 with high yield bonds and bank loans returning 4.3 and 3.1 percent, respectively. Unprecedented accommodation from central bankers across the globe has alleviated much of the macroeconomic tail risk that we highlighted in last quarters publication. Presented with a seemingly insatiable demand for new issue bonds, issuers returned to the torrid pace of issuance that characterized the start of 2012 by raising a record $99 billion during the third quarter.
QE3Back to the Future
by Milton Ezrati of Lord Abbett,
The broad scope and open-ended nature of the Federal Reserve's third round of quantitative easing raises questions about what exactly Fed chairman Ben Bernanke has in mind. Some insight, remarkably, emerges from a speech he gave in November 2002 to the National Economists Club in Washington, D.C., when he was simply a Fed board member. Taking his cue then from fears of a Japanese-style deflation, he laid out a path for monetary stimulus in an extreme situation, outlining nontraditional policy tools that have since become common.
The Golub Group Commentary
by Team of The Golub Group,
High-quality businesses that have the ability to pay and increase their dividends are even more attractive in this low yield environment and the valuations of these businesses are cheap on an historic basis and relative basis to the alternatives.
This Fortress built by Nature for Herself
It has been some time since I have taken keyboard in hand in any attempt to inform anyone of my thoughts on the world of investing. I am taking the time to write now because we are embarked on some events that are, in my humble opinion, truly historic. As these events play out the United States may not be a fortress built by nature for herself. So hang on this could get rough and as usual it will be opinionated with a different perspective.
Circle the Wagons on GLD
We spoke to two small groups in Spokane on September 21st, 2012. For better or worse, when I think of Spokane I think of my cousin Gary. It was 1981 and yours truly was a young stockbroker at Drexel Burnham Lambert. Gold had been in a wonderful bull market ride in the prior five to ten years. Gary was interested in participating in gold through a gold-mining stock traded on the Spokane Stock Exchange. Spokanes proximity to the Northern Idaho mining towns and closeness to the Canadian border made it a natural place for commodity traders and mining enthusiasts to gather to transact business.
Is Negativity Contagious?
Negativity persists among investors, as evidenced by the ongoing stream of money leaving equity funds into bond funds. It's challenging to pinpoint the origin of the pessimism because it comes from all over the globe. Daily polls finding Americans at an extreme political division, scenes of anti-austerity riots in Greece and Spain, and the Shanghai Composite Index falling to new lows are only three recent examples.
Ponzi Games
by Michael Lewitt,
Whatever schemes the European Central Bank may cook up over the next few months will only prove short-term liquidity relief to what are long-term insolvency problems. Like any Ponzi scheme, the last money in is going to be hurt the worst when the charade comes to an end. In the meantime, investors proceed at their own risk.
Postcard from India: Taking Frugal Engineering to the World
by Team of Thomas White International,
The first 25 ton truck that rolled out of Daimler's new Indian manufacturing plant in June this year was similar in most respects to other trucks the company sells across the globe. Even on a closer look, the only major difference seemed to be the name and logo on the front grill. The iconic Mercedes three pointed star logo had been replaced by a new round logo and brand name, BharatBenz.
Citius, Altius, Fortius
by Carl Tannenbaum of Northern Trust,
Countries across the globe seek faster, higher, stronger growth. Central banks in the United States and Europe are both seeking new ways to stimulate economic activity. Recent news from the housing market has been encouraging, but the race to recovery is likely to be a marathon, not a sprint. Headwinds blowing from Europe and China will continue to present significant downside risks to U.S. economic growth.
The Price of Glamour
The list of glamorous growth stocks getting hit by what we call "minefield" price declines is getting fairly long. Some of the more influential names which have suffered sharp, swift declines include Nike (NKE), Chipotle (CMG ), Facebook (FB), Coinstar (CSTR), Starbucks (SBUX) and the King of the Glam stocks, Apple (AAPL). Is there a pattern here that matters? If earnings growth is hard to come by, what are the most important themes for long-duration common stock investors?
A Lesson from the World's Best Restaurant
by Dan Richards,
Spain's El Bulli was considered the world's best restaurant, once receiving two million requests in a single day for reservations. A very successful business owner procured one such reservation - and told me of an important lesson for advisors.
Austerity: Damned If You Do, Damned If You Don't!
by Fred Copper of Columbia Management,
This glib depiction could be applied to most of the developed world. Much of the world's attention is on the debt imbalances within Europe, but too narrow a focus will miss the fact that aggregate debt levels for the region as a whole are still disturbingly high. The same is certainly true of Japan, and to a lesser extent the U.S.
Investment Review & Outlook
by Team of Cohen & Steers,
The headlines in Europe were dominated by political uncertainty and prospects for a prolonged recession, amid signs of deteriorating economic conditions around the globe. The U.S. economy decelerated, as the positive effects of the mild winter wore off and both hiring and spending slowed. Treasury yields fell to all-time lows and oil prices plummeted roughly 30% from their February peak.
What if the Fed Throws a QE3 and Nobody Comes?
by John P. Hussman of Hussman Funds,
When we look around the globe, we find that the impact of quantitative easing is rarely much greater than the market decline that preceded it. Investors seem to be putting an enormous amount of faith in a policy that does little but help stocks recover the losses of the prior 6 month period, with scant evidence of any durable effects on the real economy.
Long-Term Investing in a Short-Term World
In this electronic age, news and rumors can spread like wildfire across the globe, heightening market volatility as markets react in real time. It can be difficult for investors to see the forest for the trees as they try to dodge the downdrafts immediately in front of them, sometimes making hasty missteps.
A Top Analyst: North America Heading to Energy Independence
by Robert Huebscher,
Ed Morse, a managing director of Citigroup Global Markets, said last week that by the end of this decade the US and Canada will have a surplus of oil, leaving it with 'no room for imports.' But the longer-term picture is far less certain, as extraction moves from conventional wells to newer sources, such as deepwater fields and shale-based oil.
Schwab Market Perspective: Time for Action
With escalated uncertainty, sitting back can be an easy choice, but we believe investors and policymakers alike need to take action. Equities bounced off of what appeared to be oversold conditions but although the US economy appears to be holding its own, a renewed sustainable uptrend may be hard to come by until some substantive policy actions are taken around the globe. The time for decisive action in the eurozone appears to be quickly approaching as short-term solutions are no longer satiating the market.
The End of Economics
by Michael Edesess,
If Australian economist Steve Keen's book, Debunking Economics, doesn't end, once and for all, the terminally convoluted discourse that afflicts mainstream economics, nothing will. Although the book's purpose is to show that neoclassical economics is all bunk, however, it is also, remarkably, as good an introduction to neoclassical economics as any you're likely to find.
The Bargains in Europe's Great Oversell
by Bob Veres,
When was the last time we saw negative headlines drive valuations as low as they
have in Europe? Evermore's David Marcus, who succeeded Michael Price as manager
of the Mutual European Fund, says this period of obsession with Greek debt, bank
restructuring and single-digit P/Es may be known as The Great Oversell.
The Plow Horse Rolls On
Turn on the television, pick up the newspaper, search the Internet and you will find story after story about Greece, JP Morgan, austerity, the labor force, student loans, California, the G-8, or the Facebook IPO. Just about every bit of the coverage is negative.
And yet, amid all this, our plow horse economy keeps moving forward through the stumps and rocks and mud. Its certainly not Ill Have Another, who, with one more win, can take the Triple Crown a measure of strength, courage and greatness. But it aint headed for the glue factory either.
Global Shipping: Any Port in a Storm?
With the exception of LNG tankers, all three major shipping categories have been suffering from a supply glut. This, combined with higher fuel costs, has led many shipping companies into financial distress. Although banks have worked with ship owners through this down cycle, they have also pulled back from financing the industry. We believe downside risks are likely minimized in the shipping industry for new lenders and investors. Vessel values are depressed by rates that are sometimes below owners' operating costs and by an oversupplied market that suppresses secondary market values.
Optimizing Social Security Benefits
by Wade Pfau,
My dissertation was about Social Security reform, so I've read more of the Social Security Handbook than any human being should be forced to digest. Despite this background, William Reichenstein and William Meyer's new book, Social Security Strategies: How to Optimize Benefits, taught me a lot about how to strategize to get the most out of Social Security.
Ponzi's Children
by Michael Lewitt,
Europe, whose economic condition is nothing less than terminal, is about to receive what physicians refer to as a 'zetz' of morphine in the form of M. Hollande. A 'zetz' is the final dose that doctors give to dying patients to hasten their passage to the afterlife. In Europe's case, however, the medicine is not going to be painless, and its administration is not based on mercy but on resentment and stupidity.
Annuities versus Systematic Withdrawals: Understanding Tax Effects
by Joe Tomlinson,
Given the complexity of most annuities, analysis of them typically only considers pre-tax results. But taxes matter. As we will see, tax impacts vary by the specific type of annuity you're considering, and will make the difference between annuities being cost effective or a drain on cash flow.
How to Respond to the Bachus-McCarthy Bill
by Bob Veres,
I recommend that everybody contact your elected representatives and tell them that the proposed Bachus-McCarthy legislation would be detrimental to the small businesses in their district or state. Below is a sample letter for you to send to your elected representatives, and a press release for you to send to your local paper and press contacts.
Quirky Tales and Waves of Change
While almost all commodities (ag, chemicals, and energy) have tended to move up and down together in price, oil has always beat to a different drummer, likely as a function of the ebb and flow of geopolitical concerns and the physical location of most known reserves. I would guess, however, if natural gas is in such abundance domestically, it could very well be the case around the globe. The prospect for $200 oil might be as remote as NASDAQ 5000.
Muppet Capers
by Michael Lewitt,
Investors enjoyed strong stock market and credit market gains during the first quarter of the year, but storm clouds may be forming on the horizon. Corporate profits have likely peaked. Stocks may be the best house in a bad neighborhood, but houses in that neighborhood appear to be fully priced for now. There are also some troubling signs in the bond markets, particularly the long end.
Flexible Strategies for Longevity Protection: Comparing Two Products
by Joe Tomlinson,
Products that guarantee income for life can be useful for retirement planning, but many clients also want flexibility and control over their investments. Two products that can meet these objectives are variable annuities with guaranteed lifetime withdrawal benefits (VA/GLWBs) and deferred income annuities (DIAs).
Global Equities: Building a Research Mosaic for the Information Age
by John Longhurst of PIMCO,
As a result of increasing correlations across the globe, identifying the best global franchise opportunities at attractive valuations is becoming increasingly important. We believe that taking a broader global perspective and comparing a companys valuation and growth outlook versus their global competitors is just as germane as looking at them relative to their country or region. Identifying Chinese and non-Chinese companies that will gain and lose in this process is a critical long-term challenge when constructing a global portfolio and not an easy one.
Transmission Channels
by Neel Kashkari of PIMCO,
We believe the European debt crisis will likely flare up again, and equity investors should consider positioning portfolios to be more resilient against such a shock. A disorderly Greek default, if it occurs, would likely shock the eurozone and the globe via at least four transmission channels: the European banking system, European sovereign debt markets, corporate financing markets and regional trade. The shock of a massive Greek default would likely swing investor sentiment strongly toward risk off, putting pressure on equity markets globally.
The Gutenberg Economy
by Michael Lewitt,
As commentators near and far speculate on what 2012 will bring to the global economy and markets, there is little question that one factor will be decisive: the central banks' printing presses. Both the Federal Reserve and the European Central Bank (ECB) will keep printing dollars and euros around the clock until their presses run out of ink.
The Apple Doesn't Fall Far From the Global Resources Tree
After Apple reached $500 billion in market capitalization, it was inducted into a very elite club of businesses that have reached this size. Only Cisco, ExxonMobil, General Electric, Intel and Microsoft have made it to the $500 billion mark. Since October, the tech companys stock has increased nearly 40%, making it the top driver of the S&P 500 rally. This increase caught the attention of many analysts, including Thomas Lee from J.P.Morgan, who declared that the company is a sector unto itself. At a market cap of just under $500 billion, Apple represents 3.7 percent of the S&P 500 Index.
Winning the War in Europe
Given my view on the global liquidity glut, it probably will come as no surprise that I remain bullish on U.S. investments, including equities, high yield bonds, bank loans and other risk assets, as well as art and collectibles. I believe the United States has entered a period of self-sustaining economic expansion, driven primarily by the aggressive monetary policy of the Fed, which is now being reinforced by the ECB. U.S. growth is necessary to reduce domestic unemployment and to provide support to the struggling economies in Europe and Asia.
Our Five Year S&P 1500 and Sector Forecast
Emotions are and will continue to be the drivers of short-term demand for stocks and bonds. At the individual stock level, we believe we can isolate certain human traits which drive this demand. However, at the broader market levels, we believe that the method to judge emotions is more intuitive than quantitative. In other words, it pays to be somewhat of a contrarian and to try not to become a member of the Buy High/Sell Low Club. History of markets can be a helpful guide to understanding the emotions that have driven previous investor buying decisions after major market declines.
Letters to the Editor
by Various,
Two readers respond to Robert Huebscher's article, The Misreading of Reinhart and Rogoff, which appeared on January 10, and a reader responds to Matthew Jarvis' letter to the Editor last week, which was in response to Wade Pfau's article, GLWBs: Retiree Protection or Money Illusion?, which appeared on January 10.
The Bigger the Base, the Higher the Space
by Pamela Rosenau of HighTower Advisors,
Overall, people around the globe are underinvested or invested in the wrong asset classes. As data point continue to strengthen, coupled with the fact that income (and sustainability of income) are becoming a scarce commodity, a significant rally in the equity markets could ensue. As some technical analysts may suggest, the bigger the base, the higher the space. As U.S. blue chip stocks have lagged for more than ten years, they have built a base that has prepared these stocks for liftoff.
Income Annuities versus GLWBs: A Product Comparison
by Joe Tomlinson,
The variable annuity with a guaranteed lifetime withdrawal benefit (VA/GLWB) has become the most popular form of annuity, as retirees seek income protection and equity-market participation. But VA/GLWBs are often costly, and the typical purchaser has few tools with which to assess the costs. Investors need a straightforward way to gauge the fees for VA/GLWBs versus other retirement income alternatives.
The Other Presidential Election to Watch
by Russ Koesterich of iShares Blog,
The US presidential election isnt the only race for top office this year worth closely watching. Right now, my attention is focused on an upcoming presidential election on the other side of the globe. On January 14, Taiwanese voters will vote for their countrys next president. This election is particularly important for investors. Though many factors drive stock prices, a win for incumbent President Ma Ying-jeou would be supportive of Taiwanese equities. A loss, on the other hand, could be a tailwind for the market.
Europea Source of so Much Pain and Distortion
by Milton Ezrati of Lord Abbett,
The panic from the risk of default and the possible dismantling of the euro has gained the headlines and depressed most asset prices across the globe. The austerity measures, seemingly demanded by the situation and certainly by the EU and the ECB, have clearly set Europe on a recessionary path that threatens the pace of global growth. Europes problems have also distorted currency values across the world, creating problems in yet another way. These will linger even though the ECB seems to have overcome its former objections and has begun to provide the liquidity needed to quell market fears.
Markets Off to the Races in 2012
As we kick off the New Year, the markets are starting like Usain Bolt off the line. The European markets are up already for the year after two trading days with the German DAX index up 4.55% and the Euro Stoxx 50 up 3.17%. The U.S. markets are moving higher with gains of nearly 2% for the day. Though a few trading days dont translate to what will happen over the year, the combination of improved manufacturing data across the globe and a further comprehension of the dramatic comments made by the ECB (European Central Bank) President Draghi last week seems to be fueling the gains.
Motivating Older Clients
by Dan Richards,
Two advisors recently reminded me of the subtle differences it takes to successfully work with older clients. Both provide the highest quality of advice and have regular client events to stay in front of their best clients. Two years ago, however, they were frustrated by the difficulty of getting older clients to attend those events - until each came up with a solution.
Hockey Stick Growth: Good for the Wallet, Bad for the Globe
Population growth, specifically in developing nations with burgeoning middle classes, portends significant economic growth. That leads to the now somewhat hackneyed conclusion that emerging markets will make for good long-term investments. Nevertheless, the US and the rest of the developed world will continue to shrink in relative size, and hence global significance, over the next several decades; Emerging markets, and the multi-national corporations that work with them e.g. MacDonalds, Tiffanys, and Daimler-Benz, are likely to remain very attractive investments.
Results 4,101–4,150
of 4,316 found.
