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Recession Probability Models - January 2016
by Ted Kavadas of StratX, LLC,
There are a variety of economic models that are supposed to predict the probabilities of recession.
While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.
Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.
Monkey See, Monkey Do
by Jeffrey Saut of Raymond James,
This is how the stock market works:
“Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10, and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further, and people started going back to their farms...
Henderson Multi-Asset Team 2016 Outlook: Growth Set to Drive Asset Returns
In this video, Paul O’Connor and Bill McQuaker, Co-Heads of Multi-Asset, review the key developments in markets during 2015 and give their in-depth outlook for 2016. They argue that the era of monetary policy-driven markets has come to an end and explain what this means for returns across the asset spectrum. They note that a key factor to watch in 2016 will be the pace of US monetary policy tightening. Further they comment that while a number of risks remain there are opportunities to be found.
NEW: Money Metals Issues 2016 Gold/Silver Forecast
Forecasting today's volatile, high-frequency machine driven and manipulated futures markets using fundamental analysis is futile, as a great many precious metals bulls will attest. To complicate matters, an obsession with Fed policy dominates all markets. Officials at the Federal Reserve are often less than forthcoming and are just as bumbling as the Soviet bureaucrats when it comes to centrally planning our economy.
Back to Zero: Market’s Flat Return Masks Underlying Pressures
by Liz Ann Sonders of Charles Schwab,
It was indeed a “running to stand still” market this year (a U2 song title I used for one of my reports last spring to describe the market). The S&P finished 2015 nearly flat at -0.7%, but only Rip Van Winkle would have thought it was a calm year. The return, or lack thereof, belied the angst investors were feeling for much of the year. There are precedents for flat years, and in this short update, we’ll look at what it meant in the past for the future.
The Bond Market Is Raising a Cautionary Flag
The yield on the benchmark 10-year Treasury note won't rise much above 2.5% in 2016. Fed tightening cycles typically see curves flatten but long rates also typically rise, pricing in faster growth and inflation. The lack of conviction from the bond market that this will be the case represents an important cautionary flag.
Byron Wien Announces Predictions for Ten Surprises for 2016
by Byron Wien of Blackstone,
Byron R. Wien, Vice Chairman of Multi-Asset Investing at Blackstone, today issued his list of Ten Surprises for 2016. This is the 31st year Byron has given his views on a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening.
Which China are You Looking At?
by Andy Rothman of Matthews Asia,
Few investors recognize that this is almost certain to be the third consecutive year in which the manufacturing and construction part of China’s economy will be smaller than the consumption and services part. What else have we learned about China in 2015? Sinology examines.
The Sea Change in Repos, Swap Spreads and Dealer Balance Sheets: How Active Management May Benefit
Since the financial crisis in 2008, global regulators have been working hard to strengthen the banking system and forestall a similar calamity. A torrent of new regulatory requirements for financial institutions, for instance, aims to create global minimum requirements for liquidity and capital, increase transparency and decrease systemic leverage. The transactional intermediation that occurs between borrowers and lenders without governmental oversight – a vital piece of the world’s financial and funding mechanisms – has come under particular scrutiny.
Robert Gordon, the Special Century, and the Prospects for Economic Growth
by Laurence Siegel,
Is the slowdown in economic progress in this new century an aberration or should we have expected it all along? Is it the result of unwise policies or unfavorable demographics, or is it the comedown that naturally occurs after a century-long global economic miracle? How one views the prospects for economic growth will have profound implications for the long-term performance of the capital markets.
Lessons I Learned as a Mediator
by Dan Solin,
I used to serve as a mediator to facilitate the resolution of complex commercial cases. Resolving those difficult and challenging disputes was highly rewarding – and it taught me several things about how to subtly but effectively persuade clients and prospects.
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.
High Yield: Flows Over Fundamentals
by Anthony Valeri of LPL Financial,
High-yield bond selling, or the threat of selling, has sparked one of the worst sell-offs in the high-yield bond market since the summer of 2011 and the peak of European debt fears. The origin of high-yield weakness has come from the lowest-rated tiers of the high-yield market but has infected the broader market. Last week’s redemption freeze by an $800 million high-yield strategy, and news of a similar halt by a smaller fund over the weekend of December 12–13, 2015, intensified pressure on the high-yield bond market.
Stock Market Update – Fed Raises Interest Rates
by Willie Delwiche of Robert W. Baird,
Fed Chief Janet Yellen raised interest rates 25 basis points. Although this was the first rate hike in nine years, the impact on the markets is not anticipated to add to volatility. Bottom Line: Fed removes uncertainty over rate hike – broad market should expand beginning late next week.
Why Dividend-Paying Stocks are Riskier than You Think
by Larry Swedroe,
As advisors shift allocations from bonds to high-dividend stocks, they are exposing their clients to equity market risk. But they are also increasing interest-rate risk. Investors in two of the biggest dividend ETFs – SDY and VIG – are among the most exposed to the surging demand for dividend-paying stocks.
GMO Quarterly Letter
by Ben Inker, Jeremy Grantham of GMO,
In a new quarterly letter to GMO's institutional clients, co-head of asset allocation Ben Inker examines whether emerging-market equities might be a "value trap," and if U.S. equities are "deserving of trading at a premium P/E to the rest of the world" ("Just How Bad Is Emerging, and How Good Is the U.S.?"). In part two of the letter, chief investment strategist Jeremy Grantham provides "a list of propositions that are widely accepted by an educated business audience ... but totally wrong. ...
Extending the Cycle
by Erik Knutzen of Neuberger Berman,
At our most recent (fourth-quarter) Asset Allocation Committee meeting, perhaps the single most important issue we considered was whether the then-fresh decline of risk assets indicated a needed bull market correction, or something far more serious. Our analysis suggested short-term weakness, but for a while, the noise around China’s devaluation, Federal Reserve policy and concern about emerging markets and commodity prices had many investors very worried.
From Risk to Guarded Expectation of Recession
by John Hussman of Hussman Funds,
In the presence of obscene valuations, deteriorating market internals, widening credit spreads, and tepid economic activity on the most historically reliable measures, we presently observe the same essential syndrome of risk factors that allowed us to accurately anticipate the 2000-2002 market collapse and recession, as well as the 2007-2009 global financial crisis. Emphatically, a return to risk-seeking behavior among investors, as evidenced by a clear improvement in market internals across a broad range of individual stocks, industries, sectors and security types (including debt securities
Filling the Void in QDIA Selection
With a growing chorus of voices asking the DOL to help fiduciaries pick better default options—plus a tough new report from a government watchdog group—Glenn Dial, Head of Retirement Strategy in the US with Allianz Global Investors, previews a new tool that can factor demographics into optimized glidepath selection.
Plodding Along? A Discussion of Today’s Global Economy
This year has seen the global economy continue along a path of modest overall trend growth, but the path has been anything but clear, due to the complexities of oil prices, central bank policies and developments in China. In this interview, Richard Clarida, global strategic advisor, and Joachim Fels, global economic advisor, discuss essential questions surrounding the world’s major economies.
Politics and Performance: Does Control of the White House Really Matter?
by David Carroll of Cleary Gull,
The standard response is that the market favors Republican candidates due to their more business-friendly posture favoring lower taxes and less regulation. History, however, is on the side of the Democrats. Since 1945, the average annual gain of the S&P 500 under a Democratic president was 9.7%. Whereas, under a Republican in the White House, the average annual return was only 6.7%. What gives?
Getting Smart About Beta
Due to its simplicity, market-cap weighting has long been a popular means of calculating the value of market indexes. But as an investment strategy, market-cap weighting has limitations – frequently resulting in outsized proportions of overvalued stocks, and less-than-optimal exposure to undervalued stocks. Smart beta solutions seek to expand investors’ options by providing exposure to objective, rules-based methodologies that harvest returns from specific investment factors or deliver broad market exposure through alternative weighting strategies.
Are we celebrating the Christmas eve of 2007 or 2004?
by Josh Wong of Atlas Asset Management,
It’s been seven years since the last great financial crisis in 2008. For those of us who remembered, 2007 was going nowhere, being at the tail-end of a bull market cycle. It had its own mini-crash in Aug (down over 9%), quickly rallied back up to break new highs (barely), before plunging 10% again in Nov. It finally ended the year up 3.5% (sounds familiar?).
What Is the Credit Cycle Telling Us About 2016?
by Tony Wong of Invesco Blog,
As investors anticipate the beginning of a new year, we at Invesco Fixed Income are anticipating a new phase in the credit cycle for several bond asset classes. In this post, I will highlight a few areas where we’re seeing substantial changes in asset classes’ fundamentals or operating environment. We believe these areas could influence the broader market in 2016.
Rarefied Air: Valuations and Subsequent Market Returns
by John Hussman of Hussman Funds,
The atmosphere is getting thin up here, and every ounce counts triple when you're climbing in rarefied air. While near-term market dynamics are more likely to be impacted by Friday’s employment report than any other factor, our broad view remains that stocks are in the late-stage top formation of the second most extreme episode of equity market overvaluation in U.S. history, second only to the 2000 peak, and already beyond the 1929, 1937, 1972, and 2007 episodes, not to mention lesser extremes across history.
Exploring the Mysteries of Productivity
by Byron Wien of Blackstone,
Thousands of jobs in manufacturing and services have been eliminated by technology. This has resulted in favorable productivity figures over the last fifty years and sent profit margins to an all-time high, allowed the stock market to recover and increased the perception of inequality. Both corporate profitability and the standard of living are tied to productivity. If productivity is being properly measured and is, in fact slowing, it will have a profound impact on the future outlook for the economy and the financial markets.
Weighing the Week Ahead: What are the Best Year-End Investments?
There is a lot of data to be reported in only three full trading days, but it does not rate to signal important economic changes. I expect plenty of participants to take the week off and even more will leave after the first hour on Wednesday. The punditry still has pages and air time to fill, despite the lack of fresh news.
What Investors Should Know About China's Stock Market Rally
China’s government owns a significant share of companies which they need to unwind, and this is going to hang over the stock market in the months and years to come.
We expect China’s economy will slow as it transforms from an industrial, manufacturing economy to a consumption-driven, service-focused market.
Companies that can take advantage of economic and demographic changes while contending with environmental and social issues will survive and flourish.
How Male Advisors Should Dress to Win Clients
by Dan Solin,
I have found the single most significant factor in increasing my clients’ closing ratio has been their willingness to substantially upgrade their wardrobe. In this article, I will discuss my experience with men. Next week, I will discuss dress for women.
If Factor Returns Are Predictable, Why Is There an Investor Return Gap?
by Jason Hsu of Research Affiliates,
In the latest piece from Research Affiliates, vice-chairman and co-founder Jason Hsu looks at how substantial evidence supports cyclicality in factor returns, making them predictable. Evidence also exists that indicates investors aren't fully benefiting from this insight due to behavioral biases. But contrarian investors practicing countercyclical timing can benefit.
Navigating the Energy Landscape
by Will Nasgovitz of Heartland Advisors,
More than 12 months into the oil slump, the picture for Energy remains unsettled. A mismatch between supply and demand is making for a stubborn bear market in Energy. Tighter lending standards may create a solution to oversupply. Low costs, greater efficiency, and strong balance sheets are likely to be make or break factors for Energy companies. Here is a look at issues, pockets of optimism, and possible approaches to the volatile group.
Global Economic Perspective: November
While China’s manufacturing sector—which drove China’s rise to its place as the world’s second-largest economy—has been losing steam, it is being supplanted by a domestic, consumer-led economy propelled by a rising middle class with growing income. Other Asian countries are on a similar trajectory.
Why Reforms Are Sparking Growth in These Two Regions
In the U.S., we see other countries’ economic developments play out in news snapshots or opinion pieces—often focusing on short-term data or what’s perceived to be wrong. But here’s what the headlines may not be telling you: Non-U.S. regions from Asia to Europe are home to economic comebacks and companies that are growing their earnings. Let’s take a closer look at developments in Japan and Italy and then contrast the risk/reward dynamic with the current market environment in the U.S.
Crowdfunding or Crowdphishing?
by Robert Shiller of Project Syndicate,
After deliberating for more than three years, the US Securities and Exchange Commission has issued final rules on crowdfunding. Unfortunately, the new regulatory framework still falls far short of what’s needed to boost online funding platforms worldwide.
Results 4,801–4,850
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