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A Look Back at 2015: Lessons Learned
The first sentence of my market update for last January went like this: “U.S. stock markets dropped across the board in January, as investors reassessed their risk tolerances.” Sound familiar? I went on to note that the primary concerns were slow earnings growth, caused by weakness elsewhere in the world, and a strong dollar. Again, does that ring a bell?
Weighing the Week Ahead: Is the Correction Over?
Stocks once again made a sharp turnaround late in Wednesday’s session. The “mystery” rebound took the S&P 500 up 3.5% in about two days of trading. Despite the important economic releases and heavy earnings calendar next week, expect the punditry to be asking:
Is the correction over?
A Frail New World
In this month's Absolute Return letter we argue why the long-term outlook for GDP growth and for returns on risk assets is uninspiring. We are often 'accused' of allowing the negative long-term demographic outlook to colour our view on risk assets in general, but in the February letter we argue why the demographic outlook is only one of (at least) four factors, which will hold back GDP growth as well as returns on risk assets in the years to come.
Now is the Time for Value to Outperform Growth
Now is a very attractive time to invest in value strategies. In similar times in the past, value investors achieved both strong absolute returns and robust relative performance versus the broad market indexes. Let’s explore what history can teach us about what is to come.
Thoughts on the Alternative Investing Landscape in 2016
As 2016 gets under way, investors need to guard against short-term volatility spikes and contagion risks from factors including geopolitical turmoil and pressure on oil prices. How is the environment impacting the risk/return characteristics of various hedge fund strategies?
A Market Correction Isn't Unusual…Look for Growth Later This Year
by Vern Sumnicht of iSectors,
As we saw at the close of last week’s market and really the entire first half of January, 2016 has had a difficult beginning. There are a number of market concerns that have resulted in a correction in the first half of January and they revolve around.
Does Market Volatility Bring Opportunities for High-Yield Bonds?
We believe the recent volatility and selloff in U.S. high yield offers an attractive relative investment opportunity as yield premiums have widened to provide appropriate compensation for today’s market risks.
The overall market still warrants a cautious approach for 2016, but we are constructive on much of the non-commodity-related high-yield opportunity set.
A disciplined credit selection process should serve investors well in taking advantage of high-yield opportunities.
Buckle Up
by Byron Wien of Blackstone,
My list of Ten Surprises for 2016 has a gloomy tone. I generally think of myself as an optimist, but some concepts that I have been brooding about for a while seem to be converging. I have been worrying about the impact of China’s slowdown on the rest of the world, the ramifications of the refugee crisis on the stability of Europe, the peaking of profit margins in the United States, the surfeit of goods around the world coupled with insufficient demand, the dependence of developed economies on central bank monetary easing for growth, the accumulation of public and private debt...
Why You Should Question “Buy And Hold” Advice
I recently received an email from an individual that contained the following bit of portfolio advice from a major financial institution:
“Despite the tumble to begin this year, investors should not panic. Over the long-term course of the markets, investors who have remained patient have been rewarded. Since 1900, the average return to investors has been almost 10% annually…our advice is to remain invested, avoid making drastic movements in your portfolio, and ignore the volatility.”
Annus Horribilis for MLPs
Despite the returns seen recently for MLPs generally, we are very optimistic about the outlook for MLPs in the long-run. Bottom line, we see the demand for midstream services to continue to expand. While we expect the volumes of oil will decline in the coming quarters, we expect the volumes of gas to be produced will still increase. And while oil is in oversupply for the current time, strong demand growth is being spurred by lower prices.
Peak Gold and Silver - It’s Here!
Have we reached peak precious metals? Many analysts think so.
Just to be clear, however, the idea of peak gold and peak silver doesn't refer to a peak prices. The precious metals put in a cyclical price high in 2011. But annual mining production levels may have peaked in 2014-2015. This is what is meant by “peak precious metals."
China’s Year of the Monkees
by John Mauldin of Mauldin Economics,
China isn’t the only reason markets got off to a terrible start this month, but it is definitely a big factor (at least psychologically). Between impractical circuit breakers, weaker economic data, stronger capital controls, and renewed currency confusion, China has investors everywhere scratching their heads.
Surviving Chinese Volatility
by Andy Rothman of Matthews Asia,
2016 is likely to be a year of volatility in China. This month’s Asia Insight explains how this volatility can create opportunities for investors, especially when dire headlines incorrectly assume that weak performance by outdated market indexes signal an economic hard landing.
Comparisons to 2008 Spark Gold’s Fear Trade
The comparisons to 2008 have triggered gold’s Fear Trade, with many investors scrambling into safe haven assets. Jeffrey Gundlach, the legendary “bond king,” recently made a call that amid further market turmoil, the metal could spike as much as 30 percent, to $1,400 an ounce.
What Does the Market Know?
In Thursday’s memo, “On the Couch,” I mentioned the two questions I’d been getting most often: “What are the implications for the U.S. and the rest of the world of China’s weakness, and are we moving toward a new crisis of the magnitude of what we saw in 2008?” Bloomberg invited me on the air Friday morning to discuss the memo, and the anchors mostly asked one version or another of a third question: “does the market’s decline worry you?” That prompted this memo in response.
A Year of Transition for Financial Assets
The rocky start to the year corroborates our belief that 2015 marked a transition in the investment environment. We expect low returns and high volatility to continue in 2016.
Two factors that help explain market outcomes in 2015 remain relevant in 2016: 1) financial assets aren’t cheap and 2) Fed tightening eliminates one of the greatest tailwinds for financial markets.
Even in this new and challenging environment, we strongly believe that positive returns are achievable with the appropriate investment strategy. Active strategies deserve higher prominence.
What, Me Worry?
by Scott Brown of Raymond James,
Recent economic data releases have been mixed. However, despite strong job figures, most have been on the soft side of expectations. Lower commodity prices are tough for producers of raw materials, but beneficial to the buyers of those materials. However, the bigger concern is why commodity prices are falling. Many view the drop in oil prices as signaling a more pronounced global slowdown and fear that the U.S. domestic economy may not be robust enough to escape that. The anecdotal data from the manufacturing sector is much worse than is suggested by the hard economic data reports.
Tactical Alpha: Theory & Practice (Pt. I) – Fundamental Law of Active Management
For the overwhelming majority of investors, portfolios are broadly organized into strategic silos of stocks and bonds, such as the ubiquitous 60/40 balanced portfolio. By design, the strategic proportions of stocks and bonds in the portfolio change very little over time. However, within each silo investors take active risk by choosing to hold individual stocks and bonds in weights that deviate substantially from passive market-cap weights.
Market Plunges Deeper, but No Recession in Sight
I’ve written over the past couple of days that it's not time to panic, and I still believe that's true. But it appears there may be more short-term damage than I initially thought. Now, the question is, how much worse might it get, and what does that mean for us as investors?
A Tale of Two Economies
U.S. economic growth appears to have shifted to a lower gear in the final months of 2015. It has left many concerned about the well-being of the economy and raised questions about the Federal Reserve’s recent hike of the policy rate. In this context, it is important to note that the recent slowing reflects a lopsided development not a widespread deceleration of economic activity.
China: A Rocky Start to a New (Old) Year
by Matthew Peterson of LPL Financial,
Once again, the precipitous decline in the value of the Chinese stock market has spilled over to the broader global financial markets. The value of the Shanghai Index declined almost 15% since the beginning of the year, or at least the beginning of our year. China’s social and economic life is geared around the lunar New Year, which will be celebrated on February 8, 2016. The New Year makes a big difference in China, both psychologically and in real economic activity.
Fed Rate Hike Playbook: Part 2
by Anthony Valeri of LPL Financial,
In Part 2 of our Federal Reserve (Fed) rate hike playbook, we assess how municipal bonds have fared during periods of Fed rate increases. In the first full week of trading for 2016, Fed rate hike expectations declined in response to another bout of Chinese economic concerns and a benign message from the Fed meeting minutes, which appeared to cast doubt on whether the Fed would ultimately follow through on its forecast of roughly four rate increases in 2016.
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.
Federal Reserve Outlook for 2016
by Tony Crescenzi of PIMCO,
Up until the Federal Reserve’s historic December meeting, when the central bank increased its policy rate for the first time since 2006, investors were fixated upon when the Fed might finally move its policy rate up from the range of 0%–0.25%. The Fed set the rate at the zero bound in 2008 to combat a plunge in economic growth and to fight disinflationary pressures tied to the debt deleveraging process.
A Happy New Year After All
As we return to work after the holidays, a sharp sell off in global equities and escalating geopolitical tensions in the Middle East beg the question whether this New Year will be a happy one for investors. I believe the recent market swings are no more than passing disruptions. For U.S. equities and credit, in particular, evidence is mounting that 2016 will prove happier than 2015 for investors. In fact, the global factors currently roiling the markets are easy to discount, and could lead to investment opportunities.
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.
Results 4,851–4,900
of 6,535 found.
