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Too Active, Too Passive: Too Little Understanding
The wealth management and institutional consulting communities have allowed indexing to be called "passive" investing and stock-picking disciplines to be called active management. This implies a mindless approach to indexing and a great deal of busyness to stock picking. We at Smead Capital Management believe these labels are at the heart of a great deal of confusion about what works and what doesn't work in both equity mutual funds and separately managed accounts.
What Happens When the Fed Loses Money
by Zach Pandl of Columbia Management,
The Federal Reserve's exit from ultra-easy monetary policy still looks very far offby most accounts, rate hikes will not begin for more than two years and asset sales for even longer. However, the exit strategy could matter for markets well before that point. Fed officials have said that they will consider the costs and risks associated with quantitative easing (QE) when deciding how long to continue their purchases, and one factor they will be looking at will be whether the program could "complicate the Committee's efforts to eventually withdraw monetary policy accommodation."
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.
Comparing Advisors to Jim Cramer: Measuring your Professional Alpha
by Bob Veres,
Jim Cramer, Suze Orman and other so-called investment pundits and gurus are constantly telling consumers that they can do a great job of managing their portfolios on their own. Let's look at what the research has to say about the various investment performance benefits that advisors should be able to give their clients during the accumulation phase of their lives ? excess returns above what do-it-yourself investors could obtain on their own. I call those excess returns 'professional alpha.'
Currency War or Something Altogether Different?
"Who is afraid of currency wars?" asks Gavyn Davies in the FT. I have known Gavyn for 25 years and have to confess that he is way out of my league intellectually. He is one of the smartest people I have ever met and, thankfully, also one of the humblest. He rarely gets things wrong so, when I occasionally disagree with him, it always makes me slightly uneasy.
Dividend Growth Continues to Impress
The S&P 500 posted a very solid price appreciation of 5.14% (total return of 5.18%) for the month of January which marks its best January since logging a total return of 6.25% in January 1997 (16 years). However, it does pale in comparison to the best January of the last 50 years which saw the S&P 500 return 13.47% in January 1987. Perhaps equally noteworthy, but clearly not garnering as many headlines, is the continued impressive growth of dividends.
Ditto
Anyone who reads my memos of the last 23 years will see I return often to a few topics. This is due to the frequency with which themes tend to recur in the investment world. Humans often fail to learn. They forget the lessons of history, repeat patterns of behavior and make the same mistakes. As a result, certain themes arise over and over. Mark Twain had it right: "History doesn't repeat itself, but it does rhyme." The details of the events may vary greatly from occurrence to occurrence, but the themes giving rise to the events tend not to change.
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 Look at California, Thoughts on Employment and Why I Worry
by Gregg Bienstock of Lumesis,
This week we consider recent information and data regarding California, GDP and the employment picture. We also touch on why I worry about the next six months (at least). We conclude with a wrap up of the data imported into DIVER last week and coming road trips. Also, be on the lookout for a Lumesis press release and "Topic of Interest" paper later this week.
Feasting in a Time of Famine: The South African Consumer
South Africa's consumer sector has been on a strong run for the past several years, but there are signs the consumer is now coming under pressure. For all the challenges that have faced the South African economy, most listed consumer companies have enjoyed a great run since 2008. However, a combination of factors strong growth in retail sales and credit along with the rise in consumer debt levels and weak employment growth suggest the South African consumer sector may have pulled consumption forward in a way that could prove ultimately unsustainable.
ECRI "Recession" Update: Leading Index Growth Hits Another Interim High
ECRI posts its proprietary indicators on one-week delayed basis to the general public, but ECRI's Lakshman Achuthan has switched focus to his company's version of the Big Four Economic Indicators I've been tracking for the past several months. See, for example, this November 29thBloomberg video that ECRI continues to feature on their website. Achuthan pinpoints July as the business cycle peak, thus putting us in at the beginning of the eighth month of a recession.
The Complicated Case of Mali
On January 11, 2013, French President Francois Hollande announced the French military was intervening in Mali at the request of the government. The Mali military was reeling in the face of jihadist rebels from the north who were making rapid inroads toward the south. Although the U.N. Security Council had authorized an African-led military intervention in Mali to contain the rebels, it had been ineffective. Thus, France "piggybacked" off that resolution to justify its intervention.
Expanding Horizons: The Most Difficult Environment for Generating Income in 140 Years
In the most difficult environment for generating income in 140 years, we survey the landscape of income-generating options, review lessons from the previous bond Bear Market, and demonstrate why we believe global, dividend-paying equities deserve a prominent role in investor portfolios.
Rethinking IPOs
In the wake of the Facebook IPO last spring, and the ensuing public relations debacle, many investors have become more wary of newly minted stocks. Even before this event, the public perception regarding IPOs was heavily influenced by the IPOs of the late 1990s that helped fuel the dot-com bubble. For many, the primary motivation for investing in IPOs has been the potential to receive a short-term surge in price, irrespective of a stock's longer term potential for success or failure.
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.
Economics and the Maximization of Profit (and Lies).
by Dan Ariely of Dan Ariely Blog,
When a friend sent me this paper the other day, I admit that I took a long hard look at myself and my economist friends. According to this study, economists, it seems, are worse than most when it comes to truth telling. This discovery was made by researchers Ral Lpez-Prez and Eli Spiegelman, who wanted to examine whether certain characteristics (for instance religiosity or gender) made people averse to lying. They measured the preference for honesty by canceling out other motivations, such as altruism or fear of getting caught.
Pension Liabilities Time to Get Real
by Christian Stracke of PIMCO,
Creeping pension liabilities are an increasing concern for credit investors. Companies should provide more granular information on both sides of their pension balance sheets, as well as use more realistic assumptions. A few companies have improved their disclosures in recent years, but in general the information available to investors is still far from what we need.
ECRI "Recession" Update: Leading Index Growth Hits a New Interim High
For a few months, ECRI's indicators cooperated with their forecast, but that has not been the case in the second half of 2012 -- hence, I surmise, their switch to the traditional Big Four recession indicators. ECRI's December 7th article,The Tell-Tale Chart, makes clear their public focus on the Big Four.
German Gold Claw Back Causes Concern
by John Browne of Euro Pacific Capital,
Last week the Bundesbank (the German central bank) surprised markets around the world by announcing that it will repatriate a sizable portion of its gold bullion reserves held in France and the United States. To many, the news from the world's second largest holder of gold signaled a growing, if clandestine, mistrust among central banks, possibly fueled by diverging policy goals. The Germans have attempted to tamp down the alarm by highlighting the myriad of logistical, practical and historical reasons that qualified the announcement as unremarkable.
And That's The Week That Was
by Ron Brounes of Brounes & Associates,
Tragedy in Algeria brought another reminder about just how dangerous the world can be. Oil prices rose on the enhanced turmoil in the region as well as on news that supplies unexpectedly dropped in the recent gov report. Financials led earnings season in a mostly positive way, though several releases included reminders about the financial crisis and the greed factor of certain professionals. The favorable economic data was well received as S&P 500 index again hit a five-year high though even the optimists remain cautious as the budget negotiations yield little positive results.
Year-End Investment Commentary
by Team of Litman Gregory,
Stocks shrugged off numerous worries to log a very good year in 2012, but can markets continue to climb? Certainly the worries remain. The most immediate has to do with the spending side of the fiscal cliff. The cliff deal made permanent the Bush tax cuts for all but high-income taxpayers but it did not address spending. So while the worst case of the cliff was avoided, the work is not nearly done. In this commentary we discuss our current assessment of the investment environment including a detailed look at what could go right, and tie it all back to our portfolio positioning.
Fossil Inc Fundamental Stock Research Analysis
by Team of F.A.S.T. Graphs,
Fossil Inc. (FOSL) is a global design, marketing and distribution company that specializes in consumer fashion accessories. The Company's principal offerings include an extensive line of men's and women's fashion watches and jewelry sold under proprietary and licensed brands, handbags, small leather goods, belts, sunglasses, soft accessories, shoes and clothing.
Shoulder Pads and Supply Chains
by Mariko Gordon,
As an investor, it's essential that you keep your eyes on the ever-swinging pendulum of "best practices," whether these relate to business models, client service, or something else entirely. Here's an example of a company whose "80s style" approach to vendor relations keeps it ahead of the profitability pack in the 21st century.
ECRI's Public Indicators Continue to Undermine Their Insistance That We're in a Recession
For a few months, ECRI's indicators cooperated with their forecast, but that has not been the case in the second half of 2012 -- hence, I surmise, their switch to the traditional Big Four recession indicators. ECRI's December 7th article, The Tell-Tale Chart, makes clear their public focus on the Big Four.
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.
Rehab: An Update on Housing Recovery
by Liz Ann Sonders of Charles Schwab,
The National Association of Home Builders' Housing Market Index has staged a record-breaking run higher. Home prices have been rising and are feeding into real mortgage rates, consumer confidence, household net worth...and pushing fence-sitters off the fence. Housing's contribution to job growth could push the unemployment rate down more quickly than many believe.
Haka Politics and the Slow Crawl
In the last few months we have seen the rise of Haka politics. Familiar to any All Blacks fan, this is the ritualistic Maori war dance, full of noise, bluster and theater. But it rarely intimidates and most opponents sit it out with some amusement. So it is with the political interventions last year. We saw countless announcements and intentions from EU leaders and solemn pledges with little follow-through. And in the US we had a soporific election and a squalid squabble over the fiscal cliff that caught the public but not the market's attention.
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.
Are Investors Buying into the Equity Story?
by Chris Maxey, Ryan Davis of Fortigent,
Last week we discussed the debate over active versus passive management. We believe active managers can add tremendous value in particular segments of the market, despite recent challenges. Outside of the active management discussion, many investors are deciding whether equities are a prudent place to allocate capital at this point in the market cycle. The first week of the year answered investors' opinions on that question loud and clear.
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.
Inflation, Still Not Taking Off Anytime Soon
by Scott Brown of Raymond James,
A few years ago, amid exceptionally large federal budget deficit and extraordinarily accommodative Fed policy, a number of pundits warned of impending hyperinflation. Instead, inflation has stayed low. That hasn't stopped the inflation worrywarts. It's just a matter of time, they say. Inflation "has to show up at some point." That's not an argument. There are a number of reasons to expect inflation to stay low.
Equity Market Review & Outlook
While the S&P 500 Index posted a slightly negative fourth-quarter return, the Index's 16.0% return for all of 2012 was notable in the face of a long list of global fundamental concerns. Midcap and small cap stocks performed better during the ?nal three months of the year, posting gains of roughly 2.0%-3.0%. The fourth quarter outperformance of smaller stocks was enough to overtake the S&P 500 for the year, but just fractionally.
ECRI's Imaginary Recession: Now in Its Seventh Month
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose in the latest public data. It is now at 128.3 versus the previous week's 126.6 (which is an upward revision from 126.4). Likewise the WLI annualized growth indicator (WLIg) rose, now at 5.1, up from last week's 5.0. WLIg has been in expansion territory since August 24th, although it is off its 6.0 interim high on October 12th.
Finally, a Solution to the Income Investing Dilemma
There's an endangered species in the investment industry today and it goes by the name of "yield." With continued downward pressure from the Federal Reserve, both short-term and long-term interest rates have been held to artificially low levels. And each new announcement from the Fed seems to extend the outlook for low interest rates farther into the future.
Waiting for Godot
Like the enigmatic title character in Waiting for Godot, clear signals of U.S. economic health remain much anticipated but elusive. The year 2012 saw consumers and businesses mimicking the Samuel Beckett play?? - with optimists waiting for things to get better and pessimists waiting for things to get worse.
Energy and the End of Growth
by Michael Edesess,
Is economic growth coming to an end? That's been a hot topic of discussion, thanks to a paper by Robert J. Gordon. It had a simple but striking thesis: 'There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely.' But before 1750 there were no fossil fuels either. Only once humans tapped the large deposits of coal and oil did economic growth truly awaken. The history of economic growth is, so far, the history of fossil fuels. This causes us to wonder whether economic growth will end when it is no longer powered by fossil fuels.
From Cliff to Ceiling: No Clear Signal for Investors
We expect the last minute deal in the lame duck session to result in about 1.3% of GDP contraction, slightly less than our earlier prediction of about 1.5%. The compromise eliminated (or at least delayed) the possibility of the most damaging equity market outcomes. The deal failed to set up a framework for structural deficit reform in 2013. Almost immediately, Congress must address the debt ceiling, the sequester and the continuing resolution to keep the government funded.
Surging EM Corporate Bond Issuance: Cause for Concern?
by Shamaila Khan of AllianceBernstein,
New bond issuance by emerging-market companies boomed in 2012, leading to fears of a bubble. But we think this market growth is positive for investors, rather than a harbinger of soaring debt levels or deteriorating credit quality.
Another Look at Small-Cap Myths
by Francis Gannon of The Royce Funds,
A few years ago we wrote about several small-cap myths. As we begin the New Year, we thought it might be helpful to revisit some of the more prominent misconceptions about our chosen asset class and to examine how they have factored into recent performance.
2013 Forecast: Good Economy, Challenged Markets
We enter 2013 bombarded by conflicting signals. While fundamentals have been mixed of late, longer-term themes our "tectonic shifts" like the energy revolution are gaining momentum and promising to make positive contributions sooner rather than later. And while salutary measures taken by policymakers have eased global risks and lessened fears of Armageddon, there is considerable work yet to be done.
And That's the Quarter that Was
by Ron Brounes of Brounes & Associates,
Politics ruled the day over the past three months (and beyond) and unfortunately the trend may very well continue as the averted "fiscal cliff" was merely postponed for another two months. For now, investors are happy, but what will tomorrow bring? (That's a question for you, Prez Obama and Speaker Boehner.) Happy New Year
Is Fracking a ?Happy Solution? to our Energy Needs?
A few weeks ago, John Mauldin called fracking a 'happy solution' that will produce jobs, potentially solve our trade deficit and generate new tax revenue, though energy prices may rise in the process. But how excited should we be about the 'shale revolution'?
Somewhere Over the Rainbow
We are 13 years into a secular bear market in the United States. The Nasdaq is still down 40% from its high, and the Dow and S&P 500 are essentially flat. European and Japanese equities have generally fared worse. The average secular bear market in the US has been about 11 years, with the shortest to date being four years and the longest 20. Are we at the beginning of a new bull market or another seven years of famine? What sorts of returns should we expect over the coming years from US equities?
Getting the Most from Your Investment Committee
by Bob Veres,
Investment committees are a little bit like fingerprints: they come in all shapes and sizes, and no two are exactly alike in form or function. So advisory firms that have investment committees ? or are considering creating one ? can learn a lot from one another. My research has identified some best practices for this flexible management tool, by comparing notes among advisors on how they are managing their IC teams.
ECRI Update: Flunking Recession 101
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) rose in the latest public data. It is now at 128.3 versus the previous week's 127.2. Likewise the WLI annualized growth indicator (WLIg) rose, now at 5.4, up from last week's 4.6. WLIg has been in expansion territory since August 24th, although it is off its 6.0 interim high on October 12th.
Results 5,501–5,550
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