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Americas: Economic Review March 2011
by Team of Thomas White International,
The economic repercussions to the Americas region from Japan's earthquake are expected to be limited. Though Japan is a large trading partner the percentage share of Japan in their total external trade is low. However, some of the large manufacturers, especially in electronics and automobiles, may face slower output because of shortage in supplies from Japan. Similarly, the escalation of political unrest in the MENA region, have not yet caused a flare up in energy prices. Though retail prices of gasoline have risen, they are not considered high enough to cause damage to consumer spending.
Middle East/Africa: Economic Review March 2011
by Team of Thomas White International,
The turmoil in the Middle East region continues, with Libya exploding into civil war, and troops from the Gulf Cooperation Council being called in to suppress the protests in Bahrain. In terms of the economic repercussions, stock markets in the MENA are estimated to have lost around $140 billion in market capitalization during the last month. According to the Arab Monetary Fund, the market capitalization of 16 Arab bourses was valued at $862 billion on March 4, compared with $1.002 billion on January 25, a day before the political crisis in Egypt triggered upheaval across the Middle East.
The Reserve Currency and the S&P Warning
by Team of Knowledge Leaders Capital,
Back in May 2009, S&P placed its AAA rating for the UK on negative watch for a possible downgrade, in effect putting the UK government on notice that its proposed policy path was unsustainable. Then in October 2010, after the UK took aggressive deficit-slashing measures, S&P revised the UK outlook from negative to stable and maintained the country?s AAA rating (see p. 2). Yesterday, S&P similarly placed the US government on notice with the same warning and equal odds (one in three) of a downgrade, even if this downgrade is unlikely to be realized until after the 2012 election.
Emerging Europe: Economic Review March 2011
by Team of Thomas White International,
Upbeat forecasts from the European Commission as well as stable financial and economic conditions in European economies indicated that the recovery is on track in the region despite the tragic developments in Japan, increasing oil prices, and the continuing political unrest in the MENA region. Equity markets also seem to be signaling that the sustained pace of global economic recovery will offset these developments. The decision by seventeen Euro governments to strengthen the ?440 billion rescue fund and to lower interest rates on Greece?s bailout helped allay fears of a lingering debt crisis.
Global Overview
by Team of Thomas White International,
While the earthquake and the tsunami have caused extensive damage in Japan, the impact on global economic growth is not expected to be significant. Though exports to Japan may slow in the short term, this will likely be offset by increased demand as the country starts rebuilding. The supply disruptions faced by manufacturers who depend on Japanese components are also likely to be short-lived. Global equity prices saw increased volatility during March, but recovered towards the end of the month as fears of slower global economic growth due to the disaster in Japan subsided.
Developed Asia Pacific: Economic Review March 2011
by Team of Thomas White International,
During March, most developed Asian economies faced headwinds to export growth. Continued efforts to tighten credit in China, inflationary pressures and strengthening currencies were some of the factors affecting export growth across many developed Asian economies. However, a devastating earthquake that struck Japan in early March disrupted supply chains across Asia. Japan, which accounts for 9 percent of the worlds GDP, plays a crucial role in the functioning of the global auto and electronics industry. It is estimated that Japan will require another 2-4 quarters to recoup the losses suffered.
ProVise Bullets
by Team of ProVise Management Group,
Herb Meyer said during tough economic times family size tends to shrink because people tend not to get married, and if they do they try to avoid having children because they can?t afford them. It was only a few days after this talk that we read that the birth rate in the U.S. from 2007 through 2009 fell 4%, which was the single largest drop in any two year period since the mid 1970s. The stock market declined by 50% in the mid ?70s and interest rates climbed to over 20%. That?s right ? 20%! In short, a thriving economy creates a growing population which in turn creates a thriving economy.
Expectations Are High for Continued and Impressive Earnings Growth
by Team of American Century Investments,
This week marks a quarterly ritual on Wall Street where companies report their actual financial results for the most recent quarter, and analysts use these results to update their forecasts for companies, including their target share price and sell or buy recommendations. Most expect to see a continuation of the growth that began in 2009 as the economy was struggling to exit the Great Recession. This recovery of U.S. corporations has been the one bright spot for our economy, which continues to struggle with high unemployment, record government budget deficits and a weak housing market.
Pacific Basin Market Overview
by Team of Nomura Asset Management,
Asian equity markets began the year in a particularly volatile state as they came to terms with regional inflationary pressure, unrest in the Middle East and North Africa, and the natural disaster in Japan. Notwithstanding these negative factors, most markets in Asia rebounded in late March to end the quarter on a positive note. The MSCI AC Asia Pacific Free Index including Japan, however, decreased by 1.4% in the first quarter of 2011, while the MSCI AC Asia Pacific ex Japan Free Index increased by 1.5%.
Powering Up Asia
by Team of Matthews Asia,
Energy is a fundamental building block of all modern economies. As such, it should not be an overstatement to say that the availability, or lack of energy has been a primary driver of growth. This is why it has been imperative for all nations, to secure stable sources of energy. With Japan?s current nuclear crisis and high oil prices causing concern, the topic has drawn recent attention. And as Asia's population continues to climb, the region?s energy demands are also set to soar. China and India, are expected to develop ever greater appetites for energy sources, such as nuclear power.
Global Demographic Trends: 1950 - 2050
by Team of Bespoke Investment Group,
The OECD recently issued its annual Society at a Glance report which highlights and compares trends in income, age, and other vital statistics across countries. One interesting aspect of the report highlights trends in the age of the global population. In the charts below we compare the percentage of the entire OECD population above the age of 65, as well as in BRIC and G7 countries. As shown in the top chart, 14.61% of the population within all OECD countries is currently above the age of 65 years old. Between now and 2050, this percentage of the population will increase to 25.66%.
Fixed Income Investment Outlook
by Team of Osterweis Capital Management,
Investors sometimes walk a fine line between either over-reacting to temporal changes, which ultimately don?t have a lasting impact on either the economy or the markets, or underestimating the impact of real risks that can bring about lasting and meaningful changes. Currently, the main areas of concern are the Japanese triple disaster, the Middle Eastern/North African ?Arab Spring,? and inflation. While we do not believe the Japanese and Middle Eastern situations pose a real threat to financial markets long term, we do believe inflation may.
Private Mortgage Insurance Endgame
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst we feature a comment on the XBRL pilot program at the Securities and Exchange Commission by Daniel Roberts CEO of raas-XBRL. First let's focus briefly on some related technical developments at the IRA HQ in Torrance, CA. Both of these data points directly impact investors, regulators and other consumers of financial data. And we feature a reader comment on the endgame of the private mortgage insurers at Fannie Mae and Freddie Mac, namely stuff the taxpayer.
Weekly Market Update
by Team of American Century Investments,
?Dodd-Frank? is shorthand for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The main focus of the legislation is on increasing regulation/supervision of banks and other major players in derivatives, lending, and securitization businesses. Few of the law?s provisions are aimed directly at the registered fund industry, likely reflecting the industry?s distance from the 2008 financial crisis and general effectiveness of the framework already in place. Nevertheless, a number of provisions could affect mutual funds and their investment advisers in meaningful ways.
Valuation Changes During the Current Bull Market
by Team of Bespoke Investment Group,
There is always a lot of attention paid to the price changes that sectors have experienced during the current bull market, but there's not much focus on the changes in their valuations. Below we take a look at both using a scatter chart that shows the percentage change in both price and P/E ratio since March 9th, 2009. As the price of the sector rises, earnings need to rise just as much or else the P/E ratio will increase. It's common for P/E ratios to expand during bull markets, but a sector becomes more attractive if it can keep its valuation down as its price increases.
The 10-Year Earnings Picture
by Team of Bespoke Investment Group,
Here at Bespoke, we have a huge database that has every US earnings report going back to 2001. For each earnings report, we have how earnings and revenues came in versus expectations, any guidance that was issued, and in-depth price action analysis. From our database, we're able to combine all of the earnings information for individual stocks to come up with macro earnings trends as well. Since 2001, there have been more than 64,000 quarterly earnings reports. Of those 63% of companies have beaten consensus analyst earnings per share estimates, while 25% have missed earnings estimates.
Inflation Worries? Commodities May Help
by Team of Emerald Asset Advisors,
Many of you may remember the movieThis classic shed some interesting light on the world of commodities.Commodities include natural resources, industrial metals, precious metals, and agricultural products. Or, as Duke explained to Billy Ray Valentine, "Commodities are agricultural products...like the coffee you had for breakfast...wheat, which is used to make bread...pork bellies, which are used to make bacon, which you might find in a BLT sandwich. And then there are other commodities, like frozen orange juice...and gold. Though, of course, gold doesn't grow on trees like oranges."
Mergers, Acquisitions and Opportunities
by Team of Eagle Asset Management,
After several years in which worldwide M&A activity dropped steeply, corporate dealmaking could make a comeback in 2011. Corporate cash balances are near record highs, and management teams are turning to M&As to create shareholder value, a trend that is likely to continue over the next 12 to 18 months. Last year saw worldwide small-cap M&A deals jump 14.7% over the previous year, especially among technology, healthcare and industrial names. The Small Cap team at Eagle Boston, witnessed the same trend in their portfolios, as several holdings were acquired by larger competitors during 2010.
The Revolving Door at the Fed of New York; Dick Alford on False Dichotomies in Monetary Policy
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst, we feature a comment by Richard Alford on the false dicotomy between discretionary and rules-based regimes when it comes to monetary policy. But first we want to do a little review of the latest disgorgement of documents by the Fed. Listening to the debate between the "borrow and spend" camp led by Paul Krugman et al and the cut the deficit camp led by the Tea Partiers in Congress and around the nation, we are reminded again of the film "The Matrix" and its predecessors.
ProVise Bullets
by Team of ProVise Management Group,
Here we are at the end of the first quarter of 2011 and we watched the markets move basically upward for the first six weeks of the year, advancing as much as 8% in some cases.Then, uncertainty escalated around the world beginning in mid February.First, there was the fall of the Tunisian and Egyptian governments, along with unrest in other Arab countries. Then in mid March, Japan suffered its earthquake. Meanwhile, the U.S. government kept itself running by passing a series of continuing resolutions, while the politicians still could not come to grips with an approved budget and deficit.
Weekly Market Update
by Team of American Century Investments,
Last week brought more bad news regarding the residential housing market. There were declines in sales volume of both new and previously occupied homes for the month of February. Additionally, one major and closely followed home price index exhibited a 3.1% decline in January, marking the fourth consecutive month of price declines for this index. In most regional markets, the situation remains deflationary as prices continue to slip and (as is characteristic of deflationary markets) demand declines as buyers await further price declines before jumping in.
Small-/Mid-Cap Growth ? Why Today?s Market Cycle is Different
by Team of Columbia Management,
We believe the outlook for small- and mid-cap growth stocks remains bright as we move into the later stages of the economic recovery. While the asset class is typically expected to underperform at this point of an economic rebound, there are three important distinctions that make this cycle different: 1) scarcity of growth, 2) continued M&A activity and 3) commodities inflation.
Unemployment Rates By State
by Team of Bespoke Investment Group,
While traders are already eagerly awaiting this Friday's employment report, we thought we would tide you over with a look at recently released levels of unemployment by state from the Department of Labor. The states with the lowest unemployment rates are North Dakota (3.7%), Nebraska (4.3%), and South Dakota (4.8%). While some will attribute the low unemployment rates in these states to the boom in agriculture, the reality is that these states have routinely had among the lowest unemployment rates in the country throughout history.
Bill Miller vs The S&P 500
by Team of Bespoke Investment Group,
Even though "the streak" of beating the S&P 500 for fifteen consecutive years ended in 2005, Bill Miller still commands the respect and attention of investors all over the world. Although Miller had some rough years during the financial crisis, ever since the S&P 500 bottomed in March 2009, his Legg Mason Value Trust Fund (LMVTX) has outperformed the S&P 500. Since March 9th, 2009 Miller's fund is up 115% through yesterday, while the S&P 500 is up 91.2%.
Mixed Fed Messages Reflect Murky Outlook
by Team of American Century Investments,
Mixed. Unsettled. Not altogether reassuring. Sounding a lot like the current state of the U.S. economy, that was the tone of the policy statement issued March 15 by the open-market operations committee of the U.S. Federal Reserve. It certainly didn?t provide comfort to those fearing that the Fed is in the process of fueling future inflation flames, nor did it offer any encouragement to savers hoping for higher short-term interest rates in the near future. What the statement did accomplish was help support the economic, inflation, and Fed policy outlooks of the fixed income team at ACI.
A Crime Called Private Mortgage Insurance; Alex Pollock on the Political Finance of Covered Bonds
by Team of Institutional Risk Analyst,
This week in The IRA Advisory Service, we review the Fed's latest stress test exercise and discuss what it means for the banking industry and the US economy. While the US central bank did not provide results for specific institutions, the assumptions in the Comprehensive Capital Analysis and Review (CCAR) are more instructive than the Big Media seems to notice. Indeed, a close reading of the CCAR document provides a compelling argument for why the Fed should not be supervising financial institutions.
Asset Correlations to S&P 500
by Team of Bespoke Investment Group,
While oil and stocks are positively correlated, stocks and bonds have an inverse correlation. In fact, the two asset classes haven't been this inversely correlated in at least ten years. Finally, with respect to the dollar, there is little correlation with the S&P500. The current lack of correlation between the dollar and equity prices stands in stark contrast to the credit crisis and the bull market, when the two had an extreme negative correlation. Today, equities are being driven by more than just the dollar, indicating an environment driven by fundamentals and not just asset flows.
ProVise Bullets
by Team of ProVise Management Group,
Republican lawmakers may have gotten a PR boost for their attempt to cut $60 billion out of the budget. The Treasury Department announced last week that the largest monthly deficit in history was created in February, at $222.5 billion, surpassing the previous record set last February at $220.9 billion. As bad as it seems, the news wasn't all bad, as revenues were up 8.6% and spending was only up 4%. That's a move in the right direction. The biggest concern we have, and the one lawmakers have the least control over is rising interest rates.
Japan Update
by Team of Matthews Asia,
As reports of Japan?s nuclear crisis grew bleaker this week, Japan and the world continued to grapple with one of the country?s worst natural disasters. While fears are high, thus far, elevated radiation readings have not been recorded outside the government-imposed exclusion zone around the nuclear plant in Fukushima.
What the Heck is Going On???
by Team of Emerald Asset Advisors,
In recent weeks, the capital markets have weathered a bout of volatility not seen for quite some time. What are the main causes and how does this volatility affect our strategies and your portfolios? While there are many flashpoints around the world, we will highlight the "Big 3" (Japan, the Middle East, and federal budget issues) that have made the most headlines, and those which we believe have had the greatest and most recent impact on volatility.
Uranimum/Nuclear ETF Holdings
by Team of Bespoke Investment Group,
Market Vectors has an ETF (NLR)that tracks the main uranium/nuclear stocks around the world.The ETF is down 16%. Theholdings in NLRcome from France, Canada, Japan, Australia, and the US. Below we highlight these holdings, and we includeeach stock's country of origin, weighting in the ETF, and performance overthe last week. The uranimumexploration and mining companies have been the ones gettinghit the hardest. Uranium Resources here inthe US is down the most of all the ETF's holdings at -42%. Canada's Hathor Exploration is down the second most, followed closely by Uranium One.
Could Gasoline Price Increases Affect the Economic Recovery?
by Team of American Century Investments,
The recent political uprisings in N. Africa have had a major impact on oil and gas pricing here in the U.S. Increases in energy prices have a negative impact on consumer disposable income and confidence, not just in the U.S but globally. When gasoline prices spiked in July 2008, consumer spending posted its biggest one month decline since September 2001. Higher energy prices also contribute to increases in the overall rate of inflation. These are risk factors in terms of sustaining our current economic recovery, bringing down unemployment, and continuing to drive growth in corporate earnings.
Japan Default Risk
by Team of Bespoke Investment Group,
This piece examines 5-year credit default swap prices for Japanese sovereign debt. As shown, there has been a small increase in default risk in the days since the earthquake and tsunami hit, but default risk is still below levels it was at in May 2010 and February 2009. At the moment, it costs $95 per year to insure $10,000 worth of Japanese sovereign debt for five years. Japan remains at the low end of default risk compared to other countries around the globe. With the resilient country fighting to get back on track, investors don't appear to be worried about Japans financial problems.
Asia Pacific: Economic Review February 2011
by Team of Thomas White International,
Asian economies recorded some of their best performance for the full year 2010. In particular, Southeast Asian nations witnessed a banner year, clocking their best performance in recent memory. However, although the full year record was exemplary, growth in the final months of 2010 began to cool off. While a rising currency continued to trouble export-based economies, inflation haunted almost all central banks in the region. Central banks, having to choose between raising interest rates and attracting foreign capital, opted to hike rates.
Americas: Economic Review February 2011
by Team of Thomas White International,
Rising energy prices, due to the political upheavals in the Middle East, are becoming the primary economic risk for the Americas region. While the subdued inflationary trends will provide banks leeway to hold interest rates, they may be forced to advance their rate hikes if prices rise at a faster rate. In contrast, several of the emerging economies are expected to slow down this year. These economies may see interest rates rising faster, which may slow their pace of expansion even more. Also, higher interest rates will likely keep their currencies stronger and may restrict export growth.
Middle East turmoil not yet a significant threat to the global economy
by Team of Thomas White International,
The political unrest spreading across the Middle East and the resultant disruptions to the regional economy are not considered very significant for the global economic prospects for this year. Though oil prices have reacted on fears of lower supplies from the region, there have been no actual disruptions so far and any perceptible deceleration in global economic growth is expected only if prices shoot up further. It is widely believed that, unless the agitations spread to the region?s major oil producers like Saudi Arabia, the prospect of a sustained upsurge in energy prices is limited.
Europe: Economic Review February 2011
by Team of Thomas White International,
Various data released in Feb. confirmed once again that the economic recovery in Europe is gaining momentum. Nevertheless, investor sentiment on the continent, and indeed everywhere in the world, remained largely subdued during the month due to the growing political uncertainty in the Middle East and N.Africa region. Since rising food, raw material, and crude oil prices have already pushed up inflation to worrying levels in most parts of Europe, the recent surge in oil prices amid the protests in Libya and some MiddleEastern countries eclipsed encouraging signals about the Euro-zone economy.
Middle East/Africa: Economic Review February 2011
by Team of Thomas White International,
With countries led by autocratic rulers marred by stagnation in the economy, high unemployment rates and poor human rights records, protests in the region sparked off in classic ?domino effect? style. With rumblings being heard from countries like Iran, Syria, Jordan, Yemen and Morocco. The economic repercussions of the protests and the unseating of these regimes are yet to be calculated. The first obvious impact would be on oil prices. With the entire world economy hinging on the oil rich Middle East, the seismic shift in the political landscape of the region will be monitored closely.
Turmoil in the Middle East: Should It Have Been Predicted?
by Team of American Century Investments,
The turmoil began, when a young Tunisian college graduate immolated himself on December 17 after being harassed by police as he attempted to sell fruit on the street. Some claim the vendor, Mohamed Bouazizi, did not have the money needed to bribe police officials to continue peddling and earn a living. He died on January 4, sparking deadly demonstrations and riots throughout Tunisia (now called the Jasmine Revolution) in protest of social and political issues in the country. And just 10 days later, on January 14, President Zine El Abidine Ben Ali was forced to step down after 23 years.
2011 Year-End Price Targets
by Team of Bespoke Investment Group,
Each week, Bloomberg surveys the head equity strategists at the major Wall Street firms for their year-end S&P 500 price targets. At the start of 2011, the average S&P 500 year-end price target for these strategists was 1,371. This would have resulted in a gain of 9.02%. Since the start of the year, five strategists have increased their year-end targets, Goldman Sachs , Barclays, Bank of Montreal, HSBC and UBS. These increases put the average year-end price target at 1,401, which would result in a gain of 11.40%. With a YTD gain of more than 5% already, the S&P 500 is nearly halfway there
Finding Low Risk Value in Today's Market
by Team of Knowledge Leaders Capital,
The investment environment is transitioning from a macro-driven, reflation environment into one where earnings drive performance. US companies are well positioned at this juncture and contrary to consumers and the government have come out of this crisis in good shape. Some commentators question the outlook for corporate profitability, arguing that profits are meanreverting and that they can only weaken. We disagree, however, we acknowledge that price pressures are now showing up in import prices, and companies will need to offset these costs with increased prices or improve their productivity
Are Emerging Markets Still
by Team of Emerald Asset Advisors,
Political unrest in Egypt, Libya, and elsewhere in the Middle East, along with surging food prices around the world, has provided fresh reminders of the inherent risks of investing in emerging markets. Indeed, while the U.S. stock market has been inching steadily upward in recent months, emerging markets have been struggling. Year-to-date through February 28, the MSCI Emerging Markets Index is down -3.79%, while the S&P 500 Total Return Index has gained 5.88%.
January?s Employment Situation Report Generates More Questions than Answers
by Team of American Century Investments,
The conflicting trends in the January Employment Situation report has forced all labor market observers to wait for February?s report in hopes of discerning some clearer trends. Generally speaking, the underlying trends are positive, as we?ve shown using the JOLTS data. On the other hand, things are not nearly as strong as the .8 percentage point drop in the official unemployment rate over the past two months would suggest. And that rate will likely rise again in the short term before it begins a long-term trend back to levels consistent with full employment and a healthy economy.
2011 Outlook: Private Equity
As a result of the financial crisis, for the latter part of 2008 and all of 2009, very few new private equity transactions were completed and portfolio company monetization was minimal. However, the operating performance of existing private-equity portfolio companies was better than generally expected and investment returns were superior to public equity benchmarks. Although some of this outperformance can be attributed to the resistance of some private equity firms, we believe the majority of the outperformance was the result of effective cost cutting, cash conservation and debt reduction.
Responding to the Stubbornly Steep U.S. Treasury Yield Curve
by Team of American Century Investments,
Disciplined, active investment managers are constantly on the lookout for capital market extremes, which can provide value-adding opportunities for investors. One such market extreme has been developing in the U.S. Treasury market for the past three years, reaching historic levels in 2010 and earlier this year. We?re talking about the very wide, stubbornly persistent gap between short- and longer-maturity U.S. Treasury yields.
US and State Default Risk
by Team of Bespoke Investment Group,
The US stock market has been on a tear lately, but default risk for the country has remained stubbornly high. Granted, default risk for the US is very low compared to most countries, but it is currently near 1-year highs. Below is a chart highlighting US default risk using 5-year CDS (credit default swaps) price in Euros. While risk is nowhere near as high as it got during the financial crisis in late 2008 and early 2009, it is more than 100% higher than where it was in late 2009.
The Housing Market Remains a Weak Link in the Current Recovery
by Team of American Century Investments,
Recent data on single family home selling prices for the 20 largest metropolitan areas in the U.S. indicate that prices in most markets continue to decline. The monthly decline for the Case-Shiller Home Price Index was -0.5% in November, which marks the 5th consecutive monthly decline. So while other measures of our economy such as GDP growth (3.2% annualized increase for the fourth quarter of last year) or corporate profit growth continue to show solid progress, home prices?which are important in affecting consumer confidence and spending?continue to exhibit vestiges of deflation.
Odds for the 2012 Elections, Health Care Repeal, and an NFL Lockout
by Team of Bespoke Investment Group,
The current Intrade odds for the Democratic Party to maintain the Presidency in 2012 stand at 62.5%. The contract for Republicans to control the Senate after 2012 last traded at 69 (or 69% odds). The odds are 50/50 for which party will control the House after the next set of elections. Odds are at 12% for the Supreme Court to rule the individual mandate unconstitutional by October 31st, 2011.
Deconstructing the Current Inflation Conundrum
by Team of American Century Investments,
As the old saying goes: ?The best time to buy flood insurance is when the river is still running low.? We suggest not waiting until inflation pressures increase further before making sure you have some inflation insurance in your portfolio.
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