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The Hidden Peril in Sequence of Returns Risk
by Wade Pfau,
Should retirees place greater faith in stocks' ability to outperform bonds over reasonable holding periods or in insurance companies and bond issuers' ability to meet their contractual guarantees? Your position on this fundamental question will determine how you choose to build retirement income strategies for your clients.
On My Radar: Rut Ro Rastro
At the beginning of each month, I like to look at a series of valuation metrics: Median PE, Price to Sales and Price to Operating Earnings. Let’s look at them today. The logic, of course, is simple. When expensively priced, reduce exposure and reduce return expectations. When inexpensively priced, overweight exposure and increase return expectations. Let’s also take a look at what has been driving the market higher. Some argue that individual investors are still on the sidelines. I don’t think so and I show evidence that they are almost as fully invested as they were at the 2000 and
Recession Probability Models - March 2015
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.
Tracking the Market with Social Media
by Blair Jensen of Trade Followers,
Last week we highlighted several signs coming from Twitter that a short term top was in the making. One of them was Twitter momentum for the S&P 500 Index (SPX) turning down from over bought levels and at the same time creating a negative divergence. This week momentum is warning that the selling we saw last week will most likely continue. After painting a negative divergence, 7 day momentum has broken its newly formed uptrend line. This suggests that investors and traders are not committed and were quick to exit positions established during the February rally.
ISM Data for January and February Point to Modest U.S. Real GDP Growth in 2015 Q1
At the start of each month, the U.S. Institute for Supply Management (ISM) released data on the state of the manufacturing and non-manufacturing industries of the U.S. economy. The data are closely followed by economists, stock market brokers, and the media as they provide the earliest reading on the current state of the economy.
An Overview of Alternative Investments
If you have been thinking about adding alternative investments to your clients’ portfolios, it’s important to step back and analyze the various types of investments available to you—which, despite being lumped together in the same category, have become increasingly varied.
The Dollar isn’t the Peso anymore (Part II)
The US dollar rally is in its seventh year and we expect this trend to continue. Many observers, including the Fed, continue to worry about inflation. However, we think a strong USD and disinflation/deflation seem more likely than inflation so long as global overcapacity forces nations to fight for market share and depreciate their currencies.
Why Is the Fed’s James Bullard Optimistic about the U.S. Economy?
by Jeremy Schwartz of WisdomTree, Inc.,
On February 20, Professor Jeremy Siegel and I had the pleasure of speaking to St Louis Federal Reserve Bank (Fed) president James Bullard, who is a member of the Fed monetary policy committee. 2015 is shaping up to be an interesting year for monetary policy, with the Fed expected to hike interest rates.
What Does That Difference Mean?
by John Hussman of Hussman Funds,
The difference between actual market returns over a given time period, and the returns that one would have projected earlier based on reliable valuation measures, is extremely informative about where current valuations stand, and about where future market returns are headed.
The Stock-Bond Disconnect
by Kenneth Rogoff of Project Syndicate,
How should one understand the disconnect between the new highs reached by global equity indices and the new depths plumbed by real interest rates worldwide? Several competing explanations attempt to reconcile these trends, and getting it right is essential for calibrating monetary and fiscal policy appropriately.
Weighing the Week Ahead: Is Good News Now Bad for Investors?
Anyone who wants to speculate on what the Fed is thinking must include some actual evidence from past transcripts. If, for example, you want to suggest that the Fed “wants a market correction” (you can’t make this stuff up) then you have to find at least one historical example where some participant raised that idea. Otherwise, shut up!
The Fat Pitch Weekly Market Summary
by Urban Carmel of The Fat Pitch,
Our overall view continues to be that 2015 will not be like 2013 or 2014. This is a year where fundamentals improve while equity prices mark time, allowing sentiment and valuation to fall back inline. This is a common pattern: large parts of 1994, 1996, 1998, 1999, 2004 and 2005 were similar. That November and December were the first back to back down months in 3 years bears out the change in character.
The Strong USD Is Negatively Impacting US Trade
by Team of Knowledge Leaders Capital,
Exports have been a solid contributor to US GDP growth for the last few years, while consumption and residential investment have been more restrained. Recently, with consumption firming and likely to improve further from the tail-wind of lower oil prices, and exports faltering, it appears the drivers of the US economy are trading places. It appears that we should expect trade to subtract from growth in the coming quarters.
ECRI Recession Watch: Weekly Update
Today's new release of the publicly available data from the Economic Cycle Research Institute (ECRI) puts its Weekly Leading Index (WLI) at 130.6, unchanged from the previous week. The WLI annualized growth indicator (WLIg) is at -4.6, down from the previous week's -4.5 but off the interim low of -5.0 in mid-January.
The Official Unemployment Rate is Meaningless
The Bureau of Labor Statistics (BLS) official unemployment report, also known to economic wonks as U-3, has historically been used to give a fairly accurate depiction of the overall employment situation in our country. Not anymore. This "depiction" of the jobs/employment environment is now meaningless.
Trampled Under Foot: Earnings Estimates Crushed; But Not Stocks
by Liz Ann Sonders of Charles Schwab,
The pace of earnings estimate cuts by Wall Street analysts and companies has been well sharper than the norm, suggesting the bar has now been set so low as to make it easier to hurdle. That’s what investors can hope for heading into the next earnings season; but the risk around earnings and valuation is unquestionably higher than it’s been in some time.
After a Dismal 2014 Business Development Companies Poised to Outperform in the New Year
After a dismal performance in 2014 business development companies are enjoying a reversal of fortune, floating to the top of the leaderboard in the New Year. They’re outpacing their interest-rate sensitive brethren, utilities and REITs, bonds and the S&P 500 alike amid widespread anticipation that the Federal Reserve will lift interest rates mid year. As the stock market grows ever more expensive and profit margins are reaching record highs, the catalysts that should drive outperformance in BDCs grow stronger and stronger considering that most BDCs are trading at single-digit multiples.
Market Fragility and Opportunity
Investing is a funny business. It is usually wise to invest the opposite of how the market feels to you. Six years ago stocks had fallen by 50%, the financial institutions that underlie our global economy were buckling, and the economy was in shambles. Investors were running from the stock market in droves. But because prices and expectations were low and because all the major central banks flooded the world with liquidity it was actually a great time to invest.
ECB Asset Purchases = (Big) Equity Decline?
by Team of GaveKal Capital,
We have commented quite a bit on the dismal revisions to sales and earnings estimates (see here, here, and here for just a few examples). As we have noted, European stocks have excelled in the downgrade department, led by the Energy sector.
China’s Reforms: Will They Work?
by Hayden Briscoe of AllianceBernstein,
The internationalization of China’s currency is proceeding hand in hand with the liberalization of the country’s capital markets. If China can surmount its short-term challenges, the impact of these reforms on global economies and markets should be profound.
Hot and Cold Bonds
by Anthony Valeri of LPL Financial,
January 2015 was the best month for high-quality bonds since December 2008. In February 2015, high-quality bonds posted their worst monthly performance since June 2013 and the taper tantrum sell-off. High-yield bonds experienced ups and downs thus far in 2015. After a muted January, high-yield bonds returned 2.4% in February, the largest single month gain since October 2013. After a wild first two months, we expect more muted returns over the remainder of 2015.
Taking a Multi-Asset Approach to Inflation
by Duy Nguyen of Invesco Blog,
With more than two decades of stable inflation in the US and forecasts calling for moderate inflation in the short term, many investors have become complacent about the risk of inflation to the real value of their portfolios. But inflation can change unexpectedly, and although we don’t believe that change is necessarily imminent, investors should remain vigilant about addressing this risk.
Opportunities in Global Financial Disintermediation
Increasing financial disintermediation is a strong secular theme providing tailwinds in several financial industries, but a likely arduous and complicated process warrants the need for a disciplined focus on both risk and reward. The financial system essentially performs one basic function—the direct or indirect movement of funds from savers to borrowers or investors. Although financial disintermediation is formally defined as the shifting of funds from indirect to direct financing, the term is more commonly used to describe the increasing role of non-bank intermediaries.
Don’t Audit It: Reign It In
Some in Congress want to “Audit the Fed.” But an audit, unless the word is used in a very broad sense, would be redundant and basically irrelevant. The Fed is already audited, by Deloitte & Touche LLP and it releases an annual report that includes the auditor’s opinion, each year.
A Fair Hearing for Sovereign Debt
Last July, when US federal judge Thomas Griesa ruled that Argentina had to repay in full the "vulture" funds that had bought its sovereign debt at rock-bottom prices, the decision reverberated far and wide, affecting bonds issued in a variety of jurisdictions. Do US court rulings really apply to contracts executed in other countries?
Positioning U.S. Community Bank Investment Portfolios for 2015
When market uncertainty is elevated and bank profitability is an ongoing concern, taking an extreme view toward investing cash or harvesting liquidity is not optimal. Currently, we do not see as much value in interest rate or duration risk for bank portfolios as yields imply a moderate path for future policy rates. We believe there are opportunities for banks to earn income without taking excess interest rate risk or limiting flexibility against the need to fund future opportunities.
Greek Problems Born from Socialism
by John Browne of Euro Pacific Capital,
Like many of the important discussions in the economic world today, the negotiations between Greece and its European creditors has become increasingly absurd . Late on Friday, February 20, in a tense meeting between the new Greek Finance Minister and a host of ministers from 19 Eurozone countries, Germany apparently 'authorized' negotiators to accept a four-month extension of the $272 billion bailout so long as the Greeks promised to make a series of difficult fiscal steps needed to stay solvent over that time frame.
Another Bubble?
by Burt White of LPL Financial,
The Nasdaq Composite just hit 5000 today as this report was going to press and is nearing its all-time record closing high of 5048. Even with the Nasdaq at 5000, we do not believe stocks have reached bubble territory. The Nasdaq has a much stronger foundation today of valuations, profits, and sentiment.
The Dollar Is Breaking Out Again And What That Means For Stocks
by Team of GaveKal Capital,
The ICE US dollar index looks to have broken out of what has been a rather short-lived consolidation after the massive move since the middle of 2014. If this is in fact the start of another round of dollar strength, then stock investors should carefully consider where in the world to deploy cash into stocks. For a variety of cyclical and structural reasons, certain regions of the world tend to outperform in periods of USD strength and others lag. We'll try to shed some light on that with the below charts.
Municipal Market Perspectives
A much colder than normal winter throughout the United States has impacted daily activities. Folks are remaining indoors and waiting for the March thaw. Not only are there fewer pedestrians, but runners are a rare sight. The logical inference is that many dedicated exercisers have retreated to the warmth of their basements or local health clubs for exercise, and are instead logging miles on stationary treadmills.
January Inflation Turns Negative - Is Deflation Upon Us?
Consumer prices fell in January for the third straight month, while inflation over the past 12 months turned negative for the first time since 2009, largely because of cheaper gasoline. In January, the Consumer Price Index sank by a seasonally-adjusted 0.7%, the biggest one-month drop since the end of 2008, the Labor Department reported Thursday.
Tigers in Africa
This month's Absolute Return Letter is about unrealistic expectations which is something we are all guilty of from time to time. We look at why it is unrealistic to expect equity returns to be in the double digit range over the next several years, why central banks are not printing money like many believe, plus a few other topics.
The Misery Index
by John Canally of LPL Financial,
Reports on the CPI and unemployment rate for January 2015 sent the Misery Index down to 5.6%, its lowest level in 56 years. Despite the low reading of the index, headlines and polls indicate the index may not be capturing the nation’s mood. Wage growth may be the key to improving consumer sentiment about the state of the U.S. economy.
How to Tell If a Prospect Is Interested
by Daniel Solin,
Your presentation materials may be eminently persuasive and your delivery equally flawless, but your prospect's mind may be on an entirely different topic. Here's how to tell if your prospect is listening and - more importantly - interested in what you are saying.
Reasonably Confident
by Scott Brown of Raymond James,
Fed Chair Janet Yellen signaled that officials will likely alter the forward guidance at the March 17-18 policy meeting. However, altering this guidance (the conditional commitment to keep short-term interest rates exceptionally low) is not the same as signaling that a rate hike is imminent, as Yellen made clear. She did indicate what would lead the Fed to start tightening.
The Benefits of Tiny Withdrawal Rates
by Roger Nusbaum of AdvisorShares,
For about the last year we have been blogging about the concept known as tiny houses. In that time interest has proliferated in terms of new websites devoted to the concept as well as at least four TV shows about tiny houses. The show Portlandia just had a bit making fun of tiny houses in a sketch where the toilet and the office were the same space as was the bathtub/shower and TV area.
Results 7,051–7,100
of 23,263 found.
