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Insights from the U.S. International Balance of Trade
by Team of American Century Investments,
The U.S. trade deficit increased to -$42.3 billion in May. Large and increasing trade deficits are sustainable as long as the rest of the world is willing to lend money to finance them. Growing trade deficits, however, are unhealthy in the long term. Trade imbalances also cause imbalances in capital flows. There was a time when it was argued that, as the U.S. entered a post-industrial society and economy, its growing trade deficit in goods would be offset by a growing trade surplus in services. Nearly three decades of experience, however, have demonstrated that this isn't the case.
Growing Federal Debt Will Cause Major Challenges in the Years Ahead
by Team of Litman Gregory,
A combination of sharply declining tax revenues and a surge in stimulus and bailout spending, both stemming from the financial crisis, caused the federal budget deficit to soar to almost 10 percent in 2009. Total debt to GDP ratios are climbing sharply, and could pass 90 percent by next year. The growth track of entitlement programs has led many to conclude that growing federal debt levels are unsustainable in the long term. Additionally, the Greek debt crisis could trigger increasing awareness of sovereign default risk with investors demanding higher rates for owning government debt.
Core|Satellite Investing with First Eagle Funds
Many practitioners of core/satellite investing use the core of their clients? portfolios to generate market-like returns with market-level risk exposure, or beta, and use satellite investments to produce excess returns, or alpha. Within this framework, passive investment vehicles ? index funds and ETFs ? have become standard core investments. First Eagle questions this approach, and believes an actively managed global portfolio should be the core.
Grey Owl Capital Management's Q2 Letter
by Team of Grey Owl Capital Management,
The equity and fixed income markets are still modestly overvalued. In addition, the economic recovery may only have been a mirage that the slow dwindling of the government stimulus will reveal. The majority of Grey Owl's equity portfolio is made up of 'high quality' companies ? those with consistent earnings growth and low financial leverage. Japanese-style deflation and 1970s-style stagflation are both possible given the slow private sector growth, increasing government regulations, growing government debt loads, and expansive monetary policy.
Sizing Up the Jobs Growth Challenge
by Team of American Century Investments,
While labor market data indicates the economy is still adding jobs, the pace of additions is far slower than what is needed to meaningfully reduce our 9.5 percent unemployment rate. Much of the half-a-percentage-point rise in employment during the second quarter of this year came from the hiring of up to 700,000 temporary workers for the decennial Census survey. Now that this effort is winding down, some economists are forecasting that short-term unemployment will rise again.
Fixed Income Investment Outlook
by Team of Osterweis Capital Management,
It is unlikely that the Federal Reserve will soon reverse its easy-money policies amidst worries about the European government debt crisis, meager job growth and low inflation in the U.S. In light of all these concerning developments, Osterweis continues to take a conservative approach by focusing on securities that will experience less volatility in the current unpredictable environment. These include short duration bonds and certain 'cushion' bonds, which are longer-term, high coupon bonds that will likely be refinanced in the near term, well in advance of their maturities.
Equity Investment Outlook
by Team of Osterweis Capital Management,
The economy is not headed towards a serious double-dip recession, but rather towards a slowdown or moderation of its growth rate. That is, the economy has been improving, just not as fast as investors envisioned earlier this year. Osterweis is therefore staying the course, focusing on solid companies with strong or improving balance sheets and a history of stable or growing dividends. They are also keeping some cash as a buffer against further erosion in the overall market and as a buying reserve to use when compelling bargains emerge.
World Growth on the Rise but Europe's Weakened Economy Threatens Global Recovery
by Team of American Century Investments,
Global economic activity is improving, but significant headwinds remain, particularly within the developed world, where mounting sovereign debt threatens long-term economic gains. So far, government responses to the crisis have varied, and this lack of coordination may lead to divergent economic performance in the year ahead. Emerging markets have held up relatively well, primarily because they have managed their economies frugally throughout the past several years. Globally, corporations are generally enjoying expanding profit margins, while balance sheets remain solid.
Keynesian Economics: RIP
by Team of Dana Investment Advisors,
The American public and many members in Congress are waking up to the fact that Keynesian economics is not working. It did not work in the 1930s either, as we actually had a recession within the depression, and suffered double-digit unemployment throughout the decade. This time can be different if the public demands and Congress enacts legislation that will lift the veil of uncertainty and help build a more conducive environment for establishing new businesses and creating new jobs in existing businesses. Then money would come out of hiding and get this economy moving again.
U.S. Equity Newsletter
by Team of W.P. Stewart,
One thing is certain - there is a lot of bad news around and many people are now forecasting a double-dip recession. 'Bad news,' however, may already be factored into prices. Global growth is still expected to be solidly positive in 2010 and 2011, albeit somewhat skewed to the emerging markets. Corporate balance sheets are very robust, productivity has never been higher and earnings growth remains strong even on somewhat reduced estimates. Equities should therefore offer significantly better returns than bonds or cash.
Our Muni Market Perspective: The Sky is Not Falling
by Team of American Century Investments,
The muni market sky is not falling. Municipal credit downgrades and defaults are indeed likely to increase in the months ahead, even as the U.S. economy regroups and moves forward. It may seem odd that muni credit quality faces continued challenges at a time when businesses and other sectors of the economy are going ahead, but that's just an unfortunate feature of a lagging market, one that municipalities share with the labor market. In the long run, municipal bonds as an asset class still have credit quality second only to U.S. Treasury bonds.
Lebron James to New York?
by Team of Bespoke Investment Group,
There's been lots of movement on the Intrade contracts for where LeBron James will end up, on the eve of his announcement. As Bespoke shows in charts provided, the Cleveland contract has dropped significantly while the New York Knicks contract has spiked this evening. News that he'll be making the announcement from Greenwich, Connecticut instead of somewhere in Ohio seems to be what shifted the odds.
Liquid Assets Are at a 37-Year High on Corporate Balance Sheets: Is This a Bullish or Bearish Sign?
by Team of American Century Investments,
Whether bullish or bearish, the rapid growth in corporate liquid assets does reflect one undisputable fact: The corporate sector of the economy generally responded quickly and effectively to the Great Recession, cutting costs, shedding excess inventory and curtailing unnecessary investments. As a result, corporations are poised to perform well based on the overall strength of the current economic recovery. Earnings growth over the past five quarters has been impressive. However, whether this trend and rate of earnings growth can continue will increasingly depend on what happens to revenues.
Summer Forecast (and Beyond)
With Spain and its PIIG friends continuing to cause anxiety in global investment circles, it's a good time to focus on the potential risks and rewards facing investors right now. In reviewing our commentary released on February 1st of this year, we find that little has changed in the reward/risk tradeoffs we see. Themes identified earlier this year are now starting to play out and come into focus, as often happens simply with the passage of time. So, here is a brief update on those themes and more importantly, how they are influencing the management of the portfolios we run.
General Motors and Lessons of Externalities
by Team of American Century Investments,
The decline and collapse of GM was a long-term phenomenon and not that uncommon a story for corporations in the history of U.S. business, except for its sheer size and (perhaps) the length of time over which it unfolded. One after another attempts to salvage the company fell short of expectations. Why GM failed?and why other companies in similar situations have managed to execute successful turnarounds or avoid collapse is an important question.
Ten Year Treasury Yield Hits a 52-Week Low
by Team of Bespoke Investment Group,
Remember back in April when the yield on the ten-year was approaching 4 percent and everyone seemed to be worried that the era of low rates was over? That didn't last long. Less than three months later, the ten-year yield is not only lower, but it's also on pace to close today at a 52-week low of 3.14 percent Since April's peak in interest rates, there has been no shortage of concerns popping up regarding Europe and the strength of the US economy.
Indian Economy Poised for Double-Digit Growth
by Team of American Century Investments,
India was not severely impacted by the global economic recession and the country is projected to grow rapidly over the next decade. For investors, a consumer-based Indian economy holds positive implications because many global companies view potential Indian demand as a ticket to future growth. Indeed, India's is one of the biggest and fastest growing consumer populations in the world. Nevertheless, the government's inability to keep building infrastructure and power generation and tackle core problems in education, land reform, corruption and social reform may temper growth.
Gold vs Dollar Correlation
by Team of Bespoke Investment Group,
With gold trading at a record high, we wanted to highlight the shifting correlation between it and the US Dollar. Normally, when gold rallies, the dollar declines and vice versa. However, as the chart below illustrates, gold and the dollar have become increasingly unlinked. In the chart, positive readings close to one indicate a strong positive correlation, while readings closer to negative one indicate a strong inverse correlation. The current level of -0.18 indicates a very weak inverse correlation.
Assessing Investment-Grade Bonds
by Team of Litman Gregory,
Investment-grade bonds are likely to generate average returns in a 1 percent to 2 percent range in most scenarios over the next five years. That is markedly lower than any historical rolling five-year average annual return number since the mid-70s. Forward-looking scenarios project that bond yields and inflation higher than their current levels and capital losses due to rising yields will cut into income from coupon payments.
Hayward to Depart as CEO? Goldman to Pay $25 Million or More? Place Your Bets
by Team of Bespoke Investment Group,
Traders on Intrade are currently putting the odds of BP's Tony Hayward to depart as CEO by the end of the year at 59 percent. How about Goldman Sachs? The last trade on the contract for CEO Lloyd Blankfein to depart by the end of the year puts the odds at 20 percent. Odds for Goldman to pay a fine of at least $25 million to the SEC by the end of the year are at 80 percent. The November elections are being heavily traded on the site. Odds for the Republicans to take back the House of Representatives in November are at 47 percent.
'May Momentum Killers' Supported Economic, Rate Outlooks
by Team of American Century Investments,
Now that stocks are suffering a bona fide correction this quarter and Treasury yields are again pricing in low inflation expectations in the near term, the case for a long, slow, grinding economic recovery with continued low interest rates for months to come is a lot easier to make than it was seven weeks ago. Money market and FDIC-insured accounts should provide the most predictable path with the least price fluctuation. Investors who want more yield and return should consider high-quality short-maturity bonds and bond funds.
June Economic Update
by Team of Cambridge Advisors,
Former hedge fund manager Keith McCullough compares America's current situation to Lehman in 2008 in that it is borrowing short to fund long-term liabilities. We can see the effect that high sovereign debt is having in Europe, and the U.S. is heading down a similar path. U.S. debt as a percentage of GDP is already higher than that of troubled Spain. Analysts have warned that higher taxes alone will not be enough to solve America's debt problem. Reduced government spending is needed and higher inflation may be unavoidable.
Builders Report Twenty-Seven Percent Decline in New Home Sales
by Team of John Burns Real Estate,
Following the expiration of the home buyer tax credit on April 30, net sales per community across more than 1,900 communities dropped 27 percent according to John Burns Real Estate Consulting's June survey of home builders. In the previous month, sales per community reached 1.84 units, but this month fell to 1.35 units, which is the lowest level since March 2009. Chief executive John Burns says the price correction thus far has been only minor, while falling mortgage rates, great affordability and positive job growth will build demand back up.
Insight on the Current Status of the Housing Market
by Team of American Century Investments,
Both existing and new residential homes sales have seen impressive increases in volume over the past several months ending in April. Two factors will likely weigh on residential home sales for the remainder of this year, however. The first factor is the expiration of the homebuyer tax credit. The second is the rate of economic recovery and growth in employment for the remainder of this year. Over the next one to three years, little can contribute more to recovery in the residential housing market than reduced unemployment accompanied by rising incomes and increased consumer confidence.
Thoughts on the Correction
From an entirely rational perspective, the last few weeks of volatile market declines have created a strong opportunity for investors. The average stock in the S&P 500 is 13 percent cheaper than it was on April 23, 2010 - a fine bargain considering nothing much has changed about sales and earnings prospects. Unfortunately, fear has and will continue to precipitate selling, when it should do the opposite. A recent Stanford study yields interesting insights into the impact of fear on investors.
Global Equity Markets Slip on Greek Debt Crunch
by Team of American Century Investments,
Fears of a Greek default have heightened concerns about the financial stability of several other peripheral European countries. Spain, Ireland, Italy and Portugal, however, are not in the same situation as Greece. Italy in particular is in a separate, stronger category than the others. It is less reliant on foreign financing, with Italians owning a high percentage of their own sovereign debt. Italy also lagged in the economic boom prior to the global recession, a blessing in disguise because its banking sector is now not as over-leveraged to the housing market as banks in other countries.
Emerging Market Vs. G7 Debt Levels
by Team of Bespoke Investment Group,
Bespoke provides tables comparing debt levels in G7 and emerging market countries. The average level of public debt to GDP among G7 countries is 94 percent. Two countries, Japan and Italy, have levels of debt that are in excess of 100 percent of GDP. Compared to the other six countries on the list, the U.S. debt level of 52.9 percent seems downright thrifty. Meanwhile, the average level of debt in emerging market countries is just 37.4 percent. If concerns over debt are the major issue behind the correction, emerging market countries should thus rebound the strongest in any recovery.
Three Reasons Why the Economy is Mending, Despite the Rise in Unemployment
by Team of American Century Investments,
Despite the rise in the unemployment rate to 9.9 percent in April, there are at least three reasons why the economy appears to be on the mend after the recent recession. First, growth in labor productivity foreshadows new hiring. Second, the economy is adding jobs. And third, the civilian labor force is growing again. These three trends mean we could continue to see official unemployment figures inch higher despite an improving economy overall.
Understanding Recent Negative International Bond Returns
by Team of American Century Investments,
This year so far has been a challenge for U.S. investors in high-quality, unhedged international bonds, continuing a downtrend for this sector that began in December of last year. Fortunately, the long-term strategic reasons for holding international bonds remain intact, including inflation protection from a potentially weaker dollar as the U.S. budget deficit grows, and diversification benefits versus traditional domestic fixed income.
Two 'Takes' on the Latest GDP Growth Figure
by Team of American Century Investments,
Overall, the preliminary report of first quarter GDP growth was good news for consumers, businesses and investors seeking to finally put the Great Recession in the past. Consumer spending and business investment are both showing healthy signs of growth, which is to be expected during the early phases of a recovery. Concerns are now focused not on whether we are in a recovery phase, but whether the recovery will be strong enough to pull us out of the large hole the recession created.
The Big Picture, the Investment Landscape, and Our Portfolio Strategy
by Team of Litman Gregory,
Debt reached binge levels during the past decade. Money to reduce the debt will have to come from somewhere, and much of it will come from reduced spending. Spending cuts could produce a sluggish economy, possibly for many years to come. There are some positives that could contribute to a better outcome, however, including continued strength from emerging economies. Domestically, we could see stimulus spending, low rates, and inventory rebuilding create a virtuous circle in which businesses with strong balance sheets add jobs, and consumer and business confidence builds and feeds on itself.
The Right Page of the Right Book
by Team of Beacon Pointe,
The beginning of 2010 saw a continuation of the 2009 rally. Most stock exchanges around the world, with the notable exception of China, posted positive returns for the quarter and added to their gains off the March 9, 2009 trough. The major indices, however, remain well below their previous highs. The post-bear rally has been fast and furious and at this time, a pause seems justified. The exact timing and nature of this pause, however, are highly uncertain.
Chipan?
by Team of Emerald Asset Advisors,
In this commentary, Emerald responds to a reader question about China and Japan. Emerald says that equities in both countries are overvalued, but that this is less important than the fact that buying pressure is still outweighing selling pressure. The long-term ascension of the Chinese economy is one of the most prominent secular themes in today's markets. Japan, on the other hand, like the U.S., faces an obvious mess. The ultimate ruler is price, however, and Japanese stock prices have stubbornly risen for many months without a long-overdue correction.
High Yield Outperforms
by Team of Bespoke Investment Group,
The average stock in the S&P 500 is now down 4.26 percent since the index peaked on April 23rd. But at least based on dividends, the high-yield stocks have outperformed their low or no-yield brethren by quite a wide margin during the recent pullback. When breaking up the S&P 500 into deciles based on dividend yield, the deciles of stocks with the highest yields are barely down, while stocks with low or no yields are underperforming. Investors typically flock to safer names during market declines, and it seems to be no different this time around.
Weren't Interest Rates Supposed to Be Rising?
by Team of Bespoke Investment Group,
A couple of months ago, the yield on the 10-year U.S. Treasury bond was rising towards 4 percent, and commentators everywhere were declaring an end to the 'bond market bubble,' which would send interest rates sharply higher. So what happened? Thanks to the problems in Greece and the rest of Europe, US treasuries have been a magnet for investors looking to protect their cash. At a current yield of 3.62 percent, the yield on the 10-year U.S. Treasury bond is currently trading at a two-month low, and breaking below support.
Consumer Sentiment and the Economic Outlook
by Team of American Century Investments,
The animal spirits John Maynard Keynes described in 1936 as a substantial force in determining the direction of the economy are still with us today. At the moment we are in a prolonged period of below-average consumer sentiment that began in mid-2007. Ultimately, consumer sentiment will rebound. When this occurs, the change in sentiment as measured by the Consumer Sentiment Index is likely to be quick and large. However, there will likely have to be some change in the environment or course of events to convince the population that our difficult times are behind us.
A 1 in 4 Chance We Say Bye-Bye to Blankfein?
by Team of Bespoke Investment Group,
For those wondering what the odds are for Lloyd Blankfein to depart as chief executive of Goldman Sachs, Intrade.com has you covered. The last trade on the Intrade contract for Blankfein to depart by December 31, 2010 was 25 (25 percent odds). The current bid/ask is 27/28, so the odds are slightly higher than one in four at this point. The contract started out at a higher price and has drifted lower over the past few days to its current level.
Financial Strains and Modest Gains for the Eurozone
by Team of American Century Investments,
The Eurozone fell into recession later than the U.S., and thus will recover later. European factories are heavily dependent on exports for growth. Investors should note that the global economic recovery and a stronger euro have been positive factors for the Eurozone's export machine. But with exports accounting for 35 percent of Eurozone GDP and half of that number going to other countries neighboring the Eurozone, major headwinds could soon be on the horizon.
Fixed Income Investment Outlook
by Team of Osterweis Capital Management,
The consensus is that we are well past the crisis point and will gradually see more economic sunshine. While Osterweis generally agrees, there are a couple factors that are prompting the firm to keep a conservative posture. In particular, they are concerned with China?s large trade surplus and the prospect of rising interest rates in the U.S. While the market may remain buoyant for some time as the economy recovers, Osterweis does not believe there is much opportunity cost at this time in taking a more conservative posture and waiting for the next good buying opportunity.
Equity Investment Outlook
by Team of Osterweis Capital Management,
During the first quarter, the stock market continued to work its way higher as evidence mounted that the economic recovery was solidly underway. While Osterweis is reasonably comfortable with the very near term outlook for the economy, it is quite concerned with the longer-term implications of the rising federal deficit, as well as about how the economy will perform as monetary and fiscal policy inevitability shift from maximum stimulus to a more neutral stance. The company, therefore, wants to focus its 'bets' more on individual companies than on broad macro-economic trends.
Market Review
by Team of Applied Finance Group,
During the depths of the downturn a little over one year ago, many investors were quick to provide a lesson on the mathematics of loss. A 50 percent decline would require a subsequent 100 percent gain - not a 50 percent gain - to get back to even. Such truths, it seemed, were a justification for remaining bearish and a comfort perhaps to some, in making the painful decision to sell. Unfortunately, while the mathematics of loss is indeed an investing truth, it may also be an author of lies by suggesting that the only investor goal worth its salt is 'getting back to even.'
Republicans Now Favored to Take Back the House?
by Team of Bespoke Investment Group,
Intrade.com has contracts on whether the Republicans or Democrats will control the U.S. House of Representatives following the 2010 midterm elections. While the Democrats currently hold a large majority in the House, the odds for them retaining that majority after 2010 have been declining over the past year or so. As of today, the Republicans are now favored to win a majority in the House after the 2010 elections. The current odds based on Intrade's contract prices are 50.1 percent for a Republican majority and 45 percent for a Democratic majority.
U.S. Equity Quarterly Newsletter
by Team of W.P. Stewart,
The recovery in U.S. corporate earnings underpins the equity market's current valuation and offers scope for further upward movement over the coming quarters. In many respects the continued recovery in equity prices is likely to become self-fulfilling. As confidence in equities returns, investors are likely to move more money from cash and bonds, where they have parked it over the last 18 months, into equities. This in turn will push P/E's higher, which together with better earnings should offer investors good positive returns.
It's Census Time: Where in the World Are We Growing?
by Team of American Century Investments,
International population forecasts provided by the U.S. Census Bureau provide directional insights that can be useful to investors. The U.S. will continue to be a dynamic, growing and expanding country from a population perspective well into the 21st century. One implication is that we can deal with concerns over our rapidly growing government debt by growing out of the problem. In addition, despite the recent gloom caused by the housing bubble bursting, real estate values are likely to recover and continue growing long-term as a result of population growth.
Another Month, Another Huge Deficit
by Team of Bespoke Investment Group,
With total revenues of $153 billion and spending of nearly $219 billion, the federal government spent 43 percent more than it took in this month for its record 18th straight monthly deficit. Believe it or not, this month's $65 billion shortfall was the fourth-lowest over the last 12 months. When all is said and done, the total cost of the Troubled Asset Relief Program bailout is likely to reach $89 billion. When the federal government runs $65 billion in the red during its normal course of business, $89 billion to avert the collapse of the entire financial system doesn't seem so bad.
Sizing Up a Saw-Toothed Portrait of Potential Sustainability
by Team of American Century Investments,
A number of key leading indicators - including recent stock market performance, the expanding manufacturing sector, and the steep upward slope of the Treasury yield curve - point toward continued recovery. In addition, the unemployment rate, while still high, does not appear to be moving higher, and has in fact come down from its recent 10.1 percent high reached last October. History suggests that after an unemployment peak is attained, significant improvement follows soon afterward; there hasn't been a historical tendency for the unemployment rate to 'plateau' at levels near its peaks.
Don't Discount Dividends
by Team of American Century Investments,
During long and sustained bull markets, investors tend to overlook the importance of dividends in long-term wealth creation for equity investors. Benjamin Graham and David Dodd emphasized the importance of dividends in the overall valuation process for equities in a classic 1934 text. Because of their consistency in both good times and bad, dividends and dividend reinvestment can help cushion the downsides as well as enhance ultimate wealth. Investors, therefore, should not 'discount dividends.'
The Rising Cost of Commodities on the Consumer
by Team of Bespoke Investment Group,
The price of oil is up sharply today, and is trading above $86. While commodity traders love the rise in oil prices, consumers aren't nearly as enthusiastic, especially ahead of the summer driving season. To them, higher prices mean more pain at the pump, and in their wallets. Indeed, while low food and energy prices continue to serve as a rebate for consumers, that rebate has been dwindling since March 2009, and could soon turn into a tax, as they were from the beginning of 2008 through the summer of that year.
Corporate Cost Of Health Care: Announced Charges as of 3/31
by Team of Bespoke Investment Group,
Since Congress passed the health care reform bill on March 21st, we have seen numerous companies announce that they will take charges to earnings. The charges stem from one aspect of the legislation that eliminates deductions for tax-free subsidies companies receive from the government for providing prescription drug benefits to retirees. Due to the material and quantifiable impact that the bill will have on their business and financial results, the companies are required by law to disclose it. So far at least fourteen companies have announced charges totaling at least $1.6 billion.
Yield Curve Back Near Highs
by Team of Bespoke Investment Group,
With long-term interest rates rising and short-term interest rates contained, the rising yield curve is once again starting to receive attention. The Fed defines the yield curve as the difference in basis points between the yield on 10-year and 3-month U.S. Treasury bonds. High values in the yield curve are positive for the economy, while an inverted yield curve is a harbinger of weakness. The curve is currently at the high end of its historical range, and has made multiple attempts to break through the 380 bps level in the current period.
Results 2,651–2,700
of 2,793 found.
