22 results found.
The Dangers of Populist Protectionism
There is a real and rising risk that political reactions to today’s economic anxiety will be counterproductive to global prosperity. Abruptly imposing trade barriers would be a wrenching shock to growth. It would also likely be met with retaliation from other trade partners. We must watch developments on this front, seeking to position our capital towards problem-solving innovation, whether from technological advance or wise government stewardship.
Do Growth Stocks Still Have Room to Run?
While growth and value stocks have historically traded off leadership roles, we do not think that a decisive shift towards value is in the works. We think that investing in competitively advantaged innovators is extremely important and that the best defense against potentially disruptive changes is to invest in them. While we are always interested in value investing opportunities, we see the overall picture as continuing to favor truly innovative growth.
Innovation and Investment in “short-termist” America
The aggregate decision-making around capital allocation would appear to continue to support a strong global competitive position for U.S. companies. Leading American companies are making long-term investments and investors are giving the most compelling of them a lot of credit for those long-term choices. While many continue to underestimate the power of American innovative strengths, the speed of disruptive new developments will only increase the cost to those who do so.
The Pursuit of Pricing Power
Recent oil and commodity price declines have raised concerns about global deflation and price stability. While the circumstances around oil’s precipitous decline are unique, many industries have built up capacity in recent years to serve a level of global growth that is not likely to reappear in the intermediate future.
Digging Deeper for Market Valuations
Nobody buys a house without looking inside. And nobody should make investment decisions without doing their due diligence on the underlying fundamentals. But that is exactly what happens in an investment world increasingly driven by high-level asset allocation and utilization of passive, index-based products or strategies. Pundits look at aggregate index data and declare one country cheap (or some other action-inducing characteristic) vs. another. Maybe they are right, but maybe they are missing something too.
Ramifications of Republican Romp
In our recent midterm election preview, we said that Republicans were likely to gain control of the Senate in a close contest; we also laid out some possible implications of such a win. As it turns out, we did not give the Republican momentum enough credit, as election night turned out to be a clear victory for the GOP across the board.
What to Expect from U.S. Midterm Elections
Next months midterm election battle for control of the U.S. Senate is going to be a dramatically close call. Republicans can gain control of the Senate if they win six new seats. Incumbent Democrats are defending 21 seats, and seven of those are in broadly red states won by Mitt Romney in 2012.
Finding Opportunity in Chinese Reforms
I spent last week in China, meeting with corporate management teams, government officials and investors in the Chinese markets. One of my motivations for making the trip was to get a better sense of the speed and scope of government reforms. It was a fascinating week, but I cant say that I came away with sweeping, definitive clarity.
Scarce Growth - Can the Tortoises Continue to Outpace the Hares?
For some time we have suggested that in a world slowly recovering from the 2008 financial crisis, aggregate global growth would be sub-par and that investors would benefit from seeking scarce growth, so long as that growth did not become wildly overvalued. Recent market action has tested that stance severely.
Take an Active Approach to Selecting Your Active Manager
For some time, we have written about the challenges active equity managers face from a market with unusually high cross-correlations. We have also stated our belief that the correlation pendulum would swing back to more normal levels (at least) as the aftershocks of the 2008 financial crisis abated, with a corresponding benefit to active managers. That swing is well under way and a growing number of commentators have begun to echo our observation.
Not All Emerging Markets Are Created Equal
Emerging markets (EM) is a term given to a universe of countries that is extremely diverse across a wide number of variables including geography, levels of industrialization and political systems. Despite this diversity, emerging markets are often discussed as if they are a homogenous block, particularly in the context of broad asset allocation decision making. We think thats a mistake. Instead, we see opportunity from applying a more bottom-up approach to country, industry and security selection amidst growing dispersion in outcomes across the emerging world.
When the QE Tide Recedes, Focus on What is Revealed
While there is fierce debate on the ultimate effectiveness of monetary stimulus surging from the central banks, one cannot dispute the boost that it has given to asset prices. While we may be seeing some "green shoots" of overall growth pick-up in the developed world, the post-crisis recovery in asset values has not been primarily driven by economic or earnings growth. Instead, we have been in a high correlation environment where the rising tide lifted most diversified investor boats as repressed "risk-free" rates pushed money out into riskier asset classes.
U.S. Equities - So Far So Volatile
The premise of our 2012 equity market outlook was very modest economic growth in an overall environment fraught with risks, predominantly brought on by the dangerously high debt loads facing the developed world. Within that environment, we have advocated a two-pronged focus.
Creative Destruction is always at play in competitive markets of all kinds. Given the metamorphic pressures caused by todays over-levered and structurally low- growth global economy, the forces of Creative Destruction are perhaps far greater than normal. Low overall growth and historically high profit margins create a particularly potent environment in which corporations compete for their share of a potential profit pool. Revenue growth is increasingly hard to come by and cost-reduction opportunities may have been stretched to their outer limits.
In Japan, Eventually is Getting Closer
On the anniversary of the devastating tsunami and earthquake in northeastern Japan we wish to express our sympathy and support for the people of Japan. With the rightful attention on the anniversary of this tragedy and on the Greece/European debt/growth challenges, it is easy to forget about the massive structural challenges faced by Japan. Japans total debt load surpasses even the U.S. in absolute terms and is second (and a close second) only to Zimbabwe in terms of debt to gross domestic product (GDP) at over 200%.
Dividends: Proposed New Tax Rates
We are in a very attractive period for dividend paying equities. With yields from higher credit quality bonds at historical lows, an investing public hungry for income has to consider an increased allocation to equity income. The backdrop is positive for them to do so with healthy cash flows and historically low payout ratios creating a solid foundation for reliable and growing dividend yields. Given the strong outperformance of the highest current yielders in 2011, we continue to advocate seeking out companies with the ability to grow their dividends sustainably in the future.
The Trend toward Less Economic Freedom
With a sluggish global economy hamstrung by the colossal indebtedness of the developed world, it is crucial to be aware of any changes in the forces that fuel or handicap growth. One issue I am particularly concerned about is the direction of global economic freedoms. Many studies strongly suggest a high correlation between changes in economic freedom and economic growth. Today, there is significant evidence that economic stresses and perceived imbalances are driving governments and politicians around the world in a populist direction that will limit economic freedoms.
Global Economic Crisis = Social Unrest
I fear that our fragmented political process may go from bad to worse as polarized factions face off over how to respond to a fraying of the Western social contract. Inefficiency in developing effective policy in that environment is likely to be a further drag on economic growth, potentially creating a negative feedback loop. We run the risk of crossing a dangerous tipping point where economic pain fuels dramatic social unrest, which in turn makes a path to recovery more difficult. I do not see equity risk premiums sustainably falling until we begin to witness that change in direction.
Profit expectations in the square root recovery
They always say that in the media, if it bleeds, it leads. Crisis and tragedy is gripping stuff, and there has been plenty to report in the financial press in recent years. Perhaps under-reported and less-celebrated has been the truly remarkable recovery of profits at American businesses in the wake of the Great Recession. Reacting to the pain of the downturn, corporate America did a remarkable job of tightening its cost belt. As a result, the rather modest recovery in economic growth has driven huge profit gains, as margins have leapt back to historical peaks.
Stock picking is dead? Long live stock picking
A recent frontpage story in The Wall Street Journal was titled ?Macro Forces in Market Confound Stock Pickers.? The article quoted a prominent Wall Street strategist as saying, ?Stock picking is a dead art form.? The article is now prominently displayed on my office bulletin board as I believe it (and similar articles and research notes) marks a high in skepticism regarding active investing. I also believe these sentiments will be proven dramatically wrong in the months and years to come, as certain active investors take advantage of the inefficiencies that this very skepticism is causing.
Seeking Equity Dividends: Now More than Ever
The evidence is clear that dividends have been a crucial part of total returns through history and that dividend payers (particularly sustainable dividend growers) have significantly outperformed their non-dividend-paying peers over the long haul. Couple those higher returns with the lower volatility that comes with the dividend-paying class vs. broader equity markets and it makes a clear case for the power of dividends.
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