Results 651–669 of 669 found.
Monday Market Calls | European Banks & Germany
This week, our attention first turns to European banks. Since February, the sector is down more than 15% versus a 3% drop for global developed markets. Back in February, our thesis was that European banks were not taking adequate account of the ultimate hit they were facing due to write downs on European sovereign debt. While we are still advocating a negative outlook for European banks, we believe that much of core Europe now appears very cheap, and is reflecting a lot of bad news. In particular, we continue to believe German equities look attractive for long-term investors.
Behind the Numbers: US Economic Activity & German PMI
While many market watchers on Thursday focused on the higher-than-expected latest weekly domestic initial jobless claim data, we believe the key figures released Thursday were the Chicago Fed National Activity Index and Purchasing Managers Index (PMI) figures for Germany. The US initial jobless claim applications in the week ended June 18 increased 9,000 is clearly another sign of the decelerating recovery. Still, that the May Chicago Fed National Activity Index came in at -0.37, well below expectations of -0.05 but above April?s -0.56 reading, is especially important.
The Most Serious Risk to the Recovery: Oil Prices
While we believe the recent economic slowdown represents a deceleration rather than a reversal of the global recovery, there are certain events that we believe could turn the current fragile recovery into a failed one. In particular, we believe investors should pay careful attention to events in the Middle East. Why? We believe that the most serious risk to the global economy is another spike in energy prices. While the events that began in Tunisia earlier this year were both unexpected and unprecedented, the world is now aware of the political fragility of large parts of the Middle East.
Update on The Case for Equities: The Slowing Recovery
Last month, we described why we believe that over the long term, there?s a case for the outperformance of equities. But what does the slowing recovery mean for equities? While we have been arguing that the summer is likely to be characterized by higher volatility, we believe that absent a dramatic economic slowdown, equity markets still appear reasonable. The fact that equity valuations reflect much of the bad news should help cushion the near-term downside for stocks. And long-term, equities still appear to better reflect the world?s risks and worries than their pricier cousin, bonds.
Russ Koesterich Reviews ?This Time is Different: Eight Centuries of Financial Folly?
The recent recession has been, and will continue to be, very different from the typical post-World War II recessions. Since there are so few recent examples to guide us, it?s important not to draw conclusions about the current recovery just by examining the last 50 years or so. Taking a longer-term perspective is key and that?s precisely what economists Carmen Reinhart and Kenneth Rogoff do. While the book came out in 2009, it is especially relevant to today?s investors as it helps put the effects of the recent credit crisis in the right historical context: a very long-term one.
Behind the Numbers: The Latest from the Federal Reserve
On Wednesday, the Federal Reserve Board released its latest Beige Book report, which provided more color on the recent slowdown and indicated the recovery is likely to be anemic and uneven. According to the report, which is a summary of anecdotal information from each Federal Reserve Bank on its district?s current economic conditions, ?economic activity generally continued to expand since the last report,? though it did slow somewhat in four of the 12 districts. In particular, ?some slowing in the pace of growth? was noted in the New York, Philadelphia, Atlanta, and Chicago districts.
Monday Market Calls | US Retailers and Emerging Market Bonds
Call #1: Maintain Underweight US Retailers. Last week, the main monthly gauge for manufacturing activity and May?s non-farm payroll report both came in weaker-than-expected and both confirmed that the economy is experiencing a dramatic slowdown. Call #2: Neutral Emerging Market Bonds. The other implication of a slower global economy is that bonds should do better relative to stocks. Given what appears to be a case of extreme over valuation, we would still advocate a negative view on US Treasuries, but we are now changing our view of emerging market bonds from negative to a neutral stance.
Overweight Healthcare and Exiting Australia
This week, our attention turns to the recent slowdown in the global economy and what it means for investors. Over the past month, both equity and commodity markets have staged a modest retreat. One potential cause of the slowdown is the lagged impact of higher commodity prices, which have historically acted as a drag on growth. Late last year, we advocated an overweight to Australian equities, which we then reiterated in early April. Since the initial call, iShares MSCI Australia Index Fund (EWA) has gained around 6.5%. We are now changing our view to neutral for a number of reasons.
The Case for Equities
With global equity markets up over 100% from their 2009 lows, many investors are questioning whether it is time to lower their strategic allocation to stocks. While there are no shortages of risks facing global equity markets, overall we find that most markets are fairly valued and arguably already reflecting some of the risks ? particularly higher inflation and interest rates ? that are likely to challenge the global economy. We believe that over the long term, equities are still likely to produce higher nominal (inflation-adjusted) and real returns than other financial assets.
The Federal Debt Ceiling and Treasuries
The federal government is limited by law as to the amount of debt it can issue. Currently the debt ceiling is 14.3 trillion, an amount that was exceeded last Monday. Fortunately, the government can operate and pay its obligations through various accounting mechanisms. These mechanisms will allow the government to continue to function and avoid defaulting on its existing debt through early August, after which point the government could theoretically default on its Treasury obligations, something that has never happened in US history and would obviously be catastrophic for financial markets.
Europe and Volatility
The news in Europe continues to be mixed. On the plus side, the core countries in Europe continue to post strong economic growth. We had more evidence of that this week with solid GDP results from both Germany and France. The problem of course remains the periphery, particularly Greece. Greek debt was downgraded again and markets are now convinced that Greece will need to restructure. US market volatility has been its lowest since 2007, with the VIX Index ? which measures implied volatility on S&P 500 options ? hitting a four year low of below 15 in April. We believe this is too low.
U.S. Budget Watch: Much Ado About Nothing
Friday Congress and the White House agreed to cut $39 billion in federal spending to avoid a shutdown. The agreement would fund the government for the remainder of the fiscal year, which ends on September 30th. In other words, after weeks of partisan debate, Congress and the White House were able to reach an agreement on 1% of the federal budget. What remains to be settled are three more serious and contentious issues: the imminent breach of the federal debt ceiling, the 2012 budget, and the long-term solvency of the three main entitlement programs Social Security, Medicare, and Medicaid.
Mega Caps and Russia
While we remain underweight emerging markets in general, one emerging market is looking particularly cheap. While we would be concerned about having a long-term overweight to Russia given that country?s political situation, from a short-term perspective the market looks interesting. We first mentioned Russia as a possible play in early February ? since then the benchmark index is up nearly 7%, but Russia still looks cheap trading for less than 6x earnings. Also unlike China or India, which are negatively impacted by higher oil prices, Russia is a natural beneficiary of the spike in crude.
Monday Market Calls
As Europe continues to muddle along, much of the bad news has been discounted in with the exception of the banks, which are likely to continue to remain under pressure. S&P cut Portugal?s rating two notches as its parliament rejected the government?s new austerity measures, prompting Prime Minister Jose Socrates to resign. Meanwhile Moody?s downgraded 30 small Spanish banks with mostly negative outlook following the earlier sovereign debt rating downgrade. However, despite the banking issues, Spain has been able to continue financing its debts.
iShares Bi-Weekly Strategy Update
Last week, world equity markets suffered their sharpest correction since August of 2010. Unrest in the Middle East and sovereign debt issues in Europe are contributing to the spike in volatility, but last week?s sell-off was primarily driven by the earthquake in Japan and related concerns over the safety of its nuclear power plants. The events in Japan are unlikely to detract from global growth, or change the market dynamics favoring equities. In fact given the recent flight to safety and accompanying drop in nominal bond yields, we reiterate our preference for equities over bonds.
Monday Market Calls
Call #1: Underweight European equity market (with emphasis on banks) Call #2: Overweight developed (with preference for large/mega cap) vs. emerging markets. Year-to-date, emerging markets are down roughly 1.5% while developed market mega caps are up roughly 5%. Our view is reinforced by the recent market volatility and growing unrest in the Middle East. In this type of environment, large, quality companies are likely to prove more resilient.
iShares Bi-Weekly Strategy Update Part 1
The overall economy is demonstrating impressive resiliency to higher oil prices ? as evidenced by the recent strength in the ISM manufacturing and services surveys ? but investors should not be too complacent when it comes to the consumer sector. Even though labor markets are staging a slow-motion recovery, the US consumer still faces multiple headwinds, including anemic wage growth, too much debt, and a still fragile housing market. Oil crossing the $100 threshold will not help.
iShares Bi-Weekly Strategy Update Part 2
Recently, silver prices have benefited more than gold from the economic rebound. The relative gap between gold and silver suggests that it may be time for a pause in silver?s run. One of the many ironies of markets last year was the extent to which inflation occupied investors? attention, despite its near universal absence. While inflation has recently accelerated in emerging markets and a few developed ones, inflation was and is still largely absent in the developed world. Yet, record low inflation did not stop investors from worrying about it.
Results 651–669 of 669 found.