Results 1–50 of 163 found.
Geopolitical Risk — The Fear and Reality for Financial Markets
Given the threat of geopolitical risk, it is reasonable to question why global financial markets remain so buoyant. The answer may partly be the constant nature of geopolitical risk. Consider the French proverb “plus ça change, plus c'est la même chose” (the more things change, the more they stay the same).
Data Dependence, Broadly Defined - Implications of Last Week’s Fed Meeting
At last week’s meeting, the FOMC made a widely-anticipated but nonetheless important change to the statement, dropping a commitment to be “patient” and thereby creating the option to hike rates at any meeting after April. In the end, this proved to be a sideshow to the more interesting changes in the Fed’s Summary of Economic Projections (SEP)—the forecasts officials’ provide at every other FOMC meeting.
Muni market – Favorable environment remains in place
Municipal bond market volatility in early '15 may have investors wondering if they should sell today and lock in their gains from 2014. After 13 consecutive months of positive returns, the muni market turned negative in February and the first two weeks of March as interest rates rose. After such a long and strong run, it is not surprising that the muni market has taken a step backward. That said, we do not see reason to panic and continue to believe that the muni market remains on sound footing due to supportive market fundamentals and technicals, as well as our entrenched high tax environment
Q&A with Jeff Knight: What’s in store for 2015?
I believe we are still going through a process that is flattering to financial market returns. But after six years and a tripling of the stock market, recognize that we're getting late in the game. Does Europe hang together? Do events in the Ukraine or Greece disrupt the economic recovery in Europe? Is the Fed’s tightening appropriate, or does it represent a threat to financial markets? Will those who come out on the short end of oil’s dramatic repricing emerge as a threat to capital markets either through default and bankruptcies, or worse through geopolitical tensions?
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.
A Very, Very, Very, Very Black Swan?
Nassim Taleb’s book "The Black Swan" effectively demonstrates that seemingly highly improbable events are much more common than expected, often with significant consequences. In fact, experts are often blind to these occurrences because past data is not necessarily a good predictor of the future. Most investors are aware a black swan event hit the Swiss franc earlier this month.
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.
The U.S. Labor Market - Show Me the Money
The U.S. labor market data has improved in the last six months now that many measures have reached cyclical highs. For the Federal Reserve though, this is not enough. They want to see this data feed through to a broader rise in incomes and wages, and ultimately spending. This will be necessary to bend the economic trajectory toward sustainably higher growth.
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.
QE Worked, But Not As Advertised
Last week the Federal Reserve announced the end of its bond-buying program, which has been running with only brief interruptions for the last six years. Besides its ultimate size and duration, the striking thing about the Feds experiment with quantitative easing (QE) is that there is still not a firm consensus on exactly how it worked. Academic economists will be busy with this question for years. But from a bond investors point of view, theres enough evidence to make a few tentative conclusions.
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.
To Infinity and Beyond!
To infinity and beyond! is the catchphrase of Buzz Lightyear, the popular character from Disneys Toy Story franchise. The phrase is both whimsical and paradoxical. The character of Buzz was inspired by Apollo 11 astronaut Buzz Aldrin; but the phrase may be a tribute to Stanley Kubricks 2001: A Space Odyssey, in which the concept of Jupiter and beyond the infinite was introduced.
Global asset allocation outlook
Recent market performance, particularly in September, has been negative across a widespread array of asset classes as we have seen the U.S. dollar exchange rate rise with increasing intensity in recent months. The worst returns, not coincidentally, were delivered by the very assets that have shown historically high sensitivity to dollar strength. This disruption to currency stability in general, and the particular importance of a rise in exchange value for the worlds reserve currency, represents an important change in capital market conditions.
How Plan Sponsors Can Prepare for the Coming Changes to Mortality Tables
The name may sound like something from Star Wars, but RP-2014 is actually the draft mortality tables released by the Society of Actuaries (SOA) earlier this year. These revised tables highlight longer life expectancies and faster increases in mortality improvements, affirming the well-established belief that individuals are living longer. The draft is currently under review by various stakeholders with the expectation that RP-2014 will be formalized this year.
Room to Run
The U.S. economy passed a milestone of sorts in August, in that the current business cycle has now surpassed the last one in length. The prior business cycle started in 2001 and continued until the December 2007 peak, lasting 6.8 years. This is longer than the post-war average of 5.6 years, but shorter than the business cycles in the 1980s and 1990s which lasted 9 to 10 years.
U.S. rates The Draghi floor
In typical fashion, last weeks European Central Bank (ECB) announcements found a way to bury the lede. The deposit rate cut to -20 basis points from -10 basis points was characterized as a technical adjustment, and the asset purchase program, while important, lacked a specific quantitative targetforcing investors to infer a rough figure from Mario Draghis comments in the press conference.
Flexible Income Strategies - Avoiding Side Effects from the Fed’s Medicine
The U.S. economy went into recession in 2008, and it looked serious. As our fiscal deficit piled up, the political appetite for high government spending waned, leaving monetary policy as the primary available weapon to prevent recession from becoming depression. By mid-2011, Treasury bond yields had reached all-time lows. This strong monetary medicine now seems to be working. Many economic statistics have rebounded to peak levels, while some forward-looking ones, like major stock market indices, have hit new highs.
Turmoil in Iraq — Implications for the Oil Markets
Oil prices and energy security have once again come back into the spotlight as the Islamic State of Iraq and the Levant, the group known as ISIS, has taken control over parts of northern and western Iraq. To date, the impact on oil prices has been fairly muted, but any escalation of violence could pose a serious threat to the stability of global oil markets and has a wide range of implications for future OPEC crude supply growth.
U.S. Rates Data Dependence
The June FOMC meeting contained a little bit for everyone and interest rates reacted only marginally after the announcements. But looking across asset marketsincluding nominal and inflation-linked bonds, equities, commodities and the dollarits clear that investors interpreted the news as another dovish surprise from the Fed. We are not sure that is the correct interpretation, and the reason comes down to the issue of data dependence.
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.
An Intriguing Six Point Three
The latest jobs report may look pretty bland on the surface, but I can assure you that it will generate plenty of intrigue among close observers of the Fed. After falling sharply in April, the unemployment rate held at 6.3%, in contrast to expectations that it would partially reverse course.
Interpreting the bond rally from a multi-asset perspective
If theres one thing investors agreed upon at the beginning of this year, it was that bond yields were heading higher. Over the past few weeks, I have read any number of research reports attempting to understand the reasons for this unexpected rally. Several plausible explanations have been offered, including the growing probability of a policy rate cut by the European Central Bank (ECB).
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.
Has Dividend Investing Lost its Luster?
With interest rates rising in 2013 and after a number of years of outperformance from high-yield dividend paying equities, investors want to know if dividend investing remains an attractive strategy. With corporate balance sheets looking healthy and dividend payout ratios remaining low by historical standards, we believe dividend growth will continue to be strong. In our view, high-yielding equities will continue to provide strong total returns especially relative to fixed income alternatives.
Does a Perfect Policy Portfolio Exist?
The idea of a policy portfolio, the core strategic asset class weightings for an investment portfolio, has evolved significantly during the course of my career as an asset allocation specialist. From the humble beginnings of standard balanced investing (the good old 60/40), investors have searched for the best neutral asset allocation to serve their goals over the long term.
A Tepid Cyclical Lift
The S&P 500 Index should grow earnings by about 7% this year, while consensus estimates for the U.S. economy are for 2.5% real growth. One reason for the gap between the two numbers is that the constituent companies of the broad market have a more cyclical tilt than the economy itself, and could be expected to expand faster in a recovery. Fair enough. But are the cyclical drivers like investment and discretionary spending on track to deliver that cyclical boost to earnings? The answer is probably yes, but only if expectations are tempered.
What to Make of the Rebound in Emerging Market Equities
A month ago, much of the news from the emerging markets (EM) was negative. We saw headlines highlighting the liquidity headwinds created by U.S. QE tapering, Russia?s aggressive opportunism in the Ukraine, and China?s imminent hard landing.
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.
Predatory Trading ? Just How Big an Issue is High-Speed Trading?
High-frequency trading (HFT) is a topic institutional investors and traders have been battling for years. A new book titled Flash Boys by author Michael Lewis of Moneyball fame, investigations out of U.S. regulators and a 60 Minutes spot on a recently developed exchange, IEX, brought this topic from Wall Street to Main Street. In this article, we?ll take a walk around the issue, educate our investors, and hopefully, quell any concerns.
Q2 fixed income outlook ? Hitting for the cycle
By the middle of this year, the economic expansion in the U.S. will officially turn five years old. By comparison, the average of all business cycle expansions tracked by the National Bureau of Economic Research dating back to the mid-1800s is about three and half years. But like many five year olds, this cycle hardly seems mature. In particular, we have taken notice of three key elements of the business cycle that have distinct implications for bond investing today.
What Investors Should Know About Fed Forward Guidance
Last week, at Janet Yellen?s first meeting as Fed Chair, the FOMC revised its forward guidance for the funds rate, dropping its reference to 6.5% unemployment and instead stressing the committee?s qualitative assessment of the economy. The change was a symbolically important step, but did not alter the broader outlook for policy rates, in our view.
Beware of Earnings Gimmicks
Since the global financial crisis, economic recovery worldwide has been slow. Over the last three years, annual gross domestic product (GDP) growth in the U.S. was limited to 2.1%, significantly below its long-term average of 3.3%. In this low growth environment, for a majority of companies, churning out high earnings-per-share (EPS) growth rates, either through top-line growth or margin expansion, has become increasingly more difficult.
Asset Allocation: The Conundrum of 2014
In 2013, both the S&P 500 Index and the yield on 10-year Treasury bonds finished the year at their highest levels of the calendar year. So ended a year when equity markets dominated the return landscape, while bonds and numerous other assets struggled. The environment apparently changed, though, with the turning of the calendar to 2014. In the New Year, bonds have performed quite well, with yields on 10-year Treasuries, as an example, falling from 3.03% to 2.67% so far this year. Stocks meanwhile, have been volatile, yet stand close to unchanged on a year to date basis.
Gut Check: The Outlook on Fixed Income
With nearly two months of the year behind us, we thought now would be a good time to see how the fixed-income market is faring in 2014 and assess our outlook. We asked our investment team five questions to help capture our view on the market today.
Puerto Rico's Double-Downgrade
On February 4, Standard & Poors lowered its long-term credit rating on the Commonwealth of Puerto Ricos (PR) general obligation (GO) debt making it the first rating agency to downgrade the Commonwealth to below investment-grade levels. Just three days later, Moodys cut its GO rating by two notches to Ba2; ratings that are capped by or linked to the Commonwealths GO rating were also downgraded two notches, with the exception of the Puerto Rico Aqueduct and Sewer Authority (PRASA) Revenue Bonds.
The Importance of Taking a Long-Term Perspective
For asset allocation decisions, we find great value in maintaining a long-term outlook for major asset classes. Twice a year, in fact, we conduct an extensive update of our five-year return forecasts for several asset classes. The purpose of this exercise is two-fold. First, taking a longer term perspective helps us to set strategic asset allocations and design portfolios for diverse investment goals.
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.
Rebalancing the U.S. Economy
Its happening again-a fourth quarter bounce in economic activity that extends into the first quarter and supports the view that growth really, finally, has started to accelerate. Such bounces have disappointed so far, although it does appear to be more than just hope this time.
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.
Three Investments that Could Return to Favor in 2014
When investors lose confidence in an asset class, especially one that had been popular enough to attract outsized allocations, subsequent rebalancing generally leads to prolonged periods of underperformance. Technology stocks after 1999, for example, underperformed the S&P 500 in eight of the next 10 years and by a cumulative total of more than 40 percentage points. Today, many believe that interest rate sensitive bonds might have just begun a similar era of waning investor confidence, portfolio reallocation and underperformance.
ACA: The Importance of Being Transparent
President James A. Garfield survived an assassins bullet in 1881, only to die several months later of complications from the infection that developed from his doctors probing his healing wound with their unclean hands and instruments, contrary to the developing understanding of the need for sanitary medical treatment. In effect, the President was a victim of his doctors inattention to or ignorance of medical best practices. As well, one cant help inferring that the Presidents doctors were among the best paid in the nation, regardless of their disastrous outco
An Update on the Affordable Care Act
Regardless of ones political views, recall that the Affordable Care Act (ACA) passed in early 2010 was a draft House bill approved in late 2009 as a basis for reconciliation with an expected Senate bill. The law was amended only slightly in 2010, and its regulatory and operating deficiencies have become apparent with the troubled launch last month of the federal and state health insurance exchanges, a topic we will address next week.
Fed Research on Policy Rules
In a paper for last weeks IMF annual research conference, William English (head of the Federal Reserve Boards Monetary Affairs division) discussed current monetary policy strategy, with a focus on threshold rules and forward guidance. The paper caused a stir in markets but we do not think it signals a fundamental change in Fed communication. Small changes to the so-called Evans Rule are possible, but the basic framework will probably remain in place even as QE tapering begins.
Upgrading Non-U.S. Equities
Two performance trends have stood out across world markets during 2013. The first is the strong outperformance by equities over bonds. The second is the strong returns of the U.S. stock market relative to other stock markets around the world. The Table breaks down year to date performance for the S&P 500, Eurostoxx 50, FTSE 100, Topix and MSCI Emerging Market indices. Notice that as of the end of July, equity returns in the Unites States were handily outpacing all other regions except Japan.
Fed Outlook for the Short and Longer Run
One of the ironies of Ben Bernankes tenure is that he set out with a goal to improve Fed communication while in office. Immediately after his first meeting as chairman in March 2006, Bernanke set up a subcommittee tasked with facilitating debate around communication issuesincluding inflation targeting, post-meeting statements and minutes and public speeches by individual Fed officials.
Results 1–50 of 163 found.