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Bernanke on the Unemployment Rate and Labor Weakness
I nearly always disagree with Bernanke on monetary and fiscal policy. Specifically, the Fed ought not have a monetary policy for the simple reason the Fed should not exist. Indeed, the Bernanke Fed and the Greenspan Fed have both proven beyond a shadow of a doubt they do not know what they are doing, where the economy is headed, or anything else of relevance in setting monetary policy. However, on rare occasions, Bernanke can say a few snippets that seem to make complete sense. For example, Bernanke Says 8.3% Unemployment Understates Labor Weakness.
Some Facts About the 'Falling' Unemployment Rate
Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers. Digging under the surface, the drop in the unemployment rate is nothing but a statistical mirage.
Debt and Deleveraging: A Five-Pronged Solution
Citing the latest report on "Debt and Deleveraging" by the McKinsey Global Institute, Ambrose Evans-Pritchard proclaims a light at the end of the tunnel and that America overcomes the debt crisis as Britain sinks deeper into the swamp. However, there is a big difference between alleged "light at the end of the tunnel" and "America Overcomes Debt Crisis" as Pritchard claims. US consumers may be one-third of the way through, but US debt-to-GDP ratios are low only because unsustainable government spending has taken up the slack.
Structurally High Unemployment for a Decade
Since 2008 I have been stating the US would have "Structurally High Unemployment for a Decade". Indeed, based on historical trends in labor force growth, the expected unemployment rate for the number of jobs created during the recovery would be well north of 11%. Yet, the unemployment rate is currently an artificially "low" 8.5% (not that 8.5% is anything to brag about). To show how difficult it will be to bring that rate down, let's take a look at job growth (or losses), for the last three decades (numbers in thousands).
Flight 2012, Cleared to Hold?
Commercial air travel can be pretty frustrating these days, but nothing compares to the call from the cockpit as you approach your destination that the flight is entering holding. Immediately many questions enter travelers minds including: Why? How long? Where will we land? Given the S&P 500 essentially experienced a holding pattern in 2011, many investors must be asking themselves similar questions right now. Specifically the S&P lost .04 points last year as it began 2011 at 1257.64 and ended the year at 1257.60.
Rebalancing Resurrected, Part 3
This is a 'Canadian-ized' version of anarticlewe published on Monday, December 19, 2011, which featured a study of US equity and fixed-income markets. As we are located in Canada, we were motivated to see how well the same techniques work in our home market using the S&P/TSX Composite. As expected, it turns out that they work quite well.
Rebalancing Resurrected, Part 2
This is a 'Japan-amized' version of an article we published on 12/19, which featured a study of US equity and fixed-income markets. The Japanese experience since 1993 was dramatically different than the U.S. Japanese investors endured a seemingly endless series of intermediate term extremes of hope and despair as markets oscillated wildly above and below their long-term negative trend. Japans multi-decade crash and stagnation is unique among modern market economies (so far), so we wanted to see how well our volatility adjusted rebalancing framework worked in this difficult environment.
Rebalancing Resurrected
This is part 1 of a 3 part series that explores optimal methods of dynamic rebalancing between stocks and bonds. This study examines these methods in the context of a US equity / Treasury basket. The next 2 posts will explore the impact of our proposed techniques on Japanese and Canadian equity / bond baskets. The investment community is in the midst of an identity crisis, though admittedly many in the industry don't know it yet. At the heart of the matter is the following misconception: Investors perceive that investment professionals add value via security selection and market timing.
Dollar Soars Following FOMC No Hint of QE3; Looking Ahead, What's Next?
I have read countless articles recently regarding the inevitability of QE3. I have disagreed for four reasons:1.Price of oil near $100 give Fed little choice 2.Rising price of food gives Fed little choice 3.Stock market has risen on hype of European bailout giving Fed little reason 4.Falling unemployment rate (even though it's totally bogus) gives Fed little reason 5.Why should the Fed react when hot air from Europe gave a huge lift to the markets? I would have been surprised if the Fed tossed a QE3 bone under those circumstances. And it didn't.
Estimating Future Stock Market Returns
Investors would do much better to heed the results of robust statistical analyses of actual market history, and play to the relative odds. This analysis suggests that markets are currently expensive, and asserts a very high probability of low returns to stocks (and possibly other asset classes) in the future. Remember, any returns earned above the average are necessarily earned at someone else's expense, so it will likely be necessary to do something radically different than everyone else to capture excess returns going forward.
Decade-Long European Recession Coming Up
Reflections on the Un-Level Playing Field. What could possibly be more un-level than guaranteeing banks and bondholders will never take losses? When there are more losses, and there will be, the only way to guarantee banks do not take them, is to have someone else take them, namely taxpayers. If Sarkozy gets his wish, taxpayers, not bondholders will pay the price. The same holds true for Ireland, Spain, Belgium, and Italy. The only true way to level the playing field is to make banks and bondholders who take foolish risks to pay the price for their foolish actions.
Whether the U.K. is in the Euro or Not, We Are All in This Together
Can the U.K. economy withstand a further sharp deterioration in the European debt crisis? The prospect of European recession, coupled with the U.K.'s program of tight fiscal policy, points to a challenging economic outlook for the U.K. A weak eurozone means weak export prospects at a time when the U.K. is trying to rebalance its economy towards greater exports. The U.K. economy has made great strides in stabilizing its banking system, but it is not yet in a position where it can withstand a systemic European crisis involving multiple defaults.
Leading Indicators or Statistical Noise?
Inquiring minds are digging into the touted numbers of the day, the Conference Board's index of leading indicators. Month in, month out, one of the biggest leading indicator components is the treasury-Fed Funds Rate spread. One might think that the direction of the spread would be important, but one would think wrong. Month-after-month, the Conference Board woodenly add points to this leading index component.
France, Germany have"Intense Consultations" on Smaller Eurozone: Breakup Inevitable, but How?
Realization the Eurozone is no longer tenable is at long last at hand. In fact, "intense discussions" have been underway for months but are just now admitted to by senior EU officials. The Eurozone is a failed experiment. A breakup is inevitable just as it has been from the beginning. Structural flaws were too great, built up over the years. No currency union in history has ever survived unless there was also a fiscal union.
Perfect Storm: Eight Reasons to be Bullish on the US Dollar
One of my much appreciated contacts is Steen Jakobsen, chief economist for Saxo Bank in Copenhagen, Denmark. Today he passed on an "internal note" that he gave permission to share. Steen Writes..."One of my main themes over the last quarter has been a "relative outperformance" of the US economy relative to consensus. This has materialized and our call was almost entirely driven by Consumer Metric data which over the last three years has outperformed any other relevant predictor. This is now slowing down slightly, but still elevated..."
Economic Perception or Reality?
October is on track to post the best monthly S&P gain of this current recovery, the first double-digit monthly gain since December 1991 and the best October gain since 1974. Though we felt the equity markets were overdue for a bounce we do feel we are now ripe for a bit of consolidation before they move higher. We think as perceptions begin to align a bit more with reality that the S&P 500 should be able to move towards the April highs We recommend investors focus on the themes of quality dividends, quality growth and quality balance sheets that we have been highlighting for quite some time.
Employment and Unemployment
The irony is that the better the economy the more people will be tempted to come back into the labor force and the more upward pressure on the participation rate and unemployment rate as well. Therefore, we cannot assume that 158,000 jobs per month will necessarily take the unemployment rate to 7% by 2017. Should the economy slip back into recession, and I think it already has, either employers shed more jobs, corporate earnings plunge, or both. I suggest both. On that basis, earnings growth is not sustainable and stocks are certainly not cheap.
Estimating Future Stock Market Returns
Investors would do well to heed the results of robust statistical analyses of actual market history, and play to the relative odds. This analysis suggests that markets are currently expensive, and asserts a very high probability of low returns to stocks (and possibly other asset classes) in the future. Remember, any returns earned above the average are necessarily earned at someone else's expense, so it will likely be necessary to do something radically different than everyone else to capture excess returns going forward.
Dividends: Paid To Wait and Poised to Rally
There are myriad clichs that capital market participants and commentators like to call on from time-to-time to help soothe the pain or illustrate the potential for gain. One that we believe applies on almost any given day concerning dividend paying stocks is, paid to wait. However, there are certain times, like now, when we think we can add the addendum, and poised to rally. We have been discussing for quite some time that we thought the U.S. equity markets were attractive based on current valuations and earnings growth (both current and projected), and that is still the case.
Bull Run Done?
To put it mildly, the equity markets have been extremely weak and extremely volatile over the last three weeks. We expected some weakness into the summer. However, the levels we have seen surprised us somewhat given the vast majority of market moving events came as no surprise and were, we believed, priced into the market. Regardless, we do believe, despite the magnitude of the markets movements, that we are still in a bull market. That isnt to say we go straight up from here but we do think we have put in a summer low.
Second Half Equity Market Rally?
We only have a few trading hours left in the 1st half of 2011 and, barring any late day meltdowns, we should end up solidly in the black as the S&P 500 is currently up 5.85% (includes re-invested dividends). On an annualized basis, this equates to 12.14% which is below the 15 ? 20% we predicted at the beginning of the year. However, as we have reiterated many times before, equity returns never come in uniform fashion, and we still are holding to our prediction as we expect, a better 2nd half than 1st half, in our opinion.
Investing Up the Value Chain
by Mike Lin of Matthews Asia,
Investors may be well served to look up the value chain in other industries where products may be trendy or have short cycles. Given this, we recently met with a leading manufacturer of mobile phone speakers and receivers that commands about a 30% market share in a duopolistic industry. Seeking exposure to the growing mobile phone industry in this way reduces the difficulty of having to identify the next winning handset maker but still taps the growth in mobile handsets. While companies that supply world-class brands may not receive much fanfare, investing in these companies can make sense.
Can U.K. CPI Really Get Back to Its 2% Target?
?U.K. CPI (Consumer Price Index) will likely continue to be buffeted by food and energy inflation. To generate the conditions necessary to bring inflation down more aggressively would put even greater pressure on U.K. households. The Bank of England is right to be cautious on raising the Bank rate given the current state of the economy.
Estimating Future Returns
There are several reasons why it may be useful to have a more robust estimate of future expected returns on stocks: People who are approaching retirement need to estimate probable returns in order to budget how much they need to save. A retiree's level of sustainable income is largely dictated by expected returns over the early years of retirement. And investors of all types must make an informed decision about how best to allocate their capital among various investment opportunities. Many studies have attempted to quantify the relationship between Shiller PE and future stock returns.
Estimating Future Returns: New Update
Traditional Advisors assume that the best estimate of future market returns in all market environments is the simple long-term average return on stocks: about 6.5% per year after inflation. We hypothesized that it is possible to construct a statistical model using long-term market data which will allow us to make much more accurate predictions about long-term returns. It turns out that we were right. Those who are interested in the process we used, and the specifications of our model, are encouraged to read our full report.
Estimating Future Returns: New Update
At Butler|Philbrick, we believe in crunching the numbers ourselves to discover where meaningful relationships exist. We apply statistical models to improve our chances of success. Traditional Advisors assume that the best estimate of future market returns in all market environments is the simple long-term average return on stocks: about 6.5% per year after inflation. We hypothesized that it is possible to construct a statistical model using long-term market data which will allow us to make much more accurate predictions about long-term returns. It turns out that we were right.
Estimating Future Returns
Investors should heed the results of robust statistical analyses of actual market history, and play to the relative odds. This analysis suggests that markets are currently expensive, and asserts a very high probability of low returns to stocks (and possibly other asset classes) in the future. Remember, any returns earned above the average are necessarily earned at someone else's expense, so it will likely be necessary to do something radically different than everyone else to capture excess returns going forward.
Postcard from Taiwan
by Mike Lin of Matthews Asia,
To help manufacturers with factories in China cope in an environment of rising wages, labor shortages and a rising renminbi, one leading Chinese industrial automation device producer we spoke with described a trend of investments in industrial automation to reduce the reliance on labor and boost profitability. Furthermore, Chinese manufacturers will need to shift from business models based purely on pricing, and evolve into producers of higher margin, value-added products. We believe this trend should benefit not only Chinese automation firms but also automation companies abroad.
Q410 Market and Economic Commentary
We remain positive on equities. Valuations on large capitalization stocks remain attractive. Though smaller cap companies outperformed large cap stocks in 2010, we believe the valuation gap will close in 2011 in large part because many of the large cap names have significant sales exposure to emerging economies around the world.
In fixed income, we continue to favor corporate securities with maturities shorter than five to six years, cushion bonds, step-up bonds, and selected non-investment grade bonds. We expect rates to continue to rise over the next eighteen months.
It's a Break-out!
by Mike Hurley of Incline Capital,
While stocks are overbought and may well pull back over the short term, market internals are in good shape and suggest stocks will likely headed higher over the intermediate term. Specifically, both breadth and leadership are confirming the ?break-out,' with the next key question being how they compare if and when stocks will challenge their early 2010 highs. A key factor in the strength in equites has clearly been interest rates, which have moved sharply lower over the past six months. This has not only helped stocks move higher, but gold as well.
Looks Like a Bottom!
by Mike Hurley of Incline Capital,
WWhile the odds suggest stocks are most likely headed higher from here, trend-following indicators such as the 'golden cross' or the weekly MACD have yet to confirm a new intermediate term up trend. The MACD is quite close however, which would reverse the 'sell' signal it registered during the the week of May 7. Commodities are looking ready to move higher as well.
Technical Market Take
by Mike Hurley of Incline Capital,
Market technical are of concern technically. Specifically, there was not only a noticeable absence of new 52-wk highs during the recent bounce in equities, but last week?s decline saw more than twice the number of new lows, than new highs (A). Most definitely action which supports the opinion that stocks may well be forming some type of cyclical top. The bottom line being, that the market continues to suggest that the wisest course of action going forward is to underweight equities (or avoid them entirely, depending on suitability) while overweighting bonds.
A Quick Review of Gold
by Mike Hurley of Incline Capital,
Mike Hurley presents charts of prices for gold contracts, as well as two key gold stocks: Newmont Mining and El Dorado Gold Corporation. It looks pretty clear that gold, and the stocks shown, are in good shape technically and ready to move meaningfully higher from here - despite what many of the bears are saying. It will be a very different story once gold breaks the up trend line shown, but until then the market itself is saying that it's 'all clear ahead!'
No Man's Land
by Mike Hurley of Incline Capital,
Rallying nicely on the month of July, the U.S. markets moved back through key areas of resistance and in doing so have formed what may end up being be ?bear traps? on their charts. While the jury remains out on the direction of equities, however, interest rates literally across the board have broken important support levels. Among these are yields on 10-year U.S. Treasury bonds, which are now below 3 percent, and are headed lower from here. This is a trend which may well have legs, and which advisors should include in their planning for clients going forward.
Mike Hurley?s Technical Take (7/26): A Bear Trap?
by Mike Hurley of Incline Capital,
While we have not yet seen a trend-following 'buy' signal in the weekly Moving Average Convergence/Divergence, stocks could continue to rally from here over the short term ? particularly given that the Stochastics are just now moving off oversold levels. The more important question is whether or not the strength will become anything more than a 'right shoulder' of a head and shoulders-type topping formation. Mid-cap stocks will most likely outperform on the upside should the market move higher in the weeks ahead.
Failing at Resistance
by Mike Hurley of Incline Capital,
Technically speaking, after finding support at its 200-day moving average in February while in an uptrend, the S&P 500 is now finding resistance at that key line. This is action indicative of a down-trend, as are the 'lower highs & lower lows' which are clearly taking shape on the chart. The overseas markets are also struggling, with the most glaring example being the EAFE. In the case of the 10-yr U.S. Treasury bonds, breaking 3.2 percent moves yields out of a yearlong trading range and signals that significantly lower yields are most likely ahead.
Results 401–439
of 439 found.
