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Russ Koesterich, CFA  

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  • What Obama's Budget Proposal Means For Dividend Investing [View article]
    While a higher dividend tax rate wouldn’t hurt the underlying utilities business, it would lessen the value of a utility’s dividend stream. This is an important consideration for investors in utility stocks who often view this sector primarily as a dividend play. Utility stocks’ relative price-to-earnings ratio rose significantly following the Bush Tax Cuts as the after-tax value of the dividends went up. As a result, it’s reasonable to assume that the relative multiple for the sector would contract after a tax increase as a utility’s dividend stream would be worth less after taxes. Practically, this means that while the overall stock market multiple may not be impacted by a dividend tax increase, utility stocks are likely to revert to a lower multiple relative to other types of stocks.
    Mar 22, 2012. 03:28 PM | Likes Like |Link to Comment
  • In Search Of Dividends? Look Outside The U.S. [View article]
    Investors buying international dividend stocks will be taking on currency, as well as equity, risk. However, over the long term, this may not be a bad thing. The United States still faces a number of structural issues – starting with the deficit – that will play out over the next decade. Because a weaker currency will help address some of those imbalances, dollar-based investors should consider increasing their allocation to assets denominated in other currencies. I also answered your question on
    Mar 22, 2012. 03:26 PM | Likes Like |Link to Comment
  • The Outlook For Oil [View article]
    I agree that if Europe stabilizes, the dollar is vulnerable. That said I'd expect any correction of the dollar to occur against emerging market and "hard" currencies rather than the Euro, which looks expensive by most measures.
    Feb 29, 2012. 07:13 PM | Likes Like |Link to Comment
  • Portfolio Strategies For 3 Possible 2012 Economic Scenarios [View article]
    Europe continues to be the biggest source of risk in the global economy and the most likely source of another crisis. In particular, we continue to worry about a disorderly default - Greece's debt burden is not sustainable even after the recent haircut- or the impact of rising bond yields in Italy. Outside of Europe, other sources of risk include premature fiscal tightening in the US - which will happen in 2013 without a change in existing law - or an escalation of tensions in the Middle East, specifically around Iran.
    Jan 6, 2012. 07:41 PM | Likes Like |Link to Comment
  • iShares' Chief Investment Strategist: Energy Is 'The' Sector For 2012; Avoid Utilities [Video] [View article]
    Our preference is for large, multinational integrated oil companies.
    Dec 30, 2011. 06:54 PM | Likes Like |Link to Comment
  • Economy Watch: Welcome To The Great Idle [View article]
    If Italian bond yields remain above 6.5 percent, I don't disagree. We've been saying for months that Spanish and Italian bond markets are the key. If these bonds continue to sink, the risk of another global recession rises dramatically.
    Nov 9, 2011. 12:35 PM | Likes Like |Link to Comment
  • Corporate Bonds: Figuring Out A Fair Price [View article]
    I completely agree that Treasury yields are artificially low due to buying by 'non-economic agents', specifically the Fed and Asian central banks. That said, this is unlikely to change in the near-term. To the extent that sovereigns, even artificially priced sovereigns, are still the benchmark for other fixed-income instruments, I think the comparison holds. Perhaps the real lesson is - to what may be your broader point - most fixed-income instruments look expensive and investors should try to get more of their income from equities.
    Nov 9, 2011. 12:32 PM | Likes Like |Link to Comment
  • Jobless Claims, Leading Indicators Could Show U.S. Economy Is Not Contracting [View article]
    To follow up on my post from yesterday, jobless claims came in slightly worse than expected, and the Conference Board's index of leading economic indicators was slightly better than expected. Both numbers confirm my belief that the next one to two quarters should be characterized by anemic, maybe flat, growth, but not a significant contraction. I'd still put the chances of a US recession at around 40%, with a European banking crisis the biggest risk. This has contributed to a continuation of yesterday's sell-off, which was arguably about disappointment over the Fed not doing more (to my mind, a strange response as the Fed pretty much did exactly what they had telegraphed).

    Bottom line: is if you believe Europe muddles through, then this selling looks extreme.
    Sep 22, 2011. 03:59 PM | Likes Like |Link to Comment
  • ISM To Give An Early Read On Fallout From Market Volatility [View article]
    On Thursday, the Institute for Supply Management’s report confirmed what I had expected: The US economy is experiencing slow but positive growth. The Purchasing Manager Index (PMI), the Institute’s main monthly gauge of US manufacturing activity, came in at 50.6 for August, down from 50.9 for July but higher than the 48.5 expected by economists. The index for new orders, meanwhile, which is a good predictor of future GDP growth, came in at 49.6, up from 49.2 in July. The figures show that the economy is slowing, but not contracting, and contradict the notion that the US is on the verge of a 2008-style recession. What does this mean for investors? The ISM report is somewhat supportive of stocks and is the latest evidence for my overweight view of equities:
    Sep 1, 2011. 05:05 PM | Likes Like |Link to Comment
  • Double Dip? Not So Quick [View article]
    Very much agree. Another issue with the ECRI - it appears to have a heavy reliance on stock prices. Historically, the ECRI has had a very tight correlation with equity markets. In effect, the ECRI is largely telling you much the same thing as the stock market.
    Aug 28, 2011. 03:31 PM | Likes Like |Link to Comment
  • Double Dip? Not So Quick [View article]
    I don't disagree that the Conference Board LEI is narrow, with just 10 factors. This is why I prefer watching the Chicago Fed National Activity Index, which is a much more robust method. Historically, this has had the highest correlation with GDP 1 quarter forward. The last reading ticked up indicating still sluggish, but positive growth
    Aug 28, 2011. 03:30 PM | Likes Like |Link to Comment
  • Why Gold Prices Are So High [View article]
    Goffriller - There are a couple of reasons. For one, widespread fears of resource nationalism have resulted in gold producer stocks such as Barrick Gold struggling over the last few months, as governments around the world have been looking to increase taxes and royalties on the sector to help their finances; in the meantime, gold price has continued its rise. Miners are also facing increasing labor and energy costs and generally higher full costs (which incorporate cash costs, capex and exploration), so shareholders only benefit partially from gold price increases.
    Aug 11, 2011. 05:50 PM | Likes Like |Link to Comment
  • Too Much Volatility [View article]
    Robin - VIX can certainly stay elevated for a prolonged period of time, as it did from fall of 2008 through the spring of 2009. However, barring a disruption of that magnitude the VIX typically mean reverts much faster, as it did during the bear markets in 2001-2002, 1998, and 1990. If you expect another 25% pullback in the market, it certainly makes sense that the VIX is going to remain well above not only its long-term average, but also our somewhat elevated ‘fair value’ level. However, it’s worth keeping in mind that another 25% correction would take you to 9x trailing earnings, a valuation level last seen in 1982 when both nominal and real-interest rates were much higher than they are today.
    Aug 11, 2011. 05:48 PM | Likes Like |Link to Comment
  • The Chances of a U.S. Debt Downgrade [View article]
    Old Trader – I wouldn’t disagree that the initial response to a downgrade may be modest. The wildcard is the extent to which asset owners will need to revisit their investment management agreements and see if the downgrade would in anyway prohibit them from holding US debt (think of an asset owner that can only hold AAA debt). That said, assuming there is not a lot of forced selling, any initial reaction in the Treasury market is likely to be muted. I see the danger as long-term. Given the significant deterioration in the US fiscal position, when private demand for capital eventually returns will investors be willing to lend long to the US for 3%.

    Jan Tabek – You raise an excellent point. Not only does the US have a higher gross/debt to GDP than Spain, its debt/revenue ratio is worse than virtually every other developed market
    Aug 3, 2011. 06:56 PM | Likes Like |Link to Comment