Cracks Are Beginning To Show In The Market [View article]
Correction: the ticker for the Petrochina ADR was incorrectly listed in the article as PTC; it is actually PTR. Mea culpa, please accept my apology for the error.
Good Time To Invest In Chinese Equities [View article]
As a general rule, when investing in unfamiliar areas for the longer term it is a good idea to hire experienced managers who know the local market. Two that are generally held in high regard are Templeton and the Matthews Asia funds (disclosure - we hold a position in MAPIX).
For trading positions get yourself a list of the major Chinese ADRs trading in the U.S. (assuming you are a U.S. based investor), and do a little digging. NYSE listed ADRs of companies whose financials are attested by a major auditing firm are a safer bet. As stated below, I tend to avoid Chinese banks.
Finally, anyone who is interested in Chinese investment absolutely should be reading Michael Pettis' blog at mpettis.com
Good Time To Invest In Chinese Equities [View article]
You may be right, Econ Fanatic. In my most recent weekly review article I noted that the Shanghai Composite held 2,000. So far this week it is getting nice little bounce, but we've seen that before. Let's see if it holds this time. There are some positive technical divergences showing up on the charts.
As far as actually investing, my view of China is similar to my view of the U.S. - skip the broad equity indexes and be choosy about the stocks you own. With regard to China, I am wary of the banks, but a couple of stocks that have attracted my interest recently are China Life (LFC), and CNOOC (CEO).
As always, do your own due diligence before hitting the buy order.
An Overlooked Bearish Signal That Will Drive 2013 [View article]
That is an interesting interpretation Mark. Not sure it's very persuasive, but interesting. How do you account for the external capital and current account activity of the US economy? The US has essentially been importing deflation for the last three decades from mercantilist (primarily Asian) nations. Does that figure into your analysis in any way?
An Overlooked Bearish Signal That Will Drive 2013 [View article]
So...a 15 year bond bear started in July? Really? I'm not saying it did or it didn't, but you seem fairly certain. If true, that would be a turning point of enormous significance - care to share your analysis?
An Overlooked Bearish Signal That Will Drive 2013 [View article]
Are you entirely certain that "the public and the economy receives NO benefits from the QEs?"
Here we are in the tricky territory or attempting to prove a counter-factual. What would have happened had there been no QE? Collapse of another one or more of the major banks? Further collapse of the housing market? I for one would not care to have found out.
As an investor, I am happy about the recovery of the stock market. Millions of IRA and 401K account holders, you would have to imagine, might be reasonably happy as well.
An Overlooked Bearish Signal That Will Drive 2013 [View article]
Quite right - the juxtaposition of the M2 and M2 velocity charts is the visual representation of a liquidity trap, or "pushing on a string."
The falling velocity explains why inflation alarmists have been wrong all this time; might it explain why we have observed simultaneous bull markets in bonds and gold?
The inflation alarmists seem to think this will turn out just like the 1970s. Roger Earl may still be kicking around with a reconstituted Foghat, but this ain't the 70s folks.
Two questions for authors and commenters:
1. What investment implications do you draw from this in terms of portfolio positioning?
2. What would happen if M2 velocity approaches zero?
Interesting analysis. I do like the Dow Theory in that it looks for confirmations - or non-confirmations - across different groups. This is the first time I have seen it applied to gold and silver.
By way of disclosure, we are long gold in both the income and total return portfolios.
Good article. As some of the comments above have noted, VIG may not be the best choice for income oriented investors, but Mergent's methodology makes it a fine core holding for total return oriented investors.
To me the fact that the word "dividend" is part of the fund's name, while not misleading, doesn't really capture what this fund does best - focus on high quality companies that have demonstrated sustained earnings and cash flow growth
QE3: No Details, But The Market Likes It Anyway [View article]
Thanks to everyone for their comments.
I'd like to respond in particular to the questions about QE and about apparently contradictory movements in asset classes.
With respect to QE, as Andresrue noted, you don't want to fight the Fed. What it does to the economy in the longer run, as a couple of comments have noted, is troubling, but we're operating in the markets, not making economic policy. To quote former Citigroup CEO Chuck Prince, "as long as the music is playing, you've got to get up and dance."
With regard to the contradictions pointed out by numusa, inter-market correlation is a major part of my analysis, and why my weekly articles cover the different asset classes. When correlations begin to change course, to me it's a signal to pay attention, as the probability of a turn in the markets increases. We have been seeing a change recently - gold rallying while bond yields fall is a good example.
Finally, with respect to ECB bond buying, "printing euros" and driving down yields should (in theory) have a similar effect as when the Fed did it - the euro should fall, and the dollar should rise (the US is a major EMU trade partner). That is in theory. We're in somewhat uncharted waters, so we'll have to watch how the market reacts.
Why Dell Is A Must-Buy: The Comprehensive Bull Thesis [View article]
The author makes a reasonable case for Dell, IMO, but my suspicion is that this stock could have more downside in the near term, and could be dead money in the intermediate term.
What strikes me about the transition meme - going from hardware vendor to cloud or enterprise I.T. provider - is the assumption that it is a transition from low margin to high margin business. Everyone wants to be IBM, but it's not going to be easy. Servers and routers are not so much less a commodity business than laptops, and Dell is already a big player in Intel based servers, so it will be hard to take a lot more market share profitably.
Cloud platforms could prove to be even more of a high volume/low margin commodity businesses than hardware, and in that space Dell is stepping into the ring with the heavyweights of tech. The advantage, I think, will go to firms like MSFT and ORCL which actually create the software - a high margin business whether sold by the license or rented by the month.
Look for Dell to re-test of the Q4 1997 and Q1 2009 lows in the high single digits.
I'm not sure what is the BEST way to short the long bond, but can tell you what I would do if I were bearish: buy at the money puts on the TLT.
The easiest way is to simply buy the TBT (short Treasuries ETF), but there are a couple of reasons for my negative comment on it above: first, I am just not that bearish on Treasuries - not as a matter of principle, but because I don't buy the fundamental thesis. Second, the construction of TBT, like all other daily short ETFs, is something I find problematic. You will discover that many inverse and short ETFs don't track the underlying asset well over longer periods, and the TBT is no exception.
The Setting For Ben Bernanke's Speech At Jackson Hole [View article]
Event risk is certainly a probability greater than zero, and we could see oil price spikes following, say, an Israeli air strike on Iran, but that doesn't make for a stagflationary scenario in my view.
For one, it's unlikely we would see OPEC cut supply lines as in the 1970s embargoes; the OPEC nations today have their own issues and an embargo could be self-defeating. My suspicion is that this kind of event would be reflected in market pricing reactions that tend to be self-correcting (as the old saying goes, the best remedy for high prices is high prices). Something more like 2008 than 1973-74.
For stagflation to take hold, wouldn't we have to see durable price increases extend along supply chains which are now global - in particular, as in my comment above, in domestic wages? With a low labor participation rate and few automatic COLAs to kick in, again, I just don't see it.
As to the larger question of rates, it seems to me that some commentators have this sort of implicit expectation that once rates stop falling, they will begin to rise steeply. It seems just as plausible, and perhaps more consistent with the macro conditions, that they can stop falling and roll along at low levels for an extended period of time.
The Setting For Ben Bernanke's Speech At Jackson Hole [View article]
Interesting. The stagflation thesis appears to be gaining some currency recently - I have been seeing it in analyses here and there over the past few weeks, as bond yields climb. This is a thought provoking topic for me, perhaps because I did a study of it in my undergrad days, when the stagflation of the 1970s was still fresh in memory, and attracting academic inquiry.
There are a few important distinctions I can see between that time and this. Perhaps most important, at least in the U.S., is the level and "stickiness" of wages. While aggregate wages relative to GDP can, in theory fall further, they are at a much lower level today than in the mid 70s, and far less sticky (i.e., labor inputs are much more flexible).
Just as a common sense proposition, it's difficult to see how already weak aggregate demand would withstand a period of sustained inflationary pressure without significant increases in both employment and wages - which seem unlikely.
Another important distinction is the absence of supply side shocks in critical commodities - think the twin OPEC embargoes of the 70s, which my own study concluded was the proximate cause of that era's stagflation. The present day has plenty of price volatility, but no supply problems.
A third point, which I am unsure what to make of, is that the 70s era stagflation preceded the long debt boom, now we are near the end of it (I imagine). I haven't taken the time to think through the implications of deleveraging - if in fact that is what will happen - as policy makers in both the U.S and Europe insist upon.
The more likely scenario to me is a long, grinding, slow growth recovery. I am certainly not convinced of it, but it seems the path of least resistance.
Cracks Are Beginning To Show In The Market [View article]
Good Time To Invest In Chinese Equities [View article]
For trading positions get yourself a list of the major Chinese ADRs trading in the U.S. (assuming you are a U.S. based investor), and do a little digging. NYSE listed ADRs of companies whose financials are attested by a major auditing firm are a safer bet. As stated below, I tend to avoid Chinese banks.
Finally, anyone who is interested in Chinese investment absolutely should be reading Michael Pettis' blog at mpettis.com
Good Time To Invest In Chinese Equities [View article]
As far as actually investing, my view of China is similar to my view of the U.S. - skip the broad equity indexes and be choosy about the stocks you own. With regard to China, I am wary of the banks, but a couple of stocks that have attracted my interest recently are China Life (LFC), and CNOOC (CEO).
As always, do your own due diligence before hitting the buy order.
An Overlooked Bearish Signal That Will Drive 2013 [View article]
An Overlooked Bearish Signal That Will Drive 2013 [View article]
An Overlooked Bearish Signal That Will Drive 2013 [View article]
Here we are in the tricky territory or attempting to prove a counter-factual. What would have happened had there been no QE? Collapse of another one or more of the major banks? Further collapse of the housing market? I for one would not care to have found out.
As an investor, I am happy about the recovery of the stock market. Millions of IRA and 401K account holders, you would have to imagine, might be reasonably happy as well.
An Overlooked Bearish Signal That Will Drive 2013 [View article]
The falling velocity explains why inflation alarmists have been wrong all this time; might it explain why we have observed simultaneous bull markets in bonds and gold?
The inflation alarmists seem to think this will turn out just like the 1970s. Roger Earl may still be kicking around with a reconstituted Foghat, but this ain't the 70s folks.
Two questions for authors and commenters:
1. What investment implications do you draw from this in terms of portfolio positioning?
2. What would happen if M2 velocity approaches zero?
Risk On, But Watch The Dollar [View article]
By way of disclosure, we are long gold in both the income and total return portfolios.
Dividend Achiever Investing [View article]
To me the fact that the word "dividend" is part of the fund's name, while not misleading, doesn't really capture what this fund does best - focus on high quality companies that have demonstrated sustained earnings and cash flow growth
QE3: No Details, But The Market Likes It Anyway [View article]
I'd like to respond in particular to the questions about QE and about apparently contradictory movements in asset classes.
With respect to QE, as Andresrue noted, you don't want to fight the Fed. What it does to the economy in the longer run, as a couple of comments have noted, is troubling, but we're operating in the markets, not making economic policy. To quote former Citigroup CEO Chuck Prince, "as long as the music is playing, you've got to get up and dance."
With regard to the contradictions pointed out by numusa, inter-market correlation is a major part of my analysis, and why my weekly articles cover the different asset classes. When correlations begin to change course, to me it's a signal to pay attention, as the probability of a turn in the markets increases. We have been seeing a change recently - gold rallying while bond yields fall is a good example.
Finally, with respect to ECB bond buying, "printing euros" and driving down yields should (in theory) have a similar effect as when the Fed did it - the euro should fall, and the dollar should rise (the US is a major EMU trade partner). That is in theory. We're in somewhat uncharted waters, so we'll have to watch how the market reacts.
Why Dell Is A Must-Buy: The Comprehensive Bull Thesis [View article]
What strikes me about the transition meme - going from hardware vendor to cloud or enterprise I.T. provider - is the assumption that it is a transition from low margin to high margin business. Everyone wants to be IBM, but it's not going to be easy. Servers and routers are not so much less a commodity business than laptops, and Dell is already a big player in Intel based servers, so it will be hard to take a lot more market share profitably.
Cloud platforms could prove to be even more of a high volume/low margin commodity businesses than hardware, and in that space Dell is stepping into the ring with the heavyweights of tech. The advantage, I think, will go to firms like MSFT and ORCL which actually create the software - a high margin business whether sold by the license or rented by the month.
Look for Dell to re-test of the Q4 1997 and Q1 2009 lows in the high single digits.
Disclosure: I am long MSFT
4 Bad Bear Tells - VIX, Volumes, High Yield, And Spanish 10-Year Yields [View article]
The Bond Message Gets Louder [View article]
I'm not sure what is the BEST way to short the long bond, but can tell you what I would do if I were bearish: buy at the money puts on the TLT.
The easiest way is to simply buy the TBT (short Treasuries ETF), but there are a couple of reasons for my negative comment on it above: first, I am just not that bearish on Treasuries - not as a matter of principle, but because I don't buy the fundamental thesis. Second, the construction of TBT, like all other daily short ETFs, is something I find problematic. You will discover that many inverse and short ETFs don't track the underlying asset well over longer periods, and the TBT is no exception.
Good luck, whatever you decide to do
The Setting For Ben Bernanke's Speech At Jackson Hole [View article]
For one, it's unlikely we would see OPEC cut supply lines as in the 1970s embargoes; the OPEC nations today have their own issues and an embargo could be self-defeating. My suspicion is that this kind of event would be reflected in market pricing reactions that tend to be self-correcting (as the old saying goes, the best remedy for high prices is high prices). Something more like 2008 than 1973-74.
For stagflation to take hold, wouldn't we have to see durable price increases extend along supply chains which are now global - in particular, as in my comment above, in domestic wages? With a low labor participation rate and few automatic COLAs to kick in, again, I just don't see it.
As to the larger question of rates, it seems to me that some commentators have this sort of implicit expectation that once rates stop falling, they will begin to rise steeply. It seems just as plausible, and perhaps more consistent with the macro conditions, that they can stop falling and roll along at low levels for an extended period of time.
The Setting For Ben Bernanke's Speech At Jackson Hole [View article]
There are a few important distinctions I can see between that time and this. Perhaps most important, at least in the U.S., is the level and "stickiness" of wages. While aggregate wages relative to GDP can, in theory fall further, they are at a much lower level today than in the mid 70s, and far less sticky (i.e., labor inputs are much more flexible).
Just as a common sense proposition, it's difficult to see how already weak aggregate demand would withstand a period of sustained inflationary pressure without significant increases in both employment and wages - which seem unlikely.
Another important distinction is the absence of supply side shocks in critical commodities - think the twin OPEC embargoes of the 70s, which my own study concluded was the proximate cause of that era's stagflation. The present day has plenty of price volatility, but no supply problems.
A third point, which I am unsure what to make of, is that the 70s era stagflation preceded the long debt boom, now we are near the end of it (I imagine). I haven't taken the time to think through the implications of deleveraging - if in fact that is what will happen - as policy makers in both the U.S and Europe insist upon.
The more likely scenario to me is a long, grinding, slow growth recovery. I am certainly not convinced of it, but it seems the path of least resistance.