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Luis de Agustin

Luis de Agustin
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  • Looking For The Signal? Expect No Fresh Help From Yellen And Draghi At Jackson Hole [View article]
    Well, according to David Ranson, president and chief of research for macro research provider Wainwright Economics, the Fed’s July 62-pages of dense Fedspeak, Monetary Policy Report contained no language of hints to its coming interest-rate intentions for the next several months.

    Janet Yellen was left to amplify the Fedspeak in six additional pages of which according to Ranson, no juicy parts materialized. Investors were left however with one bone on the closest thing to Fed intentions: “the current target range for the federal funds rate likely will be appropriate for a considerable period after the asset purchase program ends.” That is, no change in policy. In effect, says Dr. Ranson, the Fed will keep interest rates as low as it wants for as long as it wants and for whatever reasons it wants.

    Luis de Agustin
    Aug 21, 2014. 01:34 PM | Likes Like |Link to Comment
  • 2014 Outlook: Enter Volatility [View article]
    David Ranson, president and head of research of Wainwright Economics & Co. by and large agrees. The advisor’s first monthly conference call provided clients as much. Ranson expects for 2014, mainly from past-year changes in gold and spreads indicators: improved worldwide growth; temporary speeding up of the US economy; slight decline in government estimates of US inflation; a continuing advance in the US stock market; little change in US interest rates; conditions moderately favorable for B-grade junk bonds and TIPS; near-neutrality for a much wider range of other asset classes, including emerging equity and sovereign debt markets, C-grade junk bonds, and commercial real estate.

    The big question is how long will the US mini-recovery last. Wainwright believes the answer should be based on their two selected pivotal leading indicators. Spreads would have to continue narrowing and the price of gold would have to fall further.

    Luis de Agustin
    Jan 18, 2014. 02:22 PM | 1 Like Like |Link to Comment
  • Japan's Excessive Money Printing Self Destructive [View article]
    Since last September when Japanese Prime Minister Shinzo Abe came to power and donned pink colored glasses, the yen has declined about 18 percent against the US dollar and 9 percent relative to gold. Mr. Abe’s explicit goal is to increase Japanese inflation to two percent. At first sight, the stock market welcomed the new policy, with a gain of 34 percent over the last six months, but that’s in yen. In dollars, the Japanese market has returned 12.6, not much more than the 10.7 return earned by the recession ridden euro zone.

    Strategic investment research consultancy, Wainwright Economics, continues to suspect that stock market gains in the US, Europe and Japan alike have been carried more by an acceleration of growth in the emerging world than by domestic economic improvement. The research house believes that a weak yen will not help Japan any more than a weak dollar has helped the United States historically, notwithstanding the initial rosy picture.

    In an update to analysis that Wainwright Economics published over ten years ago, the work demonstrates that inflation has been bad for Japanese economic growth and that much feared deflation has been a blessing. Although Wainwright asserts that inflation is the wrong goal for Japan, there is plenty of evidence that weakening the yen is the right way to go about achieving it; except that the convention of expressing currency change relative to the US dollar does not work in a world in which the dollar itself is a variable.

    When considering currency rallies or tumbles, these need to be compared relative to something else, says Wainwright’s head of research David Ranson. If the rally, for example, is relative to the euro and/or another currency, then it must be said that currency values are primarily the result of government policy and of agreements between governments. Only secondarily or derivatively do they respond to economic factors such as relative growth rates or the current account deficit.

    According to Ranson, major currencies do not really float. While there’s no publicly announced agreement among the US, European and Japanese central banks regarding exchange rates, “closet pegging” prevails. None of these regions will allow the others’ currencies to be significantly cheaper than its own, threatening to undercut its export industries. Behind a veil of secrecy, there are talks and negotiations about this all the time. Japan has so far been given leave to talk down the yen, but at some point, there will be opposition. When Japan’s finance ministry’s cool shades are finally flipped up, it may unfortunately see a monochromatic economy sinking below the horizon.

    Luis de Agustin
    Apr 12, 2013. 03:54 PM | Likes Like |Link to Comment
  • The Dividend Aristocrats: Where Have All The Bargains Gone? [View article]
    A remarkably useful article and review here for investors seeking request edges in a investment environment that obliges them to abandon traditional safety of bonds, and turn to equities.

    Nonetheless, would like to add this additional information that may not answer the author’s question but should add food for though.
    “Dividend champions” or “aristocrats,” stocks that have delivered a consistent annual increase in dividends per share have attracted investors for decades and rightly so. In 2012, the segment returned 19% according to the S&P 500 Dividend Aristocrats Index of 40 or 50 companies, compared with 15% for the S&P.

    In a January report, “When to Invest in the Dividend Aristocrats” research firm Wainwright Economics sought to answer important questions for investors in the “aristocrats “as to under what conditions the segment might perform systematically better/worse and if the performance were better when “cheap” and worse when “dear.”

    To be sure, the long-term performance of “dividend aristocrats” has been attractive. From inception, their S&P index produced 11.2% annualized compounded return compared with 8.5% for the S&P. In addition, this with both lower risk and beta. To Wainwright researchers something seemed wrong with the picture. Investors get higher returns with less volatility and risk?

    The anomaly, thought the research house, might be mitigated taking survivorship bias into account. That is, when an investor looks at the Dividend Champions list today, the investor is only looking at the survivors, and failing to see companies that left either because they cut/cancelled dividends, or went bankrupt (Enron, Xerox). In fact, one could safely conclude that over 80% of the original list since inception 25-years ago would be gone. If so, the upward bias is substantial. Suspected also is a downward bias in recorded volatility.

    Using norm-reversion, least-squared analysis, etc., Wainwright concluded that at face value it pays well for investors to allocate funds in the so called dividend aristocrats or champions. However, Wainwright calculates that 2 to 4 percentage points of recorded return from these stocks can be attributed to “survivorship bias” or mismeasurement. That is, those companies that cannot maintain the rigorous dividend policy, drop out of the index and are not included in subsequent index returns, but the performance of the survivors continues included. The apparent long-term four percentage point outperformance of the index vs. the S&P should thus be reconsidered.

    Luis de Agustin
    Mar 10, 2013. 09:21 AM | Likes Like |Link to Comment
  • The Treasury Bull Market Is Over; Inflation Will Take Center Stage [View article]
    On a January 4 conference call to clients, David Ranson, Wainwright’s head of research, comments on the “fiscal cliff” and reminds clients that although the tax part of the latest government dramaturgy may be over, absolutely nothing was done to alleviate the deepening fiscal and debt situation. Indeed, federal spending actually increased.

    Warns Dr. Ranson, the US economic outlook is for continuing stagflation as far as the eye can see. On the bright side, the investment strategy firm continues to anticipate a pickup in the world growth rate, though insufficient to materially change the US situation.

    For goodness sake, the country was just saved from falling off a cliff! Dr. Ranson seems a most demanding observer. Yes, a killjoy; repression is a harsh word to use regarding life in a bounteous society and envy of the world. So maybe to better judge our divining inquisitor’s social wantonness, some definitions are in order.

    Wainwright Economics defines “financial repression” as a situation in which policymakers coerce or impose costs on the private sector so as to alleviate the government’s ability to fund itself.

    The research firm defines “monetary repression” as a special case of financial repression in which money is devalued, interest rates are held down artificially, and/or the price level is pushed up in order to reduce the real size of the government’s debt and the real cost of servicing it.

    “Fiscal repression” is defined by Wainwright as a situation in which government boosts its spending and tries to boost its revenue, or conducts its policies in secretive or unpredictable ways.

    Wainwright’s analysis indentifies how fiscal repression leads by multiple pathways to the indebted situation in which the U.S. government finds itself. Ironically, claims the economist, the more repressive the government’s policies, the worse the economic situation gets, and the more repressive the government is motivated to be.

    For 2013 Wainwright’s outlook sees more repression, both monetary and fiscal. However, like the frogs for dinner in the pot of slowly heating water, the population has become so accustomed, even pleasantly soothed by the warming thermal, that the word “repression” applied to The United States seems if not reckless, unprincipled.

    Well, at least to those who thought that government supplied thermal springs to the people ended with the bad old USSR, we can say - ha!

    Luis de Agustin
    Jan 11, 2013. 04:47 PM | 2 Likes Like |Link to Comment
  • Sideways Stock Market Still Has A Ways To Go [View article]
    By n' large, agree. A different take on sideways, based on research shop Wainwright Economics' ongoing research, the S&P 500 already looks fully valued relative to its classic recovery trajectory from 3½ years ago. It shows every sign of having returned to the flat trend that it has followed since the end of the 1990s. David Ranson, Wainwright’s director of research, attributes the lack of slope in the trend to adverse economic policy: a reliance on federal spending and money creation along with the constant threat of higher tax rates and more oppressive regulation.

    The Fed has now locked itself into permanently near-zero interest rates, another source of economic drag. According to Ranson, until interest rates are driven once again by market forces, savers will go on strike and credit will be rationed. The economy’s ability to grow depends in part on credit being allocated to the most productive uses rather than the most politically connected constituencies. Therefore, the investment industry consultancy expects the US economy to continue growing at a rate of only 1 to 2 percent.

    Luis de Agustin
    Nov 15, 2012. 07:09 PM | Likes Like |Link to Comment
  • 3 Outperforming Small-Cap ETFs [View article]
    Although the S&P 500 made a virtually complete recovery within two years of its precipitous drop in 2008-09, some stock market styles show plenty of upside potential remaining while others do not, according to head of research for strategic investment research provicer, David Ranson of Wainwright Economics.

    In a recent Equity Market Outlook research report to clients, Wainwright Economics describes the near term valuation bets in U.S. stock market styles, and recommends its choice for the coming 12-months.

    Using an exponential trajectory, the analysis identifies the S&P at July end as nearly fully priced, and the Russell 1000 index similarly close to full value at 2.9% below its benchmark curve, but the Russell 2000 as cheap, 15.8% below its potential.

    Wainwright's report goes on to explore different ways in which large cap and small to mid cap value and growth stocks regained since early 2009 in resilience versus endurance terms, and their potential appreciation.

    Both Russell assets face substantial though unpredictable downside risk, however, looking at their very different upside potential, the choice is clear: as the remaining damage to investor confidence is repaired, near term valuation favors smaller cap stocks.

    On value versus growth, the value of the Russell 1000 is normally more resilient than the growth segment, but this time around the better bet goes to growth. The growth segment has more endurance and has produced higher returns since the market bottom. The upside potential for Russell 1000 growth stocks is 3.9% vs. 2.3% for value.

    Lead author of the report, David Ranson, concludes that In the Russell 2000 the upside potential for growth stocks offers a large difference: 18.3% for growth over 12% on value.

    Luis de Agustin
    Sep 14, 2012. 02:23 PM | 1 Like Like |Link to Comment
  • Is This The End Of The Commodities Super-Cycle? [View article]
    The simple answer is no, but not for the usual argument - China, et al demand. In a signature piece to clients this week, R. David Ranson, Wainwright Economics head of research, advises that reports on the death of the commodities super cycle are greatly exaggerated. According to the firm’s Strategic Asset Selector report, commodity price weakness in the past year correlates with increasing business risk around the world, but this downward pressure on risky assets is temporary. There will be no turning point in the super cycle until the dollar ceases permanently to depreciate relative to gold – no time soon.

    Dr. Ranson posits that while the global economy influences commodities prices, the effects of changes in growth do not last. This is because the pricing system insures adaptation by supply and demand sides to restore prices after they’ve been disturbed by a surge or decline in growth. Over long time frames (ten years plus) it’s the depreciation of the dollar’s gold value that explains the behavior of commodity prices, not economic growth.

    Wainwright’s work demonstrates that the downside response of commodity prices to weakness in global growth doesn’t last, but their upside response to the falling dollar is permanent. The super cycle won’t end until the dollar stops depreciating.

    Fund managers tempted to reduce exposure to commodities would do well to calmly resist the allure.

    Luis de Agustin
    Aug 11, 2012. 07:16 PM | Likes Like |Link to Comment
  • Constructing Your 2012 Dividend Growth Portfolio, Dependable Yield With Managed Risk And Volatility [View article]
    Good, sound advice, but the principle question is whether one should allocate to the US stock market. David Ranson, head of research with Wainwright Economics, questions the wisdom of this asset selection.

    As a result of the US equity market’s January performance, Wainwright now calculates that the market is well on the way to retrieving lost ground from its sell off in the third quarter of last year; however, there are only a few percentage points of short-term upside left for stocks, and significant downside given the general level of instability in the markets for sovereign debt and currencies.

    Going forward, Wainwright sees a flat stock market – until there is some major change in government policy perhaps as a result of the coming elections. High-yield debt is likely to underperform the stock market – except, perhaps, for the lowest grades.

    Luis de Agustin
    Feb 18, 2012. 11:35 AM | Likes Like |Link to Comment
  • Constructing Your 2012 Dividend Growth Portfolio, Dependable Yield With Managed Risk And Volatility [View article]
    Good thoughts and advice. The principle question is whether one should be in US equities.

    David Ranson, head of research for Wainwright Economics, questions this wisdom. As a result of the US equity market’s January performance, Wainwright now calculates that the market is well on the way to retrieving lost ground from its sell off in the third quarter of last year; however, there are only a few percentage points of short-term upside left for stocks, and significant downside given the general level of instability in the markets for sovereign debt and currencies.

    Going forward, Wainwright sees a flat stock market – until there is some major change in government policy perhaps as a result of the coming elections. High-yield debt is likely to underperform the stock market – except, perhaps, for the lowest grades.

    Luis de Agustin
    Feb 18, 2012. 11:33 AM | Likes Like |Link to Comment
  • Issue Number 1 For 2012: Recession In Europe [View article]
    According to David Ranson, head of research for Wainwright Economics, current economic policy in the US and euro zone is scaring private capital away, and that’s the main source of current poor performance. His diagnosis rests on two ubiquitous themes in classical economics: if private capital is not willing and able to invest in an economy, the economy cannot grow; and, that private capital shuns economies where the public sector is expanding or is intrusive and unpredictable. Wainwright clearly sees that the policies of the European leaders to put what they call a “firewall” around their debt crisis are failing.

    However, the outlook for the world economy as a whole is not much affected by the continuing meltdown in the euro zone. That’s because the US and the emerging world can recapture most of the capital that is flowing out of Europe. In the US, there are scattered signs of improvement that suggests this might already have started.

    Luis de Agustin
    Jan 14, 2012. 09:05 AM | Likes Like |Link to Comment
  • The Euro Recession? [View article]
    It is essentially the long and winding road to capital ownership of the state (as if the status quo were insufficient). All talk of “contagion” is just another cover story to portray European and US policymakers as innocent victims of market forces.

    By now it is clear that the West’s central banks view the economies as play things of theirs, with propping up capital ownership of states and crony capitalism their main protective mission.

    Unfortunately, Europe’s continued rejection of market principles is scaring away much of the private capital without which their economies will be unable to grow. The European economy is failing because its collective public sector is intentionally indebting itself in the effort to suppress the perceived threat from markets. That’s the reason why a recession is highly likely in Europe.

    But there is a silver lining to this story, according to David Ranson of Wainwright Economics. Capital that’s driven out of Europe by unwise and unfriendly economic policies will go to work in the rest of the world, and that will largely maintain the global growth rate. Even the crony capitalist US economy and stock market might receive a boost from Europe’s pain.

    The principle in question is that, even when one piece of an interdependent economic system fails, the system always has plenty of built-in redundancy. Ranson’s reasoning agrees with the evidence from market risk measures like credit spreads, that the European situation is not a significant threat to the world economy.

    Luis de Agustin
    Dec 4, 2011. 10:19 AM | Likes Like |Link to Comment
  • Why Europe's Debt Crisis Is Taking So Long [View article]
    For what it's worth, the answer to the question is that the solutions are politically filled with pain. Willem Buiter, a Cambridge economist who served on the Bank of England’s monetary policy committee, advocates a completely different approach. A sound, but politically unpalatable policy, would be to permit transparent default by Greece and other individual governments
    that have mismanaged themselves. Buiter suggests a “You Break it You Own It” policy whereby insolvency of a sovereign is settled between the taxpayers of that sovereign and its creditors, leaving the European Union out of it.

    Default, according to macro-research shop, Wainwright Economics, would temporarily cut the governments of Greece and others from the bond markets and force them to balance their budgets. It would also relieve the pressure on other countries that are sinking into the same morass, but which are obliged to pay their share of the costs of rescuing their weaker fellows. Default followed by spending curbs has a good track record. It is the route by which Argentina achieved its current success, with a real growth rate of 7½ % last year according to the CIA.

    Luis de Agustin
    Nov 11, 2011. 01:01 PM | Likes Like |Link to Comment
  • European Debt Crisis: Continuous Bailout Is Not The Answer [View article]
    Continued government bailouts in fact are not the answer, this according to economic research provider, wainwright Economics. Although Wainwright’s data suggest only a mild slowdown in the world economy. Even without a recession, the diagnosis is a vicious spiral of debt, depreciation, and misconceived policies. Simultaneously in the euro zone, the outlook continues to look worse as the authorities build ever bigger rescue funds to prevent or postpone default by countries that are flirting with insolvency.

    In sum, Europe and the United States are in a race to economic ruin. It’s a race that will last as long as the leaders of both fail to cut back their bloated governments or restrain the depreciation of their currencies.

    Luis de Agustin
    Oct 17, 2011. 03:45 PM | Likes Like |Link to Comment
  • The Debt Crisis In Europe And A Weak Dollar Boosts Gold And Silver [View article]
    Economic research firm, Wainwright Economics, maintains the gold price as a fundamental indicator. Despite gold's recent retreat, Wainwright’s confidence in the price of gold as one of the most significant indicators in the financial system is undiminished. The advisory interprets it as an inverse market measure of diminishing confidence that the US government will be able to find the cash to meet its obligations and service its debt. Throughout history, governments in this much financial trouble have been unable to maintain stable currencies – even when they made great efforts to do so. Over the past ten years there is a detectable acceleration in the price of gold, and continued acceleration along these lines certainly implies a monetary crisis ahead. How soon this happens depends on the rate of acceleration. The outlook for gold is mitigated by increasing signs that the Obama administration will lose power at the end of 2012 to a much more economically conservative administration.

    Luis de Agustin
    Oct 17, 2011. 02:56 PM | Likes Like |Link to Comment