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(Biography of David C.M. Lucterhand) For the past thirty - seven years, Mr. Lucterhand has worked in the financial industry in North America, Latin America, Europe, Russia, Central Asia and most recently, Ukraine & Moldova. In 1976, he formed The Lucterhand Group transacting grain and... More
  • Equities - Down But Not Out

    Investors world wide are running for safety and who can blame them? Certainly, no one really knows whether Greece will leave the Euro and, if it does, what the political and economic fall out will be. Savers in Greece are withdrawing Euros from their bank accounts to hedge against introduction of the Drachma. Savers in Spain and Portugal, in smaller numbers, are doing the same. Everyday, a European systemic banking crisis looks more possible. Besides keeping money at home, what to do? Buy bonds, you say, but which ones? International investors have off-loaded Greek and Spanish and even Italian sovereign and corporate debt by the boat load with domestic investors taking up the slack. Now, everybody wants a German bank account and German bonds. Equities have barely been mentioned. There is even discussion that there are too few fixed income instruments to meet demand.

    It seems that the old cult of equity has died. Or has it? From 1900 to 2010, U.S. equities outperformed inflation in the U.S. by 6.3% compared to 1.8% for bonds. This is according to a widely used benchmark maintained by the London Business School. Since 2000, however, two stock market crashes have caused investors to lose faith in equities. In fact, equities have not been so cheap relative to bonds since 1956 which turned to be one of the best moments in history to have bought stocks. If you are old enough, you might just remember that the Suez Canal crisis was in full swing and the Mid - east looked ready to explode. The more things change, the more they same the same - fast forward to 2012.

    To paraphrase Ben Stein, former Chairman of the Council of Economic Advisors under Nixon , "Things that can't go on forever - don't." Government bonds are expensive, due to quantitative easing and perceived havens from risk, may soon turn negative meaning investors pay for the privilege of lending to the government.

    When that happens, investors will start looking at equities with a different eye. The question is when. For the moment, however, markets are politicized and, as a consequence, distorted and risky. And another dynamic is at play - a reduction in supply of equities. Companies are buying back their stock as valuations get too cheap and with interest rates this low, acquisitions are being funded with debt at the expense of equity issuance. So the pool of equities continues to shrink while money sits on the sidelines.

    At some point the stock market will experience a huge rally. Not having some exposure to equities is analogous to missing one's flight by being late to arrive at the gate except, in this case, it's more like waiting for charter flight that you know is leaving but whose departure keeps getting postponed. This is where fundamental analysis is critical. Investors need to be vigilant and know what they want to buy when this market turns. Using watch lists that MarketGrader has on its site is great way to monitor stocks without committing funds.

    We all are familiar with the old adage that just as the world seems be coming to an end, opportunity is at its greatest. Even though things are beginning to look bleak, equities will have their renaissance and those in the know will be ready.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I could not find your feedback regarding my previous submission. All I want to do now is out this out as an instablog.

    May 30 9:21 AM | Link | Comment!
  • The Fed, The Future, And The Rest Of Us

    Discussing central banks and what they do is not necessarily the currency of a stock research company but we ignore them at our peril. Their decisions affect us in the way income is distributed, access to finance, the way the financial system operates, and even the solvency of government.

    To many, the expansion of the Federal Reserve's balance sheet is the harbinger of hyperinflation. Those on fixed income are incensed with low interest rates, and almost everybody is angry about the bank bailouts. Yet, the fact that central banks saved the world from the second great depression is disregarded. Martin Wolf said it best in today's Financial Times. "Nobody gains credit for eliminating a hypothetical event."

    What then happens when central banks reverse course and begin selling assets into the market and reducing bank credit as lending recovers? We really don't know but hope they do it carefully and over time. The greatest danger is a premature exit. It will only be in the mid 2020's before we likely know how this all turns out. During this period, central banks will be faced with balancing their traditional role of maintaining financial stability with managing monetary policy to control the rates of inflation. How this all works with financial regulators having a seat at the post - crisis table remains to be seen. At least we can be sure of one thing - markets will ruthlessly measure their success or failure in doing so.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: economy
    May 02 4:18 PM | Link | Comment!
  • Barrons 400 Index

    Gentlemen:

    Anything written about an Index that can out perform the S&P 500 index with a 10 year annualized average return of nearly 8% means no lost decade for investiors and isn't PR.

    It's a gift to the investment community. I am not changing it.

    Regards,

    DCML

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 02 3:08 PM | Link | Comment!
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