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Pondering 2H 2011 Bank Earnings
by Team of Institutional Risk Analyst,
This week, we do a short rant on the 2H 2011 outlook for financials and ask whether further deflation does not mean a mixed road ahead for some banks. To review, let's look at the Bank Stress Index for the past several years in the box below. You can look up the rating for your bank on our retail web site, www.irabankratings.com. The major factors affecting bank performance are largely economic as always, but the market value of the liquid, large-cap financials will be buffeted by the macro see-saw between the US and EU. We just hope that our BSI is not rising again by the close of 2011.
Pacific Basin Market Overview August 2011
by Team of Nomura Asset Management,
The global economic environment seems to be deteriorating rapidly. European economies are increasingly weighed down by the de-leveraging of the peripheral countries, while confidence in the U.S. is being sapped by the political paralysis in Washington. As a result, we have significantly downgraded our economic forecasts. For the U.S. economy, we are now predicting 2.0% real growth for 2012. However, we still believe that a double dip recession can be avoided.
Is the End Near for the Eurozone?
by Team of Knowledge @ Wharton,
Warning signs are flashing red. Bond markets are projecting a 98% chance of default on Greece's debt. Stock prices for French banks, heavily invested in that debt, have plunged 10% in recent days. Has the European debt crisis hit the breaking point, with Greece -- and perhaps others -- soon to exit the eurozone? Or, will officials once more cobble together new agreements that keep Greece in the club and prevent a huge contagion effect likely to cripple an already slowing global economy? Wharton finance professors Franklin Allen and Bulent Gultekin offer their insight.
Crises Ahead As U.S. Banks Fight Against Needed Overhaul
by Team of Guild Investment Management,
Banks are supposed to be conservative institutions that do prudent analysis of credit risk, make loans accordingly, and buy government bonds. In the initial years of the 21st century, the banks were far from prudent and conservative. They were gamblers, and when they lost, the taxpayer had to bail them out. The banking sector is currently hard at work trying to stop implementation of the Volcker rule, a key provision in a needed financial overhaul legislation targeting the over-speculation madness.
King of the Mountian
by Team of Research Affiliates,
Despite the market turmoil of the past two years, U.S. equity valuations continue to resist gravity. In this issue of Fundamentals, we look at the potential consequences of understated inflation and too-low real interest rates, combined with an accommodative Fed policy. What does that mean for the stock market?
ProVise Bullets
by Team of ProVise Management Group,
In our opinion, Congress and the President need to do two things. The first is to develop a long-term, permanent solution to the Tax Code and to remove regulations that are, at best, postponing the decisions of employers to hire, and in some cases, driving jobs overseas. Heres what we would do if we were leaders in Congress: we would identify each and every one of the parts of the package where there is common agreement and pass them as quickly as we possibly could.
Addressing Our Chronically High Unemployment Rate
by Team of American Century Investments,
Anyone who listened to President Obamas speech to Congress last Thursday should have come away with one overriding theme: His goal for the remainder of his first term in office is jobs creation. But the stubborn persistence of extremely high unemployment since the Great Recession officially ended over two years agoalong with the massive stimulus spending and record low interest rates that accompanied efforts to revive the economysuggest the challenge were facing in lowering unemployment is unlike any weve faced in past recessionary recoveries since World War II.
Asian Bonds Fund Manager Interview: A Misunderstood Opportunity
Global investors remain under-invested to Asian bonds. Exposure is often made through global debt benchmarks; however, these benchmarks typically have low allocations to Asia, may not be particularly active, have allocations to less creditworthy countries and possess limited local currency exposure. Many investment opportunities in the Asian region have been overlooked. Asia provides a diverse set of markets and a broad set of country issuers across the credit spectrum, offering what we believe are good opportunities for investors to enhance portfolio yields.
Fear and loathing at Bank of New York Mellon
by Team of Institutional Risk Analyst,
In our last issue, we presented the case for the insolvency of the parent of Bank of America Corp, even though the subsidiary banks remain profitable and well-capitalized. This week, we ponder the situation at Bank of New York Mellon, where like BAC the operational performance of the depositories does not tell the whole story. Despite the high profile thrashing meted out to BAC and BK both by the NY AG in the Countrywide put-back settlement, markets may not fully appreciate just how deep is the rising kimchee swirling around BK.
Americas: Economic Review August 2011
by Team of Thomas White International,
While markets have calmed after the anxiety caused by S&Ps downgrade of U.S. debt, economic indicators for most countries in the Americas region remain subdued. 2nd quarter growth declined for most countries and full year forecasts are being revised lower. The subdued global growth outlook has dulled the prospect for continued growth in export earnings while consumer spending in some of the larger economies is increasingly being restrained by higher interest rates and the heightened economic uncertainties. Nevertheless, inflationary risks have declined, except most notably in Brazil.
Examining Systemic Risk in the Banking System
by Team of Litman Gregory,
When we spoke over two years ago, we discussed credit default swaps as speculative derivative instruments, the risks these presented to the financial system, and the need to better mitigate these risks. Can you comment on the progress the industry has made in reducing the systemic risk they pose to the financial system and talk about the risks they continue to pose? Derivatives, as such, were never entirely the problem. But, in some senses, they were symptomatic of a much deeper problemwhich is why we had created a system that was highly leveraged, highly complex, and highly networked.
Hedge Funds Minimize Losses in August
Hedge funds turned in an excellent month of relative performance when compared to equity market benchmarks, notes Clint Binkley, Senior Vice President. Macro, Futures and Short Biased managers produced positive returns in spite of severe market declines. We continue to expect hedge funds to outperform long only strategies in this volatile market environment. Hedge Fund Strategy Highlights: Directional Trading funds are the best performing group of funds in August, gaining 0.3%. Market Neutral funds provide protection from market swings, declining only 2.9% on average for the month.
Emerging Asia Pacific: Economic Review August 2011
by Team of Thomas White International,
Emerging markets across Asia experienced flagging equity prices as fears of a global slowdown, triggered by the downgrade of the U.S. sovereign credit rating and concerns over the debt crisis in Europe, gripped markets. Stock markets in some of the emerging Asian economies flirted with yearly lows. The Asian Tigers including South Korea, Hong Kong, Taiwan, Malaysia, and Thailand reported slower growth for the second quarter ended June 2011. Even China, the worlds second largest economy, reported headwinds to growth.
Emerging Europe: Economic Review August 2011
by Team of Thomas White International,
Economic growth in the Eastern European region faltered during the 2nd quarter. With this sputtering growth, the central banks are feeling pressured to reduce borrowing costs for consumers and businesses alike. Significantly, the economic recovery in the region is currently facing its most serious threat amid the burgeoning Euro-zone debt crisis and the recent downgrading of the U.S. credit rating. The woes of these former communist states are compounded further by the fact that most of these economies are dependent on their exports to the industrial powerhouse Germany.
Developed Europe: Economic Review August 2011
by Team of Thomas White International,
Last month, major economies such as Germany and France as well as the European Central Bank (ECB) took steps to allay fears about a debt contagion in Developed Europe. Still, investor sentiment remained weak in the region, echoing worldwide concerns over the state of the American economy and the loss of momentum in the global economic recovery. Amid worries that the European Financial Stability Facility (EFSF) may not have adequate funding to bail out Italy and Spain, if the need arises, the ECB stepped in to buy the sovereign debts of the two countries for the first time.
Congressional Budget Office Updates Its Economic and Fiscal Forecast
by Team of American Century Investments,
Two weeks ago, the non-partisan Congressional Budget Office (CBO) released an update to their Budget and Economic Outlook that forecasts U.S. fiscal and macroeconomic trends over a ten year period (2012 to 2021). This update creates a baseline for negotiations by the Joint Select Committee on Deficit Reductionthat committee of six Democrats and six Republicans from Congress created by The Budget Control Act of August 2011 which resulted from the contentious debt ceiling negotiations in July. In this Weekly Market Update, well review what this baseline
Developed Asia Pacific: Economic Review August 2011
by Team of Thomas White International,
Developed Asia Pacific countries faced increasing headwinds to economic growth during August. Lukewarm growth figures in developed Western economies such as the U.S. and the European Union are troubling the growth prospects of many export-oriented markets such as Singapore, Japan and Hong Kong. Despite some support from emerging markets, export orders for Singapore and Hong Kong have slowed down substantially. In Japan the current account surplus slid, while the Singapore government revised its export growth figures down for the rest of the year.
Middle East/Africa: Economic Review August 2011
by Team of Thomas White International,
According to the IMF, global economic prospects have taken a downturn in the wake of a weaker U.S. economic recovery, uncertainty surrounding the Euro-zones fiscal stability and relentless turmoil in the Middle East and North Africa (MENA) region. In recent weeks, the MENA region has been in the spotlight yet again, with the Libyan revolt against Muammar Gaddafis 42-year long dictatorship gaining momentum. The IMF has been keeping a close watch on developments in the strife-ridden country and is yet to determine the uprisings impact on the Libyan economy.
Bleak Outlook? MLPs May Help Cushion Against Market Volatility
by Team of Emerald Asset Advisors,
Professional investors spend a lot of time studying probabilities. That is because, just as the direction of the recent Hurricane Irene featured a "cone of uncertainty," the financial markets often change course without warning and can wreak havoc on investor portfolios. Alternative investments, including Master Limited Partnerships, may help limit damage from the inevitable financial storms that investors may face. In today's uncertain economy and volatile markets, MLPs - while not immune - can provide attractive yields and relatively low correlation to the stock and bond markets.
Global Overview: September 2011
by Team of Thomas White International,
The recovery in global equity prices towards the end of August could cover only part of the decline during the first half of the month and most markets have now given up all of their gains from earlier this year. Gold prices surged to a new high, and U.S. treasury yields fell despite the rating downgrade, as investors preferred safer assets. On the other hand, select barometers of global industrial activity, like copper prices, declined. Nevertheless, most developed economies continue to expand, though at a restrained pace, and are expected to gain speed during the second half of the year.
The Land of Free Lunches
by Team of Broadleaf Partners,
Weve recently concluded that the innovation cycle will become paramount to wealth creation in an environment of slow growth and when credit is relatively scarce. The economy and financial markets are fluid and dynamic. While scarce today, banks will eventually start lending again, changing the dynamics of a muted economic cycle. And while innovation is always an investable theme, in an environment where growth is scarce, such scarcity can also lead to situations where select groups of stocks become wildly overvalued as was the case for the Nifty Fifty in the 1970s and technology years ago.
Q&A with Litman Gregory Research
by Team of Litman Gregory,
We regularly use a Q&A format to address questions from readers about our investment views and current strategy. This format permits us to address a range of different topics and allows readers to focus on areas that are of interest to them. This Q&A piece was worked on jointly by members of our research team and tackles questions received during the past several weeks. We have grouped the questions into broad categories for convenience. The main topics include the Fairholme Fund, Investment-Grade Bonds, Floating Rate Loans, Municipal Bonds, International Bonds, China and Commodity Futures.
Updated Ideas for Fixed Income Positions
by Team of American Century Investments,
The current environment and related factorsincluding double-dip recession concerns, equity and high-yield corporate bond market volatility, moderate inflation expectations in the near term, and premium pricing for U.S. Treasury securitieshave raised questions for investors as they return from summer activities and re-examine fixed income investment positions. It is difficult to address all investor situations and scenarios. So for our hypothetical allocations in this piece, we will focus on fixed income positioning within employer-sponsored retirement plans, both qualified and non-qualified.
ProVise Bullets
by Team of ProVise Management Group,
In the widely anticipated comments from Federal Reserve Chairman Ben Bernanke at Jackson Hole, WY, he acknowledged that, for a number of reasons, the recession was deeper than originally thought. The recovery has been more modest than he would like, notwithstanding the fact that we have had nine months of economic growth since the recession ended, albeit anemic growth. Unfortunately, the media focused on more of the negative parts of his comments. Fortunately, investors heard optimism. Why did investors see something different than the media?
Q2 2011 Bank Ratings; FSOC Memo on Bank America
by Team of Institutional Risk Analyst,
We present our view on Bank of America (BAC Q2 2011 Bank Stress Rating: B) from the perspective of a fictional analyst named Herbert Gold working at the Fed. He has been asked to write the briefing for the Financial Stability Oversight Council, the vehicle created by the Dodd-Frank confidence in bureaucracy legislation to liquidate insolvent financial firms. But before we delve into a fanciful exposition on the importance of a parent-only analysis of a bank holding company, let's check on developments at IRA and the new Q2 2011 bank stress index (BSI) ratings for the US banking industry.
The US Financial Sector in an Environment of Turbulence
by Team of Loomis, Sayles & Co.,
US financial companies have spent the past three years trying to improve their balance sheets. We saw this trend reflected in company reports of asset quality improvements, increasing capital and strengthening liquidity. Heightened anxiety about the European debt crisis, a potential slowdown in the global economic recovery and the US credit downgrade appears to have overshadowed financial company fundamentals. Fundamental improvements by financial companies have fortified the sector, leaving it substantially stronger than in 2008. Currently, we think financials are well positioned.
Perspective on the Fed, Inflation, and the Economy, as Well as Implications for Income Investors
by Team of American Century Investments,
The Fed recently took the unprecedented step of declaring their interest rate policy for the next two yearsthey will be holding their short-term rate target essentially at zero well into 2013. Well give our perspective on why the Fed has taken this unusual step, and what these policy decisions tell us about the state of the economy, inflation, and the bond market. Finally, well address potential solutions for income-oriented investors in todays environment of record-low bond yields.
Year-End S&P 500 Price Targets
by Team of Bespoke Investment Group,
Here is a table highlighting the year-end 2011 S&P 500 price targets of major Wall Street strategists from Bloomberg's weekly survey. We also provide where the targets stood at the start of the year when the slate was clean. As shown, the average year-end price target is 1,383, which would be a gain of 16.2% from current levels. Five firms have increased their targets while two have lowered them. The increases were done earlier in the year when the market was still in positive territory. It will be interesting to see how much these drop now that the market has turned decidedly negative.
What stage of deleveraging are we in?
by Team of Litman Gregory,
The Litman Gregory research team has been assessing how long it will take for the U.S. economy to deleverage and when we can expect earnings to revert to the old trend line, which has been adjusted downward slightly after the great recession. The bottom line is that we think deleveraging started in late 2008 and that it will probably take roughly 10 years to complete the process. What this means is that going forward we will roll earnings forward at a slightly higher rate than we have in the past and, as a result, our fair-value point for the S&P will also increase at a slightly higher rate.
The GDP Growth Downgrade
by Team of American Century Investments,
While much of the nation focused on events leading up to the credit rating downgrade for the U.S. by Standard & Poors last week, this was preceded by another downgrade to the estimates of our recent, past gross domestic product (GDP) growth, which was announced by the U.S. Bureau of Economic Analysis (BEA) on Friday, July 27. While garnering much less attention, this revision has some serious implications for our economic outlook at least through the end of this year.
ProVise Bullets
by Team of ProVise Management Group,
Volatility set a record last week when, for the first time in the Indexs 115 year history, the Dow Jones moved by more than 400 points for four consecutive days. The Index was down 635 points on Monday, up 430 points on Tuesday, down 520 points on Wednesday, and up 423 points on Thursday. We all know that the value of the underlying businesses did not change drastically even day by day. Jason Zweig said it well in his book, Your Money and Your Brain: In the short run, a stocks price will change whenever someone wants to buy or sell it and whenever something happens that seems like news"
Middle East/Africa: Economic Review July 2011
by Team of Thomas White International,
Inflation has been the highest in the MENA regions due to capacity constraints and food prices. While rising costs of food and oil have increased inflationary pressures in South Africa, Israels inflation rate has breached the target range set by its central bank. In addition, South Africa is witnessing strained consumer demand, while growing economic disparity despite lower unemployment rates has triggered social unrest in Israel. Jordan is also battling pricing pressures and is looking to bridge its wide funding gap by raising capital with the issuance of its first Islamic debt instrument.
Emerging Asia Pacific: Economic Review July 2011
by Team of Thomas White International,
China, India, Taiwan and Philippines and other Asian economies seeing inflation accelerate to new highs in June. In most of these countries higher fuel costs and food prices were the primary culprits. While large economies such as India and China hiked interest rates aggressively, many countries increased bank reserve ratios to drain excess liquidity and rein in credit growth. The lone exception to the inflation-ridden scenario in Asia was Indonesia. Indonesia has successfully navigated inflationary pressures by allowing its domestic currency to strengthen strongly.
Americas: Economic Review July 2011
by Team of Thomas White International,
Second quarter economic growth was weaker than expected in the U.S.. Canada is also expected to report slower second quarter growth, but may regain some of the lost pace by the second half. Slower growth in the U.S. will likely have a restrictive effect on economic activity in Latin America, especially in Mexico and Colombia, which have relatively deeper economic ties with the U.S. For the resource exporters in the region, the expected decline in global demand growth for commodities and industrial material is likely to be a dampener.
Global Overview
by Team of Thomas White International,
Economic outlook softens further as the fiscal crisis in the developed countries escalates. While the European debt crisis continues unabated, the unprecedented downgrading of U.S. debt has shaken investor confidence across the globe. Policy responses to the growing crisis so far are widely perceived to be ineffective, as deep ideological and political divisions make compromises inevitable. Monetary policy is also constrained as central banks have limited tools left to effectively address the slowdown in economic activity.
Emerging Europe: Economic Review July 2011
by Team of Thomas White International,
The European Bank for Reconstruction and Development (EBRD) has sounded a cautionary note for the east European region after a new $229 billion aid package for Greece by the Euro-zone leaders was awarded in July. The bank, which was established to help the former communist states in their transition to market economies, said Eastern Europe and central Asia are at serious risk from the Euro-zone debt crisis, according to a news report published by Bloomberg. Still, the EBRD upped its economic forecast for the current year for the countries where it has investments.
Developed Asia Pacific: Economic Review July 2011
by Team of Thomas White International,
Reconstruction spending in some key countries in the region, like Japan and New Zealand, also played a key role in improving labor markets. In Australia, however, labor markets turned sour as job losses inched up during the quarter. Inflationary pressures have become acute in Singapore and Hong Kong mainly due to labor shortage and a relentless rise in property prices. Economies that depend on China for their export industries are worried about a weakening in the Chinese economy in the quarters ahead.
Robert Rubin, Bank America and the fate of the dollar
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst, we take a look at the latest week of inaction and indecision on the part of the leaders of the G-20 nations. Never has doing absolutely nothing taken so much time and garnered so much market and media attention. If the nothing doing dance by Barack Obama, Nicholas Sarkozy and Angela Merkel reaches a much higher frequency, life as we know if is definitely going to change big time. And that change may include altering the international role of the dollar, a change regarding which neither Congress nor the American people have been consulted.
Making Sense of the Markets
by Team of Neuberger Berman,
It is one thing to theorize about markets. It is quite another to invest. With that sentiment in mind, we offer a sampling of views from some of our portfolio managers across our firm who each independently form their own conclusions as to what to make of the market and how to position portfolios according to their respective investment disciplines.
Developed Europe: Economic Review July 2011
by Team of Thomas White International,
Sovereign debt problems on both sides of the Atlantic kept the global investment community anxious in July. While the U.S. government struggled to build political consensus on the terms for having its debt ceiling raised, European leaders negotiated hard to push their domestic agendas through, while deciding on the exact nature of another aid package for Greece. Eventually, concerns about a Greek debt contagion eased slightly after the country was given a 109 billion bailout, which included provisions for lower interest rates and longer repayment periods.
A Primer on Debt, Deficits, and Economic Growth
by Team of American Century Investments,
The recent kerfuffle in Washington over the extension of the debt ceiling presented investors with many competing arguments and seemingly contradictory information. On the one hand, we hear that debt is bad for growth. On the other hand, we are told that government spending is key to supporting the economy. And why is it that stocks tanked after an agreement was reached to avoid default and extend the debt limit? In this Weekly Market Update, we will try to provide some context for understanding these competing positions, as well as the recent market reaction to these events.
Global Investment Outlook: Aberdeen's monthly outlook for economies and markets.
Eurozone crisis threatens financial stability
Global industrial production momentum may be turning back up
Fiscal policy and sovereign indebtedness is the major medium-term issue
Monetary policy remains accommodative with emerging countries becoming less restrictive
Update on Global Economic Uncertainty
by Team of Nomura Asset Management,
Investors can afford to be less nervous in a market that has already declined significantly. Rather, we would recommend that investors should recognize the ability of these companies to generate earnings as well as their ability to sustain their dividends payments. Governments of all major developed and emerging countries have to deal with deteriorating economic forecasts, so until investor psychology calms down, patience may be needed. We will continue to monitor the changing investment environment and identify stocks that offer worthwhile investment opportunities.
Comments Regarding Recent Market Volatility
by Team of Tweedy, Browne Company,
Uncertainty, in our opinion, is one of the most difficult factors for professional as well as individual,investors to deal with, and it is dominating the markets currently. Uncertain markets are characterized by increased volatility and correlation between asset classes, as well as increasingly shorter time frames for investment decisions. None of this, in our opinion, will improve the probabilities of earning a satisfactory return over a reasonable period of time. Rather, we think that in most instances, these will improve the odds of the opposite outcome.
Pacific Basin Market Overview July 2011
by Team of Nomura Asset Management,
Equity markets in the Pacific Basin edged higher in July despite the ongoing sovereign debt issues troubling both Europe and the U.S. and the pressure from a slowdown in Chinas economy. Smaller ASEAN (Association of Southeast Asian Nations) economies continued to provide support this month, so the MSCI AC Asia Pacific Free Index including Japan and the MSCI AC Asia Pacific ex Japan Free Index closed 1.33% and 0.03% higher, respectively.
US Credit Rating Downgrade Q&A
by Team of Loomis, Sayles & Co.,
Will foreign investors, who own almost half of US Treasurys, suddenly lose confidence in the US? We think not. The US is not the only nation struggling with a debt burden. But the US Treasury market is the largest, deepest, most liquid bond market in the world, by far. Investors may talk about diversifying their holdings away from the US dollar, but it is tough to execute. This is particularly true for countries who wish to maintain a fixed exchange rate or manipulate their currencies.
Insights from the 2010 Census
by Team of American Century Investments,
The good news is that while we are aging as a nation, we are also growing both in absolute size and the size of our young population. How quickly we grow is tied to a number of factors. But two of the most important are continued healthy economic growth (where a sense of growing affluence and economic possibility is a strong incentive for young adults to have children) and how liberal or restrictive our future immigration policy will be. Based on how these factors play out, we could easily be a nation of 450 million (or more) to 360 million (or less) just in the next four decades.
Winners and Losers in the Debt Ceiling Deal
by Team of Knowledge @ Wharton,
In a last-minute attempt to stop the U.S. from defaulting for the first time ever on its loan obligations, Congress voted this week to increase the country's debt ceiling by at least $2.1 trillion. The deal includes $917 billion in spending cuts over the next 10 years, and the establishment of a congressional committee to reduce the deficit further by $1.5 trillion. Questions remain, however, about what is at stake. To answer some these and other questions, Knowledge@Wharton spoke with Wharton professors Olivia S. Mitchell and Kent Smetters.
ProVise Bullets
by Team of ProVise Management Group,
Recently, the Tax Court affirmed a tax deduction a family had taken for the 24 hour supervision needed for an elderly family member. Caregivers were hired-even though they were not licensed healthcare providers-and the family took a tax deduction for the cost of these caregivers. The IRS denied the deduction, but the Tax Court affirmed it. The Court went further by stating that the costs of maintenance and personal care services could qualify as a medical expense if a healthcare professional certifies that at least two of the six activities of daily living cannot be done without assistance.
Is the US a "BBB" credit? David Woolley on the MERS land title chain fiasco
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst, we feature a summary of a paper by David E. Woolley, a California Licensed Land Surveyor and Certified Fraud Examiner, who is a principal of Harbinger Analytics Group in Tustin, CA. Thanks to David and Lisa Herzog, who edited the study and performed research, for summarizing the paper. But first a rant on the furious inaction of the past week.
Results 2,401–2,450
of 2,793 found.
