Friday, August 29, 2014
Prof Burtom Malkiel author of the investment classic Random Walks Down Wall Street has a column in the WSJ on stock valuations
On the US
On the US
Wednesday, August 27, 2014
Tuesday, August 26, 2014
The US stock market continues to rise and despite good reported earnings for the second quarter valuations seem stretched.
Here is the earnings growth of the sp/500 which at 14.99% is well below the long term mean of 28%
All charts from multpl.com
And the S+P 500 p/e ratio which at 19.85 is 28% above its long term median of 15.5:
Since august of last year the S+P 500 total return is up 22% but earnings rose 15% that means that over 1/3 of the appreciation in the stock market was driven by P/E expansion (higher valuations) rather than earnings growth,
I have written before about Robert Shillers CAPE ration (his recent nyt article is here ) in the article he argues the US stock market as very highly valued
As shown in the chart. at 26.48 the current value is well above its long term mean value of 16.55
How does the Us market valuation based on CAPE compare to other markets around the world. A useful i article over at seeking alpha gives some interesting data in this table of comparable CAPE ratios around the world (table below text)
Although many of these markets certainly deserve a healthy discount to the US due to political and other sovereign risk the US stlll stands out as one of the three markets in the world with the highest CAPE trading at a very large premium to some of the world's major stock markets.
Monday, August 25, 2014
German Stocks Tarred by War Find Buyers at Record Value
Friday, August 22, 2014
Dimensional Fund Advisors a pioneer in value tlted" passive funds is less known to the gerneral public. It's funds are available to retail investors either through a limited number of advisors, some annuities and some 401k plans.
from the WSJ
from the WSJ
Alongside Vanguard, Dimensional Is Getting Inflows Too
While the mutual fund giant Vanguard Group is nabbing the lion’s share of investor money pouring into “passively-managed” products like index funds, it’s not the only company benefiting.
Little talked-about Dimensional Fund Advisors, an Austin, Texas-based money manager with $380 billion in assets under management, happened to rank among the top five companies experiencing the highest inflows into passively managed products through July this year, according to the research firm Morningstar Inc.
The asset manager has long run a series of proprietary mutual funds that operate like index funds because they are highly diversified – sometimes investing in thousands of stocks, for example – and therefore spread risk, unlike a traditional mutual fund operated by a star manager, Morningstar says. They also have low turnover in their investments and are low cost
Here are numbers for the flows into passive ETFs and funds
Passive Fund Net Flows ($Millions)
|Dimensional Fund Advisors||2.296||16.771||25.932|
|TIAA-CREF Mutual Funds||267||1.635||2.589|
From the Financial Times
US investors cut their European exposure
US investors cut their European exposure
By Ralph Atkins in LondonAuthor alerts
Thursday, August 21, 2014
WSJ today reports on the explosive growth in assets at Vanguard--as well as Dimensional Fund Adviors, ishare(Blackrock) s and spdr (State Street) ETFs
Investors Pour Into Vanguard, Eschewing Stock Pickers
Investors are pouring money into Vanguard Group, the epitome of the hands-off approach to investing, flocking to funds that track market indexes and aren't run by stock pickers or star managers....
he surge is part of a sea change in the fund business in which investors are increasingly opting for products that track the market rather than relying on managers to pick winners. Other firms, such as New York behemoth BlackRockInc. and Texas-based Dimensional Fund Advisors, are also enjoying an influx of cash.....
Wednesday, August 20, 2014
The Israel Shekel has experience a very large drop vs the US $ and the Euro. Several factors seem to be at work (see chart below) from a trend of late of strengthening it is now down 15% for the year
· Large scale intervention by the Bank of Israel $1.4 billion in July of which $290 million was part
of a program to offset the impact of investment in the natural gas exploration project.
· Interest rate cut by the Bank of Israel to .5% a reversal of concerns over inflation.
· Pessimism for the Israeli economy at least in the short run as an impact of the current security situation.
· Because of slowing economic growth increased likelihood of further cuts in interest rates or certainly now increases due to fears of inflation.
· Bank of Israel intervention also seen as an effort to increase exports or exporters’ profits.
· Doubtless there has been a massive reversal of leveraged currency positions by speculators.
· Exporters and foreign investors with the need to purchase shekels accelerating their purchases.
Many analysts don’t expect the shekel to weaken beyond 3.600—although many said the same about the 3.50 level. Merrill Lynch analysts expect continue intervention in the market reversing central bank statements that they would not intervene in an effort to help exporters
In any event there has been a sharp change in the direction of the exchange rate and the seeming “consensus of analysts” speaking now of 3.600 a opposed to the forecast of 3.200 just a couple of months ago.
This is another indication of how difficult exchange rates around the world are to forecast. And the leveraged trading and size of the currency markets mean that when trends reverse the moves can be large and swift.
Interactive chart can be found here
Update August 25
Update August 25
The Bank of Israel lowered its benchmark interest rate to an all-time low of 0.25 percent from a previous 0.5 percent on Monday, its second straight monthly reduction aimed at boosting economic growth.
All 10 economists polled by Reuters had forecast no move, which came amid a seven-year low in the inflation rate and data showing Israel's economy was weakening.
Growth is forecast at 2.9 percent in 2014 but the central bank has said the Israel-Hamas war could shave a half point off of that figure.
Tuesday, August 19, 2014
No sooner did I post my analysis of the high yield market than this article came up in the WSJ. I worked on and off for a week on my piece..time to get things done and posted more promptly
Institutions Take Advantage of a Recent Slide in High-Yield Bonds' Price Triggered by Small Investors' Selling
Large institutions are snapping up U.S. junk bonds, taking advantage of a price slide triggered by an exodus of individual investors.
Many big money managers say they remain bullish on these risky corporate bonds despite concerns that the market is overheated and worries that geopolitical unrest could fuel a rush to safer assets.
Their interest stands in contrast to a wave of selling by retail investors, who sucked almost $13 billion out of junk-bond mutual funds and exchange-traded funds in the four weeks ended Aug. 6.
Analysts said upheaval in Ukraine, Iraq and Israel unsettled some investors, and concerns that prices were already too high drove some smaller investors to sell. They worried that the multiyear record-breaking run of junk bonds might be near an end.
That presented a buying opportunity for larger investors, who say the $1.6 trillion U.S. junk-bond market remains healthy and note that many bonds are now cheaper than before.
Gershon Distenfeld, who oversees $35 billion in junk bonds as director of high yield forAllianceBernstein ...
"Investors who panic in these selloffs—it's the wrong thing to do," Mr. Distenfeld said.
While there are no hard data to show hedge funds and large asset managers moving into junk bonds, a rise in prices last week suggested some big firms were buying, analysts said. U.S. high-yield bonds returned 1.02% this month through Friday, according to Barclays PLC, pushing year-to-date returns to 5.112% as of Friday from 3.498% as of Aug. 1
"There really is no good reason why high yield sold off in the first place" this summer, said David Mazza, head of research in the ETF unit at State Street Global Advisors, which oversees $413 billion in assets. "Nothing changed in the outlook for defaults."...
Standard & Poor's predicts the U.S. corporate high-yield default rate will rise to 2.7% by June 2015 from 1.5% this past June. Those rates are well below the average of 4.4% over three decades...
There were signs last week that some small investors were rethinking their retreat. U.S. junk-bond mutual and exchange-traded funds took in $680 million in the week ended Aug. 13, ending four weeks of outflows. The streak included a $7.1 billion weekly decline that was the biggest ever, fund tracker Lipper said.
Monday, August 18, 2014
Notes from around the markets and te web
Europe stocks firm as mood improves
Wsj page one same day
Euro Zone's Economy Fails to Grow
I wrote a few weeks ago in an optimistic tone on Europe and Germany perhaps a bit optimistically. The Germany ETF (EWG) is down year to date. The reason most cited for the declione is the Ukraine crisis. Export to the Ukraine make up 1.3% of German GDP and major German companies are more dependent on Asia than exports ot the rest of Europe.
With such large declines in German stocks it might be time for long term investors to take a look
Data for he week ending August 6 reported record outfolow from high yield bond ETFs
.WSJ August 16 http://online.wsj.com/articles/investors-pour-680-million-into-u-s-junk-bonds-in-latest-reporting-week-1408052063
Investors Pour $680 Million Into U.S. Junk Bonds in Latest Week Latest Inflows Snap Four Weeks of Declines
Investors poured $680 million into funds dedicated to low-rated corporate debt in the week ended on Wednesday, according to fund tracker Lipper, snapping four weeks of declines that included the previous week's record $7.1 billion weekly outflow.
Observers pointed to a change in sentiment in early August for so-called junk bonds, as institutional buyers stepped in hunting for bargains. U.S. high-yield bonds lost 1.33% in July, but
Past Three Months High Yield ETFs Last Three Months Total Return
JNK . 9%
HYG 3 Months Price Only
Risk Off Trades Change Their Character A Bit
Generally markets concerned with political uncertainty go into risk off” mode selling lower credit bonds and buying government bonds and selling emerging market stocks.
This time is a bit different
Over the Last 3 months
Emerging markets etf IEMG +6.1%
Emerging Asia (GMF) +12.1%
SP 500 +5.0%
US Govt (GOV) unchanged
Two Interesting Ones From the WebT
Robert Shiller Nobel Prize Winner in Economic in the NYT
AUG. 16, 2014
The United States stock market looks very expensive right now. The CAPE ratio, a stock-price measure I helped develop — is hovering at a worrisome level....
But Does It Really Matter How You Invest a Lump Sum
This NYT article argues no
AUG. 16, 2014
You’ve got some big decisions ahead if you’re lucky enough to have some cash to invest. Say you’ve decided to put it into the stock market. Should you plunge in immediately, investing your entire stash, or start slowly and move your money into long-term holdings very gradually?
Academics and investment practitioners have studied this question extensively. And based on statistical analysis of past performance — which, of course, is no guarantee of future returns — there is a very simple answer.
“If you’re going to make a long-term investment in stocks, you’re generally better off putting all of your money into a diversified portfolio as soon as you can,” said Paul Bosse, a principal in the investment strategy group at Vanguard. That’s because the long-term direction of the stock market has been upward, and, most of the time, the sooner you are in the market the better off you’re likely to be.
Of course, the market doesn’t always rise. And if you can avoid investing at a market peak, you are better off. But that significant
caveat aside, delaying investment has usually meant missing out on market gains.
None of which is to say that riding out those big losses would have been pleasant or that the environment has been ideal. And the markets may well become more volatile. After the gains of recent years, stock and bond markets may be overvalued — as Robert J. Shiller suggests in his Economic View column this week — and returns over the next decade may be less than those of the past. There is also no assurance that the patterns of the past will prevail again.