Posts Tagged ‘Market Strategists’
Friday, August 3rd, 2012
by Mark Gongloff, Huffington Post
People hate stocks more than at any time in the past quarter century. That could mean it’s a decent time to buy them. Wall Street’s optimism about the stock market is the lowest it has been since at least 1985, according to a research note on Wednesday by Bank of America’s stock strategist Savita Subramanian. The bank measures market agita by tallying how much stock strategists are recommending their clients buy stocks.
In the Bank of America chart at the bottom of this post, you can plainly see that sentiment has absolutely plunged this year. Stock-market strategists are almost always bullish on the stock market, in part because if nobody is buying stocks, then there’s not much point in having stock-market strategists, is there? They’d have to go home and sit on their couches. But today, these same strategists are so spooked by the European debt crisis and the fiscal cliff and whatever else — Obama, or something — that they are recommending clients sell stocks, more than they did even during the financial crisis or the dot-com bubble bursting or after the 9/11 terrorist attacks.
Typically, you’re going to get some pretty good bargains in stocks when you’ve got so little competition for them, Subramanian writes. She would be one of the dwindling breed of bullish strategists: “Given the contrarian nature of this indicator, we are encouraged by Wall Street’s lack of optimism.” Speaking of contrarian indicators, on Tuesday Pimco founder Bill Gross, manager of the world’s biggest bond mutual fund, declared, “The cult of equity is dying.” He warned that carnival barkers promising you annual returns of 6 percent to 7 percent every year in stocks were lying to you, that you should get those people out of your lives immediately. This is the same Bill Gross that predicted interest rates would soar last year (spoiler: they didn’t) and then put his money where his mouth was, taking a big hit to his fund’s performance and his reputation in the process.
Copyright © Huffington Post
Tags: 9 11 Terrorist Attacks, Agita, Bank Of America, Barkers, Buying Stocks, Couches, Debt Crisis, Decent Time, Financial Crisis, Founder Bill, Good Bargains, Huffington Post, Market Strategists, Obama, Optimism, PIMCO, Quarter Century, Savita Subramanian, Stock Market, Strategist
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Friday, January 13th, 2012
A guest contribution by Anna W. via The Big Picture
The following comes from an asset manager, formerly of New York, since relocated to Colorado. Because of his employer’s rules on publishing, this is anonymous. We shall call him The Bond Specialist. I know him and his colleagues for many years, and can attest to his 35 year career on Wall Street.
2011 was a confusing year from start to finish on Wall Street and the arrival of 2012 is not offering much relief. Today the popular message is that the economy is getting better in the U.S. and problems abroad can be overcome. Recession has been avoided and “escape velocity” will be achieved in the second half. Our economy can “decouple” from Europe and some of the big developing nations that have seen their economies slow such as China, India and Russia, now that they have run into trouble. Most economists and stock market strategists seem to have cut and pasted their 2011 forecast into their 2012 forecast. (How is that for the pot calling the kettle black?) But the concerns that clouded the outlook a year ago only seem to have gotten deeper. The positive messaging is focused on the following;
-The politicians will kick the can down the road and therefore avoid the kind of austerity that could derail the recovery. The Fed will engage in more quantitative easing (a euphemism for money-printing) if the economy or the stock market falters.
-Interest rates and inflation have nowhere to go but up so the least attractive place to put your money is in the bond market. That is, unless you keep the maturities short and stick with “spread product” like corporate bonds and bonds issued by foreign governments.
-The S&P 500 will be up 10% by year end. I have been in the business for 35 years and for the last 20, the prediction for the market has always been “up 10% or more”. The rationale changes but the upside prediction does not. This year the place to be is “dividend paying stocks” that pay so much more than Treasury notes and have a great track record of increasing dividends. Also, the 3rd and 4th years of the Presidential Cycle are usually positive for stocks. Last year the emphasis was on domestic small cap, international and emerging market stocks because of their superior growth potential.
-The dollar will be weak because our fiscal and monetary situation is worse than those other countries that we have decoupled from since they are in so much trouble. Gold will be higher because some Central Banks are substituting gold for dollars as a reserve asset and lots of women will be getting married in India.
-Commodity prices will be higher in general. Oil and fertilizer are in short supply and all the rural Chinese are planning to motor on down to Kentucky Fried Chicken for some protein sooner or later.
-The housing market and home prices are finding a bottom.
Based on the popular forecast for 2012, you can buy practically anything but long term bonds and probably do just fine as long as you are diversified.
That is not the way it worked in 2011 and it seems to me to be even less likely in 2012. The S&P 500 was exactly unchanged in price for the year, providing only a 2% dividend return. It was like a video game where many aliens were destroyed and many points were scored, but it was game over on December 30th and we will have to put another quarter in on January 3rd. Small capitalization stocks (Russell 2000) were down 5% and the Dow Jones Industrial Average, the home of dividend paying stocks, was up 6%. European and Emerging Market indexes generally delivered double digit losses. They all had big swings during 2011, but the big story was how many times that the stock indexes were up or down more than 1% (100 Dow points) or more in a day. It seemed like all of them.
Gold and silver roared earlier in the year, but gold is down 18% from a high of $1900 just since September and silver peaked in May at $50. It is now $28. Gold was up 11% in 2011 and silver was down 10%. The dollar index was flat. Oil was up 9% but natural gas was down 37% to a multi-year low. Copper was down 22%. Corn was flat and wheat was down 18%. For the most part, confusion reigned.
But there was no confusion in the bond market. In 2011, the most abhorred investment vehicles; long term Treasury bonds and long term Municipal bonds were the two best performing major asset classes. After a swoon in January, long term bonds just marched up in price (down in yield) practically without interruption for the remainder of the year. As is always the case when interest rates are declining, the longest maturity and highest quality bonds perform the best. The 2039 Treasury Strip (0% coupon bond) returned 62% in 2011 and the average leveraged Closed End Municipal Bond fund returned 21%. Closed End Build America Bond funds, which contain taxable municipals where the Federal government pays 35% of the interest, did even better with an average return of 28% in 2011. The important question to ask is: in what ways will 2012 be different and how will it be similar?
As previously mentioned, the majority of pundits think that, even though they missed the boat in 2011, it is only a matter of timing and it will sail in 2012. That sentiment is understandable, but the expectation that the economy is going to return to a trend of expanding organic growth and a return to the secular credit expansion lacks credibility (no pun intended). To paraphrase Bob Farrell, in the early stages of a new secular paradigm the market is adapting to a new set of rules while most market participants are still playing by the old rules. But the old paradigm of credit expansion must resume if stocks and commodities are to appreciate, housing prices are to stabilize, the government is to avoid raising taxes and slashing spending and interest rates are to rise. As disappointing as it is, a far less rosy outcome is more likely.
Tags: 35 Years, Asset Manager, Attractive Place, Austerity, Big Picture, Bond Market, Corporate Bonds, Developing Nations, Dividend Paying Stocks, Economists, Escape Velocity, Euphemism, inflation, Market Strategists, Maturities, Money Printing, Rationale, Recession, Stock Market, Year End
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Tuesday, June 28th, 2011
James Montier’s (GMO) latest, “A Value Investor’s Perspective on Tail Risk Protection: An Ode to the Joy of Cash,” provides an excellent perspective on risk management tenets most often overlooked by investors. Montier’s behavioural science background make him one of the most interesting cross market strategists in the investing world.
Long ago, Keynes argued that the “central principle of investment is to go contrary to general opinion, on the grounds that, if everyone is agreed about its merits, the investment is inevitably too dear and therefore unattractive.” This powerful statement of the need for contrarianism is frequently ignored, with disturbing alacrity, by many investors.
The latest example in the long line of such behavior may well be the general enthusiasm for so-called tail risk protection. The range of tail risk protection products seems to be exploding. Investment banks are offering “solutions” (investment bank speak for high-fee products) to investors and fund management companies are launching “black swan” funds. There can be little doubt that tail risk protection is certainly an investment topic du jour.
I can’t help but wonder if much of the desire for tail risk protection stems from greed rather than fear. By which I mean that it seems one of the common reasons for wanting tail risk protection is to allow investors to continue to “harvest risk premium” even when those risk premiums are too narrow. This flies in the face of sensible investing. A safer and less costly (in terms of price, although perhaps not in terms of career risk) approach is simply to step away from markets when risk premiums become narrow, and wait until they widen before returning.
The very popularity of the tail risk protection alone should spell caution to investors. Keynes’s edict with which we opened would suggest that the degree of popularity of tail risk protection helps to undermine its benefits. Effectively, you should seek to buy insurance when nobody wants it, rather than when everyone is excited about the idea. An alternative way of phrasing this is to say that insurance (and that is exactly what tail risk protection is) is as much of a value proposition as any other element of investing.
As always, a comparison between price and value is required. One of the nice aspects of insurance in an investment sense is that it is generally cheap when its value is highest (although this may no longer be the case given the rise of so many tail risk products). That is to say, because most market participants appear to price everything based on extrapolation, they ignore the influence of the cycle. Thus they demand little payment for insurance during the good times because they never see those times ending. Conversely, during the bad times, the average participants seem willing to overpay for insurance as they think the bad times will never cease.
You can continue reading this in the slidedeck below, or download it from the link underneath the slidedeck. You may fullscreen the document for reading by clicking the fullscreen icon.
Visit GMO.com for more information; a free registration is required.
Tags: Alacrity, Behavioural Science, Black Swan, Central Principle, Cross Market, Edict, Fund Management Companies, Investment Bank, Investment Banks, Investment Perspective, Investment Topic, James Montier, Market Strategists, Offering Solutions, Risk Approach, Risk Premium, Risk Premiums, Risk Protection, Science Background, Value Investor
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Tuesday, February 24th, 2009
James Montier, Co-Chief, Cross Global Strategy, at Société Générale in London, not only has a long term track record of accurate market calls, he also happens to be well renown on the subject of behavioural psychology. Some years before joining SocGen, he was, along with Albert Edwards, at Dresdner Kleinwort Wasserstein, writing some of the best known papers on behavioural finance and in the case of this article, ”The Psychology of Happiness”. Montier is eloquent in his writing. Here is the synopsis from the front page of the report, a classic:
If you are after specific investment advice, stop reading now. We seek to explore one of Adam Smith’s obsessions: what it means to be happy. We also discuss why that’s important to investors, and how we can seek to improve our own levels of happiness. The list below shows our top ten suggestions for improving happiness.
- Don’t equate happiness with money. People adapt to income shifts relatively quickly, the long lasting benefits are essentially zero.
- Exercise regularly. Taking regular exercise generates further energy, and stimulates the mind and the body.
- Have sex (preferably with someone you love). Sex is consistently rated as amongst the highest generators of happiness. So what are you waiting for?
- Devote time and effort to close relationships. Close relationships require work and effort, but pay vast rewards in terms of happiness.
- Pause for reflection, meditate on the good things in life. Simple reflection on the good aspects of life helps prevent hedonic adaptation.
- Seek work that engages your skills, look to enjoy your job. It makes sense to do something you enjoy. This in turn is likely to allow you to flourish at your job, creating a pleasant feedback loop.
- Give your body the sleep it needs.
- Don’t pursue happiness for its own sake, enjoy the moment. Faulty perceptions of what makes you happy, may lead to the wrong pursuits. Additionally, activities may become a means to an end, rather than something to be enjoyed, defeating the purpose in the first place.
- Take control of your life, set yourself achievable goals.
- Remember to follow all the rules.
Download the complete paper here.
James Montier has also written the quintessential books on the subject of Behavioural Finance, Behavioural Finance: A User’s Guide , then, Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance (The Wiley Finance Series).
Tags: Accurate Market, Achievable Goals, Adam Smith, Adaptation, Aspects Of Life, Defeating The Purpose, Dresdner Kleinwort Wasserstein, Exercise, Faulty Perceptions, Feedback Loop, Generators, Global Market, Global Strategy, Investment Advice, James Montier, Levels Of Happiness, Market Strategists, Means To An End, Obsessions, Psychology Of Happiness, Reflection, Relationships, Renown, Rewards, Sake, Sleep, Societe Generale
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