U.S. to Avert Default and Downgrade, BlackRock’s Rieder Says – Bloomberg 09-30-13

Salient to Investors:

Rick Rieder at BlackRock said the US won’t default on its debt nor suffer any credit-rating downgrade as occurred in 2011. Rieder said that the government understands that the effect of actually defaulting  is so profound that they would never take us down that path.

Read the full article at  http://www.bloomberg.com/news/2013-09-30/u-s-to-avert-default-and-downgrade-blackrock-s-rieder-says.html

Click here to receive free and immediate email alerts of the latest forecasts.

Fed Too Familiar With Lost Workers Seeks New Guideposts: Economy – Bloomberg 09-30-13

Salient to Investors:

Ethan Harris at Bank of America said:

  • The decline in the jobless rate in August to 7.3 percent was due to Americans giving up on finding work and is forcing the Fed to struggle with how to minimize it as a policy benchmark without damaging their credibility.
  • Picking the unemployment rate as the key growth-side indicator was a huge mistake for the Fed and they have almost immediately abandoned it.
  • It is a bad idea for the Fed to monkey with the unemployment threshold, even though it is now irrelevant.

Bret Barker at TCW said the Fed directives have misled investors and contributed to volatility in the markets, while the shrinking labor force was always the problem with measuring unemployment. Barker asked how credible is the Fed’s forward guidance when it told us to watch these numbers and then told us to discount them?

William C. Dudley at the FRB of New York said the decline in joblessness overstates the degree of improvement, and other measures such as hiring and job openings point to much more modest progress.

Federal funds futures contracts traded at CME Group gave a 29.6 percent probability that the Fed will lift its benchmark by at least 0.25 percent at its December 2014 policy meeting.

John Silvia at Wells Fargo Securities said the Fed has tried to be very helpful but too specific and transparent, and is not surprised the Fed is backing away from a bad decision.

James Bullard at the FRB of St. Louis Fed said the hazards of tying policy to the unemployment rate doing were illustrated with the most recent unemployment report, when unemployment went down only because labor-force participation went down.

Fed Governor Jeremy Stein said the Fed should tie tapering more closely to economic data like joblessness and shifting the unemployment marker would be problematic because it would show that the FOMC was willing to move the threshold around and worry the markets.

Read the full article at  http://www.bloomberg.com/news/2013-09-29/fed-too-familiar-with-lost-labor-seeking-new-message-for-policy.html

Click here to receive free and immediate email alerts of the latest forecasts.

JGB Bubble Seen Growing by Bank of America on BOJ: Japan Credit – Bloomberg 09-30-13

Salient to Investors:

Bank of America Merrill Lynch and Mizuho Securities say the bubble forming in the Japanese government bond market risks further expansion as central bank purchases shield the notes from a global rout.

Benchmark 10-year JGB yields were the lowest in the world at 0.67 percent versus 2.65 percent for similar-maturity US Treasuries.

Bank of America forecasts 10-year JGB yields will fall to as low as 0.5 percent in half1 2014, and Tokai Tokyo (8616) Securities says they may touch a record low of 0.25 percent.

Shuichi Ohsaki at Bank of America said JGBs are in the midst of a bubble and because yields are suppressed by the BOJ’s powerful easing, they may climb when the stimulus is removed. Ohsaki is bullish on the Japanese economy and expects the BOJ to end its zero rate policy around mid-2016.

Most analysts expect the BOJ to add to easing in half1 2014.

Koichi Kurose at Resona Bank said the current yield levels will continue to be justified by abnormal monetary policy taken in response to the abnormal situation.

Bank of America forecasts the yield will range from 0.5 percent to 1.15 percent in the fiscal year starting April 1. Tokai Tokyo sees an even chance that the yield will touch 0.25 percent during the period.

Kazuhiko Sano at Tokai Tokyo said Japan’s growth potential will continue to deteriorate, so it is no surprise that yields are where they are at, and we will only know it’s a bubble after it bursts.

Tetsuya Miura at Mizuho Securities said bond yields are not consistent with stock prices, and either Japan will end deflation, the economy expands on a nominal basis, and tax revenue increases, or Japan will remain in deflation and fiscal risk premiums will rise.

Read the full article at  http://www.bloomberg.com/news/2013-10-01/jgb-bubble-seen-growing-by-bank-of-america-on-boj-japan-credit.html

Click here to receive free and immediate email alerts of the latest forecasts.

Nomura Sees Tax Breaks Driving $690 Billion Into Stocks – Bloomberg 09-30-13

Salient to Investors:

The Nippon Individual Savings Account program opens for applications tomorrow and will allow individuals to buy $10,143 a year of risk assets – stocks, ETFs and investment trusts – that are exempt from taxes on dividends and capital gains for 5 years. Nomura Research Institute estimates the plan will draw as much as 68 trillion yen through 2018, with 65 percent coming out of bank deposits.

Equities were just 7.9 percent of Japanese household assets in March versus 34 percent in the US and 15 percent in the euro zone. Domestic individual investors accounted for 28 percent of Japanese share trading in August, versus 21 percent a year earlier, and foreign buyers made up 63 percent.

Naoki Kamiyama at Bank of America Merrill Lynch said the tax break could be a catalyst for a change in attitude toward investment – more necessary than ever given the aging society and expected inflation.

Japan has the world’s oldest population with 26 percent aged 65 or older and will shrink 17 percent by 2055, the fastest decline among developed economies. The IMF estimates Japan’s debt will reach 245 percent of GDP in 2013 and the government projected in 2009 that the 140 trillion yen set aside for 34 million workers will run out by 2031.

The equivalent UK plan began in 1999 and allows as much as $17,400 in tax-free investment each year – there were 2.9 million active accounts as of September 2012.

Japanese individual investors were net sellers of local equities for 8 of 10 years through 2012. More than 90 percent of Japan’s sovereign bonds are owned locally and the 10-yr yield of 0.68 percent is the world’s lowest.

Isao Kubo at Nissay Asset Mgmt said individual investors have not bought Japanese stocks simply because the markets have fallen in the past 2 decades, and elderly people have more funds to invest but tend to avoid risk.

Satoshi Nojiri at Fidelity Investments Japan says the tax breaks will trigger a steady stream of money to risk assets as seminars for NISA are always full.

Yasuhiro Yonezawa at Waseda University said other government policies tried and failed to promote the shift of funds, and NISA is set to join them as it will have limited impact on the investment attitude of Japanese people who won’t behave rationally when it comes to asset management as they’ve been unresponsive to incentives offered by the government in the past.

In the 5 years after stock trading fees were deregulated in 1999, the proportion of equities as household financial assets fell to 9 percent from 9.9 percent.

Ichiro Takamatsu at Bayview Asset Mgmt said the expiration of another incentive plan for investors at the end of 2013 will limit NISA’s impact as levies on dividends and capital gains will return to 20 percent after being cut by half for the past 10 years. He said individual investors will sell shares toward the end of 2013 before the tax rate is raised back up, while many hold unrealized gains due to the Abenomics rally and that will spur profit-taking.

Nomura Research Institute said 65 percent said in July they will transfer funds from bank deposits into NISA, while 23 percent said they would sell equities held in normal accounts and replace them with NISA assets – suggesting 28 trillion yen to 68 trillion yen will flow into the accounts in the first 5 years of the program.

Atsuto Sawakami at Sawakami Fund said people will shift money to stocks if markets remain steady because the Japanese, especially those of working age, cannot rely on public pensions. He said the NISA will boost Japanese stocks in due course, especially if the program becomes permanent.

Read the full article at  http://www.bloomberg.com/news/2013-09-29/nomura-sees-tax-breaks-driving-690-billion-into-stocks.html

Click here to receive free and immediate email alerts of the latest forecasts.

Eisenhower Rally Repeating as S&P 500 Tracks Gains of ’54 – Bloomberg 09-30-13

Salient to Investors:

The S&P 500 Index return in 2013 is tracking day-to-day price moves in 1954 almost identically – a correlation coefficient of 0.95. In 1954 the S&P 500 rose a record 45 percent to reach a new high for the first time since 1929.

Jim Paulsen at Wells Capital Mgmt said what drove stock prices higher back then was a revitalization of absolutely destroyed confidence, while today the driver is that same slow but steady revival in confidence.

Jim Russell at US Bank Wealth Mgmt said the return of confidence theme is analogous to the 1950s. Russell said we got the good enough signal and investors feel the crisis environment is behind.

Bloomberg and Birinyi Associates said the average length of rallies since WWII is 4 years.

John Stoltzfus at Oppenheimer said we are nicely above the old high, and getting to where the economy is getting back online, and sees another leg up in this bull market. Stoltzfus said we get better at dealing with problems that are related to structural issues.

Paul Zemsky at ING Investment Mgmt said stocks are clearly less attractive than a year ago, but still attractive relative to many other asset classes.

Bank of America Merrill Lynch data show the S&P 500 has advanced 5.3 percent this quarter versus a total return of less than 0.1 percent for Treasuries and a gain of 5.4 percent for the S&P GSCI Total Return Index of 24 commodities.

Bruce McCain at KeyCorp said slowing US economic and earnings growth signal equities may lose momentum, while valuations are not at extremely low levels.

Economists cut growth forecasts this month to 2 percent for Q3.

The S&P 500 is 17 percent below the mean valuation since 1998 and versus the 21.7 high during the last bull market. US profits have increased an average of 4.2 percent per quarter since the start of 2012 versus the 28 percent average in 2010 and 2011. Analysts predict earnings will increase 5.2 percent for 2013 and 3.2 percent excluding financial firms and banks.

David Chalupnik at Nuveen Asset Mgmt said the S&P 500 is reasonably priced versus its own history and stocks are attractive.

Investors have added $15 billion to equity funds in 2013, the first annual increase since before the crisis.

Read the full article at  http://www.bloomberg.com/news/2013-09-29/eisenhower-rally-repeating-as-s-p-500-moves-in-lockstep-with-54.html

Click here to receive free and immediate email alerts of the latest forecasts.

Boom year for hedge fund equity bulls – FT.com 09-30-13

Salient to Investors:

Markit reports US hedge funds were short 2.4 per cent of shares, close to an all-time low. Only 6 companies reporting earnings this week have more than 3 per cent of their stock sold short. In Europe’s Stoxx 50 index of top companies, it is only 2.

HFR reports the average equity hedge fund is up 7 per cent for 2013 and 8 per cent in the entire preceding 3 years.

Rick Teisch at Liongate Capital said you would expect hedge funds to capture some of the upside and to significantly limit the downside, which is what they have mostly done in 2013.

Many equity hedge funds, particularly those with a long bias, concentrated portfolio of a focus on a particular theme,  have done really well this year with returns of as much as 30 or 35 per cent.

Hedge funds focused on stock-picking are having a boom year. Ben Watson at Aberdeen Asset Mgmt said fundamentals are increasingly being rewarded and share prices are taking more account of them than in 2010 or 2011 or 2012 – it is a stock-pickers’ market.

Many hedge fund managers, particularly US firms are looking at Europe. And demand for hedge fund office space and equity analysts in London has been rising fast this summer.

Read the full article at  http://www.ft.com/intl/cms/s/0/cb943954-29d6-11e3-bbb8-00144feab7de.html

Click here to receive free and immediate email alerts of the latest forecasts.

Italy`s Crisis – Dr Nouriel Roubini blog 09-28-13

Salient to Investors:

Nouriel Roubini at NYU writes:

  • Expect Italian elections in early 2014 but sooner is possible.
  • If there is no solution to Italy’s crisis, the spread will rise to 3 percent in a few days and the calm period for Italian stocks will end.
  • Bank stocks will be particularly hard hit and credit costs will continue to rise.
  • The sooner the elections, the worst the damage for bonds.

Read the full article at  http://drnourielroubini.blogspot.com/2013/09/italys-crisis.html

Click here to receive free and immediate email alerts of the latest forecasts.

Dudley Says Fiscal Debate Among Risks to Economic Outlook – Bloomberg 09-27-13

Salient to Investors:

William C. Dudley at FRB of New York said:

  • We need to see continued improvement in the labor market and other good economic news before tapering.
  • The FOMC are committed  to not allowing inflation to rise above its 2 percent target by any significant margin because we tried that in the ’60s and ’70s and it did not end well when they found out they were trading a little lower unemployment for ever-higher inflation.
  • Rising domestic interest rates and the global economic outlook pose risks to the US economy.
  • The labor market remains unhealthy with a great deal of slack.
  • Growth has not shown any meaningful pickup in momentum and the economy still needs the support of a very accommodative monetary policy.

Read the full article at  http://www.bloomberg.com/news/2013-09-27/dudley-says-fiscal-debate-among-risks-to-u-s-economic-outlook.html

Click here to receive free and immediate email alerts of the latest forecasts.