Dividend Stocks Could Be Dangerous in 2015, Ketterer Says – Bloomberg 12-31-15

Salient to Investors:

Sarah Ketterer at at Causeway Capital Mgmt said:

  • Buying energy stocks very incrementally as oil prices eventually reach a floor and rise again but no idea when. Looks for companies with tremendous financial strength that can continue to pay dividends. Smart companies will use  their balance sheet strength to buy distressed company assets.
  • Do not be passive and just buy the S&P 500 or a world index in an ETF because markets are fully priced and the largest weighted stocks are the most fully priced.
  • Active management fees pay to identify stocks left behind and avoid those that won’t blow up the portfolio.
  • Owns some Russian stocks but not aggressively. If crude oil stays at current prices or slightly higher, there will be further economic strains in Russia over the next several quarters.
  • Underweight US-listed stocks in global funds at 45 percent versus the almost 60 percent benchmark. Some of the best-managed oil and gas companies are US-domiciled.
  • Outside the US there are few tech stocks and no managed care. Some of the best opportunities in financials are abroad.
  • Consumer staples, utilities and health care globally are overpriced so it will be hard for them to meet expectations.
  • Likes industrial stocks in Europe that have fallen because of concerns about growth in China and Europe because they will end up outlasting their competitors, taking market share and becoming even more efficient. If businesses are doing their job and constantly evolving they can succeed even in a stagnant environment.
  • Investors worst mistake is short-term thinking, by selling at just the wrong time.

Read the full article at http://www.bloomberg.com/news/2014-12-31/dividend-stocks-could-be-dangerous-in-2015-ketterer-says.html

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U.S. Bond Sentiment Is Worst Since Disastrous ’09 – Bloomberg 12-29-14

Salient to Investors:

  • The median Wall Street forecast predicts the 10-yr T-yield to rise to 3.01% by the end of 2015, the 2-yr to rise more than double to 1.53%, and the 30-yr to rise to 3.70%. Wall Street calls for higher T-yields in 2015 are the most aggressive since 2009, when US debt securities suffered record losses.
  • Futures indicate an 88% percent chance the 2-yr will be at 1% or less.
  • 20% of investors, traders and analysts polled last month picked government bonds as the most likely asset to decline in 2015.
  • Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ said 2015 should be the break-out year finally, and the market is wrong in ignoring Fed rhetoric that it is nearing tightening – expects the 10-year yield to rise to 3.4% by the end of 2015.
  • Boris Rjavinski at UBS said things are pointing to a pretty healthy recovery.
  • Peter Fisher at BlackRock Investment Institute said US interest rates will rise in 2015 and sees a global divergence in monetary policy and growth.
  • Guy LeBas at Janney Montgomery Scott said any rate increase will be tempered as the increasing number of older Americans leads to less spending and slower inflation while boosting demand for low-risk, fixed-income assets, and predicts the 10-year yield to end 2015 at 2.47%. The Census Bureau reports Americans 65 years old or older reached 14.2% of the US population in 2014 versus 12.4 % a decade ago.
  • Ira Jersey at Credit Suisse said increasing wage growth, stronger employment and the lowest gasoline prices in 5 years will boost household spending. Credit Suisse predicts 10-yr yields to rise to 3.35% by the end of 2015.

Read the full article at http://www.bloomberg.com/news/2014-12-29/u-s-bond-sentiment-is-worst-since-disastrous-09-as-fed-shifts.html

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Fareed Zakaria GPS – CNN 12-21-14

Salient to Investors:

Fareed Zakaria said:

  • Movie studios and theaters have made a mistake in not affirming freedom of expression regarding the movie “The Interview”. In the late 1930s, the UK wanted to ban distribution of Charlie Chaplin’s “The Great Dictator”  to appease Nazi Germany.
  • Obama’s strategy of pressuring Russia and making it pay a price has worked.
  • Putin is not really a dictator but an illiberal Democrat.

Bret Stephens at The Wall Street Journal said:

  • The Castro regime or its successor will be much more obstreperous than we imagine and the liberalization that we seek will not materialize. The opening up of Burma – one of Obama’s great achievements – showed that just setting up an embassy and opening commercial relations was not enough and we gave up too much of our leverage.
  • Cuba is not China and not an important country so there will be no economic bonanza coming our way.
  • Pakistan has chased its best people away.

Anne-Marie Slaughter at New America Foundation said:

  • Robust US economic relations with China has not changed its hold on its society. A US relationship with Cuba is better for both countries and very important for US relations with all of Latin America, given America’s Hispanic population. The Caribbean is an area with much investment and Cuba is a key player.
  • Putin is very weak, and his move into Crimea and Ukraine was the result of both economic and political weakness. Putin’s popularity has been tied to his increasing the standard of living for the majority of Russians four-fold, but now Russia is in recession.
  • The Saudis are lowering oil prices to hurt both Iran and Russia.

Richard Haass at the Council on Foreign Relations said:

  • The move toward Cuba is well designed and either works and sets in motion the trends we want to see or doesn’t, and we still have the embargo in place. The move is one of the positive effects of lower oil prices because Venezuela is not going to be able to sustain theIR subsidy.
  • Putin has consolidated power to a degree around his own person that is without precedent in the history of Russia and the Soviet Union, which makes it hard to predict how he will react to this pressure.
  • Pakistan is a weak, divided, almost endlessly failing state and the most frightening country in the world with 150, 200 nuclear weapons and many of the world’s most dangerous terrorists.

Rana Foroohar at CNN said:

  • A great first step would be to help Cuba build a more robust Internet a la China
  • Lower oil prices is essentially a $100 billion tax rebate for consumers, but very bad news for petro autocrats like Russia and Iran – the negative fallout tends to be more intense than the positive effect.
  • Russia is a failed state economically, with 75% of the exports coming from oil.
  • In Russia and in many other emerging market countries, there is a younger generation that is quite nationalistic.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://edition.cnn.com/TRANSCRIPTS/1412/21/fzgps.01.html

Fareed Zakaria GPS – CNN 12-14-14

Fareed Zakaria said:

  • It is the big, contentious democracies, Britain and the US, that have prevailed in the world, not Nazi Germany, Imperial Japan and the Soviet Union.
  • No organization has ever benefited from being able to be the sole judge of its own performance.

Ruchir Sharma at Morgan Stanley said:

  • China’s stock market is just the newest bubble forming in the Chinese financial sector, fueled by huge liquidity injected into the economy through the real estate boom and the shadow banking system.
  • Europe is insignificant compared to China – a 1% reduction in Chinese growth was associated with a 10% decline in oil prices and on average almost 0.5% decrease in global GDP growth.

Joe Lupton at JPMorgan Chase said that even if people stopped lending to China, the government can and will intervene to avoid a crisis as it has done in the past and does have plenty of cash, though the credit binge will weigh on China’s economy for years to come.

Diane von Furstenberg said:

  • The most important relationship in life is the one you have with yourself, by being non-delusional.
  • The key to success is to be demanding of yourself, be disciplined and be kind to yourself – it is all about confidence.

The 2015 climate change performance index ranks Australia last in OECD countries and second to last overall in the climate changes performance index. The report said no country is doing enough to prevent dangerous climate change.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://edition.cnn.com/TRANSCRIPTS/1412/14/fzgps.01.html

States Across U.S. Seen Reducing Taxes by the Most Since 2001 – Bloomberg 12-08-14

Salient to Investors:

The National Assn of State Budget Officers said:

  • US states reduced taxes and fees this year by $2.3 billion, the deepest cut since F2001.
  • By the close of 2014 state spending will be 9.4 % above the peaks reached before the full brunt of the recession.
  • Just 12 states, including Florida and New York, increased spending for roads and transportation projects.

The average economist expects the US to grow 2.2% in 2014 versus 2.2% in 2013 and  2.3 % in 2012.

Josh Gonze at Thornburg Investment Mgmt said:

  • The improved outlook has driven demand for state debt, with investors willing to accept lower yields.
  • States are in a good financial condition, with no problems coming in 2015, and anticipated by most of the market making their bonds expensive.

Read the full article at http://www.bloomberg.com/news/2014-12-09/states-across-u-s-seen-reducing-taxes-by-the-most-since-2001.html

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Gold Bulls Return as Wagers on Stimulus Accumulate: Commodities – Bloomberg 12-08-14

Salient to Investors:

  • Speculators boosted bullish gold bets to a 3-month high.
  • Frank Holmes at US Global Investors said gold prices have to rise because of the sheer size of the monetization of global debt – gold is insurance.
  • Jessica Fung at BMO Capital Markets sees very little prospect of a significant gold upside unless there is another financial crisis. Fung said markets have alternatives to gold and other assets which generate decent returns.
  • Michael Underhill at Capital Innovations said producers are holding back inventory and growing the herd, in swine as well as cattle and were able to feed and fatten them up with a bumper crop in corn in 2014.

Read the full article at http://www.bloomberg.com/news/2014-12-07/gold-bulls-return-as-wagers-on-stimulus-accumulate-commodities.html

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One Hundred Years of Bond History Means Bears Destined to Lose Bloomberg 12-08-14

Salient to Investors:

  • The longest-dated Treasuries yield less than half the 6.8% average over the past five decades but are in line with the norm for the prior half-century.
  • David Jones said the notion that Treasury yields are too low is shaped by players who began their careers in the wake of runaway inflation in the 1970s and 1980s. Jones said we have come full circle, and may be in more normal territory than we thought we were.
  • Economists and strategists predict 3% GDP growth and long-term T-yields at 3.88% in 2015, compelling the Fed to raise rates in Q2, 2015.
  • Lacy Hunt at Hoisington Investment Mgmt said lackluster demand and inflation will keep yields low for years to come as the US contends with record debt levels. Hunt said that over time, bond yields are driven by inflationary expectations – so with all inflationary expectations out, we are going down to 2% on the long bond over the next several years.
  •  GDP growth has averaged 1.8% a year since 2009 versus almost 4% in the seven expansions dating back to the 1960s.
  • Based on bond yields, inflation expectations over the next 30 years have fallen below 2 percent and reached a three-year low of 1.96 percent at the end of last month.
  • Ray Stone at Stone & McCarthy Research Associates said forecasters have continued to anticipate higher borrowing costs partly because recent history has been marked by periods of elevated inflation – what prevailed before the 1970s is probably more indicative of the norm.
  • Bill Gross at Janus sees at least a halt of asset appreciation engineered upon a false central bank premise of artificial yields.
  • In July, Paul Tudor Jones said the bubble in debt globally will burst.
  • Stewart Taylor at Eaton Vance Mgmt said we are in a transition period between secular bull and bear markets in bonds.
  • JPMorgan Chase estimates European and Japanese central banks will buy $1.1 trillion of debt in 2015 to support demand.
  • Jennifer Vail at US Bank Wealth Mgmt said the structural shift related to globally low yields is driving a lot of money into our market.
  • A price war between OPEC and U.S. shale oil drillers is likely to keep inflationary pressures tied to energy from building.
  • David Robin at Newedge said that as long as inflation stays a non-story, we are not going back to those elevated yield levels.

Read the full article at http://www.bloomberg.com/news/2014-12-08/one-hundred-years-of-bond-history-means-bears-destined-to-lose.html

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Income Inequality Significantly Hurts Economic Growth, OECD Says – Bloomberg 12-08-14

Salient to Investors:

The OECD said:

  • Widening inequality creates a drag on economic growth that can be counteracted by tax policies to benefit the less well-off. Changes in wages and salaries have been the biggest direct driver of inequality. The earnings of the 10% best-paid workers have risen relative to the 10% at the bottom, who also saw a drop in annual hours worked.
  • Inequality undermines growth by preventing disadvantaged people from accessing education to develop their skills, impeding social mobility.
  • Policy makers need to be concerned with the general welfare of the bottom 40% of society and not just the poverty of the lowest 10%. Tackling poverty won’t be enough. Needed are government transfers, including policies to improve access to public services such as health care and education. Policies that help to limit or reverse inequality may also make societies wealthier.
  • Inequality knocked 6%-7% off US GDP growth between 1990 and 2010, and hurt growth in the UK, Italy and Mexico.
  • A widening in inequality like that seen in OECD states over the past two decades would slow growth by a statistically significant 0.35% a year, or 8.5% over a quarter century.

Read the full article at http://www.bloomberg.com/news/2014-12-08/income-inequality-significantly-hurts-economic-growth-oecd-says.html

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Japan’s Recession Is Worse Than We Thought—but Abe Will Still Win Big – BloombergBusinessweek 12-08-14

Salient to Investors:

  • Taro Saito at NLI Research Institute said the latest economic report reflects a pretty bleak picture of Japan’s economy.
  • Jeff Kingston at Temple University Japan said Abe is fortunate enough to be up against a politician who is extremely uninspiring and who represents a party not ready for prime time. Kingston said every one of Abe’s signature policies is overwhelmingly opposed by the Japanese, but he is likely to cruise to victory anyway because there is no viable alternative.
  • Viktor Shvets at Macquarie Securities said the opposition is completely unpopular and almost any policy and almost any politician would be able to win.

Read the full article at http://www.businessweek.com/articles/2014-12-08/japans-unpopular-premier-seeks-a-popular-mandate#r=lr-sr

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Fareed Zakaria GPS – CNN 12-07-14

Salient to Investors:

Fareed Zakaria said:

  • The Department of Defense cost overruns on one weapons system are more than the total defense budget of Britain and France put together.
  • The US spends more on defense than the next 8 nations put together including China and Russia.  Since 9/11 America has been too fearful, too reactive, too tactical in its foreign policy.
  • Ash Carter has already been a reformer and John McCain will soon be the chairman of the Armed Services Committee, but the problem is so immense that it is probably too much to hope for more than small victories – the Military Industrial Congressional Complex lives on.
  • Robert Gates wrote that the Pentagon is a gargantuan labyrinth of democracy, with 40% of its spending going to overhead.
  • If rebels don’t really want to fight unless you support them, it means they are not going to fight.
  • Obama fundamentally sees the Middle East as a hell hole that will suck America dry and so will never embrace a very ambitious strategy.
  • Northern Europe, South Korea and Singapore draw their teachers from the top third of the graduating college class versus the bottom third in the US.

Chrystia Freeland said:

  • The economic crisis in Russia will worsen, partly by sanctions, partly by the oil price fall and the tremendous capital flight and brain drain outside of Russia.
  • Russian businessmen are incredibly unhappy as real businesses and fortunes are dissolving.
  • The Syria war is descending into warlordism.
  • Western leaders have forgotten how to deal with complexity and really long-term situations, and with situations where there are no good guys.

David Rothkopf at FP Group said:

  • Putin’s budget ignores economic reality in that it anticipates the price of oil being $100 and ignores the $85 billion in capital flight in the past year.
  • Human nature, national interests and all of history tells us that the US’s tacit alliance with Iran in fighting ISIS must be linked to the nuclear negotiations.
  • This is really an Iraq/Syria war, which is even more complicated than the Syria war.

Richard Haass at the Council on Foreign Relations said:

  • The real sanction against Russia is nothing that the US and Europeans have done but is oil prices around $60.
  • Russia has enormous reserves so Putin does not have to do things to trigger more sanctions or give up his goals of a greater Russia.
  • You cannot want peace more than the negotiators want to make peace or make war more than the locals want to make war, so do not  expect a wonderful moderate Syrian opposition any time soon.
  • US bombing alone is inadequate because we need to a ground partner to take and control the ground.
  • The powerful trends in the world include the diffusion of power in many forms to many types of actors, the decentralization of decision-making partly because American reliability is not what it was due to globalization, and a Middle East that is unraveling.
  • The post-WW I order won’t be put back together.
  • China has many internal challenges so we are seeing some progress in the region.

Robin Wright at the Wilson Center said:

  • In the past year we have achieved a level of dialogue with Iran that is unprecedented since the 1979 Revolution.
  • The danger in the Middle East is always that diplomacy is overtaken by events on the ground.
  • ISIS is the most complicated war in the Middle East since the modern borders established after WWI.
  • Aleppo is the New York of Syria and on the verge of being lost.
  • ISIS and the Assad government are not fighting very much against each other.
  • The rebels are the weakest of the three forces, so the prospect of building them up is tremendously hard.

The Wall Street Journal found 45% more police killings than reported in official FBI statistics.

ProPublica found that young black men were 21 times more likely than white men to be shot dead by cops between 2010 and 2012. Blacks are 3 times as likely to be arrested for drug offences than whites even though data shows that they do not use drugs at anything like 3 times the rate as whites.

Sentencing Project found:

  • Racial minorities are more likely than white Americans to be arrested and then more likely to be convicted and more likely to face stiff sentences.
  • African-American males are 6 times more likely to be incarcerated than white males and 2.5 times more likely than Hispanic males.
  • At current trends, 1 of every 3 black American males born today can expect to go to prison in his lifetime versus 1 out of every 6 Latino males and 1 out of every 17 white males.
  • The American justice system is not racist by design but is split between justice for the rich and justice for the poor.

Joel Klein said:

  • US education is in really bad shape – while 35% graduate from high school ready for college some 20% do not graduate and will exacerbate the massive inequality.
  • The US teaching model is failing – half of teachers quit in the first 5 years – so we need more demanding requirements to get into the profession. Successful countries educate their teachers much more in content knowledge and classroom practice than the US and have a much more professional view of their role.
  • We need to give every schoolchild choices.
  • The technological revolution impacted the whole world but missed education.
  • In education, America will do the right thing in the end after trying everything else.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://edition.cnn.com/TRANSCRIPTS/1412/07/fzgps.01.html