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. Banks See Worst Outflow of Money in ETF Since 2009 – Bloomberg 10-27-14

Salient to Investors:

  • The flow of funds into the Financial Select Sector SPDR ETF turned negative for the year following its biggest withdrawal last week since 2009.  Its short position is the highest since June 2002
  • Todd Rosenbluth at S&P Capital IQ said investors should have less exposure to financials than the broader market because of poor prospects for interest rates.
  • Charles Peabody at Portales Partners said the upside for financials is taken away if the Fed keeps rates low, and we have moved to bad volatility, which makes tougher. Peabody said the jump in mergers and acquisitions has probably peaked.

Read the full article at http://www.bloomberg.com/news/2014-10-27/u-s-banks-see-worst-outflow-of-money-in-etf-since-2009.html

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Mobius Shuts Frontier Fund to New Investors on Record Inflow – Bloomberg 09-25-13

Salient to Investors:

The Templeton Frontier Markets Fund closed its fund to new money, as record cash inflows turned frontier markets into the world’s best performers in 2013 – the MSCI Frontier Markets Index is up 13 percent in 2013 versus a 4.6 percent drop in the MSCI Emerging Markets Index.

Mark Mobius at Templeton Emerging Markets said the money was coming in too fast, but the market remains very buoyant and the opportunity longer term is still very, very good.  The Templeton Frontier Markets Fund had its biggest holdings in Saudi Arabia and Nigeria at the end of July, and its largest industry positions were financial and telecom stocks.

EPFR Global said funds that invest in frontier countries recorded $3.24 billion of inflows in 2013 through last week versus $879 million net inflows in 2012 and the previous annual record of $3.07 billion in 2010. Emerging-market funds had $13.7 billion of net outflows in 2013 through August.

Bloomberg said frontier nations accounted for 6 of the 7 biggest gains among global equity indexes this year and the MSCI frontier index is poised to advance during a year of losses in the emerging index for the first time on record.

Growing corporate profits, dividends and current-account surpluses have made frontier countries resilient to investor concern over Fed tapering.

 Tim Drinkall at Morgan Stanley Investment Mgmt said frontier-market equities will continue to outperform and continue to attract inflows as the asset class matures, by way of more liquidity in local markets and more investable products for institutional investors.

Sean Wilson at LR Global Partners said investors have realized that the growth story in traditional emerging markets has run its course, while frontier markets are only now being discovered by the broader investment community, and offer what traditional emerging markets offered 20 years ago.

Paul Herber at Forward Mgmt said investors are piling into frontier markets because of their growth prospects.

Lower trading volumes in frontier markets make it costly for investors to exit their positions. Andy Brown at Aberdeen Asset Mgmt said that given the liquidity in the market, the booms and busts could be even stronger than you would find in emerging markets.

Per-share earnings in the frontier index have increased 14 percent during the past 2 years versus an 11 percent drop in the emerging index. The frontier market index has a 4 percent dividend yield and is valued at 12.1 times reported earnings, versus a 2.7 percent yield and 11.9 times earnings for the emerging market index.

The IMF said current-account surpluses in frontier countries will grow to an average 3.4 percent of GDP in 2013 versus 3.1 percent in 2012 versus a deficit of 1 percent for emerging nations.

Read the full article at http://www.bloomberg.com/news/2013-09-25/templeton-closes-frontier-fund-to-new-investors-on-record-inflow.html

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Americans With Best Credit in Decades Drive U.S. Economy – Bloomberg 08-05-13

Salient to Investors:

Joseph Carson at AllianceBernstein said:

  • Household finances are in the best shape in decades, and the US is entering a new, stronger growth phase as healthier finances revive borrowing, spur consumer spending, generate business investment and jobs.
  • Household wealth measured by net worth rose to $70.3 trillion in Q1, up almost $20 trillion from its recession low.
  • The two-quarter average for the financial-obligations ratio was 15.2 percent in March, matching the lowest since at least 1980.
  • Household liquid assets rose by $10 trillion in the past 4 years, and the ratio of coverage for liabilities is 2.43, the highest since 2000.
  • Credit demand and supply have been slow to recover because the housing rebound was delayed, unlike after most recessions, but home sales are rising, foreclosures have waned and banks are more willing to lend against an asset that’s gaining value.

    The rebound in housing and employment needs to be sustained for credit to pick up.

  • All the easy monetary conditions won’t work if the consumer does not take advantage of credit and banks are not willing to lend.

James Paulsen at Wells Capital Mgmt said:

  • The credit-driven cycle is good for investors and could help the S&P 500 to double-digit gains in 2014 after an advance of as much as 20 percent in 2013.
  • Financials like banks will continue to outperform as they are at the heart of the credit-creation process, which is becoming noticeable.
  • Industrial, materials and tech stocks are attractive.
  • Consumer cyclicals have less room to rise after outsized increases, but if unemployment falls close to 6 percent, expect a lot more demand for credit and spending.
  • The improvement in borrowing and lending is not yet strong enough to get front-page coverage

  • We won’t get another bubble economy or Gekko environment.

Keith Leggett at  the American Bankers Association said bank-card delinquencies in Q1 were the lowest since June 1990, and said we are on the cusp of a trend toward more risk-taking, with consumers becoming a bigger contributor to economic growth.

Michelle Meyer at Bank of America said property prices may jump 11.8 percent in 2013 after climbing 7.3 percent in 2012, and mortgage debt as a share of disposable income will continue to fall. Meyer said consumers will provide a bigger lift to consumption over time as the housing recovery helps to heal households’ balance sheets.

Barry Bosworth at Brookings said Americans said the Fed may keep the federal funds rate near zero until 2015.

Read the full article at http://www.bloomberg.com/news/2013-08-05/americans-with-best-credit-in-decades-drive-u-s-economy.html

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S&P 500 Climbs for 4th Week to Record on Earnings, Fed – Bloomberg 07-19-13

Salient to Investors:


  • 73% of 103 S&P 500 companies so far reporting have beaten estimates
  • 53% have beaten revenue estimates.
  • 80% of S&P 500 financial companies have beaten estimates by an average of 8.7%. Banks and insurers are predicted to report earnings growth of 26% this quarter. Excluding financial stocks, S&P 500 companies are expected to report a 2% drop in profit.
  • 17 tech companies in the S&P 500 so far reporting earnings have missed estimates by an average 3.6% versus 2.7% above forecasts for all index stocks.

Tim Leach at US Bank Wealth Mgmt said Bernanke made it clear that the Fed will remain flexible, while earnings are well supported going forward by economic activity and strong corporate balance sheets.

Vincent Lowry at VTL Associates said there is a broad-based move by retail investors into the equity markets, which are the place to be because they will be able to absorb any gradual increase in interest rates. ETFs are attracting money at the fastest rate since September 2008.

Read the full article at http://www.bloomberg.com/news/2013-07-19/s-p-500-climbs-for-4th-week-to-record-on-earnings-fed.html

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UBS’s Friedman Favors U.S. Stocks, High-Yield Bonds – Bloomberg 06-28-13

Salient to Investors:

Alexander Friedman at UBS says:

  • What Fed has done is not unexpected and the market reacted because it was ahead of itself. All the Fed was saying was that the US is doing OK, that the data is trending as it should, and that it has confidence that in the future it will be able to unwind QE, which is a positive.
  • Some investors were caught overleveraged in fixed income so there is unwinding of the carry trade. In countries like Australia, India and some emerging markets, a lot of investors hold bonds in local currencies which is a risk so expect significant volatility on the emerging market side.
  • China less a risk than perceived because it is just trying to re-balance and is willing to sacrifice some short-term growth to get control over the credit situation and avoid bubbles.
  • Biggest risk to investors is in misinterpreting the Fed, which creates a buying opportunity.
  • Last week the market saw much of the repricing of the tapering risk and so we won’t see a repeat in September. Assuming we see the positive economic data for the next few months which is necessary for the Fed to begin tapering then the market will focus away from life support and more on underlying growth.
  • Buy where underlying monetary policy will match the underlying  requirement and where there is economic growth: meaning US equities, US high yield equities which are oversold and now offer 6 to 8 percent returns over the remainder of 2103.
  • Wary of gold, which was an emotional trade against currency debasement and so has room to decline further.
  • Wary of emerging markets, including Australia, neutral on Europe.
  • Not yet seen bond money switching to equities as most of the money into equities has come from cash and money markets. We will see a shift from bonds to equities for many reasons, not least the immutable force of  demographics such as the elderly selling fixed income savings over time and there is no yield in them.
  • US high yields with equity characteristics are attractive.
  • Expect tapering around December although market is pricing in September. When it happens, US economic data will be trending positively and rising rates will accelerate the housing recovery story as it will cause fence sitters to buy to avoid the mortgage rates increases. Tapering of $10 billion a month is priced into the market and do not expect to see rates rising until 2015.
  •  US financials and insurance companies are a bet that rising interest rates will help their profitability.
  • The Russell 2000 stocks are more attractive because they have more cyclical exposure and exposure to the recovering US story as opposed to the global story where there is still sub-trend growth. With dividends and share buybacks, stocks offer a 4.5%- 5%  yield in 2013 which is attractive.
  • Long the dollar against many alternative currencies because of recovering economy and the Fed slowly winding down QE.
  • Less optimistic about Eurozone, and short Australia.
  • China rebalancing a good thing as banks have been lending too aggressively and China wants to avoid a credit bubble since shadow banking is such a huge proportion of their credit market. Clamping down on lending means it will be more expensive for companies to borrow so GDP will suffer a little bit. China growth could slow to as low as 7 %  causing more volatility short-term but OK over the longer term. Less concerned about China, which has great foreign reserves and is less reliant on foreigners owning local bonds with risk of money exit, unlike Australia, South Africa and India
  • The emerging market is a decent to good place to have a strategic allocation and you want exposure there for the longer term but short-term there is a lot of volatility.  Most worried about countries who have financed deficits with foreign money so when that money leaves they end up in a scary spiral. Countries like South Africa, India, Brazil.
  • Before the end of the year expect to see re-escalations of crises in the Eurozone for many reasons. The Eurozone periphery is like the emerging market with the same concerns including the unwinding of leveraged positions and volatility. After the German election we won’t see a path to true fiscal integration and banking union but instead a recognition that France is very weak, Germany won’t act alone, and that France and Germany are not acting together. Europe needs true labor reform in countries that are not competitive and that is very difficult
  • France is a concern because it has poor underlying economics and Hollande is weak politically.
  • Biggest concern is Spain, which is too big and quite vulnerable and will enter a program with the troika that will be put off politically until the last-minute after volatility spikes over the next 4 to 6 months.

Watch the full video at  http://www.bloomberg.com/video/ubs-s-friedman-favors-u-s-stocks-high-yield-bonds-p2pzBodIRoqFJMPLPcixdg.html

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Bubble, Bubble, Money and Trouble – Barron’s 06-01-13

Salient to Investors:

Marc Faber at the Gloom Boom & Doom Report says:

  • High-end assets from stocks to art to real estate are in a bubble caused by central bank money-printing. This money doesn’t increase economic activity and asset prices in concert, instead creates dangerous excesses in countries and asset classes. Money-printing fueled the stock-market bubble of 1999-2000, the housing bubble in 2008, and the commodities bubble.
  • Owns equities because easing money is flowing into the high-end asset market, including stocks, bonds, art, wine, jewelry, and luxury real estate.
  • The government bailed out S&L depositors in the late 1980s. Treasury and the Fed bailed out Mexico in the mid-1990s. The Fed-supervised bailout of Long-Term Capital Management in 1998 gave a green light to Wall Street to keep leveraging up. Neither Keynes or Friedman would have approved current policies.
  • In the fourth year of an economic expansion, near-zero interest rates will lead to a further misallocation of capital. The S&P 500 is a near a long-term top and could rally to 2000 in the next month or two before collapsing.
  • Money-printing leads to a widening wealth gap. In the Western  democracies, large numbers of people will at some point target the rich through wealth taxes or significantly higher tax rates. The rich have seen huge wealth accumulation in Asia in recent years but the middle class has seen diminishing purchasing power. Growing wealth inequality has always been corrected either peacefully, through taxation and wealth redistribution, or by revolution, as in Russia. European voters will turn against the arrogance of the bureaucracy.
  • China will not tolerate US interference long-term in their region.
  • 25% in equities – no US, some Asian shares and Singapore REITs.
  • Except for some high dividend stocks, Philippines, Indonesia, and Thailand markets are unattractive having quadrupled from post-crisis lows. Dislike Chinese equities unless conditions worsen and China prints money like crazy, when the currency will weaken and stocks will rise.
  • Japanese stocks made a generational low in 2012 and won’t go below that. Like Japanese REITs.
  • Vietnam exports are strong, and the people are hard-working. The beach between Danang and Hoi An will be a huge resort area in the future and is only an hour and 10 minutes by plane from Hong Kong, and two hours from Singapore. Likes stocks with yields of 5% to 7%.
  • Many rich Asian companies have been buying other Asian companies. Asia long-term economic outlook is good. Laos, Cambodia, and Myanmar are opening up, and Vietnam is reopening. Myanmar market is hot but like Vietnam near its peak in 2006-07, looks dangerous for investors.
  • The huge credit bubble in China won’t end well. The economy officially grew 7.7% in Q1 but in truth is growing 4% a year, at best. China reports export figures to Taiwan, South Korea, Hong Kong, and Singapore that are much larger than those countries report as imports.
  • Markets in Europe have made major lows so own European shares – and plan to buy more – and corporate bonds, and real estate. Money in European banks is no longer 100%.
  • Like Singapore REITs whose yields of 5% and 5.5% compare favorably with US REITs. If inflation picks up, REITs can raise their rents.
  • 25% in gold and add to positions every month. When the asset bubble bursts, financial assets will be particularly vulnerable.

Read the full article at http://online.barrons.com/article/SB50001424052748704509304578511561194530732.html?mod=BOL_twm_fs#articleTabs_article%3D0

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Dark Pool Expansion Hurts Investors, NYSE, Nasdaq to Tell Senate – Bloomberg 12-17-12

Salient to Investors:

Trading in US equity markets is spread across 13 stock exchanges and 50 dark pools. A third of US volume occurs away from exchanges.

Justin Schack at Rosenblatt Securities said that from 2008 through 2010, big banks expanded their dark pools by using them as the first destination to which their trading desks routed orders. Trading occurring away from U.S. exchanges and the biggest markets known as ECNs was 33 percent in October 2012 versus 16 percent in early 2008. Dark pools accounted for less than half the off-exchange volume 2 months ago, but up threefold since Q1 2008. 19 US dark pools accounted for 13.4 percent of total equities volume in October.

Joseph Mecane at NYSE Euronext said that at least 40 percent of trading occurs away from exchanges for more than 3,000 US securities, while 42 percent of trading for the 709 securities listed on NYSE MKT took place off-exchange in November.

Public exchanges receive market data revenue for the sale of information about transactions and quotations. Dark pools have a duty to get their clients the best trade possible and face limitations on how much market share they can amass and still remain private.

Finra gets the funds for trading that occurs away from exchanges including on dark pools.

In 2012, 0.18 percent of US equities volume was voided by exchanges or Finra because the trades were deemed erroneous, versus 0.23 percent in 20122 and a high of 0.43 percent in 2004.

Bloomberg say US equities volume has averaged 6.4 billion shares a day in 2012, versus 7.8 billion shares in 2011 and 9.7 billion shares a day in 2009.

Read the full article at http://www.bloomberg.com/news/2012-12-18/dark-pool-expansion-hurts-investors-nyse-nasdaq-to-tell-senate.html.

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An Obama Economic Team to Sweep Wall Street Clean – Bloomberg 11-11-12

Salient to Investors:

William D. Cohan writes:

We were either naive or stupid to believe Obama’s “change you can believe in” included Wall Street. Robert Rubin protegés were appointed to the three most important economic positions in Obama’s first term: Treasury secretary, national economic adviser, and director of the OMB. Other Rubin acolytes still occupy the national economic adviser, chief of staff, and top international economics adviser positions.

Obama’s first term produced a remarkably Wall Street-friendly set of policies – continued bail out of the big banks, the weak Dodd-Frank financial reform act continues to get watered down, and not one Wall Street trader, banker or executive has been held criminally liable, the S&P 500 doubled since March 2009, the Fed keeping interest rates at rock-bottom levels that are a gift to Wall Street and a tax on savers.

Wall Street clearly wants more: 8 of Romney’s 10 top donors were Wall Street firms.

Appointing Bowles to Treasury would show that Obama is serious about getting the country’s fiscal house in order and finding a more productive relationship with Wall Street.

Eliot Spitzer would be a good choice for chairman of the SEC as he has proved to be the news media’s most aggressive and informed critic of Wall Street.

Carmen Reinhart would be a good choice for national economic advisor as she knows how economies get into financial difficulty and how they get out of them.

Read the full article at http://www.bloomberg.com/news/2012-11-11/an-obama-economic-team-to-sweep-wall-street-clean.html

Legg Mason’s Miller Says Bank Stocks to Rise on Housing – Bloomberg 1-08-12

Salient to Investors:

Bill Miller at Legg Mason said because housing has done so well, the next move there is in financials. Miller said an improved housing market means banks’ mortgage origination businesses will improve.

Miller’s fund had 40 percent of assets in financial stocks as of Sept. 30, and owns insurers and mortgage REITs.

CoreLogic said US home prices rose 5 percent in September from a year earlier, the biggest 12-month increase since July 2006.

Read the full article at http://www.bloomberg.com/news/2012-11-08/legg-mason-s-miller-says-bank-stocks-to-rise-on-housing.html