S&P 500 Erases Loss for Week on Earnings, Spending Data – Bloomberg 01-30-14

Salient to Investors:

David Kelly at JPMorgan Funds said the Fed looks justified in continuing to taper given economic momentum and recent sharp declines in the unemployment rate. Kelly said assuming the volatility in emerging markets subsides, this economic report should bolster the case for both higher interest rates and higher stock prices.

Investors pulled money from emerging markets ETFs at the fastest rate on record in January on China’s slowing growth and tapering sink currencies from Turkey to Brazil.

Dan Greenhaus at BTIG said a quarter with GDP growth more than 3 percent despite government spending contracted as much as it did, is unquestionably a positive. Greenhaus said concerns over emerging markets are the dominant topic and to the extent this remains contained, the sell-off is likely to be limited.

Analysts estimate S&P 500 companies increased EPS by 6.6 percent in Q4, 2013 and revenue by 2.6 percent.

Read the full article at http://www.bloomberg.com/news/2014-01-30/u-s-stock-index-futures-rise-as-facebook-jumps-on-sales.html

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Ken Fisher Warns: RIA World Gone in 10 Years – ThinkAdvisor 11-21-13

Salient to Investors:

Ken Fisher at Fisher Investments said:

  • Ending QE would be the most bullish thing we can do because it is not a stimulus – it flattens the yield curve and slows things down. We are doing well despite QE, not because of it. Historically, a steeper yield curve is more bullish for the economy.
  • Bernanke’s goal has been not to increase the quantity of money but to build bank balance sheets, which he has done very successfully. QE does not increase the quantity of money, which has gone up less in this expansion than in any economic expansion in our lifetime.
  • The Fed lies a lot. It has never been incumbent on central bankers to be open, transparent and tell the truth. If they did, somebody would trade ahead of them and profit.
  • The economy is in a slow but steady recovery. Markets move in advance of the economy – the stock market is one of the strongest leading economic indicators, which always predict the economy 6 months out. We have never, ever had a recession while LEI was high and rising.
  • The market looks at health care and doesn’t care.
  • If and when QE ends, long rates will rise and short rates remain low because the Fed keeps them there. The steeper the yield curve, the more eager banks become to lend.
  • Since 2008, the Fed has been using demand-side monetary policy which does not work. No bank will ever lend a penny when both short and long rates at zero.
  • Bonds will be flat or slightly negative in total return.
  • Fed chairs’ prior activities have not been predictive of what they will do.
  • Sam Peltzman at University of Chicago said people risk more when there are rules in place that make them think they are safer, and risk less when those rules are taken away.
  • Congress passes bills and worries about their details later: but the details end up getting honed to benefit those who are the most successful at lobbying.
  • During the whole shutdown the market did fine. Markets move in advance of such events.
  • We are slowly entering the back half of the bull market. John Templeton said bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. We have one foot in skepticism and one in optimism.
  • Everything takes a long time in bull markets. We are 5 years into this one and have not reached optimism so we have years to get to euphoria.
  • Twitter had a spectacularly successful IPO but most of the other IPOs that same week did badly, a sign there is no real optimism and euphoria.
  • Earnings are at all-time highs and progressing at a moderate rate, while revenues are growing at a respectful rate. Q4 will be slightly stronger than people expect, with 70% of earnings exceeding expectations.
  • The chance of a market crash in 2014 is remote – 2014 will be a good year. The biggest threat to the market in 2014 is unknown, and would most likely be caused by stupid government policy.
  • We are in a long bull market, so large, high quality stocks will reward. Pharma, tech, some energy, consumer staples. Midsize banks and non-European foreign banks take in deposits and make loans are attractive.
  • US stocks have outperformed the world but that will begin to equalize as emerging market stocks rebound and European stocks play catch-up.
  • Implementation of Dodd-Frank would result in RIAs being absorbed by broker-dealers within a decade.
  • The big broker-dealers have seen huge increases in concentration of market share – 20 firms have all the money and will keep getting more because they have all the lobbying power.
  • Many broker-dealers claim to be fee-only advisors when in fact they are not.

Read the full article at http://www.thinkadvisor.com/2013/11/21/ken-fisher-warns-ria-world-gone-in-10-years?ref=hp&utm_source=Triggermail&utm_medium=email&utm_term=Financial+Advisor+Insights&utm_campaign=Post+Blast+%28wealthadvisor%29%3A+FINANCIAL+ADVISOR+INSIGHTS%3A+Ken+Fisher+%E2%80%94+The+%27Naive%27+RIA+World+Is+At+Risk+Of+Being+Taken+Over+By+Broker-Dealers&page_all=1

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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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The Cautionary Tale of Lord Grantham – Bloomberg 05-15-13

Salient to Investors:

Never put too much of your portfolio in a few investments, or in one country or industry. The employee with a significant chunk of his 401(k) in his employer’s stock, or gets his contribution matched in company stock, risks both job and  retirement plans if a setback for the company threatens.

Never put too much faith in an emerging market. Canada was the Brazil or China of its day; growing at an average of 6.7 percent per year from 1896 to 1912, and more than 10 percent in 1905 and 1906, even after inflation.

The IMF says emerging markets will grow 5.6 percent in 2013, while Morningstar says emerging market mutual funds attracted $26.2 billion over the past year, far more than any other equity fund category. The MSCI Frontier Markets Index is up 8.5 percent in 2013, 9 times more than the broader emerging-market index.

Jeremy Grantham at GMO says the problem with growth companies and growth countries is that they so often outrun the capital with which to grow and must raise more capital.

Read the full article at http://www.bloomberg.com/news/2013-05-15/the-cautionary-tale-of-lord-grantham.html

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Best Stock Pickers Trawl Frontier Markets as U.S. Funds Lose – Bloomberg 02-01-13

Salient to Investors:

Stocks in the least-developed markets are producing annual returns at least 7 percent higher than mutual fund managers around the world. Carlos von Hardenberg at Franklin Templeton Investments said their companies are overlooked and under-owned.

Sam Vecht at BlackRock Frontiers Investment Trust is much more positive on frontier countries than emerging nations.

The MSCI frontier index is at 11.6 times reported profits, a 27 percent discount to the MSCI All-Country index versus a premium in June 2011 – the frontier index’s dividend yield and projected earnings growth are both one percent higher than the emerging-market gauge.

Euromonitor Intl says consumer spending in frontier nations will rise 9.2 percent on average in 2013 versus 8.3 percent pace in emerging markets.

Rami Sidani at Schroder Investment Mgmt said frontier markets offer great growth prospects and are tomorrow’s emerging markets – their smaller volatility and lower correlations offer returns less tied to fluctuations in global markets. Sidani said institutional investors have $15 billion in frontier countries. EPFR Global said global emerging market funds have  versus $330 billion.

The MSCI frontier index’s 50-day historical volatility is 5 and correlation with the All-Country index is 0.4 versus 8.6 and 0.6 for the emerging index. The 50 biggest companies in the MSCI frontier index average 9 analyst recommendations, versus 29 for the MSCI emerging market index, and 33 for the S&P 500.

Hans-Henrik Skov at BankInvest New Emerging Markets Equities Fund said what happens in the US has a lesser impact on how many beers the average guy in Kenya is drinking.

Thomas Vester Nielsen at Lloyd George Mgmt Fund said investors can reduce risk by making long-term investments and avoiding countries with a high chance of government intervention. Nielson said one advantage of smaller markets is there are fewer money managers vying for access to politicians and company executives, making it easier to visit with officials and gauge government policy and corporate strategy.

Timothy Drinkall at Morgan Stanley Investment Mgmt said it’s very early days for pension funds to allocate to frontier markets because they are relatively small and illiquid.

Nigeria was Mark Mobius’s biggest country holding as of Dec. 31 in the Templeton frontier fund.

Read the full article at http://www.bloomberg.com/news/2013-02-01/best-stock-pickers-trawl-frontier-markets-as-u-s-funds-lose-1-.html

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