Don’t Worry About the Bull Market; Worry About the Dollar: Richard Bernstein – ThinkAdvisor 06-22-15

Salient to Investors:

Richard Bernstein at Richard Bernstein Advisors writes:

  • The bull market is intact. Markets rise after the Fed starts raising as earnings trump rising rates, and there is no end of cycle behavior, like excessive leverage or a big buildup in inventories except for energy.
  • The MSCI European stock index is up 11% year-to-date, but only 5% in dollar terms.
  • Currency is the most important issue when investing globally: between 2002 and 2008 the decline in the dollar accounted for 80% of the gain in the Euro Stoxx 50 index for US investors.
  • The dollar rise since 2011 will continue so US investors should hedge this risk.
  • Bullish on South Korea, which is where Japan was 2 years ago. South Korea has terrible corporate profits and is slipping into deflation so has no choice but to depreciate the won.
  • China is at a competitive disadvantage because their currency is somewhat pegged to the dollar and their companies have a lot of dollar-denominated debt, so they are unable to depreciate and will lose market share.
  • India is unable to depreciate because of high inflation so will lose market share to Japan and South Korea.

FactSet predicts S&P 500 earnings will fall 4.7% in Q2, rise 2% excluding energy: for all of 2015 rise 1.6%, 8.2% excluding energy.

Bank of America Merrill Lynch says fund investors remain bullish on European stocks.

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Fareed Zakaria: American innovation is in trouble – The Washington Post 01-01-15

Salient to Investors:

Fareed Zakaria writes:

  • New studies suggest that American innovation is in trouble and that the glittering examples of Facebook et al are deceptive. We are eating the seed corn and not laying the groundwork for the next great tech revolutions.
  • Silicon Valley’s roots are deeply tied to government support – most of the legendary start-ups that fueled the computer revolution got off the ground largely because the military and NASA. GPS powers the information revolution and was originally developed for the military.
  • Federal funding for basic research and technology as a percentage of GDP is at the lowest level in four decades, while real start-up cultures are emerging in Sweden, Israel, India and China, which is on track to surpass the US in R&D spending.

Robert Litan writes:

  • The rate of start-up formation in the US has dropped from almost 15% of all US companies in 1978 to 8% in 2011, while business deaths have exceeded business births for the first time in three decades.
  • Tech is now dominated by older companies. The proportion of US companies at least 16 years old rose to 34% in 2011 from 23% in 1992. Historically, older firms are more risk-averse, rigid and incrementally innovative than younger firms.
  • The US should let in more talented immigrants – who are disproportionately more likely to start new firms – reduce regulations for starting a company, increase the ease of rasing money over the Internet, and maintain near-universal health care to allow people to risk leaving established companies.

Peter Thiel at Founders Fund says we do not live in innovative times – we have Twitter instead of flying cars.

Ajay Piramal says one of the reasons the US is so successful is that it constantly criticizes itself.

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