U.S. Stocks Tumble as Russell 2000 Enters Correction – Bloomberg 10-01-14

Salient to Investors:

  • Randy Bateman at Huntington Asset Advisors said investors have always relied on the Fed priming the pump, which ends this month so investors are moving focus to the many geopolitical situations and economic concerns.
  • Economists forecast growth from Japan to China will slow every year through 2016.
  • Tim Courtney at Exencial Wealth Advisors said small caps have historically led the way down.
  • Richard Gilhooly at TD Securities said global deflation is developing.
  • IMF predicts Russia will grow 0.5% in 2015.

Read the full article at http://www.bloomberg.com/news/2014-09-30/index-futures-fall-amid-global-selloff-while-oil-rebounds.html

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Russell 2000 Poised for Correction as Small Stocks Tumble – Bloomberg 10-01-14

Salient to Investors:

  • Tim Courtney at Exencial Wealth Advisors said small caps have historically led the way down.
  • Randy Bateman at Huntington Asset Advisors said we have always relied on the Fed pump, but with the pump drying up this month, investors are starting to focus on geopolitical problems and economic concerns.

Read the full article at http://www.bloomberg.com/news/2014-10-01/u-s-stock-index-futures-little-changed-before-jobs-data.html

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Small-Cap VIX Up 11% Echoes Fed Concern for Valuations – Bloomberg 07-21-14

Salient to Investors:

  • The Russell 2000 VIX is up almost 11 percent in 2014 versus a 6.6 percent drop in the VIX and at its highest level since 2006 relative to the VIX. Russell Rhoads at CBOE’s Options Institute said the premium indicates we would get a bigger pullback in small-caps than large-caps in a market pullback.
  • The Russell 2000 Index is at 20.5 times earnings, close to its highest level since 2007.
  • David Kostin at Goldman Sachs said small-cap stock returns will be limited after analysts cut 2014 earnings forecast by 13 percent. Goldman predicts the Russell 2000 will rise 4 percent in the next 12 months, and the S&P 500  will rise 6 percent.
  • Patrick Fay at Russell Investments said institutional investors are buying options linked to the small-cap index for downside protection.
  • John Canally at LPL Financial is overweight small-caps, saying faster US growth and the busiest quarter for deals since 2007 make them attractive because they are very focused on the US, which is one of the best stories.
  • Russell 2000 companies get an average of 83 percent of their sales from North America versus 70 percent for S&P 500 companies.
  • Hedge funds et al are net short the most contracts since December 2011.
  • Max Breier at BMO Capital Markets said valuations are not as compelling as two years ago, so short-sellers are picking the highest valuation stocks which naturally occur in the Russell 2000 versus the S&P 500.


Read the full article at http://www.bloomberg.com/news/2014-07-22/small-cap-vix-up-11-echoes-fed-concern-for-valuations.html

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Biotech, Internet Stocks Fall as Fed Cites High Valuation – Bloomberg 07-15-2014

Salient to Investors:

  • Paul Zemsky at Voya Investment Mgmt sees a new era of macro policy where the Fed uses new tools to prevent bubbles and raises concerns when markets are away from fundamentals.
  • Alan Gayle at RidgeWorth Investments said the Fed recognizes it needs to broaden its scope of factors affecting financial health and stability.
  • The S&P Smallcap 600 Index is at 26 times earnings, the Nasdaq Biotech Index is at over 500 times earnings, versus the S&P 500 at 18 times.

Read the full article at http://www.bloomberg.com/news/2014-07-15/biotech-falls-with-internet-stocks-as-fed-cites-stretched-values.html

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The 2014 Contrarian Investment Tour, From Rupees to Copper – Bloomberg 12-10-13

Salient to Investors:

Lewis Braham writes:

Contrarian funds can be a hedge of sorts, though a potentially volatile one as out-of-favor sectors tend to be cyclical and prone to booms and busts. Shorting is inherently dangerous as markets have been trending higher.

Brian Singer at William Blair Macro Allocation Fund said currencies help diversify portfolios because they behave very differently from stocks and bonds. Singer recently put 19 percent of the fund in the Indian rupee which he says is undervalued by as much as 70 percent and India’s new central bank governor has already taken actions to stabilize it by raising interest rates. Singer uses financial derivatives to earn a 6 percent yield on the equivalent of a bank deposit. Individual investors can buy currency CDs – a 3-month FDIC-insured rupee CD from Everbank yields 7.25 percent. Singer is short the iShares Russell 1000 Growth ETF and long the iShares Russell 1000 Value ETF  and says people believe the US is the only source of growth and stability in the world but will be surprised in 2014 at how volatile growth stocks can be.

Don Hodges at the Hodges Pure Contrarian Fund is betting on coal, iron and copper mining stocks and said a recovery in the sector will begin when the Chinese work off their commodity inventories and begin buying again.

Jason Hsu at Research Affiliates said emerging market stocks are at a tremendous discount to US stocks. Hsu said the Shiller PE ratio for the S&P 500 is 24 versus its 16.5 average, versus 13.5 for emerging markets. Hsu is buying TIPS – TIPS with maturities of more than 20 years are yielding 1.5 percent over inflation, and is betting on a decline in large US stocks as well as on improved prospects for high-yield and emerging market bonds.

The BlackRock Municipal Target Term Trust trades at an 11.5 percent discount to portfolio value and yields 6.73 percent on a tax-free basis.

Rudolph Riad-Younes at RSQ International Equity Fund does not like gold because it trades closer to 20 percent above its cost of production versus 10 percent to 15 percent historically, and that cost will fall in the next 5 years, further driving down gold prices.

Read the full article at http://www.bloomberg.com/news/2013-12-10/the-2014-contrarian-investment-tour-from-rupees-to-copper.html

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