Carousel or Coaster?
If you are a Large Cap U.S. based investor, the last 3 weeks have been as uneventful as a Carousel ride. But if you happen to invest in International Equities, Fixed Income, Currencies or Commodities, you had better be wearing your 5 point seatbelt. Because of ECB Comments/Actions, ongoing European growth fallout from the Ukraine and Scotland’s increasing likelihood to divorce the U.K., the Forex markets have been witness to extreme moves which has put many asset classes on a roller coaster for investors. Another twist in the roller coaster ride is the upcoming Fed meeting where the markets are becoming convinced that “considerable time” could be removed from the text, signaling an earlier than expected tightening action, but maybe the slope of the tightening will be more important than the start date. It is all just speculation that creates price movements in the short term. In the long term, we all know that liquidity needs to be removed from the U.S. and rates someday will start moving higher.
Here is a good, quick overview of the market highlights in the last week from FactSet…
- U.S. equities finished lower this week. Newsflow was relatively quiet, with markets generally struggling for direction.
- Most attention revolved around next week’s FOMC meeting and a steady rise in Treasury yields. Speculation grew that the Fed would change its forward guidance in the post-meeting statement to allow greater flexibility around the timing of tightening.
- The economic outlook remained largely unchanged due to a light calendar. Retail sales were the highlight, with the headline figure for August increasing as expected, while the ex-autos measure beat the consensus.
- Geopolitical developments were limited. President Obama’s announcement regarding ISIS contained few surprises, Ukraine-Russia tensions remained on the backburner, while there was limited U.S. impact from concerns about Scottish independence risks.
- The Apple (NASDAQ:AAPL) product launch highlighted the corporate calendar, generating generally positive Street reaction that was also reflected in the stock’s weekly outperformance.
- Among sell-side conferences, takeaways from the Barclays (LONDON:BARC) Global Financials Conference generally met expectations, while comments from the Goldman Sachs (NYSE:GS) Communicopia Conference drove price action among some telecom names.
- Energy was the notable laggard as oil prices came under further pressure. Rising Treasury yields likely hindered utilities and telecom, but helped banks. Tech led gains, helped by Apple and several Internet names
If you need a visual of the S&P 500 carousel that you have been riding…
As the U.S. continues to see stronger than expected Economic data and investors fret over future Fed actions, 10-year Treasuries have been witness to their biggest pullback in 10 months…
But DoubleLine will remind you that Fed Rate Hikes do not necessarily lead to rising Bond yields…
One clear beneficiary of a steeper yield curve and a better economy are Bank Stocks. Banking is a spread business => Borrow Short Term, Lend Long Term. While deposit rates have budged little, lending yields are ripping higher (FVX = 5-Yr. Treasury Yield)…
For the week, the U.S. Sectors were mixed; Financials higher with interest rates and Tech with Apple news. On the downside, Utilities suffered with interest rates and Energy was crushed by the US$ impact on Energy prices, plus the new sanctions against Russian Oil Exploration activities…
More broadly, it was a tough week for non-US$ assets…
The worst performing major local market last week was Brazil. After hitting new 52-week highs the previous week, the market has been hit by corruption charges inside the incumbent Government, indecisiveness in the current Presidential polls and falling energy price impact on the largest iShares Brazil Index (ARCA:EWZ) component, Petrobras (NYSE:PBR). For anyone long Emerging Markets, let’s hope that Brazil puts the ball in the goal quickly.
Take note of the 21% pullback in Petrobras, which is 12.6% of the EWZ…
A tight inverse correlation between oil prices and the USD over the last 2 months has been tough for Energy investors. The USD may not relieve itself so it is up to Europe and China growth to buoy Energy prices from now on. But is that possible?
…but will be REALLY good news for U.S. Consumers and Businesses in the 4th Quarter…
To illustrate just how low gas prices currently are for this time of a year. The chart below compares the YTD percentage change in the national average price of a gallon of gas in 2014 (red line) to a composite of the average YTD change for all years since 2005 (blue line). Following the recent declines we have seen, prices at the pump are up 2.7% so far in 2014 compared to an average of 25.33% at this point in the year for all years since 2005. The only other year where the average price was up less at this point in the year was 2010. As long as this trend continues, you can bet that consumers will be feeling a bit more flush heading into the fourth quarter.
And if low gasoline prices are not a reason for Retailers to smile, check out the big swing in the weather. Get those sweaters and cords on the shelves ASAP!
NOAA – 246 Low Max Records Broken or Tied From Sept 1 to Sept 10. Some records broken by 16F
Two years ago, Indian households still viewed Gold as a store of value. Not anymore…
A one-quarter drop in local Gold prices over the past year has shaken the confidence of Indians in the precious metal as a store of value and dented demand in the world’s second-biggest buyer. The main beneficiary has been stocks, which have been clocking up records on hopes that Prime Minister Narendra Modi can deliver on the promise of “better days” ahead that swept him to power in May’s general election. Beyond short-term sentiment, a major push by Modi for every household to get a bank account, better education and living standards, and falling inflation expectations, could herald a more secular change in investing habits.
The 3rd quarter has 2 weeks left in it. Portfolio Managers will be looking to window dress into these Equity sectors…
…and portfolio managers will be looking to forget these sectors…
Gundlach increased his allocation to Junk Bonds while shrinking his ownership of High Grade Corporate Bonds…
“We’re not really afraid of junk bonds,” he says, adding that they’re less overvalued than they were earlier this year when he decried them as highly overvalued. He says he’s upped the DoubleLine Core Fixed Income Fund’s (DLFNX) high-yield allocation from 2% to 5% lately as a way to boost yield. What’s he avoiding now instead? Investment grade corporate bonds, which he says are now the most overvalued they’ve been in the past 30 years. He says he’d rather own dollar-denominated emerging market corporate debt today than investment-grade U.S. bonds.
Still, there are other things he’d prefer to own instead of high yield if he could buy something other than just bonds. “I would rather own a mix of non-high yield bonds than high yield, and sprinkle in stocks for that higher-risk, lower-in-the-capital-structure type of exposure,” he says. Chinese stocks are among his favorite short-term equity holdings, and he says India’s is his favorite stock market for the long term
…meanwhile the other Bond King says it is time to lever up and take advantage of the steep yield curve…
“It’s probably a good time to lever in a mild sort of way,” Bill Gross, who co-founded Pacific Investment Management Co., said in a television interview today. For the next three to five years, investors should expect “the ability to borrow short and to lend long, much like banks do.” His logic is that investors can count on earning more from longer-maturity bond yields than they have to pay to borrow for shorter periods as the Federal Reserve keeps interest rates low. While such activity may magnify losses in a selloff, it’ll juice returns at a time when yields are hovering near record lows
Some said consumers would never buy an Electric Car… maybe because the world was waiting for an Electric SUV?
Tesla Motors' (NASDAQ:TSLA) first SUV, the Model X, is set to go on sale in the first half of next year, complete with a third row, space-age falcon doors (pictured above), all-wheel drive and little compromise on the Model S’s 265-mile range. Here’s a sneak peak of pre-orders for the Model X, based on self-reported waitlist numbers tracked on a Tesla Motors Club forum (Tesla doesn’t release pre-order tallies). A reservation for the luxury Model X requires a $5,000 deposit
The new iPhones were unveiled last week. If you need help choosing a size for that online order…
@kylerichter: So this is sadly helpful.
Why compare iPhones to Pop-Tarts? Because we know that you are buying them…
Sales of soda, cereal and frozen food are down. Sales of Pop-Tarts have gone up each year for the past 32. The super sweet, slightly cardboard-tasting rectangles defy most eating trends big food companies are chasing. They’re not gluten-free, all-natural, protein-packed or made with simple ingredients. Many similar breakfast foods by rival companies have ended up in the product graveyard. A mix of customers gives Pop-Tarts their staying power. Teens are the biggest eaters. Younger children eat them almost as often. And adults reach for them as a retro snack
Some auto insurance company will make a mint selling a new policy that only works with deactivated cellphones…
Speaking of crashes, if you have clients looking to diversify into a small business, have them run away from these franchise concepts…
The Annual U.S. News & World Report College Ranking came out this week…
For kids that want the highest salary upon graduation, have them study math, science and computer programming and then have them apply to these Colleges…
Not to be left behind, Harvard University undergrads have now made ‘Intro to Computer Science’ the most popular class on campus…
Nearly 12 percent of Harvard College is enrolled in a single course, according to data released by the Faculty of Arts and Sciences Registrar’s Office on Wednesday. The course, Computer Science 50: “Introduction to Computer Science I,” attracted a record-breaking 818 undergraduates this semester, marking the largest number in the course’s 30-year history and the largest class offered at the College in the last five years, according to the Registrar’s website. Including non-College students, the enrollment number totals 875. Last fall, about 700 students enrolled in the course, placing it second only to Economics 10a: “Principles of Economics,” which drew 764 students. This fall, Economics 10a is the second largest course, enrolling 711 total students.
CS50 instructor, David J. Malan ’99, and other computer science professors said that the boost in enrollment stems from increasing Harvard-wide and nation-wide interest in computer science. “Harvard students are smart people,” said Harry R. Lewis ’68, former dean of the College and current director of undergraduate studies for Computer Science. “They have figured out that in pretty much every area of study, computational methods and computational thinking are going to be important to the future.
Now think back to your Science class… or ask your High Schooler…
Finally, here is a great life list that one Father wrote for his kids. He won’t mind if you pass it along…
There’s an episode of 30 Rock where aging new father Jack Donaghy (Alec Baldwin), fearing he will be “senile or dead for the better part of [his] child’s life,” decides to record a video for his unborn child. “I must find a way to speak to — and guide — my son, even from the grave,” he declares. He then goes through the process of recording his thoughts, ending the tape with these words: “In the unlikely event that you find something that is not covered here, find a woman named Liz Lemon, get her advice, and then do the opposite.” It’s funny. But it’s also sweet and sad and serious. And since seeing this episode, I’ve quietly been accumulating advice for my own sons. I’ve long hesitated to put it down in writing, since doing so would be a tacit admission of my own mortality. But there is no escaping our finitude.
So for my two sons — and maybe for your own sons and daughter, too — here is some life advice
Picture of the Week…
The last known surviving search dog who worked at Ground Zero returned to the former World Trade Center site this week for the first time since Sept. 2001, NBC News reports. Bretagne, a 15-year-old golden retriever, was just 2 when she was deployed with Denise Corliss, her owner and handler, following the terrorist attacks.
(Yahoo)
If you like the ideas Blaine Rollins shares each week in the 361 Capital Research Briefing…
Then you should learn more about how he incorporates these ideas in the new mutual fund he is managing, the 361 Global Macro Opportunity Fund. Contact 361 Capital or your advisor for additional information.
The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, 361 Capital is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of 361 Capital.