You are currently browsing the Capital Comments weblog archives for January, 2010.
31. January 2010 by Dan Walkow, CFA, CMT.
Former US Fed Chairman, Paul Volcker speaks out on reforming the banking systems. It is time!
PRESIDENT OBAMA 10 days ago set out one important element in the needed structural reform of the financial system. No one can reasonably contest the need for such reform, in the United States and in other countries as well. We have after all a system that broke down in the most serious crisis in 75 years. The cost has been enormous in terms of unemployment and lost production. The repercussions have been international. Read the whole thing here.
Posted in Economics | No Comments »
29. January 2010 by Dan Walkow, CFA, CMT.
Following on China’s lead the Central Bank of India is tigthening monetary policy and has indicated that there is more to come. As the old adage goes ” Don’t fight the FED”, of China and India that is.
Tighthing monetary policies such as raising bank reserve requirements and raising interest rates are tools Central banks use to slow down the economy and arrest inflationary pressures. Tends not to bode well for both equity and bond markets.
See the story here.
Posted in Investing, Economics, Fixed Income | No Comments »
25. January 2010 by Dan Walkow, CFA, CMT.
Japan, the world’s second-biggest equity market, is up 3.7 percent this year as measured by the Topix index, the most among the world’s 10 largest economies. Overseas investors pumped almost $13 billion into Japan during the two weeks ended Jan. 15, the most since 2004. Companies trade for an average 1.2 times book value, almost half the valuation for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.
Thats cheap but key drive will be earnings growth, I am of the opinion that the likes of Sony, Pansonic and Canon may just be shining stars in 2010. Read more at Bloomberg here.
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19. January 2010 by Dan Walkow, CFA, CMT.
China has rattled financial markets by moving faster than expected to tighten its grip on liquidity as a strong recovery and rising asset prices threaten to cause overheating in the world’s third-largest economy.
Societe Generale said in a research note in the wake of Tuesday’s auction that the central bank’s wording of “flexible and targetted” was currently still tightening.
“The hike in the reserve requirement and the draining of liquidity while in fashion with the notion of flexibility and targetting, cannot be dismissed as anything other than tightening no matter how minor at this stage,” SG said.
China is leading again, this time putting the brakes on by raising interest rates and tightening bank reserve requirements to arrest runaway stock market and real estate speculation. Will the rest of the world follow?
Posted in Inflation, Economics | No Comments »
18. January 2010 by Dan Walkow, CFA, CMT.
Noted economist and author Richard Duncan said that, faced with sluggish global growth and a tapped out U.S. consumer, there’s little hope that China can keep its factory-geared economy in motion much longer.
“China has followed an export-led growth model for the last 25 years, and it has just hit a brick wall when the U.S. economy went into crisis,” Bangkok-based Duncan said in an interview with MarketWatch.
Duncan is the former London-based head of global investment strategy at ABN Amro. In 2003 he authored “The Dollar Crisis,” which warned that imbalances in global trade would lead to a meltdown of the financial system.
See the full story here.
Posted in Economics | No Comments »
17. January 2010 by Dan Walkow, CFA, CMT.
What are we smoking, and when will we stop?
A nationwide survey last year found that investors expect the U.S. stock market to return an annual average of 13.7% over the next 10 years.
Robert Veres, editor of the Inside Information financial-planning newsletter, recently asked his subscribers to estimate long-term future stock returns after inflation, expenses and taxes, what I call a “net-net-net” return. Several dozen leading financial advisers responded. Although some didn’t subtract taxes, the average answer was 6%. A few went as high as 9%.
We all should be so lucky. Historically, inflation has eaten away three percentage points of return a year. Investment expenses and taxes each have cut returns by roughly one to two percentage points a year. All told, those costs reduce annual returns by five to seven points.
So, in order to earn 6% for clients after inflation, fees and taxes, these financial planners will somehow have to pick investments that generate 11% or 13% a year before costs. Where will they find such huge gains? Since 1926, according to Ibbotson Associates, U.S. stocks have earned an annual average of 9.8%. Their long-term, net-net-net return is under 4%.
Read this excellent article at the Wall Street Journal Online. (subscription)
Posted in Investing | No Comments »
17. January 2010 by Dan Walkow, CFA, CMT.
Gluskin Sheff & Associates’ chief economist David Rosenberg is well known for his sobering views on the economy and he makes some good points that up until now have fallen on deaf ears. The market has trumped his analysis so far, perhaps due to massive government monetary intervention into the economic system, but as central banks remove the economic stimulis perhaps its time to revisit what he has to say.
Read his thoughts at the Pragmatic Capitalist here.
Posted in Economics | No Comments »
8. January 2010 by Dan Walkow, CFA, CMT.
The following is an excerpt from an article in the Globe & Mail:
With central bank interest rates sitting near zero they only have one direction to go, and it’s just a matter of when. As rates rise, bond prices fall. Historically, however, corporate bonds offer more protection against rate hikes than government bonds. In 1994, for example, as rates shot up after the recession, the returns on government and corporate bonds in aggregate was a negative 4 per cent. Corporate bonds themselves declined only 3 per cent and short-term corporate debt remained mostly stable, he says. There are several options for getting into the corporate bond market. Individuals can buy bonds directly through a discount trading firm and hold them for their interest payments or try to sell them for capital gains. This approach lets an investor cherry pick individual bonds for their yields and performance. But there are shortfalls to this method, largely because bonds are bought and sold by traders in what is essentially an over-the-counter market. It’s a forum that lacks transparency and liquidity for the retail investor, who won’t get the same price as a large institutional buyer or seller. “It’s all about flow,” says Mr. Palombi. “If you’re not in the flow, you can’t execute your strategy.” It’s also very difficult for an individual investor to build a diverse portfolio of bonds because there are more characteristics to consider than there are for a stock. In addition to industry sector, spreads and credit, investors must weigh the different characteristics of the many bonds a company may issue. There are so many variables, in fact, that it can be difficult for an individual bondholder to understand why any single bond may suddenly lose money, he warns. Read the full Globe & Mail article here.
Posted in Investing, Fixed Income | No Comments »
5. January 2010 by Dan Walkow, CFA, CMT.
As reported in the Wall Street Journal the Internal Revenue Service said it intends to regulate the legions of American tax-preparation companies, the first time the agency has sought to oversee these businesses. The move could affect how tax returns are prepared for tens of millions of people.
Under the new rules, employees of chain tax-preparation firms including H&R Block Inc. and Jackson Hewitt Tax Service Inc. will be required to pay a registration fee to the IRS, pass a “competency” exam and have 15 hours of education a year. Previously these employees weren’t required to meet federal standards.
The requirements also will apply to hundreds of thousands of independent preparers and mom-and-pop storefronts that offer tax preparation as one of several services. About 60% of U.S. taxpayers use tax preparers, according to the IRS. That number includes certified public accountants, or CPAs, who are already subject to professional standards and aren’t covered by the new rules. Read more here.
Posted in Tax | No Comments »
2. January 2010 by Dan Walkow, CFA, CMT.
The Chinese stock market lead the recovery this past year, bottoming in the fall of 2008 while most other world markets followed in March of 2009. China leads markets and where the Chinese market goes for 2010 has very important ramifications for markets around the world. For that reason you want to read what Michael Pettis, a professor at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets, and a Senior Associate at the Carnegie Endowment for International Peace has to say.
Posted in Investing | No Comments »