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.

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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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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)

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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.

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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.

Read it here.

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1. January 2010 by Dan Walkow, CFA, CMT.

Forecasting markets is a business fraught with risks if history is any guide! However it is worth reading if for no other reason one gets a sense of the consensus forecast which typically tends to be wrong.

Here is a roundup of the 2010 forecasts at the Pragmatic Capitalist. Go here.

HAPPY NEW YEAR!

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17. December 2009 by Dan Walkow, CFA, CMT.

The Mobile Internet Report

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24. November 2009 by Dan Walkow, CFA, CMT.

RANDALL W. FORSYTH in Barrons writes a good piece on what can go wrong with the reflationary trade that governs the markets at this point in time. As he writes:

GOLD SET ANOTHER RECORD MONDAY while the Dow Jones Industrial Average gained 1% to a 13-month high, supposedly based on the cheery thought that the U.S. dollar would inevitably collapse to zero.

And as if to underscore the public’s interest in the latest gold rush, the five most-read stories on Marketwatch.com were all about gold. (Marketwatch is owned by News Corp., which also is the publisher of Barrons.com.)

Indeed, Albert Edwards, Societe Generale’s global strategist, sees the risks running quite the opposite of the consensus, which has a global recovery on track with a steadily falling dollar. Instead, he looks for a double-dip back into recession leading to a surging greenback, with a collapse of “the China economic bubble” resulting in a double whammy for commodity prices. Worth a read at Barrons here (By subscription)

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24. November 2009 by Dan Walkow, CFA, CMT.

For many investors the drubbing of 2008 wears deep and there is a developing view that “Alternative Investments” such as long-short funds, where downside protection is added to a portfolio to stabilize volatility and take advantage of cyclical downdrafts in the marketplace is gaining popularity.

Timing is everything when it  comes to investing and we are advocates of utilizing Inverse-geared Exchange Traded Funds to “immunize” portfolio volility.

Here is a clip from Bloomberg –

Bloomberg) — JPMorgan Chase & Co. and Pacific Investment Management Co. are inundated with money from individuals attempting to mimic the performance of hedge funds speculating that the stock-market rally is over.

So-called bear-market and long-short mutual funds, designed to protect against falling stock prices, attracted a record $10 billion this year through October, more than double the previous high in 2006, according to Morningstar Inc. Asset managers have opened 19 long-short funds, the most in one year.

The funds’ rising popularity shows how skeptical small investors remain even after the Standard & Poor’s 500 Indexrecouped almost half the 57 percent loss incurred from October 2007 to the March 2009 low. Conventional mutual funds that only buy U.S. stocks posted $4.6 billion of redemptions in the first 10 months of the year, while bond funds added $280 billion.  Read more here.

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15. November 2009 by Dan Walkow, CFA, CMT.

You’re right not because others agree with you, but because your facts are right.

“I had two mentors: my dad, Howard Buffett, and Ben Graham. Here were these two guys who I revered and who over the years gave me tons of good advice. But when I think about what they said to me, the truth is, the first thing that comes to mind is bad advice.

“I was not quite 21 when this happened, in 1951, and just getting out of business school at Columbia. I had just taken Ben’s class there–and I was the most interested student you ever saw. I wanted to work for Ben at Graham-Newman Corp., and I had famously gone to him and offered to work for nothing. He said no.

“But I still was determined to go into the securities business, and that’s where Ben and my dad gave me the bad advice. They both thought it was a bad time to start. One thing on their minds was that the Dow Jones industrials had been above 200 all year, and yet there had never been a year when it didn’t sell below 200. So they both said, ‘You’ll do fine, but this is not a good time to start.’

“Now there’s one thing that may have influenced my dad, and maybe Ben too. I was so immature. I was not only young-looking, I was young-acting. I was skinny. My hair looked awful. Maybe their advice was their polite way of saying that before I started selling stocks, I needed to mature a little, or I wasn’t going to be successful. But they didn’t say that to me; they said the other. Anyway, I didn’t pay any attention. I went back to Omaha and started selling securities at my dad’s firm, Buffett Falk.

“My dad was a totally independent thinker. —Warren Buffet.

Several pearls of wisdom here –Read More.

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