Given the allocations in the chart in the article, I would assume that cash, both directly and in the form of deleveraging, could suddenly become the preferred asset class. That would constitute a rude surprise for many people.
Showing posts with label investing. Show all posts
Showing posts with label investing. Show all posts
Wednesday, June 1, 2016
Will the Fed tightening cycle produce a long period of negative returns?
An interesting article in the WSJ this morning ("Pension Funds Pile on Risk" http://www.wsj.com/articles/pension-funds-pile-on-the-risk-just-to-get-a-reasonable-return-1464713013 ) pointed out the extent to which ZIRP has forced pension funds, which typlically have a 7.5% actuarial assumption, to adopt abnormal investment policies. The question one should ask oneself is whether "normalization" will force declines in all types of long duration securities.
Given the allocations in the chart in the article, I would assume that cash, both directly and in the form of deleveraging, could suddenly become the preferred asset class. That would constitute a rude surprise for many people.
Given the allocations in the chart in the article, I would assume that cash, both directly and in the form of deleveraging, could suddenly become the preferred asset class. That would constitute a rude surprise for many people.
Monday, May 16, 2016
Upsurge in China's housing market boosts its economy
There is a remarkable article in this morning's WSJ on A10, "China Housing Warms as Debt Clock Ticks," In the January to through April period, housing sales increase 61.4% yoy, property investment rose 7.2%, construction starts rose 21.4%.
This is after a multi-year contraction in housing/GDP. In 2013 housing contributed 22% to China GDP, which is about the same as in Spain and Ireland in 2007. This dropped to 19.8% in 2014 and to 15.1% in 2015. (Maybe 6% is something to aim at as a longer-term healthier number?)
This recent surge reminds me of what happened in Singapore, where we happened to be living during the Great Recession. The stock market went down and housing prices went up. The Chinese, who think multi-generationally, regard property as an investment and stocks markets as speculation. When they become leery of stocks, they buy property. In normal times Singaporeans speculate on stocks during the week and gamble on mahjong during the weekend. (In the local convenience stores the thick weekly books of stock charts are hot sellers.)
Here is a quote from the article: "'Leaving my money in the bank is meaningless and it will only devalue,' said Wang Hong, a 35-year-old office administrator who is looking to buy a second home in Nanjing." Holding fiat currencies is not considered a safe investment in Asia, where they do not benefit from the US dollar's strict stewardship.
This is after a multi-year contraction in housing/GDP. In 2013 housing contributed 22% to China GDP, which is about the same as in Spain and Ireland in 2007. This dropped to 19.8% in 2014 and to 15.1% in 2015. (Maybe 6% is something to aim at as a longer-term healthier number?)
This recent surge reminds me of what happened in Singapore, where we happened to be living during the Great Recession. The stock market went down and housing prices went up. The Chinese, who think multi-generationally, regard property as an investment and stocks markets as speculation. When they become leery of stocks, they buy property. In normal times Singaporeans speculate on stocks during the week and gamble on mahjong during the weekend. (In the local convenience stores the thick weekly books of stock charts are hot sellers.)
Here is a quote from the article: "'Leaving my money in the bank is meaningless and it will only devalue,' said Wang Hong, a 35-year-old office administrator who is looking to buy a second home in Nanjing." Holding fiat currencies is not considered a safe investment in Asia, where they do not benefit from the US dollar's strict stewardship.
Wednesday, May 11, 2016
Thursday, April 14, 2016
Monday, February 22, 2016
Martin Feldstein among the faeries, reporting from a dreamworld.
Martin Feldstein says, “The US economy is in good shape.”
In this morning’s Wall Street Journal, Harvard professor Feldstein said, “The American economy is in good shape, better than critics think and financial investors fear. Incomes are rising, unemployment is falling, and industrial production is up sharply.” (p. A13)
I am glad to hear this because it echoes President Obama’s State of the Union assertions that “America right now has the strongest, most durable economy in the world,” and anyone saying America is in decline “is peddling fiction.”
The market problem is a market problem, according to Feldstein. Fed policy has pushed equities to artificially high levels; even after the recent decline, stocks are still 35% above normal.
He thinks the data showing that household income has stagnated is deceptive because it measures cash income. “The CBO explains that once corporate and government transfers are added to market incomes, and federal taxes are subtracted, the real income after transfers and federal taxes is up 49% between 1979 and 2010 for households in the lowest income quintile (with average total incomes of $31,000 in 2010). Real income is up 40% between 1979 and 2010 for households in the middle three quintiles (with average total incomes of $60,000) in 2010.”
These adjustments are interesting. Until a few years ago, the BLS when reporting on the number of Americans below the poverty line did not take into account government benefits. Today both numbers are available and you can choose between them depending on what point you wish to make. I noticed a couple of years ago, and wrote about it, that the average teacher in the local public schools with a master’s degree and 5-10 years of experience had about same effective income as a family of four on assistance. If the salary were $65,000, then about $20,000 comes off the top for health insurance (here the teacher pays half) and pension contribution (11% of gross income). Then we must subtract state and federal income taxes and NEA dues. On assistance, this teacher and his family could get subsidized housing, free healthcare, food stamps, and cash payments. In effect, he is no better off working, if we go by the numbers.
So why does he want to work? There are a number of reasons. He probably does not want to move his family to subsidized housing where he hears reports of frequent drug busts, shootings, assaults, and other crimes. He also likes being in a work environment where he is active, has interesting and dynamic colleagues, as well as other psychological rewards.
This is the point that Feldstein seems to miss. People don’t feel good about themselves if they are forced to depend on government programs. A good job is not an even trade for monetarily equivalent benefits. If you tell people in the latter group, or those who fear going there, that the economy is in good shape, they won’t believe you.
In this morning’s Wall Street Journal, Harvard professor Feldstein said, “The American economy is in good shape, better than critics think and financial investors fear. Incomes are rising, unemployment is falling, and industrial production is up sharply.” (p. A13)
I am glad to hear this because it echoes President Obama’s State of the Union assertions that “America right now has the strongest, most durable economy in the world,” and anyone saying America is in decline “is peddling fiction.”
The market problem is a market problem, according to Feldstein. Fed policy has pushed equities to artificially high levels; even after the recent decline, stocks are still 35% above normal.
He thinks the data showing that household income has stagnated is deceptive because it measures cash income. “The CBO explains that once corporate and government transfers are added to market incomes, and federal taxes are subtracted, the real income after transfers and federal taxes is up 49% between 1979 and 2010 for households in the lowest income quintile (with average total incomes of $31,000 in 2010). Real income is up 40% between 1979 and 2010 for households in the middle three quintiles (with average total incomes of $60,000) in 2010.”
These adjustments are interesting. Until a few years ago, the BLS when reporting on the number of Americans below the poverty line did not take into account government benefits. Today both numbers are available and you can choose between them depending on what point you wish to make. I noticed a couple of years ago, and wrote about it, that the average teacher in the local public schools with a master’s degree and 5-10 years of experience had about same effective income as a family of four on assistance. If the salary were $65,000, then about $20,000 comes off the top for health insurance (here the teacher pays half) and pension contribution (11% of gross income). Then we must subtract state and federal income taxes and NEA dues. On assistance, this teacher and his family could get subsidized housing, free healthcare, food stamps, and cash payments. In effect, he is no better off working, if we go by the numbers.
So why does he want to work? There are a number of reasons. He probably does not want to move his family to subsidized housing where he hears reports of frequent drug busts, shootings, assaults, and other crimes. He also likes being in a work environment where he is active, has interesting and dynamic colleagues, as well as other psychological rewards.
This is the point that Feldstein seems to miss. People don’t feel good about themselves if they are forced to depend on government programs. A good job is not an even trade for monetarily equivalent benefits. If you tell people in the latter group, or those who fear going there, that the economy is in good shape, they won’t believe you.
Sunday, February 14, 2010
Inside investment: They said it couldn’t be done
Lincoln Rathnam
Form Euromoney Magazine, Sunday, February 07, 2010
Is the money management industry – or ought it to be – facing an existential crisis?
An investment strategist at one of the big European banks was asked not long ago on one of the financial wallpaper channels if professional investors had learnt the lessons of 2008-09. "No," he replied, "they will never be able to learn such lessons because they are chasing returns over a six-month to 12-month period and returns cannot be predicted over such short time horizons."
My first reaction was to reflect that this is the kind of pessimistic thinking that made Europe what it is today, for better or worse. But, then, scepticism and pessimism have a long and honourable tradition there. One need only mention the name of Arthur Schopenhauer, who maintained that in life pain always predominates over pleasure. Schopenhauer’s disciple, Eduard von Hartmann, took this genial idea even further by positing that Schopenhauer was too optimistic.
According to von Hartmann, all is pain. What we perceive as pleasure is in reality a lesser degree of pain, which only serves to make the rest of the pain more intense by contrast. Suicide was therefore the only logical choice. But suicide is a selfish gesture. Von Hartmann advocated that the nobler course would be for all people to cooperate to bring to an end existence.
The legendary optimism of the US is quite different. In that blessed land, they believe in all sorts of things that seem unlikely or even impossible, like beating the S&P500, balancing the federal budget, and living comfortably on $20,000 a year in social security income, supplemented, of course, by bagging groceries at the local supermarket. American optimism is perhaps best exemplified by the rather homely wisdom of Detroit poet Edgar Guest (1881-1959).
Guest praised such qualities as "pluck," and "sticktoitiveness". His poem It couldn’t be done is illustrative: "Somebody said that it couldn’t be done,/But he with a chuckle replied/That ‘maybe it couldn’t,’ but he would be one/ Who wouldn’t say so till he’d tried./So he buckled right in with the trace of a grin/On his face. If he worried he hid it./He started to sing as he tackled the thing/That couldn’t be done, and he did it."
In the late 1980s, the Boston Securities Analyst Society sponsored a series of luncheon presentations entitled The wisdom of the master investors. One of the masters told a story about one of his early clients, who had come into a substantial amount of money. She gave him management discretion, asking only that the budding master let her lawyer brother know when a change was made to the portfolio.
After a number of years the brother also died and the young master took over his securities as well. He was surprised to see that the brother had been buying the same stocks and bonds whenever a change was made in the sister’s account, which saved on the management fee. The brother’s returns, however, were much better because he rarely sold securities once purchased. Like Warren Buffett, the brother focused on the buy decision and let subsequent prices take care of themselves. The manager profited
from this lesson, which is why he became a master.
Speaking of Guest’s home town, Detroit, General Motors’ interim chief executive, Edward Whitacre Jr, just announced that his position would become permanent, and he seemed extremely gratified by his decision, for which we offer heartfelt congratulations. In true Edgar Guest fashion, when life deals you lemons, down-and-out Detroit is still willing to use them to make lemonade, and Whitacre proudly announced that GM would pay back the $8.1 billion lent to it by the people of the US and Canada by mid-year. (And they said it couldn’t be done!) Of course, one cannot but wonder about the repayment of the $44 billion still on GM’s balance sheet in 2007; in the long run, if private stockholders and bondholders get nothing, to the benefit of government, the cost of capital will certainly rise as scepticism increases, not just for GM but for all securities.
So have professional investment managers and their clients given themselves an impossible goal, that of generating superior short-term returns? On the BBC many years ago a comic parodied the poet laureate of Detroit as follows: "They said it couldn’t be done./They said nobody could do it,/So I tried that thing that could be done,/And, you know... I couldn’t do it."
Had he been alive and watching the BBC at that moment, von Hartmann would have agreed and gone further to argue that what we perceived as superior performance (pleasure) is merely bad performance that is better than even worse results (pain). After all, it is sobering to realize that US equities returned only 6.7% real annualized across the entire 20th century, which is probably worse than investors wanted. While not suggesting à la von Hartmann that we bring an end to all so-called portfolio management, let us at least temper our expectations about the results it can achieve.
_____________________________________________________________________________________
Lincoln Rathnam, PhD, CFA, is an investment professional based in Singapore and Boston. In a career spanning almost 30 years he has managed equity, debt and venture capital portfolios and was a pioneer investor in emerging markets in the late 1980s.
Subscribe today:
You can order Euromoney by contacting our subscription hotline:
Call: +44 (0)20 7779 8999 (UK) or +1 212 224 3570
http://www.euromoney.com/Print.aspx?ArticleID=2388560 2/7/2010
Lincoln Rathnam
Form Euromoney Magazine, Sunday, February 07, 2010
Is the money management industry – or ought it to be – facing an existential crisis?
An investment strategist at one of the big European banks was asked not long ago on one of the financial wallpaper channels if professional investors had learnt the lessons of 2008-09. "No," he replied, "they will never be able to learn such lessons because they are chasing returns over a six-month to 12-month period and returns cannot be predicted over such short time horizons."
My first reaction was to reflect that this is the kind of pessimistic thinking that made Europe what it is today, for better or worse. But, then, scepticism and pessimism have a long and honourable tradition there. One need only mention the name of Arthur Schopenhauer, who maintained that in life pain always predominates over pleasure. Schopenhauer’s disciple, Eduard von Hartmann, took this genial idea even further by positing that Schopenhauer was too optimistic.
According to von Hartmann, all is pain. What we perceive as pleasure is in reality a lesser degree of pain, which only serves to make the rest of the pain more intense by contrast. Suicide was therefore the only logical choice. But suicide is a selfish gesture. Von Hartmann advocated that the nobler course would be for all people to cooperate to bring to an end existence.
The legendary optimism of the US is quite different. In that blessed land, they believe in all sorts of things that seem unlikely or even impossible, like beating the S&P500, balancing the federal budget, and living comfortably on $20,000 a year in social security income, supplemented, of course, by bagging groceries at the local supermarket. American optimism is perhaps best exemplified by the rather homely wisdom of Detroit poet Edgar Guest (1881-1959).
Guest praised such qualities as "pluck," and "sticktoitiveness". His poem It couldn’t be done is illustrative: "Somebody said that it couldn’t be done,/But he with a chuckle replied/That ‘maybe it couldn’t,’ but he would be one/ Who wouldn’t say so till he’d tried./So he buckled right in with the trace of a grin/On his face. If he worried he hid it./He started to sing as he tackled the thing/That couldn’t be done, and he did it."
In the late 1980s, the Boston Securities Analyst Society sponsored a series of luncheon presentations entitled The wisdom of the master investors. One of the masters told a story about one of his early clients, who had come into a substantial amount of money. She gave him management discretion, asking only that the budding master let her lawyer brother know when a change was made to the portfolio.
After a number of years the brother also died and the young master took over his securities as well. He was surprised to see that the brother had been buying the same stocks and bonds whenever a change was made in the sister’s account, which saved on the management fee. The brother’s returns, however, were much better because he rarely sold securities once purchased. Like Warren Buffett, the brother focused on the buy decision and let subsequent prices take care of themselves. The manager profited
from this lesson, which is why he became a master.
Speaking of Guest’s home town, Detroit, General Motors’ interim chief executive, Edward Whitacre Jr, just announced that his position would become permanent, and he seemed extremely gratified by his decision, for which we offer heartfelt congratulations. In true Edgar Guest fashion, when life deals you lemons, down-and-out Detroit is still willing to use them to make lemonade, and Whitacre proudly announced that GM would pay back the $8.1 billion lent to it by the people of the US and Canada by mid-year. (And they said it couldn’t be done!) Of course, one cannot but wonder about the repayment of the $44 billion still on GM’s balance sheet in 2007; in the long run, if private stockholders and bondholders get nothing, to the benefit of government, the cost of capital will certainly rise as scepticism increases, not just for GM but for all securities.
So have professional investment managers and their clients given themselves an impossible goal, that of generating superior short-term returns? On the BBC many years ago a comic parodied the poet laureate of Detroit as follows: "They said it couldn’t be done./They said nobody could do it,/So I tried that thing that could be done,/And, you know... I couldn’t do it."
Had he been alive and watching the BBC at that moment, von Hartmann would have agreed and gone further to argue that what we perceived as superior performance (pleasure) is merely bad performance that is better than even worse results (pain). After all, it is sobering to realize that US equities returned only 6.7% real annualized across the entire 20th century, which is probably worse than investors wanted. While not suggesting à la von Hartmann that we bring an end to all so-called portfolio management, let us at least temper our expectations about the results it can achieve.
_____________________________________________________________________________________
Lincoln Rathnam, PhD, CFA, is an investment professional based in Singapore and Boston. In a career spanning almost 30 years he has managed equity, debt and venture capital portfolios and was a pioneer investor in emerging markets in the late 1980s.
Subscribe today:
You can order Euromoney by contacting our subscription hotline:
Call: +44 (0)20 7779 8999 (UK) or +1 212 224 3570
http://www.euromoney.com/Print.aspx?ArticleID=2388560 2/7/2010
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