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In its latest Daily Insights report, BCA Research emphasizes that the tail risks facing the global economy and financial markets will hang over markets in 2012, making it another difficult year for investors. “While monetary policy will remain extremely easy, low rates by themselves do not guarantee that risk assets will perform well, especially since profit margins are extremely high (i.e. the risk is to the downside). But at least valuation is reasonably attractive, said the report. “Over the medium-to-long term, the total return on global equities should easily surpass [government] bonds, even factoring in very weak growth. For example, if we assume extremely pessimistic nominal earnings growth of 3% over the coming decade and a compression in the price-earnings ratio to 10, equities would still deliver returns above current bond yields. A more reasonable expectation for global equity returns would be something between 7% and 8% a year. For the U.S., equity returns should be around 6%, reflecting lower earnings growth and a lower dividend yield.” In short, equities should outperform government bonds and deliver reasonable returns relative to alternatives over the medium-to-long run.
Source: BCA Research – Daily Insights, January 5, 2012. More on this topic (What's this?) How To Profitably Trade The VIX In 2012 (Investment Underground » Page n..., 1/5/12) How To Trade The VIX in Q1 2012 (Investment Underground » Page n..., 1/5/12) How to Invest in Volatile Markets (Learn Mining News, 10/16/11) 
I do not subscribe to the Lowry onDemand service, but receive the occasional short report from them. The paragraph below is of particular interest. “The trends of the bond market, as well as the stock market, are the direct result of changes in the forces of supply versus demand. A recent review of the fixed-income ETFs on the Lowry onDemand website reveals a large number of issues reflecting significant negative divergences between their price patterns and our exclusive Power Ratings. Negative divergences occur whenever investor demand for a security weakens substantially while the price pattern is still in a relatively positive trend. Since it is difficult for prices to continue to rise in the face of weak investor demand, well-established negative divergences, as shown in the chart below, are typically followed by important price declines,” said the report. If Lowry is right on this, it implies a flip to risk on, with better economic prospects, and declining bonds and rising equities.
Source: Lowry onDemand, November 22, 2011. More on this topic (What's this?) Honesty is the Best Policy… (Money Morning, 11/23/11) Rising Government Bond Rates Push Eurozone Debt Crisis to the Precipice of Collapse (Money Morning, 11/18/11) An Important Sell Signal (Comments for thetechnicaltake, 1/29/12)
Jeffrey Gundlach, founder of DoubleLine, which has been the best performing bond fund so far this year, tells the FT’s Dan McCrum that deflation is a greater risk than inflation because he believes it would take another crisis to trigger big monetary policy changes. Mr Gundlach says low economic growth is likely to persist and recommends hedging risk assets with long-term Treasury bonds. Please click here or on the image below to watch the video.
Source: Financial Times, October 4, 2011. More on this topic (What's this?) Chart: A Blow to Inflationists (Investment U, 10/24/11) Copper: Possible Deflation Call and Warning for Stocks (Money Morning, 10/3/11) What’s Happening? Is This Inflation or Deflation? (Learn Mining News, 7/11/11)
Head of fixed income Rick Rieder says Blackrock is dipping its toes into European financial and insurance firms. Source: CNNMoney, September 19, 2011.
Marc Faber, publisher of the Gloom, Boom & Doom Report, appeared on Bloomberg Television’s “Street Smart” with Carol Massar and Matt Miller yesterday. Speaking from Sao Paolo, Brazil, Faber said that the S&P 500 Index won’t surpass the 2011 high of 1,370 this year, and that investors are “better off in equities than bonds”. Source: Bloomberg, August 23, 2011. More on this topic (What's this?) 2011 Intraday "Correction" Statistics 08/04/11 (Kirk's Market Thoughts, 8/4/11) Download: S&P Dividend Aristrocrats Lists 2011 (Top Foreign Stocks, 8/31/11) S&P 500 Priced in Gold---The Economic Recovery Illusion (Black Swan Insights, 8/6/11)
The strange combination of rising US inflation, ultra-loose monetary policy and falling bond yields is just one of the more unusual signs that all is not well with the global markets. Jennifer Hughes, FT’s senior markets correspondent, looks at the rationale behind so-called “bull flattener” trades and what these signal about the economic outlook. Please click here or on the image below to watch the video.
Source: Financial Times, August 18, 2011. More on this topic (What's this?) Four Ways to Play the Bond Market Bubble (Money Morning, 9/30/11) An Important Sell Signal (Comments for thetechnicaltake, 1/29/12) High-Yield Bonds Are Shining Brighter Than Ever! (Investment U, 10/5/11) |
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By Prieur du Plessis, on January 6th, 2012 posted in: 
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ECRI Leading Indicator: Turning for the better?
Roach on U.S. economy, Fed policy, China, Europe
Prieur’s Readings (Jan 30, 2012)
European choices
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