Category Archives: Europe

Foreign markets are soaring

The US markets are reaching new highs daily and many investors are happy with the returns their portfolios have generated.  According to the Wall Street Journal the S&P 500 is up 13.9% year-to-date.

 But some foreign markets are doing even better.

For example, the Hang Seng (Hong Kong) index is up 29.4%.

Chile is up 28%

Brazil up 27.3%

South Korea up 22.1%

Italy up 16.4%

Taiwan up 15.8%

Singapore up 14.7%

As part of our asset allocation strategy we always include a foreign component in our diversified portfolios.  Over long periods of time international diversification has had a positive effect on portfolio performance.  That’s because the US economy is mature.  It’s harder to generate the kind of economic growth that smaller, newer, and less developed economies can generate.

There is, however, a level of risk as well as reward to global diversification.  It’s said that when the US catches a cold, foreign markets get pneumonia.

The U.K. market is up only 5.8% this year, Shanghai +9.1%, Mexico +9.5%, Japan +9.6% and France +10.3%.  It’s difficult for the average investor to do the research to pick and choose their own foreign stocks.  So it’s even more important when investing overseas to use experienced portfolio managers with years of experience and an established track record.

We have done the research and we choose the best mutual funds with experienced managers to give our clients exposure to foreign markets.

Tagged , , ,

Recovery of Emerging Markets

The MSCI Emerging Markets Index, up 28.09%, is the best performing major index year-to-date – better than the DASDAQ, better than the S&P 500, better than the DJIA.  That’s an amazing reversal.

Emerging Markets have lagged the other major indexes over the last decade.

  • 2.21% for 3 years (vs. 9.57% for the S&P 500)
  • 5.56% for 5 years (vs. 14.36% for the S&P 500)
  • 2.76% for 10 years (vs. 7.61% for the S&P 500)

Why do we mention this?  A well diversified portfolio often includes an allocation to Emerging Markets.  Emerging Markets represent the economies of countries that have grown more rapidly than mature economies like the US and Europe.

Countries in the index include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, and the United Arab Emirates.  Some of these countries have economic problems but economic growth in countries like India, China, and Mexico are higher than in the U.S.

Between 2003 and 2007 Emerging Markets grew 375% while the S&P 500 only advanced 85%.  As a result of the economic crisis of 2008, Emerging Markets suffered major losses.  It is possible that these economies may now have moved past that economic shock and may be poised to resume the kind of growth that they have exhibited in the past.  Portfolios that include an allocation to Emerging Markets can benefit from this recovery.

Tagged , , ,

Tectonic Shifts – Looking Ahead to 2017

The election has created tectonic shifts in government and promises to make bold changes in the economy.  We have been gathering consensus views from some leading financial analysts for 2017

  • Global interest rates are going up.
  • Global inflation is going up.
  • Global growth is going up.
  • Recession risk is going down.

A new consensus is also building.  The rise of nationalistic self-interest is upsetting the old order the world over.  For the past decade central bankers have been in control of economic policy throughout the world.  It has resulted in low or even negative interest rates in an effort to stimulate economic growth.  The result has been like pushing on a string.  Growth has been slow (the string as a whole hasn’t been moving) and the middle class in the developed world has seen their wages stagnate and their jobs disappear (the middle of the string) while those at the top (the far end of the string) have been virtually unaffected.  It’s part of the reason for the change in political leadership in the U.S. and the re-emergence of economic nationalism as evidenced by the Brexit vote in Britain.

As central bank leadership takes a back seat to aggressive fiscal policy, we can expect political leadership to focus on job growth and economic relief for the long-neglected middle class.  Domestically, here is what we expect to see:

Tax reform:  Trump’s campaign promised corporate tax reform.  To make American companies more competitive globally, he has proposed reducing corporate tax rates from 35% to 15%.  A special 10% rate is designed to repatriate corporate profits held offshore.

Individuals will be taxed at three rates depending on income: 12%, 25% and 33%.

Fiscal policy: The Trump administration wants to spend new money on infrastructure: transportation, clean water, the electric grid, telecommunications, security, and energy.

Health care: Trump wants to repeal and replace Obamacare.

Trade: The new administration has vowed to withdraw from TPP (Trans Pacific Partnership) and renegotiate NAFTA (North American Free Trade Agreement).  They also intend to challenge China regarding currency manipulation and unfair trade practices.

Immigration: President-elect Trump intends to establish new, tougher immigration controls to boost wages, build a wall along the U.S./Mexico border, deport criminal aliens and end sanctuary cities.

Economy: 25 million new jobs over the next decade is the goal of the incoming administration.  They aim to boost economic growth from 1.5% to 3.5% or 4.0% annually.

The Trump administration will focus on job creation, economic growth, infrastructure spending, reduced regulation, and energy independence while reducing governmental efforts to prevent climate change.  The people that Donald Trump has chosen for his cabinet are largely from the private sector; people that have backgrounds in running successful businesses and creating jobs.

These things are the primary reason that the stock market has reacted well to the election of Donald Trump.  Corporate earnings have been essentially flat for the past three years.  Professional investors see opportunities for renewed economic growth, which will increase corporate profits.  While we view this development with optimism, we always remain cautious.  We expect increased market volatility, especially if terrorist attacks continue throughout the globe.  We also expect interest rates to rise as the Federal Reserve brings rates to a more historically normal level.

We also see opportunities for the creation of new companies.  The number of publicly traded companies has dropped by nearly 50% since 2000.  At the same time, the number of companies that are held by private equity firms has grown explosively – by a factor of six!  This provides a great opportunity for privately held companies to go public and provide yet another opportunity for greater market growth.

As always, we remain cautious in keeping with our philosophy of preserving our clients’ capital.  Over the long term, we see the potential for a new American renaissance.

Tagged , , , ,

BREXIT is a political crisis, not a financial crisis

We have a tendency to take a dispassionate view of world affairs.  It helps us avoid getting caught up in the hype that the media sells when things happen.  When the unexpected happens, as it so often does, the initial reports and the initial reactions are often the opposite of the truth and have little relationship to reality.

We have some insight into European affairs for personal reasons and have always felt that the EU was an artificial construct in a continent that is home to so many disparate cultures.  So we are not surprised that the whole rickety structure is showing signs of coming apart.  But Europe has been the home of little countries and big countries for millennia and has thrived over that time.  There’s no reason to think that the EU is either critical or even necessary.  It has its uses but it also has its failures and it’s the failures that have grown larger over time.  So finally, when put to a vote, the people on an island off the coast of Europe has decided it was time to declare its independence from the EU and reclaim their heritage.

We also found the commentary from  Jenna Barnard of Henderson Global Investors compelling and wanted to share it.

While the result of the referendum “Brexit” last week may be the biggest political crisis in the United Kingdom since the Second World War, this is not a financial crisis in our view.  Credit markets are not suggesting systemic risk at present as the banks are in a relatively healthy place due to rigorous regulation and stress testing over the last few years.

Clearly the result is a significant blow to confidence / “animal spirits” in the short term and will put a least a temporary break on growth in the UK and perhaps Europe. Bank share prices have also been hammered and their willingness to lend remains muted. European companies are therefore likely to remain relatively conservative – more about dividends and conservative balance sheets than share buybacks /M&A.

The Bank of England is planning to cut rates to 0% from 0.5% but the central bank doesn’t want to take them negative.  We expect further credit easing – free money to the banks for mortgage lending (“funding for lending”), more QE possibly.  We believe another central bank heading to the zero lower band fuels the global grab for yield.

The issue at stake as of today is HOW the UK exits. There are soft and hard version of exit with soft (maintaining access to the free trade area) being the preferable version for the economy. Today the leading “leave” politician in the UK (and likely the next Prime Minister), former Mayor of London Boris Johnson, has written his weekly column for a national newspaper that suggests a very soft form of exit; along the lines of Norway and Switzerland i.e. retain access to the free trade area. To do this the UK would have to agree to free movement of labor (to be clear, not people, but the labor market; new migrants would need a job to come to the UK).

We will continue to watch and advise you to events as they unfold.  As we write these comments on Tuesday morning the US stock markets are up over 1% and the European markets are up over 3%.  Reality is overtaking panic.  If you have questions, don’t hesitate to contact us.

Tagged , , , , , ,

BREXIT! A Rational View

Today’s markets are roiled by the decision of voters in Great Britain to exit the European Union (EU), which has been dubbed “BREXIT.”  As with most events in the investment world, there are people out there who make a living scaring you.  Rather than panic, we recommend you step back and think rationally what this means.

KEEP CALM

First, why did the British people vote to leave the EU despite the unified opposition of both of Great Britain’s major political parties?  The answer is that more than half of their voting public was tired of being told what to do by un-elected bureaucrats in Brussels (the capitol of the EU).  The people wanted to have a say in how they were going to be governed.  In effect, BREXIT was a revolt of the masses against the classes.

Polls prior to the election indicated that the vote would be against BREXIT, opting to stay in the EU.  The result surprised much of the big money which led to today’s panicked selling at the open.

As we prepare these comments we see a small rebound from the opening bell but the day is young and we don’t know where we’ll be at the end.  But if we step back, we think that Brian Wesbury of First Trust has some worthwhile thoughts:

The bottom line is that investors should ignore scare stories about what would happen if BREXIT wins.  Great Britain runs consistent trade deficits with the rest of Europe. Regardless of what foreign leaders say before the vote, if the British vote to leave, the rest of the EU is going to chase them to the ends of the earth.  No way will they allow one of their biggest export markets to become more distant.  They will beg the UK to sign a free trade deal.  In addition, and this is actually great economic news, it would free the US and UK to sign a free trade deal that the EU is now holding up.

Any market volatility would be short-lived and any swing to the downside would be a buying opportunity.  BREXIT is not a reason to sell.  In fact, freedom is a good thing

Have questions?  Ask us.

Tagged , , ,

The View on Brexit

Britains will soon be voting on whether to stay in the EU (the European Union) or leave.   Polls are divided on exiting the EU, or “Brexit” for short.  The British establishment is all for remaining in the EU but a lot of people are for getting out.  Voters are being deluged by scare stories about what will happen if they exit the EU, everything from loss of jobs to depression.  There has even been a claim that Britain leaving the EU will cause the climate to change even faster.  Some have labeled the tactics “Project Fear.”

The issue driving Brexit is that people are fed up with an unelected European bureaucracy making important political decisions for them.  People are seeing many of the decisions that were once made through Parliamentary democracy delegated to strangers in foreign capitals.

People are also becoming wary about a massive influx of refugees what under EU rules can move freely throughout Europe.  People who do not share the cultural or political beliefs of the British and who have no wish to assimilate.  We will undoubtedly be hearing more about this as the vote nears.

Brian Wesbury of First Trust has this take:

The bottom line is that investors should ignore scare stories about what would happen if Brexit wins. Great Britain runs consistent trade deficits with the rest of Europe. Regardless of what foreign leaders say before the vote, if the British vote to leave, the rest of the EU is going to chase them to the ends of the earth. No way will they allow one of their biggest export markets to become more distant. They will beg the UK to sign a free trade deal. In addition, and this is actually great economic news, it would free the US and UK to sign a free trade deal that the EU is now holding up.

Any market volatility would be short-lived and any swing to the downside would be a buying opportunity. Brexit is not a reason to sell. In fact, freedom is a good thing.

Tagged , , ,

Stocks, Bonds, Currencies and Commodities at the End of the First Quarter

Markets at a Glance

Major Stock Indexes

9:22 AM EDT 4/1/2016

Last Change % CHG
DJIA 17685.09 -31.57 -0.18%
Nasdaq 4869.85 0.55 0.01%
S&P 500 2059.74 -4.21 -0.20%
Russell 2000 1114.03 3.59 0.32%
Global Dow 2285.09 -29.76 -1.29%
Japan: Nikkei 225 16164.16 -594.51 -3.55%
Stoxx Europe 600 329.64 -7.90 -2.34%
UK: FTSE 100 6086.65 -88.25 -1.43%

Currencies

9:22 AM EDT 4/1/2016

last(mid) change
Euro (EUR/USD) 1.1379 -0.0002
Yen (USD/JPY) 112.04 -0.54
Pound (GBP/USD) 1.4210 -0.0150
Australia $ (AUD/USD) 0.7621 -0.0036
Swiss Franc (USD/CHF) 0.9607 -0.0010
WSJ Dollar Index 86.79 0.21

Futures

9:12 AM EDT 4/1/2016

last change % chg
Crude Oil 36.99 -1.35 -3.52%
Brent Crude 38.81 -1.52 -3.77%
Gold 1219.9 -15.7 -1.27%
Silver 14.980 -0.484 -3.13%
E-mini DJIA 17486 -109 -0.62%
E-mini S&P 500 2038.25 -13.25 -0.65%
Tagged , , , , ,

Global Stocks Lower After Brussels Explosions

Major Stock Indexes

4:09 PM EDT 3/22/2016

Last Change % CHG
DJIA 17582.57 -41.30 -0.23%
Nasdaq 4821.66 12.79 0.27%
S&P 500 2049.80 -1.80 -0.09%
Russell 2000 1096.95 -1.63 -0.15%
Global Dow 2315.94 -7.42 -0.32%
Japan: Nikkei 225 17048.55 323.74 1.94%
Stoxx Europe 600 340.30 -0.52 -0.15%
UK: FTSE 100 6192.74 8.16 0.13%

 

Currencies

4:09 PM EDT 3/22/2016

last(mid) change
Euro (EUR/USD) 1.1224 -0.0018
Yen (USD/JPY) 112.28 0.33
Pound (GBP/USD) 1.4214 -0.0154
Australia $ (AUD/USD) 0.7623 0.0045
Swiss Franc (USD/CHF) 0.9724 0.0025
WSJ Dollar Index 87.26 0.10

Futures

3:59 PM EDT 3/22/2016

last change % chg
Crude Oil 41.48 -0.04 -0.10%
Brent Crude 42.54 0.31 0.73%
Gold 1248.5 4.3 0.35%
Silver 15.895 0.048 0.30%
E-mini DJIA 17497 -31 -0.18%
E-mini S&P 500 2041.75 -1.00 -0.05%

Government Bonds

4:08 PM EDT 3/22/2016

price chg yield
U.S. 10 Year -6/32 1.939
German 10 Year 7/32 0.215
Japan 10 Year 3/32 -0.101
 
Tagged , , ,

Buy an Irish Castle for $7 million

It’s fun every once in a while to think about what it would be like if money was no object.  For today’s thought experiment we went to Ireland and found a storied castle for sale.

It’s Glin Castle, 700 years old, which was the ancestral home to the FitzGerald clan.  Think of it as Downton Abbey set in Ireland.  Located in west County Limerick, it sits on 380 acres, 23 of which are “pleasure grounds”—the woodland walks and gardens, both landscaped and informal, that surround the building. It’s been upgraded and operated for a time as a luxury bed-and-breakfast.  The furnishings are extra.  See HERE for more views.

... of <b>Glin</b>, who gave me a private tour of her residence, <b>Glin Castle</b>

Tagged , , , ,

Thoughts From Around the Investment World – 3

We thought that our readers would be interested in reading the thoughts of some of the leading money management companies. We get information from these companies on a regular basis, and wanted to start passing some of it along. Today we look at the view from the money management shop Neuberger Berman.

Complex Trends, Challenging Markets

The complexities of today’s markets and economies are not lost on those who spend each day sorting through them. Diverging monetary policy, plummeting energy prices and shifting economies are all examples of fundamentals on which our investment professionals are focused. These issues have been debated for the better part of 2015 and have led to a very turbulent period for the markets, both equity and fixed income. [The] past year [2015] will shape up as one of the more challenging in recent memory.

As we enter 2016, the issues of stagnant global growth, monetary policy and China’s bumpy economic transition that have roiled markets will continue to be a major focus, the outcomes of which will likely drive market returns. We believe the Federal Reserve will take a slow approach to rate increases, that the ECB [European Central Bank] will remain accommodative as necessary, and that China has the financial wherewithal to avoid a severe “hard landing.” As for low commodity prices, they are largely supportive for now, but eventual increases are likely to come for the right reasons, reflecting broader economic health and proper supply/demand balance.

Tagged , , ,
%d bloggers like this: