31 Aug 2015

Stocks and the Real Economy

One of the interesting comments that I read in the early part of last week when markets were falling was that financial markets were doing poorly while the real economy was doing reasonably well. Over the last five years, I’ve heard people say countless times that we’ve had a nice recovery in financial assets while the real economy has sputtered along at growth rates well below our historical long-term trend… Read More

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28 Aug 2015

When Trading Goes Haywire

In Tuesday’s Daily Insights, I described trading on Monday as chaotic.  Not only were stocks down sharply, and volume heavy (it was the second most active trading day in history with $630 billion in stocks traded) but many stocks behaved erratically and a number of exchange traded fund (ETFs) prices became wildly disconnected from the market value of their holdings. A quick primer: ETFs are like mutual funds in that… Read More

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27 Aug 2015

Are Stocks Cheap Now?

I thought it would be interesting to see how the market correction this month impacted long-term market valuations, most notably, the Shiller PE ratio.  Unlike a standard PE ratio, the Shiller PE ratio compares the current market price to the average inflation-adjusted earnings for the previous 10-years. The chart below shows the Shiller PE ratio (in blue) back to 1926.  The solid orange line depicts the average Shiller PE ratio… Read More

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26 Aug 2015

The Biggest Implication of the Market Stress

In the past few days, I’ve focused on the fact that corrections like this are totally normal and entirely fit within the financial plans that we create and that we can expect more volatility in the short run but have no new expectations about returns. Today I want to focus on what is probably the most impactful implication of the current stock market rout, which is, in my opinion, the… Read More

25 Aug 2015

Dealing with the Market Rout

Despite the frenetic trading in the markets yesterday, I was heartened as I talked and emailed with clients who seemed largely unfazed by the steep selloff over the last week. Not only was no one panicking, a handful of clients (not just mine, but for the firm), sent in new money to capitalize on lower prices while a number simply wanted to rebalance their existing assets, which at this point… Read More

24 Aug 2015

This is Investing, So Stick With It

Part of what made last week’s market selloff particularly unsettling was the speed of the decline.  So far this year, stocks had been relatively quiet. For example, the S&P 500 had stayed within a range of minus three percent back in January to plus four percent in July.  Then, all of a sudden, stocks fell from the top of that range to the bottom over the course of four days… Read More

21 Aug 2015

Emerging Market Currencies Roil Stocks

In addition to the growing concerns about global economic growth, the Chinese stock market sell off and yuan devaluation and falling oil prices, markets are increasingly spooked by other emerging market currencies and stock prices. An average of 15 emerging market currencies is down about 10 percent so far this year while countries with large commodity exposure are suffering even more.  For example, so far this year, the Russian ruble… Read More

20 Aug 2015

Pull the Trigger Already

As usual, markets were hyper-focused on the exact timing of interest rate liftoff.  While it’s clear that rates are very likely to rise before the end of the year, the debate continues over whether September or December will carry the day. Judging from the minutes, I personally have the feeling that the Fed doesn’t really know because the voting members themselves are split.  Remember, while these folks are brilliant economists,… Read More

19 Aug 2015

High Yielding Asset Classes

Given the low interest rate environment that we’ve endured over the last several years, a lot of our clients ask how we can increase the yield of our portfolios. While yield is an important component of total return (which is income and appreciation/deprecation together), we sometimes see investors stretch for yield without fully understanding the consequences of their decisions. The table below shows the SEC-yield (which is a whole story… Read More

18 Aug 2015

The Outlook for Stock Returns

Last week, I wrote that I was wincing at the valuation for the US stock market (click here for the article) and said that I thought that returns in the coming years would be lower than the historic averages. Importantly, I said that returns could be low without a crash in the form of lower average returns.  I wish I had also said that even though the average return might be lower,… Read More