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
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
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
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
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
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
A while back, a colleague recommended that I listen to a podcast on Bloomberg called Masters in Business with Barry Ritholtz. On the podcast, Ritholz interviews luminaries from the investment industry (and a few others) and talks about my favorite topic. Although I had listened to one featuring AQR co-founder Cliff Asness, I really didn’t take interest because I had seen Ritholtz on CNBC and didn’t think he was particularly… Read More
One of the things that I have heard many times over the years is that lower interest rates equal higher equity valuations. To be honest, I always struggled to understand why that relationship would be dogmatic. In the past, I reconciled the idea by thinking about the price-earnings ratio (PE-ratio) as an earnings yield, which is simply the inverse of the PE-ratio. If the PE-ratio is 20, then the earnings… Read More
Although China has been liberalizing in recent years, one of the most centrally planned aspects of their economy is the value of the currency. Yesterday, the People’s Bank of China (PBoC), their central bank, lowered the value of their currency against the US dollar by almost two percent, the largest one-day move in decades (although as currency devaluations go, this one was small). If you look at the chart below,… Read More
Warren Buffett wrote in Berkshire Hathaway’s 2010 annual report that they ‘will need both good performance from our current businesses and major acquisitions. We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy.’ At that time, he was just coming off his largest deal ever, purchasing the railroad Burlington Northern Sante Fe for $26.7 billion in 2009. In 2013, it appeared that he had bagged his… Read More
