Posts Tagged ‘Bust’
China Construction: Boom or Bust?
Monday, March 15th, 2010
It would not take too much guessing to figure out where the bulk of the world’s construction activity is taking place. Of course, it is in China, but who would have thought global construction would decline from a year-on-year rate of almost 20% to close to zero once China is stripped out? This is what the fascinating chart below by CRU, WSD and Mcquarie Research (via Agora Financial’s 5 Min Forecast) highlights.
“The Chinese are laying highways like nobody’s business,” added Agora’s Chris Mayer. “By the end of 2008, China had an estimated 60,000 km of highway. The US has 75,000 km. Over the next few years, China plans to have 85,000 km of roads.”
Is building activity in China a boom or a bubble? Please share your thoughts with readers by posting a comment. (Click on “Comments” below the heading of this post and type away.)
Source: Agora Financial’s 5 Min Forecast, March 10, 2010.
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Tags: Advertisement, Agora Financial, Bust, China, China Construction, Chris Mayer, Construction Activity, Construction Boom, Emerging Markets, Global Construction, Heading, Highways, Mcquarie, Share Your Thoughts, Wsd
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China Holds the Trump Card?
Monday, January 25th, 2010
China is trouncing its economic competition when it comes to manufacturing exports. In 2008, China decided to hitch its trailer to the U.S. dollar, fixing its exchange rate at 6.83 yuan. This was a wise move on China’s part considering at the time, its export sector got destroyed by the global credit meltdown, and the shipping business all but died, following the bust at Lehman Brothers.
At the same time, China embarked on a bold $586-billion (U.S.) stimulus in the fourth quarter of 2008 to spend its way domestically out of the credit crisis, and loosened bank lending (which added $1.3-trillion in new domestic bank credit). This initiative on its part meant that China was able to stockpile cheaper commodities, buying them ahead of demand, and pump liquidity into its real estate and equity markets, while waiting patiently for its coveted export sector to return to prominence.
Pierre Daillie, (AdvisorAnalyst.com), GlobeAdvisor.com, January 25, 2010.
Tags: Bust, China, Commodities, Credit Crisis, Economic Competition, Emerging Markets, Exchange Rate, Export Sector, Fourth Quarter, Global Credit, Globeadvisor, Initiative, Lehman Brothers, liquidity, Meltdown, Prominence, Shipping Business, Stimulus, Time China, Trillion, Trump Card, Wise Move, Yuan
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The investment world, according to Julian Robertson
Friday, October 16th, 2009
In this three-part video interview, Julian Robertson, chairman and CEO of Tiger Management, talks with Chrystia Freeland, US managing editor of the Financial Times, about US debt, China, lessons from the tech bust, the future of hedge funds, gold stocks, taxes and regulations. Good stuff!
Part 1: On the economy and inflation
Click here or on the image below to view the video.
Part 2: On market cycles and hedge funds
Click here or on the image below to view the video.
Part 3: On gold, Norway, and taxes
Click here or on the image below to view the video.
Source: Chrystia Freeland, Financial Times (here, here and here), October 15, 2009.
Tags: Bust, Ceo, China, Economy, Emerging Markets, Financial Times, Freeland, Gold, gold stocks, Good Stuff, Hedge Funds, Image View, inflation, Investment World, Julian Robertson, Managing Editor, Market Cycles, Norway, Tiger, Tiger Management, Video Interview, Video Source
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Stocks vs. Bonds: What’s Next?
Friday, October 9th, 2009
A very interesting chart from Leuthold Group points out that this would be the third time since the 1920s that we have emerged from a period in which bonds have outperformed stocks.
In the periods following this re-emergence from bond superiority, stocks enjoyed massive outperformance. The first of the three periods outlined in the chart, was the 1930s bust, the second was 1949 thru 1955.
Jeremy Siegel, too, offers the following argument in favour of “stocks for the long run,” from his recent op-ed in FT.com (worth reading):
A look at history shows that the recent experience is not uncommon and excellent returns are available to those who survive rough patches. Since 1871, the three worst 10-year returns for stocks have ended in the years 1920, 1974 and 1978.
These were followed, respectively, by real, after-inflation stock returns of more than 8 per cent, 13 per cent, and 9 per cent over the next 10 years.
In fact for the 13 10-year periods of negative returns stocks have suffered since 1871, the next 10 years gave investors real returns that averaged more than 10 per cent per year. This return has far exceeded the average 6.66 per cent real return in all 10-year periods, and is twice the return offered by long-term government bonds.
Strong future returns also followed poor returns if one extends the analysis to the worst-performing of all 127 10-year stretches since 1871. Without exception, for each 10-year return that fell in the bottom quartile, the following 10-year period yielded positive real returns and the median return exceeded the long-run average.
Both Leuthold and Siegel make a notable case for the future of stocks, though Leuthold focuses on 5 year periods and Siegel on 10 year periods.
Earlier this year, we featured Robert Arnott’s thesis on Bonds for the Very Long Run (Bonds: Reversion Cuts Both Ways); Arnott focuses on the past 40 years:
For four decades, from time to time, we hear this question: Why bother with bonds at all? Bond skeptics generally point out that stocks have beaten bonds by 5 percentage points a year for many decades, and that stock returns mean-revert, so that the true long-term investor enjoys that higher return with little additional risks in 20-year and longer annualized returns.
Recent events provide a powerful reminder that the risk premium is unreliable and that mean reversion cuts both ways; indeed, those 5 percent excess returns, earned in the auspicious circumstances of rising price-to-earnings ratios and rising bond yields, are a fast-fading memory, to which too many investors cling, in the face of starkly contradictory evidence. Most observers, whether bond skeptics or advocates, would be shocked to learn that the 40-year excess return for stocks, relative to holding and rolling ordinary 20-year Treasury bonds, is not even zero.
Bill Gross, PIMCO’s Bond King, Chief Card Counter and Handicapper, has been exchanging high-grade corporate bonds for longer-dated government bonds, out of concern for deflation.
Is it possible they are all right? Bonds are forecasting deflation and stocks are forecasting reflation. The track record of the bond market, however, as a forecasting tool has proven to be more accurate historically. Pragmatic Capitalist says:
Bond investors (who tend to have a longer time horizon) are forecasting a long battle with deflation. Equity investors (who tend not to think much farther than one quarter into the future), on the other hand, are putting their money on the line in the hopes that the reflation trade is alive and well.
Unfortunately for equity investors, they have a poor record of forecasting the future when compared to bond investors. There have been 4 famous cases of such bond and stock divergences in the last 20 years. The most famous is the summer of 1987. We all know what occurred then. The other three cases were fall ‘94, summer ‘98 and winter 2000. All three preceded declines in the market. Of all 4 instances, three of them preceded 15% declines in the S&P 500.
The strongest case for equities today seems to rest on the sheer amount of cash sitting on the sidelines; $10-trillion in the US and $1-trillion in Canada. Its a weak argument - investors do not invest simply because they have the cash, and these days investors aren’t exactly inspired.
James Bianco, of Bianco Research, however, (via WSJ), is skeptical of this simplistic theme:
“If you look at the mutual-fund flows there is a record amount going into bond funds. Forty-two billion dollars went into bond funds in August, which is an all-time monthly record. In fact, the all-time monthly record, I believe, for stock funds was $55 billion back in February of 2000. So it’s pretty close to the stock-fund record. But when you break it down, what you’ll find is that short-term muni funds, and short-term corporate funds, those are the funds that are getting huge, huge inflows.
The short-term corporate funds are up 12% this year. And as we talk right now, the S&P 500 is up around 16% this year and the Dow is up about 11% this year. That’s including dividends. So my conclusion was, “Yes, there’s a lot of money that’s built up in the cash on the sidelines. Yes, it is going to come out of that zero interest rate funds. And its going into short-term bond funds, which by the way are performing pretty much in line with the stock market. So don’t hold your breath. You’re going to be waiting a long time before you see that money ever matriculate into the stock market.””
And,
“Now a couple things about that. The first one is I hate when they say, “There’s $3.5 trillion on the sidelines and that’s a whole lot of money.” It implies that all of that money should be put in investments like the stock market. That’s not true. The vast, vast majority is in transactional balances.
It’s money that is going to be needed in a very short period of time, like, within a year. It’s going to be spent on something. They’re almost like checking accounts, if you want to think of it that way. It’s like somebody saying, “You’ve got $10,000 dollars in your checking account, why don’t you $10,000 worth of stocks?” And the answer is, “Well because I’ve got to pay my credit card bill and my rent.”
The strongest case for the bond market is coming out of PIMCO’s thesis, which calls for a ‘New Normal,” a future of De-Leveraging, De-Globalization, and Re-Regulation. The three elements combine as a recipe that ultimately results in stable and stronger dollar outcome as debt repayment repatriates cash from abroad as well as domestically into the credit and bond markets. A strong dollar on this basis results in falling prices, thus the case for deflation.
Bottom line: This may be time to use the equity market’s strength to rebalance out of equities in favour of government bond and money market allocations.
Tags: 10 Years, 1920s, 1930s, Bottom Quartile, Bust, Canada, Emergence, Favour, Future Returns, Government Bonds, inflation, Jeremy Siegel, Periods, Robert Arnott, Rough Patches, Skeptics, Stock Returns, Stocks, Stocks Bonds, Stretches, Superiority, Thesis, Third Time
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Hugh Hendry Reflects on Lehman Anniversary
Wednesday, September 16th, 2009
Hugh Hendry, perhaps the UK’s most eclectic hedgie, reflects on the anniversary of the year following the Lehman Brothers bust.
Click play to listen:
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Hendry has been keeping his powder dry since late March as he is conflicted by the rally and happy to sit out the innings. He remains of the mind we are in for a W-shaped double dip in the market (and economy), and he is being cautious. Last year, his flagship fund captured a 40% return by focusing on investments in long dated bonds in the US and UK, while yields tumbled. In March when the bond market peaked and long term yields began to rise against a violent quick turn in the equity markets, Hendry back out of his bond investments, but has chosen to remain underinvested, and believes that this is nothing but a bear rally. Hendry says that he is quite happy at this stage to have a small loss year-to-date, and to wait and be in an advantageous cash position in this market.
Hendry embraced deflation at the core of his recent investing strategy, and crusaded during numerous visits against those who dismissed the economic threat, of the big D, on CNBC in London. which we covered. Some of the debates were hilarious, yet eye opening, and Hendry is a must see/must listen to commentator.
Source: Bizcast.co.za
Tags: 09 Mp3, Anniversary, Big D, Bond Investments, Bond Market, Bonds, Bust, Cash Position, Cnbc, Commentator, Debates, Double Dip, Economic Threat, Flagship, Hedgie, Hugh Hendry, Lehman Brothers, Rally, Rise Against, Term Yields, Wp, Year To Date, Za
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Jeremy Grantham: Prepare for Low Growth, Higher Energy Prices
Monday, July 27th, 2009
Jeremy Grantham has released his latest newsletter, “Boring, Fair Price.” Grantham’s newsletter is a must read, given that he has made some of the most noteworthy and canny calls of the last decade. Grantham called the tech bust, accurately predicted 10 years out, the S&P 500 would revert to a fair value of 950 last fall, give or take a few days, and exited emerging markets last summer. In early March, his letter, presciently titled “Reinvesting when Terrified,” was released the day the market turned around.
Here, Grantham writes how he has bitten hard on the energy transition apple, a theme we have covered a great deal throughout the year, and goes to some, but not too much length to explain that higher energy prices loom, and what their impact will be on agriculture and transportation, and how oil will eventually flow (only) to its first and best uses. This one will be near and dear to Canadian investors.
Click the button in the top right corner to full screen the viewer, and use the menu on the left hand topside to print. Or, you may download it here.
Tags: 10 Years, Agriculture, Amp, Apple, Bust, Canada, Canadian Investors, Click The Button, Emerging Markets, Energy Prices, Energy Transition, Few Days, Gmo, Higher Energy, Jeremy Grantham, Last Decade, Left Hand, Low Energy, Newsletter, oil, Q2, Top Right Corner
Posted in Emerging Markets, Markets | No Comments »
Shiller: US remains in “bad recession”
Tuesday, July 21st, 2009
Robert Shiller was among the very few to warn of a housing bust before it happened. Now he says that although the housing market could be approaching a bottom, prices might remain in the “doldrums” for years to come as the US remains in a “liquidity trap” comparable to the one it faced during the Great Depression.
Though stock market prices are valued fairly, Shiller said, equities remained a “risky” investment because the US had not turned the corner on its fiscal crisis. He warned that stock prices “could fall dramatically”.
Click here for the article.
Tags: Bottom Prices, Bust, Doldrums, Fiscal Crisis, Great Depression, Housing Market, Liquidity Trap, Recession, Risky Investment, Robert Shiller, Stock Market Prices, Stock Prices
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Crispin Odey: Markets Giving Misleading Signals
Thursday, March 5th, 2009
Crispin Odey, CIO, Odey Asset Management, shares a wealth of insight in his 2008 year-end Letter to Shareholders reflecting, in the following excerpts, on the mixed signals the markets are sending about valuations, and commodities. Unlike his former protege and partner, Hugh Hendry, who is avoiding equities for the time being, and long long-term government bonds, Odey likens the current pricing climate in bank shares, “like trading options,” and believes there will be a bear market in bonds within 12 months. Read on:
“Keynes believed that economics was a polemical science. He made economics popular and powerful because he abstracted ideas that in the workaday world looked sensible and showed them to be dangerous if followed by everyone. Thus he changed the way that policy makers and people thought. Has there been a better time to renew the challenge?”
“Given that all of this is a long way away from being accepted we must reluctantly conclude that the world economy is not yet in a recovery position. The recession only started to get into its stride in September of last year. Most companies will have been guilty of over-trading as they have sought to cover falls in orders by accepting any orders. They will be finding themselves with customers going bust and inventory still rising. Profit numbers will be dire. The only good news is that at some point the survivors will be able to charge more for less, and margins will be higher on the other side of this hill”.
“Current investments come about from the outstanding opportunities being opened up by the pain from the falls in share prices that we have seen over the last year. This anguish is sorely felt by us all but it is also the time to be investing. We have become big buyers of the UK clearing banks. This reflects quite how cheap they are. The shares are trading like options. After Northern Rock and Lehman Brothers, many are now convinced that they will be nationalised. However, the government has realised that nothing is solved by nationalising them, and in the UK’s case, that there is everything to be gained from letting them live. In an election year who else has Brown got to blame?”
“Given that on the other side of this disaster these banks can earn multiples of their current share price, the risk/return is wrong. In many ways these purchases remind me of Marconi, when the share price fell to 10p but the lack of covenants on the £4 billion bank loan meant that it could not be bankrupted for four years. We made 450% on that trade. Hopefully these banks will fare better and for longer. Given time and distance they will be fine”.
“This is because the markets have been giving misleading signals for some time. Wheat is a typical example. There is barely any surplus supply over demand in wheat. Yet last year farmers found themselves with rising input costs, thanks to the oil and fertilizer price hikes, and then falling incomes with wheat prices that were some 60% off their highs. They had one of their worst years ever. As a result this year plantings are way down, farmers are distressed and in Brazil and Argentina facing droughts. The wheat price is likely to soar”.
“All in all I expect that within 12 months government bond markets will go into a bear market which may be long and protracted. The stockmarkets remain good value and would prosper after some worries if inflation came back and my portfolio should do quite well in that environment. However it remains hard work in the main”.
Hat tip: Jonathan Davis, Independent Investor
Tags: Anguish, Asset Management, Bear Market, Better Time, Bust, Clearing Banks, Crispin Odey, Excerpts, Government Bonds, Hugh Hendry, Keynes, Lehman Brothers, Letter To Shareholders, Margins, Mixed Signals, Recession, Recovery Position, Share Prices, Valuations, Workaday World, World Economy, Year End
Posted in Bonds, Commodities, Economy, Markets, Oil and Gas | No Comments »
Hugh Hendry: Quantitative Easing Won’t Work
Wednesday, March 4th, 2009
Hugh Hendry, CIO, Eclectica Asset Management, discusses his thoughts on ‘quantitative easing’ on CNBC March 1, 2009. This is must-see, clear-eyed commentary from one of this generations market savants.
Hendry is not known for being a doomsayer, but rather has always deemed himself to be a heretic, putting forward ideas and investing in them, while being ridiculed or vilified at times for taking aim on controversial ideas. While it is, by no means original, to be in the gloomy camp, in these brutal financial markets, Hendry proclaims that most people don’t want to read through the whole story, they just impatiently want to go straight to the end of the story, a decision that, today, could wind up very costly.
Many participants are trying to suspend the notion that we are suffering through a deflationary bust (which is the central plot) and want to go straight to the part where the story concludes in hyperinflation. Hence the reluctance among many investors to invest in long bonds, and the willingness to be long gold at this time.
“The point is that there is no precedent for quantitative easing succeeding. The presumption again in risk markets is that it will succeed. It partly explains why there is this fervor to own gold and that gold is just a one-way bet to making money,” Hendry said.
“I disagree. I think by the end of this year it will be shown that quantitative easing does not succeed in an environment where in America they have debt which is the equivalent of global GDP. How can you tempt people to take even more debt on?”
“I think this is comparable to 1930, so I still have my reservations. But if we were to see a plunge from these level, then tactically I could trade a little bit around oversold levels,” he said.
Tags: Bust, Central Plot, Cnbc, Controversial Ideas, Doomsayer, Eclectica Asset Management, ETF, Fervor, Financial Markets, Forward Ideas, GDP, Global Gdp, Heretic, Hugh Hendry, Hyperinflation, March 1, Plunge, Presumption, Reluctance, Risk Markets, Savants, Taking Aim, Willingness
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