What’s in store for the next decade?
One interesting observation is that leaders in one decade usually don’t repeat in the following decade. This statement is clearer when viewed from the industry level. In the 1990s, five of the 10 top cumulative price returns came from IT. Yet in the following decade, not only did the entire sector sharply underperform the overall market, but all five IT industries that led the pack in the 1990s underperformed the market in the 2000s, falling from 43% for systems software to 87% for communications equipment. Conversely, nine of the bottom 10 in the 1990s went on to beat the S&P 500 in the 2000s. Not surprisingly, the one that didn’t was also an IT industry.
In addition, among the worst performers in the 1990s were industries in the energy and materials sectors — most notably gold and oil & gas exploration & production — which are now among the top performers this decade (Gold gained 112% in the 2000s and ranked 11th).
So what might this mean for the coming decade? When we finally emerge from this debt overhang — and the sooner we do this the better — the washout of prices and valuations may serve as a springboard for equity price advances for the remainder of the decade. If history is any guide (it is never gospel), the cyclical sectors will likely lead the recovery, while the defensive groups get pulled along for the ride.
Saverio Manzo
Friday, December 18, 2009
Wednesday, December 16, 2009
What a Top Award-Winning Fund Manager is doing
Canada's Equity Manager of the Year worries about the market impact of huge government deficits.
Eric Bushell, chief investment officer at Signature Global Advisors, says the global economy will face a crucial test in 2010 to determine if it can manage without extensive support by governments and central bankers.
"I am in the cautious camp," says Bushell, who is this year's winner of the Morningstar Equity Fund Manager of the Year award. This caution "plays into my theme of emphasizing those sectors in the equity market that are defensive and/or generate strong cash flow and dividends for investors."
On the health of the global economy, Bushell's call is that there will be an ongoing need for government stimulus. "Some key areas of weakness persist, for example the U.S. housing market."
At the same time, he says, there are growing concerns in the global debt market about the huge fiscal deficits that governments are running up to provide this stimulus. "This is rattling the sovereign debt market."
The good news for equity investors, says Bushell, is that central bankers are likely to keep short-term interest rates as low as possible for some time, given the uncertain economic outlook.
In the case of energy, Bushell is favouring exploration and production companies focusing on oil. "This commodity is a hedge against the possible resurgence of inflation over the longer term."
Saverio Manzo
Eric Bushell, chief investment officer at Signature Global Advisors, says the global economy will face a crucial test in 2010 to determine if it can manage without extensive support by governments and central bankers.
"I am in the cautious camp," says Bushell, who is this year's winner of the Morningstar Equity Fund Manager of the Year award. This caution "plays into my theme of emphasizing those sectors in the equity market that are defensive and/or generate strong cash flow and dividends for investors."
On the health of the global economy, Bushell's call is that there will be an ongoing need for government stimulus. "Some key areas of weakness persist, for example the U.S. housing market."
At the same time, he says, there are growing concerns in the global debt market about the huge fiscal deficits that governments are running up to provide this stimulus. "This is rattling the sovereign debt market."
The good news for equity investors, says Bushell, is that central bankers are likely to keep short-term interest rates as low as possible for some time, given the uncertain economic outlook.
In the case of energy, Bushell is favouring exploration and production companies focusing on oil. "This commodity is a hedge against the possible resurgence of inflation over the longer term."
Saverio Manzo
Monday, December 14, 2009
Is the Canadian Housing Market in a Bubble?
It sure looks that way.
- A David A. Rosenberg, Chief Economist & Strategist SPECIAL REPORT
At a time when personal income is down around 1% over the past year, we have seen nationwide average home prices soar over 20% and last month hit a record high; as did home sales. In real terms, home price appreciation is back to where it was in 1989. Of course, back then, interest rates were far higher but then again, the economy was in the late stages of a phenomenal multi-year economic expansion, not making a transition from deep recession to nascent recovery.
We are in no position to make a claim that there is a high degree of speculation in residential real estate as there was during the “flipping” mania of the late 1980s. Be that as it may, housing has become a very crowded asset class in Canada, as measured by the homeownership rate, which at last count was estimated at 68.4% which is not only a full percentage point higher than the current U.S. ratio but is the highest it has been on this side of the border in nearly four decades.
While the Canadian economy is recovering, overall growth is still barely above zero as manufacturers grappled with excess inventories, a strong currency and a soft domestic demand picture south of the border. Employment conditions have improved, but are hardly that healthy, as we saw in the latest jobs report for November, where wages and the workweek were both down despite a constructive headline number (half of which were in the education sector, an inherently difficult area for statisticians to adequately seasonally adjust).
The bottom line is that even though home prices did come off a soft base from a year ago, so did most other economic indicators and they are still down from the depressed levels prevailing this time in 2008:
• Real GDP -3.2%
• Employment -1.5%
• Retail sales -3.3%
• Shipments -18.6%
• Orders -18.4%
• Exports -18.2%
• Personal income -0.8%
• But home prices are up 22%.
Go figure.
Saverio Manzo
- A David A. Rosenberg, Chief Economist & Strategist SPECIAL REPORT
At a time when personal income is down around 1% over the past year, we have seen nationwide average home prices soar over 20% and last month hit a record high; as did home sales. In real terms, home price appreciation is back to where it was in 1989. Of course, back then, interest rates were far higher but then again, the economy was in the late stages of a phenomenal multi-year economic expansion, not making a transition from deep recession to nascent recovery.
We are in no position to make a claim that there is a high degree of speculation in residential real estate as there was during the “flipping” mania of the late 1980s. Be that as it may, housing has become a very crowded asset class in Canada, as measured by the homeownership rate, which at last count was estimated at 68.4% which is not only a full percentage point higher than the current U.S. ratio but is the highest it has been on this side of the border in nearly four decades.
While the Canadian economy is recovering, overall growth is still barely above zero as manufacturers grappled with excess inventories, a strong currency and a soft domestic demand picture south of the border. Employment conditions have improved, but are hardly that healthy, as we saw in the latest jobs report for November, where wages and the workweek were both down despite a constructive headline number (half of which were in the education sector, an inherently difficult area for statisticians to adequately seasonally adjust).
The bottom line is that even though home prices did come off a soft base from a year ago, so did most other economic indicators and they are still down from the depressed levels prevailing this time in 2008:
• Real GDP -3.2%
• Employment -1.5%
• Retail sales -3.3%
• Shipments -18.6%
• Orders -18.4%
• Exports -18.2%
• Personal income -0.8%
• But home prices are up 22%.
Go figure.
Saverio Manzo
Thursday, December 10, 2009
Climate Skeptics vs. Scientific Consensus
I’m always looking for the most credible sources to write from and I especially appreciate a good depiction of information.
Today's letter is a follow up to my last post: "The Oil Sands and Al Gore: Blacklisted? - Oil Sands Threaten to Destroy the Planet”
The climate change debate seems to be heating up and we’re seeing more and more news for both sides of the camp.
This decade is on track to become the warmest since records began in 1850, and 2009 could rank among the top-five warmest years, the U.N. weather agency reported on the second day of a pivotal 192-nation climate conference.
What do you think is causing the warm-up? Is it human activity on the planet, or a natural cycle?
From the Wall Street Journal: “ Are Humans Responsible for Climate Change?”
http://online.wsj.com/article/SB126027972598681805.html
Saverio Manzo
Monday, December 7, 2009
The Oil Sands and Al Gore: Blacklisted?
“Oil Sands Threaten to Destroy the Planet”
In a recent conference call with infamous BMO Harris Bank economic and market strategist Donald Coxe, Don suggested a few interesting global investment phenomenons.
The most notable, of course, is one that concerns us right here at home – our beloved Alberta and Saskatchewan oil sands. In a somewhat recent speech, Al Gore (former VP of the USA), stated that the “Canadian Oil Sands threaten to destroy the planet”. This is of course because of their affect on global warming, by way of C02 emissions they emit in the production and usage of oil and gas.
The effect that these comments have had on global, mega-size institutional investors, the ones that manage large pension funds, endowment funds and the assets of charitable organizations, has been quite negative. If the story holds true, then these institutional investors have effectively “black-listed” the Oil Sands as an investment and therefore cannot be used as an option within the assets they mange, due to pressures for their clients.
So here we sit in Canada, a highly-liked nation by foreigners, a political-friendly and stable nation, sitting on one of the worlds largest natural resources that may need be avoided by some of the worlds largest money managers all thanks to Mr. Gore’s comments. Buy what if Mr. Gore’s scientific research and modelling on global warming doesn’t pan out nearly as bad as he suggests?
- A massive influx of new capital in to the Oil Sands?
Challenges to his theories are currently underway.
Saverio Manzo
In a recent conference call with infamous BMO Harris Bank economic and market strategist Donald Coxe, Don suggested a few interesting global investment phenomenons.
The most notable, of course, is one that concerns us right here at home – our beloved Alberta and Saskatchewan oil sands. In a somewhat recent speech, Al Gore (former VP of the USA), stated that the “Canadian Oil Sands threaten to destroy the planet”. This is of course because of their affect on global warming, by way of C02 emissions they emit in the production and usage of oil and gas.
The effect that these comments have had on global, mega-size institutional investors, the ones that manage large pension funds, endowment funds and the assets of charitable organizations, has been quite negative. If the story holds true, then these institutional investors have effectively “black-listed” the Oil Sands as an investment and therefore cannot be used as an option within the assets they mange, due to pressures for their clients.
So here we sit in Canada, a highly-liked nation by foreigners, a political-friendly and stable nation, sitting on one of the worlds largest natural resources that may need be avoided by some of the worlds largest money managers all thanks to Mr. Gore’s comments. Buy what if Mr. Gore’s scientific research and modelling on global warming doesn’t pan out nearly as bad as he suggests?
- A massive influx of new capital in to the Oil Sands?
Challenges to his theories are currently underway.
Saverio Manzo
Sunday, December 6, 2009
Upset you missed out on this year's mega stock market rally? Don't be.
As many of my readers know, I follow closely some the brightest minds on the economy and the markets, those whom have excellent or at least good track records and past calls. As we approach the New Year, I’ll put together a survey of forecasts and predictions of a collection of the best minds.
One of the best forecasters of secular trends is John Mauldin.
John Mauldin of Millennium Wave Investments says long-term investors should ignore the temptation to get a piece of the action. In his view, there's only one metric to pay attention to: Valuations. And, for now, stocks are too rich for his blood -- "nosebleed" is the term he used.
That doesn't mean you should park your money in a CD or under a mattress. "There's lot of other things you can do while you're waiting" for valuations to come down, he says.
Among Mauldin's recommendations are fixed income and dividend yielding utility stocks. And for the more speculative at heart, he thinks buying real estate for rental income is a smart move now that housing prices have come down so dramatically.
"2010 will be a mediocre year for the economy, with GDP 1.0% at best"
"I'm in the double-dip recession camp," says John Mauldin of Millennium Wave Investments, who fears the Obama administration is "going to massively increase taxes…in 2011, in a weak economy. I think that's the absolutely dumbest thing we're going to do as a country."
Mauldin sees many parallels between today's economy and the malaise of the 1970s. With too much debt, slow growth and high unemployment, "it won't be fun" for the next few years, he says.
Nevertheless, Mauldin is actually optimistic about the future, which might shock some who've seen him in previous appearances on Tech Ticker.
In his e-newsletter, Thoughts from the Frontline, Mauldin envisions explosive growth in telecom, energy and medical sciences. Much the same way the PC revolution changed the way we communicate, work and live, so too will this next wave of innovation.
"It's going to be the most exciting time to ever be alive, in the next two decades" Mauldin predicts.
Saverio Manzo
One of the best forecasters of secular trends is John Mauldin.
John Mauldin of Millennium Wave Investments says long-term investors should ignore the temptation to get a piece of the action. In his view, there's only one metric to pay attention to: Valuations. And, for now, stocks are too rich for his blood -- "nosebleed" is the term he used.
That doesn't mean you should park your money in a CD or under a mattress. "There's lot of other things you can do while you're waiting" for valuations to come down, he says.
Among Mauldin's recommendations are fixed income and dividend yielding utility stocks. And for the more speculative at heart, he thinks buying real estate for rental income is a smart move now that housing prices have come down so dramatically.
"2010 will be a mediocre year for the economy, with GDP 1.0% at best"
"I'm in the double-dip recession camp," says John Mauldin of Millennium Wave Investments, who fears the Obama administration is "going to massively increase taxes…in 2011, in a weak economy. I think that's the absolutely dumbest thing we're going to do as a country."
Mauldin sees many parallels between today's economy and the malaise of the 1970s. With too much debt, slow growth and high unemployment, "it won't be fun" for the next few years, he says.
Nevertheless, Mauldin is actually optimistic about the future, which might shock some who've seen him in previous appearances on Tech Ticker.
In his e-newsletter, Thoughts from the Frontline, Mauldin envisions explosive growth in telecom, energy and medical sciences. Much the same way the PC revolution changed the way we communicate, work and live, so too will this next wave of innovation.
"It's going to be the most exciting time to ever be alive, in the next two decades" Mauldin predicts.
Saverio Manzo
Friday, December 4, 2009
Is Profitability or Technicals Driving Stock Markets?
More and more of the world’s best forecasters are singing the same tune recently. Should we take heed or keep with the crowd?
What will fuel the next leg up in stock markets, after the 60% plus run over the past 8 months?
From The New York Times:
I’m not sure I agree with very much in this NYT article, describing the current cyclical bull rally within the longer secular bear market as A Rally That Needs More ‘E’.
“In the first leg of a bull market, when optimism and euphoria are ascendant, investors are willing to bet that the economy will improve and that corporate profit growth is just around the corner. This faith manifests itself not just in rising share prices, but also in rising price-to-earnings ratios.”
I do not believe that this is a) the first leg of a bull market; b) optimism or euphoria are ascendant; c) investors are betting that the economy is improving.
Rather, this has been a technically driven rally from very deeply oversold conditions. A 6 month, 5,000 point fall will set up the conditions that lead to a massive oversold bounce.
Indeed, the article notes that “the P/E ratio for companies in the Standard & Poor’s 500-stock index has soared 87 percent since this rally began on March 9.” That is not what a typical bull market looks like, and is more accurately described as the reaction to a prior collapse.
“Though conventional wisdom assumes that P/E ratios continue to grow throughout a bull market, that’s not always the case. In fact, it’s rarely the case.”
Well, it may be rare, but it was certainly the situation the 1982-2000 — the greatest bull market of our lifetimes. About 75% of the gains took place due to P/E expansion. The end of that rally (’98-’00) saw P/E rations expand dramatically, especially on the Nasdaq.
Source: NYT
Saverio Manzo
What will fuel the next leg up in stock markets, after the 60% plus run over the past 8 months?
From The New York Times:
I’m not sure I agree with very much in this NYT article, describing the current cyclical bull rally within the longer secular bear market as A Rally That Needs More ‘E’.
“In the first leg of a bull market, when optimism and euphoria are ascendant, investors are willing to bet that the economy will improve and that corporate profit growth is just around the corner. This faith manifests itself not just in rising share prices, but also in rising price-to-earnings ratios.”
I do not believe that this is a) the first leg of a bull market; b) optimism or euphoria are ascendant; c) investors are betting that the economy is improving.
Rather, this has been a technically driven rally from very deeply oversold conditions. A 6 month, 5,000 point fall will set up the conditions that lead to a massive oversold bounce.
Indeed, the article notes that “the P/E ratio for companies in the Standard & Poor’s 500-stock index has soared 87 percent since this rally began on March 9.” That is not what a typical bull market looks like, and is more accurately described as the reaction to a prior collapse.
“Though conventional wisdom assumes that P/E ratios continue to grow throughout a bull market, that’s not always the case. In fact, it’s rarely the case.”
Well, it may be rare, but it was certainly the situation the 1982-2000 — the greatest bull market of our lifetimes. About 75% of the gains took place due to P/E expansion. The end of that rally (’98-’00) saw P/E rations expand dramatically, especially on the Nasdaq.
Source: NYT
Saverio Manzo
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