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Investment Research Since 1978

Currency Traders Don’t Like New Zealand’s New Government

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A coalition led by the Labour Party in New Zealand has taken control of the government, and currency traders are punishing the country by selling off the New Zealand dollar. James Glynn writes: Despite finishing second in an inconclusive general election, 37-year-old Labour leader Jacinda Ardern emerged victorious after smaller parties agreed Thursday to form a government. The coalition ends nearly a decade of conservative rule that helped propel the island economy to one of the fastest growth rates in the developed world. The uncertainty created by the prospect of a switch in policies and … [Read more...]

The Bears have Punched Themselves Out

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You are investing through what has become the third longest bull market in history. Over recent months it has also been one of the calmest markets on record. The first chart in this post by James Mackintosh shows the percentage of newsletter writers who are bullish versus those who are bearish. Bull-bear sentiment is often used as a contrary indicator. The greater the percentage of bulls, the greater the likelihood the market will fall is the thinking. After more than eight years of a relentless bull market, most of the bears seem to have punched themselves out. … [Read more...]

Is it Time to Worry about a Stock Market Crash?

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Tomorrow marks the 30-year anniversary of the 1987 stock market crash when U.S. shares plunged over 20% in a single day. The 1987 crash was blamed on a new innovation in financial markets at the time—portfolio insurance. Since the crash, controls have been put in place to prevent sharp one-day declines in markets, but risks remain. Volatility strategies that have been adopted by many investors have characteristics similar to those of portfolio insurance and market structure has shifted. Index-based ETFs that are bought and sold by investors with little regard for the value of the underlying … [Read more...]

Do you Invest with a Performance Chaser?

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It’s that time of year again, when portfolio managers who are trailing their benchmarks throw well-crafted investment plans out the window and start chasing the market higher. The goal for this short-term focused crowd is to have a higher return than the market by the time of close of business on New Year’s Eve. The PowerShares High Beta ETF is your evidence of this shameless practice. High-beta stocks are stocks that tend to move up or down more than the broader market. If a stock has a beta of 1.5 for example, one would expect this stock to rise 1.5% for every 1% rise in the S&P … [Read more...]

What Long-term Capital Management and the Fed Have in Common

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Investing is as much art as it is science. That probably isn’t music to the pure quantitative investor’s ear, but was it not a quantitative approach at Long-Term Capital Management that almost took down Wall Street in the late 1990s, and was it not also a quantitative formula that allowed brokerage firms to take on too much risk during the housing bubble? Quantitative investment analysis can be a useful tool for investors, but it should not be the only tool used to craft portfolios. One of the mistakes often repeated by quantitative investors is not adequately accounting for their own … [Read more...]

The Calmest Market on Record

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MarketWatch reports here that the S&P 500 is on the verge of its longest streak of going without even a 3% correction. Why are markets so quiet? An excess of global liquidity in the face of an improving global economy is probably the primary cause, but business sentiment and investor sentiment have also clearly gotten a boost from a more business friendly administration. Enjoy the quiet while it lasts. Stability has a tendency of breeding instability in financial markets. Mark Decambre reports: Just eight more trading sessions sans a 3% daily drop—a fairly normal occurrence even in a … [Read more...]

The Profound Implications of a Shifting Advertising Landscape

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This has profound implications for all sorts of businesses. The old way of building brand value is no longer as effective. Moving to shorter formats needs a rethink on how to communicate a brand’s message quickly, he added. “You may not be able to tell much of a story [in six seconds] but you can come up with a sticky image. It’s like a video billboard or a print magazine ad. When you do a good one, it’s like a magic wand touching you.” Advertisers’ new-found willingness to experiment with different formats reflects a recognition that many things are competing for a TV viewer’s attention, … [Read more...]

This is a Fixed Income Strategy that Should Be Avoided

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The reach for yield in fixed-income markets continues full-steam ahead. The latest junk issuer to tap into investors desire for income at any and all costs comes courtesy of Tajikistan. Tajikistan just closed on its first ever international bond issue last month. Never heard of Tajikistan? Tajikistan is a tiny landlocked former Soviet republic with a population of about 9 million people. The Tajikistan bonds are rated B- by S&P and come with a coupon of 7.125%. Junk bond issuance in the developing world is already up 60% over last year’s total and we still have three months to go. This … [Read more...]

Should you Freeze your Credit to Guard Against Equifax Breach?

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Since the Equifax security breach was reported, consumer have been guided to a number of different actions to protect themselves from potential identity theft. Some of them, like checking credit reports, are familiar to most Americans. Others are less common. At The Wall Street Journal, Daisy Maxey explains the pros and cons of freezing your credit. She writes: Should consumers be concerned about freezing their credit at credit-reporting companies beyond Equifax, Experian PLC and TransUnion? There are more than 100 consumer-reporting companies that provide data on consumers, such as their … [Read more...]

Investors Building Risk by Blindly Pouring Money into Index ETFs

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So says the boss of one of the largest ETF providers in the U.S. It is hard to argue with his point that blind inflows into market-cap weighted index ETFs aren't setting the table for an ugly unwind if market sentiment turns south. The FT has the story below. The head of the fourth-largest exchange traded fund provider has warned that investors are blindly pouring money into highly concentrated stock indices, putting them at risk of outsized losses if markets tumble. Martin Flanagan, president and chief executive of Invesco, an asset manager that bought Guggenheim’s suite of ETF’s in … [Read more...]