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Investment Research Since 1978

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Are Small Stocks Safer Than Large Stocks?

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A recent study in Financial Analysts Journal (FAJ) found that a portfolio of small-capitalization stocks is no more risky than a portfolio of large-capitalization stocks. And if the number of stocks in a small-cap portfolio exceeds 25 or so, that portfolio may be less risky than a large-cap portfolio. The authors compare volatility in two time periods, 1963 to 1984 and 1985 to 2008. In the earlier period, a portfolio of small-cap stocks was found to be significantly more volatile than the market, even for a portfolio of 50 equally weighted names, but in the more recent period, once a small-cap … [Read more...]

If Greece Fails, is Portugal Next?

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Greek government bond yields have surged to over 16% in recent days. If Germany doesn’t step into to save the Greeks, a default is not out of the question. But the larger problems for Europe are the risk of contagion. Bond yields on other overly indebted euro-area countries are now surging. Portugal is the market’s next target. Yields on short government debt have surged 230 basis points in a matter of weeks. … [Read more...]

A Wake Up to Governments & The First G7 Nations Raise Rates

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IMF Warns of 'New Phase' in Crisis – By Tom Barkley and Bob Davis, The Wall Street Journal "Higher debt levels have the potential for spillovers across financial systems, and to impact financial stability," the IMF said, noting that debt levels among advanced countries have already risen to levels not seen since the end of World War II…. "Careful management of sovereign risks is essential: governments need to design credible medium-term fiscal consolidation plans in order to curb rising debt burdens and avoid taking the credit crisis into a new phase," the IMF said in its report. Greece's … [Read more...]

Emerging Market Stocks Up Over 110%

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Emerging market stocks are up over 110% since hitting lows in March of last year. Net flows into foreign stock funds, much of it into emerging market funds, have been positive for 11 months in a row while U.S. stock funds have seen outflows in six of the last seven months. Those investors liquidating U.S. stocks and piling into emerging market stocks could be disappointed over coming quarters. Our relative strength chart shows that emerging market stocks have a very toppy look vs. U.S. stocks. Individual country and issue selection in emerging markets is now more important than ever. … [Read more...]

The Future of Oil Demand

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According to the International Energy Agency, Organisation for Economic Co-operation and Development (OECD) countries'–i.e., rich countries'–oil demand peaked in 2005 near 50 million barrels per day. OECD oil demand is down 10% from the 2005 high, yet total oil demand is up over the same time period. The reason of course is that oil demand in non-OECD countries has risen 50% over the last decade–a 4% compound annual growth rate. Global economic growth is the primary driver of oil demand. My Oil Demand Growth vs. Economic Growth chart shows that economic growth and oil demand growth are … [Read more...]

Jobs Growth a Paper Tiger

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While the American economy created 162,000 new jobs in March (Chart 1), the number of unemployed rose. The much lauded success of the jobs report is a paper tiger. While the creation of 162,000 jobs is better than none, it didn’t even cover the number of new people added to the workforce. The numbers of both unemployed and underemployed (people who would like to work full time but can only find part time work) increased last month (Chart 2). While politicians crowed over the increase in jobs after the report, Ben Bernanke was more measured in his reading. “We are far from out of the woods,” … [Read more...]

Young Research’s Favorite Energy Play

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A conservative way to play a potential rise in the prices of natural gas, coal, and even oil is to invest in renewable power. In an environment of rising fossil-fuel prices, renewable power generation assets benefit the most. Why is that? The majority of the power generated globally comes from fossil-fuel-based inputs such as coal, natural gas, and oil. If the price of natural gas rises, for example, natural-gas-fired power plants would face higher costs. Those higher costs would of course be passed on to consumers in the form of higher electricity prices. Since prices are set at the margin, … [Read more...]

Lowest Mortgage Rates in a Lifetime

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The three decade decline in mortgage rates is now at a trough. The Federal Reserve program to support the mortgage market ends today.  If you haven’t refinanced your mortgage what are you waiting for? You may never see mortgage rates this low again in your lifetime. … [Read more...]