The U.S. economy is the largest in the world and consumer spending accounts for approximately 2/3 of our economic activity. Therefore, a reviving US consumer will be a big help not just domestically but globally. Based on this, it appears that when the world economy gets pulled out of recession, it will likely be with the help of consumer spending.
Not so fast. The US is not in the midst of a consumer spending boom and the prospect for one does not seem to be on the horizon either. The consumer spending boom that I am referring to is going on in China. This year, it is expected that China will overtake the U.S. in sales of automobiles, refrigerators, washing machines, and desktop computers. The biggest consumer market in the world in a few years may no longer be the U.S.—it may be China.
The “new normal” that Bill Gross refers to is going to be a global investment marketplace, not one that is focused solely on the US. While it may not be comfortable to move toward a global investment policy, it might be the only way to earn a decent return.
Fortune editor Geoff Colvin has an interesting interview with Pimco’s Mohamed El-Erian. Among other things, Mr. Colvin asks him what investors will have to do differently to cope with the new global environment. Mr. El-Erian’s response is quite direct:
“The average investor has two issues today. First, the average investor is too U.S.-centric. There’s a reason for that; the behavioral finance people will tell you that we like the familiar, so we tend to invest in names that we know, that give us comfort.”
“The problem is that you don’t want to be too U.S.-centric in a globalizing world where the center of gravity is shifting. So the first thing for the average investor to recognize is that the asset allocation of tomorrow is much more global than the asset allocation of yesterday.”
“Second, most of us have been very lucky — we haven’t had to worry about inflation for a long time. We’re moving toward a much more fluid world in which, at some point, inflation will come back.” Mr. El-Erian suggests that individual investors need access to an inflation hedge.
Along this line, CNN Money is currently running a poll on their website, asking investors “Which type of investments will you focus on in 2010?”
The results thus far:
U. S. Stocks 35%
Emerging Markets 15%
Bonds 10%
Commodities 6%
Bank accounts 33%
At the risk of redundancy, I am repeating what was stated above, “the asset allocation of tomorrow is much more global than the asset allocation of yesterday.” The average investor, based on the results of the poll, has not yet grasped this fact. To capitalize on the growth of the world economy it is incumbent on us to invest in the emerging markets; China, Brazil & India, to name a few.
In summary, we need to watch for slower growth in the US, depend less on the US consumer’s spending as a driver of global growth and focus on the smaller economies which may take up the leadership baton.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, December 22, 2009
Friday, December 11, 2009
One lump of coal, or two?
The holiday season is in full swing. People are out shopping, decorating, and preparing for the in-laws two week invasion. Susan & I use this opportunity to try and gain a little extra leverage over our kid’s behaviour. In years past, kids were threatened with a lump of coal in their stocking however in our house we have an ‘elf on the shelf’ for each kid. These elves travel to Santa every night to report on what they observed during the day. Soon the elves will likely be saving energy and tele-conferencing or texting Santa instead…
With Cap-and-Trade front and center in the news and the Climate Conference starting in Copenhagen this past Monday, one would expect coal to be a ‘unfavored asset’, at least until the 25th. Scientists, government officials, and non-government officials from 170 countries are presenting their cases and proposing a course of action on the topics of climate control and energy usage/restrictions. There is speculation on all sides of the issue as to what provisions, if any, will be agreed upon during this conference.
In a related development early last week, Australia, the developed world’s highest per capita emissions producer, rejected the proposed Cap-and-Trade bill. Stating that the bill would cost Australia; the 4th largest coal producing nation, 5 billion Australian dollars ($3.5B USD), 3000 jobs, and 10 coal mines. With the economic crisis still at the forefront of everyone’s mind, we will see what takes priority at the conference – economic recovery or global warming.
Adding to the drama was the recent scandal where by internet hacking revealed that several scientists either fudging or suppressed data to support their claims. Domestically, another related tidbit on this contentious subject was released Monday; with the EPA declaring that they have concluded that greenhouse gases are endangering people's health. Is this fact, political ploy or something in between? This declaration will effectively give the EPA authority to regulate co2 and other greenhouse gases in the US.
In short, the Cap-and-Trade battle goes on and may cause concern for anyone that has a hefty exposure to coal or the energy market.
Despite all this and regardless of if we were ‘naughty’ or ‘nice’ this may be a good year to receive coal, especially if it is in the form of coal stocks. This may sound ‘un-green’ from an environmental perspective, but from an investment standpoint, coal has yielded lots of ‘green’ returns this year and is a favored sub-sector within Energy.
Regardless of which side of the fence you reside from an environmental perspective, realize that technical analysis will help to steer us in an effective, unbiased and de-politicized manner regarding your investment portfolio. The bullish (positive) technical picture for coal remains intact at this point.
One way to invest in coal is through the ETF market. ETFs allow us to buy a ‘basket’ of stocks representing a specific sector. One such ‘basket’ is KOL (Market Vectors-Coal) representing an investment in 31 coal companies. This ETF scores 5.99 out of a possible 6 - almost a perfect score.
With Cap-and-Trade front and center in the news and the Climate Conference starting in Copenhagen this past Monday, one would expect coal to be a ‘unfavored asset’, at least until the 25th. Scientists, government officials, and non-government officials from 170 countries are presenting their cases and proposing a course of action on the topics of climate control and energy usage/restrictions. There is speculation on all sides of the issue as to what provisions, if any, will be agreed upon during this conference.
In a related development early last week, Australia, the developed world’s highest per capita emissions producer, rejected the proposed Cap-and-Trade bill. Stating that the bill would cost Australia; the 4th largest coal producing nation, 5 billion Australian dollars ($3.5B USD), 3000 jobs, and 10 coal mines. With the economic crisis still at the forefront of everyone’s mind, we will see what takes priority at the conference – economic recovery or global warming.
Adding to the drama was the recent scandal where by internet hacking revealed that several scientists either fudging or suppressed data to support their claims. Domestically, another related tidbit on this contentious subject was released Monday; with the EPA declaring that they have concluded that greenhouse gases are endangering people's health. Is this fact, political ploy or something in between? This declaration will effectively give the EPA authority to regulate co2 and other greenhouse gases in the US.
In short, the Cap-and-Trade battle goes on and may cause concern for anyone that has a hefty exposure to coal or the energy market.
Despite all this and regardless of if we were ‘naughty’ or ‘nice’ this may be a good year to receive coal, especially if it is in the form of coal stocks. This may sound ‘un-green’ from an environmental perspective, but from an investment standpoint, coal has yielded lots of ‘green’ returns this year and is a favored sub-sector within Energy.
Regardless of which side of the fence you reside from an environmental perspective, realize that technical analysis will help to steer us in an effective, unbiased and de-politicized manner regarding your investment portfolio. The bullish (positive) technical picture for coal remains intact at this point.
One way to invest in coal is through the ETF market. ETFs allow us to buy a ‘basket’ of stocks representing a specific sector. One such ‘basket’ is KOL (Market Vectors-Coal) representing an investment in 31 coal companies. This ETF scores 5.99 out of a possible 6 - almost a perfect score.
Wednesday, December 9, 2009
Strategic vs. Tactical Asset Allocation
The internet is truly an amazing tool! You have the ability to check on the fundamentals of any company just as quickly as I can. And, if looking for a strategic asset allocation, there are plenty of companies that will gladly provide an allocation without cost. But is it a worthwhile allocation?
Not in my opinion!
Let’s take a look at the chart below which shows what each domestic asset class returned over the past decade.
iShares MorningstarLarge Value: -15.42%
iShares MorningstarLarge Core: -16.94%
iShares MorningstarLarge Growth: -64.20%
iShares MorningstarMid Value: 47.38%
iShares MorningstarMid Core: 51.85%
iShares MorningstarMid Growth: -22.82%
iShares Morningstar Small Value: 76.08%
iShares Morningstar Small Core: 91.12%
iShares Morningstar Small Growth: -25.02%
returns for the period: 01/01/200 – 11/01/2009
The flip-side to a strategic allocation is a tactical allocation. At any point in time there are asset classes which are behaving better than others. By taking a tactical approach to the market, our allocation is going to change periodically. We examine six major asset classes, compare them to one another on a relative strength basis and determine which two or three should be emphasized. The asset classes considered are US Equity, International Equity, Commodities, Foreign Currency, Fixed Income & Cash. Two assets classes are typically emphasized, but Cash may be the sole recommendation if specific criteria are not met by any other asset class. Assuming US Equity is favored, we will compare the nine style boxes shown above to determine where the strength lies, similar analysis transpires to determine the international allocation, if any. The point is - that the allocation is changing based upon what the supply and demand forces within the market are telling us. We are using a logical, organized methodology to know where to be and when to be there.
Do not hesitate to email me if you have questions regarding this or any other strategy.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations
Not in my opinion!
Let’s take a look at the chart below which shows what each domestic asset class returned over the past decade.
iShares MorningstarLarge Value: -15.42%
iShares MorningstarLarge Core: -16.94%
iShares MorningstarLarge Growth: -64.20%
iShares MorningstarMid Value: 47.38%
iShares MorningstarMid Core: 51.85%
iShares MorningstarMid Growth: -22.82%
iShares Morningstar Small Value: 76.08%
iShares Morningstar Small Core: 91.12%
iShares Morningstar Small Growth: -25.02%
returns for the period: 01/01/200 – 11/01/2009
The flip-side to a strategic allocation is a tactical allocation. At any point in time there are asset classes which are behaving better than others. By taking a tactical approach to the market, our allocation is going to change periodically. We examine six major asset classes, compare them to one another on a relative strength basis and determine which two or three should be emphasized. The asset classes considered are US Equity, International Equity, Commodities, Foreign Currency, Fixed Income & Cash. Two assets classes are typically emphasized, but Cash may be the sole recommendation if specific criteria are not met by any other asset class. Assuming US Equity is favored, we will compare the nine style boxes shown above to determine where the strength lies, similar analysis transpires to determine the international allocation, if any. The point is - that the allocation is changing based upon what the supply and demand forces within the market are telling us. We are using a logical, organized methodology to know where to be and when to be there.
Do not hesitate to email me if you have questions regarding this or any other strategy.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations
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