Stock market value and volatility

There is a high probability that the bull market in equities will continue, given the very low returns from alternative investments in an environment of very low interest rates and high liquidity. But investors in equities while searching for stocks with value need to be tolerant of increasing volatility.

Market valuation.

In the United States there is increasing concern that a very strong USD is placing increasing pressure on the profitably of large corporations whose markets are mainly overseas. By historical standards the USD is far from its highest levels and could be expected to rise further. The result may be a slowing of the bull market in the United States. There is also concern that the equity market will be affected if the Fed raises interest rates. So while the United States bull market will in all probability continue, one must question the valuations of many stocks.

In Australia… Continue reading

The dilemma of the fund manager

Travel provides the opportunity to meet investors and investment professionals from a diversity of backgrounds and nationalities. On a cruise over past weeks I have had the opportunity to talk with a several fund managers from the United States and from the European Union. These were not the average mutual fund manager but tended to be conservative fund managers handling multi-million dollar accounts either for pension funds or for private clients of long standing.   Being aware that the bull market was over-heated they all seem to have been adopting a defensive approach over the past year which means that they have progressively shifted to more conservative stocks such as the in infrastructure sector or in most case have reduced their exposure to equities and moved to alternatives such as sovereign or corporate bonds.

By taking a more conservative approach these fund managers now hold portfolios which are under-performing… Continue reading

The “September effect”.

Over the long term investors have lost money in the stock market over the September/October period. Since at least 1873 most of our worst crashes have occurred during September/October, whether it was the 1929 crash, the 1931 crash, the 1987 crash, the 2000 crash and even the 2007 crash was in the first few days of November. Could it happen this year? Of course it could and what is the potential trigger?

There are a number of potential black swans, any one of which could trigger a significant market correction. Currently we have a bull market fuelled by quantitative easing and not by GDP growth. Growth remains subdued and weak in most economies despite massive quantitative easing. The following are considered the most significant risks to world economic stability.

a. The European Union

b. Tapering of quantitative easing

c. The Middle East

d. Unknown factors in China

e. ETF leverage… Continue reading

Greece and the European saga

To look at recent market reactions after the Greek elections on June 17 one could be persuaded that the EU issues have been solved. I very much doubt it!

Assuming that the new Greek coalition can reach agreement they will have to come to grips with an economy which is in serious recession and has a significant sovereign debt which eventually will have to be repaid.   Superimposed on this are the problems that Greece has a very high unemployment rate, a very poor work ethic and an expectation that the handouts from the EU (read Germany) will continue.  Clearly these handouts cannot continue without certain assurances from the new government .  The danger now is that the contagion of Greece will spread to other southern European countries which are much more significant to the health of the world economy.

The volatility on world markets can be… Continue reading

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