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Monday, September 1, 2014

Maybe Investors Should Worry More About Hong Kong and Less About the Ukraine

WSJ today

Hong Kong Election Ruling Stirs Fear Over City's Status as Finance Hub

Some Business and Political Leaders Warn Beijing's Decree Threatens to Undermine Pillars of Hong Kong's Success

Friday, August 29, 2014

Burton Malkiel on Stock Valuations in the US and in Emerging Markets

Prof Burtom Malkiel author of the investment classic Random Walks Down Wall Street has a column in the WSJ on stock valuations

On the US
There is a disagreement about the sustainability of current lofty stock market valuations.
One camp argues that the market is dangerously overvalued. The so-called CAPE ratio—the price-earnings multiple for the market based on cyclically adjusted earnings averaged over the past 10 years—stands at over 25, well above its long-run average of about 15. Today's CAPE has been exceeded only during the market peaks of 1929 and early 2000 and 2007.....
Another group of forecasters are convinced that stocks are reasonably valued. The main competitors for stocks in individual and institutional portfolios are bonds. And yields on fixed-income securities are at all-time lows. ...
While continued low rates can justify high stock prices, the CAPE followers are correct as well. Long-run equity returns from today's price levels are likely to be considerably lower than their 10% long-run average.......
On Emerging Markets
All equity portfolios should include emerging markets. Emerging markets, accessible through broadly diversified, low-cost, emerging-market exchange traded funds, represent half of global economic activity. ....
Emerging equity markets also have far more attractive valuations. CAPEs for emerging markets at less than 15 are little more than half the levels in the U.S., and they stand at ratios close to their all-time lows. Just as CAPEs do reasonably well predicting long-run returns in the U.S., so they are also effective predictors in emerging markets,


Wednesday, August 27, 2014

Interesting Charts

Year to Date:
GMF emerging asia
IEMG total emergind markets
SPY Sp 5OO







But the 10 year chart looks like this:


Tuesday, August 26, 2014

The US Stock Market Looks Expensive..What About Markets Around the World ?

The  US stock market continues to rise and despite good reported earnings for the second quarter valuations seem stretched.

Here is the earnings growth of the sp/500 which at 14.99% is well below the long term mean of 28%
All charts from multpl.com

http://www.multpl.com/shiller-pe/


And the S+P 500 p/e ratio which at 19.85 is 28% above its long term median of  15.5:

Since august of last year the S+P 500 total return is up 22% but earnings rose 15% that means that over 1/3 of the appreciation in the stock market was driven by P/E expansion (higher valuations) rather than earnings growth,

I have written before about Robert Shillers CAPE ration (his recent nyt article is here   ) in the article he argues the US stock market as very highly valued

As shown in the  chart. at 26.48  the current value is well above its long term mean value of 16.55

How does the Us market valuation based on CAPE compare to other markets around the world. A useful  i article over at seeking alpha gives some interesting data in this table of comparable CAPE ratios around the world (table below text)



Although many of these markets certainly deserve a healthy discount to the US due to political and other sovereign risk the US stlll stands out as one of the three markets in the world with the highest CAPE trading at  a very large premium to some of the world's major stock markets.






Monday, August 25, 2014

Two Charts of Interest

3 month chart ETF HYG  Intermediate Term High Yield Bonds

Note the volume spike at the low


And HYS Short Term High Yield Bond ETF


Bloomberg on German Stocks

German Stocks Tarred by War Find Buyers at Record Value
  Aug 25, 2014 10:11 AM GMT+0300
German stocks, punished for the nation’s trade ties to Russia and Ukraine, have gotten too cheap to turn down for some of Europe’s biggest investors.


After almost tripling between March 2009 and July 2014, the DAX retreated 10 percent in about a month, meeting the definition of a market correction. Escalating conflict between Ukraine andRussia, along with data signaling a slowdown in Germany’s economy, has erased nearly $180 billion from equity values. The DAX lost 0.7 percent on Aug. 22, paring a weekly gain, after Ukraine said Russia was invading the country under the cover of an aid convoy. It rose 1.2 percent at 9:09 a.m. in Frankfurt today.

Relative Valuation

Selling pushed the DAX’s valuation more than 2 percentage points below that of the Stoxx 600, the widest gap since at least 2005, according to data compiled by Bloomberg. Germany’s biggest companies will boost earnings by 21 percent in 2014, compared with increases of 9.6 percent in the European gauge and 10 percent for the Standard & Poor’s 500 Index, estimates compiled by Bloomberg show.





Friday, August 22, 2014

Large Flows Into A Lesser Known Passive Fund Manager: Dimensional Fund Advisors (DFA)

Dimensional Fund Advisors a pioneer in value tlted" passive funds is less known to the gerneral public. It's funds are available to retail investors either through a limited number of advisors, some annuities and some 401k plans.

from the WSJ 

Alongside Vanguard, Dimensional Is Getting Inflows Too


While the mutual fund giant Vanguard Group is nabbing the lion’s share of investor money pouring into “passively-managed” products like index funds, it’s not the only company benefiting.
Little talked-about Dimensional Fund Advisors, an Austin, Texas-based money manager with $380 billion in assets under management, happened to rank among the top five companies experiencing the highest inflows into passively managed products through July this year, according to the research firm Morningstar Inc.
The asset manager has long run a series of proprietary mutual funds that operate like index funds because they are highly diversified – sometimes investing in thousands of stocks, for example – and therefore spread risk, unlike a traditional mutual fund operated by a star manager, Morningstar says. They also have low turnover in their investments and are low cost
Here are numbers for the flows into passive ETFs and funds

Name1-MoYTD1-Yr
Vanguard16.781102.723157.807
iShares/Blackrock3.32229.38748.653
Dimensional Fund Advisors2.29616.77125.932
First Trust3986.22210.649
Guggenheim Investments2604.5678.846
Fidelity Investments8389.0238.516
Schwab ETFs6634.1036.609
ProShares6142.8734.837
TIAA-CREF Mutual Funds2671.6352.589