Equity investors should ignore the “incessant din” of current news and focus on long-term secular trends, advises Morgan Stanley Wealth Management strategist Dan Skelly. [Read more…]
Quantitative Easing Madness
August 2, 2013 By
The Mysterious Madness Called QE
Quantitative Easing
Quantitative Easing (“money printing”). Investors love it. It’s an avalanche of liquidity that drives up the value of interest-sensitive investments. Everybody gets richer. Or so it seems. [Read more…]
Lessons from the Sauna Club
June 28, 2012 By
The Sauna Club
Investor attention now is focused on the “Pigs” – the member-nations on the periphery of the Eurozone whose debt bubbles threaten to explode and fragment the currency union. [Read more…]
Why the shares are neglected
April 10, 2012 By
Why Chinese Shares are Neglected
International investors generally have very low holdings of Chinese stocks.
One reason is that the huge domestic market is largely closed to foreign investors, and completely closed to individual investors. The only avenues open to us are shares of Chinese companies listed outside the country (mainly in Hong Kong), depositary receipts of such firms listed overseas, or foreign multinationals whose profits are geared to business with China. [Read more…]
The Key to Good Returns is Good Dividends
March 22, 2011 By
The Key to Good Returns is Good Dividends
Good Returns is Good Dividends
Historically, income from dividends and growth in those payments have accounted for almost all the long-term return to investors.
In the US, over the period from 1871 to 2009, dividends accounted for nearly 90 per cent of the return to investors.
In various European countries, since 1970 dividend payments and dividend growth have accounted for between 80 and 100 per cent of investors’ returns.
“In periods when stock prices are falling, dividends provide a positive offset to the negative returns from continuing to hold on to shares,” says Allen Brooks, MD of energy investment bankers PPHB.
“Dividends, and especially dividend increases, represent positive statements by managers about the health and outlook for their companies.”
They are also one measure of the soundness of a company. Reported earnings can be manipulated using favourable accounting assumptions. Dividends cannot – they are cash paid out.
Of course, dividends aren’t everything. They may be financed out of extra borrowing (as BP is now doing) in anticipation of profits recovery, but that is something that makes me very uncomfortable.
And dividends may be reduced or not paid at all, so there is more cash available to management to finance expansion. Nothing wrong with that, in a growth business – providing you’re satisfied that money you would otherwise be able to invest yourself is being better invested by the managers.
CopyRight – OnTarget March 2011 by Martin Spring
Survive and Prosper in the Grim Decade
March 14, 2011 By
Survive and Prosper in the Grim Decade Ahead
Commodoties
Looking ahead, the key long-term strategy issue for investors is whether we face inflation, deflation… or something in-between.
Inflation favours equities, commodities, real estate and gold.
Deflation favours bonds, bank deposits, but also gold.
Something in-between – that is, low inflation interspersed with periods of a little deflation, what I have dubbed “noflation” – favours blue chips with solid income yields, rental property, and medium-risk bonds.
The current majority view is that inflation is coming, which is why the equities of the developed economies are strong, while bond values have been falling.
Long-time followers of my views will know that I am a noflationist. I don’t buy the story that inflation is about to bloom because of excessive money creation. But could I be wrong in under-estimating the contrary risk of deflation?
Gary Shilling, an American economist with an impressive record for predicting financial catastrophes such as the dot-com blow-off, the collapse of US housing prices and the easy-credit bubble, makes a strong case for believing that we do face deflation and a decade of slow economic growth in his new book The Age of Deleveraging*.
Most hostile comment on massive stimulus programmes by governments and central bank policies of nearly-free credit and money printing is based on belief that such excesses must lead to inflation.
That ignores history. The clearest example is from Japan, where even decades of easy money, at times relatively far greater than we are now seeing in the US, have failed to do much to boost economic growth.
The key to inflation isn’t money abundance, but the balance between demand for goods and services and their supply.
If demand remains sluggish, perhaps because of unwillingness to borrow to finance spending, and/or if supply remains excessive, there’s an imbalance that presses down on prices. You may get some pockets of inflation, such as we’re now seeing in food and energy. But overall, you don’t get inflation.
Although “government spending is the root of inflation,” Shilling writes, “it’s excessive only if the economy is already fully employed – as in wartime.” Currently
there is “clearly” an excess of supply in the world economy, “and getting more so” in the second largest economy, China.
For years a combination of positive factors has boosted the world’s productive capacity:
• Globalization has made it possible for businesses to mobilize the under-employed human resources of the emerging economies, creating in them vast new industries.
• There has been a productivity revolution flowing from implementation of major developments in information technology, which has encouraged heavy investment in new and much more efficient industrial capacity.
Shilling makes the interesting point that there have been several historical examples of earlier technology revolutions that boosted productive capacity to the point where it caused serious over-supply, such as railways in the 19th century, and mass-production of motor vehicles and telecoms in the 1930s.
• There has been an abundance of capital thanks to very high savings rates in Asia, the surpluses of oil producers, the absence of major wars and money printing.
• There has been an ideological revolution that in a large part of the world has replaced low-efficiency planned economies with high-efficiency alternatives combining the best aspects of free enterprise with the advantages of state power.
That has been most obvious in China, where in response to the global crisis of 2008 the government instantly mobilized the world’s fastest-impacting, largest and most effective stimulus package.
CopyRight – OnTarget March 2011 by Martin Spring
see the next article – A surfeit of leading-edge production plants
Here’s the new global leader
January 26, 2011 By
Chinese Stock markets
Meanwhile, the stock markets that we ought to watch – the new global leaders – are those of China. After the worldwide collapse in equity values, they were the ones first to bottom and to lead the global recovery – by six months. Are they the early indicators of a coming correction in other major markets?
The Investment Potential in Agriculture
December 29, 2010 By
Although soaring grain and soybean prices have focused attention on global food supplies, they are a temporary phenomenon, a consequence of weather extremes and other natural disasters that come and go.
Investment Potential in Agriculture
There are much more important longer-term reasons for taking note of the investment potential in agriculture. Netherlands-based Rabobank, which focuses on agri-business, says the world’s food production will need to rise by 70 per cent over the next 40 years. [Read more…]
The Noflationist Case for Blue Chips
November 27, 2010 By
Investors generally are even more confused than normal about where to put their money.
The bond markets, with their record high prices for the lowest-risk securities, suggest a long period ahead of poor economic growth. Equity markets, by contrast, have come through a troubled summer in good shape, suggesting that the gloomy forecasts of a double-dip recession ahead are wrong. [Read more…]