Wednesday, October 26, 2016

Investors should be realistic of their market expectations going forward

I would tell my clients we have had an incredible bond market rally since 1981. Bond yields are not going to go down much more, they may not go up substantially but they are not going to go to -5 percent. So, the bond market is relatively unattractive. 

Does it mean that equities are much more attractive? That is far from certain because if yields on say the US 10-year treasury goes to 2.5-3 percent, that may hit back the equity markets as well. 

So, I would tell the guy, look I am happy to invest your money but the returns over the next 5 or 10 years will be very disappointing to you because you expect to make between 8 and 12 percent on your portfolio every year. That is simply not going to happen.

Monday, October 24, 2016

Why DOW 100,000 is possible

The belief is obviously that a Trump victory would be negative for asset markets, for the US market, and that a Hillary victory would be positive. But I am not so sure about this belief for the simple reason that Hillary is basically a neocon and a warmonger. She has invaded or supported the invasion of variety of countries already. So, that may lead to more international tension. Whereas Trump is more aware of the fact that the US' superpower standing is gradually waning and that other countries are coming up and that US cannot fight and be the policeman of the whole world. [Trump realizes] they have to gradually start to negotiate with other countries on equal terms.

The Fed sniggers at the thought of a Trump victory. They are supporting Hillary Clinton as incidentally as the entire media establishment is support Hillary Clinton and is anti-Trump. 

My view is that in this environment we have now clear voices at the Fed and other central banks that basically they should be able to implement negative interest rates and that they might do well if they bought equities. So, under this scenario, you ask yourself what is actually the downside risk. 

In my view under both Trump and Hillary will continue to print money, there is no other way out, the system is basically bankrupt. 

So, money printing will continue and then the question is what will happen to asset market? In theory, they can continue to go up. As I pointed out, I am not optimistic about the global economy. But if you print enough money -- central banks' balance sheets have increased sixteen times between 1998 and 2015 -- why can't they go up another 10-20 times in the next five years? In that scenario, the Dow Jones could go to 100,000 and so on, anything is possible. We don't know how far the math professors at central banks will go. 

Wednesday, October 19, 2016

The bull case for smaller companies

The last few years, active fund managers, by and large, have been playing a lottery. Some have done well, and some haven't. In general, active fund management has suffered badly at the expense of indexing. I believe, we are moving into a period where small investors have a huge opportunity to make money, as they have a window to capitalize and take advantage of market inefficiency. 

Index funds mostly buy large companies. As a result, it leads to undervaluation of smaller companies, and that's where I see an opportunity for the individual investors.

Monday, October 17, 2016

No rate hike by US Fed in December 2016

The US Fed has grossly overestimated growth rates of the economy, and it appears that it the economic growth has slows down considerably. I think by December 2016, the economic statistics will be even worse. So no rate increases will happen then ....

Janet Yellen vs Clinton vs Trump

If Hillary Clinton is elected, I very much doubt that she will increase interest rate. If Trump is elected, the likelihood of her increasing interest rate is very high.

Friday, October 14, 2016

Indexing madness presents opportunity for active managers

In the last few years, as you know, the world has gone into an indexing madness. They just put money into an index. I believe the next 10 years will allow active managers to make a lot of money because they can move from one sector to another. Now some will outperform and some will underperform, but at least they have an opportunity. If you just index, usually you will underperform the index.