The Prospects for Emerging Markets June 28, 2007
Posted by Andy Robinson in : Market Research , add a commentThis article Emerging Markets: Still a good bet? addresses the important issue of whether its worthwhile investing in countries like China and India whose markets have risen tremendously over the past few years. It seems the consensus among analysts is that emerging markets are much less attractive from a valuation perspective than they were four years ago. Then you could buy emerging market equities at a 65% discount to developed countries, whereas now the discount is only 10%. Given the increase in risk posed by inflation and rising global interest rates, I would stay clear of less developed nations. Long-term, the growth prospects for China remain strong, but I would only be a buyer if their market pulls back at least 30% over the next 12 months (which is something I think fairly likely).
Morningstar’s valuation of the stock market June 27, 2007
Posted by Andy Robinson in : Market Research , add a commentI value the analysis of Morningstar.com because like me, they take a very value-oriented approach to investing. They make recommendations by discounting a company’s projected cash flows and coming up with a fair value for the company. With their enormous capacity to calculate and process raw data, they are able to employ a bottom-up approach to stock-picking by ranking over 1500 companies. Check out their article Our Outlook for the Market because it gives a valuation of the market as a whole and digs deeper by breaking down the sectors.
The Trade Deficit Dilemma June 26, 2007
Posted by Andy Robinson in : Market Research , 3commentsRobert Kiyosaki’s article Booms Were Made to Go Bust clearly makes a case that our current global boom is fueled by mountains of debt. Although cheap money has kept our economic growth looking robust over the past few years, an end in low interest rates will negatively impact equity markets worldwide.
Top Seven Money Mistakes June 22, 2007
Posted by Andy Robinson in : Educational , add a commentEvery once in a while it’s a good idea to evaluate your finances to check to see if your savings, spending, and investing decisions are logical. I spotted this article on yahoo finance that profiles some common mistakes people make that I feel are worth knowing. For example, being overly cautious with our investments is just as risky as being too aggressive. If we hold too much of our money in fixed-income investments (like bonds), we may sidestep the occasional market decline but forgo the additional returns that stocks make relative to bonds. This exposes you to just as serious a risk that your retirement will be underfunded or inflation will take too large a chunk out of the principal.
Congress considering tax increase on private equity June 21, 2007
Posted by Andy Robinson in : News , 1 comment so farCurrently private equity groups, which are publicly traded partnerships, pay a 15% Federal tax rate equal to that of capital gains. To increase revenue, Congress is contemplating raising it to a maximum 35% tax rate. See the article Washington Sees Private Equity as New Source of Revenue for more information. This would have an adverse economic effect as it would discourage private equity groups from going public, thereby reducing the amount of capital that would otherwise be raised.
A flaw in China’s economy June 19, 2007
Posted by Andy Robinson in : Market Research , add a commentStephen Roach, Morgan Stanley’s new Asia chairman, pointed out last night on CNBC’s show Closing Bell that there are serious imbalances within the Chinese economy. Namely, their economy and its resources are overly focused on fixed investment (this means business investment) and exports. This can be explained by the heavy influence that the central government has on the Chinese economy. Subsidies to exporters encourage businesses to divert resources to exporting products rather than focus on domestic consumers. Domestic consumers can provide a stabilizing effect in times of economic downturn as business investment is more prone to wild swings, booms and busts. When the global liquidity crunch occurs, as it is starting to, I think that the Chinese equity bubble will burst and cause more pain than would be the case if their economy had more consumer participation.
Who are the current buyers in this market? June 18, 2007
Posted by Andy Robinson in : Market Research , add a commentBill Fleckenstein is a perpetual bear, which for obvious reasons is an untenable long-term position to take on the stock market. However, I always keep tabs on his articles because he is terrific at pointing at potential problems facing our economy and stock market. He accurately foresaw the housing market crunch, although he overestimated the effects it would have on our economy. In this article The market’s game of musical chairs, he points out something that I’ve been nervous about for some time, basically, that much of our recent market gains have been fueled by buyers playing with borrowed money.
Let your portfolio nibble on Whole Food’s stock June 13, 2007
Posted by Andy Robinson in : Company Profile , add a commentWhole Food’s (WFMI) is executing their growth strategy with impressive results. The past five years has seen solid revenue growth averaging just under 20%, and this trend will continue as they follow a plan of expanding their square footage more than 10% a year in both 2007 and 2008. Their purchase of major competitor Wild Oats Markets should cement their dominance in the market for natural and organic foods in a style similar to Starbuck’s branding in coffee.
Steer clear of low-quality bonds June 12, 2007
Posted by Andy Robinson in : Market Research , add a commentMSN money posted an article today that I found particularly important entitled There’s no joy in junk bonds. Junk bonds are issued by companies with less than desirable credit ratings (these bonds aren’t investment-grade and so rated BB or lower). The reason to keep clear of them right now is that inflation risk causes risky bonds to drop in value more than investment-grade ones because default risk is higher. First because higher interest rates slows economic growth, which threatens weak companies more than solid blue-chips. Next, because any additional debt the company takes on (or simply refinances) will have a greater risk premium (interest rate) to account for the current economic environment. So it looks like my fixed-income advice is the same as my outlook on equities. Park your money in quality investments!
Inflation data will move markets June 11, 2007
Posted by Andy Robinson in : Market Research , add a commentLater this week we will probably see more market volatility in response to the coming inflation data. Thursday we will see the producer prices for May and on Friday we will see the Consumer Price Index (CPI). If home prices remain soft, it will help the CPI report because housing is 40% of the index. However, the bond market is pricing in their inflation concerns as the yields on bonds have been spiking up lately. Here is a good summary of the week ahead with this blog entry on CNBC.