Investing Outlook for 2016

Money managers are setting their sights on the 2016 investment picture.
For us,it's the Euro-zone and Japan,which are benefitting from quantitative easing,said Kevin Nicholson,CFA,of Riverfront Investments in Richmond,Virginia.The US is going to have single-digit returns in 2016.When you look at Europe,they out-earned the US for the first time in a long time.We think that's going to continue.*
We like banks.We believe their low loan losses are beneficial and wages are starting to pick up.As consumer confidence builds,banks' confidence builds.*
We're staying away from energy at the moment,Mr.Nicholson noted.*
Philip White,President and CEO of Sotheby's International Realty Affiliates LLC,a Realogy Holdings subsidiary,said it's taken a long time to get to this recovery point.We've had a very good year,where we've outpaced the market-by two to one,actually.We have seen fairly stable pricing.
I think the luxury market is even stronger than before the crash.It's stable,less erratic.We are seeing a little drop-off in international buyers.We don't think this will be a long period of time,but they are a very important factor in the luxury market,and they will continue to be,according to Mr.White.*
Robert Plaza of Key Private Bank likes Walmart.Most of the bad news is already priced in,Mr.Plaza said.We think the risk-reward profile is promising.I see little earnings risk going into 2016.With only five buy recommendations on it,they're speed bump-high expectations at this point.*
Realogy Holdings Corp (RLGY),Walmart Stores Inc (WMT),iShares MSCI Japan ETF (EWJ),iShares Europe ETF (IEV)

Leading Economic Advisor Says Barbells Are Best Portfolios

Mohamed El-Erian,chief economic advisor at Allianz,says he has a barbell investment strategy for the current conditions.It consists of cash and then more high risk exposures to startups and hedge funds,because the most highly trafficked part of the risk-return is the public markets.Why? Because the Fed has been pushing everybody to the public markets,pushing up market prices.So if you look at long-term valuation,it makes more sense to become bar-belled and reduce your exposure to the most heavily trafficked and artificially lifted asset prices.That's why there's this barbell of cash and then hedge funds,startups and illiquids-and that's what a lot of investors are starting to do,by the way.
As long as we don't get the Fed fundamentals,we are more at risk of not validating the higher asset prices.At some point,you have to hand off to investing in equipment and hiring.I still think the Fed is going to raise rates in September.They're going to focus on this,the loosest tightening the Fed has ever done.*
Will the ECB pull the plug on Greece? No,because no one wants to go down in history as having done it.My greatest worry is,we get an accident in that world.The chance that Greece is pushed out of the Euro-zone is quite material.The fundamentals all call for a stronger dollar.In the short term,a Greek exit will shock the market.Long-term,it doesn't matter much.Take equity exposure to Europe,but not euro currency exposure,Mr.El-Erian advised.*
Mohamed El-Erian was born in Cairo,Egypt.He was manager of the Harvard Endowment,then co-CEO and co-CIO of PIMCO with Bill Gross before they had a falling out.Eventually,Gross himself was fired by the company he co-founded and went over to Morgan Stanley.*
Morgan Stanley (MS),Allianz SE SP/ADR (AZSEY)

WisdomTree Europe Getting Some Nods

We're heading towards an earnings trough,said David Kudla,Founder and Chief Investment Officer of MainStay Capital Management.The market will suffer from:
1.A Fed rate hike coming;
2.The strong dollar;
3.43 months without a 10% correction.
I still think we're in a long-term secular bull market.We're still positive on the US.We just think with the opportunities overseas and alternatives,you should look for negatively correlated investments because of the volatility we're going to see in the US.
We like the WisdomTree Hedged Europe Equity Fund.It's focused on mega caps that will benefit from a weak euro.Europe is embarking on QE,which inflates market value;while the US is embarking on tightening monetary policy.*
CNBC's floor reporter Bob Pisani also noted how popular this WisdomTree etf has been lately as it is hedged against a declining euro.*
Speaking at a press conference today,Fed chair Janet Yellen said a rate increase could be warranted at any FOMC meeting after April.We can't rule out June.*
WisdomTree Hedged Europe Equity Fund (HEDJ)

Global Trends in Business January 2014

The HSBC Preliminary China Manufacturing PMI has declined to a six-month low of 49.6 in January,down from 50.5 in December.A reading below 50 indicates contraction in the sector.The nationwide survey of purchasing managers by HSBC Holdings PLC precedes the final reading by a month and covers 85-90% of survey respondents.
HSBC economist Qu Hongbin attributed the drop to a falloff in domestic consumption.Almost all subgroups in the survey fell,from new orders,to new export orders and employment.As inflation is not a problem,the policy focus should be on supporting growth,Mr.Qu advised.*
At the same time,ECB President Mario Draghi expressed guarded optimism about the prospects for Euro-zone economic recovery,speaking to the Swiss German language daily Neue Zurcher Zeitung.I am very careful about making projections that are overly optimistic,Mr.Draghi cautioned,but yes,the economy in the currency area is growing again,although it's not yet broadly based and the jobless rate above 12% is very high.The growth isn't just driven by exports anymore,but increasingly by domestic demand as well.On the other hand,the hard economic data are still inconsistent,the ECB leader noted.*
Multinational consumer products titan Unilever found its European business to be flat,with Southern Europe stabilising.China and Indonesia sales were growing,while South America saw double digit sales growth.North America showed lower sales volume,but the personal care business improved.
Underlying Q4 sales growth was 4.1%,and emerging markets sales growth was 8.4%.CEO Paul Polman cited consistent underlying sales growth and margin expansion,coupled with strong cash flow.*
Unilever NV(UN)

Voices and Trends in Global Business,July 2013

Apple has been slowing iPhone production,said Brian Blair,a senior research analyst at Wedge Partners.We believe there's been a 20% haircut to iPhone production.Most of the component suppliers will stay the same,despite the cuts. Apple's been cutting because they've been watching market leader Samsung,which hasn't been selling as many smart phones as they thought they would.The market for high end smart phones is slowing,and Apple's been responding to that. The IMF has cut its annualised global growth forecast from 3.3% in April to 3.1% in July.Their forecasts for commodity prices,as well as Russian,Brazilian and Spanish growth,were also lowered.The cause of the revision is the downturn in emerging markets and the lengthy Euro-zone recession. Hong Kong property agents marched against government price curbs over the weekend.Up to 5500 agents demonstrated,appalled at the fact that Q2 real estate transactions were at a two decade low because of new taxes and marketing restrictions.About a third of estate agents stand to lose their jobs in consequence. The government measures are making things worse,according to Michael Kilbaner of Jones Lang Lasalle.The rise in property prices both reflects and impacts the strength of the economy.A lot of the movement is really in tier one and upper echelon tier two property.A two bedroom flat in Hong Kong goes for a half million US dollars,with a similar price in Beijing.

Bond Market Impact:The Implications of Rising Rates

The recent bond sell-off and concomittant rise in interest rates present both challenges and opportunities.
I think we're gonna see a slowing in housing,said Bliss Morris,CEO of First Financial Network.Rising rates could certainly affect newer borrowers.Those still involved in renting could have some trouble buying a home.
California is doing better,the sand states of Arizona,Florida and Nevada,but secondary and tertiary markets could be in trouble.Our community banks are suffering from regulations and have not totally sold off their non-performing assests.
The next opportunities could be in the Euro-zone,with its many foreclosed properties.I don't think they've totally stabilised.They face some challenges with cultural and linguistic differences.
We do think the Treasury market offers value here,said Mark Kiesel,managing director and portfolio manager at PIMCO.We see a much weaker economy,and so we see value.We just don't see the economy generating jobs growth.There's a lot of consumer debt and unemployment is structurally high.
We're going through an unwinding of risk,creating volatility,but over time,the Fed will take another point of view and rates will go back down,Mr.Kiesel projected.
Mark Kiesel was Morningstar Associate's 2012 Fixed Income Manager of the Year.

Voices and Trends in European Business

Northern Europe is gonna do just fine because the US will have strong growth,and they will do well off that,according to Joseph McAlinden,Chief Investment Officer at Catalpa Capital.People are gonna feel wealthier and spend,which is good for the world economy.The US economy,the stock market is the buy on the gold seam right now.
French consumer confidence fell in March on the stalled economy.
US durable goods orders were up more than forecast.US home values are at their highest level since 2007.
An EU report says the employment outlook is very bleak across Europe.
UK banks must raise 38 billion dollars to make up for a capital shortfall,the Bank of England says.
London remains the world's top financial centre,says the Global Financial Centres Index.
VTB has the most exposure to Cyprus of the Russian banks,according to Standard and Poor's.The EU says the Cypriot bank tax is not a template for future bailouts.
Credit Suisse is to buy Morgan Stanley's Europe wealth management business.Erricson is in talks to buy Microsoft's IPTV business.
The euro has traded below 1.28 for the first time since November.
German plant and machine orders were unchanged in February on weak Euro-zone demand.
Credit Suisse(CS),Microsoft(MSFT),Morgan Stanley(MS),Erricson(ERIC)

Author:How To End the Euro-Zone Crisis

Scholar,journalist and author Sebastian Mallaby,Director of the Center for Geoeconomic Studies at the Council on Foreign Relations,thinks the most plausible route to end the crisis is the issuance of a euro bond.German leadership is complacent over its own good economy.We are in a real cliff situation.The leaders are not there yet mentally.
You need to really shock the system and get growth back.High bond yields don't seem to be enough of a shock.It's up to the political leadership,not the European Central Bank.If Greece leaves the Euro-zone,there's nothing the ECB can do.
Mr.Mallaby is the author of  "More Money Than God,"a book about hedge funds.It's a crowded,more competitive space.Hedge funds haven't done well during the crisis,he feels.Money market funds have pulled back their European exposure,but there is this confidence factor that is affecting U.S. performance-through the crisis' affect on China being a worry,for instance.
Mr.Mallaby has also written "The World's Banker" and "After Apartheid:the Future of South Africa."He was a longtime journalist with the Economist and is a columnist for The Washington Post.

Global Money Manager:What You Have To Do

There is considerable concern about the fate of the European banking system in these troubled times.It's about deposits,and you're worried about deposit flight,according to Peter Fisher,Global Head of Fixed Income at BlackRock.It's a bigger issue than whether Greece leaves the euro currency.You want a banking system that's stable for Europe.You don't have to have a fiscal union;but not having a banking union,that's a problem. In a high volume,low liquidity environment,you have to bring your risk level down.You've got to be much more judicious.In the U.S.,I think Congress will not want a recession this year,and will pass a marginal measure;but will have a rude awakening in October,when the market reacts to the fiscal cliff.As a return play,you look at high quality corporates and fixed income,Mr.Fisher advised. BlackRock has offices in 27 countries worldwide.From governments to pension plans,insurance companies and individuals,the money management firm serves its diverse clientele with risk management,strategic advisory and investment system services,building portfolios totaling approximately 10 trillion dollars. BlackRock Inc.(BLK)

Chief Market Strategists:Grappling With Greece-and who may ultimately win

Even if some problems are solved in Europe,we still have more to go,according to Nick Colas,Chief Market Strategist at ConvergEx Group.Germany is a special case,a high growth export economy,sending such things as machine tools to China.Spain is like Florida:housing driven,with homes for retirees.
Europe's got to firewall a bunch of the issues in Italy,Spain and Portugal.What they're really trying to do is buy time.We in the U.S. are doing everything to keep rates low on the monetary side;Europe has embraced austerity.We are trying to keep growth going.We shall see who wins.
Leadership is lacking,adds Andrew Economos,Head of Sovereign&Institutional Strategy,Asia ex-Japan at JP Morgan Asset Management.Greek politicians are setting themselves up for the April election.A deal is done.It's really a question of getting the three political parties in line.
We'll have this rolling crisis as we sweep through the periphery.Germany will guarantee the debt and China will take a stake.I think it means ample liquidity.Ultimately,it flows into Asian markets,Mr.Economos believes.
ConvergEx Group is a provider of mission-critical software and services to asset managers and financial intermediaries globally.Serving more than 4,000 institutional customers in 22 cities worldwide,their products and services span the investment life cycle.
JP Morgan Chase(JPM)

A Columbia University View:Occupy Wall Street and Beyond

The uncertainty is huge,notes Columbia University economist Jeffrey Sachs.Will the euro survive?Will Europe survive?We shouldn't underestimate how deep we've gotten ourselves into this bind we're in right now.
What's happening at the Occupy Wall Street protests is happening all over the world.Those kids are saying it's global.From the Arab Spring to Tel Aviv to Chile,they're saying we need help;we don't have the future.
We need to be attentive to the 99%.The inequality in this country is out of control.We've been on an economic path that's not working.That top 1% is gonna have to do more,in Dr.Sachs' opinion.
Citigroup CEO Vikram Pandit said he would be happy to speak with the protesters.Their concerns are very understandable.
The protesters are active in nearly 200 U.S. cities now.In a recent poll,40% of those in the upper income bracket expressed support for the protesters-the most support of any bracket.
Dr.Sachs is Director of the Earth Institute at Columbia,which aims for a sustainable earth,and is a special advisor to UN Secretary General Ban Ki-moon.
Citigroup(C)

Advantage View:Market Thoughts From UBS

We have a dichotomy in the market:1.We need to see better macros,and 2.We need to see something better out of Euro policy makers.Our bias is to believe that the longer this continues,the weaker the numbers will be;our bias is to the downside.
We need more clarity out of policymakers,both U.S. and European-but especially European.I'll believe it when I see it.We haven't seen any evidence they are taking concrete measures.Given the 17 parliaments,it's by definition a slow process.
We favor U.S. equities such as consumer staples and defensive cyclicals such as tech.There's a lot of risk with industrial cyclicals and energy.Materials and industrials are lagging.
Over the next year or two,China will see 7-8% growth.It's not falling off a cliff,but slowing.Near term,event risks out of Europe and decelerating GDPs get us quite concerned about global equity markets.Medium term,we are constructive on equities.
Jeremy Zirin is Chief Equity Strategist at UBS Financial Services.UBS offers wealth management,investment banking,asset management and business banking services to clients worldwide,as well as retail banking in Switzerland.

Newsletter Publisher Sceptical of Euro Fund

Mark J. Grant,publisher of the "Out of the Box" newsletter,which is read daily by some 5,500 financial institutions,is sceptical of efforts to resolve the European debt crisis.It's a solvency issue for the banks,Mr.Grant said.They have 4.1 trillion dollars of debt to roll over.The response has been that we don't need to recapitalise the banks.
The European Financial Stability Fund,or EFSF,is a convoluted effort.It is virtually impossible to come up with any solution.There is not money enough to support this effort.There is not enough available to bail out Italy and Spain.
The markets are all interconnected at the international bank level.Any blow-up in Europe could have a substantial impact on the U.S. banking system.The European Union and China are manipulating the currency market,Mr.Grant believes.
Mark J. Grant is Managing Director of Corporate Syndicate and Structured Products at Southwest Securities.He has also written a highly regarded book,"Out of the Box and Onto Wall Street."

The Outlook for Chinese Equities

The global growth slowdown is much on the minds of financial analysts in Asia.HSBC says a fall in demand is already affecting countries in the region.China,India and South Korea are export-driven.China Daily said the European debt crisis will affect China's real economy.
Nonetheless,the major brackets are doing well,according to John Tang,a China strategist at UBS.I don't think we are gonna see earnings affected very much.If we still see 8-9% growth,bank earnings won't be much affected.The outlook for the index is actually quite good.
The Japanese yen or bond are not an option,and the euro is even worse.The U.S. dollar will still be a must have.
Real estate is the most upbeat sector.Earnings are very robust;valuation has been quite low.It is the number one consumer sector in China.Look past the short political headwinds.I don't think we should be trading at that low level,Mr.Tang observed.

From Downturn to Downgrade

Concerning the Euro-zone plan for debtor aid,it's surprising in terms of the scope and the coordination,in the view of Rick Reider,Chief Investment Officer of Fundamental Fixed Income at BlackRock,who helps manage more than 600 billion dollars in assets.I think it's a pretty significant move.A series of parliamentary approvals have to take place,and we're still in a slow growth European economy,so we're not out of the woods yet.
The one point with the plan is,you're dealing with liquidity,but not solvency.That's the big risk.Also,how do you recapitalise the banks?
The U.S. still has the best refuge for investors.Even if it lost one AAA rating,there's nowhere else for investors to go.If losing the rating is a warning sign,it's ultimately terrific.
The markets are anticipating a 50/50 chance of a downgrade.Companies are in great shape relative to the governments around the world.Ratings agencies need to see real reform or they will downgrade.If the deal is late or weak,downgrade can still occur,Mr.Reider explained.
Although the global markets have transitioned from the collapse of equities engendered by bad loans and obscure instruments,they now must surmount a new challenge in the form of the sovereign debt issue.This aftermath of governmental largess is a follow-on dilemma for the wealth creators and managers.

This Week's Notebook:Goldman and Greece

This week I have devoted the time slot for this blog to a story about Goldman Sachs that I came upon while researching a post for this blog.The Goldman story has been published in Wall Street Workbook,which you may access from the link list in the right hand column.Still,here are some notes on the European debt crisis.
France says the Euro-zone summit today,Thursday,will send a strong message.They are still discussing the share of the private sector in the Greek rescue.
After all the talk that has already gone on,scepticism about the summit may be widespread in the community of financial observers.Will this summit really resolve the issues?It may be just another photo op and delaying tactic-so the feeling goes.
Secretary of State Hillary Clinton was in Greece recently to express support for all the Papandreou government has done to impose austerity.The situation today is much different than two years ago thanks to the new measures approved by parliament,Greece pointed out.It was indeed a strong and positive first step.Hopefully Europe will get behind Greece with any practical help it really needs now.The serious risk of contagion makes it imperative that they do so.
Update:The Euro-zone countries have agreed a 109 billion euro aid package for Greece and potentially other troubled countries.This sent stocks decidedly higher worldwide.

China's European Concerns

According to David Gosset,Director of the China Europe International Business School,you have a lot of worries in China about the European Union and Euro-zone.China wants them to succeed in order to counterbalance the U.S.
The big story for the business world for the next 5-10 years is the Chinese growth in consumer demand,which will shape global business.The EU has failed to lift restrictions on China,damaging its credibility in the Asian powerhouse.Europe has joined the U.S. in criticising China's failure to allow its currency to appreciate enough,resulting in trade imbalances.
On Saturday,December 25,China made a surprise hike in interest rates to cool off growth and prevent inflation.The move had only a brief,minor effect on global markets,if any-perhaps restraining them a bit.
The China Europe International Business School is located in Shanghai.Granting MBA degrees,it was officially established as an independent business school in 1994.

Stress Tests Considered Success

The stress testing of Euro-zone banks is generally considered to have been a success,restoring confidence to world markets.Despite skepticism from some economists as to the toughness of the tests,the Committee of European Banking Supervisors insists the tests were more severe than the U.S. stress tests of last year.The Euro-zone tests postulated a once in twenty years scenario,while the U.S. tests postulated a once in seven years scenario.The Euro-zone tests were based on a double dip recession,with a 20% stock plunge and four notch downgrade of credit ratings.
Among the 91 banks tested were HSBC,Lloyd's,Deutsche Bank,Commerzbank,Unicredit,Santander and National Bank of Greece.All but seven of the 91 banks passed,most of the failures being Spanish savings banks,as well as Germany's Hypo Real Estate Bank and Greece's ATE Bank.The national authorities are in close contact with these banks to assess the results and implications,in particular in terms of the need for recapitalization,the CEBS said.
On Tuesday,Deutsche Bank reported good earnings and made positive remarks on its outlook.German unemployment came in at 7.7%,while U.S. unemployment is at 9.7%.

IMF Addresses Today's Concerns

The International Monetary Fund,an autonomous UN agency,has been addressing the issues of the day recently.On the topic of trade imbalances,Managing Director Dominique Strauss-Kahn said not even full appreciation of the Chinese currency,the Yuan,will solve the total imbalances.Other measures are also necessary to achieve that:
1.Improve domestic demand in Asia.Asia is a global economic powerhouse.A country shouldn't hide behind its currency.
2.Maintain a strong focus on foreign investment.
3.Manage currency reserves.
4.Institute capital controls,if necesssary.
China has been bitterly criticized of late by German businessmen for hindering foreign companies,as well as by General Electric CEO Jeff Immelt.In response,China insisted foreign businesses were being treated fairly.
With regard to Friday's release of Euro-zone bank stress test results,IMF First Deputy Managing Director Joseph Lipsky hoped for broad coverage by the tests,transparency and remedial action as needed.We need a realistic scenario that provides stress and gives some good insight into the strength of the banking system.All the preconditions for the test that were needed are being fulfilled.
Mr.Lipsky wouldn't assume that any central bank is out of ammunition for dealing with the financial crisis.He doesn't fear for the political independence of the central banks,either.

Lagarde Confident In Euro

Christine Lagarde,the French finance minister,thinks political leaders will have to take a helicopter view of things for the good of our economies.The Greek population and government are really demonstrating a commitment to deliver.They are doing it.The work is being done.The Greeks are taking it much more seriously than the markets feared.
Solving the debt crisis is a joint effort of the International Monetary Fund,the Euro-zone and the European Central Bank.The Euro can absolutely survive.This whole thing was built on the back of wars.In the 1960s,Europe decided they had to build something better,Ms.Lagarde said in her excellent English.
At least a minority of citizens are not going along with the new fiscal regime. Protests have erupted this week in Spain and Greece,with rioting in Athens and a rail strike in Madrid.