Category Archives: Readings

Is High Yield Worth The Risk?

Posted on July 19, 2018 by Gemmer Asset

Given where credit spreads are (see below) and the fact that we’re late in the economic cycle, it’s worth asking the question: is taking high yield credit risk worth it?     If you look at yield alone, the roughly 6% you’re getting from junk bonds is certainly appealing, but we’d argue that there are three main risks to having this type of credit exposure at this stage in the cycle.   High Yield Spreads…
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Market Recap

Posted on July 13, 2018 by Gemmer Asset

  Inflation Heats Up – Bond Yields Go Nowhere   Sometimes the link between the economic data and the market reaction can leave you scratching your head. For example, this week’s inflation report was on the hot side. The Consumer Price Index (CPI) increased at an annualized rate of +2.8% in June while the core rate was up +2.0%. Both were slightly above expectations. The graph below shows four different measures of inflation, but you…
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Market Recap

Posted on June 29, 2018 by Gemmer Asset

  Stocks were broadly lower this week as trade worries sat heavily on investor’s minds. For the week the S&P lost -1.3% while small-caps dipped -2.5%. For the first time in a while the international markets were in line with the domestic. Both the EAFE and emerging markets indexes were off about -1.3%. The Chinese market cleared a notable hurdle – it officially fell into bear market territory this week with losses from January high…
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Emerging Markets – An Alternative View

Posted on June 28, 2018 by Gemmer Asset

Over two centuries ago, famed British banker Nathan Mayer Rothschild coined the trading phrase, “buy on the sound of cannons; sell on the sound of trumpets.” He was insinuating that markets tend to panic at the outbreak of wars (“the sound of cannons”), presenting good long-term values. On the other hand, markets typically become sanguine once a conflict comes to an end (“the sound of trumpets”), driving them to elevated levels where traders may want…
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Valuations Are High – So What?

Posted on June 26, 2018 by Gemmer Asset

For years market prognosticators have been saying that valuations are high.  And if you look at the data, it’s true.  The Cyclically Adjusted PE or CAPE Ratio (see definition here), a measure of valuation that is generally thought to be more stable than other relative valuation measures, has been above its historical average since August of 2009 (S&P 500).     Here is the same chart with two additional horizontal lines showing +/- two standard deviation bands…
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Market Recap

Posted on June 22, 2018 by Gemmer Asset

  A New Recession Call   With President Trump’s new trade agenda and fears about Fed policy inverting the yield curve, the drumbeat of recession calls is picking up.   This week David Rosenberg of Gluskin Sheff & Associates garnered a lot of attention by calling for a recession in 12 months (read more here).   Rosenberg has been unfairly tarred as a perma-bear over the years. He was certainly bearish in the late 90’s…
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Corporate Earnings – The Future Looks Good

Posted on June 21, 2018 by Gemmer Asset

“Prediction is very difficult, especially if it’s about the future.” – Nils Bohr, Nobel laureate in Physics   I don’t think Bohr was referencing corporate earnings estimates when he made the above quip, but his words do make a point about predicting the future…   When discussing the state of the U.S. economy, one of the things analysts often point to is the health of corporate earnings – not just reported earnings, but future earnings….
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End of an Era

Posted on June 20, 2018 by Gemmer Asset

Nothing lasts forever.  Tuesday afternoon we learned that General Electric, an original member of the Dow Jones Industrial Average, will be kicked out effective June 26th.   It will be replaced by Walgreens Boots Alliance.   Wow!!   GE was an original member of the Dow in 1896 and has been in it continuously since 1907.  The company has been struggling the last few years, it replaced its CEO recently, and slashed thousands of jobs while cutting the…
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Trade with Canada – Surplus or Deficit?

Posted on June 14, 2018 by Gemmer Asset

Canada has been in the press a lot recently.  The reason for all the attention is the country’s trading relationship with the United States.  In a recent tweet, the President claimed: “…they (Canada) make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B.” If you listen to other economists, the U.S. runs a trade surplus, not a deficit with Canada (meaning Canada imports more goods and…
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A Hawkish Hike

Posted on June 13, 2018 by Gemmer Asset

It’s not exactly a shocker the Fed hiked interest rates by another 25bps today. But going into to today’s meeting the market had started to think the Fed might ease up on future rate hikes. After all:   1) Emerging markets were starting to show some stress.   a.  Take Brazil   b.  Or Argentina   c.  Both the Indian and Indonesian’s central bank heads took the Fed to task about tightening.   2) Recent speeches…
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