Hedge fund managers are fuming at new political rhetoric against them and their huge paydays.» Read More
As an investor, it pays to know about power.
That's not just for deciding which oil stocks to play or whether now is the time when alternative energy can generate real returns.
Instead, tracking simple electricity usage is a helpful predictor in discerning broader market movements, according to a research paper released this month by a team of academic researchers.
"Simple year-over-year industrial electricity usage growth rate has strong and significant predictive power for future stock market excess returns in horizons ranging from one month up to one year," wrote the team of Zhi Da at the University of Notre Dame, Dayong Huang at the University of North Carolina and Hayong Yun at Michigan State University.
What they found specifically, when looking over data from 1956 to 2010 in the U.S., Japan and U.K., is that each 1 percent increase in electricity usage corresponds to a 0.92 percent decline across broad stock market measures, including the S&P 500, over the next year.
China's banks are taking over the world, or at least pushing their U.S. counterparts out of the leadership role.
Bank earnings this week in the world's second largest economy paint a dour picture for American financial institutions, according to analyst Dick Bove at Rafferty Capital Markets.
"The Chinese government is now following a policy to allow its banks to expand faster. It has reduced their required reserve ratios," Rafferty's vice president of equity research said in a note to clients. "The United States continues to follow a policy to shrink the biggest banks in this country." (Tweet this)
The picture gets especially ugly when comparing the "Big Four" U.S. banks—JPMorgan Chase, Citigroup, Bank of America and Wells Fargo—to their Chinese counterparts, the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China.
In 2004, the U.S. side had assets doubling those of China and net income equal to 339 percent; now those respective numbers are 71.6 percent and 50.8 percent, according to Bove.
Investors should be wary of excess in several crowded trades in today's market, according to large investment managers at the Milken Institute Global Conference.
"I am worried about bubbles forming," Robert Kricheff, a portfolio manager at bond investor Shenkman Capital, said Wednesday at the event in Los Angeles.
"I don't think there's a big broad bubble—you're not going to pull one string and the dress falls off—but there are definitely issues out there."
There's more to investing in Asia than China and India.
"We've got to look beyond these two big markets and really focus on Southeast Asia," Curtis Chin said on the sidelines of the Milken Institute Global Conference in Los Angeles Wednesday.
Chin, Milken's Asia Fellow and former U.S. ambassador to the Asian Development Bank, gave the example of Indonesia, a relatively large market with a growing middle class.
"Indonesian consumers are there and ready to buy," he said.
Big money managers have a warning for people using popular new investment products.
One that attracted the ire of speakers at the Milken Institute Global Conference in Los Angeles on Tuesday were so-called unconstrained or go-anywhere bond funds, a popular strategy that places few limits on what types of bonds the mutual fund manager can invest in.
Bond guru Bill Gross, most recently of Janus Capital and before that founder of fixed income giant Pimco, started just such a fund in 2014. He was not mentioned by any of the speakers, but the fund category itself was skewered.
"The go-anywhere, the unconstrained, is the pitch de jour. I think that ends badly," John Skjervem, chief investment officer of the Oregon State Treasury, said at the event.
"There are asset owners that are going to buy that and present it to their boards as fixed income and it will show up in that pie chart as fixed income and everyone is going to assume it's capital preservation," Skjervem explained. "But under the hood it's all risk seeking and I don't think that ends well."
Now that the S&P 500 has staked yet another record high, the stock market indicator may have nowhere else to go.
Goldman Sachs analysts believe the index may climb a bit higher before its ascent is over at least for the next 12 months. Strategist David Kostin and his team see the index rising to 2,150 in the next couple of months—another 1 percent or so from its mid-day levels Monday—before seesawing around and ultimately settling around 2,100 by year's end.
The next 12 months hold little prospect for gain, according to the analysis, with the index at just 2,125 in 12 months, which would be basically flat from here. ( Tweet This )
The forecast comes as Wall Street deals with economic growth considerably slower than expected and a backdrop in which the Federal Reserve will have to weigh its desire to increase interest rates against decidedly weakening fundamentals. Goldman holds to a forecast that the Fed will hike in September, but futures market traders now assign just a 52 percent chance the central bank will tighten even in December, with just a 20 percent for a September move.
In the face of dwindling returns, investors could have little else but dividends to count on. Goldman forecasts that all of the 2 percent gain in total return by the end of the year will come from dividends, which are expected to account for 46 percent of market returns for the next 10 years. By contrast, prices have accounted for 80 percent of total return during the current bull market, which has seen the S&P 500 surge about 220 percent since the March 2009 low.
A funny thing has been happening to financials: while earnings have been stellar, their stocks have stunk.
Broadly speaking, financial industry companies on the S&P 500 are expected to post first-quarter earnings gains of 15.8 percent, easily outdistancing other sector competitors on the broad market index. If profits are the primary drivers of prices, you'd then expect their stocks to be blooming.
That has not been the case.
Financials, in fact, are the second-worst performing group of the 10 S&P sectors, registering a loss of 2.3 percent heading into Tuesday's trading. Only utilities, which have tumbled 5.6 percent, have fallen further.
The results are even worse drilling down into bank stocks specifically.
Banks as a whole are off 3.4 percent, even though Keefe, Bruyette & Woods reports that 54 percent have beaten consensus profit estimates. Consumer finance stocks have dropped 11.3 percent. Thrifts and mortgage finance institutions have slid 4.5 percent, while real estate-related institutions have been one of the few outperforming groups.
"The role of the activist in the U.S. equity markets ... has been to profoundly improve corporate governance in America," Citadel hedge fund CEO Griffin said Monday at the Milken Institute Global Conference in Los Angeles.
"We can debate the merits of each run by activists at a given company in a given quarter. Did they make the right call going against this company's direction, are they pushing the right thing for a company's use of cash," he added. "But big picture, corporate governance in the United States is better than pretty much anywhere in the world."
Major private equity fund managers, including several billionaires, gave their best investment idea at the Milken Institute Global Conference.
Speaking in Los Angeles on Monday, each revealed what they thought was the surest way to make money by investing in private assets.
The smart money has a warning for investors: Taking on more risk in the markets, especially in company debt, could cause big losses soon.
"Going out on the risk spectrum in today's environment seems like an awfully, awfully, dangerous thing to do," Joshua Friedman, co-founder and co-CEO of $23 billion hedge fund firm Canyon Partners, said Monday at the Milken Institute Global Conference in Los Angeles.
Friedman, an expert on investing in bonds and companies in financial distress, noted several "credit bubbles in the system" including high-yield and bank debt.
"It's clear that we have an overshoot in credit," he added, referencing the high amount of lending to companies that has taken place since the financial crisis.