● The Triumph of Value Investing: Smart Money Tactics for the Postrecession Era
By Janet Lowe
Author interview with US News & World Report
Q: After the market turmoil at the beginning and end of the last decade, many investors appeared to give up on the value of value investing and stocks in general, preferring bonds and commodities instead. Do you believe there are ever multi-year periods when value investing doesn’t work?
A: No, I don’t, because value investing, if you follow it, you would have been a little better prepared. Of course it was such a massive event that hardly anyone escaped unscathed, but value investors overall did better. And then an event like this is a great opportunity for value investors to buy what they need and ride the market higher. Even in my own experience with my own portfolio, I came back faster than most people in the economy.
ETF/INDEXING CONFERENCE…
I’ll be speaking at IMN’s 2nd Annual World Series of ETFs & Indexing in Boston on March 29. I’m a panelist on the “Enhancing the asset allocation process” seminar.” Details and the full agenda for the conference are available here.
STRATEGIC BRIEFING | 1.21.2011 | CRUDE OIL
OPEC Pressured as African, Asian Oil Tops $100: Energy Markets
Bloomberg, Jan 20
OPEC is facing growing calls to boost oil production as crude prices in Asia and Africa surpass $100 a barrel for the first time in two years.
Bernstein Energy: Conference Call Transcript – Key Themes or 2011 and Bernstein’s Best Ideas
Bernstein Research, Jan 21
As we start 2011 we see a number of key themes that can help drive higher earnings in the energy sector over the next few years. On the oil price, we see improving economic data driving oil demand ahead of consensus expectations. Combined with limited supply increases, this should lead to reduced spare capacity and a rising oil price out to 2015, when we expect to see $130 oil.
IS THE BOND MARKET IRRATIONAL TOO?
One of the themes that the market-is-inefficient crowd likes to point to as a smoking gun is the volatility in the stock market, which at times ramps up considerably. Robert Shiller was the first to use this argument in his widely cited 1981 paper: “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?” There’s been a lot of back and forth over this paper in the decades since, but that’s a subject for another day. Meantime, if the volatility in stock prices indicates inefficiency and irrationality in the equity market, the same framework must hold for bonds, right? Enter Paul Krugman, who had an interesting blog post yesterday about fixed income: “What’s moving interest rates?”
JOBLESS CLAIMS FALL TO 404,000
This morning’s weekly update on new jobless claims delivers a refreshing reversal of last week’s surge in filings for unemployment benefits. New claims on a seasonally adjusted basis dropped by a hefty 37,000 last week, more than erasing the revised 30,000 jump for the week through January 8.
MACRO RISK & EQUITY RETURNS: HAVE WE LEARNED ANYTHING YET?
The case for mean reversion is alive and well when it comes to developing intuition about future returns in the equity market, as I discussed earlier this week. True, you can’t prove anything definitively in the money game, but the empirical record is persuasive for thinking the expected returns in the stock market will fluctuate a) dramatically over time and b) with some degree of consistency in connection with fundamental value measures, such as dividend yield, p/e ratio, book value and other metrics. The insight doesn’t help much when it comes to short-term trading, but it provides a fair amount of strategic insight. But that leaves open the question of why return varies so much in the first place?
THE CAPITAL SPECTATOR ON TWITTER
I’ll be tweeting on Twitter on the usual subjects. Here’s my Twitter page:
twitter.com/jpicerno
Tweet, tweet…
NEW BUILDING PERMITS SURGED IN DECEMBER
The housing market has shown signs of recovery before, but to date it’s come to naught. Is there any reason to think that the latest rise in new building permits issued offers real hope this time? Unlikely, but the trend bears watching just the same.
STRATEGIC BRIEFING | 1.19.2011 | CHINA
Leading economist warns against rapid yuan rise
MarketWatch/Jan 18
Global monetary authorities should focus on stabilizing the price of the dollar and euro – as part of a new monetary regime that would also see the yuan appreciate slowly against the greenback, Columbia University Professor Robert Mundell told a financial forum in Hong Kong on Tuesday. Mundell, a Nobel Laureate in Economics in 1999 and also recognized as intellectual godfather of supply-side economics, said the approach would help curb volatility in global currency markets.
THE LIMITS OF THE NEW NORMAL
The world has changed after the Great Recession, but some of the fundamental tenets of investing still apply and probably always will. Exhibit A is mean reversion, a theory that says that prices fluctuate around an average of historical prices or some other measure of value. True, you can’t count on mean reversion to apply like clockwork, particularly in the short run. In fact, there’s no way to know if mean reversion will apply at all in the years and decades ahead. Par for the course in finance: everything’s always open for debate. But a small library of empirical analysis suggests that we should take mean reversion seriously. In other words, buy low and sell high is a worthwhile investment strategy, even if the details are messy.