http://www.vibescaster.com Your Source for Social News and Networking Sun, 19 May 2013 02:00:04 CEST en http://www.vibescaster.com//treasury-claims-banks-safer-in-uk/ Sun, 19 May 2013 02:00:04 CEST vibcast 18 http://www.vibescaster.com//treasury-claims-banks-safer-in-uk/ http://www.vibescaster.com//governor-warns-over-housing-plans/ Sun, 19 May 2013 00:00:03 CEST subzero 11 http://www.vibescaster.com//governor-warns-over-housing-plans/ http://www.vibescaster.com//the-uk-has-just-had-one-lost-decade-and-its-about-to-enter-a-second/ HSBC’s chief global economist has written a compelling but dark account of the challenges facing the West. Philip Aldrick considers the chilling claims.
Bleak does not begin to describe the latest tome on the economic crisis by Stephen King, the HSBC chief global economist who appropriately shares a name with the best-selling horror writer.
When the Money Runs Out is the economic equivalent of post-apocalyptic fiction, charting “the end of Western affluence”, and gives the author of The Shining a run for his money when it comes to filling readers with dread.
Published this week, the chapter headings alone are enough to make you tremble; The Pain of Stagnation, From Economic Disappointment to Political Instability, Dystopia.
If anyone in Britain was labouring under the misapprehension that 0.3pc GDP growth in the first quarter of the year and signs of a manufacturing revival were something to cheer – and that includes the other King, Bank of England Governor Sir Mervyn – HSBC’s King puts them right.
Those aren’t green shoots, they are “bumps along bottom”. The country has just completed one “lost decade”, measured on growth per person, he says, and is about to enter a second.
King is what his friends describe as a “happy pessimist”. It’s easy to see why. The piano-playing 49-year-old’s demeanour is as perky as his electric-shock hair. But his message is resolutely sackcloth and ashes. His prescription for the UK, like much of the West, is painful reform, and lots of it.
Like all determined pessimists, though, King rejects the label. “I would call myself a realist who doesn’t peddle quick-fix solutions that won’t work,” he says. Those quick-fix fantasists, he claims, come from both sides of the austerity versus stimulus debate that dominates the current economic conversation.
The mistake they make, he says with unapologetic gloom, is believing there is a route back to robust growth. “The problem with the merchants of stimulus and the merchants of austerity is that the majority have the same underlying belief that the economy is going to rebound rather quickly.
“They just have very different views of how to get there. My concern is that both those sets of beliefs are a bit too optimistic about the nature and speed of the recovery.”
Britain’s big problem, which it shares with the rest of the West, is that it will not be able to grow at a pace that will allow it to afford the commitments made to its people, King says. That simple observation is at the heart of his warning about the decline lying in store for the world’s advanced nations.
“What if our financial wealth has been accumulated on the back of a delusion? What if political promises – even those made in good faith – can no longer be met? How should we cope with the subsequent disappointment?” he asks rhetorically.
His answers are uncomfortable ones. Promises will have to be broken and expectations lowered. Weak growth will mean less prosperity to go round. People will be stripped of their “entitlements”. An introverted politics of envy will stir, resulting in pressure for greater equality and an attack on the rich. Society may fray as protectionism replaces globalisation and an ugly xenophobia rears up again.
It will be a time for bold, honest politics, King says. Sadly, history is littered with tales of the reverse.
King is not alone in his view that Britain will grow more slowly than in the past. Sir John Gieve, a former deputy governor of the Bank, has suggested a sustainable rate of growth in the UK may now be 1.25pc – half the pre-crisis level. Andrew Sentance, a former member of the Bank’s rate-setting Monetary Policy Committee, has called weak growth the “new normal”.
In hailing “a modest and sustained recovery” last week, even Sir Mervyn warned that the economy would remain “weak by historic standards”. Britain, to use the Chancellor’s words in a speech to the CBI last Wednesday, is still grappling with the “worst economic inheritance any modern government has faced”.
For King, the fervent belief that the UK will somehow return to 2pc to 2.3pc annual growth is “an inappropriate extrapolation of past trends”. He goes so far as to question whether official statistics for the past decade told the real story: “The underlying growth rate was soft” and was masked by a debt binge of unprecedented proportions.
Britain may be growing again, just not fast enough to pay for the accumulated promises of the past. For King, the big question is: how does the country deal with the sense of decline as those entitlements are withdrawn?
Difficult decisions are now unavoidable. George Osborne may believe he has already faced up to the hard truths – with his austerity programme and reforms such as raising the retirement age – but he has barely scratched the surface. “The need for some kind of reform is that much greater than has been admitted so far,” King argues.
Even on official forecasts for UK growth, which he says are “optimistic”, there is “a permanent loss in activity relative to what people had assumed”.
“The problem arises when you discover that, out of the total sum of income, there are commitments that have to be met. In which case there is less money to spend on other areas.”
The ring-fenced budgets are a clear example. Health, pensions, education and overseas aid are protected, which means other departments face excessively deep cuts. So much so, in fact, that reports last week suggested angry ministers have found less than a quarter of the £11.5bn savings demanded of them.
The same holds for the economy as a whole, King says. “What happens is that because people have already decided to spend their future income before it arrives, then you have a social and political problem.”
In suitably apocalyptic terms, he draws comparisons with the run-up to the French Revolution, the Peasants’ Revolt of 1381, and the austerity of the 1920s. As entitlements are withdrawn – and King lumps “executive pay” and bankers’ bonuses alongside welfare dependency – the country will face social upheaval.
“The US and UK have very high levels of income inequality and the problem in stagnant economies is that the only way you can make the majority better off is to seize funds from the minority, which is where you get into wealth taxes,” he says. “That takes you back to problems of the late 1960s and 1970s. You get into a fight over the limited resources, as resources aren’t growing enough.”
From there, he warns, the economy can quickly spiral downwards as large redistribution “tends to dampen down entrepreneurial and creative risk taking”.
There is no escaping the denouement, King says. But we can “extend and pretend”, as they say in high finance. The economic version has been quantitative easing (QE) and near-zero interest rates. To delay the inevitable, Western nations have become “stimulus junkies”, King warns.
“These policies started off as being the equivalent of powerful antibiotics to make the patient better quickly. They’ve morphed into addictive painkillers. We’re on them and we don’t really want to face the cold turkey of coming off those painkillers. But as with many painkillers there are side-effects.”
King is in no doubt that QE saved the West from a great depression. But the longer it has gone on, the more distorting its effect has become. Money printing now has more impact on “wealth redistribution than lifting the economy”, he argues. By contributing to higher inflation, it has “helped to squeeze real wages but has benefited those who are asset rich”.
In other words, QE has acted like a “regressive tax” – punishing the poor and enriching the wealthy. It has also damaged business investment by punching a deeper hole in struggling pension schemes. “We’re in this bizarre situation where teachers are being fired to pay for the pensions of teachers who are no longer working,” he observes.
Both of King’s points have been conceded by the Bank, though in less inflammatory terms.
So, why persist with QE? “Stimulus policies have allowed politicians to live in a fantasy world,” he explains. “QE allows governments to live with a high level of debt.”
King’s analysis of the West’s problems is uncompromising. But he does find room for some possible solutions. Unfortunately, “none of them is particularly attractive”, he admits.
First, the UK needs growth. And greater equality could help. “This is not a party political point,” King says. “It’s an economic one. The financially asset-rich have a lower propensity to consume.”
The argument has it that the rich tuck money away in Asian tracker funds that would otherwise have been spent down the shops – in the real economy – by the less well-off.
It is a point advocated by those who have risen to the top. Sir Martin Sorrell, WPP chief executive, has warned: “The concentration of wealth is a serious issue.”
An extension of the argument is King’s call for “some kind of social contract” to help younger generations. At present, policy is set to “protect things for the baby boomers” – a group he calls in his book “the selfish generation” that “had their cake and made sure they could eat it, too”.
Protecting their entitlements strips the country of “investment for tomorrow”, he says. Commitments on infrastructure and education are vital, even if it means tearing down the ring-fence around health and certain pensioner benefits. It is in the boomers’ own interests, he claims.
If all the economic restructuring is lumped on the young in higher taxes and worse public services, there will be a “mass exodus” that will make it even harder to keep the boomers in clover.
An analysis by the respected Institute for Fiscal Studies shows that “pensioner households” have been least affected by austerity while working-age “households with children” are hardest hit. King, by the way, is a post-boomer himself, at 49.
Boosting UK exports is also vital, he says. A recovery in the eurozone would do wonders, but in the fast-growing emerging markets Britain has a lot of work to do. To illustrate his point, King recounts an exchange with a Chinese colleague on one of his world tours. Asked for her impression of UK trade, she said: “What do you export?” King quipped: “It looks like we have an image problem.”
In essence, his prescription is Osborne’s strategy – reformed and on steroids. One of King’s more radical proposals is to move the Bank to a nominal GDP target, as first floated last year by the incoming Governor, Mark Carney, a man hand-picked by the Chancellor.
As any economist will testify, getting nominal growth going is vital if a heavily indebted country – like the UK – is to escape its debts, even if a large slug of that growth is simply inflation. Which explains why King would not unwind QE despite his objection to its “side-effects”.
“One tried and tested mechanism [of reducing debt] is inflation, as it redistributes from creditors to debtors,” he says. QE keeps government borrowing costs below inflation, ensuring that it’s only the creditors who suffer. It’s what’s known as “financial repression”.
The catch-22, though, is that inflation will depress household incomes, which will lower growth. Resolving that will be one of Carney’s many conundrums, King says. And he does not envy the Canadian’s task.
The latest big hope for monetary policy is Carney’s idea of “guidance” – a promise to keep rates low until unemployment or some other measure has hit a pre-defined level. But, with rates already expected to be unchanged until late 2016, King says “it’s not likely to have much of an impact”.
Carney’s bigger problem, he believes, is that “he’s managed to end up with this image of being like a monetary superman”. “And when he gets to Britain he may discover there are large amounts of kryptonite that will actually reduce his powers quite significantly.”
Carney has already acknowledged he’s coming to where the “challenges are greatest”. And, in the early bloom of economic optimism, King’s clear-sighted and highly readable book is a timely reminder of just how challenging Britain’s problems still are.

Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 22:00:13 CEST john_romero 21 http://www.vibescaster.com//the-uk-has-just-had-one-lost-decade-and-its-about-to-enter-a-second/ http://www.vibescaster.com//painted-house-in-tarragona-today%E2%80%99s-walk-18-may-2013/


I loved this trompe l”oeil painted on a house in Tarragona. Pin It You may also enjoyThe View from the Cami Ronda near Tarragona: Today’s Walk 17 May 2013Edlingham Church Northumberland: Today’s Walk 7 May 2013Riding the Bounds Heads for Paxton: Today’s Walk 1 May 2013 Painted House in Tarragona: Today’s Walk 18 May 2013 [...]Painted House in Tarragona: Today’s Walk 18 May 2013

Tips on where to travel in Europe. Copyrighted content published on the Europe a la Carte Travel Blog. ]]> Sat, 18 May 2013 20:00:11 CEST mcgiver 9 http://www.vibescaster.com//painted-house-in-tarragona-today%E2%80%99s-walk-18-may-2013/ http://www.vibescaster.com//video-my-co-chairman-would-not-say-that/ Sat, 18 May 2013 20:00:05 CEST mcgiver 6 http://www.vibescaster.com//video-my-co-chairman-would-not-say-that/ http://www.vibescaster.com//jim-oneill-ive-found-myself-asking-2-questions-about-the-economy-i-didnt-expect-to/ That time period, which coincidentally spans my professional career, has seen the global economy increase by approximately 3.4pc per annum in purchasing power parity terms.
For the last few years, a central thesis of mine has been that, because of China’s ascent, this decade could see the world growing by just over 4pc. Such a figure confounds not only the pessimists so prevalent since the 2008 credit crisis, but also surprises those who believe the world has a reasonably stable trend rate of growth.
It is quite easy to show that if China grows by around 7.5pc this decade, itself a somewhat softer target given the 10.25pc of the past three decades, and if the US, Europe and Japan restore growth to their trend levels, the world will grow by this stronger number. China in US dollar terms is now an $8.2 trillion (£5.3 trillion) economy. Its impact, even at softer rates of growth, is becoming bigger and bigger.
Normally, when I explain these numbers to an audience, people are sceptical for two reasons. First, they are highly dubious that the US, Japan and especially Europe can restore their growth performance.
Secondly, most either don’t realise or don’t want to accept that state-run China will continue to become more important, especially as evidence grows that it is slowing from its previous double-digit growth rates. Throughout most of the last few years, I have generally believed that people are in for a pleasant surprise; I anticipated the global equity rally that we are experiencing.
In the short space of time since I moved on from Goldman Sachs, I have found myself asking two questions I didn’t expect to. Is there something inherent in the world economic system that means we can only grow by 3.4pc each decade? And if China — and other so-called large emerging economies — continue to see their importance increase, does the obvious corollary hold true: that other regions will see weaker growth?
Put another way, does their strength mean weakness for us? Will this decade’s surprise turn out to be that China slows even more than the 7.5pc growth I have been assuming?
I find myself wondering about the latter because some of the more useful indicators I have learnt to trust for China continue to soften, in addition to the news of the softer than expected Q1 real GDP growth of 7.7pc.
An index of Chinese financial conditions — a combination of monetary growth, interest rates and their equity market — remains quite subdued. And I hear more and more anecdotal evidence that China is no longer the cheap home it was for manufacturers around the world due to continued wage increases and the strength of the renminbi.
To some extent, softer growth in China is not bad news for the rest of us. It is probably a major reason why a number of important commodity prices have seen significant reversals. That’s not great short term for many commodity-intensive producing countries, but it is good news for many others.
One of the reasons why the likes of the UK may have struggled to rediscover economic growth since 2008 is the persistent rise in imported commodity costs, adding to pressures on real disposable incomes.
But, if commodity prices are now easing, that’s no longer the case. It could also mean the decline in sterling since 2009 might still bring some reward for the economy, which has until recently been so hard to detect. Also, as long as China’s consumption continues to perform well, that is what really matters to anyone wanting to export more to them.
So what about the recent evidence from our own and other so-called developed economies?
Our stock markets seem to be enjoying themselves. Many ascribe the robust performance of stocks as nothing more than the consequence of friendly monetary policies all over the world. While I am sure this is playing its part, it was just as fashionable to argue the same easy monetary policies were also fuelling the commodity rally some time ago, so perhaps it isn’t that simple.
Maybe something a bit more substantive is happening. After the pleasant surprise of +0.3pc real GDP in the UK in Q1, many of us were braced for the resulting setback, which would follow the pattern of the past couple of years. But while it is early days, quite a bit of recent economic news has continued to be on the positive side.
While much of the eurozone continues to struggle, US performance remains encouraging; a housing recovery and a competitive boost from cheaper domestic energy seem to have underpinned the improvement.
And, while we don’t export a great deal to Japan these days, the improving mood of the Japanese consumer to the country’s monetary and fiscal boost suggests that a number of other economies will take heart. It is too soon to be singing in the streets, but the signs are looking better than they have for a while.
Jim O’Neill is the former head of Goldman Sachs Asset Management

Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 18:00:16 CEST Billie_Jo_Winchester 7 http://www.vibescaster.com//jim-oneill-ive-found-myself-asking-2-questions-about-the-economy-i-didnt-expect-to/ http://www.vibescaster.com//great-graphic-diverging-growth-is-it-the-euros-fault/
This Great Graphic was found on the Economist's blog Free Exchange in a post titled "What the euro has meant". Under the impression that the charts speak for themselves, with little analysis, the author concludes that most of the euro area would have been better off being the US or Great Britain, even in per capita terms. Seeing how obvious this is the author is stumped by the fact that there is not a bigger push to leave the monetary union.





While the charts are interesting, the inference is weak.  First, there is an all too common logical fallacy on display here.  Just because the charts begin with monetary union does not mean that the monetary union caused what came afterwards.  Second, surely to make some assessment of what EMU has wrought, a review of the economic performance before EMU is required.  




US growth, for example, generally outstripped European growth in the two decades before monetary union.   Italy and Portugal's competitiveness problem, for example,  was evident before monetary union. To lay the blame  at the feet of EMU seems wrong and disingenuous, though plays into popular prejudices.  Although monetary union was over-determined (Europe's own post-WWII strategy, the problems with the European Exchange Rate Mechanism--ERM-- and political factors related to the reunification of Germany when the Berlin Wall fell), one of the incentives was to boost the competitiveness of Europe to compete with what the French called the hyperpower (the US).  



Any discussion of a country exiting the monetary union needs to come to some understanding of why the country joined in the first place.  That the euro area is not an optimal currency zone was well known before it was launched.  The US itself was clearly not an optimal currency zone for most of its history and some would argue that the continental economy is too diverse and is still not an optimal currency zone.  It cannot be understood abstracted from the political and historical context.   



In summary, we offer three corrective points to the Economist post.  First, it is not clear that Europe's growth problems began with monetary union.  Second, the problem of competitiveness would still bedevil countries if they left monetary union.  Third, the reasons for monetary union cannot be simply reduced to a homo economicus calculation.    This implies that the failure of EMU to resolve the economic challenges countries face is in itself insufficient to spur defection.  




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Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 18:00:13 CEST Bessie_Mae_Winthrop 5 http://www.vibescaster.com//great-graphic-diverging-growth-is-it-the-euros-fault/ http://www.vibescaster.com//currency-positioning-and-technical-outlook-dollar-bull-run/
The US dollar posted strong across the board gains. It is being driven by the anticipation of favorable developments in the US, in the form of a possible slowing of the Fed's asset purchases, and less favorable developments abroad.


While it is technically poised for additional gains, the biggest risk to the dollar comes from Fed Chairman Bernanke's midweek testimony.  His commitment to QE and readiness to taper purchases, as others have suggested, will be closely scrutinized.  The failure to confirm these growing market ideas, spurred in part by comments from two (non-voting) regional Fed presidents, could prompt some profit-taking on long dollar positions.



While speculation that the Fed may take one of its feet off the accelerator in the next week month helped lift the dollar, other countries are easing policy.  There has been even more talk about the ECB adopting a negative deposit rate.  Continued sub-50 readings in the flash PMI,  due midweek, will heighten the sense that the euro zone continues to contract for the seventh consecutive quarter.


The ongoing decline in the yen is meeting little official resistance. Chinese officials, for example, seem more upset by comments by the mayor of Osaka (which the US also criticized for being "outrageous") then they about the depreciation of the yen. The US Dollar Index has risen 3.7% from the low on May 1 to its best level since 2010, and it recording its best two week run since in a year.



Euro:   A large head and shoulders pattern is being carved out.  The neckline is seen near the late March and early April lows around $1.2740.  Below there is the low from last November near $1.2660, which is just below the $1.2680 retracement objective ($1.2680) of Draghi's OMT induced rally.  The measuring objective of the head and shoulders pattern would carry the single currency below $1.20, our year-end target.  The euro's 50-day moving average crossed below the 200-day (golden cross) for the first time since last October.



Yen:   The pullbacks in the US dollar continue to be shallow.  This is not giving the longs any pain and it gives many momentum and trend followers a sense that it is a one way bet, a mindset that often proves dangerous.  Support now is seen in the JPY102.35-60 area.  Although there are reports of option structures before, many have their sights set on JPY105.



Sterling:  The upside correction from the mid-March low near $1.4830 has ended decisively.  That correction had held a up trend line, which sterling closed below at the start of the week near $1.5350.  A convincing break now of $1.5120 area suggests a return to, and likely a break of, this year's low.  Sterling has also broken below a trend line connecting the lows of the past three years.  This sours the longer-term outlook and warns of a move toward $1.42.



Canadian dollar:  The US dollar is flirting with trend line resistance against the Canadian dollar going back to 2011.  The year's high was set on March 1 near CAD1.0340.  A break of it opens the door for a move toward CAD1.05-CAD1.06.



Australian dollar: The Aussie has fallen out of favor in a big way.  It has been aggressively sold-off; the largest decline over a 10-day period in more than a year and a half.  It has convincingly broken a trend line drawn off the 2011-2012 lows that came in just above $0.9800.   An investment bank called for a move to $0.8000.  This corresponds to the 2010 lows and a 61.8% retracment of the post-Lehman rally.  It may be a reasonable longer-term objective, and by the OECD's purchasing power parity model,  the Australian dollar is almost 30% over-valued.  However, given the difficulty in forecasting exchange rates and the substantial risks that are involved, as well as mitigating factors like Australia's triple-A credit rating and a currency that is gaining recognition as a reserve asset, we suggest medium term investors should anticipate half of that move, or $0.8900-$0.9000 and place stops accordingly.  



Mexican peso:  Over the past year, the Mexican peso has appreciated by 11.5% against the US dollar; making it the strongest among the G7 and liquid emerging market currencies.   While we recognize attractive underlying fundamentals, technical factors have made us more cautious.  A dollar bottom has been carved out over the past month.  The long peso position remains large and a move above MXN12.40 could spur a further dollar short squeeze.  A correction could carry the greenback into a MXN12.60-MXN12.80 range.



Observations from the latest CFTC report of the CME currency futures:



1.  Participation rose as new gross positions were established across the board, with two minor exceptions, short Canadian dollar and short Mexican peso positions were trimmed.  



2.  There were 4 substantial (more than 10k contracts) position adjustment and they were all adding to the gross short positions:  euro, yen, Swiss franc, and Australian dollar.  



3.  The 36% rise in gross short Australian dollar positions to a record 75.1k contracts was sufficient to switch the net position to the short side for the first time since last June.  Nevertheless, the gross long position remains the second largest among the currency futures, behind the Mexican peso.



4. The gross short euro position is just below 100k contracts.  Last June, as the tensions were mounting that led to the Draghi's OMT offer, the gross short position was 250k contracts.  The gross short sterling position is approaching the record from March of 105k contract.  The price action and the increase in open interest since the CFTC period ended suggests new shorts have been established.  














week ending May 14
              Commitment of Traders




(spec position in 000's
of contracts)




Net 
Prior 
Gross Long
Change
Gross Short 
Change


Euro
-46.9
-33.5
52.8
0.3
99.8
13.7


Yen
-88.4
-78.6
28.9
1.0
117.3
10.8


Sterling
-65.3
-63.1
37.0
5.4
102.3
7.7


Swiss Franc
-15.4
-6.2
9.6
2.3
25.0
11.4


C$
-44.4
-51.9
28.4
2.6
72.8
-4.9


A$
-13.4
6.6
61.7
0.2
75.1
20.2


Mexican Peso
140.0
138.0
145.3
1.3
5.0
-0.6
















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Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 16:00:25 CEST ziggy_stardust 8 http://www.vibescaster.com//currency-positioning-and-technical-outlook-dollar-bull-run/ http://www.vibescaster.com//etf-insider-bull-run-continues-short-trade-gets-stopped-out/
ETF Insider Recommendations
Our only pick for this week resulted in a small loss after our stop-loss was triggered following the continuation of the bull run on Wall Street.



Last Week’s Actionable ETF Ideas


Ticker
Position
Week Performance


XLB

Short


-1.2%



Closed Trade: Short XLB: Down 1.2%
This defensive recommendation was mistimed, despite our fundamental analysis being correct. Industrial production data missed the mark this week, but both the industrial and basic materials sectors ignored this headline and continued their ascent. XLB failed to turned lower and triggered our stop-loss on Wednesday, forcing us to incur a small loss that turned out for the best when considering that this ETF rallied into the close on Friday afternoon.
XLU Update 

We contemplated taking profits on this recommendation since it already hit our profit target of $40 a share; however, we decided to keep it open since XLU appears to be gearing up for another run higher judging by its rising support levels since enduring a correction in early May. We will be quick to lock-in profits next week should broad selling pressures resurface.
ETFdb Portfolios
Retirement ETFdb Portfolios
Our retirement strategies largely ended up in green territory this week with the strongest gains coming out of the 30 Years Til Retirement and 5 Years Til Retirement Portfolios. Year-to-date, the best performing strategy remains the 30 Years Til Retirement Portfolio while the conservative Ready To Retire Portfolio is still the laggard.

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ETFdb Portfolio


1 Week


4 Week


13 Week


YTD


1 Year


3 Year


5 Year







5 Years Til Retirement Portfolio

0.95% 3.92% 4.75% 8.72% 16.61% 33.51% n/a

10 Years Til Retirement Portfolio

0.97% 4.47% 5.60% 9.67% 20.88% 39.17% 24.73%

20 Years Til Retirement Portfolio

1.07% 5.13% 6.43% 11.31% 25.29% 44.42% 25.23%

30 Years Til Retirement Portfolio

1.22% 5.94% 7.18% 12.60% 27.76% 47.52% 25.98%

Aggressive Portfolio

0.49% 4.98% 3.84% 7.89% 23.87% n/a n/a

Cheapskate Portfolio

0.30% 2.55% 4.59% 6.47% 17.46% n/a n/a

Low Volatility Portfolio

0.13% 1.32% 5.00% 6.82% 15.47% n/a n/a

Moderate Portfolio

0.69% 3.61% 4.33% 7.26% 18.11% 34.77% n/a

Ready To Retire ETFdb Portfolio

0.47% 2.04% 3.30% 5.30% 11.58% 29.64% 27.74%

As Of 05-17-2013


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Regional ETFdb Portfolios
Foreign equity markets were a bit shaky this week as profit taking pressures hit overseas investors, leaving the majority of our regional strategies in shallow red territroy. Year-to-date, the best performing strategy remains the Global Titans Portfolio while the new laggard is the LatAm Centric Portfolio.

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ETFdb Portfolio


1 Week


4 Week


13 Week


YTD


1 Year


3 Year


5 Year







Africa-Centric Portfolio

-0.17% 3.64% -2.56% -3.62% 8.29% 7.14% n/a

Asia-Centric ETFdb Portfolio

0.06% 2.37% 3.91% 5.44% 22.17% n/a n/a

BRIC-or-Bust ETFdb Portfolio

-0.15% 3.04% -2.17% -0.85% 10.01% n/a n/a

Easy-As-ABC ETFdb Portfolio

-2.17% -1.35% -3.28% -3.98% -1.29% n/a n/a

Emerging & Frontier Markets ETFdb Portfolio

-1.22% 1.09% -1.70% -1.27% 13.98% n/a n/a

Euro Free Europe Portfolio

0.03% 5.67% 1.80% 6.34% 27.34% n/a n/a

Ex-Europe ETFdb Portfolio

0.59% 3.51% 4.29% 7.15% 17.73% 31.96% n/a

Ex-U.S. Portfolio

-0.33% 3.00% 2.49% 3.41% 23.12% 28.66% n/a

Global Titans ETFdb Portfolio

0.21% 4.48% 5.66% 8.99% 24.74% n/a n/a

LatAm Centric ETFdb Portfolio

-1.37% -0.21% -5.19% -3.82% 9.88% n/a n/a

As Of 05-17-2013


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Themed ETFdb Portfolios
Our themed strategies turned in mixed performances with the Consumer Centric Portfolio taking the lead on the week followed close by last week’s leader, the High Tech Portfolio. Year-to-date, the Baby Boomers Portfolio remains at the top of the performance list while the GLD-Free Gold Bug Portfolio remains by far the worst performer with double-digit losses.

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ETFdb Portfolio


1 Week


4 Week


13 Week


YTD


1 Year


3 Year


5 Year







Actively-Managed ETF Portfolio

0.75% 3.75% 4.38% 7.92% n/a n/a n/a

2012 ETFdb Portfolio

1.15% 5.98% 4.97% 9.82% 30.27% n/a n/a

AlphaDEX ETFdb Portfolio

0.69% 5.03% 3.78% 7.67% 22.99% n/a n/a

Alpha Seeker Portfolio 2.0

0.72% 3.72% 6.68% 11.24% 19.15% 35.95% n/a

Baby Boomers ETFdb Portfolio

0.70% 5.22% 11.02% 18.95% 33.44% n/a n/a

Ben Graham 50/50 Portfolio

0.14% 1.65% 4.19% 5.40% 15.69% n/a n/a

Better-Than-AGG Total Bond Market ETFdb Portfolio

-0.55% -0.76% -0.18% -0.84% 3.63% n/a n/a

Black Swan Hyperinflation Portfolio

-2.45% 1.54% -8.63% -7.13% 0.02% 9.03% n/a

Commodity Guru ETFdb Portfolio

-0.87% 2.30% -2.62% -0.08% 11.53% n/a n/a

Cheapskate Hedge Fund ETFdb Portfolio

0.66% 1.41% 0.67% 1.53% 1.32% n/a n/a

Energy Bull ETFdb Portfolio

0.66% 6.32% 1.27% 7.48% 17.53% 29.71% n/a

Equal Weight ETFdb Portfolio

0.42% 2.98% 4.16% 6.77% 14.95% n/a n/a

Financials Free ETFdb Portfolio

0.46% 2.93% 4.68% 6.78% 19.00% 40.53% 24.82%

Futures Free Commodity ETFdb Portfolio

-2.06% 2.57% -5.96% -4.90% 4.29% n/a n/a

GLD-Free Gold Bug ETFdb Portfolio

-8.70% -5.28% -23.49% -28.70% -22.74% n/a n/a

Greedy When Others Are Fearful ETFdb Portfolio

0.40% 2.48% 3.11% 5.48% n/a n/a n/a

High-Tax Bracket ETF Portfolio

0.84% 4.13% 4.81% 8.87% 18.14% 33.79% n/a

High Tech ETFdb Portfolio

1.99% 8.91% 8.19% 14.95% 22.42% n/a n/a

High Yield ETFdb Portfolio

0.69% 3.16% 6.11% 9.57% 23.49% 47.35% 35.35%

King Dollar ETFdb Portfolio

0.72% 3.62% 4.79% 6.60% 15.78% n/a n/a

Kitchen Sink ETFdb Portfolio

0.43% 3.44% 2.46% 5.16% 16.56% n/a n/a

Monthly Dividend ETFdb Portfolio

0.16% 1.83% 3.72% 8.09% 17.21% n/a n/a

Pure Growth ETFdb Portfolio

0.50% 4.95% 3.98% 7.68% 21.28% n/a n/a

Pure Value ETFdb Portfolio

1.03% 4.49% 5.23% 10.16% 29.85% n/a n/a

RAFI ETFdb Portfolio

1.34% 7.87% 6.41% 11.88% 31.57% 36.51% 22.45%

Simple (But Effective) Safe Haven ETFdb Portfolio

-1.02% 0.07% 0.76% 3.11% 11.93% 35.94% 28.05%

Small Cap ETFdb Portfolio

0.54% 4.28% 3.96% 8.23% 23.15% n/a n/a

The Sky Is Falling Portfolio

-0.74% -0.39% -2.14% -3.13% -1.54% 11.16% n/a

Socially Responsible ETFdb Portfolio

0.47% 3.19% 5.68% 8.55% 17.30% n/a n/a

Risk On ETFdb Portfolio

0.28% 4.73% 0.51% 6.72% 25.83% n/a n/a

Consumer Centric ETFdb Portfolio

1.70% 4.76% 7.26% 11.84% 23.13% n/a n/a

Agri-Bull ETFdb Portfolio

0.04% 3.25% 0.14% 1.16% 11.98% n/a n/a

8% Yield ETFdb Portfolio

-0.31% 2.26% 2.33% 5.92% 18.94% n/a n/a

Mining Boom ETFdb Portfolio

-4.65% -2.06% -15.25% -17.36% -7.72% n/a n/a

2013 ETFdb Portfolio

0.87% 5.14% 6.67% 12.86% 34.24% n/a n/a

As Of 05-17-2013


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Disclosure: No positions at time of writing.
Click here to read the original article on ETFdb.com.
Read more posts on ETF Database »
Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 16:00:22 CEST Yanni 27 http://www.vibescaster.com//etf-insider-bull-run-continues-short-trade-gets-stopped-out/ http://www.vibescaster.com//the-car-connections-best-used-car-finds-for-may-18-2013/
]]> Sat, 18 May 2013 16:00:19 CEST Billy_Jo_Wallace 14 http://www.vibescaster.com//the-car-connections-best-used-car-finds-for-may-18-2013/ http://www.vibescaster.com//democracy-damaged-by-english-focus/ Sat, 18 May 2013 16:00:07 CEST shoggoth 9 http://www.vibescaster.com//democracy-damaged-by-english-focus/ http://www.vibescaster.com//tory-co-chairman-denies-loon-slur/ Sat, 18 May 2013 16:00:06 CEST Ritchie_Coote 11 http://www.vibescaster.com//tory-co-chairman-denies-loon-slur/ http://www.vibescaster.com//lets-take-a-minute-to-review-the-failed-recession-calls-of-ecri-and-lakshman-achuthan/ Last year ECRI switched focus to their version of the Big Four Economic Indicators that I routinely track. But when those failed last summer to "roll over" collectively (as ECRI claimed was happening), the company published a new set of indicators to support their recession call in a commentary entitled The U.S. Business Cycle in the Context of the Yo-Yo Years (PDF format). Late last month the company added its most recent publically available commentary on their website: Nominal GDP Growth Falls Again.
Essentially ECRI is sticking to its call that a recession began in mid-2012, although the company calls it a "mild" recession, which is quite a shift from their original stance 19 months ago: "...if you think this is a bad economy, you haven't seen anything yet."
ECRI posts its proprietary indicators on a one-week delayed basis to the general public, but last year the company switched its focus to a version of the Big Four Economic Indicators I've been tracking for the past year. In recent months, however, those indicators have slipped below the fold, replaced by the mixed bag of whatever Indicator du Jour might look recessionary, as in the "Yo-Yo Years" commentary linked above. Likewise, see this March 7th Bloomberg video. At about the 2-minute point Achuthan reasserts his call that a recession began in the middle of 2012. In previous interviews he has specifically mentioned July as the business cycle peak, thus putting us in the tenth month of a recession.
Here is a chart of ECRI's data that illustrates why the company's published proprietary indicator has little credibility as a recession indicator. It's the smoothed year-over-year percent change since 2000 of their weekly leading index. I've highlighted the 2011 date of ECRI's recession call and the hypothetical July business cycle peak, which the company claims was the start of a recession.
 
Click for a larger image
 
Here are two significant developments since ECRI's publick recession call on September 30, 2011:

The S&P 500 is up 45.9%.
The unemployment rate has dropped from 9.0% to 7.5%.

Ultimately my opinion remains unchanged: The ECRI's credibility depends on major downward revisions to the key economic indicators -- especially the July annual revisions to GDP -- that will be sufficient to validate their early recession call. Of course, the July revisions will be quite controversial this year, with some major accounting changes and revisions in annual GDP back to 1929 (more here). So if we don't get the downward revisions to support ECRI, they can always question the accounting changes in the revision process.
A Closer Look at ECRI's Latest Recession Evidence
Their latest recession evidence is the YoY growth in nominal GDP, which they highlight in this chart.

ECRI is absolutely correct in their observation that "yoy nominal GDP growth at or below 3.7% has been seen only in recessionary contexts. In Q1 2013, it fell to 3.4%, the second straight quarter below 3.7%."
For further support of their point, here is a snapshot of YoY Nominal GDP as far back as quarterly GDP has been calculated by the Commerce Department.
 
Click for a larger image
 
However, some might argue that the use of nominal GDP for a YoY analysis is problematic, especially to those of us who had 12% mortgages during that era of stagflation against the backdrop of a Fed Funds rate in the upper teens. Doesn't YoY real GDP have more credibility? Not surprisingly ECRI doesn't chart the the real YoY series, which has a couple of recessions that started with a lower YoY number than the latest data point.
 
Click for a larger image
 
Actually, I think we could make a strong case for preferring the YoY behavior of real GDP per capita. After all, if we adjust for inflation, doesn't it also make sense to adjust this supreme economic indicator for population growth?
 
Click for a larger image
 
Oops! The current level of this version is higher than the onset of all recessions in this timeframe except for the second half of the early 1980s double-dip. This indicator would definitely not be of interest to ECRI.
ECRI's Recession Call Was a Bet Against the Fed
Let's briefly review the history of the ECRI recession call. ECRI adamantly denied that the sharp decline of their indicators in 2010 marked the beginning of a recession. But in 2011, when their proprietary indicators were at levels higher than 2010, they made their controversial recession call with stunning confidence bordering on arrogance:




Early last week [September 21, 2011], ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there's nothing that policy makers can do to head it off.... Here's what ECRI's recession call really says: if you think this is a bad economy, you haven't seen anything yet. And that has profound implications for both Main Street and Wall Street.  (source)




Ironically enough, on the same day ECRI forecast a recession, Chairman Bernanke announced a new policy, Operation Twist, which was followed by QE3 in September 2012 and unlimited easing (aka QE4) in December 2012.
Essentially ECRI claim that "there's nothing that policy makers can do to head it [a recession] off" was a bet against the Fed.
For a few months after ECRI's recession call, their proprietary indicators cooperated with their forecast, but that has not been the case since the second half of 2012 -- hence their switch to the traditional Big Four recession indicators. Now that those are less cooperative, ECRI is cherry picking other indicators and switching to year-over-year perspectives when the monthly trend isn't sloping downward.
 
For alternatives to ECRI's recession forecasting, see method developed by Anton and Georg Vrba:


iM's Weekly Business Cycle Index


See also Dwaine Van Vuuren's latest RecessionALERT indicator snapshot:


RecessionALERT Weekly Leading Index Update


 


Appendix: A Closer Look at the ECRI Index

Despite the increasing irrelevance of the ECRI's recession indicators in recent years, let's check them out. The first chart below shows the history of the Weekly Leading Index and highlights its current level.
 
Click for a larger image
 
For a better understanding of the relationship of the WLI level to recessions, the next chart shows the data series in terms of the percent off the previous peak. In other words, a new weekly high registers at 100%, with subsequent declines plotted accordingly.
 
Click for a larger image
 
As the chart above illustrates, only once has a recession occurred without the index level achieving a new high -- the two recessions, commonly referred to as a "double-dip," in the early 1980s. Our current level is 11.9% off the most recent high, which was set over five years ago in June 2007. We're now tied with the previously longest stretch between highs, which was from February 1973 to April 1978. But the index level rose steadily from the trough at the end of the 1973-1975 recession to reach its new high in 1978. The pattern in ECRI's indictor is quite different, and this has no doubt been a key factor in their business cycle analysis.
The WLIg Metric
The best known of ECRI's indexes is their growth calculation on the WLI. For a close look at this index in recent months, here's a snapshot of the data since 2000.
 
Click for a larger image
 
Now let's step back and examine the complete series available to the public, which dates from 1967. ECRI's WLIg metric has had a respectable record for forecasting recessions and rebounds therefrom. The next chart shows the correlation between the WLI, GDP and recessions.
 
Click for a larger image
 
The History of ECRI's Latest Recession Call
ECRI's weekly leading index has become a major focus and source of controversy ever since September 30, 2011, when ECRI publicly announced that the U.S. is tipping into a recession, a call the Institute had announced to its private clients on September 21st. Here is an excerpt from the announcement:




Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there's nothing that policy makers can do to head it off. ECRI's recession call isn't based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down — before the Arab Spring and Japanese earthquake — to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not "soft landings." (Read the report here.)




Year-over-Year Growth in the WLI
Triggered by another ECRI commentary, Why Our Recession Call Stands, I now include a snapshot of the year-over-year growth of the WLI rather than ECRI's previously favored method of calculating the WLIg series from the underlying WLI (see the endnote below). Specifically the chart immediately below is the year-over-year change in the 4-week moving average of the WLI. The red dots highlight the YoY value for the month when recessions began.
 
Click for a larger image
 
The WLI YoY, is off its interim high in early February. The latest reading is 4.9%, down from last week's 5.0%. However, this is higher than at the onset of all recessions in the chart timeframe. The second half of the early 1980s double dip, which was to some extent an engineered recession to break the back of inflation, is a conspicuous outlier in this series, and it started at a lower WLI YoY of 4.1%.
Additional Sources for Recession Forecasts
Dwaine van Vuuren, CEO of RecessionAlert.com, and his collaborators, including Georg Vrba and Franz Lischka, have developed a powerful recession forecasting methodology that shows promise of making forecasts with fewer false positives, which I take to include excessively long lead times, such as ECRI's September 2011 recession call.
Here is today's update of Georg Vrba's analysis, which is explained in more detail in this article.
 
Click for a larger image
 
Earlier Video Chronology of ECRI's Recession Call


September 30, 2011: Recession Is "Inescapable" (link)
September 30, 2011: Tipping into a New Recession (link)
February 24, 2012: GDP Data Signals U.S. Recession (link)
May 9, 2012: Renewed U.S. Recession Call (link)
July 10, 2012: "We're in Recession Already" (link)
September 13, 2012: "U.S. Economy Is in a Recession" (link)


 

Note: How to Calculate the Growth series from the Weekly Leading Index
ECRI's weekly Excel spreadsheet includes the WLI and the Growth series, but the latter is a series of values without the underlying calculations. After a collaborative effort by Franz Lischka, Georg Vrba, Dwaine van Vuuren and Kishor Bhatia to model the calculation, Georg discovered the actual formula in a 1999 article published by Anirvan Banerji, the Chief Research Officer at ECRI: The three Ps: simple tools for monitoring economic cycles - pronounced, pervasive and persistent economic indicators.
Here is the formula:
"MA1" = 4 week moving average of the WLI "MA2" = moving average of MA1 over the preceding 52 weeks "n"= 52/26.5 "m"= 100 WLIg = [m*(MA1/MA2)^n] – m
Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 14:00:13 CEST Delmont_Duprey 13 http://www.vibescaster.com//lets-take-a-minute-to-review-the-failed-recession-calls-of-ecri-and-lakshman-achuthan/ http://www.vibescaster.com//the-economy-continues-to-send-a-ton-of-bearish-signals/ Simply put, household debt averaged 77% of disposable personal income (DPI) over the 61-year period since 1952. It crossed over the average line in 1985 and took a sharp upward turn in 2000, eventually peaking at 130% of DPI in 2007. Since that time, consumers have reduced their debt to a level that is now 105% of DPI, still significantly higher than in the past. The result has been a significant slowdown and tepid recovery in consumer spending growth, a process that is far from finished.
The role of household savings is a key element in analyzing both debt and spending. For 41 years between 1951 and 1992 household savings rates as a percent of disposable income were consistently between 7% and 11%. However, as income growth started to slow down, consumers increasingly maintained their old spending habits by going into more debt and reducing their savings rate. This reached an extreme during the prior decade, when the savings rate stayed below 2% from 2005 through 2007, while debt soared. We all know how that ended.
No matter what you hear from the politicians, the media and “the street”, keep in mind that the combination of the household debt, low savings rates and tepid increases in income has been the reason for the deep recession and subsequent below average growth, and will continue to be the reason why economic growth will likely be slow for some time to come.
In the last two years, between the 1st quarter of 2011 and the first quarter of 2013, real consumer spending has increased by a meager 3.8%----and this was accomplished on an increase of only 1.1% in real disposable income as households reduced their saving rate from 5.1% to 2.6%. It therefore should not have been a surprise that spending looked so weak in March, and it should be no surprise when spending remains subdued in the period ahead. With consumer spending accounting for about 70% of GDP, it is easy to see why this puts a damper on the rest of the economy, particularly in a time of fiscal drag. The Fed is undoubtedly well aware of the outlook as they continue their attempt to try and offset, at least in part, the major headwinds elsewhere in the economy.
None of the above analysis depends on the Rogoff-Reinhart (RR) research, some of which was recently found to be erroneous. First, RR emphasizes mostly government rather than consumer debt. Second, they maintain that when the government debt-to-GDP ratio crosses 90%, economic growth slows down. The idea that there was some specific threshold of government debt-to-GDP that led to slower growth was probably not valid in the first place. In any event, we think that for the near-to-intermediate term, it is the still-high level of household debt that is the key drag on the economy.
As we headed into the spring there was evidence that the already lackluster economy was slowing down even further.  Although the payroll employment report for April touched off a euphoric rise in stocks, the headline belied the underlying trend. While that was a positive surprise over the expected rise of 140,000 jobs, the reported increase of 165,000 for the month was nothing to write home about. It was well below the 1st quarter average of 206,000 per month as well as the 4th quarter average of 209,000. If anything, it looks as if employment increases are decelerating, certainly not a reason for celebration.
In addition to the mediocre employment report there was a lot of other evidence that an already lackluster economy was slowing down further as we headed into the spring. The ISM manufacturing index fell for two consecutive months to its lowest level since December. The ISM non-manufacturing index also declined for two straight months and is now below its 1st quarter average. April vehicle sales slipped to under 15 million units for the first time since October. First quarter GDP grew at a disappointing 2.5% following only 0.3% in the prior quarter. Average GDP growth for the last four quarters has averaged only 1.8%. Real consumer spending has increased only 2% over the past year, and this was accomplished on an exceedingly weak 0.9% rise in real disposable income over the period. Only a sharp drop in the savings rate enabled consumers to reach even that disappointing level.
Furthermore, March core capital goods orders were up only 0.2% following a 4.8% decline in February. The year-over-year gain was 0.3%. The NAHB housing market index for May increased for the first time in four months and remains below the December/January peak. April housing starts dropped to the lowest level since November.  Although the NFIB Small Business Index rose in April, it is only five points above its lowest level for the past year and two points lower than a year earlier.  The index remains lower than at any point prior to 2008. Manufacturing production has declined for the last two months and three of the last four.  The Philadelphia Fed survey fell to minus 5.2, its lowest since February, and showed negative results for new orders, shipments and employment. All in all, despite the optimistic views of the economic pundits, the facts show otherwise.
As for foreign economies, the IMF once again reduced its 2013 global and EU growth forecasts and China reported disappointing results for 1st quarter GDP and exports. This has resulted in a significant drop in commodity prices that is having adverse effects on a number of commodity-oriented emerging and advanced economies.
Although the Fed, so far, has been able to lift stock prices, it has failed to elevate the economy to a point where growth is self-sustaining despite over four years of extremely easy monetary policy. The headwinds from fiscal policy will actually intensify in the months ahead while Washington shows few signs of alleviating the dysfunction that has plagued Congress for the last few years. 
It is also noteworthy that the market is losing the important boost it has received from rapidly rising earnings.  Over the last four quarters earnings are up only 0.4% from the four prior quarters.  Given sluggish U.S. and global economic growth, we think that current estimates of 22% second half earnings growth are highly unrealistic.   Furthermore, the S&P 500 is now selling at 20 times cyclically-smoothed trailing GAAP earnings, at the very high end of the zone that was considered normal prior to the serial bubbles of the last decade and a half.
All in all, we believe that economic growth and corporate earnings will be highly disappointing in coming quarters and that investors will drop the pretense that the Fed can fix everything that ails the economy. Although Bernanke, himself, has been virtually begging for help from fiscal policy, it does not seem likely that he will get it anytime soon.  In our view, the risk of a substantial decline in the market outweighs the limited rewards from current levels.
Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 13:00:12 CEST Extra_Arm 18 http://www.vibescaster.com//the-economy-continues-to-send-a-ton-of-bearish-signals/ http://www.vibescaster.com//incredibly-bullish-trends-have-turned-the-stock-market-into-a-gamblers-paradise/ That's the promise of today's stock market, which has been experiencing an aberrantly high percentage of up days all year. Toss your money into the market and on any given day, you're much likelier to make money than not.
So far, May 2013 has been a gambler's paradise, in which a whopping 76.9% of the trading days for the S&P 500 have been up:

The chart below shows just how far 2013's up day percentage exceeds previous years:

 
Of course, none of this boondoggle is merited by the underlying fundamentals, which clearly are not good.
But if you're one of the top 10% of Americans that owns 81.2% of all stock market wealth, send a bottle of Bollinger to Ben and his buddies at the Federal Reserve as thanks for keeping the punch bowl so nicely spiked:

(Source)
However, if you're one of the 9% of Americans who actually understands the concepts of "reversion to the mean" and "overshoot", you may want to run -- not walk -- to cash in any chips you may still have on the table. But if you have to keep money in the stock market, be sure to work with a prudent financial adviser that prioritizes risk management and is skeptical of today's easy winnings.
Like all good benders, this is going to end with one heck of a hangover...
Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 13:00:11 CEST Draco_Von_Hagen 19 http://www.vibescaster.com//incredibly-bullish-trends-have-turned-the-stock-market-into-a-gamblers-paradise/ http://www.vibescaster.com//video-nhs-falling-into-chaos-and-crisis/ Sat, 18 May 2013 13:00:06 CEST Bongo_Levi 21 http://www.vibescaster.com//video-nhs-falling-into-chaos-and-crisis/ http://www.vibescaster.com//protest-rally-over-school-shake-up/ Sat, 18 May 2013 11:00:05 CEST Extra_Arm 18 http://www.vibescaster.com//protest-rally-over-school-shake-up/ http://www.vibescaster.com//4-reasons-to-still-hold-high-yield/ As a number of market watchers have pointed out recently, high yield doesn’t look so junky anymore.
High yield spreads are historically tight, at levels not seen since the fall of 2007 as the chart below shows, meaning there’s currently a much smaller difference in yield between a high yield bond and a comparable Treasury. At the same time, some high yield prices have reached all-time highs. In other words, investors aren’t being rewarded that much for holding high yield, traditionally viewed as a risky asset class.

The chart above shows the Barclays US Corporate High Yield Average OAS through 3/13/2013. OAS stands for Option-Adjusted Spread, or the amount by which a bond’s yield exceeds the yield of a similar duration Treasury when accounting for any optionality embedded in the bond [check out the Better Than AGG Total Bond Market ETFdb Portfolio].
Does this mean it’s time for investors to abandon high yield? I continue to believe investors should have an allocation to high yield for four reasons:
1.) High yield companies aren’t so junky anymore. Today’s tight high yield spreads are justified given high yield companies’ historically low default rates, which are thanks to an improving US economy, ample liquidity and very strong corporate balance sheets.
2.) All bonds look expensive today. Absolute yields are close to record lows across the fixed income space as a result of continued bond buying by central banks around the world, from the Federal Reserve to the Bank of Japan. But while high yield appears fully priced, it still provides reasonable compensation — versus other fixed income alternatives — over the long term.
3.) High yield has few alternatives. For yield hungry investors, there are few alternatives to high yield considering today’s record low Treasury and sovereign yields [also see Are High Yield Corporate Bonds Worth The Risk].
4.) High yield isn’t as volatile as it used to be. While the bonds’ yields have fallen in recent years, their volatility has also dropped. In fact, the volatility of a high yield bond is roughly half of what it was last summer.
To be sure, the asset class is not without its risks. These include higher default rates than traditionally safer fixed income classes, a potential reduction in liquidity when the Fed begins to wind down its asset purchase program, and potential sensitivity to rising interest rates. Also, if the economy turns south, high yield will likely be hurt more than other fixed income sectors.
As such, high yield is not for everyone. For speculative grade exposure that may help to insulate a portfolio in the event that rates continue to rise, I prefer floating-rate notes and bank loans over high yield. In addition, while high yield should be a key holding for more aggressive investors, I advocate that risk-adverse investors hold relatively small allocations. One way to access high yield is the iShares High Yield Corporate Bond Fund (HYG, A-).
The author is long HYG
[For more ETF analysis, make sure to sign up for our free ETF newsletter]
Source: BlackRock, Bloomberg
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog. You can find more of his posts here.
Bonds and bond funds will decrease in value as interest rates rise and are subject to credit risk, which refers to the possibility that the debt issuers may not be able to make principal and interest payments or may have their debt downgraded by ratings agencies. High yield securities may be more volatile, be subject to greater levels of credit or default risk, and may be less liquid and more difficult to sell at an advantageous time or price to value than higher-rated securities of similar maturity.
 
Click here to read the original article on ETFdb.com.
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Please follow Money Game on Twitter and Facebook.Join the conversation about this story » ]]> Sat, 18 May 2013 06:00:16 CEST john_romero 18 http://www.vibescaster.com//4-reasons-to-still-hold-high-yield/ http://www.vibescaster.com//2014-ford-mustang/
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