Can’t decide where to invest? Neither can the pros

If you are agonizing over where to invest your money, you aren’t alone. An investment conference finds the pros divided.

 

By: Gail MarksJarvis Chicago Tribune, Published on Sun Jun 29 2014

If you are agonizing over where to invest your money, you aren’t alone.

The pros are there with you —nervous about stocks and bonds as clear opportunities become fuzzy in both. As the best and brightest fund managers talked at Morningstar’s three-day conference in Chicago last week, they repeatedly expressed reservations.

They see Treasury bonds vulnerable to the inevitable climb of interest rates, and corporate and high-yield bonds paying so little interest that there isn’t enough insulation to protect investors if the economy suddenly weakens or if investors get cold feet. After the unrelenting climb of stocks since 2009, the pros see a stock market so pricey that stocks appear vulnerable to any bad news for the economy or companies.

But the difference between you and professionals who run mutual funds is that fund managers are hired to do something with clients’ money, no matter what. While sitting on cash rather than stocks or bonds might provide security in an iffy environment, cash earns no interest, thanks to monetary policies designed to get people to choose riskier options. Even though many pros say they are flummoxed by a market in which everything from stocks and bonds to currencies and commodities have all become pricey because of the trillions of dollars’ worth of stimulus poured into the markets by the Federal Reserve and counterparts in Europe and Japan, fund managers are doing what they think they must: deploying money where they can make a case for satisfactory results even though they expect high prices to hold back future gains.

They are emboldened by the fact that prices are high —but not outrageously high.

Related: Why the Bank of Canada has an interest rate dilemma

After all, even though pros have worried about bonds and expensive stocks for months, the Standard & Poor’s 500 stock market index has managed to bestow gains of 5.5 percent this year while bonds haven’t incurred losses. There hasn’t even been a correction (a short-term downturn of 10 percent in the stock market) for 32 months. Such a long stretch without a sizable dip in the markets has happened only four other times, according to David Rosenberg an economist with Gluskin Sheff in Toronto.

Considering the high prices of stocks, some fund managers who specialize in stocks also are holding substantially more cash than usual. Even those scouring the world for investments are having difficulty finding stocks cheap enough to buy.

Dennis Stattman, who heads BlackRock’s asset allocation team, said stocks of large Japanese companies that sell to the world are significantly cheaper than U.S. companies.

European stocks have climbed significantly simply because the “European Central Bank took off the table the fear of banks failing,” Stattman said.

Meanwhile, Michael Hasenstab, chief investment officer for Franklin Templeton global bonds, says two of his favorite markets for bonds have been Poland and Hungary, and he’s comforted that the continuation of stimulus from the U.S. Federal Reserve and counterparts in Europe, Japan and China will power many emerging markets.

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune.

The chase by Frances Horodelski:

The week is a quirky one 
The chase by Frances Horodelski:

Today is the 181st day of the year. There are 184 days left in 2014 – make the best of it.

The week is a quirky one with the Canadian markets closed tomorrow and U.S. markets closedon Friday (with an early close on Thursday). Trading will likely be quiet however there are two big events – the ECB and U.S. jobs reports both on Thursday. Today we have Canadian April GDP as well as a number of U.S. data points including Chicago Purchasing Managers index and pending home sales.

My weekend reading brought the word ‘recession’ to mind. There were a couple of reasons. First, there is a table floating through the internet that ranks the worst quarterly U.S. GDPprints in history and notes that every last one of them were associated with a recession. The first quarter of 2014 is the 17th worst in that history. Second, Zacks Research highlights thatnegative growth doesn’t necessarily mean negative stock market moves. Third, when the first look at the Q1 GDP came out in April, I remember hearing the bulls says “yea, it was weak, but look at consumer spending, it was strong as Americans spent on energy and healthcare…..” Well, in the most recent quarterly numbers, healthcare went from a contributor to GDP to a drop of more than 6%. What! Finally, right now using Google trends, I note that the word recession is hardly spoken at all (the word stagflation is at the bottom too). Be careful out there.

On this quasi-Canadian holiday, things of note include: 1) A Reuters story highlighting M&A running at a seven-year high. The analysis shows $1.7 trillion in deals globally on a year to date basis (Bloomberg calculation puts it at $1.58 trillion). 2) The Globe & Mail is reporting that media companies disagree with each other “over consumer choice and support for local programming” as the CRTC is gathering information and views under its “Let’s Talk TV” initiative. Hearings are scheduled for September. For reference, based on 2013 results, media represents 11.5%, 13.3% and 21.1%, respectively for BCE, Rogers and Shaw Communications. 3) As Scotland winds down into the September vote on independence, there is a report that Scotland has 80.3 trillion cubic feet of gas and 6 billion barrels of oil. Right now, polls show those in favour of independence are running at 37%, undecided 12%. 4) A technical comment from a recent bear (Richard Ross at Auerbach Grayson) notes that the Dow’s 1.7% year to date performance is in sharp contrast to +10.47% and 16.5%, respectively for the transports and utilities.

In other items, U.S. Steel is being removed from the S&P 500, effective July 1, to be replaced by Martin Marietta. Quarterly expectations for second quarter earnings (and the second quarter starts tomorrow) are being reduced at the slowest pace since Q1 2011. Analysts have cut expectations by only 1.5% on average – are they more realistic or too optimistic? We’ll see when things begin on July 8th when Alcoa releases results. Corporate preannouncements are also running at lower levels with the Q2 ratio of negative to positive outlooks currently running at 4.17 versus 6.88 in Q1 and 6.13 in Q2 2013.

Finally, in the news is GM Toronto dealers suing General Motors for lack of financial help from the car dealer; Kenneth Feinberg will be laying out compensation details for victims of the faulty ignition switch at 10 am ET. On BNN we’ll be looking at M&A, oil, second half opportunities, high flying with consumer drones, anti-spam and our regular update on the C-suite survey.

Enjoy.

www.bnn.ca

Tuesdays Selloff-What Happened?

Portfolio managers are hungry for bonds, apparently. Yesterday’s sell-off in equity markets attributed, to among other things, a desire to rebalance towards bonds after stocks have handily outperformed in the quarter according to traders citing a Goldman Sachs report. GS estimates $7.7 billion worth of equities were for sale (maybe as high as $12 billion) with the proceeds shifting to bonds. Or maybe it was the Ukrainian helicopter that was shot down in the eastern part of the country by rebels. Or the Syrians coming over the Iraqi border. Or – Charles Plosser in a speech saying the Fed should raise rates next quarter! Or – just taking a little off the table – especially in the energy space. We’ll see what the follow-through is today.

Cash is King. In a recent report from Factset, after reviewing all the Q1 data for S&P 500 companies they note that cash stood at $1.34 trillion or up 6.6% year over year. However, because Verizon purchased Verizon Wireless in the quarter – cash fell 4.7% quarter to quarter, the first quarterly drop since Q2 2012. Two other items of note from the report. Capital expenditures rose 6.2% after a miserable 1.5% over the past four quarters. Free cash flow rose 9% and distributions to shareholders (dividends and buybacks) rose 46%. A potential caution – debt issuance rose for the 15th straight quarter – running at the second-highest quarterly level. Most cash is held by IT companies, and Microsoft is right at the top of the list of all companies with $88.4 billion in cash and investments. Apple dropped to No. 5 with $41.35 billion.

www.bnn.ca

Retailers To Be Replaced By Online Sellers- Days Numbered?

Your days are numbered, top online entrepreneur tells retailers

June 20, 2014 3:41am

PARIS - The founder of Rocket Internet, the German venture capital company behind dozens of online start-ups, warned the retail industry on Thursday that e-commerce and smartphones would mean there will be little future for stores in emerging markets.

Oliver Samwer, 40, told the annual summit of the Consumer Goods Forum (CGF), an industry network of some 400 retailers and big brands from 70 countries, that many of them risked being left behind as the growth of e-commerce accelerates.

 

"You only have stores because there was no Internet, but that does not mean there is a right to have a store," Samwer said, adding that traditional retailers focused too much on older shoppers and not enough on smartphone-savvy youngsters.

 

"What you fear will come much faster," he warned.

 

Rocket Internet is bidding to create the largest internet empire outside the United States and China, seeking to replicate the success of Amazon and Alibaba in markets the U.S. and Chinese e-commerce groups have yet to dominate, such as Africa, Latin America and Russia.

 

After his speech, Samwer traded blows about whether stores will survive, in a panel discussion with Mark Price, managing director of British grocer Waitrose, who introduced himself to Samwer saying: "Hi - I'm Mark, I'm a dinosaur."

 

Samwer founded Rocket Internet in 2007 with his brothers Marc and Alexander and it is already active in 102 countries, making revenue of $1 billion in 2013 via online fashion stores including Dafiti in Latin America and Lamoda in Russia, as well as Jumia for general merchandise in Africa.

 

Sources have told Reuters the company is considering a stock market listing in Frankfurt later this year which could value it at up to 5 billion euros ($6.8 billion), as buoyant capital markets have encouraged a flurry of e-commerce flotations this year, with most focus on Alibaba.

 

Samwer said the stock market value of Amazon and Alibaba would soon dwarf the world's biggest retailer Wal-Mart.

 

"What would you buy for your children? I would buy Amazon and Rocket (shares)," he said, adding he believed French retailer Carrefour would have been better off buying a stake in Alibaba than trying to open stores in China.

 

ONLY 10 PERCENT LEFT OFFLINE?

 

Noting that 75 percent of the world's population lives in the markets Rocket is targeting, Samwer said e-commerce had even better prospects in emerging markets than in developed economies, as online sites do not have to compete with such established stores.

 

"If you don't have to share with offline, your percentage will be much higher," he said. "It will all move online, you will have 10 percent left that will not move online."

 

Samwer said Rocket Internet ventures around the world already had 44 million fans on Facebook, more than Nike and Apple combined, noting that the cities with the most active users of Facebook are Bangkok, Jakarta and Istanbul, with none of the top 10 cities in the United States.

 

Deutsche Post, the world's largest postal and logistics company which is profiting from booming deliveries for online retailers, predicts e-commerce could account for up to 40 percent of total trade by 2025 in developed countries, from under 10 percent in most markets now, and up to 30 percent in emerging markets, up from a tiny fraction today.

 

The Samwers have raised hundreds of millions of dollars of funding for Rocket Internet and its ventures, including from Swedish investor AB Kinnevik, billionaire American industrialist Leonard Blavatnik, JP Morgan Asset Management and retailers like Tesco and Germany's Tengelmann and Rewe.

 

Before founding Rocket, the Samwers had success with German online auction site Alando, which they sold to eBay and mobile phone content provider Jamba which they sold to VeriSign .

 

Rocket Internet also helped launch Zalando, Europe's biggest online fashion retailer, which is considering its own stock market listing. Rocket is no longer invested in Zalando, but the Samwer brothers' European Founders Fund still owns 18 percent. ($1 = 0.7368 Euros)  — Reuters