Posted by Gregg Killoren on December 30, 2009
The S&P/Case-Shiller 20-city home-price index, a gauge of U.S. home prices, rose a seasonally adjusted 0.4 percent in October from September. But it was flat on an unadjusted basis as the monthly gains seen earlier in the year faded. On a year-over-year basis, the index declined 7.3 percent. For the 19th straight month, no area in the 20-city index posted a year-over-year price gain.
It appears that housing is still in a process of bottoming, without necessarily having bottomed yet. Moreover, if not for demand spurred by the first-time homebuyer tax credit, would prices be much lower? Just seven of the 20 areas saw monthly price gains in October. Phoenix posted the largest gain at 1.3 percent, followed by San Francisco at 1.2 percent. Tampa fared the worst with a 1.6 percent drop.
To view statistics on the 20 areas with additional charts, please click on the “Housing Statistics” page on the menu bar above.
Posted in Economy, Housing, Indicators | Tagged: Economy, Housing Prices, S&P 500 Case-Shiller Home Price Index | Leave a Comment »
Posted by Gregg Killoren on December 29, 2009
Mark Kiesel, head of corporate-bond investment at Pacific Investment Management Co. (PIMCO), said corporate bonds, particularly specific financial-sector bonds, likely will top Treasuries in 2010. After falling in late 2008, corporate bonds have rallied this year. However, Kiesel cautioned that risks remain.
In a note to investors on Dec. 28, 2009, Kiesel did not recommend any specific companies’ bonds, but pointed out overall financial sector strengths like healthier balance sheets, the increase in loss-absorbing common equity and regulatory efforts to help cushion balance sheets and protect bondholders from asset-quality deterioration.
Kiesel cited the following risks to the financial sector in 2010: a weak economy or double-dip recession that would hurt both residential and commercial real-estate prices, pulling banks’ asset quality down with it; the Federal Reserve opting to raise the benchmark federal-funds rate, which would hurt banks’ profitability; and financial reform regulation and legislation that could hurt banks’ investments or force them to raise more capital, which would lower shareholder returns.
While investment grade bonds should provide decent returns and a safe haven in 2010, investors are still quite interested in high-yield debt, according to a Bloomberg report. Investors are indicating that they prefer high-yield, high-risk debt to investment-grade bonds, prompting corporate borrowers to sell at least $1.36 billion in bonds. “The perception, now that we’re exiting this recession, is the default risk for some of the issuers drops,” said Malcolm Polley, chief investment officer at Stewart Capital Advisors. “People are looking for yield pretty much regardless of what the risk involved is.”
Investors looking for a relatively easy way to allocate assets toward investment grade or high-yield bonds may consider exchange traded funds. Two examples are iShares IBoxx Investment Grade Corporate Bonds (symbol: LQD) and iShares IBoxx High Yield Corporate Bonds (HYG).
Posted in Corporate Bonds, Fixed-Income, Investing, Personal Finance | Tagged: Corporate Bonds, Fixed-Income, Investing, Personal Finance | Leave a Comment »
Posted by Gregg Killoren on December 28, 2009
Members of the Securities Industry and Financial Markets Association’s (SIFMA’s) Economic Advisory Roundtable predicted that U.S. gross domestic product would grow 2.8 percent year-over-year in 2010. The forecast is consistent with other economist’s views that the U.S. economy will recover, but at an anemic pace. SIFMA noted that even though the economy will improve next year, the recovery will not feel as strong as a typical post-recession rebound because unemployment will remain elevated. The panel forecast that, on average, the unemployment rate will be 10.1 percent in 2010.
Consumer spending is expected to recover somewhat to a growth rate of 2.0 percent. U.S. households will likely continue to focus on reducing debt and the high unemployment rate will keep a lid on consumer sentiment and spending. Business capital expenditures are expected to decline once again in 2010, though at a much milder pace of -0.3 percent. The drop in business capital investment in 2009 is expected to be near 18.0 percent.
Slow growth and muted spending are expected to hold inflation in check in 2010. SIFMA’s forecast calls for a “headline” inflation rate of 1.8 percent, and a “core” (ex-food and energy) inflation rate of 1.2 percent. Interestingly, respondents were nearly unanimous in their opinion that the Federal Reserve’s expanded balance sheet did not pose a near-term inflationary risk. When asked to rank possible steps the Federal Reserve would take to reverse course, respondents cited reverse repos, with test operations totaling $1 billion as of Dec. 14, 2090, as the most likely first step by 80 percent of respondents. Other possible actions frequently mentioned by respondents were paying interest on reserves, directly selling assets back to the market or using a collateralized vehicle.
The Roundtable also forecast the S&P 500 to finish 2010 at 1225, which is very consistent with many market analysts’ predictions. That would be about a 10 percent premium over the current level. However, the market always has a way of defying the consensus.
To view SIFMA’s report, please click on the following link: SIFMA Year End 2009 Economic Outlook.
Posted in Economy | Tagged: Economy, Securities Industry and Financial Markets Association, SIFMA | Leave a Comment »
Investment Assets Flow to Emerging Market Funds – Are They Now Overbought?
Posted by Gregg Killoren on December 31, 2009
A record amount of investment money flowed into emerging market equity funds in 2009. Due to extremely low interest rates, investors seeking significant returns on their money have gravitated toward countries that should provide higher growth rates as the world recovers from the financial crisis and recession.
Emerging equity fund inflows surged to $80.3 billion in 2009, according to research group EPFR Global. That was the highest influx since EPFR started tracking the data in 1997 and compared with $49.5bn of outflows in 2008.
The strategy, so far, has paid off well. The FTSE All-World Emerging Markets Index has risen 75 percent since January 1, 2009, far outpacing the 28 percent gain reaped by the FTSE All-World Developed Index. Analysts said emerging markets were valued at about 20 times their trailing 12-month earnings, compared with about 7.9 times during March lows. The world’s four biggest emerging market economies, Brazil, Russia, India and China (known as the BRIC countries) accounted for the bulk of this year’s investor interest, with about $60 billion of these inflows.
However, with emerging markets trading at relatively high P/E ratios, and the economic recovery in the U.S. facing uncertainty and many challenges, a return to risk aversion in 2010 is not out of the question. Such a change in sentiment will almost surely cause a vast sell-off in risky assets such as emerging markets. Thus, we recommend investors to keep tight stop losses on emerging market funds to protect gains, and we also would not recommend adding to any positions in this area. Rather, for international exposure, we recommend looking toward developed countries that have been beaten down and have not yet attracted significant investment – one example is Japan.
Posted in Economy, Investing, Market Commentary | Tagged: Economy, Emerging Markets, Investing, Japan, Market Commentary | Leave a Comment »