INVESTMENT FOCUS-Stocks may be running out of steam
by Thomson Reuters
By Natsuko Waki
LONDON, Nov 15 (Reuters) - Global stocks may be running out of room to rally further after a bumper year as the fragile economic recovery and the prospect of a cut in the Federal Reserve's bond buying discourage big investors.
Equities are the best performing asset so far in 2013, with the benchmark MSCI world equity index rising 17 percent since January. Wall Street and some European indexes have been hitting record highs on a daily basis.
This year's rally is unique because it has been mainly driven by mutual funds and retail investors. They have been able to sustain inflows by reinvesting their income, as cash-rich corporates not confident enough to expand their businesses increase dividends and buy back shares to reward shareholders.
In contrast, institutional investors - who collectively manage $56 trillion, or 70 percent of global investment assets - have yet to fully embrace this year's "Great Rotation" move into equities out of bonds.
Fund managers surveyed by Bank of America Merrill Lynch had a relatively high 4.6 percent of their portfolios in cash this month, while the number of investors saying equities are expensive hit its highest level since January 2002.
Data from JP Morgan shows pension funds and insurers in the United States, Japan, Europe and Britain have actually bought $230 billion of bonds in the first half of this year and sold $20 billion of equities.
"Right now we're sitting in our overweight equity positions. We wouldn't buy more. In the short-term the market will be sensitive to all the tapering questions concerning the Fed," said Benjamin Melman, head of asset allocation at Edmond de Rothschild Asset Management in Paris.
"If you look at valuations, there's a far less room for manoeuvre compared with what we had previously. We probably won't see the same kind of performance on equities next year."
The ratio of equity prices to expected earnings over the next 12 months for the S&P 500 index is currently 14.8 - the highest since 2010 and above its long-term average of 13.9.
The same measure for STOXX Europe 600, at 13.3 percent, is at a four-year peak and notably above its average Of 12.0.
So far this year, global equity funds have drawn $229 billion of inflows or 3.7 percent of total assets under management (AUM), with Europe attracting inflows for 20 consecutive weeks, according to BofA data to November 13.
Bonds drew just $15 billion, or 0.5 percent of AUM, while money market funds had $95 billion of outflows, equivalent to 2.9 percent of AUM.
Respondents to the BofA survey said G7 bank lending growth and Chinese and Asian growth are the missing catalysts for further gains.
"Investors want to be involved in stocks but they are not fully invested," BofA's European investment strategist Manish Kabra said. "What will turn reluctant bulls into raging bulls? We need to see more bank lending growth in the G7."
Bank lending in the United States and Japan is accelerating, but European banks are still shrinking their balance sheets and cutting back on loans.
There is also a long-term incentive for institutional investors to avoid equities because of regulatory changes that require funds to take on extra capital when they increase holdings of risk assets.
"There's more regulatory burden to hold equities for institutions," Rothschild's Melman said.
Renewed discussion about when the Fed will start to scale back its monetary stimulus could prompt selling of equities as it would lead to higher U.S. Treasury yields.
Comments this week by next Fed chief Janet Yellen making plain she would keep the U.S. central bank's easy monetary policy until a job-creating economic recovery was in place have pushed stocks back towards five-year highs.
A string of U.S. data pointing to a stronger recovery had recently prompted markets to revise their expectations of when the Fed will begin to taper to early as December from March.
Societe Generale says U.S. stocks will come under pressure if the equity risk premium - the excess return that investors require to hold stocks over risk-free bonds - normalises to its long-term average of 3.9 percent from the current 4.6 percent and bond yields to rise to 3.9 percent by end-2014.
"Rising bond yields during period of economic recovery are not necessarily bad for equities," SG said in a note to clients.
"However, at a time when earnings momentum remains weak and the consensus earnings growth estimate is expected to moderate, rising bond yields could be a catalyst for a U.S. equity market correction."
K=Thousands, M=Millions, B=Billions, TTM=Trailing 12 Month, MRQ=Most Recent Quarter, FYR=Fiscal Year End, NM=Not Meaningful, NA=Not Available
As if the bitcoin craze isn't enough-
"But in order to present readers with a sense of where TWTR's $40 billion market cap, which is greater than 403, or 80%, of all S&P 500 companies, puts in in the context of several companies all of which have a market cap that is lower than Twitter's, we have shown on the chart below Twitter's 2014 projected Revenue compared to this same universe of immediately smaller S&P500 companies. Again, just for the sake of perspective. " Twitter Now Has A Larger Market Capitalization Than 80% Of All S&P 500 Companies | Zero Hedge
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).
The economy gained a meager 74,000 jobs last month, the weakest result since early 2011, according to government data released Friday morning.
Also not good: The participation rate in the labor force declined one-fifth of a percentage point to 62.8% in December, matching October’s level, which was the lowest since 1978.
The participation rate is a broad gauge of the labor-market health, showing the workforce’s share of the civilian noninstitutional population. Falling rates means that people are increasingly less likely be in the labor force — not a great sign of economic strength or confidence.
As you may konw I have the 31 Dac 1850 high as the all-time high in the house of cards.
This wil be far far worse than 1929 - but what do the rich f--ks of the Fed care?
Though the thieves will stage dramatic counter rallies... they cannot but the finger in the dike
GSOA (god save our a__es)
Asian stocks tumbled, extending a global selloff, with Japanese and Hong Kong shares dragging the regional index toward its lowest close in five months. Copper headed for its longest run of losses in almost 28 years and Asian bond risk rose.
The MSCI Asia Pacific Index lost 2.2 percent by 11:42 a.m. in Tokyo, the most since June. Japan’s Topix index plunged toward a correction and the Hang Seng Index slid 2.3 percent in Hong Kong. Standard & Poor’s 500 Index (SPX) futures rose 0.4 percent after the gauge sank the most since June in New York. Asian credit risk rose to the highest in five months, with Japanese and Australian government bond yields dropping. Copper fell as much as 0.3 percent in London, a 10th straight decline.
U.S. factory-orders data today will add to evidence of a slowdown in manufacturing in the world’s two largest economies, according to economists surveyed by Bloomberg. About $2.9 trillion has been wiped from global equities this year as slower Chinese growth, cuts to U.S. stimulus and unrest in emerging markets from Thailand to Ukraine spook investors. Australia’s central bank reviews interest rates today.
“Investors should steer clear of risk assets over the short term as the turmoil does not look like it will be over anytime soon,” Mitul Kotecha, head of global markets research for Asia at Credit Agricole CIB wrote in an e-mailed note today. “A combination of tapering, a confluence of country-specific emerging-market country concerns and weaker growth in China provide the backdrop for a volatile few weeks.”
----------- Asian Stocks Extend Rout With Copper as Credit Risk Rises - Bloomberg
Schiff: 2/3 of America to Lose
Everything Because of This Crisis
By MONEY MORNING STAFF REPORTS
A record breaking stock market is distorting a frightening reality: The U.S. is being eaten alive by a horrific cancer that will ultimately destroy the economy and impoverish the vast majority of its citizens.
That's according to Peter Schiff, the best-selling author and CEO of Euro Pacific Capital, who delivered his harsh warning to investors in a recent interview on Fox Business.
"I think we are heading for a worse economic crisis than we had in 2007," Schiff said. "You're going to have a collapse in the dollar...a huge spike in interest rates... and our whole economy, which is built on the foundation of cheap money, is going to topple when you pull the rug out from under it."
Schiff says that, despite "phony" signs of an economic recovery, the cancer destroying America stems from a lethal concoction of our $16 trillion federal debt and the Fed's never ending money printing.
Currently, Yellen and The Fed are buying nearly $1 trillion of Treasury and mortgage bonds a year. That's about $75 billion per month against a budget deficit that is about the same level.
According to Schiff, these numbers are unsustainable. And the Fed has no credible "exit strategy."
Eventually interest rates will rise... and when they do, Schiff says, stocks will tank and bonds dip to nothing. Massive new tax hikes will be imposed and programs and entitlements will be cut to the bone.
Editor's Note: As a service to our readers, we've arranged a way for you to get a copy of Peter Schiff's best-selling book, The Real Crash: How To Save Yourself And Your Country, for free, including shipping. The book shows in plain language exactly what economic dangers ordinary Americans face right now and how you can protect yourself. Please go here for your free copy.
"The crisis is imminent," Schiff said. "I don't think Obama is going to finish his second term without the bottom dropping out. And stock market investors are oblivious to the problems."
"We're broke, Schiff added. "We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out."
Schiff points out that the market gains experienced recently, with the Dow first topping 17,000 on its way to setting record highs, are giving investors a false sense of security.
"It's not that the stock market is gaining value... it's that our money is losing value. And so if you have a debased currency... a devalued currency, the price of everything goes up. Stocks are no exception," he said.
"The Fed knows that the U.S. economy is not recovering," he noted. "It simply is being kept from collapse by artificially low interest rates and quantitative easing. As that support goes, the economy will implode."
Should American seniors who've been paying taxes their whole lives bear the price of Washington's folly? See the shocking facts by clicking on the video.
A noted economist, Schiff has been a fierce critic of the Fed and its policies for years. And his warnings have proven to be prophetic.
In August 2006, when the Dow was hitting new highs nearly every day, Schiff said in an interview: "The United States is like the Titanic, and I'm here with the lifeboat trying to get people to leave the ship... I see a real financial crisis coming for the United States."
Just over a year later, the meltdown that became the Great Recession began, just as Schiff predicted.
He also predicted the subprime mortgage bubble burst, nearly a year before the real estate market fully crashed.
His recent warnings, however, have been even more alarming. Will they also prove to be true?
In his most recent book, "The Real Crash" How to Save Yourself and Your Country", Schiff writes that when the "real crash" comes," it will be worse than the Great Depression.
Unemployment will skyrocket, credit will dry up, and worse, the dollar will collapse completely, "wiping out all savings and sending consumer prices into the stratosphere."
Schiff estimates this "cancer" could consume a trillion dollars from consumers this year.
"Today we're the world's greatest debtor nation. Companies, homeowners and banks are so highly leveraged, rising interest rates will be devastating."
According to polls, the average American is indeed sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming - yet only 15% feel prepared for such a deeply troubling event.
Is Devastation The Ultimate Cure?
Despite its bleak outlook, Schiff's book has become a real wake-up call for millions of readers.
While Schiff's predictions can be grim, he also offers step-by-step solutions that average Americans can follow to protect their wealth, investments and savings.
According to Schiff, "the crash and what follows" can be beneficial. But only for those who understand beforehand what is happening and have time to prepare for the devastation.
"All we can do now is prepare for the crash," Schiff said. "If we brace ourselves properly and control the impact, we will survive it."
Editor's Note: This sovereign currency and debt crisis is just a small part of the disease that's attacking America from within. When interest rates rise - and they will rise soon - it could cost Americans $1 trillion this year. But it doesn't have to affect you. For a limited time, Money Morning is supplying readers with a free copy of Peter Schiff's new book "The Real Crash" How to Save Yourself and Your Country. Learn the steps you can take to prepare your wealth, investments and way of life for this looming catastrophe. Go here to secure a copy.