Former US Treasury Secretary Larry Summers warned of the dangers in the eurozone in his latest op-ed for the FT, and it is hard to disagree. But part of what he said bothered me:
A worrisome indicator in much of Europe is the tendency of stock and bond prices to move together. In healthy countries, when sentiment improves stock prices rise and bond prices fall, as risk premiums decline and interest rates rise. In unhealthy economies, as in much of Europe today, bonds are seen as risk assets, so they move just like stocks in response to changes in sentiment. Read more
To answer the question of who owns corporate America, we turn naturally enough to Goldman Sachs. In spite of all the “vampire squid” hype, the answer isn’t GS: but it does have an excellent summary of how ownership has changed (click on the chart for a bigger version).
US GDP dropped in the fourth quarter of 2012 for the first time outside a recession since 1977, thanks to surprise cuts in defence spending. James Mackintosh, investment editor, finds some good signs in the data, but worries that if good news comes through on the economy would be bad news for investors.
Small caps in the US have hit their fifth new high of the year and UK smaller companies soared past their previous peak a month ago – both climbing 172 per cent since 2009. But James Mackintosh, investment editor, warns that if the current rally peters out small caps look particularly exposed.
Investors are becoming more hopeful that a deal will be done to avoid the US fiscal cliff. But would it really be so bad if no deal was reached? James Mackintosh, investment editor, explores the impact of the tax hikes and spending cuts due in the new year. Read more
Consumer confidence in the US is climbing despite disposable incomes flatlining for five years, suggesting few worries about the looming fiscal cliff. James Mackintosh, investment editor, points out the worries among chief executives and warns that even if the fiscal cliff becomes a fiscal staircase, it could still be an uncomfortable climb down. Read more
Reasons to be fearful are everywhere: Greece, triple-dip Japan and the looming fiscal cliff in the US. Yet, as James Mackintosh, investment editor, points out, share, bond and currency volatility are all extremely low. Is this complacency or have central banks disconnected the volatility sensors? Read more
Market outlooks for the US election were clear: an Obama victory would be bad for shares and good for bonds, as the incumbent president would have less chance of cutting a deal with an intransigent Congress than his challenger.
Barack Obama would also be bad for the dollar, as there would be no pressure on the Federal Reserve from a hawkish Republican to tighten monetary policy, meaning the easiest monetary policy ever would remain in place. Read more
Even after the extraordinary summer rally in European equities, strategists continue to punt European shares as cheap, and so worth buying. Unfortunately, it’s more complicated than that.
The sell-side analysts pushing the idea are too numerous to list, but one of the better argued cases is that presented by the cyclically-adjusted price-earnings ratio (CAPE), which averages profits over 10 years in an attempt to eliminate the effects of the economic cycle.
Paul Jackson at Societe Generale has some nice charts showing Europe looks cheap, and demonstrating the use of one derivative of CAPE, the cyclically-adjusted dividend yield.
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This blog is about asset allocation at the global level. It is an ongoing attempt to explain why investors and markets behave the way they do.
John Authers officially takes the "Long View", while James Mackintosh takes the "Short View" when it comes to investment decisions. In practice both of us end up taking both long- and short-term views, and occasionally disagreeing with each other; all comments and disagreements are very welcome.
James Mackintosh is the Financial Times' Investment Editor, writing and presenting the daily Short View column and video. In 16 years at the FT his posts have included comment editor, motor industry editor and hedge funds correspondent, as well as spells in the Parliamentary lobby and Paris. He was the first reporter hired for FT.com, joining two weeks before it launched.
James has a degree in philosophy and psychology from the University of Oxford, where he spent two further years in post-graduate study of philosophy. If he wasn't here, he'd be skiing.
John Authers is the Financial Times' Senior Investment Columnist, writing the Saturday Long View and a regular Monday column. In a 22-year career at the FT, his previous posts have included global head of the Lex column, investment editor, US markets editor, Mexico City bureau chief and US banking correspondent. His latest book is The Fearful Rise of Markets.
John has a degree in Philosophy, Politics and Economics from the University of Oxford, and an MBA from Columbia University. Perhaps more interestingly, he captained the highest scoring team in the history of University Challenge while at Oxford, and also once sung in Pavarotti's backing choir.