DIA

As the World Turns

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Our growing concern over market participants’ lackadaisical approach to what will inevitably become a contractionary monetary cycle has been evident for months. The US market crash of August 24 has disrupted the comfort levels of many investors, however, but it has not derailed the confidence of long-term planners, nor has it interrupted the conviction of optimists that believe the sky is the eventual limit for equity prices in their lifetimes. We take a more measured and cautious view of risky assets at Valuentum, and we’ll never tell investors to ignore the information contained in market prices. The risk of a recession in the US beginning this year is remote, but concerns are mounting for 2016. US gross domestic product continues … Read more

5 US-Centric Undervalued Stocks with Fantastic Economics

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“In business, I look for economic castles protected by unbreachable moats.” – Warren Buffett << Read more about Economic Castles Image Source: Rob Faulkner The see-sawing action in the US markets has not let up, with the latest wave of the upward variety. The S&P 500 (SPY), however, remains nearly 8% off its all-time highs, as global markets continue to ebb and flow with news of negative economic data followed by the prospects of an ever-easing monetary environment and so on. Several major economies across continents are in technical recession (Brazil, Canada, etc), while others continue to face a slowing pace of economic expansion, not the least of which are Australia (EWA) and China (FXI). The global economic outlook is … Read more

Bond Issuance Has Ground to a Halt; Expect Negative 2016 GDP Impact

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The Fed is in a tight spot. We give Ben Bernanke and team a lot of credit for successfully delaying a prolonged global economic recession following the worst financial crisis of our generation late last decade, one that swallowed up such household names as GM (GM) and AIG (AIG), but such policies always come with unintended consequences. New Fed Chair Janet Yellen may have to deal with the true aftermath, and it’s been thrust upon her, perhaps unfairly. With interest rates on fixed-income products near the lowest they’ve been in history, retirees and near-retirees, after suffering significant capital losses during the Financial Crisis, have been lured into higher-yielding dividend-paying equities, the prices of some almost completely supported by debt-infused dividend … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more

3 Observations

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Bulls raged back in a big way during the week of trading ending August 28 to erase some of the massive losses experienced from the May 2015 highs of 2,013 on the S&P 500. Though no longer staring down at 1,800, the S&P 500 still closed comfortably shy of 2,000. No matter what next week will bring, almost everybody is expecting more volatility. Could this then mean that we’re back to normal? The market has a very interesting way of disappointing the majority of investors the majority of the time. Here are 3 observations that are worth noting. 1. The Fed Doesn’t Have the Right Data…Yet The stark reality is one of two things: a) either the Fed knows exactly what’s going on … Read more

Understanding the Market Melt-Up Wednesday

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The broader US markets continued their roller-coaster ride Wednesday with the Dow Jones Industrial Average (DIA) closing up more than 600 points. There are a number of dynamics at work that explain the large move, which only partially retraces the large declines over the past couple weeks. First, the extreme level of volatility that we are experiencing today in the markets is a direct result of the Fed’s actions to prevent the onset of a modern-day Great Depression toward the latter part of this decade and into this one. By slashing interest rates and engaging in round and after round of quantitative easing for the past several years, the Fed coincidentally pushed yields on fixed-income instruments to insufficient levels for … Read more

The Nelson Tweet

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The following is what Mr. Nelson wrote at ~6:30am this morning in advance of the day’s trading. Open up 600, finish lower on China fears? — Brian Nelson, CFA (@ValuentumBrian) August 25, 2015

China Eases to Support Country’s Stock Bubble; US Markets Cheer Behavior?

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Roughly $4.5 trillion has evaporated from the Chinese markets (FXI) since the middle of June – real, tangible wealth that no longer exists. Equities on mainland Chinese exchanges still trade at a median reported earnings multiple of 60+ times, according to Bloomberg. After direct government intervention in the country’s markets failed, China has now moved to cut interest rates and reduce bank reserve requirements, and this somehow has the US markets cheering. Does such irrational behavior by US investors finally mark the peak? Here are 5 observations worth noting. 1. The Financial and Capital Markets are Fragile If the Financial Crisis of 2008-2009 taught this generation anything, it was a lesson in the fragility of the financial and capital markets … Read more

The Debt Bubble Is Deflating; Will It Pop?

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The fundamental concerns surrounding the financial health of China-dependent companies across the globe are tangible, and the risk of a currency crisis and eventual credit crunch are real, if they aren’t already happening. Fortescue Metals Group (FMG), the fourth-largest iron ore producer in the world, announced over the weekend, that profits were nearly completely wiped out (down nearly 90%) for the fiscal year ending June 30, even as the firm shipped 33% more tons of iron ore during the period over last year’s mark. The largest iron ore producers, BHP Billiton (BHP) and Rio Tinto (RIO), are only adding to production overcapacity, conditions that are wreaking havoc on the commodity price. Iron ore prices are to remain under pressure as … Read more

The Dow Crashes 531 Points

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Missed Vauentum’s pre-crash commentary? See here. Memories of the Financial Crisis are still vivid in our mind. The framed front pages of the Wall Street Journal reporting the demise of Lehman, AIG and WaMu on those fateful days in 2008 drape the walls of the Valuentum office as a stark reminder of the fragility of the financial and capital markets. We’re not alone. Many investors remember seeing their savings cut to pieces at the depth of Financial Crisis. The Dow Jones Industrial Average (DIA), in collapsing 531 points Friday, has captured those same individuals’ attention…again. They haven’t forgotten the pain of the years of the credit crunch when they wondered whether they’d ever be able to retire during the dreadful … Read more