Investing Links of Interest – May 29, 2013
Barron’s Roundtable member Felix Zulauf is seeing signs of a “buying climax” but is not quite ready to pull the plug yet.
Currency manipulation is the game of the day for central banks, although they deny it. Several central banks have cut their rate recently, with Korea being the latest. Sweden will most likely be next. With central banks in the U.S. and Japan extremely expansive and the ECB most likely joining soon to “help the economy,” there is plenty of liquidity in the system to nourish a continuation of the stock market rally. Moreover, with the world economy sloppy and CPI-inflation rather soft, there is still more room for central banks around the world to further loosen monetary policy.
John Hussman continues to express concern about stock market valuations based on “overvalued, overbought, and overbullish” conditions in his sobering weekly commentary.
I fear that investors will destroy their long-term financial security if they imagine they are “forced” to lock in depressed prospective long-term returns, at elevated valuations, out of fear that better opportunities will never arrive.
The disturbing fact is that many of the worst bear market losses have occurred in an environment of aggressive monetary easing. This was certainly the case throughout the 2001-2002 plunge, as well as 2008 when the Fed was easing with increasing urgency throughout the year. But it is also invariably true that the Fed is still easing at the time that a new bull market emerges. Pair that stimulus and reward with the belief that monetary policy acts with some undefined “long and variable lag,” and the result is a classical conditioning response worthy of Pavlov’s dogs, who were conditioned to salivate at the ringing of a bell, even when there was no longer any meat.
Source: Hussman Funds Weekly Commentary
The Short Side of Long finds sentiment surveys are once again in extreme territory.
Investor Intelligence survey levels came in at 55% bulls and 19% bears. This weeks raw bullish reading was the highest in over two years. Furthermore, bull ratio remains on a “sell signal” and has approached a hefty 75% reading, which is the highest level since the major market top in 2011.
Source: The Short Side of Long
Bank Loan ETFs are gaining popularity as investors scramble for yield.
PowerShares Senior Loan Portfolio (BKLN) is one of the best-selling ETFs this year as investors hunt for options that provide a mix of above-average yield and some protection if interest rates finally start to rise.
The fund has ballooned to $4.2 billion after raking in about $2.7 billion of fresh assets so far this year, according to IndexUniverse flow data. The bank loan ETF has posted a total return of about 3% and pays a 12-month yield of 4.7%, which has enticed investors starved for income with 10-year Treasury notes yielding right around 2%.
SMA Comment: Funds related to senior bank loans were popular prior to the debacle in 2008-2009, but didn’t provide investors much shelter during the financial storm.
Source: USA Today Money